SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) September 6, 1996 ----------------- PUBLIC STORAGE, INC. -------------------- (Exact name of registrant as specified in its charter) California 1-8389 95-3551121 ---------- ------ ---------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification Number) 701 Western Ave. Glendale, California 91201-2397 ------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 244-8080 -------------- N/A --- (Former name or former address, if changed since last report) ITEM 5. Other Events ------------ HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS Page References ---------- Report of Independent Auditors....................................... 3 Combined Summary of Historical Information Relating to Operating Revenues and Specified Expenses - Certain Properties................................. 4 Notes to Combined Summary of Historical Information Relating to Operating Revenues and Specified Expenses - Certain Properties....................................... 5 Pro Forma Consolidated Financial Statements ------------------------------------------- Pro Forma Consolidated Balance Sheet at June 30, 1996.............. 12 Pro Forma Consolidated Statements of Income: For the six months ended June 30, 1996........................... 17 For the year ended December 31, 1995............................. 18 ITEM 7. Financial Statements and Exhibits. ---------------------------------- EXHIBITS 23 Consent of Independent Auditors. Filed herewith. 2 Report of Independent Auditors The Board of Directors Public Storage, Inc. We have audited the accompanying combined summary of historical information relating to operating revenues and specified expenses - certain properties (the "Combined Summary") for the properties indicated in Note 1 for the years ended December 31, 1995, 1994 and 1993. The Combined Summary is the responsibility of the Company's management. Our responsibility is to express an opinion on the Combined Summary based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Combined Summary presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Combined Summary presents fairly the operating revenues and specified expenses, exclusive of expenses described in Note 2, for the properties identified in Note 1 for the years ended December 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles and the applicable accounting rules and regulations of the Securities and Exchange Commission. ERNST & YOUNG LLP September 6, 1996 Los Angeles, California 3 COMBINED SUMMARY OF HISTORICAL INFORMATION RELATING TO OPERATING REVENUES AND SPECIFIED EXPENSES - CERTAIN PROPERTIES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 FOR THE PROPERTIES IDENTIFIED IN NOTE 1 1995 1994 1993 ------------ ------------ ------------ Operating revenue - rental income $90,996,000 $89,581,000 $82,105,000 Specified expenses - Cost of operations 33,988,000 33,523,000 31,852,000 ------------ ------------ ------------ Excess of operating revenues over specified expenses $57,008,000 $56,058,000 $50,253,000 =========== =========== =========== See Accompanying Notes to Combined Summary of Historical Information Related to Operating Revenues and Specified Expenses - Certain Properties 4 NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION RELATED TO OPERATING REVENUES AND SPECIFIED EXPENSES - CERTAIN PROPERTIES 1. BACKGROUND AND BASIS FOR COMBINATION ------------------------------------ The accompanying combined summary of historical information relating to operating revenues and specified expenses certain properties (the "Combined Summary") include the results of operations for the years ended December 31, 1995, 1994 and 1993 for the following properties in which Public Storage, Inc. (the "Company") has acquired an interest or is probable of acquisition by the Company. The properties were acquired or proposed to be acquired primarily from affiliates of the Company: Properties Acquired from January 1, 1996 to June 30, 1996 --------------------------------------------------------- Property Location Date of Acquisition Property Location Date of Acquisition - ----------------- ------------------- ----------------- ------------------- Bensenville, IL January 1, 1996 Baltimore (Liberty Rd.), MD March 26, 1996 Louisville, KY January 1, 1996 Carrollton, TX March 26, 1996 San Jose, CA January 1, 1996 Dallas, TX March 26, 1996 Englewood, CO January 1, 1996 Houston (Fondren Rd.), TX March 26, 1996 W. Hollywood, CA January 1, 1996 Houston (Interstate 45), TX March 26, 1996 Orland Hills, IL January 1, 1996 Plano, TX March 26, 1996 Merrionette Park, IL January 1, 1996 Milwaukee, WI March 26, 1996 Denver, CO January 1, 1996 San Jose, CA March 26, 1996 Tigard, OR January 1, 1996 Irvine (Alton Pkwy.), CA March 26, 1996 Coram, NY January 1, 1996 Irvine (Hughes Dr.), CA March 26, 1996 Houston, TX January 1, 1996 Oakland, CA March 26, 1996 Kent, WA January 1, 1996 Saratoga, CA March 26, 1996 Turnersville, NJ January 1, 1996 Torrance, CA March 26, 1996 Sewell, NJ January 1, 1996 West Haven, CT March 26, 1996 Maple Shade, NJ January 1, 1996 Jacksonville, FL March 26, 1996 Hyattsville, MD January 1, 1996 Baltimore (Interstate 695), MD March 26, 1996 Waterbury, CT January 1, 1996 Baltimore (Liberty Rd.), MD March 26, 1996 Bedford Heights, OH January 1, 1996 Carrollton, TX March 26, 1996 Livonia, MI January 1, 1996 Dallas, TX March 26, 1996 Sunland, CA January 1, 1996 Houston (Fondren Rd.), TX March 26, 1996 Des Moines, WA January 1, 1996 Houston (Interstate 45), TX March 26, 1996 Oxonhill, MD January 1, 1996 Plano, TX March 26, 1996 Sacramento, CA January 1, 1996 Milwaukee, WI March 26, 1996 Houston, TX January 1, 1996 San Jose, CA March 26, 1996 San Pablo, CA January 1, 1996 San Diego, CA April 1, 1996 Bowie, D.C. January 1, 1996 Miami, FL April 1, 1996 Milwaukee, WI January 1, 1996 Silver Springs, MD April 1, 1996 Clinton, MD January 1, 1996 Chicago (East 95th), IL April 1, 1996 Irvine (Alton Pkwy.), CA March 26, 1996 Chicago (Harlem Ave.), IL April 1, 1996 Irvine (Hughes Dr.), CA March 26, 1996 St. Charles, MO April 1, 1996 Oakland, CA March 26, 1996 Chicago (Frontage Rd.), IL April 1, 1996 Saratoga, CA March 26, 1996 St. Louis, MO April 1, 1996 Torrance, CA March 26, 1996 Island Park, NY April 1, 1996 West Haven, CT March 26, 1996 Yonkers, NY April 1, 1996 Jacksonville, FL March 26, 1996 Los Angeles, CA April 1, 1996 Baltimore (Interstate 695), MD March 26, 1996 Houston (Interstate 45), TX March 31, 1996 5 NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION RELATED TO OPERATING REVENUES AND SPECIFIED EXPENSES - CERTAIN PROPERTIES 1. BACKGROUND AND BASIS FOR COMBINATION (continued) ------------------------------------------------ Properties Acquired from January 1, 1996 to June 30, 1996 --------------------------------------------------------- Property Location Date of Acquisition Property Location Date of Acquisition - ----------------- ------------------- ----------------- ------------------- Plano, TX March 31, 1996 Bethesda, MD April 1, 1996 Milwaukee, WI March 31, 1996 Dundalk, MD April 1, 1996 San Jose, CA March 31, 1996 Chicago, IL April 1, 1996 San Diego, CA April 1, 1996 Las Vegas, NV April 1, 1996 Miami, FL April 1, 1996 Torrance, CA April 1, 1996 Silver Springs, MD April 1, 1996 Weymouth, MA April 1, 1996 Chicago (East 95th), IL April 1, 1996 St. Louis, MO April 1, 1996 Chicago (Harlem Ave.), IL April 1, 1996 Rockville, MD April 1, 1996 St. Charles, MO April 1, 1996 Simi Valley, CA April 1, 1996 Chicago (Frontage Rd.), IL April 1, 1996 Houston, TX April 1, 1996 St. Louis, MO April 1, 1996 Las Vegas, NV June 27, 1996 Island Park, NY April 1, 1996 Bedford Park, IL June 27, 1996 Yonkers, NY April 1, 1996 Los Angeles, CA June 27, 1996 Los Angeles, CA April 1, 1996 Newark, CA June 27, 1996 Akron, OH April 1, 1996 Silver Spring, MD June 27, 1996 Chicago, IL April 1, 1996 Hillside, NJ June 27, 1996 Brooklyn, NY June 27, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Properties Proposed to be Acquired ---------------------------------- Property Location Property Location - ----------------- ----------------- Canoga Park, CA Richmond (Midlothian), VA Petaluma, CA Roanoke, VA San Diego, CA Norfolk, VA Santa Rosa, CA Fern Park, FL Colorado Springs, CO Orlando, FL Denver, CO Carmichael, CA Littleton, CO Napa, CA Sarasota, FL West Hollywood, CA Jacksonville, FL Englewood, CO Las Vegas, NV Wheatridge, CO Green Brook, NJ Fort Lauderdale, FL Rockland, NY Tampa, FL Upper Moreland, PA Winter Springs, FL Dallas, TX Lilburn, GA Lewisville, TX Broadview, IL Houston, TX Warren, MI Newport News, VA Las Vegas (Arville St.), NV Mesa, AZ Las Vegas (Charleston Blvd.), NV 6 NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION RELATED TO OPERATING REVENUES AND SPECIFIED EXPENSES - CERTAIN PROPERTIES 1. BACKGROUND AND BASIS FOR COMBINATION (continued) ------------------------------------------------ Properties Proposed to be Acquired ---------------------------------- Property Location Property Location - ----------------- ----------------- Tempe, AZ Portland ( Interstate 84), OR Glendale, CA Portland (Southeast 105th Ave.), OR Irvine, CA Philadelphia (Byberry Rd.), PA San Francisco, CA Plymouth, PA Torrance, CA Upper Darby, PA Las Vegas, CA Seattle (154th and Hwy.99), WA Cincinnati, OH Eagle Rock, CA Fort Worth, TX Pittsburg, CA Houston (Harwin Dr.), TX Whittier, CA Houston (Gulf Freeway), TX Denver, CO Richland, TX Federal Heights, CO Alexandria, VA Ft. Lauderdale, FL Austin (Reinli), TX Green Acres, FL Austin (Santiago), TX Mangonia Park, FL Dallas (E. Northwest), TX Pompano Beach (Sample Rd.), FL Dallas (Denton Dr.), TX Pompano Beach (S. Dixie Hwy.), FL Houston(Hempstead Hwy.), TX W. Palm Beach, FL Pasadena, TX Decatur, GA Cherry Hill, NJ Forest Park (Jonesboro Rd.), GA Oklahoma City (S.W. 74th Expressway), OK Alsip, IL Oklahoma City (S. Santa Fe), OK Overland, KS Oklahoma City (S. May ), OK Topeka, KS Arlington (S. Watson Rd.), TX Philadelphia (Oxford Ave.), PA Richardson, TX Wyndmoor, PA Broken Arrow, OK Nashville (Dickerson Pike), TN Capital Heights, MD Nashville (Gallatin Pike), TN Houston (Joel Wheaton Dr.), TX Dallas (Lemmon Ave.), TX Mt. Holly, NJ Auburn, WA Mesquite (LBJ Freeway), TX Kent, WA Garland, TX Renton, WA Missouri City, TX Phoenix, AZ Little Rock, AR Sacramento, CA Tulsa, OK Southington, CT Forest Park (Frontage Rd.), GA Lakeworth, FL Mesquite (U.S. Hwy. 80), TX Arlington Heights, IL Nashville (Downtown), TN Bedford Park, IL Nashville (Airport South), TN Clifton, NJ Woodrige,VA Hillside, NJ Virginia, FL Seattle (15th Ave.), WA Chesapeake, VA Hampton, VA Richmond, (Mechanicsville), VA 7 NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION RELATED TO OPERATING REVENUES AND SPECIFIED EXPENSES - CERTAIN PROPERTIES 1. BACKGROUND AND BASIS FOR COMBINATION (continued) ------------------------------------------------ The properties are primarily mini-warehouse facilities which provide self-service storage spaces for lease, usually on a month-to-month basis, to the general public. Revenues from rentals are recognized when earned and expenses are recognized when incurred. 2. BASIS OF PRESENTATION --------------------- The Combined Summary excludes depreciation of buildings, improvements and equipment, and interest expense which is not comparable to the proposed future operations of the properties under the ownership of the Company. 3. RELATED PARTY TRANSACTIONS -------------------------- The Company was the property operator of the above facilities that have been acquired. The Company currently operates the facilities that are proposed to be acquired for a fee which is equal to 6% of the gross revenues of the mini-warehouse facilities and 5% of the gross revenues of the business park facilities managed. 8 PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following pro forma financial statements have been prepared in connection with the proposed issuance of common stock by Public Storage, Inc. ("PSI"). Although no pro forma adjustments have been made to reflect the proposed issuance of $100 million of common stock, pro forma adjustments have been made to reflect the following transactions: MERGERS: * On March 26, 1996, PSI completed a merger transaction with Public Storage Properties IX, Inc. ("PSP IX") whereby PSI acquired all of the outstanding shares of PSP IX's common stock for an aggregate cost of $47.6 million, consisting of the issuance of PSI's Common Stock ($24.7 million), $9.9 million in cash and PSI's existing ownership of shares of common stock of PSP IX totaling approximately $13.0 million. * On March 26, 1996, PSI completed a merger transaction with PS Business Parks, Inc. ("PSBP") whereby PSI acquired all of the outstanding shares of PSPB's common stock for an aggregate cost of $11.3 million, consisting of the issuance of PSI's Common Stock ($5.2 million), $2.7 million in cash and PSI's existing ownership of shares of common stock of PSBP totaling approximately $3.4 million. * On June 27, 1996, PSI completed a merger transaction with Storage Properties, Inc. ("SPI") whereby PSI acquired all of the outstanding shares of SPI's common stock for an aggregate cost of $23.7 million, consisting of the issuance of PSI's Common Stock ($17.1 million), $4.8 million in cash and PSI's existing ownership of shares of common stock of SPI totaling approximately $1.8 million. * In June 1996, PSI and Public Storage Properties X, Inc. ("PSP X") agreed to merge, subject to certain conditions, including the approval of the shareholders of PSP X. Upon completion of the merger, each outstanding share of PSP X common stock (other than shares held by PSI) would be converted, at the election of the shareholders of PSP X, into either shares of PSI's common stock with a market value of $20.92 or, with respect to up to 20% of the PSP X common stock, $20.92 in cash. PSP X has 2,157,484 outstanding shares (PSI owns 452,094 shares) of common stock and an estimated value of $45.1 million. The shares of PSP X held by PSI will be canceled in the merger. * In June 1996, PSI and Public Storage Properties XII, Inc. ("PSP XII") agreed to merger subject to certain conditions, including the approval of the shareholders of PSP XII. The estimated value of the merger is approximately of $50.8 million. PSP XII has 1,730,099 outstanding shares of common stock series A, 184,453 outstanding shares of common stock series B, and 522,618 outstanding shares of common stock series C. PSI owns 29,300 shares of common stock series A, 114,952 shares of common stock series B, and 358,934 shares of common stock series C. Upon completion of the merger, each outstanding share of common stock series A of PSP XII (other than shares held by PSI) would be converted, at the election of the shareholders of PSP XII, into either shares of PSI's common stock with a market value of $22.34 or, with respect to up to 20% of the PSP XII common stock series A, $22.34 in cash. In addition, each share of PSP XII common stock series B and C (other than shares held by PSI) would be converted into the right to receive $17.95 in PSI's common stock, plus the estimated required REIT distributions attributable to the PSP XII common stock series B of $1.07 per share. The shares of PSP XII common stock series A, B and C held by PSI will be canceled in the merger.. * In August 1996, PSI and Partners Preferred Yield, Inc. ("PPY I") agreed to merge, subject to certain conditions, including the approval of the shareholders of PPY I. The estimated value of the merger is approximately $68.5 million. PPY I has 3,077,028 outstanding shares of common stock series A, 420,875 outstanding shares of common stock series B, 247,574 outstanding shares of common stock series C and 163,036 outstanding shares of common stock series D. PSI owns 438,503 shares of common stock series A, 336,700 shares of common stock series B, and 198,059 shares of common stock series C and 130,429 shares of common stock series D. Upon completion of the merger, each outstanding share of common stock series A of PPY I (other than shares held by PSI) would be converted, at the election of the shareholders of PPY I, into either shares of PSI's common stock with a market value of $19.00 or, with respect to up to 20% of the PPY I common stock series A, $19.00 in cash. In addition, each share of PPY I common stock series B and C (other than shares held by PSI) would be converted into the right to receive $11.66 in PSI's common stock, plus the estimated required REIT distributions attributable to the PPY I common stock series B of $.70 per share. The shares of PPY I common stock series A, B, C and D held by PSI will be canceled in the merger. 9 * In August 1996, PSI and Partners Preferred Yield II, Inc. ("PPY II") agreed to merge, subject to certain conditions, including the approval of the shareholders of PPY II. The estimated value of the merger is approximately of $74.4 million. PPY II has 3,130,103 outstanding shares of common stock series A, 420,875 outstanding shares of common stock series B, 247,574 outstanding shares of common stock series C and 163,036 outstanding shares of common stock series D. PSI owns 441,503 shares of common stock series A, 336,700 shares of common stock series B, and 198,059 shares of common stock series C and 130,429 shares of common stock series D. Upon completion of the merger, each outstanding share of common stock series A of PPY II (other than shares held by PSI) would be converted, at the election of the shareholders of PPY II, into either shares of PSI's common stock with a market value of $20.39 or, with respect to up to 20% of the PPY II common stock series A, $20.39 in cash. In addition, each share of PPY II common stock series B, C and D (other than shares held by PSI) would be converted into the right to receive $12.26 in PSI's common stock, plus the estimated required REIT distributions attributable to the PPY II common stock series B of $.83 per share. The shares of PPY II common stock series A, B, C and D held by PSI will be canceled in the merger. * In August 1996, PSI and Partners Preferred Yield III, Inc. ("PPY III") agreed to merge, subject certain conditions, including to the approval of the shareholders of PPY III. The estimated value of the merger is approximately of $31.1 million. PPY III has 1,313,384 outstanding shares of common stock series A, 168,709 outstanding shares of common stock series B, 99,241 outstanding shares of common stock series C and 65,354 outstanding shares of common stock series D. PSI owns 82,547 shares of common stock series A, 134,967 shares of common stock series B, 79,393 shares of common stock series C and 52,283 shares of common stock series D. Upon completion of the merger, each outstanding share of common stock series A of PPY III (other than shares held by PSI) would be converted, at the election of the shareholders of PPY III, into either shares of PSI's common stock with a market value of $20.47 or, with respect to up to 20% of the PPY III common stock series A, $20.47 in cash. In addition, each share of PPY III common stock series B, C and D (other than shares held by PSI) would be converted into the right to receive $12.30 in PSI's common stock, plus the estimated required REIT distributions attributable to the PPY III common stock series B of $.74 per share. The shares of PPY III common stock series A, B, C and D held by PSI will be canceled in the merger. OTHER BUSINESS COMBINATIONS: * Effective January 1, 1996, PSI acquired approximately 64% of the limited partnership interest in an affiliated limited partnership owning 28 mini-warehouse facilities. The acquisition cost totaled approximately $41.1 million. As a result of the acquisition and PSI's pre-existing ownership interest and control of the partnership, PSI began to consolidate the accounts of the partnership in PSI's financial statements effective January 1, 1996. * During the second quarter of 1996, PSI acquired all of the limited partnership units of two affiliated partnerships for $58,955,000, consisting of the issuance of PSI's Mandatory Convertible Preferred Stock, Series CC. PSI's acquisition in one of the partnerships increased its ownership interest in the partnership to 100%, accordingly, the partnership was dissolved and the partnership's 8 mini-warehouse facilities became wholly-owned by PSI. The remaining partnership owns 15 mini-warehouses. As a result of the acquisition of partnership interests combined with PSI's existing ownership interest and control in the partnership, PSI began to consolidate the accounts of the partnership in PSI's financial statements effective April 1, 1996. OTHER PROPERTY ACQUISITIONS: * PSI has agreements in principle to acquire 23 mini-warehouses and 15 business park facilities from five limited partnerships which are not affiliated with PSI. PSI currently manages on behalf of four of the partnerships an aggregate of 16 mini-warehouses and 15 business parks facilities. The acquisition of the real estate assets from each of the limited partnerships is subject to certain conditions, including the approval of the limited partners in each of the partnerships. The aggregate acquisition cost is approximately $79.9 million. 10 The pro forma consolidated balance sheet at June 30, 1996 has been prepared to reflect the effects of the transactions described above. Pro forma adjustments have been made to reflect the impact to the historical consolidated balance sheet for those transactions, which as of the balance sheet date, were not consummated. The pro forma consolidated statement of income for the six months ended June 30, 1996 has been prepared assuming (i) that each of the merger transactions, (ii) the business combinations with affiliated limited partnerships, and (iii) the acquisition of real estate facilities, were completed at the beginning of the period. The pro forma consolidated statement of income for the year ended December 31, 1995 has been prepared assuming (i) each of the merger transactions, (ii) the business combinations with affiliated limited partnerships, and (iii) the acquisition of real estate facilities, were completed at the beginning of the period. The pro forma adjustments are based upon available information and upon certain assumptions as set forth in the notes to the pro forma consolidated financial statements that PSI believes are reasonable in the circumstances. The pro forma condensed consolidated financial statements and accompanying notes should be read in conjunction with the historical consolidated financial statements of PSI. The following pro forma consolidated financial statements do not purport to represent what PSI's results of operations would actually have been if the transactions in fact had occurred at the beginning of the respective periods or to project PSI's results of operations for any future date or period. The accompanying pro forma financial statements should be read in conjunction with PSI's Form 10-K for the year ending December 31, 1995 and Form 10-Q for the period ending June 30, 1996. 11 PUBLIC STORAGE, INC. CONSOLIDATED PRO FORMA BALANCE SHEET June 30, 1996 (Amounts in thousands, except per share data) (Unaudited) Pro forma Adjustments --------------------- Partnership REIT and property PSI Mergers acquisitions PSI ASSETS (Historical) (Note 1) (Note 2) (Pro forma) ------------ ------------ ----------- ------------- Cash and cash equivalents................................. $ 19,827 $ - $ - $ 19,827 Real estate facilities, net of accumulated depreciation... 1,520,165 278,575 80,181 1,878,921 Investments in real estate entities....................... 408,965 (61,026) - 347,939 Intangible assets......................................... 226,908 - - 226,908 Mortgage loans receivable................................. 25,960 - - 25,960 Other assets.............................................. 20,971 1,552 (6,381) 16,142 ------------ ------------ ----------- ------------- Total assets......................................... $ 2,222,796 $ 219,101 $ 73,800 $ 2,515,697 ============ ============ =========== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Note payable to banks..................................... $ 5,000 $ 66,254 $ 73,800 $ 145,054 Notes payable............................................. 116,070 - - 116,070 Accrued and other liabilities............................. 36,739 (563) - 36,176 Minority interest......................................... 125,917 - - 125,917 Shareholders' equity: Preferred Stock, $.01 par value, 50,000,000 shares authorized: Senior Preferred Stock............................... 618,900 - - 618,900 Convertible Preferred Stock.......................... 115,672 - - 115,672 Common stock, $.10 par value, 200,000,000 shares authorized 84,001,691 shares issued and outstanding (91,306,691 pro forma shares issued and outstanding).................. Common Stock(84,306,691 pro forma shares issued and outstanding ............................ 7,700 730 - 8,430 Class B.............................................. 700 - - 700 Paid-in capital........................................... 1,200,813 152,680 - 1,353,493 Cumulative net income..................................... 312,951 - - 312,951 Cumulative distribution paid.............................. (317,666) - - (317,666) ------------ ------------ ----------- ------------- Total shareholders' equity............................. 1,939,070 153,410 - 2,092,480 ------------ ------------ ----------- ------------- Total liabilities and shareholders' equity............. $ 2,222,796 $ 219,101 $ 73,800 $ 2,515,697 ============ ============ =========== ============= See Accompanying Notes to Pro Forma Consolidated Balance Sheet . 12 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET June 30, 1996 (Amounts in thousands, except per share data) (Unaudited) 1. REIT Mergers ------------ As of June 30, 1996, PSI had completed the mergers with PSP IX, PSBP, and SPI and the effects of such mergers are reflected in PSI's historical consolidated balance sheet at June 30, 1996. The mergers with PSP X, PSP XII, PPY I, PPY II, and PPY III have not been completed and accordingly pro forma adjustments have been made to reflect the effects of these mergers on PSI's historical balance sheet at June 30, 1996, assuming such mergers had occurred on June 30, 1996. PSI will account for the mergers using the purchase method of accounting and the total purchase cost will be allocated to the acquired net assets; first to the tangible and identifiable intangible assets and liabilities based upon their respective fair values, and the remainder, if any, will be allocated to excess of purchase cost over book value of assets acquired. The aggregate purchase cost of approximately $263.5 million has been determined to be the sum of (1) the fair market value of real estate assets and (2) the estimated book value of non-real estate assets as of June 30, 1996 less (3) liabilities as of June 30, 1996. The proposed mergers are structured in such a manner that the cash component of the purchase price can vary from 0% to 20% of the aggregate purchase price and will depend on the number of shareholders of the REITs electing cash. For purposes of these pro forma financial statements, the maximum cash elections of 20% of the aggregate purchase price has been assumed. PSI believes that this assumption is the most likely based on PSI's experience with similar mergers which have been consummated over the past two years. Accordingly, the purchase cost is assumed to consist of the payment of cash ($52.7 million, representing 20%) and the remainder of the purchase price will consist of the issuance of PSI Common Stock ($153.4 million) and PSI's existing investment in the REITs ($57.4 million). PSI's existing investment represents the fair value of common stock owned by PSI in each of the REITs as of June 30, 1996, which upon completion of the merger will be canceled. The following table, and notes thereto, summarize the pro forma adjustment column with respect to the REIT mergers on the preceding page: Combined Pro forma Other Pro Net Pro forma REITs at merger forma Adjustment to June 30, 1996 adjustments adjustments PSI's historical ASSETS (Historical) Note (1a) Note (1b) Balance Sheet ------------ ----------- ------------ ------------- Cash and cash equivalents $ 5,473 $ - $ (5,473) $ - Real estate facilities, net of accumulated depreciation 164,259 114,316 - 278,575 Investments in real estate entities - (61,026) - (61,026) Other assets 1,552 - - 1,552 ------------ ----------- ------------ ------------- Total assets $ 171,284 $ 53,290 $ (5,473) $ 219,101 ============ =========== ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Note payable to banks $ 6,650 $ 56,903 $ 2,701 $ 66,254 Accrued and other liabilities 7,611 - (8,174) (563) Shareholders' equity REITs' equity 157,023 (157,023) - - PSI's common stock - 730 - 730 PSI's additional paid in capital - 152,680 - 152,680 ------------ ----------- ------------ ------------- Total liabilities and shareholders' equity $ 171,284 $ 53,290 $ (5,473) $ 219,101 ============ =========== ============ ============= 13 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET June 30, 1996 (Amounts in thousands, except per share data) (Unaudited) (1a) PRO FORMA MERGER ADJUSTMENTS: The following pro forma purchase adjustments have been made assuming the mergers are consummated as of June 30, 1996: Aggregate net book value of assets acquired in the mergers...................... $157,023 Step up to reflect real estate assets at fair value............................. 106,491 -------- Fair value of net assets acquired in mergers............................... $263,514 ======== Aggregate acquisition cost: Cash component of acquisition cost ....................................... $52,703 Fair value of PSI's pre-existing interest in the REITs.................... 57,401 PSI common equity to be issued............................................ 153,410 -------- $263,514 ======== ---------------------------------------------------------------------------------------------------------------- * INVESTMENT IN REAL ESTATE ENTITIES: At June 30, 1996, PSI owned common stock in each of the REITs. In connection with the mergers, PSI's ownership interest will be canceled. Accordingly, a pro forma adjustment has been made to eliminate PSI's historical book value of its investment in each of the REITs..................................................................... $(61,026) ======== * REAL ESTATE FACILITIES: A pro forma adjustment has been made to step up the historical carrying value of the real estate facilities acquired in the mergers to reflect: - the step up from REITs book value to estimated fair values............................................................... $106,491 - the net difference between PSI's carrying value of its equity investment in the REITs ($61,026) and fair value of such interest ($57,401) in the REITs................................................................ 3,625 - the estimated cost and expensed of consummating the mergers.............................................................. 4,200 -------- $114,316 ======== * NOTE PAYABLE TO BANKS: A pro forma adjustment has been made to reflect estimated bank borrowings to fund the cash component of the mergers combined with the estimated expenses........................... $ 56,903 ======== * REIT equity: A pro forma adjustment has been made to eliminate the historical equity of the REITs in connection with the mergers.................................................................... $(157,023) ======== * PSI'S COMMON STOCK AND ADDITIONAL PAID IN CAPITAL: Pro forma adjustments have been made to reflect the issuance of PSI common stock in the mergers: - Common stock (7,305,000 shares, based upon a $21.00 estimated market value of PSI's common stock)................................................................ $ 730 - Additional paid in capital............................................ 152,680 -------- $153,410 ======== 14 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET June 30, 1996 (Amounts in thousands, except per share data) (Unaudited) (1b) OTHER'S PRO FORMA MERGER ADJUSTMENTS: Other pro forma merger adjustments have been made to reflect the use of the REITs cash to pay for (i) accrued distributions payable included in the historical accrued and other liabilities of the REITs, and (ii) repay a portion of the historical borrowings of the REITs on their respective lines of credit: * CASH AND CASH EQUIVALENTS: A pro forma adjustment has been made to reduce cash and cash equivalents as follows: - Pro forma adjustment to fund the REITs' accrued distributions Included in their historical balance sheets at June 30, 1996......................................................... $(3,373) - Pro forma adjustment to utilize the REITs' remaining cash reserves to repay a portion of their historical borrowings on lines of credit..................................................... (2,100) --------- $(5,473) ========= * NOTES PAYABLE TO BANKS: A pro forma adjustment has been made to reflect: - the use of the REIT cash and cash equivalents to reduce their line of credit borrowings........................................ $(2,100) - Pro forma adjustment to utilize PSI's line of credit to pay for accrued merger costs with respect to the SPI merger included in PSI's historical accrued and other liabilities............. 4,801 --------- $2,701 ========= * Accrued and other liabilities: A pro forma adjustment has been made to reflect the payment of the REIT historical accrued distributions and historical merger costs with respect to the SPI merger which was completed at the end of June 1996........................... $(8,174) ========= 15 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET June 30, 1996 (Amounts in thousands, except per share data) (Unaudited) 2. Partnership and other acquisitions: ----------------------------------- PSI has agreements in principle to acquire 23 mini-warehouses and 15 business park facilities from five limited partnerships which are not affiliated with PSI. PSI currently manages on behalf of four of the partnerships an aggregate of 16 mini-warehouses and 15 business parks. The acquisition of the real estate assets from each of the limited partnerships is subject to certain conditions, including the approval of the limited partners in each of the partnerships. There is no assurance that such transactions will be approved by the limited partners of each of the partnerships and therefore consummated; however, PSI believes that the approval of the limited partners is probable. The aggregate acquisition cost is approximately $79.9 million in cash. The following pro forma adjustments were made to reflect the above transactions: * OTHER ASSETS: Included in other assets at June 30, 1996 are deposits made PSI towards the purchase price of the real estate facilities from these partnerships. A pro forma adjustment has been made to eliminate these deposits upon consummation of the acquisition by PSI......................................................... $(6,381) ======== * REAL ESTATE FACILITIES: A pro forma adjustment has been made to real estate facilities to reflect the acquisition cost....................................................................... $80,181 ======== * NOTES PAYABLE TO BANKS: A pro forma adjustment has been made to reflect bank borrowings to fund the remaining acquisition costs ($80,181 acquisition cost less deposits made as of June 30, 1996 totaling $6,381)........................................................... $73,800 ======== 16 PUBLIC STORAGE, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Six Months Ended June 30, 1996 (Amounts in thousands, except per share data) (Unaudited) Real Estate Acquisitions included in Rule 3.14 Financial Statements (Note 2) --------------------------------------------- Partnership Other Pro PSI and property forma (Historical) REIT Mergers acquisitions adjustments PSI (Note 1) (Note 3) (Note 4) Total (Note 5) (Pro forma) ----------- ----------- ----------- ----------- ----------- ---------- Revenues: Rental income.................. $ 135,530 $ 23,934 $ 9,160 $ 33,094 $ - $ 168,624 Facility management fees....... 7,309 - - - (1,685) 5,624 Equity in earnings of real 10,090 (1,592) (75) (1,667) - 8,423 estate entities Interest and other income...... 4,309 152 17 169 - 4,478 ----------- ----------- ----------- ----------- ----------- ---------- 157,238 22,494 9,102 31,596 (1,685) 187,149 ----------- ----------- ----------- ----------- ----------- ---------- Expenses: Cost of operations............. 42,562 8,456 3,748 12,204 (1,414) 53,352 Cost of managing facilities.... 1,175 - - - (271) 904 Depreciation and amortization.. 30,734 4,624 1,667 6,291 - 37,025 General and administrative..... 3,059 475 25 500 - 3,559 Interest expense............... 4,813 2,842 3,137 5,979 - 10,792 ----------- ----------- ----------- ----------- ----------- ---------- 82,343 16,397 8,577 24,974 (1,685) 105,632 ----------- ----------- ----------- ----------- ----------- ---------- Income before minority interest in income.......... 74,895 6,097 525 6,622 - 81,517 Minority interest in income.... (4,815) - - - - (4,815) ----------- ----------- ----------- ----------- ----------- ---------- Net income..................... $ 70,080 $6,097 $ 525 $ 6,622 $ - $ 76,702 =========== =========== =========== =========== =========== ========== Net income allocable to $ 33,062 $- $ 1,916 $ 1,916 $ - $ 34,978 preferred shareholders Net income allocable to Common Stock shareholders.......... 37,018 6,097 (1,391) 4,706 - 41,724 ----------- ----------- ----------- ----------- ----------- ---------- Net income............... $ 70,080 $6,097 $ 525 $ 6,622 $ - $ 76,702 =========== =========== =========== =========== =========== ========== Per share of Common Stock: Net income................... $ 0.51 $ 0.69 $ - $ 0.53 $ - $ 0.51 =========== =========== =========== =========== =========== ========== Weighted Average Shares...... 72,749 8,836 - 8,836 - 81,585 =========== =========== =========== =========== =========== ========== See Accompanying Notes to Pro Forma Consolidated Statements of Income. 17 PUBLIC STORAGE, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Year Ended December 31, 1995 (Amounts in thousands, except per share data) (Unaudited) Real Estate Acquisitions included in Rule 3.14 Financial Statements (Note 2) --------------------------------------- Partnership Other Pro REIT and property forma PSI PSI Mergers acquisitions adjustments (Pro forma) (Note 1) (Note 3) (Note 4) Total (Note 5) ----------- ----------- ----------- ----------- ----------- ---------- Revenues: Rental income.................... $ 229,026 $ 51,340 $ 39,656 $ 90,996 $ - $ 320,022 Facility management fees......... 13,708 - - - (5,162) 8,546 Equity in earnings of real estate 20,769 (4,147) (2,773) (6,920) - 13,849 entities Interest and other income........ 4,573 372 200 572 - 5,145 ----------- ----------- ----------- ----------- ----------- ---------- 268,076 47,565 37,083 84,648 (5,162) 347,562 ----------- ----------- ----------- ----------- ----------- ---------- Expenses: Cost of operations............... 70,158 18,337 15,651 33,988 (3,367) 100,779 Cost of managing facilities...... 4,766 - - - (1,795) 2,971 Depreciation and amortization.... 53,727 10,103 5,993 16,096 - 69,823 General and administrative....... 8,060 2,117 312 2,429 - 10,489 Interest expense................. 15,930 5,450 6,273 11,723 - 27,653 ----------- ----------- ----------- ----------- ----------- ---------- 152,641 36,007 28,229 64,236 (5,162) 211,715 ----------- ----------- ----------- ----------- ----------- ---------- Income before minority interest in income........................ 115,435 11,558 8,854 20,412 - 135,847 Minority interest in income...... (6,992) - - - - (6,992) ----------- ----------- ----------- ----------- ----------- ---------- Net income....................... $ 108,443 $ 11,558 $ 8,854 $ 20,412 $ - $128,855 =========== =========== =========== =========== =========== ========== Net income allocable to preferred $ 33,466 $ - $ 7,664 $ 7,664 $ - $ 41,130 shareholders Net income allocable to Common Stock shareholders............ 74,977 11,558 1,190 12,748 - 87,725 ----------- ----------- ----------- ----------- ----------- ---------- Net income................. $ 108,443 $11,558 $ 8,854 $ 20,412 $ - $128,855 =========== =========== =========== =========== =========== ========== Per share of Common Stock: Net income..................... $ 1.05 $ 1.21 $ - $ 1.34 $ - $ 1.08 =========== =========== =========== =========== =========== ========== Weighted Average Shares........ 71,736 9,544 - 9,544 - 81,280 =========== =========== =========== =========== =========== ========== See Accompanying Notes to Pro Forma Consolidated Statements of Income. 18 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 1996 and Year Ended December 31, 1995 (Dollar amounts in thousands, except per share data) (Unaudited) 1. PSI's pro forma net income -------------------------- The presentation of the pro forma consolidated income statement for the year ended December 31, 1995 commences with pro forma balances rather than historical balances. In 1995, the Company completed numerous transactions including (i) issuances of both common and preferred stock, (ii) mergers with affiliated REITs, (iii) significant real estate acquisitions, and (iv) a merger with Public Storage Management, Inc. In connection with the merger with Public Storage Management, Inc., the Company filed pro forma financial statements which included the effects of the above transactions on PSI's historical amounts. Such pro forma financial statements were updated in a Form 8-K dated November 16, 1995 and in PSI's 1996 Form 10-K for the year ended December 31, 1995. PSI's 1996 Form 10-K included pro forma operating results for the year ending December 31, 1995 reflecting the effects of these transactions and serves as the starting point for the consolidated income statement for the transactions described in the following footnotes. The historical consolidated income statement for the six months ended June 30, 1996 reflects the effects of the 1995 transactions. Accordingly, no further pro forma adjustments are necessary to reflect the effects of these 1995 transactions. 2. Rule 3.14 of Regulation S-X --------------------------- Included elsewhere in this Form 8-K is financial information filed pursuant to Rule 3.14 of Regulation S-X. Such financial information includes audited information with respect to certain real estate operations acquired and to be acquired which in the aggregate are significant to PSI's financial data and representing a majority of the real estate operations acquired and to be acquired by PSI. 3. REIT Mergers ------------ As describe more fully in Note 1 to the pro forma consolidated balance sheet, during the first six months of 1996 PSI completed mergers with PSP IX (completed on March 26, 1996), PSBP (completed on March 26, 1996) and SPI (completed on June 27, 1996), each representing an affiliated REIT owning principally mini-warehouse facilities (PSBP owned a single business park facility). Due to the timing of the mergers which have been completed, PSI's historical consolidated statement of income for the year ending December 31, 1995 does not reflect any impact from these mergers and only partially reflects the impact in the historical consolidated statement of income for the six months ended June 30, 1996. In addition to the mergers which have been completed, PSI and five other affiliated REITs (PSP X, PSP XII, PPY I, PPY II, and PPY III) have agreed, subject to certain conditions, to merge. Such mergers have not been consummated as of the date of this Form 8-K. The following pro forma adjustments have been made to reflect the impact of each of the above mergers as if such mergers were completed as of the beginning of each period: Six Months Year Ended Ended June 30, 1996 December 31, 1995 ------------- ----------------- * RENTAL INCOME: A pro forma adjustment has been made to reflect the combined historical rental income of the REITs................. $23,934 $51,340 ======= ======= 19 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 1996 and Year Ended December 31, 1995 (Dollar amounts in thousands, except per share data) (Unaudited) Six Months Year Ended Ended June 30, 1996 December 31, 1995 ------------- ----------------- * EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Prior to the mergers, PSI accounts for its existing ownership interests in the REITs under the equity method of accounting. Upon completion of the mergers, PSI's interest will be canceled and PSI will own 100% of the equity interest in each REIT. A pro forma adjustment has been made to eliminate equity in earnings in these REITs................ $(1,592) $(4,147) ============= ================= * INTEREST AND OTHER INCOME: A pro forma adjustment has been made to reflect the historical amounts of each of the REITs............. $152 $372 ============= ================= * COST OF OPERATIONS: A pro forma adjustment has been made to reflect the combined historical cost of operations of the REITs.... $8,456 $18,337 ============= ================= * DEPRECIATION AND AMORTIZATION: A pro forma adjustment has been made to reflect the incremental difference between the actual depreciation expense included in PSI's historical statements of income and the pro forma depreciation expense, as if the real estate facilities were in operation for a full period.............. - Pro forma depreciation expense for a full period based upon the allocation of the merger acquisition cost. Generally, the purchase cost allocated to real estate facilities is further allocated 70% to buildings and 30% to land. Buildings are depreciated, straight-line over 25 years..................................................... $5,052 $10,103 - Less: amounts included in PSI's historical statements of income.................................................... (428) - ------------- ----------------- $4,624 $10,103 ============= ================= * General and administrative expense was adjusted as follows: - A pro forma adjustment has been made to reflect each of the REITs historical general and administrative expenses. $656 $2,385 - A pro forma adjustment has been made to reduce certain general and administrative expenses which PSI has determined would be eliminated as a result of the mergers. Such expenses include the elimination of the REITs board of directors fees, stock exchange listing fees, audit and tax fees and certain administrative expenses which will no longer be applicable.............. (181) (268) ------------- ----------------- $475 $2,117 ============= ================= 20 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 1996 and Year Ended December 31, 1995 (Dollar amounts in thousands, except per share data) (Unaudited) Six Months Year Ended Ended June 30, 1996 December 31, 1995 ------------- ----------------- * INTEREST EXPENSE: A pro forma adjustment has been made to reflect the following: - The cash portion of the acquisition cost for those REIT mergers which have not been consummated is assumed to be funded with borrowings under PSI's revolving line of credit. Accordingly, a pro forma adjustment has been made to reflect additional interest expense which would have been incurred as a result of such borrowings. Interest rate is assumed to be 8.5% per annum on borrowings totaling $59,604........................................... $2,533 $5,066 - the combined historical interest expense of the REITs..... 309 384 ------------- ----------------- $2,842 $5,450 ============= ================= * WEIGHTED AVERAGE COMMON SHARES: In connection with the REIT mergers, PSI as part of the consideration, issued (or will issue) shares of its common stock. The following pro forma adjustments have been made to reflect the effect on the historical weighted average shares outstanding: - Shares issued in connection with the mergers completed during the first six months of 1996 (PSP IX, PSBP and SPI) 2,239 2,239 - Estimated number of shares to be issued in proposed mergers (PSP X, PSP XII, PPY I, PPY II, and PPY III), see note 1 to Consolidated Pro Forma Balance Sheet............. 7,305 7,305 - Less weighted average shares already included in PSI's historical amounts with respect to completed mergers....... (708) - ------------- ----------------- 8,836 9,544 ============= ================= 21 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 1996 and Year Ended December 31, 1995 (Dollar amounts in thousands, except per share data) (Unaudited) 4. Partnership and property acquisitions ------------------------------------- Effective January 1, 1996, PSI acquired approximately 64% of the limited partnership interest in an affiliated limited partnership owning 28 mini-warehouse facilities. The acquisition cost totaled $41.1 million in cash; funded with the use of net proceeds of a preferred stock offering in January 1996. As a result of the acquisition combined with PSI's existing ownership interest and control of the partnership, PSI began to consolidate the accounts of the partnership in PSI's financial statements effective January 1, 1996. During the second quarter of 1996, PSI acquired all of the limited partnership units of two affiliated partnerships for $5.90 million, consisting of the issuance of PSI's Mandatory Convertible Preferred Stock, Series CC. PSI's acquisition in one of the partnerships increased its ownership interest in the partnership to 100%, accordingly, the partnership was dissolved and the partnership's 8 mini-warehouse facilities became wholly-owned by PSI. The remaining partnership owns 15 mini-warehouses. As a result of the acquisition of partnership interests combined with PSI's existing ownership interest and control in the partnership, PSI began to consolidate the accounts of the partnership in PSI's financial statements effective April 1, 1996. PSI has agreements in principle to acquire 23 mini-warehouses and 15 business park facilities from five limited partnerships which are not affiliated with PSI. PSI currently manages on behalf of four of the partnerships an aggregate of 16 mini-warehouses and 15 business parks. The acquisition of the real estate assets from each of the limited partnerships is subject to certain conditions, including the approval of the limited partners in each of the partnerships. The aggregate acquisition cost is approximately $80.2 million. Six Months Year Ended Ended June 30, 1996 December 31, 1995 ------------- ----------------- * RENTAL INCOME: A pro forma adjustment has been made to reflect the historical rental income of the newly consolidated partnerships and properties acquired, as if such transactions occurred at the beginning of the period ............................ $9,160 $39,656 ============= ================= * INTEREST AND OTHER INCOME: A pro forma adjustment has been made to reflect the historical amounts with respect to the newly consolidated partnerships, as if such transaction occurred at the beginning of the period......................................... $17 $200 ============= ================= * COST OF OPERATIONS: A pro forma adjustment has been made to reflect the historical cost of operations of the newly consolidated partnerships and acquired properties, as if such transactions occurred at the beginning of the period................ $3,748 $15,651 ============= ================= 22 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 1996 and Year Ended December 31, 1995 (Dollar amounts in thousands, except per share data) (Unaudited) Six Months Year Ended Ended June 30, 1996 December 31, 1995 ------------- ----------------- * DEPRECIATION AND AMORTIZATION: A pro forma adjustment was adjusted to reflect: - in the case of newly consolidated partnerships; historical depreciation and amortization for the period of time not included in PSI's historical operations combined additional depreciation from the step up in basis of the historical carrying cost of the partnerships' real estate facilities in consolidation...................... $544 $3,747 - additional depreciation on property acquisitions, as if such transactions occurred at the beginning of the period 1,123 2,246 ------------- ----------------- $1,667 $5,993 ============= ================= * GENERAL AND ADMINISTRATIVE: A pro forma adjustment was made to general and administrative expense to reflect the historical amounts with respect to the newly consolidated partnerships.............. $25 $312 ============= ================= * INTEREST EXPENSE: PSI expects to acquire real estate facilities from five limited partnerships for a total acquisition cost of $80,181. As of June 30, 1996, PSI had paid $6,381 deposit towards this acquisition cost leaving a remaining balance of $73,800 which PSI expects to fund with borrowings on its revolving line of credit. A pro forma adjustment has been made to reflect interest expense with respect to the borrowing as if such amounts were outstanding throughout each period (interest rate of 8.5% per annum)................................ $3,137 $6,273 ============= ================= * NET INCOME ALLOCABLE TO PREFERRED STOCK: In connection with the acquisition of partnership interests in one of the newly consolidated partnerships, PSI issued its Series CC preferred Stock. A pro forma adjustment was made to reflect the distributions with respect to the terms of the Series CC for a full period...................................................... - Distributions for a full period.......................... $3,832 $7,664 - Less: amounts included in PSI's historical amounts....... (1,916) - ------------- ----------------- $1,916 $7,664 ============= ================= 23 PUBLIC STORAGE, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 1996 and Year Ended December 31, 1995 (Dollar amounts in thousands, except per share data) (Unaudited) 5. Other Pro Forma Adjustments --------------------------- PSI manages the real estate facilities owned by the affiliated REIT and partnerships discussed in notes 3 and 4 for a fee. As a result of mergers and acquisitions as discussed in notes 3 and 4, PSI will continue to operate the facilities, however, since the facilities will be owned by PSI, PSI will no longer collect fees for managing the facilities. Accordingly, the following pro forma adjustments have been made to (i) eliminate management fee income recognized by PSI with respect to the real estate facilities acquired, (2) eliminate the corresponding management fee expense included in the historical cost of operations of the facilities acquired, and (3) allocate a portion of the cost of managing facilities to the cost of operations with respect to the facilities acquired. With respect to item (3) such amounts represent cost of managing the facilities acquire for management fees which will continue to be incurred by PSI, however, will be included in the cost of operations of the facilities as a cost now incurred to generate rental revenues as opposed to management fees. Six Months Year Ended Ended June 30, 1996 December 31, 1995 ------------- ----------------- * FACILITY MANAGEMENT FEES: A pro forma adjustment has been made to eliminate the property management fees included in PSI's historical revenues ......................................................... $1,685 $5,162 ============= ================= * COST OF MANAGING FACILITIES: A pro forma adjustment has been made to eliminate a portion of the cost of managing facilities and reallocate such amounts of cost of operations..................... $(271) $(1,795) ============= ================= * COST OF OPERATIONS: A pro forma adjustment has been made to reflect: - elimination of property management fee paid to PSI....... $(1,685) $(5,162) - reflect reallocation of costs to mange such facilities... 271 1,795 ------------- ----------------- $(1,414) $(3,367) ============= ================= 24 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Public Storage, Inc. Date: September 6, 1996 By: /s/ Ronald L. Havner, Jr. ----------------- ----------------------------- Ronald L. Havner, Jr. Senior Vice President and Chief Financial Officer 25