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 September 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 November 8, 2001:
Common Stock, $.10 Par Value - 113,779,638 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
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2001 and 2000 2
Condensed Consolidated Statements of Shareholders' Equity
for the Nine Months Ended September 30, 2001 3
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 - 36
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
PART II. OTHER INFORMATION (Items 1 through 4 are not applicable)
-----------------
Item 5. Other Information 37
Item 6. Exhibits and Reports on Form 8-K 37 - 43
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
September 30, December 31,
2001 2000
-------------- --------------
(Unaudited)
ASSETS
------
Cash and cash equivalents.......................................... $ 288,393 $ 89,467
Real estate facilities, at cost:
Land.......................................................... 1,147,562 1,107,867
Buildings..................................................... 3,204,231 3,026,550
-------------- --------------
4,351,793 4,134,417
Accumulated depreciation...................................... (780,089) (668,018)
-------------- --------------
3,571,704 3,466,399
Construction in process....................................... 142,786 217,140
Land held for development..................................... 32,369 21,447
-------------- --------------
Total real estate......................................... 3,746,859 3,704,986
Investment in real estate entities................................. 464,442 448,928
Intangible assets, net............................................. 178,033 185,017
Mortgage notes receivable from affiliates.......................... 24,152 26,238
Other assets....................................................... 71,767 59,305
-------------- --------------
Total assets......................................... $ 4,773,646 $ 4,513,941
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable...................................................... $ 149,058 $ 156,003
Accrued and other liabilities...................................... 116,999 100,903
-------------- --------------
Total liabilities.................................... 266,057 256,906
Minority interest:
Preferred partnership interests............................... 335,000 365,000
Other......................................................... 168,102 167,918
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
11,161,500 shares issued and outstanding, (11,141,100 at December
31, 2000) at liquidation preference:
Cumulative Preferred Stock, issued in series.............. 1,665,150 1,155,150
Common Stock, $0.10 par value, 200,000,000 shares authorized,
113,416,605 shares issued and outstanding (123,703,874 at
December 31, 2000).......................................... 11,342 12,370
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,676.102 shares issued and outstanding (5,635.602
at December 31, 2000)....................................... - -
Class B Common Stock, $0.10 par value, 7,000,000 shares
authorized and issued....................................... 700 700
Paid-in capital............................................... 2,288,128 2,506,736
Cumulative net income......................................... 1,627,073 1,387,061
Cumulative distributions paid................................. (1,587,906) (1,337,900)
-------------- --------------
Total shareholders' equity................................ 4,004,487 3,724,117
-------------- --------------
Total liabilities and shareholders' equity........... $ 4,773,646 $ 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 Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues:
Rental income:
Self-storage facilities................... $ 186,615 $ 167,900 $ 537,530 $ 483,669
Commercial properties..................... 3,081 2,847 9,353 8,433
Containerized storage facilities.......... 13,019 11,045 35,275 27,834
Equity earnings of real estate entities........ 9,826 9,479 28,912 26,910
Interest and other income...................... 3,178 4,695 9,916 13,865
------------- ------------- ------------- -------------
215,719 195,966 620,986 560,711
------------- ------------- ------------- -------------
Expenses:
Cost of operations:
Self-storage facilities................... 58,680 54,455 169,753 156,084
Commercial properties..................... 1,013 926 2,845 2,756
Containerized storage facilities.......... 10,828 9,429 31,356 25,931
Depreciation and amortization................. 42,701 37,731 123,646 109,509
General and administrative.................... 5,965 5,436 16,549 14,057
Interest expense.............................. 928 626 3,023 3,293
------------- ------------- ------------- -------------
120,115 108,603 347,172 311,630
------------- ------------- ------------- -------------
Income before minority interest and gain on
disposition of real estate.................. 95,604 87,363 273,814 249,081
Minority interest in income:
Preferred partnership interests............... (7,820) (8,018) (24,830) (16,354)
Other partnership interests................... (4,180) (3,693) (10,540) (10,211)
------------- ------------- ------------- -------------
Income before gain on disposition of real estate. 83,604 75,652 238,444 222,516
Gain on disposition of real estate............ - - 1,568 -
------------- ------------- ------------- -------------
Net income....................................... $ 83,604 $ 75,652 $ 240,012 $ 222,516
============= ============= ============= =============
Net income allocation:
Allocable to preferred shareholders............ $ 28,736 $ 25,027 $ 85,508 $ 75,110
Allocable to equity shareholders, Series A..... 5,314 2,666 14,080 7,590
Allocable to common shareholders............... 49,554 47,959 140,424 139,816
------------- ------------- ------------- -------------
$ 83,604 $ 75,652 $ 240,012 $ 222,516
============= ============= ============= =============
Per common share:
Net income per share - Basic................... $0.41 $0.37 $1.14 $1.06
============= ============= ============= =============
Net income per share - Diluted................. $0.41 $0.37 $1.13 $1.06
============= ============= ============= =============
Net income per depositary share of Equity Stock,
Series A - Basic and Diluted................ $0.61 $0.61 $1.84 $1.84
============= ============= ============= =============
Weighted average common shares - Basic......... 120,092 131,084 122,951 131,815
============= ============= ============= =============
Weighted average common shares - Diluted....... 121,754 131,261 123,977 131,975
============= ============= ============= =============
Weighted average depositary shares of Equity
Stock, Series A - Basic and Diluted......... 8,676 4,353 7,663 4,131
============= ============= ============= =============
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)
Series R (20,400 shares)............................ 510,000 - - (16,915)
Redemption of Series G preferred stock, including
redemption costs (6,900 shares)..................... (172,500) - - (25)
Issuance of common stock via exercise of stock
options (281,324 shares)............................ - 28 - 6,040
Repurchase of common stock (10,568,593 shares) ........ - (1,056) - (275,214)
Issuance of Equity Stock, Series A (3,040.500 shares).. - - - 72,130
Issuance of Put Option (Note 8)....................... - - - 910
Net income............................................. - - - -
Cash distributions (Note 8):
Cumulative Senior Preferred Stock .................. - - - -
Equity Stock, Series A.............................. - - - -
Class B Common Stock................................ - - - -
Common Stock........................................ - - - -
------------ --------- ------------- ------------
Balances at September 30, 2001......................... $ 1,665,150 $11,342 $ 700 $2,288,128
============ ========= ============= ============
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
Series R (20,400 shares)............................ - - 493,085
Redemption of Series G preferred stock, including
redemption costs (6,900 shares)..................... - - (172,525)
Issuance of common stock via exercise of stock
options (281,324 shares)............................ - - 6,068
Repurchase of common stock (10,568,593 shares) ........ - - (276,270)
Issuance of Equity Stock, Series A (3,040.500 shares).. - - 72,130
Issuance of Put Option (Note 8)....................... - - 910
Net income............................................. 240,012 - 240,012
Cash distributions (Note 8):
Cumulative Senior Preferred Stock .................. - (85,508) (85,508)
Equity Stock, Series A.............................. - (14,080) (14,080)
Class B Common Stock................................ - (8,420) (8,420)
Common Stock........................................ - (141,998) (141,998)
------------- ------------- ---------------
Balances at September 30, 2001......................... $ 1,627,073 $ (1,587,906) $4,004,487
============= ============= ===============
See accompanying notes.
3
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Nine Months Ended
September 30,
---------------------------------
2001 2000
-------------- --------------
Cash flows from operating activities:
Net income.................................................................. $ 240,012 $ 222,516
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on disposition of real estate........................................ (1,568) -
Depreciation and amortization............................................. 123,646 109,509
Depreciation included in equity earnings of real estate entities.......... 17,727 15,522
Minority interest in income............................................... 35,370 26,565
-------------- --------------
Total adjustments..................................................... 175,175 151,596
-------------- --------------
Net cash provided by operating activities......................... 415,187 374,112
-------------- --------------
Cash flows from investing activities:
Principal payments received on notes receivable from affiliates........... 2,086 2,573
Mortgage notes receivable from affiliates................................. - (11,400)
Capital improvements to real estate facilities............................ (24,484) (16,605)
Construction in process and acquisition of land held for development...... (135,207) (159,403)
Acquisition of minority interests......................................... (11,212) (29,700)
Proceeds from the disposition of real estate facilities................... 13,415 8,652
Proceeds from the disposition of real estate investments.................. - 21,929
Acquisition of investment in real estate entities......................... (33,241) (63,380)
Acquisition of real estate facilities..................................... (3,503) (37,756)
Acquisition cost of business combinations................................. - (66,776)
-------------- --------------
Net cash used in investing activities............................. (192,146) (351,866)
-------------- --------------
Cash flows from financing activities:
Principal payments on notes payable....................................... (6,945) (6,615)
Net proceeds from the issuance of common stock............................ 6,068 4,404
Net proceeds from the issuance of preferred stock......................... 660,051 -
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............. - 361,250
Repurchase of common stock................................................ (276,270) (65,004)
Repurchase of preferred partnership units................................. (30,000) -
Redemption of preferred stock............................................. (172,525) -
Distributions paid to shareholders........................................ (250,006) (285,831)
Distributions to holders of preferred partnership units................... (24,830) (16,354)
Distributions from operations to minority interests....................... (16,274) (15,224)
Investment by minority interests.......................................... 13,142 15,241
Net reinvestment (divestment) of minority interests....................... 1,068 (7,569)
Other..................................................................... (634) 3,130
-------------- --------------
Net cash (used in) provided by financing activities............... (24,115) 27,228
-------------- --------------
Net increase in cash and cash equivalents..................................... 198,926 49,474
Cash and cash equivalents at the beginning of the period...................... 89,467 55,125
-------------- --------------
Cash and cash equivalents at the end of the period............................ $ 288,393 $ 104,599
============== ==============
See accompanying notes.
4
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
(Continued)
For the Nine Months Ended
September 30,
-----------------------------------
2001 2000
--------------- ---------------
Supplemental schedule of non-cash investing and financing activities:
Business combinations:
Real estate facilities........................................... $ - $ (82,163)
Other assets..................................................... - (183)
Accrued and other liabilities.................................... - 1,177
Reduction to investment in real estate entities in connection with:
Business combinations............................................ - 14,393
Acquisition of real estate facilities............................ - 3,144
Real estate acquired in exchange for equity stock and reduction to
investment in real estate entities............................... - (4,169)
Acquisition of minority interest and real estate in exchange for
common stock:
Real estate facilities......................................... - (17,103)
Minority interest.............................................. - (19,426)
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......... - 1,025
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 - 6,829
See accompanying notes.
5
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 2001, PSPUD had 53 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 September 30, 2001, we had direct and indirect equity
interests in 1,378 storage facilities located in 37 states and operating
under the "Public Storage" name. We also have direct and indirect equity
interests in approximately 14.0 million net rentable square feet of
commercial space located in 11 states.
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 the Consolidated Entities own a total of
1,264 storage facilities and six commercial facilities.
At September 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 44% of the common
interest in PS Business Parks, Inc. ("PSB"), which owns and operates 13.6
million net rentable square feet of commercial space at September 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 September 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 intangibles), 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 $30,629,000 and $28,544,000 at September
30, 2001 and December 31, 2000, respectively. Included in depreciation and
amortization expense for the three months ended September 30, 2001 and 2000
is $1,379,000 and $1,204,000, respectively, and $4,268,000 and $3,612,000
for the nine months ended September 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
September 30, 2001 intangible assets are net of accumulated amortization of
$54,693,000 ($47,709,000 at December 31, 2000). Included in depreciation
and amortization expense for the three and nine months ended September 30,
2001 and 2000 is $2,328,000 and $6,984,000, 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 $25,027,000 for the three months ended September 30, 2001 and 2000,
respectively, and $85,508,000 and $75,110,000 for the nine months ended
September 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 nine months ended September 30, 2001 was allocated net income of
approximately $5,314,000 and $14,080,000, respectively, as compared to the
three and nine months ended September 30, 2000 of approximately $2,666,000
and $7,590,000, respectively. The remaining $49,554,000 and $140,424,000,
for the three and nine months ended September 30, 2001 respectively, and
$47,959,000 and $139,816,000, for the three and nine months ended September
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 nine months ended September 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............................ 191,105
Acquisition of real estate facilities........... 3,503
Disposition of real estate facilities........... (4,636)
Acquisition of minority interest (Note 7)...... 2,920
Capital improvements............................ 24,484
---------------
Balance at September 30, 2001................... 4,351,793
---------------
Accumulated depreciation:
Balance at December 31, 2000.................... (668,018)
Disposition of real estate facilities........... 323
Additions during the year....................... (112,394)
---------------
Balance at September 30, 2001................... (780,089)
---------------
Construction in process:
Balance at December 31, 2000.................... 217,140
Current development............................. 122,946
Transfers to land held for development.......... (6,195)
Developed facilities............................ (191,105)
---------------
Balance at September 30, 2001................... 142,786
---------------
Land held for development:
Balance at December 31, 2000.................... 21,447
Acquisitions.................................... 12,261
Transfers from construction in process.......... 6,195
Dispositions.................................... (7,534)
---------------
Balance at September 30, 2001................... 32,369
---------------
Total real estate facilities at September 30, 2001 $ 3,746,859
===============
10
During the nine months ended September 30, 2001, we opened 17
newly developed facilities having approximately 1,230,000 aggregate net
rentable square feet and a total cost of $119.1 million. In addition,
expansions of existing facilities totaling $72.1 million were completed
during the nine months ended September 30, 2001. Construction in process at
September 30, 2001 consists of 50 storage facilities and expansions of
existing storage facilities. Land held for development consists of 15
parcels of land held for development.
During 2001, we disposed of a storage facility and a parcel of
land, in separate transactions, for an aggregate of $13,415,000 cash. An
aggregate gain of $1,568,000 was recorded on these dispositions.
In August 2001, we purchased an existing storage facility from a
third party for approximately $3,503,000 cash.
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 nine months ended September 30,
2001 was $2,044,000 and $6,263,000, respectively, compared to $2,672,000
and $6,828,000, respectively, for the same periods in 2000.
5. Investment in real estate entities
----------------------------------
At September 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 nine months ended September 30,
2001 we recognized earnings from our investments of $9,826,000 and
$28,912,000, respectively, compared to $9,479,000 and $26,910,000 for the
same period in 2000. We received distributions from our investments of
$15,607,000 and $12,755,000 for the nine months ended September 30, 2001
and 2000, respectively.
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
Development Joint Venture has a total of 47 opened facilities with a total
cost of $232 million and was fully committed at December 31, 2000. The
Company has the right, but not the obligation, to purchase the interest of
our joint venture partner between approximately December, 2002 and April,
2004. The purchase price will be based upon the joint venture partner's pro
rata share, as defined, of the value of the assets of the partnership. The
purchase price, however, will be limited to an amount that provides the
limited partner with a maximum return of 11.5%. If the Company does not
exercise its right, the assets of the partnership are liquidated, with the
proceeds distributed to the partners in accordance with the partnership
agreement.
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 September 30, 2001 are as follows:
For the nine months ended September 30, 2001
----------------------------------------------------------------------
Other Equity Development
Investments Joint Venture PSB Total
-------------- -------------- -------------- --------------
(Amounts in thousands)
Rental income (a)............................ $ 34,203 $ 24,650 $ 121,964 $ 180,817
Other income (a)............................. 1,574 455 2,493 4,522
-------------- -------------- -------------- --------------
Total revenues (a)........................... 35,777 25,105 124,457 185,339
-------------- -------------- -------------- --------------
Cost of operations (a)....................... 10,292 9,648 33,423 53,363
Depreciation (a)............................. 3,382 5,141 30,058 38,581
Other expenses (a)........................... 1,723 150 4,089 5,962
-------------- -------------- -------------- --------------
Total expenses (a)........................... 15,397 14,939 67,570 97,906
-------------- -------------- -------------- --------------
Income before minority interest (a).......... 20,380 10,166 56,887 87,433
Minority interest (a)........................ - - (19,743) (19,743)
-------------- -------------- -------------- --------------
Net income (a)............................... $ 20,380 $ 10,166 $ 37,144 $ 67,690
============== ============== ============== ==============
At September 30, 2001:
Real estate, net (a)......................... $ 65,388 $ 214,679 $ 941,998 $ 1,222,065
Total assets (a)............................. 110,982 219,862 1,028,505 1,359,349
Total debt (a)............................... 17,843 - 30,354 48,197
Total liabilities (a)........................ 27,740 3,643 65,556 96,939
Minority interest (a)........................ - - 360,088 360,088
Total equity (a)............................. 83,257 216,219 602,861 902,337
The Company's investment (book value) at
September 30, 2001......................... $ 131,161 $ 64,866 $ 268,415 $ 464,442
The Company's effective average common
ownership interest at September 30, 2001... 46% 30% 44%
(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 September 30, 2001, we had no borrowings on our
line of credit. See Note 11.
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. The following table sets forth the components of
our minority interest and minority interest in income (all amounts in
thousands):
Minority interest in income for
Minority interest at: the nine months ended:
--------------------------------- -------------------------------
September 30, December 31, September 30, September 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Preferred Partnership Interests........ $ 335,000 $ 365,000 $ 24,830 $ 16,354
============== ============== ============== ==============
Consolidated Development Joint Venture. $ 86,360 $ 77,126 $ 725 $ 167
Other.................................. 81,742 90,792 9,815 10,044
-------------- -------------- -------------- --------------
Other Minority Interests........... $ 168,102 $ 167,918 $ 10,540 $ 10,211
============== ============== ============== ==============
In November 1999, we formed a development joint venture (the
"Consolidated 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 $86,360,000 relative to the joint venture, primarily
representing total contributions received from our joint venture partner
and income allocated to our joint venture partner, net of distributions.
Minority interest increased $13,142,000 since December 31, 2000 as a result
of contributions by our joint venture partner, increased $725,000 as a
result of income allocated to our joint venture partner, and decreased by
$4,633,000 as a result of distributions to our joint venture partner. The
term of the joint venture is 15 years; however, during the sixth year the
joint venture partner has the right to cause an early termination of the
partnership. If the joint venture partner exercises this right, we then
have the option, but not the obligation, to acquire the joint venture
partner's interest for a value that will allow our joint venture partner to
receive an annual return of 10.75%. If the Company does not exercise its
option to acquire the joint venture partner's interest, the partnership's
assets will be sold to third parties and the proceeds distributed to the
Company and our joint venture partner in accordance with the partnership
agreement. If the joint venture partner does not exercise its right to
early termination during the sixth year, the partnership will be liquidated
15 years after its formation with the assets sold to third parties and the
proceeds distributed to the Company and our joint venture partner in
accordance with the partnership agreement.
On March 17, 2000, we issued $240.0 million of 9.5% Series N
Cumulative Redeemable Perpetual Preferred Units, 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 (collectively, the "Preferred Partnership
Interests"). 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.
13
In August 2001, we purchased $30 million of the 9.125% Series O
Cumulative Redeemable Perpetual Preferred Units at par.
The $335 million in Preferred OP Units outstanding at September
30, 2001 are reflected as minority interest. The holders of the Preferred
OP Units were paid distributions in aggregate of approximately $7,820,000
and $24,830,000 for the three and nine months ended September 30, 2001,
respectively, compared to $8,018,000 and $16,354,000 for the three and nine
months ended September 30, 2000, respectively, and received a corresponding
allocation of minority interest in earnings for these periods.
As of September 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 is allocated to minority interests
with respect to OP Units on a per unit basis equal to diluted earnings per
common share. During the nine months ended September 30, 2001, no units
were redeemed or issued.
In the nine months ended September 30, 2001, the Company acquired
other minority interests in the Consolidated Entities for an aggregate cost
of $11,212,000 cash; these acquisitions had the effect of reducing minority
interest by $8,292,000, with the excess of cost over underlying book value
($2,920,000) allocated to real estate.
8. Shareholders' equity
--------------------
Preferred stock
---------------
At September 30, 2001 and December 31, 2000, we had the following
series of Preferred Stock outstanding:
At September 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
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 - -
Series R 8.000% 20,400 510,000 - -
------------ ------------ ------------ ---------------
Total Senior Preferred Stock 11,161,500 $ 1,665,150 11,141,100 $ 1,155,150
============ ============ ============ ===============
14
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 R preferred stock was issued on September 28, 2001, resulting in
net proceeds from the issuance of approximately $493,085,000. The Series G
preferred stock was redeemed at par on September 28, 2001 for a total cost,
which includes redemption costs, of $172,525,000.
The Series A through Series R 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 September 30, 2001, there were no
dividends in arrears and the Debt Ratio was 2.7%.
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 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, Series Q -
January 19, 2006 and Series R - September 28, 2006. On or after the
respective dates, each of the series of Senior Preferred Stock will be
redeemable (the Series C, H and I are presently 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 H through Series M and Series Q through Series
R), plus accrued and unpaid dividends.
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 September 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
15
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.
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 nine months ended September 30, 2001, the Company
repurchased a total of 10,568,593 shares, for a total aggregate cost of
approximately $276,270,000. From the initial authorization through
September 30, 2001, the Company has repurchased a total of 21,469,020
shares of common stock at an aggregate cost of approximately $534,890,000.
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, could have
been settled by us, at our option, if the price was below $26.26 on certain
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. The Put Option expired without being
exercised.
16
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, Series 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 $2.83 for the four consecutive calendar quarters ended September
30, 2001.
Dividends
---------
The following summarizes dividends during the first nine months of
2001:
Distributions Per
Share or Total
Preferred Stock: Depositary Share Distributions
- ---------------- ------------------- --------------
Series A.............................. $1.875 $ 3,422,000
Series B.............................. $1.725 4,116,000
Series C.............................. $1.266 1,519,000
Series D.............................. $1.782 2,137,000
Series E.............................. $1.875 4,116,000
Series F.............................. $1.828 4,205,000
Series G.............................. $1.665 11,482,000
Series H.............................. $1.584 10,694,000
Series I.............................. $1.617 6,469,000
Series J.............................. $1.500 9,000,000
Series K.............................. $1.547 7,116,000
Series L.............................. $1.547 7,116,000
Series M.............................. $1.640 3,690,000
Series Q.............................. $1.511 10,426,000
Series R.............................. - -
--------------
85,508,000
Common Stock:
Equity Stock, Series A................ $1.838 14,080,000
Common (1)........................... $1.240 141,998,000
Class B Common (1)................... $1.203 8,420,000
--------------
Total dividends.................... $ 250,006,000
==============
(1) Common dividends include regular distributions of $0.89 per common
share and a special distribution of $0.35 per common share.
17
The dividend rate on the Series Q preferred stock was prorated
from January 19, 2001 (the date of issuance) through March 31, 2001. The
dividend rate on the Series C Preferred Stock for the nine months ended
September 30, 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
December 31, 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.
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."
RECONCILIATION OF REVENUES BY SEGMENT
- -------------------------------------
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2001 2000 Change 2001 2000 Change
--------- --------- --------- --------- --------- ---------
(Dollar amounts in thousands)
Self storage
- ------------
Self storage property rentals........................ $186,615 $167,900 $18,715 $537,530 $483,669 $53,861
Equity in earnings - self storage property operations 5,788 5,006 782 16,636 15,988 648
Equity in earnings - depreciation (self storage) .... (1,726) (1,989) 263 (5,105) (5,015) (90)
--------- --------- --------- --------- --------- ---------
Self storage segment revenues.................... 190,677 170,917 19,760 549,061 494,642 54,419
--------- --------- --------- --------- --------- ---------
Containerized storage ................................. 13,019 11,045 1,974 35,275 27,834 7,441
- --------------------- --------- --------- --------- --------- --------- ---------
Commercial properties
- ---------- ----------
Commercial property rentals.......................... 3,081 2,847 234 9,353 8,433 920
Equity in earnings - commercial property operations.. 13,330 10,878 2,452 37,368 31,436 5,932
Equity in earnings - depreciation (commercial
properties)....................................... (4,787) (3,403) (1,384) (12,622) (10,507) (2,115)
--------- --------- --------- --------- --------- ---------
Commercial properties segment revenues.......... 11,624 10,322 1,302 34,099 29,362 4,737
--------- --------- --------- --------- --------- ---------
Other items not allocated to segments
- -------------------------------------
Equity in earnings - general and administrative and (2,779) (1,013) (1,766) (7,365) (4,992) (2,373)
other.............................................
Interest and other income............................ 3,178 4,695 (1,517) 9,916 13,865 (3,949)
--------- --------- --------- --------- --------- ---------
Total other items not allocated to segments...... 399 3,682 (3,283) 2,551 8,873 (6,322)
--------- --------- --------- --------- --------- ---------
Total revenues................................... $215,719 $195,966 $19,753 $620,986 $560,711 $60,275
========= ========= ========= ========= ========= =========
18
RECONCILIATION OF NET INCOME BY SEGMENT
- ---------------------------------------
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2001 2000 Change 2001 2000 Change
--------- --------- --------- --------- --------- --------
(Dollar amounts in thousands)
Self storage
Self storage properties ............................. $127,935 $113,445 $14,490 $367,777 $327,585 $40,192
Depreciation and amortization - self storage......... (40,305) (35,844) (4,461) (116,614) (103,988) (12,626)
Equity in earnings - self storage property operations 5,788 5,006 782 16,636 15,988 648
Equity in earnings - depreciation (self-storage) .... (1,726) (1,989) 263 (5,105) (5,015) (90)
--------- --------- --------- --------- --------- --------
Total self storage segment net income............ 91,692 80,618 11,074 262,694 234,570 28,124
--------- --------- --------- --------- --------- --------
Containerized storage
Containerized storage operations..................... 2,191 1,616 575 3,919 1,903 2,016
Containerized storage depreciation................... (1,763) (1,317) (446) (5,029) (3,951) (1,078)
--------- --------- --------- --------- --------- --------
Total containerized storage segment net income... 428 299 129 (1,110) (2,048) 938
--------- --------- --------- --------- --------- --------
Commercial properties
Commercial properties................................ 2,068 1,921 147 6,508 5,677 831
Depreciation and amortization - commercial properties (633) (570) (63) (2,003) (1,570) (433)
Equity in earnings - commercial property operations.. 13,330 10,878 2,452 37,368 31,436 5,932
Equity in earnings - depreciation (commercial
properties) ...................................... (4,787) (3,403) (1,384) (12,622) (10,507) (2,115)
--------- --------- --------- --------- --------- --------
Total commercial property segment net income..... 9,978 8,826 1,152 29,251 25,036 4,215
--------- --------- --------- --------- --------- --------
Other items not allocated to segments
Equity in earnings - general and administrative and (2,779) (1,013) (1,766) (7,365) (4,992) (2,373)
other.............................................
Interest and other income............................ 3,178 4,695 (1,517) 9,916 13,865 (3,949)
General and administrative........................... (5,965) (5,436) (529) (16,549) (14,057) (2,492)
Interest expense..................................... (928) (626) (302) (3,023) (3,293) 270
Gain on disposition of real estate................... - - - 1,568 - 1,568
Minority interest in income.......................... (12,000) (11,711) (289) (35,370) (26,565) (8,805)
--------- --------- --------- --------- --------- --------
Total other items not allocated to segments...... (18,494) (14,091) (4,403) (50,823) (35,042) (15,781)
--------- --------- --------- --------- --------- --------
Total net income ................................ $83,604 $75,652 $7,952 $240,012 $222,516 $17,496
========= ========= ========= ========= ========= ========
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.
11. Subsequent Events
-----------------
In October 2001, the Company purchased, at par, $50,000,000 of
8.75% Series P Cumulative Perpetual Preferred Redeemable Units.
In October 2001, the Company redeemed all outstanding shares of
its 8.45% Cumulative Preferred Stock, Series H held by the depositary and,
as a result, the depositary redeemed in full all outstanding depositary
shares representing interests in the Series H Preferred Stock at a
redemption price of $25 per depositary share for a total of $168,750,000
plus accrued dividends.
In October 2001, the Company completed a public offering of
5,750,000 depositary shares ($25 stated value per depositary share) each
representing 1/1,000 of a share of 7.875% Cumulative Preferred Stock,
Series S, raising net proceeds of approximately $139,000,000.
On November 13, 2001, the Company redeemed all outstanding shares
of its 8 5/8% Cumulative Preferred Stock, Series I held by the depositary
and, as a result, the depositary redeemed in full all outstanding
depositary shares representing interests in the Series I Preferred Stock at
a redemption price of $25 per depositary share for a total of $100,000,000
plus accrued dividends.
In November 2001, we entered into a new agreement for a $200
million revolving line of credit (the "Credit Agreement") to replace our
existing $150 million line of credit due to expire on July 1, 2002. The
Credit Agreement has a maturity date of October 31, 2004, extendable for a
period of one year on each anniversary of the credit agreement and bears an
interest rate ranging from the London Interbank Offered Rate ("LIBOR") plus
0.45% to LIBOR plus 1.25% depending on our credit ratings (currently
0.45%). In addition, we are required to pay a quarterly commitment fee
ranging from 0.20% per annum to 0.30% per annum depending on our credit
ratings (currently 0.20%). The Credit Agreement allows us, at our option,
to request the banks to propose an interest rate they would charge on
specific borrowings not to exceed $70 million; however, in no case may the
interest rate proposal be greater than the amount provided by the Credit
Agreement. At November 9, 2001, we had no borrowings on this line of
credit.
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 September 30, 2001 was
$83,604,000 compared to $75,652,000 for the same period in 2000, representing an
increase of $7,952,000 or 10.5%. 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 property additions.
During the three months ended September 30, 2001 and 2000, we allocated
$28,736,000 and $25,027,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing an increase of 14.8%.
This increase is due to an additional issuance of preferred stock in 2001. In
addition, during the three months ended September 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 Stock, Series A 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
$49,554,000 for the three months ended September 30, 2001 compared to
$47,959,000 for the same period in 2000, representing an increase of 3.3%. Net
income per common share was $0.41 on a diluted basis (based on 121,754,000
weighted average diluted common equivalent shares) for the three months ended
September 30, 2001 compared to $0.37 per common share on a diluted basis (based
on 131,261,000 weighted average diluted common equivalent shares), representing
an increase of 10.8%. The year over year increase in net income on a per share
basis (10.8%) was significantly higher than the year over year increase in
aggregate net income allocated to the common shareholders (3.3%) due primarily
to the reduction in weighted average shares outstanding as a result of our share
repurchase activities.
Net income for the nine months ended September 30, 2001 was
$240,012,000 compared to $222,516,000 for the same period in 2000, representing
an increase of $17,496,000 or 7.9%. 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 property additions, and an increase in the
allocation of income to minority interests. During 2000 we issued preferred
operating partnership units and, as a result, distributions to these unitholders
increased from $16,354,000 in the nine months ended September 30, 2000 to
$24,830,000 in the same period in 2001. Unlike distributions to preferred
shareholders, distributions to preferred unitholders are presented as minority
21
interest in income and a reduction in net income. Primarily as a result of these
distributions, minority interest in income increased $8,805,000 for the nine
months ended September 30, 2001 as compared to the same period in 2000.
During the nine months ended September 30, 2001 and 2000, we allocated
$85,508,000 and $75,110,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing an increase of 13.8%.
This increase is due to an additional issuance of preferred stock in 2001. In
addition, during the nine months ended September 30, 2001 and 2000, we allocated
$14,080,000 and $7,590,000 of our net income (based on distributions paid),
respectively, to our Equity Stock, Series A shareholders, representing an
increase of 85.5%. 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
$140,424,000 for the nine months ended September 30, 2001 compared to
$139,816,000 for the same period in 2000, representing an increase of
approximately 0.4%. Net income per common share was $1.13 on a diluted basis
(based on 123,977,000 weighted average diluted common equivalent shares) for the
nine months ended September 30, 2001 compared to $1.06 per common share on a
diluted basis (based on 131,975,000 weighted average diluted common equivalent
shares), representing an increase of 6.6%. The year over year increase in net
income on a per share basis (6.6%) was significantly higher than the year over
year increase in aggregate net income allocated to our regular common
shareholders (0.4%) due to 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
nine months ended September 30, 2001 compared to the same period in 2000 due to
the opening of newly developed real estate properties and acquisitions
throughout 2000 and 2001. As a result of these items, the number of storage
facilities included in the consolidated financial statements has increased from
1,238 at September 30, 2000 to 1,264 at September 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 Nine months ended
September 30, September 30,
------------------------ ------------------------
Percentage Percentage
2001 2000 Change 2001 2000 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands, except per square foot data)
Rental income (a)
- -------------
Consistent Group............... $ 143,965 $ 134,072 7.4% $ 417,658 $ 389,115 7.3%
Other Facilities............... 42,650 33,828 26.1% 119,872 94,554 26.8%
----------- ----------- ----------- ----------- ----------- -----------
186,615 167,900 11.1% 537,530 483,669 11.1%
----------- ----------- ----------- ----------- ----------- -----------
Cost of Operations
Consistent Group............... 41,707 39,795 4.8% 120,082 118,145 1.6%
Other Facilities............... 16,973 14,660 15.8% 49,671 37,939 30.9%
----------- ----------- ----------- ----------- ----------- -----------
58,680 54,455 7.8% 169,753 156,084 8.8%
----------- ----------- ----------- ----------- ----------- -----------
Net operating income
Consistent Group............... 102,258 94,277 8.5% 297,576 270,970 9.8%
Other Facilities............... 25,677 19,168 34.0% 70,201 56,615 24.0%
----------- ----------- ----------- ----------- ----------- -----------
127,935 113,445 12.8% 367,777 327,585 12.3%
----------- ----------- ----------- ----------- ----------- -----------
Depreciation and amortization (40,305) (35,844) 12.4% (116,614) (103,988) 12.1%
----------- ----------- ----------- ----------- ----------- -----------
Net Income $ 87,630 $ 77,601 12.9% $ 251,163 $ 223,597 12.3%
=========== =========== =========== =========== =========== ===========
Consistent Group data
Gross margin..................... 71.0% 70.3% 0.7% 71.2% 69.6% 1.6%
Weighted average for the period:
Occupancy (b)................ 91.2% 92.8% (1.6)% 90.4% 92.4% (2.0)%
Realized annual rent per square
foot (c)..................... 11.73 10.73 9.3% 11.45 10.42 9.9%
Number of facilities at end of period:
Consistent group................. 913 913 0.0% 913 913 0.0%
Other Facilities................. 351 325 8.0% 351 325 8.0%
Net rentable sq. ft. at end of period
(in thousands):
Consistent group................. 53,882 53,882 0.0% 53,882 53,882 0.0%
Other Facilities................. 22,503 20,003 12.5% 22,503 20,003 12.5%
(a) Rental income includes late charges and administrative fees. For the
Consistent Group, late charges and administrative fees in aggregate
totaled $5,020,000 and $4,976,000 for the three months ended September
30, 2001 and 2000, respectively, and $14,655,000 and $14,483,000 for
the nine months ended September 30, 2001 and 2000, respectively.
(b) Occupancies in the above table represent weighted average occupancy
levels over the entire three and nine month periods. The average
occupancy level at September 30, 2001 was 90.7% as compared to 92.2% at
September 30, 2000, representing a decline of 1.5%.
(c) 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.
23
The Consistent Group's net operating income increased 8.5% and 9.8%,
respectively, for the three and nine months ended September 30, 2001 as compared
to the same periods in 2000. Rental income increased 7.4% and 7.3% for the three
and nine months ended September 30, 2001, respectively, and cost of operations
increased 4.8% and 1.6% for the three and nine months ended September 30, 2001,
respectively, as compared to the same periods in 2000.
The increase in rental income is attributable to a 9.3% and 9.9%
increase in realized rent per occupied square foot for the three and nine months
ended September 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 nine months periods. We experienced a
decline of 1.6% and 2.0% in weighted average occupancy levels during the three
and nine month periods.
Promotional discounts for the three and nine months ended September 30,
2001 totaled $256,000 and $3,905,000, respectively, as compared to $3,021,000
and $11,305,000, respectively, for the same periods in 2000.
We believe that our ability to raise rents and reduce promotional
discounts and thereby increase rental income was facilitated by 1) more
aggressive marketing efforts, including a $3,970,000 increase in television
advertising expenditures for the nine months ended September 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 for the Consistent Group increased 4.8% in the
quarter ended September 30, 2001 as compared to the same period in 2000, and
increased 1.6% in the nine months ended September 30, 2001 as compared to the
same period in 2000. The expense moderation on a year to date basis 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 Nine months ended
September 30, September 30,
----------------------------- ----------------------------
2001 2000 Change 2001 2000 Change
------------- ------------- ------------- ------------- ------------- -------------
(Amounts in thousands)
Payroll expense $ 11,246 $ 11,169 0.7% $ 33,019 $ 33,572 (1.6)%
Property taxes 11,477 11,395 0.7% 34,037 33,692 1.0%
Repairs and maintenance 2,790 4,222 (33.9)% 8,680 11,374 (23.7)%
Advertising 5,505 1,609 242.1% 10,801 5,673 90.4%
Telephone reservation center costs 2,022 2,446 (17.3)% 6,219 6,827 (8.9)%
Other 8,667 8,954 (3.2)% 27,326 27,007 1.2%
------------- ------------- ------------- ------------- ------------- -------------
$ 41,707 $ 39,795 4.8% $ 120,082 $ 118,145 1.6%
============= ============= ============= ============= ============= =============
24
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 77% of the total cost of operations for the nine
months ended September 30, 2001. With respect to the Consistent Group of
facilities, cost of operations for the quarter ended September 30, 2001
increased approximately 4.8% compared to the same period of last year. This
increase was primarily a result of increases in advertising offset by decreases
in repairs and maintenance and telephone reservation center costs. The increase
in advertising for the three and nine months ended September 30, 2001 is
principally due to increased television advertising.
During 1999, 2000 and the nine months ended September 30, 2001, we have
opened 47 newly developed facilities with a total cost of approximately $264.8
million. Included in the self-storage operations table above, under the caption
"Other Facilities", are rental income and cost of operations of $4,668,000 and
$2,828,000, respectively, for the three months ended September 30, 2001, and
$10,220,000 and $6,969,000, respectively, for the nine months ended September
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 $1,259,000 and $843,000, respectively, for the three
months ended September 30, 2000, and $2,006,000 and $1,736,000, respectively,
for the nine months ended September 30, 2000, with respect to these facilities.
We also completed expansions of storage facilities with aggregate costs of
approximately $72.1 million in the nine months ended September 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 September 30, 2001, the 47 newly developed facilities had an average
occupancy level of approximately 60%. 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 the 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 $181,000 and $46,000, respectively, for
the three months ended September 30, 2001, and $495,000 and $173,000,
respectively, for the nine months ended September 30, 2001, with respect to
these facilities. Included in commercial property operations are rental income
and cost of operations of $174,000 and $60,000, respectively, for the three
months ended September 30, 2000, and $310,000 and $81,000, respectively, for the
nine months ended September 30, 2000, with respect to these facilities. The
following table sets forth the historical commercial property amounts included
in the financial statements:
25
COMMERCIAL PROPERTY OPERATIONS
- ------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
2001 2000 Change 2001 2000 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
Rental income............. $ 3,081 $ 2,847 8.2% $ 9,353 $ 8,433 10.9%
Cost of operations........ 1,013 926 9.4% 2,845 2,756 3.2%
--------- --------- --------- --------- --------- ---------
Net operating income prior
to depreciation........ 2,068 1,921 7.7% 6,508 5,677 14.6%
Depreciation.............. 633 570 11.1% 2,003 1,570 27.6%
--------- --------- --------- --------- --------- ---------
Net income................ $ 1,435 $ 1,351 6.2% $ 4,505 $ 4,107 9.7%
========= ========= ========= ========= ========= =========
Containerized Storage Facilities Operations: At September 30, 2001,
PSPUD operated 53 facilities. PSPUD generated operating income of $428,000
compared to $299,000 for the three months ended September 30, 2001 and 2000,
respectively. For the nine months ended September 30, 2001 and 2000, we incurred
operating losses totaling approximately $1,110,000 and $2,048,000, respectively:
CONTAINERIZED STORAGE FACILITIES
- --------------------------------
Three months ended Nine months ended
September 30, September 30,
---------------------------- -----------------------------
2001 2000 Change 2001 2000 Change
------------ ------------ ------------ ------------ ------------ ------------
(Amounts in thousands)
Rental and other income ......... $ 13,019 $ 11,045 $ 1,974 $ 35,275 $ 27,834 $ 7,441
------------ ------------ ------------ ------------ ------------ ------------
Cost of operations:
Direct operating costs......... 9,428 7,289 2,139 26,569 19,312 7,257
Facility lease expense......... 1,400 2,140 (740) 4,787 6,619 (1,832)
------------ ------------ ------------ ------------ ------------ ------------
Total cost of operations..... 10,828 9,429 1,399 31,356 25,931 5,425
Operating income prior to
depreciation................... 2,191 1,616 575 3,919 1,903 2,016
Depreciation (a)............... 1,763 1,317 446 5,029 3,951 1,078
------------ ------------ ------------ ------------ ------------ ------------
Operating income (losses)........ $ 428 $ 299 $ 129 $ (1,110) $ (2,048) $ 938
============ ============ ============ ============ ============ ============
(a) Depreciation includes $384,000 and $113,000 for the three months ended
September 30, 2001 and 2000, respectively, and $761,000 and $339,000
for the nine months ended September 30, 2001 and 2000, respectively,
with respect to real estate facilities.
At September 30, 2001, 21 of the 53 containerized storage facilities
were leased from third parties. We are currently developing nine facilities
(which includes one storage facility that is being converted to a combination
facility) that combine self-storage and containerized storage space in the same
location. These facilities are expected to replace seven 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 September 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.
26
Equity in earnings of real estate entities 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 self-storage
facilities, which we manage. PSB is an equity real estate investment trust
specializing in the ownership, management, acquisition, development and
redevelopment of business parks containing principally office "flex" space. In
the aggregate, the Unconsolidated Entities own a total of 114 storage facilities
and PSB has interest in 13.6 million net rentable square feet of commercial
space. As of September 30, 2001, PSB had interests in approximately 13.6 million
net rentable square feet located in 9 states. The following table sets forth the
significant components of equity in earnings of real estate entities:
HISTORICAL SUMMARY
- ------------------
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
2001 2000 Change 2001 2000 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands)
Property operations:
PSB...................... $ 13,330 $ 10,878 $ 2,452 $ 37,368 $ 31,436 $ 5,932
Development Joint Venture 1,651 1,197 454 4,500 3,169 1,331
Other partnerships....... 4,137 3,809 328 12,136 12,819 (683)
----------- ----------- ----------- ----------- ----------- -----------
19,118 15,884 3,234 54,004 47,424 6,580
----------- ----------- ----------- ----------- ----------- -----------
Depreciation:
PSB...................... (4,787) (3,403) (1,384) (12,622) (10,507) (2,115)
Development Joint Venture (530) (479) (51) (1,542) (1,407) (135)
Other partnerships....... (1,196) (1,510) 314 (3,563) (3,608) 45
----------- ----------- ----------- ----------- ----------- -----------
(6,513) (5,392) (1,121) (17,727) (15,522) (2,205)
----------- ----------- ----------- ----------- ----------- -----------
Other: (a)
PSB...................... (3,200) (1,678) (1,522) (7,742) (5,117) (2,625)
Development Joint Venture 43 65 (22) 92 80 12
Other partnerships....... 378 600 (222) 285 45 240
----------- ----------- ----------- ----------- ----------- -----------
(2,779) (1,013) (1,766) (7,365) (4,992) (2,373)
----------- ----------- ----------- ----------- ----------- -----------
Total equity in earnings of
real estate entities....... $ 9,826 $ 9,479 $ 347 $ 28,912 $ 26,910 $ 2,002
=========== =========== =========== =========== =========== ===========
(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 nine months ended September 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 September 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.
27
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 nine months
ended September 30, 2001 as compared to the same periods in 2000 primarily as a
result of lower cash balances invested in interest bearing accounts, as well as
lower interest rates.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
has increased $4,970,000 to $42,701,000 for the three months ended September 30,
2001 as compared to $37,731,000 for the same period in 2000. Depreciation and
amortization expense has increased $14,137,000 to $123,646,000 for the nine
months ended September 30, 2001 as compared to $109,509,000 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 $6,984,000 for the three and nine months
ended September 30, 2001 and 2000. Included in depreciation and amortization
expense for the three months ended September 30, 2001 and 2000 is $1,379,000 and
$1,204,000, respectively, and $4,268,000 and $3,612,000 for the nine months
ended September 30, 2001 and 2000, respectively, of depreciation of furniture,
fixtures, and equipment of the containerized storage business.
GENERAL AND ADMINISTRATIVE: General and administrative expense has
increased $529,000 to $5,965,000 for the three months ended September 30, 2001
as compared to $5,436,000 for the same period in 2000. General and
administrative expense has increased $2,492,000 to $16,549,000 for the nine
months ended September 30, 2001 as compared to $14,057,000 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 increase for the quarter is due primarily to an increase in lease
termination expense associated with leased containerized storage facilities
which were replaced by newly-developed facilities and an increase in overhead
associated with the acquisition and development of real estate facilities,
offset partially by decreases in consulting and other expenses.
The year to date increase is due primarily to an increase in lease
termination expense associated with leased containerized storage facilities
which were replaced by newly-developed facilities and an increase in overhead
associated with the acquisition and development of real estate facilities, as
well as severance as a result of employee terminations. The increase in the nine
months ended September 30, 2001 as compared to 2000 of these three items
aggregated approximately $4,020,000.
INTEREST EXPENSE: Interest expense was $928,000 and $3,023,000 for the
three and nine months ended September 30, 2001, respectively, as compared to
$626,000 and $3,293,000, respectively, for the same periods in 2000. Interest
expense was net of capitalized interest of $2,044,000 and $6,263,000 for the
three and nine months ended September 30, 2001, respectively, as compared to
$2,672,000 and $6,828,000, respectively, for the same periods in 2000; the
decrease in capitalized interest was due to lower levels of development
activities. Interest expense, prior to capitalized interest, decreased from
$3,298,000 for the three months ended September 30, 2000 to $2,972,000 for the
three months ended September 30, 2001 and from $10,121,000 in the nine months
ended September 30, 2000 to $9,286,000 for the nine months ended September 30,
2001. The decreases in interest expense, prior to capitalized interest, for the
three and nine 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.
28
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. In August 2001, we repurchased, at par,
$30 million of 9.125% Series O Cumulative Redeemable Perpetual Preferred Units.
For the nine months ended September 30, 2001 and 2000, the holders of these
units were paid in aggregate approximately $24,830,000 and $16,354,000,
respectively, in distributions and received a corresponding allocation of
minority interest in earnings for the partial period in which the units were
outstanding.
Minority interest in income - other partnership interests (excluding
amounts paid to the perpetual preferred unitholders), was $4,180,000 and
$10,540,000, respectively, for the three and nine months ended September 30,
2001, compared to $3,693,000 and $10,211,000, respectively, for the same periods
in 2000.
SUPPLEMENTAL PROPERTY DATA AND TRENDS
- --------------------------------------------------------------------------------
At September 30, 2001, there were approximately 45 ownership entities
owning in aggregate 1,378 storage facilities, including the facilities which we
own and/or operate. At September 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 1,264
storage facilities are owned by the Company and the Consolidated Entities.
The following table summarizes our investment in storage facilities as
of September 30, 2001 (net rentable square feet in thousands):
Net Rentable
Square Footage
Number of of Storage
Storage Facilities Facilities
------------------- --------------
Wholly-owned facilities.................... 643 40,258
Facilities owned by Consolidated Entities.. 621 36,127
------------------- --------------
Total consolidated facilities.......... 1,264 76,385
Facilities owned by Unconsolidated Entities 114 6,732
------------------- --------------
Total facilities in which the Company
has an ownership interest............ 1,378 83,117
=================== ==============
In addition to the Company's interest in storage facilities noted
above, the Company and the Consolidated Entities own 6 commercial facilities
with an aggregate of 394,000 net rentable square feet. We also have a 44% common
interest in PSB, which owns 13.6 million net rentable square feet of commercial
space.
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 1,378 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:
29
SAME STORE MINI-WAREHOUSE FACILITIES (945 FACILITIES)
- -----------------------------------------------------
(historical property operations)
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 Change 2001 2000 Change
------------ ------------ ------------ ------------ ------------ ------------
(Amounts in thousands)
Rental income (a)................... $ 150,525 $ 139,829 7.6% $ 436,376 $ 405,896 7.5%
Cost of operations (b)............. 42,559 40,595 4.8% 123,179 121,211 1.6%
------------ ------------ ------------ ------------ ------------ ------------
Net operating income................ $ 107,966 $ 99,234 8.8% $ 313,197 $ 284,685 10.0%
============ ============ ============ ============ ============ ============
Gross profit margin (c)............. 71.7% 71.0% 0.7% 71.8% 70.1% 1.7%
Weighted Average:
- ----------------
Occupancy (d)................... 91.3% 93.0% (1.7)% 90.5% 92.7% (2.2)%
Realized annual rent per sq. ft. (e) $12.01 $10.94 9.8% $11.71 $10.62 10.3%
(a) Rental income includes late charges and administrative fees of $5.2
million and $5.1 million for the three months ended September 30, 2001
and 2000, respectively and $15.1 million and $14.9 million for the nine
months ended September 30, 2001 and 2000, respectively. Rental income
for the Same Store facilities is net of discounts offered to new
tenants. Discounts totaled $0.3 million and $4.0 million, respectively,
for the three and nine months ended September 30, 2001, respectively as
compared to $3.1 million and $11.5 million for the same periods in
2000.
(b) Cost of operations consists of the following:
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2001 2000 Change 2001 2000 Change
------------ ------------ ------------ ------------ ------------ ------------
(Amounts in thousands)
Payroll expense $ 11,503 $ 11,491 0.1% $ 33,829 $ 34,622 (2.3)%
Property taxes 11,688 11,517 1.5% 35,002 34,444 1.6%
Repairs and maintenance 2,900 4,257 (31.9)% 9,000 11,706 (23.1)%
Advertising 5,567 1,672 233.0% 10,988 5,837 88.2%
Telephone reservation center costs 2,061 2,486 (17.1)% 6,341 6,922 (8.4)%
Other 8,840 9,172 (3.6)% 28,019 27,680 1.2%
------------ ------------ ------------ ------------ ------------ ------------
$ 42,559 $ 40,595 4.8% $ 123,179 $ 121,211 1.6%
============ ============ ============ ============ ============ ============
(c) Gross profit margin is computed by dividing property net operating
income (before depreciation expense) by rental revenues.
(d) Occupancies in the above table represent weighted average occupancy
levels over the entire three and nine month periods. The average
occupancy level at September 30, 2001 was 90.8% as compared to 92.5% at
September 30, 2000, representing a decline of 1.7%.
(e) 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.
Net operating income increased 8.8% in the quarter ended September 30,
2001 as compared to the same period in 2000, with rental income increasing 7.6%
and cost of operations increasing 4.8%.
30
The increase in rental income is attributable to a 9.8% increase in
realized rent per occupied square foot partially offset by a reduction in
weighted average occupancy levels 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 promotional discounts offered have resulted in a reduction in weighted
average occupancy levels for both the three and nine months periods. We
experienced a decline of 1.7% and 2.2% in weighted average occupancy levels
during the three and nine month periods, respectively.
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 $4.0 million in the nine
months ended September 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.
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.
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.
31
For the nine months ended
September 30,
------------------------------
2001 2000
------------ ------------
(Amounts in thousands)
Net income........................................................................... $ 240,012 $ 222,516
Less - Gain on sale of real estate................................................... (1,568) -
Depreciation and amortization (a).................................................... 123,646 109,509
Depreciation from Unconsolidated Entities............................................ 17,727 15,522
Minority interest in income.......................................................... 35,370 26,565
------------ ------------
Net cash provided by operating activities.......................................... 415,187 374,112
Allocable to minority interests (Preferred OP Units).................................. (24,830) (16,354)
Allocable to minority interests (Common equity)....................................... (16,274) (15,224)
------------ ------------
Cash from operations allocable to the Company's shareholders......................... 374,083 342,534
Less: preferred stock dividends...................................................... (85,508) (75,110)
Less: equity stock, Series A dividends............................................... (14,080) (7,590)
------------ ------------
Cash from operations available to common shareholders................................ 274,495 259,834
Capital improvements to maintain facilities:......................................... (24,484) (16,605)
Add back: minority interest share of capital improvements to maintain facilities..... 452 385
------------ ------------
Cash available for principal payments on debt, common dividends and reinvestment..... 250,463 243,614
Cash distributions to common and Class B common shareholders (b)..................... (150,418) (165,055)
------------ ------------
Cash available for principal payments on debt and reinvestment....................... $ 100,045 $ 78,559
============ ============
(a) Depreciation and amortization includes $4,268,000 and $3,612,000 with
respect to non-real estate assets for the nine months ended September
30, 2001 and 2000, respectively.
(b) Cash distributions to common shareholders for the nine months ended
September 30, 2001 and 2000 include regular common distributions of
$0.89 per share and $0.66 per share, respectively. The regular
quarterly common dividend paid in September 2001 was $0.45 per share,
an increase of $0.23 from the previous regular quarterly common
dividend of $0.22 per share. In addition, for the three months ended
September 30, 2001 and 2000, a special distribution was declared and
paid in the amount of $0.35 per common share and $0.60 per common
share, respectively.
We expect to fund our growth strategies with cash on hand at September
30, 2001, internally generated retained cash flows, proceeds from issuing equity
securities and borrowings under our $200 million credit facility.
Our portfolio of real estate facilities remains substantially
unencumbered. At September 30, 2001, we had mortgage debt outstanding of $24.6
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.
ISSUANCES OF EQUITY SECURITIES: We have completed the following
issuances of equity during 2001:
* During the nine months ended September 30, 2001, we raised aggregate
net proceeds of $660,051,000 from issuances of our Cumulative Preferred
Stock, as follows. In January 2001, we 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 and
in September 2001, we completed a public offering of 20,400,000
depositary shares ($25 stated value per depositary share) each
representing 1/1,000 of a share of 8.0% Cumulative Preferred Stock,
Series R, raising net proceeds of approximately $493,085,000.
32
* During the nine months ended September 30, 2001, we raised aggregate
net proceeds of $72,130,000 from issuances of our Equity Stock, Series
A, as follows. In April 2001, we 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 and in May 2001, we 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.
* In October 2001, we completed a public offering of 5,750,000 depositary
shares ($25 stated value per depositary share) each representing
1/1,000 of a share of 7.875% Cumulative Preferred Stock, Series S,
raising net proceeds of approximately $139,000,000.
Approximately $521.3 million of the total $632.1 million in net
proceeds from the issuance of Series R and S were used to fund redemptions of
preferred stock and purchases of preferred operating partnership units noted
below.
Recent Redemptions of Preferred Stock and Purchases of Preferred
Operating Partnership Units: During 2001, we have completed the following
redemptions and purchases of preferred equity:
* In August 2001, we purchased, at par, $30,000,000 of 9.125% Series O
Cumulative Perpetual Preferred Redeemable Units of an operating
partnership of the Company.
* In September 2001, we redeemed all outstanding shares of our 8 7/8%
Cumulative Preferred Stock, Series G held by the depositary and, as a
result, the depositary redeemed all 6,900,000 depositary shares
representing interests in its 8 7/8% Cumulative Preferred Stock, Series
G at a redemption price of $25 per depositary share for a total of
$172,500,000 plus accrued dividends.
* In October 2001, we redeemed all outstanding shares of our 8.45%
Cumulative Preferred Stock, Series H held by the depositary and, as a
result, the depositary redeemed all 6,750,000 depositary shares
representing interests in its 8.45% Cumulative Preferred Stock, Series
H at a redemption price of $25 per depositary share for a total of
$168,750,000 plus accrued dividends.
* In October 2001, we purchased, at par, $50,000,000 of 8.75% Series P
Cumulative Perpetual Preferred Redeemable Units of an operating
partnership of the Company.
* On November 13, 2001, we redeemed all outstanding shares of our 8 5/8%
Cumulative Preferred Stock, Series I held by the depositary and, as a
result, the depositary redeemed all 4,000,000 depositary shares
representing interests in its 8 5/8% Cumulative Preferred Stock, Series
I at a redemption price of $25 per depositary share for a total of
$100,000,000 plus accrued dividends.
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.
During the nine months ended September 30, 2001 and 2000, we paid cash
dividends totaling $85,508,000 and $75,110,000, respectively, to the holders of
our Senior Preferred Stock. The amounts paid in 2001 include $10,426,000 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 September 30,
2001 to be approximately $140.4 million. With the issuance of Series S and the
redemption of Series H and Series I during the fourth quarter of 2001, we
estimate the total annual distribution requirement with respect to the Senior
Preferred Stock to be approximately $128.9 million. The total distribution
requirement with respect to Senior Preferred Stock for fiscal 2001 is estimated
at $118.0 million.
33
During the nine months ended September 30, 2001 and 2000, we paid cash
dividends totaling $14,080,000 and $7,590,000, respectively, to the holders of
Equity Stock, Series A. With respect to the Equity Stock, Series A outstanding
at September 30, 2001, we estimate the total annual regular distribution to be
approximately $21.3 million assuming that dividends of at least $0.49 per share
per year are paid to the common shareholders. The total distribution with
respect to Equity Stock, Series A for fiscal 2001 is estimated at $19.4 million.
During the nine months ended September 30, 2001 and 2000, we paid
dividends totaling $150,418,000 and $247,141,000, respectively, to the holders
of our common stock and Class B common stock. Included in the amounts paid in
2000 is a special distribution declared in 1999 but paid in 2000 totaling
approximately $82,086,000, consisting of $38,076,000 in cash and $44,010,000 in
the issuance of depositary shares of Equity Stock, Series A. Distributions for
the nine months ended September 30, 2001 and 2000, include regular common
distributions of $0.89 per share ($0.22 per share for each of the quarters ended
March 31, 2001 and June 30, 2001 and $0.45 per share for the quarter ended
September 30, 2001) and $0.66 per share ($0.22 per share per quarter),
respectively. In addition, for the three months ended September 30, 2001 and
2000, a special distribution was declared in the amount of $0.35 per common
share and $0.60 per common share, respectively. Based upon shares outstanding at
September 30, 2001 and a regular quarterly distribution of $0.45 per share, we
estimate a dividend with respect to our common and Class B Common shares of
$54.1 million for the fourth quarter of 2001.
During the nine months ended September 30, 2001 and 2000, we paid cash
dividends totaling $24,830,000 and $16,354,000, respectively, to the holders of
our preferred operating partnership units. The total annual distribution
requirement with respect to the preferred operating partnership units
outstanding at September 30, 2001 is estimated at $31.2 million. With the
repurchase of preferred operating partnership units in October 2001 noted above,
we estimate the total annual distribution requirement with respect to the
preferred operating partnership units to be $26.9 million. The total
distribution requirement with respect to the preferred operating partnership
units for the period outstanding during fiscal 2001 is estimated at $31.7
million.
CAPITAL IMPROVEMENT REQUIREMENTS: During 2001, we have budgeted
approximately $26,800,000 for capital improvements. During the nine months ended
September 30, 2001, we incurred capital improvements of approximately
$24,484,000.
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 September 30, 2001, we had total outstanding notes payable of $149,058,000.
Approximate principal maturities of notes payable at September 30, 2001 are as
follows:
Unsecured
Senior Notes Mortgage debt Total
--------------- ------------- -------------
(Amounts in thousands)
2001 (remainder of).......... $ 4,750 $ 715 $ 5,465
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 $ 24,558 $ 149,058
=============== ============= =============
Weighted average rate........ 7.5% 10.2% 7.9%
=============== ============= =============
REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, our
Board of Directors authorized the repurchase from time to time of up to
25,000,000 shares of our common stock on the open market or in privately
negotiated transactions. In the nine months ended September 30, 2001, we
repurchased a total of 10,568,593 shares for a total aggregate cost of $276.3
million. From the initial authorization through September 30, 2001, we
repurchased a total of 21,469,020 shares of common stock at an aggregate cost of
approximately $534.9 million.
34
DEVELOPMENT OF SELF-STORAGE FACILITIES: At September 30, 2001, the
Company and the Consolidated Development Joint Venture have a "pipeline" of 50
projects that are in construction or are expected to begin construction 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 50 projects have total estimated costs of approximately $334.7
million, of which $142.8 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 $191.9 million on these 50 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 $203.1 million and costs incurred through
September 30, 2001 of approximately $138.0 million. The remaining 18 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 approximately $125 million to $150 million per year.
In addition to the projects in the pipeline, at September 30, 2001, we
had approximately $32.4 million of land held for development.
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 September 30, 2001 Openings
------------- ---------------- ------------------ -------------------
Development - land acquired at 9/30/01
Self-storage facilities............... 19 $ 116,930 $ 72,070 Q4'01 - Q1'03
Expansions of existing self-storage
facilities........................ 5 17,088 7,380 Q4'01 - Q3'03
Combination facilities................ 8 69,100 58,520 Q4'01 - Q3'02
------------- ---------------- ------------------
Total............................ 32 203,118 137,970
------------- ---------------- ------------------
Potential development - land to be
acquired after 9/30/01
Self-storage facilities - development
starts estimated by 12/31/01...... 5 34,566 1,688 Q2'02 - Q4'02
Self-storage facilities - development
starts estimated after 12/31/01....... 13 97,001 3,128 Q4'02 - Q3'03
------------- ---------------- ------------------
Total............................ 18 131,567 4,816
------------- ---------------- ------------------
Totals........................... 50 $ 334,685 $ 142,786
============= ================ ==================
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.
35
FUNDS FROM OPERATIONS: Total funds from operations or "FFO" increased
to $369,815,000 for the nine months ended September 30, 2001 compared to
$338,922,000 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 $284,307,000 for the nine months ended September 30,
2001 compared to $263,812,000 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.
36
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 September 30, 2001, our debt as a percentage of total
shareholders' equity (based on book values) was 3.7%.
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 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, Series Q - January 19, 2006, Series R - September 28, 2006 and Series
S - October 31, 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 through Series S), plus accrued and unpaid dividends. The Series H
Preferred Stock was redeemed on October 5, 2001. The Series I Preferred Stock
was redeemed on November 13, 2001.
Our market risk sensitive instruments include notes payable, which
totaled $149.1 million at September 30, 2001. Substantially all of the Company's
notes payable bear interest at fixed rates. See " " - 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 September 30, 2001.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
- --------------------------
On November 1, 2001, the Company entered into a new $200 million
revolving credit line with a group of banks with Wells Fargo acting as agent.
This line of credit replaces the existing $150 million line of credit. The
credit facility bears interest on borrowings at LIBOR plus .045%. The credit
agreement is file herein as Exhibit 10.37. See Note 11 to the financial
statements of the Company for the quarter ended September 30, 2001, for more
information.
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.
37
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.
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.
38
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.
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 with Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2001 and incorporated herein by reference.
3.33 Certificate of Determination for 8.000% Cumulative Preferred Stock,
Series R. Filed with Registrant's Form 8-A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.000% Cumulative Preferred Stock, Series R and incorporated herein
by reference.
3.34 Certificate of Determination for 7.875% Cumulative Preferred Stock,
Series S. Filed with Registrant's Form 8-A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 7.875% Cumulative Preferred Stock, Series S and incorporated herein
by reference.
3.35 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
3.36 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
3.37 Amendment to Bylaws adopted on June 26, 1997. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
39
3.38 Amendment to Bylaws adopted on January 6, 1998. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.39 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.
3.40 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.
3.41 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.
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.
40
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.
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.
41
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.
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.
42
10.35 Deposit Agreement dated as of September 28, 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 8.000% Cumulative Preferred Stock, Series R. Filed with Registrant's
Form 8-A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.000% Cumulative Preferred Stock,
Series R and incorporated herein by reference.
10.36 Deposit Agreement dated as of October 31, 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 7.875%
Cumulative Preferred Stock, Series S. Filed with Registrant's Form 8-A
Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 7.875% Cumulative Preferred Stock,
Series S and incorporated herein by reference.
10.37 Credit Agreement by and among Registrant, Wells Fargo Bank, National
Association, as agent, and the financial institutions party thereto
dated as of November 1, 2001. Filed herewith.
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 September 4, 2001
(filed September 5, 2001), pursuant to Item 5, in connection with the
Company's public offering of depositary shares each representing 1/1000
of a share of 8.000% Cumulative Preferred Stock, Series R in September
2001.
- --------------------
* Compensatory benefit plan.
** Management contract.
43
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: November 14, 2001
PUBLIC STORAGE, INC.
BY: /s/ John Reyes
--------------
John Reyes
Senior Vice President and Chief Financial Officer
(Principal financial officer and duly authorized
officer)
44