SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2001
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to .
----------------- -----------------
Commission File Number: 1-8389
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PUBLIC STORAGE, INC.
--------------------
(Exact name of registrant as specified in its charter)
California 95-3551121
- ---------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue, Glendale, California 91201-2349
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080.
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 9, 2001:
Common Stock, $.10 Par Value - 113,476,307 shares
- -------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
- -------------------------------------------------------
Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock, Series
- --------------------------------------------------------------------------------
A, $.01 Par Value - 8,676,102 depositary shares (representing 8,676.102 shares
- --------------------------------------------------------------------------------
of Equity Stock, Series A)
- --------------------------
Equity Stock, Series AA, $.01 Par Value - 225,000 shares
- --------------------------------------------------------
Equity Stock, Series AAA, $.01 Par Value - 4,289,544 shares
- -----------------------------------------------------------
PUBLIC STORAGE, INC.
INDEX
Pages
-----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2001 and 2000 2
Condensed Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 2001 3
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2001 and 2000 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 20
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21 - 34
Item 3. Quantitative and Qualitative Disclosures about Market Risk 35
PART II. OTHER INFORMATION (Items 1, 2, 3 and 5 are not applicable)
-----------------
Item 4. Submission of Matters to a Vote of Security Holders 35 - 36
Item 6. Exhibits and Reports on Form 8-K 37 - 42
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
June 30, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
------
Cash and cash equivalents ..................................................... $ 50,761 $ 89,467
Real estate facilities, at cost:
Land ..................................................................... 1,141,460 1,107,867
Buildings ................................................................ 3,157,901 3,026,550
------------ ------------
4,299,361 4,134,417
Accumulated depreciation ................................................. (741,418) (668,018)
------------ ------------
3,557,943 3,466,399
Construction in process .................................................. 143,971 217,140
Land held for development ................................................ 29,771 21,447
------------ ------------
Total real estate .................................................... 3,731,685 3,704,986
Investment in real estate entities ............................................ 459,623 448,928
Intangible assets, net ........................................................ 180,361 185,017
Mortgage notes receivable from affiliates ..................................... 24,239 26,238
Other assets .................................................................. 66,893 59,305
------------ ------------
Total assets .................................................... $ 4,513,562 $ 4,513,941
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable ................................................................. $ 149,796 $ 156,003
Accrued and other liabilities ................................................. 108,752 100,903
------------ ------------
Total liabilities ............................................... 258,548 256,906
Minority interest:
Preferred operating partnership units .................................... 365,000 365,000
Other .................................................................... 162,662 167,918
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized, 11,148,000
shares issued and outstanding, (11,141,100 at December 31, 2000) at
liquidation preference:
Cumulative Preferred Stock, issued in series ....................... 1,327,650 1,155,150
Common Stock, $0.10 par value, 200,000,000 shares authorized,
113,261,141 shares issued and outstanding (123,703,874 at
December 31, 2000) ..................................................... 11,326 12,370
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,676.102 shares issued and outstanding .................... -- --
Class B Common Stock, $0.10 par value, 7,000,000 shares
authorized and issued .................................................. 700 700
Paid-in capital .......................................................... 2,302,056 2,506,736
Cumulative net income .................................................... 1,543,469 1,387,061
Cumulative distributions paid ............................................ (1,457,849) (1,337,900)
------------ ------------
Total shareholders' equity ........................................... 3,727,352 3,724,117
------------ ------------
Total liabilities and shareholders' equity ...................... $ 4,513,562 $ 4,513,941
============ ============
See accompanying notes.
1
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share amounts)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
REVENUES:
Rental income:
Self-storage facilities.................. $ 179,086 $ 161,211 $ 350,915 $ 315,769
Commercial properties.................... 3,215 2,827 6,272 5,586
Containerized storage facilities......... 12,183 9,240 22,256 16,789
Equity earnings of real estate entities....... 9,814 9,155 19,086 17,431
Interest and other income..................... 3,130 5,717 6,738 9,170
------------- ------------- ------------- -------------
207,428 188,150 405,267 364,745
------------- ------------- ------------- -------------
EXPENSES:
Cost of operations:
Self-storage facilities.................. 54,599 51,272 111,073 101,629
Commercial properties.................... 882 881 1,832 1,830
Containerized storage facilities......... 11,055 8,648 20,528 16,502
Depreciation and amortization................ 41,323 35,744 80,945 71,778
General and administrative................... 5,000 5,576 10,584 8,621
Interest expense............................. 1,124 1,261 2,095 2,667
------------- ------------- ------------- -------------
113,983 103,382 227,057 203,027
------------- ------------- ------------- -------------
Income before minority interest and gain on
disposition of real estate................. 93,445 84,768 178,210 161,718
MINORITY INTEREST IN INCOME:
Preferred partnership interests.............. (8,505) (7,411) (17,010) (8,336)
Other partnership interests.................. (3,167) (3,054) (6,360) (6,518)
------------- ------------- ------------- -------------
Income before gain on disposition of real estate 81,773 74,303 154,840 146,864
Gain on disposition of real estate........... - - 1,568 -
------------- ------------- ------------- -------------
NET INCOME...................................... $ 81,773 $ 74,303 $ 156,408 $ 146,864
============= ============= ============= =============
NET INCOME ALLOCATION:
- ----------------------
Allocable to preferred shareholders........... $ 28,736 $ 25,045 $ 56,772 $ 50,083
Allocable to equity shareholders, Series A.... 5,314 2,666 8,766 4,924
Allocable to common shareholders.............. 47,723 46,592 90,870 91,857
------------- ------------- ------------- -------------
$ 81,773 $ 74,303 $ 156,408 $ 146,864
============= ============= ============= =============
PER COMMON SHARE:
- -----------------
Net income per share - Basic.................. $0.40 $0.35 $0.73 $0.69
============= ============= ============= =============
Net income per share - Diluted................ $0.39 $0.35 $0.73 $0.69
============= ============= ============= =============
Net income per depositary share of Equity Stock,
Series A - Basic and Diluted............... $0.61 $0.61 $1.23 $1.23
============= ============= ============= =============
Weighted average common shares - Basic........ 120,734 131,588 124,403 132,184
============= ============= ============= =============
Weighted average common shares - Diluted...... 121,639 131,734 125,130 132,335
============= ============= ============= =============
Weighted average depositary shares of Equity
Stock, Series A - Basic and Diluted........ 8,676 4,353 7,156 4,028
============= ============= ============= =============
See accompanying notes.
2
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
(Unaudited)
Cumulative
Senior Class B
Preferred Common Common Paid-in
Stock Stock Stock Capital
------------ ---------- --------- ------------
Balances at December 31, 2000................ $ 1,155,150 $ 12,370 $ 700 $ 2,506,736
Issuance of preferred stock, net of
issuance costs:
Series Q (6,900 shares)................... 172,500 - - (5,534)
Issuance of common stock:
Exercise of stock options
(102,160 shares).......................... - 10 - 2,243
Repurchase of common stock
(10,544,893 shares) ...................... - (1,054) - (274,429)
Issuance of Equity Stock, Series A
(3,040.500 shares)...........................
- - - 72,130
Issuance of Put Option (Note 8)............. - - - 910
Net income................................... - - - -
Cash distributions:
Cumulative Senior Preferred Stock ........ - - - -
Equity Stock, Series A.................... - - - -
Class B Common Stock...................... - - - -
Common Stock.............................. - - - -
------------ ---------- --------- ------------
Balances at June 30, 2001.................... $ 1,327,650 $ 11,326 $ 700 $ 2,302,056
============ ========== ========= ============
Total
Cumulative Cumulative Shareholders'
Net Income Distributions Equity
-------------- ------------- -------------
Balances at December 31, 2000................ $ 1,387,061 $ (1,337,900) $ 3,724,117
Issuance of preferred stock, net of
issuance costs:
Series Q (6,900 shares)................... - - 166,966
Issuance of common stock:
Exercise of stock options
(102,160 shares).......................... - - 2,253
Repurchase of common stock
(10,544,893 shares) ...................... - - (275,483)
Issuance of Equity Stock, Series A
(3,040.500 shares)...........................
- - 72,130
Issuance of Put Option (Note 8)............. - - 910
Net income................................... 156,408 - 156,408
Cash distributions:
Cumulative Senior Preferred Stock ........ - (56,772) (56,772)
Equity Stock, Series A.................... - (8,766) (8,766)
Class B Common Stock...................... - (2,988) (2,988)
Common Stock.............................. - (51,423) (51,423)
-------------- ------------- -------------
Balances at June 30, 2001.................... $ 1,543,469 $ (1,457,849) $ 3,727,352
============== ============= =============
See accompanying notes.
3
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Six Months Ended
June 30,
---------------------------------
2001 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 156,408 $ 146,864
Adjustments to reconcile net income to net cash provided by operating
activities:
Less gain on disposition of real estate................................... (1,568) -
Depreciation and amortization............................................. 80,945 71,778
Depreciation included in equity earnings of real estate entities.......... 11,214 10,130
Minority interest in income............................................... 23,370 14,854
-------------- --------------
Total adjustments..................................................... 113,961 96,762
-------------- --------------
Net cash provided by operating activities......................... 270,369 243,626
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on notes receivable from affiliates........... 1,999 1,980
Mortgage notes receivable from affiliates................................. - (11,400)
Capital improvements to real estate facilities............................ (12,132) (9,182)
Construction in process and acquisition of land held for development...... (92,720) (93,002)
Acquisition of minority interests......................................... (11,053) (28,141)
Proceeds from the disposition of real estate facilities................... 9,102 8,652
Proceeds from the disposition of real estate investments.................. - 20,276
Acquisition of investment in real estate entities......................... (21,909) (49,462)
Acquisition of real estate facilities..................................... - (14,848)
-------------- --------------
Net cash used in investing activities............................. (126,713) (175,127)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................................... (6,207) (5,952)
Net proceeds from the issuance of common stock............................ 2,253 3,717
Net proceeds from the issuance of preferred stock......................... 166,966 -
Net proceeds from the issuance of equity stock............................ 72,130 39,800
Issuance of Put Option (Note 8)........................................... 910 -
Net proceeds from the issuance of preferred partnership units............. - 311,800
Repurchase of common stock................................................ (275,483) (63,587)
Distributions paid to shareholders........................................ (119,949) (112,895)
Special distribution paid to common shareholders.......................... - (38,076)
Investment by minority interests.......................................... 7,480 6,593
Distributions to holders of preferred partnership units................... (17,010) (8,336)
Distributions from operations to minority interests....................... (9,928) (18,328)
Net reinvestment (divestment) of minority interests....................... (896) 5,753
Other..................................................................... (2,628) (4,162)
-------------- --------------
Net cash (used in) provided by financing activities............... (182,362) 116,327
-------------- --------------
Net (decrease) increase in cash and cash equivalents........................... (38,706) 184,826
Cash and cash equivalents at the beginning of the period....................... 89,467 55,125
-------------- --------------
Cash and cash equivalents at the end of the period............................. $ 50,761 $ 239,951
============== ==============
See accompanying notes.
4
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
(Continued)
For the Six Months Ended
June 30,
------------------------------------
2001 2000
--------------- ----------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reduction to investment in real estate entities in connection with
acquisition of real estate facilities............................ $ - $ 3,143
Disposition of real estate investment in exchange for other assets:
Investment in real estate entities............................. - 14,435
Other assets................................................... - (14,435)
Real estate acquired in exchange for equity stock and reduction to
investment in real estate entities............................... - (19,017)
Acquisition of minority interest and real estate in exchange for common stock:
Real estate facilities......................................... - (15,681)
Minority interest.............................................. - (15,450)
Mortgage notes receivable forgiven in exchange for minority interest
and real estate.................................................. - 350
Real estate facilities and accumulated depreciation disposed of in
exchange for notes receivable and minority interests............. - 18,769
Minority interests acquired in exchange for the disposition of
real estate facilities........................................... - (6,427)
Note receivable received in exchange for the disposition of real
estate facilities................................................ - (3,690)
Issuance of Equity Stock, Series A:
In connection with special distribution to common shareholders... - 44,010
In connection with acquisition of real estate facilities......... - 1,026
Decrease in distributions payable through the issuance of Equity
Stock, Series A.................................................. - (44,010)
Issuance of common stock :
To acquire minority interest in consolidated real estate entities - 2,640
See accompanying notes.
5
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
1. Description of the business
---------------------------
Public Storage, Inc. (the "Company") is a California corporation,
which was organized in 1980. We are a fully integrated, self-administered
and self-managed real estate investment trust ("REIT") whose principal
business activities include the acquisition, development, ownership and
operation of storage facilities which offer storage spaces and containers
for lease, usually on a month-to-month basis, for personal and business
use. In addition, to a much lesser extent, we have interests in commercial
properties.
In 1996 and 1997, we organized Public Storage Pickup and Delivery,
Inc., as a separate corporation and partnership (the corporation and
partnership are collectively referred to as "PSPUD") to operate storage
facilities that rent portable storage containers to customers for storage
in central warehouses. At June 30, 2001, PSPUD had 51 facilities in
operation in 14 states.
We invest in real estate facilities by acquiring wholly owned
facilities or by acquiring interests in real estate entities which own real
estate facilities. At June 30, 2001, we had direct and indirect equity
interests in 1,534 properties located in 38 states, including 1,376 storage
facilities and 158 commercial properties. The Company operates all of the
storage facilities under the "Public Storage" name.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The consolidated financial statements include the accounts of the
Company and 34 controlled entities (the "Consolidated Entities").
Collectively, the Company and these entities own a total of 1,268 real
estate facilities, consisting of 1,262 storage facilities and six
commercial properties.
At June 30, 2001, we had equity investments in 11 limited
partnerships in which we do not have a controlling interest. These limited
partnerships collectively own 114 self-storage facilities, which are
managed by the Company. In addition, we own approximately 43% of the common
interest in PS Business Parks, Inc. ("PSB"), which owns and operates 13.3
million net rentable square feet of commercial space at June 30, 2001. We
do not control these entities, accordingly, our investments in these
limited partnerships and PSB are accounted for using the equity method.
Certain amounts previously reported have been reclassified to
conform to the June 30, 2001 presentation.
Use of estimates
----------------
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
6
Income tax
----------
For all taxable years subsequent to 1980, the Company qualified
and intends to continue to qualify as a REIT, as defined in Section 856 of
the Internal Revenue Code. As a REIT, we are not taxed on that portion of
our taxable income, which is distributed to our shareholders, provided that
we meet certain tests. We believe we will meet these tests during 2001 and,
accordingly, no provision for income taxes has been made in the
accompanying financial statements.
Financial instruments
---------------------
The methods and assumptions used to estimate the fair value of
financial instruments is described below. We have estimated the fair value
of our financial instruments using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop estimates of market value. Accordingly,
estimated fair values are not necessarily indicative of the amounts that
could be realized in current market exchanges.
For purposes of financial statement presentation, we consider all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Due to the short period to maturity of our cash and cash
equivalents, accounts receivable, other assets, and accrued and other
liabilities, the carrying values as presented on the consolidated balance
sheets are reasonable estimates of fair value. The carrying amount of
mortgage notes receivable approximates fair value because the aggregate
mortgage notes receivable applicable interest rates approximate market
rates for those loans.
Financial assets that are exposed to credit risk consist primarily
of cash and cash equivalents, accounts receivable, and notes receivable.
Cash and cash equivalents, which consist of short-term investments,
including commercial paper, are only invested in entities with an
investment grade rating. Notes receivable are substantially all secured by
real estate facilities that we believe are valued in excess of the related
note receivable. Accounts receivable are not a significant portion of total
assets and are comprised of a large number of individual customers.
Real estate facilities
----------------------
Real estate facilities are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the buildings and improvements, which are generally between 5 and 25 years.
7
Evaluation of asset impairment
------------------------------
In 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which requires impairment losses to be
recorded on long-lived assets. We annually evaluate long-lived assets
(including goodwill), by identifying indicators of impairment and by
comparing the sum of the estimated undiscounted future cash flows for each
asset to the asset's carrying amount. When indicators of impairment are
present and the sum of the undiscounted cash flows is less than the
carrying value of such asset, an impairment loss is recorded equal to the
difference between the asset's current carrying value and its value based
upon discounting its estimated future cash flows. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. Such assets are to be reported at the lower of their carrying
amount or fair value, less cost to sell. Our evaluations have indicated no
impairment in the carrying amount of our assets.
Other assets
------------
Other assets primarily consist of furniture, fixtures, equipment,
and other such assets associated with the containerized storage facilities
business as well as accounts receivable, prepaid expenses, and other such
assets of the Company. Included in other assets with respect to the
containerized storage business is furniture, fixtures, and equipment (net
of accumulated depreciation) of $29,817,000 and $28,544,000 at June 30,
2001 and December 31, 2000, respectively. Included in depreciation and
amortization expense for the three months ended June 30, 2001 and 2000 is
$1,550,000 and $1,255,000, respectively, and $2,889,000 and $2,408,000 for
the six months ended June 30, 2001 and 2000, respectively, of depreciation
of furniture, fixtures, and equipment of the containerized storage
business.
Intangible assets
-----------------
Intangible assets are amortized straight-line over 25 years. At
June 30, 2001 intangible assets are net of accumulated amortization of
$52,365,000 ($47,709,000 at December 31, 2000). Included in depreciation
and amortization expense for the three and six months ended June 30, 2001
and 2000 is $2,328,000 and $4,656,000, respectively, related to the
amortization of intangible assets.
Revenue and expense recognition
-------------------------------
Property rents are recognized as earned. Equity in earnings of
real estate entities is recognized based on our ownership interest in the
earnings of each of the unconsolidated real estate entities. Advertising
costs are expensed as incurred.
Environmental costs
-------------------
Our policy is to accrue environmental assessments and/or
remediation cost when it is probable that such efforts will be required and
the related costs can be reasonably estimated. Our current practice is to
conduct environmental investigations in connection with property
acquisitions. Although there can be no assurance, we are not aware of any
environmental contamination of any of our facilities which individually or
in the aggregate would be material to our overall business, financial
condition, or results of operations.
8
Net income per common share
---------------------------
Dividends paid to our preferred shareholders totaling $28,736,000
and $25,045,000 for the three months ended June 30, 2001 and 2000,
respectively, and $56,772,000 and $50,083,000 for the six months ended June
30, 2001 and 2000, respectively, have been deducted from net income to
arrive at net income allocable to our common shareholders.
Net income allocated to our common shareholders has been further
allocated among our two classes of common stock; our regular common stock
and our Equity Stock, Series A. The allocation among each class was based
upon the two-class method. Under the two-class method, earnings per share
for each class of common stock is determined according to dividends
declared (or accumulated) and participation rights in undistributed
earnings. Under the two-class method, the Equity Stock, Series A for the
three and six months ended June 30, 2001 was allocated net income of
approximately $5,314,000 and $8,766,000, respectively, as compared to the
three and six months ended June 30, 2000 of approximately $2,666,000 and
$4,924,000, respectively. The remaining $47,723,000 and $90,870,000, for
the three and six months ended June 30, 2001 respectively, and $46,592,000
and $91,857,000, for the three and six months ended June 30, 2000
respectively, was allocated to the regular common shares.
Basic net income per share is computed using the weighted average
common shares (prior to the dilutive impact of stock options outstanding).
Diluted net income per common share is computed using the weighted average
common shares outstanding (adjusted for stock options). Effective January
1, 2000, the Company's 7,000,000 Class B common shares outstanding began to
participate in distributions of the Company's earnings. Distributions per
share of Class B common stock are equal to 97% of the per share
distribution paid to the Company's regular common shares. As a result of
this participation in distribution of earnings, for purposes of computing
net income per common share, the Company includes 6,790,000 (7,000,000 x
97%) Class B common shares in the weighted average common equivalent shares
for the three and six months ended June 30, 2000 and 2001.
Stock-based compensation
------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 "Accounting for Stock-Based Compensation" which provides
companies an alternative to accounting for stock-based compensation as
prescribed under APB Opinion No. 25 (APB 25). Statement 123 encourages, but
does not require companies to recognize expense for stock-based awards
based on their fair value at date of grant. Statement No. 123 allows
companies to continue to follow existing accounting rules (intrinsic value
method under APB 25) provided that pro-forma disclosures are made of what
net income and earnings per share would have been had the new fair value
method been used. We have elected to adopt the disclosure requirements of
Statement No. 123 but will continue to account for stock-based compensation
under APB 25.
Recent accounting pronouncements and guidance - accounting for derivative
---------------------------------------------------------------------------
instruments and hedging activities
----------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities," as amended
in June 2000 by Statement of Financial Accounting Standards No. 138 ("SFAS
138"), "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," which requires companies to recognize all derivatives as
either assets or liabilities in the balance sheet and measure such
instruments at fair value. The Company adopted SFAS 133, as amended by SFAS
138, on January 1, 2001, and the adoption had no material impact on the
Company's consolidated financial statements.
9
Recent accounting pronouncements and guidance - goodwill and other
---------------------------------------------------------------------------
intangible assets
-----------------
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets,"
under which goodwill and indefinite life intangible assets are no longer
amortized but are reviewed annually for impairment. The provisions of this
statement are applicable to our fiscal year ending December 31, 2002. We
are studying this statement to determine its impact on our financial
statements, and will adopt this statement in the year ending December 31,
2002.
3. Business combinations
---------------------
During 2000, we acquired the remaining ownership interests in a
partnership, of which we are the general partner, for an aggregate
acquisition cost of $81,169,000. Prior to the acquisition, we accounted for
our investment in this partnership on the equity method.
4. Real estate facilities
----------------------
Activity in real estate facilities during 2001 is as follows:
In thousands
--------------
Operating facilities, at cost
Balance at December 31, 2000 ................ $ 4,134,417
Developed facilities ........................ 150,031
Acquisition of minority interest ............ 2,781
Capital improvements ........................ 12,132
--------------
Balance at June 30, 2001 .................... 4,299,361
--------------
Accumulated depreciation:
Balance at December 31, 2000 ................ (668,018)
Additions during the year ................... (73,400)
-------------
Balance at June 30, 2001 .................... (741,418)
--------------
Construction in process:
Balance at December 31, 2000 ................ 217,140
Current development ......................... 80,459
Transfers to land held for development ...... (3,597)
Developed facilities ........................ (150,031)
--------------
Balance at June 30, 2001 .................... 143,971
--------------
Land held for development:
Balance at December 31, 2000 ................ 21,447
Acquisitions ................................ 12,261
Transfers from construction in process ...... 3,597
Dispositions ................................ (7,534)
--------------
Balance at June 30, 2001 .................... 29,771
--------------
Total real estate facilities at June 30, 2001 $ 3,731,685
==============
10
During the six months ended June 30, 2001, we opened 15 newly
developed facilities having approximately 1,102,000 aggregate net rentable
square feet and a total cost of $103.9 million. In addition, expansions of
existing facilities totaling $46.1 million were completed during the six
months ended June 30, 2001. Construction in process at June 30, 2001
consists of 51 storage facilities and expansions of existing storage
facilities. Land held for development consists of 13 parcels of land held
for development.
During the six months ended June 30, 2001, we sold a parcel of
land for approximately $9,102,000 cash. A gain of $1,568,000 was recorded
on the sale.
Our policy is to capitalize interest incurred on debt during the
course of construction of our self-storage and industrial facilities.
Interest capitalized during the three and six months ended June 30, 2001
was $2,109,000 and $4,219,000, respectively, compared to $2,045,000 and
$4,156,000, respectively, for the same periods in 2000.
5. Investment in real estate entities
----------------------------------
At June 30, 2001, our investment in real estate entities consists
of (i) partnership interests in approximately 11 partnerships, which
principally own self-storage facilities and (ii) our ownership interest in
PSB. Such interests are non-controlling interests of less than 50% and are
accounted for using the equity method of accounting. Accordingly, earnings
are recognized based upon our ownership interest in each of the entities.
During the three and six months ended June 30, 2001 we recognized earnings
from our investments of $9,814,000 and $19,086,000, respectively, compared
to $9,155,000 and $17,431,000 for the same period in 2000. We received
distributions from our investments of $10,117,000 and $8,727,000 for the
six months ended June 30, 2001 and 2000, respectively.
In April 1997, we formed a joint venture partnership (the "Joint
Venture") with an institutional investor to participate in the development
of approximately $220 million of storage facilities. The Joint Venture has
a total of 47 opened facilities with a total cost of $232 million and was
fully committed at December 31, 2000.
11
Summarized combined financial data (based on historical cost) with
respect to those unconsolidated real estate entities in which the Company
had an ownership interest at June 30, 2001 are as follows:
For the six months ended June 30, 2001
----------------------------------------------------------------------
Other Equity Development
Investments Joint Venture PSB Total
-------------- -------------- -------------- --------------
(Amounts in thousands)
Rental income (a)..................... $ 18,565 $ 15,784 $ 78,674 $ 113,023
Other income (a)...................... 650 302 1,898 2,850
-------------- -------------- -------------- --------------
Total revenues (a).................... 19,215 16,086 80,572 115,873
-------------- -------------- -------------- --------------
Cost of operations (a)................ 4,200 6,287 20,846 31,333
Depreciation (a)...................... 1,835 3,409 19,379 24,623
Other expenses (a).................... 2,307 77 2,900 5,284
-------------- -------------- -------------- --------------
Total expenses (a).................... 8,342 9,773 43,125 61,240
-------------- -------------- -------------- --------------
Income before minority interest (a)... 10,873 6,313 37,447 54,633
Minority interest (a)................. - - (13,152) (13,152)
-------------- -------------- -------------- --------------
Net income (a)........................ $ 10,873 $ 6,313 $ 24,295 $ 41,481
============== ============== ============== ==============
At June 30, 2001:
- -----------------
Real estate, net (a).................. $ 66,121 $ 216,181 $ 947,374 $ 1,229,676
Total assets (a)...................... 105,684 221,012 991,062 1,317,758
Total debt (a)........................ 22,574 - 30,563 53,137
Total liabilities (a)................. 31,794 3,577 62,977 98,348
Minority interest (a)................. - - 307,022 307,022
Total equity (a)...................... 73,890 217,435 621,063 912,388
The Company's investment (book value) at
June 30, 2001....................... $ 127,919 $ 65,231 $ 266,473 $ 459,623
The Company's effective average common
ownership interest at June 30, 2001. 44% 30% 43%
(a) Amounts represent 100% of the unconsolidated entities' balances and not the
Company's pro-rata share.
6. Revolving line of credit
------------------------
The credit agreement (the "Credit Facility") has a borrowing limit
of $150 million and an expiration date of July 1, 2002. The expiration date
may be extended by one year on each anniversary of the credit agreement.
Interest on outstanding borrowings is payable monthly. At our option, the
rate of interest charged is equal to (i) the prime rate or (ii) a rate
ranging from the London Interbank Offered Rate ("LIBOR") plus 0.40% to
LIBOR plus 1.10% depending on the Company's credit ratings and coverage
ratios, as defined. In addition, the Company is required to pay a quarterly
commitment fee of 0.250% (per annum). The Credit Facility allows us, at our
option, to request the group of banks to propose the interest rate they
would charge on specific borrowings not to exceed $50 million; however, in
no case may the interest rate proposal be greater than the amount provided
by the Credit Facility. At June 30, 2001, we had no borrowings on our line
of credit.
12
7. Minority interest
-----------------
In consolidation, we classify ownership interests in the net
assets of each of the Consolidated Entities, other than our own, as
minority interest on the consolidated financial statements. Minority
interest in income consists of the minority interests' share of the
operating results of the Company relating to the consolidated operations of
the Consolidated Entities.
In November 1999, we formed a second development joint venture
with a joint venture partner to develop $100 million of storage facilities
and to purchase $100 million of the Company's Equity Stock, Series AAA. The
joint venture is funded solely with equity capital consisting of 51% from
the Company and 49% from the joint venture partner. The joint venture is
consolidated and, accordingly, the Equity Stock, Series AAA is eliminated
in consolidation. Included in minority interest is $80,851,000 million
relative to the joint venture, primarily representing total contributions
received from our joint venture partners, net of distributions. Minority
interest increased $7,480,000 since December 31, 2000 as a result of
contributions by our joint venture partner, and decreased by $3,865,000 as
a result of distributions to our joint venture partner.
On March 17, 2000, we issued $240.0 million of 9.5% Series N
Cumulative Redeemable Perpetual Preferred Units and on March 29, 2000, we
issued $75.0 million of 9.125% Series O Cumulative Redeemable Perpetual
Preferred Units, and on August 11, 2000, we issued $50.0 million of 8.75%
Series P Cumulative Redeemable Perpetual Preferred Units in one of our
operating partnerships. The units are not redeemable during the first 5
years, thereafter, at our option, we can call the units for redemption at
the issuance amount plus any unpaid distributions. The units are not
redeemable by the holder. Subject to certain conditions, the Series N
preferred units are convertible into shares of 9.5% Series N Cumulative
Preferred Stock and the Series O preferred units are convertible into
shares of 9.125% Series O Cumulative Preferred Stock of the Company and the
Series P preferred units are convertible into shares of 8.75% Series P
Cumulative Preferred Stock These transactions had the effect of increasing
minority interest by $365 million in the year ended December 31, 2000. The
holders of these preferred units were paid distributions in aggregate of
approximately $8,505,000 and $17,010,000 for the three and six months ended
June 30, 2001, respectively, compared to $7,411,000 and $8,336,000 for the
three and six months ended June 30, 2000, respectively, and received a
corresponding allocation of minority interest in earnings for these
periods.
As of June 30, 2001, there were 237,935 operating partnership
units ("OP Units") outstanding in one of the Consolidated Entities. OP
Units are convertible on a one-for-one basis (subject to certain
limitations) into common shares of the Company at the option of the
unitholder. Minority interest in income allocated to minority interests
with respect to weighted average outstanding OP Units on a per unit basis
equal to diluted earnings per common share. During the six months ended
June 30, 2001, no units were redeemed.
In the six months ended June 30, 2001, the Company acquired
interests in the Consolidated Entities for an aggregate cost of $11,053,000
cash; these acquisitions had the effect of reducing minority interest by
$8,272,000, with the excess of cost over underlying book value ($2,781,000)
allocated to real estate.
13
8. Shareholders' equity
--------------------
Preferred stock
---------------
At June 30, 2001 and December 31, 2000, we had the following
series of Preferred Stock outstanding:
At June 30, 2001 At December 30, 2000
---------------------------- ----------------------------
Dividend Shares Carrying Shares Carrying
Series Rate Outstanding Amount Outstanding Amount
- ------------------------------- ---------- ------------ ----------- ----------- -----------
(Dollar amount in thousands) (Dollar amount in thousands)
Series A 10.000% 1,825,000 $ 45,625 1,825,000 $ 45,625
Series B 9.200% 2,386,000 59,650 2,386,000 59,650
Series C Adjustable 1,200,000 30,000 1,200,000 30,000
Series D 9.500% 1,200,000 30,000 1,200,000 30,000
Series E 10.000% 2,195,000 54,875 2,195,000 54,875
Series F 9.750% 2,300,000 57,500 2,300,000 57,500
Series G 8.875% 6,900 172,500 6,900 172,500
Series H 8.450% 6,750 168,750 6,750 168,750
Series I 8.625% 4,000 100,000 4,000 100,000
Series J 8.000% 6,000 150,000 6,000 150,000
Series K 8.250% 4,600 115,000 4,600 115,000
Series L 8.250% 4,600 115,000 4,600 115,000
Series M 8.750% 2,250 56,250 2,250 56,250
Series Q 8.600% 6,900 172,500 - -
------------ ----------- ----------- -----------
Total Senior Preferred Stock 11,148,000 $ 1,327,650 11,141,100 $ 1,155,150
============ =========== =========== ===========
The Series Q preferred stock was issued on January 19, 2001,
resulting in net proceeds from the issuance of approximately $166,966,000.
The Series A through Series Q preferred stock (collectively the
"Senior Preferred Stock") have general preference rights with respect to
liquidation and quarterly distributions. Holders of the preferred stock,
except under certain conditions and as noted above, will not be entitled to
vote on most matters. In the event of a cumulative arrearage equal to six
quarterly dividends or failure to maintain a Debt Ratio (as defined) of 50%
or less, holders of all outstanding series of preferred stock (voting as a
single class without regard to series) will have the right to elect two
additional members to serve on the Company's Board of Directors until
events of default have been cured. At June 30, 2001, there were no
dividends in arrears and the Debt Ratio was 2.8%.
Except under certain conditions relating to the Company's
qualification as a REIT, the Senior Preferred Stock is not redeemable prior
to the following dates: Series A - September 30, 2002, Series B - March 31,
2003, Series C - June 30, 1999, Series D - September 30, 2004, Series E -
January 31, 2005, Series F - April 30, 2005, Series G - December 31, 2000,
Series H - January 31, 2001, Series I - October 31, 2001, Series J - August
31, 2002, Series K - January 19, 2004, Series L - March 10, 2004, Series M
- August 17, 2004 and Series Q - January 19, 2006. On or after the
respective dates, each of the series of Senior Preferred Stock will be
redeemable at the option of the Company, in whole or in part, at $25 per
share (or depositary share in the case of the Series G through Series M and
Series Q), plus accrued and unpaid dividends.
14
Equity Stock
------------
The Company is authorized to issue 200,000,000 shares of Equity
Stock. The Articles of Incorporation provide that the Equity Stock may be
issued from time to time in one or more series and gives the Board of
Directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, redemption provisions and liquidation rights
of each series of Equity Stock.
In April 2001, the Company completed a public offering of
2,210,500 depositary shares each representing 1/1,000 of a share of Equity
Stock, Series A, raising net proceeds of approximately $51,836,000 million.
In May 2001, the Company completed a direct placement of 830,000 depositary
shares each representing 1/1,000 of a share of Equity Stock, Series A,
raising net proceeds of approximately $20,294,000 million.
At June 30, 2001, we had 8,676,102 depositary shares outstanding,
each representing 1/1,000 of a share of Equity Stock, Series A ("Equity
Stock A"). The Equity Stock A ranks on a parity with common stock and
junior to the Senior Preferred Stock with respect to general preference
rights and has a liquidation amount which cannot exceed $24.50 per share.
Distributions with respect to each depositary share shall be the lesser of:
a) five times the per share dividend on the Common Stock or b) $2.45 per
annum. Except in order to preserve the Company's federal income tax status
as a REIT, we may not redeem the depositary shares before March 31, 2010.
On or after March 31, 2010 we may, at our option, redeem the depositary
shares at $24.50 per depositary share. If the Company fails to preserve its
federal income tax status as a REIT, the depositary shares will be
convertible into common stock on a one for one basis. The depositary shares
are otherwise not convertible into common stock. Holders of depositary
shares vote as a single class with our holders of common stock on
shareholder matters, but the depositary shares have the equivalent of
one-tenth of a vote per depositary share. We have no obligation to pay
distributions on the depositary shares if no distributions are paid to
common shareholders.
In June 1997, we contributed $22,500,000 (225,000 shares) of
equity stock, now designated as Equity Stock, Series AA ("Equity Stock AA")
to a partnership in which we are the general partner. As a result of this
contribution, we obtained a controlling interest in the partnership and
began to consolidate the accounts of the partnership and therefore the
equity stock is eliminated in consolidation. The Equity Stock AA ranks on a
parity with Common Stock and junior to the Senior Preferred Stock with
respect to general preference rights and has a liquidation amount of ten
times the amount paid to each Common Share up to a maximum of $100 per
share. Quarterly distributions per share on the Equity Stock AA are equal
to the lesser of (i) 10 times the amount paid per Common Stock or (ii)
$2.20. We have no obligation to pay distributions if no distributions are
paid to common shareholders.
In November 1999, we sold $100,000,000 (4,289,544 shares) of
Equity Stock, Series AAA ("Equity Stock AAA") to a newly formed joint
venture. We control the joint venture and consolidate the accounts of the
joint venture, and accordingly the Equity Stock AAA is eliminated in
consolidation. The Equity Stock AAA ranks on a parity with common stock and
junior to the Senior Preferred Stock (as defined below) with respect to
general preference rights, and has a liquidation amount equal to 120% of
the amount distributed to each common share. Annual distributions per share
are equal to the lesser of (i) five times the amount paid per common share
or (ii) $2.1564. We have no obligation to pay distributions if no
distributions are paid to common shareholders.
15
Common Stock
------------
As previously announced, the Company's Board of Directors
authorized the repurchase from time to time of up to 25,000,000 shares of
the Company's common stock on the open market or in privately negotiated
transactions. In the six months ended June 30, 2001, the Company
repurchased a total of 10,544,893 shares, for a total aggregate cost of
approximately $275,483,000. From the initial authorization through June 30,
2001, the Company has repurchased a total of 21,445,320 shares of common
stock at an aggregate cost of approximately $534,103,000.
During April 2001, we entered into an arrangement with a financial
institution whereby we sold to the institution the right to require us to
purchase from the institution up to 1,000,000 shares of our common stock at
a price of $26.26 on certain dates in September 2001 and October 2001 (the
institution's rights are collectively referred to hereinafter as the "Put
Option."). In exchange for the Put Option, the financial institution paid
us $910,000, the amount of which has been reflected as an increase to our
paid-in capital. The outstanding put options, upon exercise, can be settled
by us, at our option, if the price is below $26.26 on the Exercise Dates in
September and October 2001, by (i) the issuance of additional common shares
to the financial institution with a value equal to the difference in market
value of the shares subject to the exercise and $26.26 per share, (ii) by
payment of cash to the financial institution in an amount equal to the
difference in market value of the shares subject to the exercise and $26.26
per share or (iii) by purchasing the shares from the institution at $26.26
per share.
Class B Common Stock
--------------------
Commencing January 1, 2000, Class B Common Stock participates in
distributions at the rate of 97% of the per share distributions on the
Common Stock, provided that cumulative distributions of at least $0.22 per
quarter per share have been paid on the Common Stock, (i) not participate
in liquidating distributions, (ii) not be entitled to vote (except as
expressly required by California law) and (iii) automatically convert into
Common Stock, on a share for share basis, upon the later to occur of FFO
per common share aggregating $3.00 during any period of four consecutive
calendar quarters or January 1, 2003.
For these purposes, FFO means net income (loss) before (i) gain
(loss) on early extinguishment of debt, (ii) minority interest in income
and (iii) gain (loss) on disposition of real estate, adjusted as follows:
(a) plus depreciation and amortization, and (b) less FFO attributable to
minority interest. FFO per common share means FFO less preferred stock
dividends and Equity Stock A dividends divided by the outstanding weighted
average shares of Common Stock assuming conversion of all outstanding
convertible securities and the Class B Common Stock.
For these purposes, FFO per share of Common Stock (as defined
above) was $2.72 for the four consecutive calendar quarters ended June 30,
2001.
16
Dividends
---------
The following summarizes dividends during the first six months of
2001:
Distributions Per
Share or Total
Depositary Share Distributions
----------------- ---------------
Preferred Stock:
- ----------------
Series A.............................. $1.250 $2,280,000
Series B.............................. $1.150 2,744,000
Series C.............................. $0.844 1,012,000
Series D.............................. $1.188 1,426,000
Series E.............................. $1.250 2,744,000
Series F.............................. $1.219 2,802,000
Series G.............................. $1.109 7,656,000
Series H.............................. $1.056 7,130,000
Series I.............................. $1.078 4,312,000
Series J.............................. $1.000 6,000,000
Series K ............................. $1.031 4,744,000
Series L ............................. $1.031 4,744,000
Series M ............................. $1.094 2,460,000
Series Q ............................. $0.974 6,718,000
--------------
56,772,000
Common Stock:
- -------------
Equity Stock, Series A................ $1.225 8,766,000
Common (a)............................ $0.440 51,423,000
Class B Common........................ $0.427 2,988,000
--------------
Total dividends.................... $119,949,000
==============
(a) On August 9, 2001, the Company declared a regular quarterly dividend of
$0.45 per share, an increase from the regular quarterly dividend of $0.22
per share paid in the six months ended June 30, 2001. In addition, on
August 9, 2001, the Company declared a special distribution in the amount
of $0.35 per share. The dividends declared on August 9, 2001 are payable on
September 28, 2001.
The dividend rate on the Series Q preferred stock was prorated
from January 19, 2001 (date of issuance) through March 31, 2001. The
dividend rate on the Series C Preferred Stock for the first and second
quarters of 2001 was equal to 6.75% per annum. The dividend rate per annum
will be adjusted quarterly and will be equal to the highest of one of three
U.S. Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate,
or Thirty Year Constant Maturity Rate) multiplied by 110%. However, the
dividend rate for any dividend period will neither be less than 6.75% per
annum nor greater than 10.75%. The dividend rate for the quarter ending
September 30, 2001 will be equal to 6.75% per annum.
9. Segment Information
-------------------
In July 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information, "which establishes standards for the way that public business
enterprises report information about operating segments. This statement is
effective for financial statements for periods beginning after December 15,
1997. We adopted this standard effective for the year ended December 31,
1998. For information regarding the description of each reportable segment,
policies relating to the measurement of segment profit or loss, and segment
assets, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 2000.
17
Our income statement provides most of the information required in
order to determine the performance of each of our three segments. The
following tables reconcile the performance of each segment, in terms of
segment revenues and segment income, to our consolidated revenues and net
income. It further provides detail of the segment components of the income
statement item, "Equity in earnings of real estate entities."
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2001 2000 Change 2001 2000 Change
--------- --------- --------- --------- --------- ----------
(Dollar amounts in thousands)
RECONCILIATION OF REVENUES BY SEGMENT
- -------------------------------------
Self storage
- ------------
Self storage property rentals........................ $179,086 $161,211 $17,875 $350,915 $315,769 $35,146
Equity in earnings - self storage property operations 5,691 5,733 (42) 10,848 10,982 (134)
Equity in earnings - depreciation (self storage) .... (1,827) (1,384) (443) (3,379) (3,026) (353)
--------- --------- --------- --------- --------- ----------
Self storage segment revenues.................... 182,950 165,560 17,390 358,384 323,725 34,659
--------- --------- --------- --------- --------- ----------
Containerized storage ................................. 12,183 9,240 2,943 22,256 16,789 5,467
- --------------------- --------- --------- --------- --------- --------- ----------
Commercial properties
- ----------------------
Commercial property rentals.......................... 3,215 2,827 388 6,272 5,586 686
Equity in earnings - commercial property operations.. 12,392 10,729 1,663 24,038 20,558 3,480
Equity in earnings - depreciation (commercial
properties)....................................... (4,112) (3,714) (398) (7,835) (7,104) (731)
--------- --------- --------- --------- --------- ----------
Commercial properties segment revenues.......... 11,495 9,842 1,653 22,475 19,040 3,435
--------- --------- --------- --------- --------- ----------
Other items not allocated to segments
- -------------------------------------
Equity in earnings - general and administrative and (2,330) (2,209) (121) (4,586) (3,979) (607)
other.............................................
Interest and other income............................ 3,130 5,717 (2,587) 6,738 9,170 (2,432)
--------- --------- --------- --------- --------- ----------
Total other items not allocated to segments...... 800 3,508 (2,708) 2,152 5,191 (3,039)
--------- --------- --------- --------- --------- ----------
Total revenues................................... $207,428 $188,150 $19,278 $405,267 $364,745 $40,522
========= ========- ========= ========= ========= ==========
18
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2001 2000 Change 2001 2000 Change
--------- --------- --------- --------- --------- ----------
(Dollar amounts in thousands)
RECONCILIATION OF NET INCOME BY SEGMENT
- ---------------------------------------
Self storage
- ------------
Self storage properties ............................. $124,487 $109,939 $14,548 $239,842 $214,140 $25,702
Depreciation and amortization - self storage......... (38,923) (33,822) (5,101) (76,309) (68,144) (8,165)
Equity in earnings - self storage property operations 5,691 5,733 (42) 10,848 10,982 (134)
Equity in earnings - depreciation (self-storage) .... (1,827) (1,384) (443) (3,379) (3,026) (353)
--------- --------- --------- --------- --------- ----------
Total self storage segment net income............ 89,428 80,466 8,962 171,002 153,952 17,050
--------- --------- --------- --------- --------- ----------
Containerized storage
- ---------------------
Containerized storage operations..................... 1,128 592 536 1,728 287 1,441
Containerized storage depreciation................... (1,739) (1,368) (371) (3,266) (2,634) (632)
--------- --------- --------- --------- --------- ----------
Total containerized storage segment net income... (611) (776) 165 (1,538) (2,347) 809
--------- --------- --------- --------- --------- ----------
Commercial properties
- ----------------------
Commercial properties................................ 2,333 1,946 387 4,440 3,756 684
Depreciation and amortization - commercial properties (661) (554) (107) (1,370) (1,000) (370)
Equity in earnings - commercial property operations.. 12,392 10,729 1,663 24,038 20,558 3,480
Equity in earnings - depreciation (commercial
properties) ...................................... (4,112) (3,714) (398) (7,835) (7,104) (731)
--------- --------- --------- --------- --------- ----------
Total commercial property segment net income..... 9,952 8,407 1,545 19,273 16,210 3,063
--------- --------- --------- --------- --------- ----------
Other items not allocated to segments
- -------------------------------------
Equity in earnings - general and administrative and (2,330) (2,209) (121) (4,586) (3,979) (607)
other.............................................
Interest and other income............................ 3,130 5,717 (2,587) 6,738 9,170 (2,432)
General and administrative........................... (5,000) (5,576) 576 (10,584) (8,621) (1,963)
Interest expense..................................... (1,124) (1,261) 137 (2,095) (2,667) 572
Gain on sale of land................................. - - - 1,568 - 1,568
Minority interest in income.......................... (11,672) (10,465) (1,207) (23,370) (14,854) (8,516)
--------- --------- --------- --------- --------- ----------
Total other items not allocated to segments...... (16,996) (13,794) (3,202) (32,329) (20,951) (11,378)
--------- --------- --------- --------- --------- ----------
Total net income ................................ $81,773 $74,303 $7,470 $156,408 $146,864 $9,544
========= ========= ========= ========= ========= ==========
19
10. Agreement to Acquire PS Insurance Company
-----------------------------------------
On March 15, 2001, the Company's disinterested directors approved
the acquisition of PS Insurance Company ("PSIC"). PSIC is currently owned
by B. Wayne Hughes (Chairman) and members of his family. PSIC is engaged in
the business of reinsuring risks relating to damage, destruction, or other
loss of goods stored by tenants in self-storage facilities owned and
operated by the Company. In the transaction, the Company will acquire all
of the capital stock of PSIC from the Hughes family in exchange for
1,243,298 shares of the Company's Common Stock, subject to adjustment for
changes in PSIC's working capital. PSIC owns 301,032 shares of the
Company's Common Stock, which would continue to be owned by PSIC after the
transaction. The transaction (1) is conditioned on, among other things,
adoption of changes to California's tax laws that would permit the Company
to acquire PSIC and (2) is scheduled to close on December 31, 2001,
although there can be no assurance.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and notes thereto.
FORWARD LOOKING STATEMENTS: When used within this document, the words
"expects," "believes," "anticipates," "should," "estimates," and similar
expressions are intended to identify "forward-looking statements" within the
meaning of that term in Section 27A of the Securities Exchange Act of 1933, as
amended, and in Section 21F of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors, which may cause our actual results and performance to be
materially different from those expressed or implied in the forward looking
statements. Such factors include the impact of competition from new and existing
self-storage and commercial facilities which could impact rents and occupancy
levels at our facilities; our ability to evaluate, finance, and integrate
acquired and developed properties into our existing operations; our ability to
effectively compete in the markets in which we do business; the impact of the
regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Real Estate
Investment Trusts; the acceptance by consumers of the Pickup and Delivery
concept; the impact of general economic conditions upon rental rates and
occupancy levels at our facilities; and the availability of permanent capital at
attractive rates.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Net income for the three months ended June 30, 2001 was $81,773,000
compared to $74,303,000 for the same period in 2000, representing a increase of
$7,470,000 or 10.1%. The increase in net income was primarily the result of
improved property operations combined with increased operations from acquired
and newly developed real estate properties during 2000 and 2001. The impact of
these items was partially offset by increased depreciation expense, resulting
primarily from new properties, and an increase in the allocation of income to
minority interests. During 2000, the Company issued a total of $365,000,000 in
preferred operating partnership units, and as a result, distributions to these
unitholders increased from $7,411,000 in the three months ended June 30, 2000 to
$8,505,000 in the same period in 2001. Unlike distributions to preferred
shareholders, distributions to preferred unitholders are presented as minority
interest in income and a reduction in net income. Primarily as a result of these
distributions, minority interest in income increased $1,207,000 for the three
months ended June 30, 2001 as compared to the same period in 2000.
During the three months ended June 30, 2001 and 2000, we allocated
$28,736,000 and $25,045,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing an increase of 14.7%.
This increase is due to an additional issuance of preferred stock in 2001. In
addition, during the three months ended June 30, 2001 and 2000, we allocated
$5,314,000 and $2,666,000 of our net income (based on distributions paid),
respectively, to our equity shareholders, representing an increase of 99.3%.
This increase is due to additional issuances of equity stock in 2001 and 2000.
Net income remaining to our regular common shareholders, after
allocating net income to our preferred and equity shareholders, totaled
$47,723,000 for the three months ended June 30, 2001 compared to $46,592,000 for
the same period in 2000, representing an increase of 2.4%. Net income per common
share was $0.39 on a diluted basis (based on 121,639,000 weighted average
diluted common equivalent shares) for the three months ended June 30, 2001
compared to $0.35 per common share on a diluted basis (based on 131,734,000
weighted average diluted common equivalent shares), representing an increase of
11.4%. The year over year increase in net income on a per share basis (11.4%)
was significantly higher than the year over year increase in aggregate net
income allocated to the common (2.4%) due to the reduction in weighted average
shares outstanding as a result of our share repurchase activities.
21
Net income for the six months ended June 30, 2001 was $156,408,000
compared to $146,864,000 for the same period in 2000, representing a increase of
$9,544,000 or 6.5%. The increase in net income was primarily the result of
improved property operations, the acquisition of additional real estate
investments during 2000 and 2001 and a gain on the sale of land. The impact of
these items was partially offset by increased depreciation expense, resulting
primarily from new property additions, and an increase in the allocation of
income to minority interests. As indicated above, in 2000, we issued preferred
operating partnership units, and as a result, distributions to these unitholders
increased from $8,336,000 in the six months ended June 30, 2000 to $17,010,000
in the same period in 2001. Unlike distributions to preferred shareholders,
distributions to preferred unitholders are presented as minority interest in
income and a reduction in net income. Primarily as a result of these
distributions, minority interest in income increased $8,516,000 for the six
months ended June 30, 2001 as compared to the same period in 2000.
During the six months ended June 30, 2001 and 2000, we allocated
$56,772,000 and $50,083,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing an increase of 13.4%.
This increase is due to an additional issuance of preferred stock in 2001. In
addition, during the six months ended June 30, 2001 and 2000, we allocated
$8,766,000 and $4,924,000 of our net income (based on distributions paid),
respectively, to our equity shareholders, representing an increase of 78.0%.
This increase is due to additional issuances of equity stock in 2001 and 2000.
Net income remaining to our regular common shareholders, after
allocating net income to our preferred and equity shareholders, totaled
$90,870,000 for the six months ended June 30, 2001 compared to $91,857,000 for
the same period in 2000, representing a decrease of approximately 1.1%. Net
income per common share was $0.73 on a diluted basis (based on 125,130,000
weighted average diluted common equivalent shares) for the six months ended June
30, 2001 compared to $0.69 per common share on a diluted basis (based on
132,335,000 weighted average diluted common equivalent shares), representing an
increase of 5.8%. The year over year 5.8% increase in net income on a per share
basis as compared to the year over year 1.1% decrease in aggregate net income
allocated to our regular common shareholders results from the reduction in
weighted average shares outstanding due to our share repurchase activities.
REAL ESTATE OPERATIONS
- --------------------------------------------------------------------------------
Rental income and cost of operations have increased for the three and
six months ended June 30, 2001 compared to the same period in 2000 due to our
merger and acquisition activities throughout 2000 and 2001. As a result of these
items, the number of storage facilities included in the consolidated financial
statements has increased from 1,213 at June 30, 2000 to 1,262 at June 30, 2001.
SELF-STORAGE OPERATIONS: The following table summarizes the operating
results (before depreciation) of (i) the 913 stabilized self-storage facilities
that we owned as of December 31, 1999 (the "Consistent Group") and (ii) all
other facilities (the "Other Facilities"):
22
SUMMARY OF SELF-STORAGE OPERATIONS - HISTORICAL
- -----------------------------------------------
Three months ended Six months ended
June 30, June 30,
----------------------- Percentage ----------------------- Percentage
2001 2000 Change 2001 2000 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per square foot data)
Rental income (a)
- -------------
Consistent Group............. $ 139,270 $ 130,204 7.0% $ 273,693 $ 255,043 7.3%
Other Facilities............. 39,816 31,007 28.4% 77,222 60,726 27.2%
---------- ---------- ---------- ---------- ---------- ----------
179,086 161,211 11.1% 350,915 315,769 11.1%
---------- ---------- ---------- ---------- ---------- ----------
Cost of Operations
- ------------------
Consistent Group............. 38,160 39,547 (3.5)% 78,375 78,350 0.0%
Other Facilities............. 16,439 11,725 40.2% 32,698 23,279 40.5%
---------- ---------- ---------- ---------- ---------- ----------
54,599 51,272 6.5% 111,073 101,629 9.3%
---------- ---------- ---------- ---------- ---------- ----------
Net operating income
- --------------------
Consistent Group............. 101,110 90,657 11.5% 195,318 176,693 10.5%
Other Facilities............. 23,377 19,282 21.2% 44,524 37,447 18.9%
---------- ---------- ---------- ---------- ---------- ----------
124,487 109,939 13.2% 239,842 214,140 12.0%
Depreciation and amortization (38,923) (33,822) 15.1% (76,309) (68,144) 12.0%
---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 85,564 $ 76,117 12.4% $ 163,533 $ 145,996 12.0%
========== ========== ========== ========== ========== ==========
Consistent Group data
- ---------------------
Gross margin........................ 72.6% 69.6% 3.0% 71.4% 69.3% 2.1%
Weighted average :
Occupancy........................ 90.7% 93.0% (2.3)% 89.9% 92.2% (2.3)%
Realized annual rent per square
foot (b)........................ $11.40 $10.39 9.7% $11.31 $10.27 10.1%
Number of facilities at end of period:
Consistent group.................... 913 913 - 913 913 -
Other Facilities.................... 349 300 16.3% 349 300 16.3%
Net rentable sq. ft. at end of period
(in thousands):
Consistent group.................... 53,882 53,882 - 53,882 53,882 -
Other Facilities.................... 22,483 18,362 22.4% 22,483 18,362 22.4%
(a) Rental income includes late charges and administrative fees. For the
Consistent Group, late charges and administrative fees in aggregate totaled
$4,801,000 and $4,712,000 for the three months ended June 30, 2001 and
2000, respectively, and $9,635,000 and $9,507,000 for the six months ended
June 30, 2001 and 2000, respectively.
(b) Realized annual rent per square foot is computed by annualizing rental
income including late charges and administrative fees divided by the
weighted average occupied square footage for the period.
The Company experienced accelerated growth in the consistent group's
net operating income for the three and six months ended June 30, 2001, with
overall net operating income increasing 11.5% and 10.5%, respectively, as
compared to the same periods in 2000. Rental income increased 7.0% and 7.3% for
the three and six months ended June 30, 2001, respectively, and cost of
operations decreased 3.5% and was stable for the three and six months ended June
30, 2001, respectively, as compared to the same periods in 2000.
23
The increase in rental income is attributable to a 9.7% and 10.1%
increase in realized rent per occupied square foot for the three and six months
ended June 30, 2001, respectively, as compared to the same periods in 2000,
partially offset by a reduction in weighted average occupancy level. Higher
realized rent per occupied square foot was achieved through more aggressive
pricing of our self-storage space. Over the past several months, we have
increased rents charged to new tenants and have significantly reduced the level
of discounts offered to new tenants. In addition, in many markets, we have
increased the level of rent charged to our existing tenant base.
As expected, our more aggressive rental rates and reductions in the
amount of discounts offered have resulted in a reduction in weighted average
occupancy levels for both the three and six months periods. Although we
experienced a decline of 2.3% in weighted average occupancy levels during the
three and six month periods, at June 30, 2001 the decline was 1.7%.
Consistent Group discounts for the three and six months ended June 30,
2001 totaled $1,521,000 and $3,649,000, respectively, as compared to $3,923,000
and $8,284,000, respectively, for the same periods in 2000.
We believe that our ability to raise rents and thereby increase rental
income was facilitated by 1) more aggressive marketing efforts, including a
$622,000 increase in television advertising expenditures for the three and six
months ended June 30, 2001 as compared to the same periods in 2000, as well as
an increase in the intensity of our yellow page advertising, and 2) the
continuing impact of our efforts over the last several years to improve the
value of the Public Storage brand, most significantly through the completion of
our program to enhance our visual icon and to modernize the appearance of our
self-storage facilities.
Consistent Group cost of operations declined 3.5% in the quarter ended
June 30, 2001 as compared to the same period in 2000, and was stable in the six
months ended June 30, 2001 as compared to the same period in 2000. The expense
moderation was due to our continued focus upon cost control and the result of
specific cost control programs, such as a trial program instituted in some
markets to close the rental offices on Sunday to reduce payroll expense. There
can be no assurance as to the level of expenses in future periods.
The following table summarizes major operating expenses with respect to
the Consistent Group:
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
2001 2000 Change 2001 2000 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands)
Payroll expense $ 10,630 $ 11,193 (5.0)% $ 21,773 $ 22,403 (2.8)%
Property taxes 10,606 10,534 0.7% 22,560 22,297 1.2%
Repairs and maintenance 3,080 4,097 (24.8)% 5,890 7,152 (17.6)%
Advertising 3,196 2,335 36.9% 5,296 4,064 30.3%
Telephone reservation center costs 1,955 2,274 (14.0)% 4,197 4,381 (4.2)%
Other 8,693 9,114 (4.6)% 18,659 18,053 3.4%
----------- ----------- ----------- ----------- ----------- -----------
$ 38,160 $ 39,547 (3.5)% $ 78,375 $ 78,350 0.0%
=========== =========== =========== =========== =========== ===========
Cost of operations includes both direct costs and indirect cost of
operating and managing the facilities. Payroll, property taxes, repairs and
maintenance, advertising and the telephone reservation center in aggregate
account for approximately 76% of the total cost of operations. With respect to
the Consistent Group of facilities, cost of operations for the quarter ended
June 30, 2001 decreased approximately 3.5% compared to the same period of last
year. This decrease was primarily a result of decreases in telephone reservation
center expenses, payroll expense and repairs and maintenance partially offset by
increases in advertising (up 36.9%). The increase in advertising for the three
and six months ended June 30, 2001 is the result of advertising in additional
yellow page directories combined with increased rates in existing directories,
primarily due to the expansion of the size of our ads.
24
During 1999 and 2000 and the six months ended June 30, 2001, we have
opened 45 newly developed facilities with a total cost of approximately $249.6
million. Included in the self-storage operations table above, under the caption
"Other Facilities", are rental income and cost of operations of $3,183,000 and
$2,238,000, respectively, for the three months ended June 30, 2001, and
$5,551,000 and $4,141,000, respectively, for the six months ended June 30, 2001,
with respect to these facilities. Included in the self-storage operations table
above, under the caption "Other Facilities", are rental income and cost of
operations of $404,000 and $479,000, respectively, for the three months ended
June 30, 2000, and $747,000 and $893,000, respectively, for the six months ended
June 30, 2000, with respect to these facilities. We also completed expansions of
storage facilities with aggregate costs of approximately $46.1 million in the
six months ended June 30, 2001.
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 June 30, 2001, the 45 newly developed facilities had an average occupancy
level of approximately 49%. 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."
COMMERCIAL PROPERTY OPERATIONS: Commercial property operations included
in the consolidated financial statements include commercial space owned by the
Company and Consolidated Entities. 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" in our condensed
consolidated Statement of Income.
During the second quarter of 2000, we acquired two commercial
facilities (which are expected to be converted into storage facilities) for an
aggregate cost of $5,930,000. Included in commercial property operations are
rental income and cost of operations of $177,000 and $56,000, respectively, for
the three months ended June 30, 2001, and $314,000 and $127,000, respectively,
for the six months ended June 30, 2001, with respect to these facilities.
Included in commercial property operations are rental income and cost of
operations of $136,000 and $21,000, respectively, for the three and six months
ended June 30, 2000. The following table sets forth the historical commercial
property amounts included in the financial statements:
COMMERCIAL PROPERTY OPERATIONS
- ------------------------------
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2001 2000 Change 2001 2000 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
Rental income............. $ 3,215 $ 2,827 13.7% $ 6,272 $ 5,586 12.3%
Cost of operations........ 882 881 0.1% 1,832 1,830 0.1%
--------- --------- --------- --------- --------- ---------
Net operating income prior
to depreciation........ 2,333 1,946 19.9% 4,440 3,756 18.2%
Depreciation.............. 661 554 19.3% 1,370 1,000 37.0%
--------- --------- --------- --------- --------- ---------
Net income................ $ 1,672 $ 1,392 20.1% $ 3,070 $ 2,756 11.4%
========= ========= ========= ========= ========= =========
25
CONTAINERIZED STORAGE FACILITIES OPERATIONS: At June 30, 2001, PSPUD
operated 51 facilities. PSPUD incurred operating losses totaling approximately
$611,000 and $1,538,000 for the three and six months ended June 30, 2001,
compared to $776,000 and $2,347,000 for the same periods in 2000:
CONTAINERIZED STORAGE FACILITIES
- --------------------------------
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2001 2000 Change 2001 2000 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Rental and other income ......... $ 12,183 $ 9,240 $ 2,943 $ 22,256 $ 16,789 $ 5,467
---------- ---------- ---------- ---------- ---------- ----------
Cost of operations:
Direct operating costs......... 9,460 6,424 3,036 17,141 12,024 5,117
Facility lease expense......... 1,595 2,224 (629) 3,387 4,478 (1,091)
---------- ---------- ---------- ---------- ---------- ----------
Total cost of operations..... 11,055 8,648 2,407 20,528 16,502 4,026
Operating income prior to
depreciation................... 1,128 592 536 1,728 287 1,441
Depreciation (a)............... 1,739 1,368 371 3,266 2,634 632
---------- ---------- ---------- ---------- ---------- ----------
Operating losses................. $ (611) $ (776) $ 165 $ (1,538) $ (2,347) $ 809
========== ========== ========== ========== ========== ==========
(a) Depreciation includes $189,000 and $113,000 for the three months ended June
30, 2001 and 2000, respectively, and $377,000 and $226,000 for the six
months ended June 30, 2001 and 2000, respectively, with respect to real
estate assets.
At June 30, 2001, 21 of the 51 containerized storage facilities were
leased from third parties. We are currently developing 13 combination facilities
(which includes two 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 8 of the leased
facilities. 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.
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 June 30, 2001. (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.
Equity in earnings of real estate entities for the year ended June 30,
2001 consists of our pro rata share of the Unconsolidated Entities based upon
our ownership interest for the period. Similar to the Company, the
Unconsolidated Entities (other than PSB) generate substantially all of their
income from their ownership of storage facilities, which we manage. In the
aggregate, the Unconsolidated Entities (including PSB) own a total of 266 real
estate facilities, 114 of which are storage facilities. The following table sets
forth the significant components of equity in earnings of real estate entities:
26
HISTORICAL SUMMARY
- ------------------
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2001 2000 Change 2001 2000 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Property operations:
PSB...................... $ 12,392 $ 10,729 $ 1,663 $ 24,038 $ 20,558 $ 3,480
Development Joint Venture 1,512 1,087 425 2,849 1,972 877
Other partnerships....... 4,179 4,646 (467) 7,999 9,010 (1,011)
---------- ---------- ---------- ---------- ---------- ----------
18,083 16,462 1,621 34,886 31,540 3,346
---------- ---------- ---------- ---------- ---------- ----------
Depreciation:
PSB...................... (4,112) (3,714) (398) (7,835) (7,104) (731)
Development Joint Venture (504) (467) (37) (1,012) (928) (84)
Other partnerships....... (1,323) (917) (406) (2,367) (2,098) (269)
---------- ---------- ---------- ---------- ---------- ----------
(5,939) (5,098) (841) (11,214) (10,130) (1,084)
---------- ---------- ---------- ---------- ---------- ----------
Other: (a)
PSB...................... (2,404) (1,903) (501) (4,542) (3,439) (1,103)
Development Joint Venture 12 (38) 50 49 15 34
Other partnerships....... 62 (268) 330 (93) (555) 462
---------- ---------- ---------- ---------- ---------- ----------
(2,330) (2,209) (121) (4,586) (3,979) (607)
---------- ---------- ---------- ---------- ---------- ----------
Total equity in earnings of
real estate entities....... $ 9,814 $ 9,155 $ 659 $ 19,086 $ 17,431 $ 1,655
========== ========== ========== ========== ========== ==========
(a) "Other" reflects our share of general and administrative expense, interest
expense, interest income, and other non-property, non-depreciation related
operating results of these entities.
The increase in equity in earnings of real estate entities for the
three and six months ended June 30, 2001, respectively, as compared to the same
periods in 2000 is primarily the result of improved operations of PSB. In April
1997, we formed a joint venture partnership (the "Development Joint Venture")
with an institutional investor to participate in the development of
approximately $220 million of storage facilities. The venture is funded solely
with equity capital consisting of 30% from the Company and 70% from the
institutional investor. Equity in earnings from the Development Joint Venture
reflects our pro rata share, based upon our ownership interest, of the
operations of the Development Joint Venture. From inception through December 31,
2000, the Development Joint Venture developed and opened 47 storage facilities
at an aggregate cost of approximately $232 million. Generally a newly
constructed facility undergoes an 18 to 24 month fill-up process until the
facility reaches a stabilized occupancy level of approximately 90%. For each of
the periods ending June 30, 2001 and 2000, the majority of the completed
facilities were in the fill-up process and had not reached a stabilized
occupancy level. We expect that our earnings with respect to our investment in
the Development Joint Venture will continue to increase as the existing
properties continue to fill up.
OTHER INCOME AND EXPENSE ITEMS
- --------------------------------------------------------------------------------
INTEREST AND OTHER INCOME: Interest in other income includes (i) the
net operating results from our property management operations, (ii) merchandise
sales and consumer truck rentals and (iii) interest income.
Interest and other income has decreased in the three and six months
ended June 30, 2001 as compared to the same periods in 2000 primarily as a
result of lower cash balances invested in interest bearing accounts.
27
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
has increased $5,579,000 to $41,323,000 for the three months ended June 30, 2001
as compared to $35,744,000 for the same period in 2000. Depreciation and
amortization expense has increased $9,167,000 to $80,945,000 for the six months
ended June 30, 2001 as compared to $71,778,000 for the same period in 2000.
These increases are principally due to the acquisition and development of
additional real estate facilities during 2000 and 2001. Included in depreciation
and amortization expense is amortization expense with respect to intangible
assets of $2,328,000 and $4,656,000 for the three and six months ended June 30,
2001 and 2000. Included in depreciation and amortization expense for the three
months ended June 30, 2001 and 2000 is $1,550,000 and $1,255,000, respectively,
and $2,889,000 and $2,408,000 for the six months ended June 30, 2001 and 2000,
respectively, of depreciation of furniture, fixtures, and equipment of the
portable self-storage business.
GENERAL AND ADMINISTRATIVE: General and administrative expense has
decreased $576,000 to $5,000,000 for the three months ended June 30, 2001 as
compared to $5,576,000 for the same period in 2000. General and administrative
expense has increased $1,963,000 to $10,584,000 for the six months ended June
30, 2001 as compared to $8,621,000 for the same period in 2000. General and
administrative expense principally consists of state income taxes, investor
relations expenses, certain overhead associated with the acquisition and
development of real estate facilities, overhead associated with the
containerized storage business, and certain product research and development
activities. The decrease for the quarter is due primarily to a reduction in
consulting, lease termination expense associated with leased containerized
storage facilities which were replaced by newly-developed facilities, and other
expenses, offset partially by increased overhead associated with the acquisition
and development of real estate facilities. The year to date increase is due
primarily to increased overhead associated with the acquisition and development
of real estate facilities, costs associated with lease terminations on the
leased containerized storage facilities which were replaced by newly-developed
facilities, and severance as a result of employee terminations. The increase in
the six months ended June 30, 2001 as compared to 2000 of these three items
aggregated approximately $2,579,000.
INTEREST EXPENSE: Interest expense was $1,124,000 and $2,095,000 for
the three and six months ended June 30, 2001, respectively, as compared to
$1,261,000 and $2,667,000, respectively, for the same periods in 2000. Interest
expense was net of capitalized interest of $2,109,000 and $4,219,000 for the
three and six months ended June 30, 2001, respectively, as compared to
$2,045,000 and $4,156,000, respectively, for the same periods in 2000; the
increase in capitalized interest was due to higher levels of development
activities. Interest expense, prior to capitalized interest, decreased from
$3,306,000 for the three months ended June 30, 2000 to $3,233,000 for the three
months ended June 30, 2000 and from $6,823,000 in the six months ended June 30,
2000 to $6,314,000 for the six months ended June 30, 2001. The decreases in
interest expense, prior to capitalized interest, for the three and six months
periods are due primarily to reductions in average outstanding debt balances.
MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by us. Minority interest in income was $11,672,000 and $23,370,000,
respectively, for the three and six months ended June 30, 2001, compared to
$10,465,000 and $14,854,000, respectively, for the same periods in 2000.
On March 17, 2000, one of our operating partnerships that is
consolidated issued $240.0 million of 9.5% Series N Cumulative Redeemable
Perpetual Preferred Units. On March 29, 2000 the operating partnership issued
$75.0 million of 9.125% Series O Cumulative Redeemable Perpetual Preferred Units
and on August 11, 2000, issued $50.0 million of 8.75% Series P Cumulative
Redeemable Perpetual Preferred Units. The issuance of preferred partnership
units had the effect of increasing minority interest by $365 million. For the
six months ended June 30, 2001and 2000, the holders of these units were paid in
aggregate approximately $8,505,000 and $17,010,000, respectively, in
distributions and received a corresponding allocation of minority interest in
earnings for the partial period in which the units were outstanding.
28
SUPPLEMENTAL PROPERTY DATA AND TRENDS
- --------------------------------------------------------------------------------
At June 30, 2001, there were approximately 45 ownership entities owning
in aggregate 1,376 storage facilities, including the facilities which we own
and/or operate. At June 30, 2001, 114 of these facilities were owned by
Unconsolidated Entities, entities in which we have an ownership interest and use
the equity method for financial statement presentation. The remaining 1,262
facilities are owned by the Company and the Consolidated Entities.
The following table summarizes our investment in real estate facilities
as of June 30, 2001:
Number of Facilities in which the Net Rentable Square Footage
Company has an ownership interest (in thousands)
---------------------------------------- -----------------------------------------
Self-Storage Commercial Self-Storage Commercial
Facilities Properties Total Facilities Properties Total
------------ ------------ ---------- ------------ ------------ ------------
Wholly-owned facilities.................... 642 6 648 40,258 394 40,652
Facilities owned by Consolidated Entities.. 620 - 620 36,107 - 36,107
------------ ------------ ---------- ------------ ------------ ------------
Total consolidated facilities.......... 1,262 6 1,268 76,365 394 76,759
Facilities owned by Unconsolidated Entities 114 152 266 6,732 13,300 20,032
------------ ------------ ---------- ------------ ------------ ------------
Total facilities in which the Company
has an ownership interest............ 1,376 158 1,534 83,097 13,694 96,791
============ ============ ========== ============ ============ ============
In order to evaluate how our overall portfolio has performed,
management analyzes the operating performance of a consistent group of
self-storage facilities representing 945 (54.9 million net rentable square feet)
of the 1,376 self-storage facilities (herein referred to as "Same Store"
self-storage facilities). The 945 facilities represent a pool of properties,
which have been operated under the "Public Storage" name, at a stabilized level,
by the Company since January 1, 1994. From time to time, the Company removes
facilities from the "Same Store" pool as a result of expansions or other
activities, which make such facilities' results not comparable to previous
periods. The Same Store group of properties includes 863 consolidated facilities
and 82 facilities owned by Unconsolidated Entities. The following table
summarizes the pre-depreciation historical operating results of the Same Store
self-storage facilities:
SAME STORE MINI-WAREHOUSE FACILITIES (945 FACILITIES)
- ------------------------------------------------------
(historical property operations)
Three months ended June 30, Six months ended June 30,
---------------------------------------- ----------------------------------------
2001 2000 Change 2001 2000 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Rental income (a)................... $ 145,435 $ 135,834 7.1% $ 285,851 $ 266,067 7.4%
Cost of operations (b)............. 39,095 40,549 (3.6)% 80,620 80,616 0.0%
---------- ---------- ---------- ---------- ---------- ----------
Net operating income................ $ 106,340 $ 95,285 11.6% $ 205,231 $ 185,451 10.7%
========== ========== ========== ========== ========== ==========
Gross profit margin (c)............. 73.1% 70.1% 3.0% 71.8% 69.7% 2.1%
Weighted Average:
- ----------------
Occupancy........................ 90.8% 93.3% (2.5)% 90.0% 92.5% (2.5)%
Realized annual rent per sq. ft. (d) $11.66 $10.59 10.1% $11.56 $10.46 10.5%
(a) Rental income includes late charges and administrative fees of $5.0 million
and $4.9 million for the three months ended June 30, 2001 and 2000,
respectively and $10.0 million and $9.8 million for the six months ended
June 30, 2001 and 2000, respectively. Rental income for the Same Store
facilities is net of discounts offered to new tenants. Discounts totaled
$1.6 million and $3.7 million, respectively, for the three and six months
ended June 30, 2001, respectively as compared to $3.9 million and $8.4
million for the same periods in 2000.
29
(b) Cost of operations consists of the following:
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
2001 2000 Change 2001 2000 Change
------------ ------------ ---------- ------------ ------------ ---------
(Amounts in thousands)
Payroll expense $ 10,871 $ 11,548 (5.9)% $ 22,326 $ 23,131 (3.5)%
Property taxes 10,896 10,763 1.2% 23,314 22,927 1.7%
Repairs and maintenance 3,196 4,258 (24.9)% 6,100 7,449 (18.1)%
Advertising 3,218 2,348 37.1% 5,421 4,165 30.2%
Telephone reservation center costs 1,994 2,289 (12.9)% 4,280 4,436 (3.5)%
Other 8,920 9,343 (4.5)% 19,179 18,508 3.6%
------------ ------------ ---------- ------------ ------------ ---------
$ 39,095 $ 40,549 (3.6)% $ 80,620 $ 80,616 0.0%
============ ============ ========== ============ ============ =========
(c) Gross profit margin is computed by dividing property net operating income
(before depreciation expense) by rental revenues.
(d) Realized annual rent per square foot is computed by annualizing rental
income including late charges and administrative fees divided by weighted
average occupied square footage for the period.
The Company experienced accelerated growth in Same Store net operating
income in the quarter ended June 30, 2001, with overall net operating income
increasing 11.6% in the quarter ended June 30, 2001 as compared to the same
period in 2000. Rental income increased 7.1% and cost of operations decreased
3.6%.
The increase in rental income is attributable to a 10.1% increase in
realized rent per occupied square foot partially offset by a reduction in
weighted average occupancy level during the period. Higher realized rent per
occupied square foot was achieved through more aggressive pricing of our
self-storage space. Over the past several months, we have increased rents
charged to new tenants and have significantly reduced the level of discounts
offered to new tenants. In addition, in many markets, we have increased the
level of rent charged to our existing tenant base.
As expected, our more aggressive rental rates and reductions in the
amount of discounts offered have resulted in a reduction in weighted average
occupancy levels for both the three and six months periods. Although we
experienced a decline of 2.5% in weighted average occupancy levels during the
three and six month periods, by the end of the quarter the decline was 2.0%.
We believe that our ability to raise rents and thereby increase rental
income was facilitated by 1) more aggressive marketing efforts, including an
increase in television advertising expenditures of $631,000 in the quarter ended
June 30, 2001 as compared to the same period in 2000 as well as an increase in
the intensity of our yellow page advertising, and 2) the continuing impact of
our efforts over the last several years to improve the value of the Public
Storage brand, most significantly through the completion of our program to
enhance our visual icon and to modernize the appearance of our self-storage
facilities.
Cost of operations declined 3.6% in the quarter ended June 30, 2001 as
compared to the same period in 2000, due to our continued focus upon cost
control and the result of specific cost control programs, such as a trial
program instituted in some markets to close the rental offices on Sunday to
reduce payroll expense. There can be no assurance as to the level of expenses in
subsequent quarters.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
We believe that our internally generated net cash provided by operating
activities will continue to be sufficient to enable us to meet our operating
expenses, capital improvements, debt service requirements and distributions to
shareholders for the foreseeable future.
30
Operating as a real estate investment trust ("REIT"), our ability to
retain cash flow for reinvestment is restricted. In order for us to maintain our
REIT status, a substantial portion of our operating cash flow must be used to
make distributions to our shareholders (see "REIT STATUS" below). However,
despite the significant distribution requirements, we have been able to retain a
significant amount of our operating cash flow. The following table summarizes
our ability to make the minority interests' distributions, dividend payments to
the preferred shareholders and capital improvements to maintain the facilities
through the use of cash provided by operating activities. The remaining cash
flow generated is available to make both scheduled and optional principal
payment on debt and for reinvestment.
For the six months ended
June 30,
--------------------------
2001 2000
---------- ----------
(Amounts in thousands)
Net income........................................................................... $ 156,408 $ 146,864
Less - Gain on sale of real estate................................................... (1,568) -
Depreciation and amortization (a).................................................... 80,945 71,778
Depreciation from Unconsolidated Entities............................................ 11,214 10,130
Minority interest in income.......................................................... 23,370 14,854
---------- ----------
Net cash provided by operating activities.......................................... 270,369 243,626
Allocable to minority interests (Preferred OP Units).................................. (17,010) (8,336)
Allocable to minority interests (Common equity)....................................... (9,928) (9,992)
---------- ----------
Cash from operations allocable to the Company's shareholders......................... 243,431 225,298
Less: preferred stock dividends...................................................... (56,772) (50,083)
Less: equity stock, Series A dividends............................................... (8,766) (4,924)
---------- ----------
Cash from operations available to common shareholders................................ 177,893 170,291
Capital improvements to maintain facilities:......................................... (12,132) (9,182)
Add back: minority interest share of capital improvements to maintain facilities..... 211 177
---------- ----------
Cash available for principal payments on debt, common dividends and reinvestment..... 165,972 161,286
Cash distributions to common and Class B common shareholders (b)..................... (54,411) (57,888)
---------- ----------
Cash available for principal payments on debt and reinvestment....................... $ 111,561 $ 103,398
========== ==========
(a) Depreciation and amortization includes $2,889,000 and $2,408,000 with
respect to non-real estate assets for the six months ended June 30, 2001
and 2000, respectively.
(b) Cash distributions to common shareholders for the six months ended June 30,
2001 and 2000 only include the Company's regular common distributions
($0.44 per common share in each period). In August 2000, the Company
declared a special distribution of $0.60 per share or $78,763,000. On
August 9, 2001, the Company declared a special distribution of $0.35 per
share to be paid in September 2001, and the regular common dividend for the
third quarter of 2001 was increased to $0.45 per share from the $0.22 per
share paid in each quarter in 2000 and in each quarter in the first six
months of 2001. Assuming the Company also declares a regular common
dividend of $0.45 per common share in the fourth quarter of 2001, the
remaining common distributions for the last two quarters of 2001 will
amount to $1.25 per share or $150,063,000 (based upon common shares
outstanding at June 30, 2001).
We expect to fund our growth strategies with cash on hand at June 30,
2001, internally generated retained cash flows, proceeds from issuing equity
securities and borrowings under our $150 million credit facility.
Our portfolio of real estate facilities remains substantially
unencumbered. At June 30, 2001, we had mortgage debt outstanding of $25.3
million and had consolidated real estate facilities with a book value of $3.7
billion. We have not financed our acquisitions with debt and generally our
borrowing has increased through the assumption of pre-existing debt on acquired
real estate facilities.
31
In January 2001, the Company completed a public offering of 6,900,000
depositary shares ($25 stated value per depositary share) each representing
1/1,000 of a share of 8.6% Cumulative Preferred Stock, Series Q, raising net
proceeds of approximately $166,966,000. In April 2001, the Company completed a
public offering of 2,210,500 depositary shares each representing 1/1,000 of a
share of Equity Stock, Series A, raising net proceeds of approximately $51.8
million. In May 2001, the Company completed a direct placement of 830,000
depositary shares each representing 1/1,000 of a share of Equity Stock, Series
A, raising net proceeds of approximately $20.3 million.
DISTRIBUTION REQUIREMENTS: Our conservative distribution policy has
been the principal reason for the Company's ability to retain significant
operating cash flows which have been used to make additional investments and
reduce debt. In 2000, we distributed to common and Class B common shareholders,
in regular and in a special distribution paid in September 2000, approximately
56% of our cash available from operations available to common shareholders.
During the six months ended June 30, 2001, we paid cash dividends
totaling $56,772,000 to the holders of our Senior Preferred Stock and $8,766,000
to the holders of Equity Stock, Series A. This includes $6,718,000 with respect
to the Series Q preferred stock, which reflects a payment for a partial period
from the date of issuance. We estimate the regular annual distribution
requirements with respect to Senior Preferred Stock outstanding at June 30, 2001
to be approximately $114.9 million (with total distributions estimated at $114.2
million for fiscal 2001). With respect to the Equity Stock, Series A outstanding
at June 30, 2001, we estimate the regular distribution to be approximately $21.3
million ($19.4 million for fiscal 2001).
During the six months ended June 30, 2000, we paid dividends totaling
$139,974,000 to the holders of our common stock which includes a special
distribution of approximately $0.64 per share or $82,086,000 declared in
November 1999. The special distribution was paid on January 14, 2000 to our
common shareholders and consisted of $38,076,000 in cash and $44,010,000 in the
issuance of depositary shares of Equity Stock, Series A.
On August 9, 2001, the Company declared a special distribution of $0.35
per share to be paid in September 2001, and the regular common dividend for the
third quarter of 2001 was increased to $0.45 per share from the $0.22 per share
paid in each quarter in 2000 and in each quarter in the first six months of
2001. Assuming the Company also declares a dividend of $0.45 per common share in
the fourth quarter of 2001, the remaining common distributions for the last two
quarters of 2001 will amount to $1.25 per share or $150,063,000 (based upon
common shares outstanding at June 30, 2001).
During the six months ended June 30, 2001, we paid $17,010,000 to the
holders of our preferred operating partnership units, which were issued in the
year ended December 31, 2000. The total annual distribution requirement with
respect to the preferred operating partnership units is estimated at
$34,020,000.
CAPITAL IMPROVEMENT REQUIREMENTS: During 2001, we have budgeted
approximately $26,800,000 for capital improvements. During the six months ended
June 30, 2001, we incurred capital improvements of approximately $12,132,000.
32
DEBT SERVICE REQUIREMENTS: We do not believe we have any significant
refinancing risks with respect to our notes payable, all of which is fixed rate.
At June 30, 2001, we had total outstanding notes payable of $149,796,000.
Approximate principal maturities of notes payable at June 30, 2001 are as
follows:
Unsecured
Senior Notes Mortgage debt Total
---------- ------------ -----------
(Amounts in thousands)
2001 (remainder of).......... $ 4,750 $ 1,453 $ 6,203
2002......................... 24,450 3,530 27,980
2003......................... 35,900 3,585 39,485
2004......................... 25,800 15,063 40,863
2005......................... 11,200 156 11,356
Thereafter................... 22,400 1,509 23,909
---------- ------------ -----------
$ 124,500 $ 25,296 $ 149,796
========== ============ ===========
Weighted average rate........ 7.4% 10.3% 7.9%
========== ============ ===========
REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, the
Company's Board of Directors authorized the repurchase from time to time of up
to 25,000,000 shares of the Company's common stock on the open market or in
privately negotiated transactions. For the quarter ended June 30, 2001, the
Company repurchased a total of 2,612,800 shares at an aggregate cost of
approximately $70.4 million. From the initial authorization through June 30,
2001, the Company repurchased a total of 21,445,320 shares of common stock at an
aggregate cost of approximately $534.1 million.
DEVELOPMENT OF SELF-STORAGE FACILITIES: At June 30, 2001, the Company
and its second development joint venture partnership have a "pipeline" of 51
projects that are in construction or are expected to begin contruction by
December 2002, which includes new and expansion self-storage facilities and
facilities that combine containerized storage and self-storage space in the same
location. These 51 projects have total estimated costs of approximately $342.2
million, of which $144.0 million has been spent, with opening dates estimated
through the fourth quarter of 2003. The development and fill-up of these storage
facilities is subject to significant contingencies. We estimate that the amount
remaining to be spent of approximately $198.2 million on these 51 projects in
the pipeline will be incurred over the next 30 months.
We have acquired the land for 32 of the projects in the pipeline, which
have an aggregate estimated cost of $212.8 million and costs incurred through
June 30, 2001 of approximately $138.4 million. The remaining 19 facilities
represent identified sites as to which we have an agreement in place to acquire
the land, generally within one year. However, there can be no assurance that we
will complete the development of these facilities.
With respect to the facilities that combine containerized storage and
self-storage space in the same location, the identification of appropriate sites
and the entitlement process of those sites have been substantially completed.
The Company anticipates that the cost of development of self-storage facilities
in 2002 and beyond will be reduced to less than $125 million per year and
therefore our development staff has been reduced accordingly.
In addition to the projects in the pipeline, at June 30, 2001, the
Company had approximately $29.8 million of land held for development.
33
The following table sets forth our development pipeline and a range of
estimated opening dates for these projects:
Number Total Estimated Total Cost Estimated time
of Cost of Incurred through Frames of Facility
Facilities Development June 30, 2001 Openings
---------- ---------------- ----------------- ---------------
Development - land acquired at 6/30/01
- --------------------------------------
Self-storage facilities............... 17 $ 109,258 $ 66,609 Q3 '01 - Q4 `02
Expansions of existing self-storage
facilities........................ 5 18,489 10,877 Q3 '01 - Q4 `01
Combination facilities................ 10 85,020 60,915 Q3 '01 - Q4 `02
---------- ---------------- -----------------
Total............................ 32 212,767 138,401
---------- ---------------- -----------------
Potential development - land to be
- ---------------------------------------
acquired after 6/30/01
- ----------------------
Self-storage facilities - development
starts estimated by 12/31/01...... 5 36,584 2,745 Q1 '02 - Q4 `02
Self-storage facilities - development
starts estimated after 12/31/01... 13 89,810 2,371 Q4 '02 - Q4 `03
Combination facility.................. 1 2,997 454 Q4 `03
---------- ---------------- -----------------
Total............................ 19 129,391 5,570
---------- ---------------- -----------------
Totals........................... 51 $ 342,158 $ 143,971
========== ================ =================
REIT STATUS: We believe that we have operated, and intend to continue
to operate, in such a manner as to qualify as a REIT under the Internal Revenue
Code of 1986, but no assurance can be given that we will at all times so
qualify. To the extent that we continue to qualify as a REIT, we will not be
taxed, with certain limited exceptions, on the taxable income that is
distributed to our shareholders, provided that at least 90% of our taxable
income is so distributed prior to filing of our tax return. We have satisfied
the REIT distribution requirement since 1980.
FUNDS FROM OPERATIONS: Total funds from operations or "FFO" increased
to $240,542,000 for the six months ended June 30, 2001 compared to $222,890,000
for the same period in 2000. FFO available to common shareholders (after
deducting preferred stock dividends but before deducting Equity Stock A
dividends) increased to $183,770,000 for the six months ended June 30, 2001
compared to $172,807,000 for the same period in 2000. FFO means net income or
(loss) (computed in accordance with generally accepted accounting principles)
before: (i) gain or (loss) on early extinguishment of debt, (ii) minority
interest in income and (iii) gain or (loss) on the disposition of real estate,
adjusted as follows: (a) plus depreciation and amortization (including our
pro-rata share of depreciation and amortization of unconsolidated equity
interests and amortization of assets acquired in a merger, including property
management agreements and goodwill), and (b) less FFO attributable to minority
interest.
FFO is a supplemental performance measure for equity REITs as defined
by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT").
The NAREIT definition does not specifically address the treatment of minority
interest in the determination of FFO or the treatment of the amortization of
property management agreements and goodwill. In our case, FFO represents amounts
attributable to our shareholders after deducting amounts attributable to the
minority interests and before deductions for the amortization of property
management agreements and goodwill. FFO is presented because management, as well
as many industry analysts, consider FFO to be one measure of our performance and
it is used in establishing the terms of the Class B Common Stock. FFO does not
take into consideration capital improvements, scheduled principal payments on
debt, distributions and our other obligations. Accordingly, FFO is not a
substitute for cash flow or net income (as discussed above) as a measure of our
liquidity or operating performance. FFO is not comparable to similarly entitled
items reported by other REITs that do not define it exactly as we have defined
it.
34
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
To limit our exposure to market risk, we principally finance our
operations and growth with permanent equity capital, consisting of either common
or preferred stock. At June 30, 2001, our debt as a percentage of total
shareholders' equity (based on book values) was 4.0%.
Our preferred stock is not redeemable by the holders. Except under
certain conditions relating to our qualification as a REIT, we may not redeem
the Senior Preferred Stock prior to the following dates: Series A - September
30, 2002, Series B - March 31, 2003, Series C - June 30, 1999, Series D -
September 30, 2004, Series E - January 31, 2005, Series F - April 30, 2005,
Series G - December 31, 2000, Series H - January 31, 2001, Series I - October
31, 2001, Series J - August 31, 2002, Series K - January 19, 2004, Series L -
March 10, 2004, Series M - August 17, 2004 and Series Q - January 19, 2006. On
or after the respective dates, each of the series of Senior Preferred Stock will
be redeemable at our option, in whole or in part, at $25 per share (or
depositary share in the case of the Series G through Series M and Series Q),
plus accrued and unpaid dividends.
Our market risk sensitive instruments include notes payable, which
totaled $149.8 million at June 30, 2001. Substantially all of the Company's
notes payable bear interest at fixed rates. See "Item 2" - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources for approximate principal maturities of the
notes payable as of June 30, 2001.
During April 2001, the Company entered into an arrangement with a
financial institution in which we granted the institution the right to sell us
up to 1,000,000 shares of our common stock at a price of $26.26 per share on
certain dates in September 2001 and October 2001. See Note 8 to the Company's
June 30, 2001 consolidated financial statements for further information.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company held an annual meeting of shareholders on May 10, 2001.
Proxies for the annual meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The annual meeting involved the following
three matters:
A. Election of Directors:
Total Common Stock Total Equity Stock, Series A
----------------------------------------- -------------------------------------------
Name Total Votes For Total Votes Withheld Total Votes For Total Votes Withheld
- -------------------- ----------------- -------------------- ---------------- --------------------
B. Wayne Hughes 90,875,646 13,304,475 525,320.0 4,236.2
Harvey Lenkin 90,887,314 13,292,807 525,373.1 4,183.1
Marvin M. Lotz 90,891,741 13,288,380 525,371.4 4,184.8
B. Wayne Hughes, Jr. 90,885,853 13,294,268 525,354.2 4,202.0
Robert J. Abernethy 101,987,719 2,192,402 525,285.6 4,270.6
Dann V. Angeloff 101,974,734 2,205,387 525,283.6 4,272.6
William C. Baker 101,981,110 2,199,011 525,245.5 4,310.7
Thomas J. Barrack, Jr. 87,828,660 16,351,461 524,576.5 4,979.7
Uri P. Harkham 101,982,376 2,197,745 525,382.9 4,173.3
Daniel C. Staton 101,987,710 2,192,411 525,388.9 4,167.3
There was no solicitation in opposition to the management's nominees to
the Board of Directors listed in the proxy statement.
35
B. Adoption of amendment to the certificates of determination of the
Equity Stock, Series A, to extend the date on or after which Public Storage,
Inc. may redeem the Equity Stock, Series A from March 31, 2005 to March 31,
2010.
For Against Abstain No Vote
------------ --------- --------- -----------
Votes cast with respect with the proposal for the amendment to the certificates
of determination of the Equity Stock, Series A, to extend the date on or after
which Public Storage, Inc. may redeem the Equity Stock, Series A from March 31,
2005 to March 31, 2010.
Common Stock 95,784,472.0 671,736.0 566,280.0 7,157,633.0
Equity Stock, Series A 297,283.9 12,265.8 5,099.7 214,906.8
Total Common Stock and Equity
Stock, Series A 96,081,755.9 684,001.8 571,379.7 7,372,539.8
C. Approval of adoption of the Public Storage, Inc. 2001 Stock Option
and Incentive Plan in the form of Exhibit B to the Proxy Statement dated March
7, 2001.
For Against Abstain No Vote
------------ ------------ --------- -------
Votes cast with respect to the adoption of the Public Storage, Inc. 2001 Stock
Option and Incentive Plan in the form of Exhibit B to the Proxy Statement dated
March 7, 2001.
Common Stock 92,182,425.0 11,288,516.0 709,180.0 -
Equity Stock, Series A 502,211.0 20,165.2 7,180.0 -
Total Common Stock and Equity 92,684,636.0 11,308,681.2 716,360.0 -
Stock, Series A
36
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 33-54557 and incorporated herein by
reference.
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B. Filed with Registrant's Registration
Statement No. 33-56925 and incorporated herein by reference.
3.5 Certificate of Determination for the 8.25% Convertible Preferred Stock.
Filed with Registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.50% Cumulative Preferred Stock, Series D and
incorporated herein by reference.
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 10% Cumulative Preferred Stock, Series E and
incorporated herein by reference.
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F. Filed with Registration's Form 8-A/A Registration Statement
relating to the 9.75% Cumulative Preferred Stock, Series F and
incorporated herein by reference.
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock. Filed with Registrant's Registration Statement No.
33-63947 and incorporated herein by reference.
3.11 Certificate of Amendment of Articles of Incorporation, Filed with
Registrant's Registration Statement No. 33-63947 and incorporated
herein by reference.
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred Stock,
Series G. Filed with Registration's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000th of a
Share of 8-7/8% Cumulative Preferred Stock, Series G and incorporated
herein by reference.
3.13 Certificate of Determination for the 8.45% Cumulative Preferred Stock,
Series H. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000th of a
Share of 8.45% Cumulative Preferred Stock, Series H and incorporated
herein by reference.
3.14 Certificate of Determination for the Convertible Preferred Stock,
Series CC. Filed with Registrant's Registration Statement No. 333-03749
and incorporated herein by reference.
3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed with Registrant's
Registration Statement No. 333-08791 and incorporated herein by
reference.
37
3.16 Certificate of Determination for 8-5/8% Cumulative Preferred Stock,
Series I. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-5/8% Cumulative Preferred Stock, Series I and incorporated herein
by reference.
3.17 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 333-18395 and incorporated
herein by reference.
3.18 Certification of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated herein by reference.
3.19 Certificate of Determination for Equity Stock, Series AA. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.
3.20 Certificate Decreasing Shares Constituting Equity Stock, Series A.
Filed with Registrant's Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.
3.21 Certificate of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.
3.22 Certification of Determination for 8% Cumulative Preferred Stock,
Series J. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8% Cumulative Preferred Stock, Series J and incorporated herein by
reference.
3.23 Certificate of Correction of Certificate of Determination for the 8.25%
Convertible Preferred Stock. Filed with Registrant's Registration
Statement No. 333-61045 and incorporated herein by reference.
3.24 Certification of Determination for 8-1/4% Cumulative Preferred Stock,
Series K. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-1/4% Cumulative Preferred Stock, Series K and incorporated herein
by reference.
3.25 Certificate of Determination for 8-1/4% Cumulative Preferred Stock,
Series L. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-1/4% Cumulative Preferred Stock, Series L and incorporated herein
by reference.
3.26 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series M. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.75% Cumulative Preferred Stock, Series M and incorporated herein
by reference.
3.27 Certificate of Determination for Equity Stock, Series AAA. Filed with
Registrant's Current Report on Form 8-K dated November 15, 1999 and
incorporated herein by reference.
3.28 Certification of Determination for 9.5% Cumulative Preferred Stock,
Series N. Filed with Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999 and incorporated herein by reference.
3.29 Certification of Determination for 9.125% Cumulative Preferred Stock,
Series O. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000 and incorporated herein by
reference.
3.30 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series P. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and incorporated herein by
reference.
38
3.31 Certificate of Determination for 8.600% Cumulative Preferred Stock,
Series Q. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.600% Cumulative Preferred Stock, Series Q and incorporated herein
by reference.
3.32 Amendment to Certificate of Determination for Equity Stock, Series A.
Filed herewith.
3.33 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
3.34 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
3.35 Amendment to Bylaws adopted on June 26, 1997. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.36 Amendment to Bylaws adopted on January 6, 1998. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.37 Amendment to Bylaws adopted on February 10, 1998. Filed with
Registrant's Current Report on Form 8-K dated February 10, 1998 and
incorporated herein by reference.
3.38 Amendment to Bylaws adopted on March 4, 1999. Filed with Registrant's
Current Report on Form 8-K dated March 4, 1999 and incorporated herein
by reference.
3.39 Amendment to Bylaws adopted on May 6, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
10.1 Second Amended and Restated Management Agreement by and among
Registrant and the entities listed therein dated as of November 16,
1995. Filed with PS Partners, Ltd.'s Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
10.2 Amended Management Agreement between Registrant and Public Storage
Commercial Properties Group, Inc. dated as of February 21, 1995. Filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.3 Loan Agreement between Registrant and Aetna Life Insurance Company
dated as of July 11, 1988. Filed with Registrant's Current Report on
Form 8-K dated July 14, 1988 and incorporated herein by reference.
10.4 Amendment to Loan Agreement between Registrant and Aetna Life Insurance
Company dated as of September 1, 1993. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
10.5 Second Amended and Restated Credit Agreement by and among Registrant,
Wells Fargo Bank, National Association, as agent, and the financial
institutions party thereto dated as of February 25, 1997. Filed with
Registrant's Registration Statement No. 333-22665 and incorporated
herein by reference.
10.6 Note Assumption and Exchange Agreement by and among Public Storage
Management, Inc., Public Storage, Inc., Registrant and the holders of
the notes dated as of November 13, 1995. Filed with Registrant's
Registration Statement No. 33-64971 and incorporated herein by
reference.
10.7 Registrant's 1990 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
39
10.8* Registrant's 1994 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
10.9* Registrant's 1996 Stock Option and Incentive Plan. Filed with
registrant's Annual Report on Form 10-K for the year ended December 31,
2000 and incorporated herein by reference.
10.10 Deposit Agreement dated as of December 13, 1995, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-7/8 Cumulative Preferred Stock, Series G. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8-7/8
Cumulative Preferred Stock, Series G and incorporated herein by
reference.
10.11 Deposit Agreement dated as of January 25, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8.45% Cumulative Preferred Stock, Series H. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8.45%
Cumulative Preferred Stock, Series H and incorporated herein by
reference.
10.12** Employment Agreement between Registrant and B. Wayne Hughes dated as of
November 16, 1995. Filed with Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference.
10.13 Deposit Agreement dated as of November 1, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-5/8% Cumulative Preferred Stock, Series I. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8-5/8%
Cumulative Preferred Stock, Series I and incorporated herein by
reference.
10.14 Limited Partnership Agreement of PSAF Development Partners, L. P.
between PSAF Development, Inc. and the Limited Partner dated as of
April 10, 1997. Filed with Registrant's Form 10-Q for the quarterly
period ended March 31, 1997 and incorporated herein by reference.
10.15 Deposit Agreement dated as of August 28, 1997 among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8% Cumulative Preferred Stock, Series J. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1,000 of a Share of 8% Cumulative
Preferred Stock, Series J and incorporated herein by reference.
10.16 Agreement of Limited Partnership of PS Business Parks, L. P. dated as
of March 17, 1998. Filed with PS Business Parks, Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998 and
incorporated herein by reference.
10.17 Deposit Agreement dated as of January 19, 1999 among Registrant,
BankBoston, N. A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of 8-1/4%
Cumulative Preferred Stock, Series K. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock,
Series K and incorporated herein by reference.
10.18 Agreement and Plan of Merger among Storage Trust Realty, Registrant and
Newco Merger Subsidiary, Inc. dated as of November 12, 1998. Filed with
Registrant's Registration Statement No. 333-68543 and incorporated
herein by reference.
40
10.19 Amendment No. 1 to Agreement and Plan of Merger among Storage Trust
Realty, Registrant, Newco Merger Subsidiary, Inc. and STR Merger
Subsidiary, Inc. dated as of January 19, 1999. Filed with Registrant's
Registration Statement No. 333-68543 and incorporated herein by
reference.
10.20 Amended and Restated Agreement of Limited Partnership of Storage Trust
Properties, L. P., dated as of March 12, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended June 30, 1999 and incorporated
herein by reference.
10.21* Storage Trust Realty 1994 Share Incentive Plan. Filed with Storage
Trust Realty's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.
10.22 Amended and Restated Storage Trust Realty Retention Bonus Plan
effective as of November 12, 1998. Filed with Registrant's Registration
Statement No. 333-68543 and incorporated herein by reference.
10.23 Deposit Agreement dated as of March 10, 1999 among Registrant, Bank
Boston, N.A. and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 8-1/4%
Cumulative Preferred Stock, Series L. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock,
Series L and incorporated herein by reference.
10.24 Note Purchase Agreement and Guaranty Agreement with respect to
$100,000,000 of Senior Notes of Storage Trust Properties, L.P. Filed
with Storage Trust Realty's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
10.25 Deposit Agreement dated as of August 17, 1999 among Registrant, Bank
Boston, N.A. and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 8.75%
Cumulative Preferred Stock, Series M. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.75% Cumulative Preferred Stock,
Series M and incorporated herein by reference.
10.26 Limited Partnership Agreement of PSAC Development Partners, L.P. among
PS Texas Holdings, Ltd., PS Pennsylvania Trust and PSAC Storage
Investors, L.L.C. dated as November 15, 1999. Filed with Registrant's
Current Report on Form 8-K dated November 15, 1999 and incorporated
herein by reference.
10.27 Agreement of Limited Liability Company of PSAC Storage Investors,
L.L.C. dated as of November 15, 1999. Filed with Registrant's Current
Report on Form 8-K dated November 15, 1999 and incorporated herein by
reference.
10.28 Deposit Agreement dated as of January 14, 2000 among Registrant,
BankBoston, N.A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of Equity
Stock, Series A. Filed with Registrant's Form 8-A/A Registration
Statement relating to the Depositary Shares Each Representing 1/1,000
of a Share of Equity Stock, Series A and incorporated herein by
reference.
10.29 Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. among PS Texas Holdings, Ltd. and the
Limited Partners dated as of March 29, 2000. Filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference.
10.30 Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. among PS Texas Holdings, Ltd. and the
Limited Partners dated as of August 11, 2000. Filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2000 and incorporated herein by reference.
41
10.31* Registrant's 2000 Non-Executive/Non-Director Stock Option and Incentive
Plan. Filed with Registrant's Registration Statement No. 333-52400 and
incorporated herein by reference.
10.32 Deposit Agreement dated as of January 19, 2001 among Registrant, Fleet
National Bank and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 8.600%
Cumulative Preferred Stock, Series Q. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.600% Cumulative Preferred Stock,
Series Q and incorporated herein by reference.
10.33* Registrant's 2001 Non-Executive/Non-Director Stock Option and Incentive
Plan. Filed with Registrant's Registration Statement No. 333-59218 and
incorporated herein by reference.
10.34* Registrant's 2001 Stock Option and Incentive Plan. Filed with
Registrant's Registration Statement No. 333-59218 and incorporated
herein by reference.
11 Statement Re Computation of Earnings Per Share. Filed herewith.
12 Statement Re Computation of Ratio of Earnings to Fixed Charges. Filed
herewith.
(b) Reports on Form 8-K.
The Company filed a Current Report on form 8-K dated April 5, 2001
(filed April 6, 2001), pursuant to Item 5, in connection with the
Company's public offering of depositary shares each representing 1/1000
of a share of Equity Stock, Series A in April 2001.
- --------------------
* Compensatory benefit plan.
** Management contract.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: August 13, 2001
PUBLIC STORAGE, INC.
BY: /s/ John Reyes
John Reyes
Senior Vice President and Chief Financial
Officer (Principal financial officer and duly
authorized officer)
43
Exhibit 3.32
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DETERMINATION OF
EQUITY STOCK, SERIES A OF
PUBLIC STORAGE, INC.,
a California corporation
Harvey Lenkin and David Goldberg certify that:
1. They are the President and Secretary, respectively, of Public
Storage, Inc., a California corporation (the "Corporation").
2. Clause (1) of Section (c) of the Certificate of Determination of
Equity Stock, Series A of the Corporation is amended to read as follows:
"(1) Except as provided in clause (9) of this Section (c), the shares
of this Series are not redeemable prior to March 31, 2010. On and after such
date, the shares of this Series are redeemable at the option of the Corporation,
by resolution of the Board of Directors, in whole or in part, from time to time
upon not less than 30 nor more than 60 days' notice, at a cash redemption price
of $24,500 per share, subject to adjustment as provided in clause (1) of Section
(e)."
3. The foregoing amendment was approved by the Board of Directors of
the Corporation.
4. The foregoing amendment was approved by the required vote of the
shareholders of the Corporation entitled to vote, in accordance with Section 902
of the General Corporation Law of California. The total number of outstanding
shares entitled to vote with respect to the foregoing amendment was 120,287,574
shares of Common Stock, 5,635.602 shares of Equity Stock, Series A, 225,000
shares of Equity Stock, Series AA and 4,289,544.236 shares of Equity Stock,
Series AAA. None of the Convertible Participating Preferred Stock or the
Convertible Preferred Stock, Series CC is outstanding. The number of shares
voting in favor of the foregoing amendment equaled or exceeded the vote
required. The required vote was (i) a majority of the voting power of the
outstanding shares of Common Stock and Equity Stock, Series A voting together as
a class (Equity Stock, Series A having 100 votes per share), (ii) a majority of
the outstanding shares of Equity Stock, Series A and (iii) a majority of the
outstanding shares of Equity Stock, Series A, Equity Stock, Series AA and Equity
Stock, Series AAA voting together as a class.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Date: May 10, 2001
/s/ Harvey Lenkin
-----------------
Harvey Lenkin, President
/s/ David Goldberg
------------------
David Goldberg, Secretary
PUBLIC STORAGE, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
For the three months ended For the six months ended
June 30, June 30,
----------------------- -----------------------
Earnings Per Share: 2001 2000 2001 2000
- --------------------------------------------------------------------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share data)
Net income .......................................................... $ 81,773 $ 74,303 $ 156,408 $ 146,864
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A ......................... (1,140) (1,140) (2,280) (2,280)
9.20% Cumulative Preferred Stock, Series B ....................... (1,372) (1,372) (2,744) (2,744)
Adjustable Rate Preferred Stock, Series C ........................ (506) (524) (1,012) (1,041)
9.50% Cumulative Preferred Stock, Series D ....................... (713) (713) (1,426) (1,426)
10.0% Cumulative Preferred Stock, Series E ....................... (1,372) (1,372) (2,744) (2,744)
9.75% Cumulative Preferred Stock, Series F ....................... (1,401) (1,401) (2,802) (2,802)
8.875% Cumulative Preferred Stock, Series G ...................... (3,828) (3,828) (7,656) (7,656)
8.45% Cumulative Preferred Stock, Series H ....................... (3,565) (3,565) (7,130) (7,130)
8.625% Cumulative Preferred Stock, Series I ...................... (2,156) (2,156) (4,312) (4,312)
8.00% Cumulative Preferred Stock, Series J ....................... (3,000) (3,000) (6,000) (6,000)
8.25% Cumulative Preferred Stock, Series K ....................... (2,372) (2,372) (4,744) (4,744)
8.25% Cumulative Preferred Stock, Series L ....................... (2,372) (2,372) (4,744) (4,744)
8.75% Cumulative Preferred Stock, Series M ....................... (1,230) (1,230) (2,460) (2,460)
8.60% Cumulative Preferred Stock, Series Q ....................... (3,709) -- (6,718) --
---------- ---------- ---------- ----------
Total preferred dividends .................................... (28,736) (25,045) (56,772) (50,083)
---------- ---------- ---------- ----------
$ 53,037 $ 49,258 $ 99,636 $ 96,781
========== ========== ========== ==========
Allocation of net income allocable to common shareholders to classes:
Net income allocable to shareholders of the
Equity Stock, Series A ....................................... 5,314 2,666 8,766 4,924
Net income allocable to shareholders of common
stock ........................................................ 47,723 46,592 90,870 91,857
---------- ---------- ---------- ----------
$ 53,037 $ 49,258 $ 99,636 $ 96,781
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic - weighted average common shares
outstanding .................................................... 120,734 131,588 124,403 132,184
Effect of dilutive stock options - based on
treasury stock method using average market .....................
price 905 146 727 151
---------- ---------- ---------- ----------
Diluted weighted average common shares
outstanding (1) ................................................ 121,639 131,734 125,130 132,335
========== ========== ========== ==========
Basic earnings per common share ..................................... $ 0.40 $ 0.35 $ 0.73 $ 0.69
========== ========== ========== ==========
Diluted earnings per common share (a) (b) ........................... $ 0.39 $ 0.35 $ 0.73 $ 0.69
========== ========== ========== ==========
(a) Diluted net income per common share is computed using the weighted average
common shares outstanding (adjusted for stock options). Commencing January
1, 2000, the 7,000,000 Class B common shares outstanding began to
participate in distributions of our earnings. Distributions per share of
Class B common stock are equal to 97% of the per share distribution paid to
our regular common shares. As a result of this participation in
distribution of earnings, for purposes of computing net income per common
share, we began to include 6,790,000 (7,000,000 x 97%) Class B common
shares in the weighted average common equivalent shares for the three
months ended March 31, 2000.
(b) There are no additional potentially dilutive or anti-dilutive securities
for the three or six months ended June 30, 2001 and 2000 within the
definitions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share." Accordingly, there is no separate presentation of a
determination of the impact of conversion of anti-dilutive securities (a)
Exhibit 11
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
Six Months Ended
June 30,
-----------------------------
2001 2000
------------ ------------
Net income $ 156,408 $ 146,864
Add: Minority interest in income....................... 23,370 14,854
Less: Minority interests in income which do not have fixed
charges.............................................. (4,846) (5,054)
------------ ------------
Income from continuing operations......................... 174,932 156,664
Interest expense....................................... 2,095 2,667
------------ ------------
Total Earnings Available to Cover Fixed Charges........... $ 177,027 $ 159,331
============ ============
Total Fixed Charges - Interest expense (including capitalized
interest).............................................. $ 6,314 $ 6,823
============ ============
Preferred Stock dividends................................. $ 56,772 $ 50,083
Preferred OP unit distributions........................... 17,010 8,336
------------ ------------
Total Preferred Distributions............................. $ 73,782 $ 58,419
============ ============
Total Combined Fixed Charges and Preferred
distributions.......................................... $ 80,096 $ 65,242
============ ============
Ratio of Earnings to Fixed Charges........................ 28.04x 23.35x
============ ============
Ratio of Earnings to Combined Fixed Charges and Preferred
distributions......................................... 2.21x 2.44x
============ ============
For the Year Ended December 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(Amounts in thousands, except ratios)
Net income $ 297,088 $ 287,885 $ 227,019 $ 178,649 $ 153,549
Add: Minority interest in income....................... 38,356 16,006 20,290 11,684 9,363
Less: Minority interests in income which do not have fixed
charges.............................................. (10,549) (13,362) (15,853) (10,375) (8,273)
------------ ------------ ------------ ------------ ------------
Income from continuing operations......................... 324,895 290,529 231,456 179,958 154,639
Interest expense....................................... 3,293 7,971 4,507 6,792 8,482
------------ ------------ ------------ ------------ ------------
Total Earnings Available to Cover Fixed Charges........... $ 328,188 $ 298,500 $ 235,963 $ 186,750 $ 163,121
============ ============ ============ ============ ============
Total Fixed Charges - Interest expense (including capitalized
interest).............................................. $ 13,071 $ 12,480 $ 7,988 $ 9,220 $ 10,343
============ ============ ============ ============ ============
Preferred Stock dividends................................. $ 100,138 $ 94,793 $ 78,375 $ 88,393 $ 68,599
Preferred OP unit distributions........................... 24,859 - - - -
------------ ------------ ------------ ------------ ------------
Total Preferred Distributions............................. $ 124,997 $ 94,793 $ 78,375 $ 88,393 $ 68,599
============ ============ ============ ============ ============
Total Combined Fixed Charges and Preferred
distributions.......................................... $ 138,068 $ 107,273 $ 86,363 $ 97,613 $ 78,942
============ ============ ============ ============ ============
Ratio of Earnings to Fixed Charges........................ 25.11x 23.92x 29.54x 20.25x 15.77x
============ ============ ============ ============ ============
Ratio of Earnings to Combined Fixed Charges and Preferred
distributions......................................... 2.38x 2.78x 2.73x 1.91x 2.07x
============ ============ ============ ============ ============
Exhibit 12
Six Months Ended
June 30,
---------------------------
2001 2000
----------- -----------
Supplemental disclosure of Ratio of Earnings before Interest, Taxes,
- --------------------------------------------------------------------
Depreciation and Amortization ("EBITDA") to fixed charges:
- ----------------------------------------------------------
EBITDA......................................................... $ 243,431 $ 225,298
Add back preferred minority OP unit distributions.............. 17,010 8,336
Interest expense............................................... 2,095 2,667
----------- -----------
Adjusted EBITDA available to cover fixed charges............... $ 262,536 $ 236,301
=========== ==========-
Total Fixed Charges - Interest expense (including capitalized
interest).................................................. $ 6,314 $ 6,823
=========== ==========-
Preferred Stock dividends...................................... $ 56,772 $ 50,083
Preferred OP unit distributions................................ 17,010 8,336
----------- -----------
Total Preferred Distributions.................................. $ 73,782 $ 58,419
=========== ==========-
Total Combined Fixed Charges and Preferred Distributions....... $ 80,096 $ 65,242
=========== ==========-
Ratio of EBITDA to Fixed Charges............................... 41.58x 34.63x
=========== ==========-
Ratio of EBITDA to Combined Fixed Charges and Preferred
Distributions.............................................. 3.28x 3.62x
=========== ==========-
For the Year Ended December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Supplemental disclosure of Ratio of Earnings before Interest, Taxes,
- --------------------------------------------------------------------
Depreciation and Amortization ("EBITDA") to fixed charges:
- ----------------------------------------------------------
EBITDA......................................................... $ 456,956 $ 433,877 $ 340,680 $ 273,628 $ 224,508
Add back preffered minority OP unit distributions.............. 24,859 - - - -
Interest expense............................................... 3,293 7,971 4,507 6,792 8,482
----------- ----------- ----------- ----------- -----------
Adjusted EBITDA available to cover fixed charges............... $ 485,108 $ 441,848 $ 345,187 $ 280,420 $ 232,990
=========== =========== =========== =========== ===========
Total Fixed Charges - Interest expense (including capitalized
interest).................................................. $ 13,071 $ 12,480 $ 7,988 $ 9,220 $ 10,343
=========== =========== =========== =========== ===========
Preferred Stock dividends...................................... $ 100,138 $ 94,793 $ 78,375 $ 88,393 $ 68,599
Preferred OP unit distributions................................ 24,859 - - - -
----------- ----------- ----------- ----------- -----------
Total Preferred Distributions.................................. $ 124,997 $ 94,793 $ 78,375 $ 88,393 $ 68,599
=========== =========== =========== =========== ===========
Total Combined Fixed Charges and Preferred Distributions....... $ 138,068 $ 107,273 $ 86,363 $ 97,613 $ 78,942
=========== =========== =========== =========== ===========
Ratio of EBITDA to Fixed Charges............................... 37.11x 35.40x 43.21x 30.41x 22.53x
=========== =========== =========== =========== ===========
Ratio of EBITDA to Combined Fixed Charges and Preferred
Distributions.............................................. 3.51x 4.12x 4.00x 2.87x 2.95x
=========== =========== =========== =========== ===========
Exhibit 12