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, 1999
------------------
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 91201-2394
- ------------------------------------------------ ------------------------
(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 October 27, 1999:
Common Stock, $.10 par value, 129,354,257 shares outstanding
- ------------------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
- -------------------------------------------------------
Equity Stock, Series AA, $.01 Par Value - 225,000 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, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 1999 and 1998 2
Condensed Consolidated Statements of Shareholders' Equity
for the Nine Months Ended September 30, 1999 3
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 18
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19 - 29
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
PART II. OTHER INFORMATION (Items 2, 3, 4 and 5 are not applicable)
-----------------
Item 1. Legal Proceedings 30
Item 6. Exhibits and Reports on Form 8-K 30 - 35
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
(Unaudited)
ASSETS
------
Cash and cash equivalents.......................................... $ 85,768 $ 51,225
Real estate facilities, at cost:
Land.......................................................... 1,021,628 803,226
Buildings..................................................... 2,725,187 2,159,065
-------------- --------------
3,746,815 2,962,291
Accumulated depreciation...................................... (500,870) (411,176)
-------------- --------------
3,245,945 2,551,115
Construction in process....................................... 138,531 83,138
-------------- --------------
3,384,476 2,634,253
Investment in real estate entities................................. 440,379 450,513
Intangible assets, net............................................. 196,651 203,635
Notes receivable from affiliates................................... 25,016 5,415
Other assets....................................................... 73,849 58,863
-------------- --------------
Total assets......................................... $ 4,206,139 $ 3,403,904
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable...................................................... $ 171,952 $ 81,426
Accrued and other liabilities...................................... 99,653 63,813
-------------- --------------
Total liabilities.................................... 271,605 145,239
Minority interest.................................................. 136,393 139,325
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
11,141,100 shares issued and outstanding (11,129,650
issued and outstanding at December 31, 1998), at liquidation
preference:
Cumulative Preferred Stock, issued in series.............. 1,155,150 868,900
Common Stock, $0.10 par value, 200,000,000 shares authorized,
128,925,283 shares issued and outstanding (115,965,945 at
December 31, 1998).......................................... 12,893 11,598
Class B Common Stock, $0.10 par value, 7,000,000 shares
authorized and issued....................................... 700 700
Paid-in capital............................................... 2,512,338 2,178,465
Cumulative net income......................................... 1,014,333 802,088
Cumulative distributions paid................................. (897,273) (742,411)
-------------- --------------
Total shareholders' equity................................ 3,798,141 3,119,340
-------------- --------------
Total liabilities and shareholders' equity........... $ 4,206,139 $ 3,403,904
============== ==============
See accompanying notes.
1
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
REVENUES:
Rental income:
Storage facilities................. $ 165,983 $ 136,165 $ 456,633 $ 379,019
Commercial properties.............. 2,111 1,833 5,973 21,229
Equity earnings of real estate entities. 6,500 6,662 23,969 16,598
Interest and other income............... 4,369 5,083 12,640 15,950
----------- ----------- ----------- -----------
178,963 149,743 499,215 432,796
----------- ----------- ----------- -----------
EXPENSES:
Cost of operations:
Storage facilities................. 54,266 50,008 156,022 146,419
Commercial properties.............. 724 685 1,993 7,187
Depreciation and amortization.......... 36,640 27,243 101,565 82,683
General and administrative............. 3,953 3,118 9,371 9,591
Interest expense....................... 2,136 831 5,870 2,926
----------- ----------- ----------- -----------
97,719 81,885 274,821 248,806
----------- ----------- ----------- -----------
Income before minority interest........ 81,244 67,858 224,394 183,990
Minority interest in income............ (4,492) (5,572) (12,149) (16,141)
----------- ----------- ----------- -----------
NET INCOME................................ $ 76,752 $ 62,286 $ 212,245 $ 167,849
=========== =========== =========== ===========
NET INCOME ALLOCATION:
Allocable to preferred shareholders..... $ 24,412 $ 19,053 $ 69,766 $ 59,322
Allocable to common shareholders........ 52,340 43,233 142,479 108,527
----------- ----------- ----------- -----------
$ 76,752 $ 62,286 $ 212,245 $ 167,849
=========== =========== =========== ===========
PER COMMON SHARE:
Net income per share - Basic............ $0.41 $0.37 $1.13 $0.96
=========== =========== =========== ===========
Net income per share - Diluted.......... $0.40 $0.37 $1.13 $0.95
=========== =========== =========== ===========
Weighted average common shares :
Basic................................ 129,041 116,421 125,561 113,311
=========== =========== =========== ===========
Diluted.............................. 129,249 116,726 125,833 113,762
=========== =========== =========== ===========
See accompanying notes.
2
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Cumulative
Senior Class B
Preferred Common Common Paid-in
Stock Stock Stock Capital
--------------- --------------- --------------- ---------------
Balances at December 31, 1998.......................... $ 868,900 $ 11,598 $ 700 $ 2,178,465
Issuance of common stock:
In connection with the Storage Trust merger
(13,009,485 shares)............................... - 1,301 - 345,922
Acquisition of minority interest (1,131,487 shares) - 113 - 29,079
Conversion of OP units (241,071 shares) ............ - 24 - 6,410
Exercise of stock options (405,822 shares).......... - 40 - 8,141
Repurchase of common stock (1,828,527 shares) ......... - (183) - (46,362)
Issuance of preferred stock:
Series K , Series L and Series M (11,450 shares)... 286,250 - - (9,317)
Net income............................................. - - - -
Cash distributions:
Cumulative Senior Preferred Stock .................. - - - -
Common Stock........................................ - - - -
--------------- --------------- --------------- ---------------
Balances at September 30, 1999......................... $ 1,155,150 $ 12,893 $ 700 $ 2,512,338
=============== =============== =============== ===============
Total
Cumulative Cumulative Shareholders'
Net Income Distributions Equity
--------------- --------------- ---------------
Balances at December 31, 1998.......................... $ 802,088 $ (742,411) $ 3,119,340
Issuance of common stock:
In connection with the Storage Trust merger
(13,009,485 shares)............................... - - 347,223
Acquisition of minority interest (1,131,487 shares) - - 29,192
Conversion of OP units (241,071 shares) ............ - - 6,434
Exercise of stock options (405,822 shares).......... - - 8,181
Repurchase of common stock (1,828,527 shares) ......... - - (46,545)
Issuance of preferred stock:
Series K , Series L and Series M (11,450 shares)... - - 276,933
Net income............................................. 212,245 - 212,245
Cash distributions:
Cumulative Senior Preferred Stock .................. - (69,766) (69,766)
Common Stock........................................ - (85,096) (85,096)
--------------- --------------- ---------------
Balances at September 30, 1999......................... $ 1,014,333 $ (897,273) $ 3,798,141
=============== =============== ===============
See accompanying notes.
3
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
For the Nine Months Ended
September 30,
---------------------------------
1999 1998
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 212,245 $ 167,849
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................. 101,565 82,683
Depreciation included in equity earnings of real estate entities.......... 14,405 9,902
Minority interest in income............................................... 12,149 16,141
-------------- --------------
Total adjustments..................................................... 128,119 108,726
-------------- --------------
Net cash provided by operating activities......................... 340,364 276,575
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on notes receivable from affiliates........... 28,082 27,456
Notes receivable from affiliates.......................................... (30,484) (33,000)
Capital improvements to real estate facilities............................ (18,158) (19,257)
Construction in process................................................... (76,345) (58,371)
Acquisition of minority interests in consolidated real estate partnerships (27,228) (17,508)
Proceeds from the liquidation of real estate facilities and real estate
investments............................................................. 8,552 10,275
Acquisition of investment in real estate entities......................... (55,190) (74,964)
Acquisition of real estate facilities..................................... (6,162) (47,392)
Acquisition cost of business combinations................................. (181,034) (84,576)
Refund of deposit on real estate purchase................................. - 12,500
Reduction in cash due to deconsolidation of PS Business Parks, Inc. (Note 2) - (11,259)
-------------- --------------
Net cash used in investing activities............................. (357,967) (296,096)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings on the line of credit............................. - (7,000)
Principal payments on notes payable....................................... (9,474) (10,940)
Net proceeds from the issuance of common stock............................ 8,182 237,447
Net proceeds from the issuance of preferred stock......................... 276,933 -
Repurchase of common stock................................................ (46,546) (71,375)
Distributions paid to shareholders........................................ (154,862) (134,592)
Distributions from operations to minority interests in real estate entities (19,501) (25,565)
Net reinvestment by minority interests in consolidated real estate entities 880 52,899
Other..................................................................... (3,466) (7,858)
-------------- --------------
Net cash provided by financing activities......................... 52,146 33,016
-------------- --------------
Net increase in cash and cash equivalents..................................... 34,543 13,495
Cash and cash equivalents at the beginning of the period...................... 51,225 41,455
-------------- --------------
Cash and cash equivalents at the end of the period............................ $ 85,768 $ 54,950
============== ==============
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,
-------------------------------
1999 1998
------------- -------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assets and liabilities acquired with respect to business combinations:
Real estate facilities.......................................................... $ (729,294) $ (225,202)
Construction in process......................................................... (11,449) -
Investment in real estate entities.............................................. (356) -
Mortgage notes receivable....................................................... (6,739) -
Other assets.................................................................... (1,697) (670)
Accrued and other liabilities................................................... 22,387 3,793
Minority interest............................................................... 32,201 37,367
Notes payable................................................................... 100,000 -
Deconsolidation of PS Business Parks Inc. (Note 2):
Investments in real estate entities............................................. - (219,224)
Real estate facilities, net of accumulated depreciation......................... - 433,446
Other assets.................................................................... - 2,048
Accrued and other liabilities................................................... - (10,106)
Notes payable................................................................... - (14,526)
Minority interest............................................................... - (202,897)
Notes receivable issued in connection with real estate dispositions................. (10,460) -
Other assets received in connection with real estate dispositions................... (3,800) -
Other assets disposed of in exchange for real estate facilities..................... 3,800 -
Assets and liabilities assumed in connection with acquisitions of real estate
facilities:
Cancellation of mortgage notes receivable....................................... - 2,495
Assumption of note payable...................................................... - 14,526
Minority interest............................................................... - 1,205
Reduction to investment in real estate entities in connection with business
combinations and acquisitions of real estate facilities........................... 66,690 86,846
Disposition of real estate facilities in exchange for notes receivable and
other assets...................................................................... 14,260 -
Acquisition of real estate facilities in exchange for the assumption of notes
payable, increase in minority interest, and reduction in other assets............ (3,800) (18,753)
Acquisition of minority interest and real estate in exchange for common stock:
Real estate facilities.......................................................... (34,192) (19,475)
Minority interest............................................................... (28,661) (17,098)
Issuance of common stock:
In connection with business combinations........................................ 347,223 13,817
In connection with the conversion of Convertible Preferred Stock................ - 53,308
To acquire interests in real estate entities.................................... - 17,133
To acquire minority interest in consolidated real estate entities............... 35,625 19,065
Conversion of 8.25% convertible preferred stock..................................... - (53,308)
Acquisition of investment in real estate entities for common stock.................. - (17,133)
See accompanying notes
5
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. Description of the business
---------------------------
Public Storage, Inc. (the "Company") is a California corporation,
which was organized in 1980. The Company is a fully integrated,
self-administered and self-managed real estate investment trust ("REIT")
that acquires, develops, owns and operates storage facilities which offer
storage spaces for lease, usually on a month-to-month basis, for personal
and business use. The Company invests in real estate facilities primarily
through the acquisition of wholly owned facilities combined with the
acquisition of equity interests in real estate entities owning real estate
facilities. At September 30, 1999, the Company had direct and indirect
equity interests in 1,447 properties located in 38 states, including 1,323
storage facilities and 124 commercial properties.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles 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 estimates. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation
have been included. Operating results for the three and nine months ended
September 30, 1999 is not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information,
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, 1998.
The consolidated financial statements include the accounts of the
Company and entities in which the Company has a controlling interest
(collectively, these entities are referred to as the "Consolidated
Entities").
At September 30, 1999, the Company also has equity investments in
14 other entities whose principal business is the ownership of 122 storage
facilities, which are managed by the Company. In addition, the Company has
an ownership interest in PS Business Parks, Inc. ("PSB"), which owns and
operates 123 commercial properties. The Company does not control these
entities; accordingly, the Company's investments in these entities are
accounted for using the equity method.
From the time of PSB's formation through March 31, 1998, the
Company consolidated the accounts of PSB in its financial statements.
During the second quarter of 1998, the Company's ownership interest in PSB
was reduced below 50% and, accordingly, the Company ceased to have a
controlling interest in PSB. Accordingly, the Company, effective April 1,
1998, no longer includes the accounts of PSB in its consolidated financial
statements and has accounted for its investment using the equity method.
For all periods after March 31, 1998, the income statement includes the
Company's equity in income of PSB. Further, commercial property operations
for the periods after March 31, 1998 reflect only the commercial property
operations of facilities owned by the Company which have both storage and
commercial use combined at the same property location.
6
Use of estimates
----------------
The preparation of the condensed consolidated financial statements
in conformity with generally accepted accounting principles 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.
Income taxes
------------
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, the Company is not taxed on that
portion of its taxable income, which is distributed to its shareholders,
provided that the Company meets certain tests. The Company believes it will
meet these tests during 1999 and, accordingly, no provision for income
taxes has been made in the accompanying financial statements.
Financial instruments
---------------------
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
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.
Allowance for possible losses
-----------------------------
The Company has no allowance for possible losses relating to any
of its real estate investments, including notes receivable. Management
periodically reviews its investment portfolio to evaluate the need for such
an allowance.
Intangible assets
-----------------
Intangible assets consist of property management contracts
($165,000,000) and the cost over the fair value of net tangible and
identifiable intangible assets ($67,726,000) acquired. Intangible assets
are amortized by the straight-line method over 25 years. At September 30,
1999, intangible assets are net of accumulated amortization of $36,075,000
($29,091,000 at December 31, 1998). Included in depreciation and
amortization expense for the three and nine months ended September 30, 1999
and 1998 is $2,328,000 and $6,984,000, respectively, related to the
amortization of intangible assets.
Revenue and expense recognition
-------------------------------
Rental income is recognized as earned. Equity in earnings of real
estate entities are recognized based on the Company's ownership interest in
the earnings of each of the unconsolidated real estate entities.
Advertising costs are expensed as incurred.
Net income per common share
---------------------------
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earning per Share. Statement 128 replaced the calculation of
primary and fully diluted net income per share with basic and diluted net
income per share. Unlike primary net income per share, basic net income per
share excludes any dilutive effects of options, warrants or convertible
securities that are convertible into common shares of the Company.
Diluted net income per common share is computed using the weighted
average common shares outstanding, plus the impact of stock options. The
Class B Common Stock is not included in the determination of net income per
common share because all contingencies required for the conversion to
common stock have not been satisfied as of September 30, 1999. In addition,
7
the inclusion of the Company's convertible preferred stock in the
determination of net income per common share has been determined to be
anti-dilutive for the nine months ended September 30, 1998.
In computing earnings per common share, preferred stock dividends
totaling $24,412,000 and $19,053,000 for the three months ended September
30, 1999 and 1998, respectively, and $69,766,000 and $59,322,000 for the
nine months ended September 30, 1999 and 1998, respectively, reduced income
available to common shareholders.
Stock-based compensation
------------------------
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation" ("Statement 123") 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 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.
The Company has elected to adopt the disclosure requirements of Statement
123 but will continue to account for stock-based compensation under APB 25.
Reclassifications
-----------------
Certain reclassifications have been made to the consolidated
financial statements for 1998 in order to conform to the 1999 presentation.
3. Business Combinations
---------------------
On March 12, 1999, the Company completed a merger transaction with
Storage Trust Realty, Inc. ("Storage Trust"). As a result of the merger,
the Company acquired interests in 215 storage facilities located in 16
states totaling approximately 12 million net rentable square feet. In the
merger, each share of beneficial interest of Storage Trust was exchanged
for 0.86 shares of the Company's common stock. Approximately 13,009,485
shares of the Company's common stock were issued and approximately an
additional 1,011,963 shares were reserved for issuance upon conversion of
limited partnership units in Storage Trust's operating partnership. The
aggregate acquisition cost of the merger was approximately $575.7 million,
consisting of the issuance of the Company's common stock of approximately
$347.2 million, cash of approximately $105.2 million, the assumption of
debt in the amount of $100.0 million, and the Company's pre-existing
investment in Storage Trust of approximately $23.3 million.
On June 30, 1999, the Company acquired all of the limited
partnership interests in 13 affiliated partnerships which owned an
aggregate of 36 storage facilities. As a result of the Company's increased
ownership interest and control of the partnerships, the Company began to
consolidate the accounts of these partnerships. The total consideration was
approximately $109.7 million, consisting of cash of approximately $66.7
million and the Company's pre-existing investment in the Partnerships of
approximately $43.0 million.
On August 19, 1999, the Company acquired all of the limited
partnership interests in an affiliated partnership which owned four storage
facilities. As a result of the Company's increased ownership interest and
control of the partnership, the Company began to consolidate the accounts
of this partnership. The total consideration was approximately $9.6
million, consisting of cash of approximately $9.1 million and the Company's
pre-existing investment in the Partnership of approximately $0.5 million
The merger with Storage Trust was structured as a tax-free
transaction. The merger and acquisitions of affiliated limited partner
interests have been accounted for using the purchase method. Accordingly,
8
allocations of the total acquisition cost to the net assets acquired were
made based upon the fair value of such assets and liabilities assumed, as
follows:
Storage Trust Partnership
Merger Acquisitions Total
-------------- -------------- --------------
(Amounts in thousands)
Real estate facilities.................. $ 598,577 $ 130,717 $ 729,294
Construction in process................. 11,449 - 11,449
Investment in real estate entities...... 356 - 356
Mortgage notes receivable............... 6,739 - 6,739
Other assets............................ 1,309 388 1,697
Accrued liabilities..................... (15,745) (6,642) (22,387)
Minority interest....................... (27,009) (5,192) (32,201)
-------------- -------------- --------------
$ 575,676 $ 119,271 $ 694,947
============== ============== ==============
The historical operating results of the above business
combinations prior to their dates of acquisition have not been included in
the Company's historical operating results. Pro forma selected financial
data for the nine months ended September 30, 1999 and 1998 as though the
above acquisitions had been effective at January 1, 1998 are as follows:
Nine months Ended Nine months Ended
(In thousands, except per share data) September 30, 1999 September 30, 1998
- ---------------------------------------------- ------------------ ------------------
Revenues.................................... $524,730 $504,628
Net income.................................. $213,966 $176,982
Net income per common share (Basic)......... $1.11 $0.92
Net income per common share (Diluted)....... $1.11 $0.92
The pro forma data does not purport to be indicative of operations
that would have occurred had the merger and acquisitions of limited
partnership interests occurred at the beginning of each period or future
results of operations of the Company. Certain pro forma adjustments were
made to the combined historical amounts to reflect (i) expected reductions
in general and administrative expenses, (ii) certain significant
acquisitions made by Storage Trust in 1998, (iii) estimated increased
interest costs to finance the cash portion of the acquisition cost, and
(iv) estimated increased depreciation expense.
9
4. Real estate facilities
----------------------
Activity in real estate facilities during 1999 is as follows:
In thousands
------------
Operating facilities, at cost
Balance at December 31, 1998 ................................ $ 2,962,291
Property acquisitions - business combinations ............... 729,294
Facilities contributed to development joint venture ......... (15,415)
Disposition of facilities ................................... (24,068)
Property acquisitions - third party purchases ............... 9,962
Developed facilities ........................................ 32,401
Acquisition of minority interest ............................ 34,192
Capital improvements ........................................ 18,158
------------
Balance at September 30, 1999 ............................... 3,746,815
------------
Accumulated depreciation:
Balance at December 31, 1998 ................................ (411,176)
Additions during the year ................................... (90,950)
Disposition of facilities ................................... 1,256
------------
Balance at September 30, 1999 ............................... (500,870)
------------
Construction in progress:
Balance at December 31, 1998 ................................ 83,138
Current development ......................................... 76,345
Property acquisitions - merger with Storage Trust ........... 11,449
Developed facilities ........................................ (32,401)
------------
Balance at September 30, 1999 ............................... 138,531
------------
Total real estate facilities at September 30, 1999 .......... $ 3,384,476
============
Construction in progress at September 30, 1999 includes 38 storage
facilities and expansions of ten existing storage facilities. The Company's
policy is to capitalize interest incurred on debt during the course of
construction of its storage facilities. Interest capitalized during the
three and nine months ended September 30, 1999 was $1,285,000 and
$3,231,000, respectively, compared with $997,000 and $3,277,000 for the
same periods in 1998.
Effective April 30, 1999, the Company sold six properties acquired
in the merger with Storage Trust for approximately $10.5 million and
granted the acquirer an option to acquire an additional eight properties
acquired in the merger with Storage Trust in January 2000 for approximately
$18.8 million. The Company is now leasing these eight properties to the
acquirer. There was no material gain or loss on this transaction.
In addition, during the nine months ended September 30, 1999, the
Company disposed of a developed industrial facility, two storage facilities
through condemnation proceedings, and three plots of land for an aggregate
of approximately $12.2 million. There was no material gain or loss on these
transactions.
5. Investment in real estate entities
----------------------------------
At September 30, 1999, the Company's investment in real estate
entities consists of (i) partnership interests in approximately 13
affiliated partnerships, which principally own storage facilities, (ii) a
10
partnership interest in a joint venture, established to develop and operate
storage facilities and (iii) ownership interest in PSB. Such interests are
accounted for using the equity method of accounting.
In April 1997, the Company formed a joint venture partnership with
an institutional investor (the "Joint Venture") to participate in the
development of approximately $220 million of storage facilities. The Joint
Venture has a total of 41 opened facilities with a total cost of $193.1
million at September 30, 1999, and has 5 projects in process with an
aggregate cost incurred to date of approximately $19.2 million ($9.6
million estimated to complete) at September 30, 1999.
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, 1999 are as follows:
For the nine months ended September 30, 1999
--------------------------------------------------------------------
Other Equity Development
Investments Joint Venture PSB Total
-------------- -------------- -------------- --------------
(Amounts in thousands)
Rental income........................... $ 36,784 $ 10,500 $ 92,544 $ 139,828
Other income............................ 921 449 1,236 2,606
-------------- -------------- -------------- --------------
Total revenues.......................... 37,705 10,949 93,780 142,434
-------------- -------------- -------------- --------------
Cost of operations...................... 11,421 5,372 26,021 42,814
Depreciation............................ 4,420 2,996 21,641 29,057
Other expenses.......................... 3,531 59 4,997 8,587
-------------- -------------- -------------- --------------
Total expenses.......................... 19,372 8,427 52,659 80,458
-------------- -------------- -------------- --------------
Net income before minority interest..... 18,333 2,522 41,121 61,976
Minority interest....................... - - (10,769) (10,769)
-------------- -------------- -------------- --------------
Net income.............................. $ 18,333 $ 2,522 $ 30,352 $ 51,207
============== ============== ============== ==============
At September 30, 1999:
Real estate, net ....................... $112,239 $ 207,729 $ 779,142 $ 1,099,110
Total assets............................ 145,414 211,319 906,387 1,263,120
Total liabilities....................... 59,533 11,006 65,038 135,577
Minority interest....................... - - 288,960 288,960
Total equity............................ 85,881 200,313 552,389 838,583
The Company's investment (book value) at
September 30, 1999.................... $136,333 $ 60,094 $ 243,952 $ 440,379
The Company's effective average ownership
interest at September 30, 1999........ 40% 30% 41% 39%
6. Revolving line of credit
------------------------
As of September 30, 1999, the Company had no borrowings on its
unsecured credit agreement with a group of commercial banks. The credit
agreement (the "Credit Facility") has a borrowing limit of $150 million and
an expiration date of July 31, 2001. The expiration date may be extended by
one year on each anniversary of the credit agreement. Interest on
outstanding borrowings is payable monthly. At the option of the Company,
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
11
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) of the unused portion of the Credit
Facility. The Credit Facility allows the Company, at its 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.
7. Minority interest
-----------------
In consolidation, the Company classifies ownership interests in
the net assets of each of the Consolidated Entities, other than its 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, except as described below with respect to
minority interest acquired in the merger with Storage Trust.
In connection with the merger with Storage Trust, minority
interest increased by approximately $27.0 million, reflecting the fair
value of 1,011,963 operating partnership units ("OP Units") in Storage
Trust's operating partnership owned by minority interests. As of September
30, 1999, 770,892 of such units are outstanding. 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
with respect to OP Units reflects the OP Units' share of the net income of
the Company, with net income allocated to minority interests with respect
to weighted average outstanding OP Units on a per unit basis equal to
diluted earnings per common share. During the nine months ended September
30, 1999, 241,071 OP units were exchanged for an equal number of shares of
the Company's common stock, for a total cost of approximately $6.4 million.
These transactions had the effect of reducing minority interest by
approximately $6.4 million.
In addition, during the nine months ended September 30, 1999, the
Company acquired limited partnership interests in certain of the
Consolidated Entities in several transactions for an aggregate cost of
$56.4 million, consisting of approximately $27.2 million in cash and $29.2
million in the issuance of the Company's common stock. These transactions
had the effect of reducing minority interest by approximately $22.2
million. The excess of the cost over the underlying book value ($34.2
million) has been allocated to real estate facilities in consolidation.
8. Shareholders' equity
--------------------
Preferred stock
---------------
At September 30, 1999 and December 31, 1998, the Company had the
following series of Preferred Stock outstanding:
12
At September 30, 1999 At December 31, 1998
------------------------------ ------------------------------
Dividend Shares Shares
Series Rate Outstanding Carrying Amount Outstanding Carrying Amount
- ---------------------------- ---------- ----------- ----------------- ----------- -----------------
Series A .................. 10.000 1,825,000 $ 45,625,000 1,825,000 $ 45,625,000
Series B .................. 9.200 2,386,000 59,650,000 2,386,000 59,650,000
Series C .................. Adjustable 1,200,000 30,000,000 1,200,000 30,000,000
Series D .................. 9.500 1,200,000 30,000,000 1,200,000 30,000,000
Series E .................. 10.000 2,195,000 54,875,000 2,195,000 54,875,000
Series F .................. 9.750 2,300,000 57,500,000 2,300,000 57,500,000
Series G .................. 8.875 6,900 172,500,000 6,900 172,500,000
Series H .................. 8.450 6,750 168,750,000 6,750 168,750,000
Series I .................. 8.625 4,000 100,000,000 4,000 100,000,000
Series J .................. 8.000 6,000 150,000,000 6,000 150,000,000
Series K .................. 8.250 4,600 115,000,000 - -
Series L .................. 8.250 4,600 115,000,000 - -
Series M .................. 8.750 2,250 56,250,000 - -
----------- ----------------- ----------- -----------------
Total Cumulative Senior Preferred
Stock ........................... 11,141,100 $1,155,150,000 11,129,650 $ 868,900,000
=========== ================= =========== =================
On January 19, 1999, the Company issued 4.6 million depositary
shares (each representing 1/1,000 of a share) of its Preferred Stock,
Series K, raising net proceeds of approximately $111.3 million. On March
10, 1999, the Company issued 4.6 million depositary shares (each
representing 1/1,000 of a share) of its Preferred Stock, Series L, raising
net proceeds of approximately $111.3 million. On August 12, 1999, the
Company issued 2.25 million depositary shares (each representing 1/1,000 of
a share) of its Preferred Stock, Series M, raising net proceeds of
approximately $54.4 million.
Holders of the Company's preferred stock will not be entitled to
vote on most matters, except under certain conditions and as noted above.
In the event of a cumulative arrearage equal to six quarterly dividends or
failure by the Company to maintain a Debt Ratio (as defined) of 50% or
less, the 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 all
events of default have been cured. At September 30, 1999, there were no
dividends in arrears and the Debt Ratio was 4.1%.
Except under certain conditions relating to the Company's
qualification as a REIT, the Senior Preferred Stock are not redeemable
prior to the following dates: Series A - September 30, 2002, Series B March
31, 2003, Series C - June 30, 1999, Series D - September 30, 2004, Series E
- January 31, 2005, Series F - April 30, 2005, Series G - December 31,
2000, Series H - January 31, 2001, Series I - October 31, 2001, Series J -
August 31, 2002, Series K - January 19, 2004, Series L - March 10, 2004 and
Series M - August 17, 2004. On or after the respective dates, each of the
series of Senior Preferred Stock will be redeemable at the option of the
Company, in whole or in part. The redemption price will be $25 per share
(or depositary share in the case of the Series G, Series H, Series I,
Series J, Series K, Series L and Series M), plus any 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 give 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.
13
Common Stock
------------
During the nine months ended September 30, 1999, the Company
issued 13,009,485 shares of common stock in connection with the merger with
Storage Trust, 1,131,487 shares of common stock in connection with the
acquisition of minority interests, 405,822 shares of common stock in
connection with the exercise of stock options, and 241,071 shares of common
stock in connection with the conversion of OP units.
In June 1998, the Company's Board of Directors authorized the
repurchase from time to time of up to 10,000,000 shares of the Company's
common stock on the open market or in privately negotiated transactions.
During the nine months ended September 30, 1999, the Company repurchased a
total of 1,828,527 shares, for a total aggregate cost of approximately
$46.5 million. Cumulatively since the repurchase announcement through
September 30, 1999, the Company has repurchased a total of 4,647,927 shares
of common stock (of the 10,000,000 shares authorized) at an aggregate cost
of approximately $118.8 million. From October 1, 1999 through October 27,
1999, the Company repurchased an additional 357,200 shares of common stock
at an aggregate cost of approximately $8.6 million.
Class B Common Stock
--------------------
The Class B Common Stock will (i) not participate in distributions
until the later to occur of funds from operations ("FFO") per Common Share
as defined below, aggregating $1.80 during any period of four consecutive
calendar quarters, or January 1, 2000. Thereafter, the Class B Common Stock
will participate in distributions, other than liquidating 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, (ii) not participate in
liquidating distributions, (iii) not be entitled to vote (except as
expressly required by California law) and (iv) 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:
(i) plus depreciation and amortization, and (ii) less FFO attributable to
minority interest. FFO per Common Share means FFO less preferred stock
dividends (other than dividends on convertible preferred stock) 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) was
$2.57 for the four consecutive calendar quarters ended September 30, 1999.
Dividends
---------
The following summarizes dividends paid during the first nine
months of 1999:
14
Distributions Per Share
or Depositary Share Total Distributions
----------------------- -----------------------
Series A................ $1.875 $ 3,422,000
Series B................ $1.725 4,116,000
Series C................ $1.266 1,519,000
Series D................ $1.781 2,137,000
Series E................ $1.875 4,116,000
Series F................ $1.828 4,205,000
Series G................ $1.664 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 ............... $1.449 6,668,000
Series L ............... $1.157 5,323,000
Series M ............... $0.273 615,000
-----------------------
69,766,000
Common.................. $0.66 85,096,000
-----------------------
Total dividends paid. $ 154,862,000
=======================
The dividends paid with respect to the Series K, Series L and
Series M, represent a partial period from the date of issuance though
September 30, 1999.
The dividend rate on the Series C Preferred Stock for the each of
the three quarters of 1999 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, 1999 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" ("FAS 131"), 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. The Company has adopted this standard beginning
with the year ended December 31, 1998.
DESCRIPTION OF EACH REPORTABLE SEGMENT: The Company's reportable
segments reflect the Company's significant operating activities that are
evaluated separately by management. The company has two reportable
segments: storage operations and commercial property operations.
The storage segment comprises the direct ownership, development,
and operation of storage facilities and the ownership of equity interests
in entities that own storage properties. The commercial property segment
reflects the Company's interest in the ownership, operation, and management
of commercial properties. The vast majority of the Company's commercial
property operations are conducted through PSB, and to a much lesser extent
the Company and certain of its unconsolidated subsidiaries own commercial
space, managed by PSB, within facilities that combine storage and
commercial space for rent.
15
MEASUREMENT OF SEGMENT PROFIT OR LOSS: The Company evaluates
performance and allocates resources based upon the net segment income of
each segment. Net segment income represents net income in conformity with
Generally Accepted Accounting Principles and the Company's significant
accounting policies as denoted in Note 2, before interest and other income,
depreciation expense, interest expense, general and administrative expense,
and minority interest in income. This net segment income is reflected on
the Company's financial statements not only as rental income and cost of
operations, but also as a component of equity in earnings of real estate
entities. The accounting policies of the reportable segments are the same
as those described in the Summary of Significant Accounting Policies.
Corporate general and administrative expense, interest expense,
interest and other income, depreciation expense, and minority interest in
income are not allocated to segments because management does not utilize
them to evaluate of the results of operations of each segment.
MEASUREMENT OF SEGMENT ASSETS: No segment data relative to assets
or liabilities is presented by the Company, management does not evaluate
performance based upon the assets or liabilities of the segments.
Management believes that the historical cost of the Company's real property
does not have any significant bearing upon the performance of the
commercial property and storage segments. In the same manner, management
believes that the book value of investment in real estate entities have no
bearing upon the results of those investments. The only other types of
assets that might be allocated to individual segments are trade
receivables, payables, and other assets which arise in the ordinary course
of business, but they are also not a significant factor in the measurement
of segment performance. The company performs post-acquisition analysis of
various investments; however, such evaluations are beyond the scope of FAS
131.
PRESENTATION OF SEGMENT INFORMATION: The Company's income
statement provides most of the information required in order to determine
the performance of each of the Company's segments. The following tables
reconcile the performance of each segment, in terms of segment revenues and
segment income, to the consolidated revenues and net income of the Company.
It further provides detail of the segment components of the income
statement item, "Equity in earnings of real estate entities."
Nine months ended
September 30,
-----------------------
1999 1998 Change
--------- --------- ---------
(Dollar amounts in thousands)
RECONCILIATION OF REVENUES BY SEGMENT:
Storage
- -------
Storage property rentals................................. $456,633 $379,019 $77,614
Equity in earnings - storage property operations......... 15,483 14,161 1,322
--------- --------- ---------
Storage segment revenues............................. 472,116 393,180 78,936
--------- --------- ---------
Commercial properties
- ----------------------
Commercial property rentals.............................. 5,973 21,229 (15,256)
Equity in earnings - commercial property operations...... 26,531 14,881 11,650
--------- --------- ---------
Commercial properties segment revenues.............. 32,504 36,110 (3,606)
--------- --------- ---------
Other items not allocated to segments
- -------------------------------------
Equity in earnings - Depreciation (storage) ............. (5,784) (5,084) (700)
Equity in earnings - Depreciation (commercial properties) (8,621) (4,818) (3,803)
Equity in earnings - general and administrative and other (3,640) (2,542) (1,098)
Interest and other income................................ 12,640 15,950 (3,310)
--------- --------- ---------
Total other items not allocated to segments.......... (5,405) 3,506 (8,911)
--------- --------- ---------
Total revenues....................................... $499,215 $432,796 $66,419
========= ========= =========
16
Nine months ended
September 30,
-----------------------
1999 1998 Change
---------- ----------- ----------
(Dollar amounts in thousands)
RECONCILIATION OF NET INCOME BY SEGMENT:
Storage
- -------
Storage properties ...................................... $ 300,611 $ 232,600 $ 68,011
Equity in earnings - storage property operations......... 15,483 14,161 1,322
---------- ----------- ----------
Total storage segment net income..................... 316,094 246,761 69,333
---------- ----------- ----------
Commercial properties
- ----------------------
Commercial properties.................................... 3,980 14,042 (10,062)
Equity in earnings - commercial property operations...... 26,531 14,881 11,650
---------- ----------- ----------
Total commercial property segment net income......... 30,511 28,923 1,588
---------- ----------- ----------
Other items not allocated to segments
- -------------------------------------
Equity in earnings - depreciation (storage) ............. (5,784) (5,084) (700)
Equity in earnings - depreciation (commercial properties) (8,621) (4,818) (3,803)
Equity in earnings - general and administrative and other (3,640) (2,542) (1,098)
Depreciation - storage................................... (100,238) (77,976) (22,262)
Depreciation - commercial properties..................... (1,327) (4,707) 3,380
Interest and other income................................ 12,640 15,950 (3,310)
General and administrative............................... (9,371) (9,591) 220
Interest expense......................................... (5,870) (2,926) (2,944)
Minority interest in income.............................. (12,149) (16,141) 3,992
---------- ----------- ----------
Total other items not allocated to segments.......... (134,360) (107,835) (26,525)
---------- ----------- ----------
Total net income .................................... $ 212,245 $ 167,849 $ 44,396
========== =========== ==========
10. Subsequent Events
-----------------
On November 4, 1999, the Company's Board of Directors declared a
$0.22 per common share quarterly dividend, along with quarterly dividends
payable on the Company's various series of preferred stock. Distributions
are payable on December 31, 1999 to shareholders of record as of December
15, 1999.
In addition, the Board of Directors declared a special
distribution to the Company's common shareholders. The special distribution
is comprised of (i) $.65 per common share payable in depositary shares,
representing interests in Equity Stock, Series A, with cash being paid in
lieu of fractional shares or (ii) at the election of each common
shareholder $.62 per common share payable in cash. The special distribution
is payable on January 14, 2000 to shareholders of record as of November 15,
1999.
No shares of Equity Stock, Series A are presently outstanding, and
no market currently exists for the Equity Stock. The fair value of
depositary shares on the date of payment is expected to be $20 per
depositary share. The valuation of the depositary shares will be determined
by our Board of Directors based on advice from a financial advisor.
17
The following summarizes the terms of the depositary shares
representing the Equity Stock, Series A:
(i) Distributions: During any calendar year (prorated for the year
2000), each depositary share shall receive the lesser of: a)
five times the per share dividend on the Common Stock or b)
$2.45.
(ii) Redemption: except in order to preserve the Company's federal
income tax status as a REIT, the Company may not redeem the
depositary shares before March 31, 2005. On or after March 31,
2005, the Company may, at its option, redeem the depositary
shares at $24.50 per depositary share.
(iii) Liquidation: if the Company is liquidated, the amount payable
per depositary share is the same as the amount payable per
share of the Company's common stock, but cannot exceed $24.50
per depositary share.
(iv) Preferences: the depositary shares have no preference over the
Company's common stock either as to dividends or in
liquidation, and the Company has no obligation to redeem the
depositary shares.
(v) Conversion: if the Company fails to preserve its federal
income tax status as a REIT, the depositary shares will be
convertible into common stock. The depositary shares are
otherwise not convertible into common stock.
(vi) Voting rights: holders of depositary shares vote as a single
class with our holders of common stock on shareholder matters,
but the depositary shares have the equivalent of one-tenth of
a vote per depositary share.
18
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 the Company's 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 the actual results and performance of the
Company 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 storage and commercial facilities which could impact rents and
occupancy levels at the Company's facilities; the Company's ability to evaluate,
finance, and integrate acquired and developed properties into the Company's
existing operations; the Company's ability to effectively compete in the markets
that it does business in; 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 the Company's facilities; and the
availability of permanent capital at attractive rates.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Net income for the three months ended September 30, 1999 was
$76,752,000 compared to $62,286,000 for the same period in 1998, representing an
increase of $14,466,000 or 23.2%. Net income for the nine months ended September
30, 1999 was $212,245,000 compared to $167,849,000 for the same period in 1998,
representing an increase of $44,396,000 or 26.4%. The increase in net income was
primarily the result of improved property operations, the acquisition of
additional real estate investments during 1998 and 1999 and the reduction in
losses with respect to the portable self-storage operations.
Net income allocable to the common shareholders was $52,340,000 ($0.40
per diluted common share, based on 129,249,000 weighted average diluted shares)
for the three months ended September 30, 1999 compared to $43,233,000 ($0.37 per
diluted common share, based on 116,726,000 weighted average diluted shares) for
the same period in 1998. In computing net income per common share, dividends to
the Company's preferred shareholders ($24,412,000 and $19,053,000, respectively
for the three months ended September 30, 1999 and 1998, respectively) have been
deducted from net income in determining net income allocable to the Company's
common shareholders.
Net income allocable to the common shareholders was $142,479,000 ($1.13
per diluted common share, based on 125,833,000 weighted average diluted shares)
for the nine months ended September 30, 1999 compared to $108,527,000 ($0.95 per
diluted common share, based on 113,762,000 weighted average diluted shares) for
the same period in 1998. In computing net income per common share, dividends to
the Company's preferred shareholders ($69,766,000 and $59,322,000 for the nine
months ended September 30, 1999 and 1998, respectively) have been deducted from
net income in determining net income allocable to the Company's common
shareholders.
REAL ESTATE OPERATIONS
- --------------------------------------------------------------------------------
Rental income and cost of operations have increased for the three and
nine months ended September 30, 1999 compared to the same periods in 1998 due
primarily to the Company's merger and acquisition activities throughout 1998 and
1999, most notably the merger with Storage Trust. This was offset partially by
the deconsolidation of PSB whereby the accounts of PSB, effective April 1, 1998,
were no longer consolidated with the Company's and the Company began to account
for its investment in PSB using the equity method. As a result of the Company's
merger and acquisition activities, the number of storage facilities included in
the Company's consolidated financial statements has increased from 953 at
September 30, 1998 to 1,201 at September 30, 1999.
19
STORAGE OPERATIONS: The following table summarizes the operating
results (before depreciation) of (i) the 885 storage facilities that the Company
has owned and operated on a stabilized basis throughout the period from January
1, 1998 to September 30, 1999 (the "Consistent Group") and (ii) operations for
all other storage facilities:
SUMMARY OF STORAGE OPERATIONS - HISTORICAL
- ------------------------------------------
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
1999 1998 Change 1999 1998 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands, except per square foot data)
Rental income
- -------------
Consistent Group............. $124,970 $120,407 3.8% $362,506 $347,445 4.3%
Other facilities............. 41,013 15,758 160.3% 94,127 31,574 198.1%
--------- --------- --------- --------- --------- ---------
165,983 136,165 21.9% 456,633 379,019 20.5%
--------- --------- --------- --------- --------- ---------
Cost of Operations
- ------------------
Consistent Group............. 35,443 35,113 0.9% 107,064 104,483 2.5%
Other facilities............. 18,823 14,895 26.4% 48,958 41,936 16.7%
--------- --------- --------- --------- --------- ---------
54,266 50,008 8.5% 156,022 146,419 6.6%
--------- --------- --------- --------- --------- ---------
Net operating income
- --------------------
Consistent Group............. 89,527 85,294 5.0% 255,442 242,962 5.1%
Other facilities............. 22,190 863 2,471.3% 45,169 (10,362) -
--------- --------- --------- --------- --------- ---------
$111,717 $86,157 29.7% $300,611 $232,600 29.2%
========= ========= ========= ========= ========= =========
FOR FACILITIES OWNED AT PERIOD END:
Number of facilities............. 1,201 953 26.0% 1,201 953 26.0%
Net rentable square feet
(in 000's)................... 71,137 57,262 24.2% 71,137 57,262 24.2%
CONSISTENT GROUP DATA:
Weighted average annualized
realized rent per occupied
square foot.................. $10.26 $9.86 4.1% $10.00 $9.59 4.3%
Weighted average annualized
scheduled rent per square $10.25 $10.09 1.6% $10.23 $9.99 2.4%
foot.........................
Weighted average occupancy for
the period................... 93.0% 93.4% (0.4)% 92.2% 92.3% (0.1)%
Operations with respect to the "other facilities" include a partial
period of operations with respect to facilities that were acquired or disposed
of since January 1, 1998, as well as other facilities that were not operated on
a stabilized basis throughout this period.
Rental income for the Consistent Group facilities for the three and
nine months ended September 30, 1999, respectively, is net of promotional
discounts totaling $2.9 million and $10.4 million, respectively, compared to
$3.4 million and $11.2 million for the same periods in 1998. Costs of operations
for the Consistent Group facilities for the three and nine months ended
September 30, 1999, respectively, includes costs associated with the telephone
reservation center and advertising totaling $3.4 million and $10.6 million,
respectively, compared to $2.8 million and $8.3 million, respectively, for the
same periods in 1998.
COMMERCIAL PROPERTY OPERATIONS: The following table sets forth the
commercial property operations included in the Company's financial statements:
20
COMMERCIAL PROPERTY OPERATIONS - HISTORICAL
-------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1999 1998 Change 1999 1998 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
Rental income............. $ 2,111 $ 1,833 15.2% $ 5,973 $ 21,229 (71.9)%
Cost of operations........ 724 685 5.7% 1,993 7,187 (72.3)%
--------- --------- --------- --------- --------- ---------
Net operating income...... $ 1,387 $ 1,148 20.8% $ 3,980 $ 14,042 (71.7)%
========= ========= ========= ========= ========= =========
During the second quarter of 1998, the Company ceased to have a
controlling interest in PSB. As a result, effective April 1, 1998, the Company
no longer includes the accounts of PSB in its consolidated financial statements
and began accounting for its investment in PSB using the equity method (see
"Equity in earnings of real estate entities"). The income statement for the nine
months ended September 30, 1998 includes the consolidated operating results of
PSB for the three months ended March 31, 1998. The significant decrease in
rental income and cost of operations for the nine months ended September 30,
1999 as compared to the same period in 1998 reflects the Company's
deconsolidation of PSB.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to its
ownership of 12,723,625 common shares and operating partnership units in PSB,
the Company had general and limited partnership interests in 14 limited
partnerships at September 30, 1999. (PSB and the limited partnerships are
collectively referred to as the "Unconsolidated Entities"). Due to the Company's
limited ownership interest and limited control of these entities, the Company
does not consolidate the accounts of these entities for financial reporting
purposes, and accounts for such investments using the equity method.
Equity in earnings of real estate entities for the nine months ended
September 30, 1999 consists of the Company's pro rata share of the
Unconsolidated Entities based upon the Company's ownership interest for the
period. In the aggregate, the Unconsolidated Entities own a total of 245 real
estate facilities, 122 of which are storage facilities. The following table sets
forth the significant components of the Company's equity in earnings of real
estate entities:
Three months ended Nine months ended
September 30, September 30,
------------------------- -----------------------
1999 1998 Change 1999 1998 Change
--------- --------- --------- --------- --------- ---------
( Amounts in thousands)
Property operations:
PSB...................... $ 9,231 $ 7,437 $ 1,794 $ 26,531 $ 14,881 $ 11,650
Development Joint Venture 690 252 438 1,605 432 1,173
Other partnerships....... 3,674 3,061 613 13,878 13,729 149
--------- --------- --------- --------- --------- ---------
13,595 10,750 2,845 42,014 29,042 12,972
--------- --------- --------- --------- --------- ---------
Depreciation:
PSB...................... (3,014) (2,423) (591) (8,621) (4,818) (3,803)
Development Joint Venture (335) (173) (162) (900) (364) (536)
Other partnerships....... (1,482) (667) (815) (4,884) (4,720) (164)
--------- --------- --------- --------- --------- ---------
(4,831) (3,263) (1,568) (14,405) (9,902) (4,503)
--------- --------- --------- --------- --------- ---------
Other: (1)
PSB...................... (1,479) (275) (1,204) (3,362) (776) (2,586)
Development Joint Venture 8 29 (21) 51 87 (36)
Other partnerships....... (793) (579) (214) (329) (1,853) 1,524
--------- --------- --------- --------- --------- ---------
(2,264) (825) (1,439) (3,640) (2,542) (1,098)
--------- --------- --------- --------- --------- ---------
Total equity in earnings of
real estate entities....... $ 6,500 $ 6,662 $ (162) $ 23,969 $ 16,598 $ 7,371
========= ========= ========= ========= ========= =========
21
(1) "Other" reflects the Company's share of general and administrative
expense, interest expense, interest income, and other
non-property, non-depreciation related operating results of these
entities. For PSB, it also includes the Company's share of
preferred dividends paid by PSB.
The increase in 1999 earnings compared to 1998 is principally the
result of the deconsolidation of PSB whereby the accounts of PSB, effective
April 1, 1998, were no longer consolidated with the Company's and the Company
began to account for its investment in PSB using the equity method.
OTHER INCOME AND EXPENSE ITEMS
- --------------------------------------------------------------------------------
INTEREST AND OTHER INCOME: The Company operates additional businesses
through affiliates, including management of facilities, retail sales of locks,
boxes, and packing supplies as well as the rental of trucks. The net results of
these businesses are presented along with interest and other income, as
"interest and other income." The components of interest and other income are
detailed as follows:
INTEREST AND OTHER INCOME:
--------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
1999 1998 Change 1999 1998 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Sales of packaging material and
truck rental income:
Revenues................. $ 3,987 $ 2,572 55.0% $ 9,606 $ 6,243 53.9%
Cost of operations....... (2,801) (1,764) 58.8% (6,998) (4,897) 42.9%
---------- ---------- ---------- ---------- ---------- ----------
Net operating income... 1,186 808 46.8% 2,608 1,346 93.8%
Facility management
Revenues................. 1,327 1,388 (4.4)% 4,150 4,805 (13.6)%
Cost of operations....... (179) (226) (20.8)% (651) (780) (16.5)%
---------- ---------- ---------- ---------- ---------- ----------
Net operating income... 1,148 1,162 (1.2)% 3,499 4,025 (13.1)%
Interest and other income... 2,035 3,113 (34.6)% 6,533 10,579 (38.2)%
---------- ---------- ---------- ---------- ---------- ----------
Total interest and other
income..................... $ 4,369 $ 5,083 (14.0)% $ 12,640 $ 15,950 (20.8)%
========== ========== ========== ========== ========== ==========
Interest and other income principally consists of interest earned on
cash balances and interest related to mortgage notes receivable. The decrease in
interest income for the nine months ended September 30, 1999 compared to the
same periods in 1998 is primarily due to decreased interest income on excess
cash balances.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
has increased $9,397,000 to $36,640,000 for the three months ended September 30,
1999 as compared to $27,243,000 for the same period in 1998. Depreciation and
amortization expense has increased $18,882,000 to $101,565,000 for the nine
months ended September 30, 1999 as compared to $82,683,000 for the same period
in 1998. These increases are principally due to the acquisition of additional
real estate facilities during 1998 and 1999, offset partially by the
deconsolidation of PSB. Amortization expense with respect to intangible assets
totaled $2,328,000 and $6,984,000 for the three and nine months, respectively,
ended September 30, 1999 and 1998.
MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by the Company. Minority interest in income was $4,492,000 and
$12,149,000, respectively, for the three and nine months ended September 30,
1999, as compared to $5,572,000 and $16,141,000, respectively, for the same
periods in 1998.
The decrease in minority interest in income is primarily the result of
the deconsolidation of PSB, whereby the minority interest with respect to PSB
after September 30, 1998 was removed from the Company's consolidated financial
statements.
22
SUPPLEMENTAL PROPERTY DATA AND TRENDS: At September 30, 1999, there
were approximately 48 ownership entities owning in aggregate 1,323 storage
facilities, including the facilities which the Company owns and/or operates. At
September 30, 1999, 122 of these facilities were owned by the Unconsolidated
Entities, in which the Company has an ownership interest and uses the equity
method of accounting. The remaining 1,201 facilities are owned by the Company
and Consolidated Entities. The following table summarizes the Company's
investment in real estate facilities as of September 30, 1999:
Number of Facilities in which the Net Rentable Square Footage
Company has an ownership interest (in thousands)
--------------------------------- ---------------------------------
Storage Commercial Storage Commercial
Facilities Properties Total Facilities Properties Total
----------------------- ------- ----------------------- -------
Wholly-owned facilities.................... 633 1 634 38,708 9 38,717
Facilities owned by Consolidated Entities 568 - 568 32,429 - 32,429
---------- --------- ------- ---------- --------- -------
Total consolidated facilities.......... 1,201 1 1,202 71,137 9 71,146
Facilities owned by Unconsolidated Entities 122 123 245 7,171 11,986 19,157
---------- --------- ------- ---------- --------- -------
Total facilities in which the Company
has an ownership interest............ 1,323 124 1,447 78,308 11,995 90,303
========== ========= ======= ========== ========= =======
In order to evaluate how the Company's overall portfolio has performed,
management analyzes the operating performance of a consistent group of storage
facilities representing 978 (57.2 million net rentable square feet) of the 1,323
storage facilities (herein referred to as "Same Store" storage facilities). The
978 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 dispositions of the properties, primarily from
condemnations by governmental authorities, which make such facilities' results
not comparable to previous periods. The Same Store group of properties includes
896 consolidated facilities and 82 facilities owned by Unconsolidated Entities.
The following table summarizes the pre-depreciation historical operating results
of the Same Store storage facilities:
SAME STORE STORAGE FACILITIES (978 FACILITIES):
- -----------------------------------------------
(historical property operations)
Three months ended September 30, Nine months ended September 30,
-------------------------------------- --------------------------------------
1999 1998 Change 1999 1998 Change
------------ ------------ -------- ------------ ------------ --------
(Amounts in thousands)
Rental income ................. $ 140,494 $ 134,639 4.3% $ 406,592 $ 388,331 4.7%
Cost of operations (include
an imputed 6% property
management fee) (1) ......... 46,386 45,311 2.4% 139,242 135,048 3.1%
------------ ------------ -------- ------------ ------------ --------
Net operating income .......... $ 94,108 $ 89,328 5.4% $ 267,350 $ 253,283 5.6%
============ ============ ======== ============ ============ ========
Gross profit margin (2) ....... 67.0% 66.3% 0.7% 65.8% 65.2% 0.6%
Weighted Average:
Occupancy during the
period ................... 93.4% 93.7% (0.3)% 92.7% 92.7% 0.0%
Annualized realized rent
per sq. ft. for period.(3) $ 10.51 $ 10.06 4.5% $ 10.23 $ 9.77 4.7%
Annualized scheduled rent
per sq. ft. for period (3) $ 10.51 $ 10.31 1.9% $ 10.49 $ 10.20 2.8%
1. Assumes payment of property management fees on all facilities, including
those facilities owned by the Company for which effective November 16,
1995 no fee is paid.
23
2. Gross profit margin is computed by dividing property net operating income
(which excludes depreciation expense) by rental revenues. Cost of
operations includes a 6% management fee. The gross profit margin
excluding the property management fee was 73.0% and 72.3% for the three
months ended September 30, 1999 and 1998, respectively; and 71.8% and
71.2% for the nine months ended September 30, 1999 and 1998,
respectively.
3. Realized rent per square foot represents the actual revenue earned per
occupied square foot during the period - annualized. Management believes
this is a more relevant measure than the scheduled rental rates, since
scheduled rates can be discounted through the use of promotions.
Rental income for the Same Store facilities included promotional
discounts totaling $3,058,000 and $11,095,000, respectively, for the three and
nine months ended September 30, 1999, respectively as compared to $3,556,000 and
$11,901,000 for the same periods in 1998.
During the year ended December 31, 1998 as compared to the year ended
December 31, 1997, the Same Store facilities exhibited growth in rental income
and net operating income of 7.6% and 8.2%, respectively, as a result of
increased realized rents and occupancies. The growth in rental income and net
operating income has decreased in the first nine months of 1999 to 4.7% and 5.6%
, respectively, as compared to the first nine months of 1998. The Company
expects the level of growth to continue at levels less than that experienced in
1998, as it expects no significant increases in occupancies and expects
continued moderated increases in realized rents.
Same Store cost of operations are analyzed as follows:
Three months ended September 30, Nine months ended September 30,
--------------------------------------- --------------------------------------
1999 1998 Change 1999 1998 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
Payroll expense............. $ 11,297 $ 11,390 (0.8)% $ 34,480 $ 33,800 2.0%
Property taxes.............. 11,912 11,875 0.3% 35,634 36,059 (1.2)%
Imputed 6% property
management fees........... 8,430 8,078 4.4% 24,395 23,299 4.7%
Advertising................. 1,648 1,070 54.0% 5,595 3,774 48.3%
Telephone reservation center
costs..................... 2,144 2,001 7.1% 6,103 5,295 15.3%
Other....................... 10,955 10,897 0.5% 33,035 32,821 0.6%
--------- --------- --------- --------- --------- ---------
$ 46,386 $ 45,311 2.4% $ 139,242 $ 135,048 3.1%
========= ========= ========= ========= ========= =========
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company believes that its internally generated net cash provided by
operating activities will continue to be sufficient to enable it to meet its
operating expenses, capital improvements, debt service requirements and
distributions to shareholders for the foreseeable future.
Operating as a real estate investment trust ("REIT"), the Company's
ability to retain cash flow for reinvestment is restricted. In order for the
Company to maintain its REIT status, a substantial portion of its operating cash
flow must be used to make distributions to its shareholders (see "REIT STATUS"
below). However, despite the significant distribution requirements, the Company
has been able to retain a significant amount of its operating cash flow. The
following table summarizes the Company's ability to pay the minority interests'
distributions, its dividends 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 the
Company to make both scheduled and optional principal payments on debt and for
reinvestment.
24
For the nine months ended
September 30,
----------------------------
1999 1998
------------ ------------
(Amounts in thousands)
Net income........................................................ $ 212,245 $ 167,849
Depreciation and amortization..................................... 101,565 82,683
Less - Depreciation with respect to non-real estate assets........ (3,631) (3,055)
Depreciation from Unconsolidated Entities......................... 14,405 9,902
Minority interest in income....................................... 12,149 16,141
------------ ------------
Net cash provided by operating activities....................... 336,733 273,520
Distributions from operations to minority interests............... (19,501) (25,565)
------------ ------------
Cash from operations allocable to the Company's shareholders...... 317,232 247,955
Less: preferred stock dividends................................... (69,766) (59,322)
------------ ------------
Cash from operations available to common shareholders............. 247,466 188,633
Capital improvements to maintain facilities:...................... (18,158) (19,257)
Add back: minority interest share of capital improvements
to maintain facilities....................................... 888 1,582
------------ ------------
Funds available for principal payments on debt, common
dividends and reinvestment................................... 230,196 170,958
Cash distributions to common shareholders......................... (85,096) (75,270)
------------ ------------
Funds available for principal payments on debt and reinvestment... $ 145,100 $ 95,688
============ ============
The Company expects to fund its growth strategies with cash on hand at
September 30, 1999, internally generated retained cash flows, proceeds from
issuing equity securities and borrowings under its $150 million credit facility.
The Company intends to repay amounts borrowed under the credit facility from
undistributed operating cash flow or, as market conditions permit and are
determined to be advantageous, from the public or private placement of equity
securities.
The Company's portfolio of real estate facilities remains substantially
unencumbered. At September 30, 1999, the Company had debt outstanding of $172.0
million, of which $30.0 million is mortgage debt and $142.0 million is unsecured
senior notes, and had consolidated real estate facilities with a book value of
$3.4 billion. The Company has been reluctant to finance its acquisitions with
debt and generally will only increase its mortgage borrowing through the
assumption of pre-existing debt on acquired real estate facilities.
During the first quarter of 1999, the Company issued a total of 9.2
million depositary shares (each representing 1/1,000 of a share) of its
Preferred Stock, Series K and L, raising net proceeds of approximately $222.6
million. During the third quarter of 1999, the Company issued a total of 2.3
million depositary shares (each representing 1/1,000 of a share) of its
Preferred Stock, Series M, raising net proceeds of approximately $54.4 million.
Proceeds from these offerings were used to fund the Company's real estate
investment activities.
DISTRIBUTION REQUIREMENTS: The Company's 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, 1999 and
1998, the Company distributed to common shareholders approximately 34.4% and
39.9% of its cash available from operations allocable to common shareholders,
respectively.
During the nine months ended September 30, 1999, the Company paid
dividends totaling $69,766,000 to the holders of the Company's Senior Preferred
Stock and $85,096,000 to the holders of Common Stock. The Company estimates the
regular distribution requirements for fiscal 1999 with respect to Senior
Preferred Stock outstanding at September 30, 1999 to be approximately $94.8
million.
On November 4, 1999, the Company's Board of Directors declared a $0.22
per common share quarterly dividend, along with quarterly dividends payable on
the Company's various series of preferred stock. Distributions are payable on
25
December 15, 1999 to shareholders of record as of December 31, 1999.
In addition, the Board of Directors declared a special distribution to
the Company's common shareholders. The special distribution is comprised of (i)
$.65 per common share payable in depositary shares, representing interests in
Equity Stock, Series A, with cash being paid in lieu of fractional shares or
(ii) at the election of each common shareholder $.62 per common share payable in
cash. The special distribution is payable on January 14, 2000 to shareholders of
record as of November 15, 1999.
The federal income tax rules applicable to REITs impose an excise tax
if a REIT does not meet certain minimum distribution requirements. For 1999,
after taking into account our regular distributions on our common and preferred
stocks, we estimate we need an additional distribution in order to avoid
incurring that excise tax. The special distribution is intended to meet our
distribution requirement for 1999 and will be taxable to our common
shareholders, and deductible by the Company, in 1999.
No shares of Equity Stock, Series A are presently outstanding, and no
market currently exists for the Equity Stock. The fair value of depositary
shares on the date of payment is expected to be $20 per depositary share. The
valuation of the depositary shares will be determined by our Board of Directors
based on advice from a financial advisor.
The creation of the Equity Stock, Series A may expand our financial
flexibility by providing us with a third permanent equity security. If the
Equity Stock is well received by the shareholders and the market, the Company
may be able to continue our growth by issuing additional Equity Stock and
preferred stock. Using those sources of permanent capital, rather than issuing
additional common stock, may be less likely to dilute the interest of existing
common shareholders in future growth.
The following summarizes the terms of the depositary shares
representing the Equity Stock, Series A:
(i) Distributions: During any calendar year (prorated for the year 2000),
each depositary share shall receive the lesser of: a) five times the per
share dividend on the Common Stock or b) $2.45.
(ii) Redemption: except in order to preserve the Company's federal income tax
status as a REIT, the Company may not redeem the depositary shares before
March 31, 2005. On or after March 31, 2005, the Company may, at its
option, redeem the depositary shares at $24.50 per depositary share.
(iii) Liquidation: if the Company is liquidated, the amount payable per
depositary share is the same as the amount payable per share of the
Company's common stock, but cannot exceed $24.50 per depositary share.
(iv) Preferences: the depositary shares have no preference over the Company's
common stock either as to dividends or in liquidation, and the Company
has no obligation to redeem the depositary shares.
(v) Conversion: if the Company fails to preserve its federal income tax
status as a REIT, the depositary shares will be convertible into common
stock. The depositary shares are otherwise not convertible into common
stock.
(vi) Voting rights: holders of depositary shares vote as a single class with
our holders of common stock on shareholder matters, but the depositary
shares have the equivalent of one-tenth of a vote per depositary share.
CAPITAL IMPROVEMENT REQUIREMENTS: During 1999, the Company budgeted
approximately $20.1 million for capital improvements in respect of its
consolidated properties ($19.5 million for its storage facilities and $0.6
million for its commercial space), excluding amounts to be incurred with respect
26
to the facilities acquired in the Storage Trust merger. The minority interests'
share of the budgeted capital improvements is approximately $1.5 million. During
the nine months ended September 30, 1999, the Company incurred capital
improvements of approximately $18.2 million. In addition, the Company expects to
spend approximately $15 million in property improvements to the properties
acquired in the Storage Trust merger in the period following the merger.
DEBT SERVICE REQUIREMENTS: The Company does not believe it has any
significant refinancing risks with respect to its notes payable, all of which is
fixed rate. At September 30, 1999, the Company had total outstanding notes
payable of approximately $171,952,000 (including $100,000,000 assumed in
connection with the March 1999 merger with Storage Trust). Approximate principal
maturities of notes payable at September 30, 1999 are as follows:
Unsecured Fixed Rate
Senior Notes Mortgage Debt Total
------------ ------------- -----------
(Amounts in thousands)
1999 (remainder of)...... $ 4,000 $ 924 $ 4,924
2000..................... 8,750 2,622 11,372
2001..................... 9,500 2,910 12,410
2002..................... 24,450 3,229 27,679
2003..................... 35,900 3,584 39,484
Thereafter............... 59,400 16,683 76,083
------------ ------------- -----------
$ 142,000 $ 29,952 $ 171,952
============ ============= ===========
Weighted Average Rate 7.4% 10.3% 7.9%
============ ============= ===========
REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, the
Company's Board of Directors authorized the repurchase from time to time of up
to 10,000,000 shares of the Company's common stock on the open market or in
privately negotiated transactions. In the nine months ended September 30, 1999,
the Company repurchased a total of 1,828,527 shares, for a total aggregate cost
of approximately $46.5 million. Cumulatively since the repurchase announcement,
through September 30, 1999, the Company has repurchased a total of 4,647,927
shares of common stock at an aggregate cost of approximately $118.8 million.
From October 1, 1999 through October 27, 1999, the Company repurchased an
additional 357,200 shares of common stock at an aggregate cost of approximately
$8.6 million.
DEVELOPMENT ACTIVITIES: As previously announced, in April 1997, the
Company and an institutional investor formed a joint venture partnership for the
purpose of developing up to $220 million of storage facilities. The joint
venture is funded solely with equity capital consisting of 30% from the Company
and 70% from the institutional investor. The Company's share of the cost of the
real estate in the joint venture is approximately $63.7 million at September 30,
1999.
During the nine months ended September 30, 1999, the joint venture
opened 15 new storage facilities that it had developed (approximately 903,000
net rentable sq. ft.). In addition, 2 projects that were completed by the
Company in 1998 were contributed to the joint venture during the nine months
ended September 30, 1999. As of September 30, 1999, the joint venture had 41
operating facilities, with 2,476,000 net rentable square feet and total
development costs of approximately $193.1 million. As of September 30, 1999, the
joint venture is developing 5 additional projects (approximately 376,000 net
rentable square feet) that were in process, with total costs incurred of $19.2
million and estimated remaining costs to complete of $9.6 million.
The joint venture is reviewing the final 2 projects (approximately
131,000 net rentable sq. ft), and upon approval the joint venture will be fully
committed. These projects are developed by the Company until they are approved
by the joint venture. As of September 30, 1999, the Company has incurred total
development costs of $11.3 million (estimated remaining costs to complete of
$0.3 million) with respect to these 2 projects.
Excluding the 2 properties that are being reviewed by the joint venture
and the 5 properties that the joint venture is developing, the Company is
developing 37 additional storage facilities with total incurred costs at
September 30, 1999 of $100.1 million (estimated remaining costs to complete of
$104.2 million), and has identified 23 additional storage facilities for
27
development, with total estimated costs of approximately $115.3 million. These
projects are subject to significant contingencies.
REIT STATUS: The Company believes that it has operated, and intends 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 it will at all times so
qualify. To the extent that the Company continues to qualify as a REIT, it will
not be taxed, with certain limited exceptions, on the taxable income that is
distributed to its shareholders, provided that at least 95% of its taxable
income is so distributed prior to filing of the Company's tax return. The
Company has satisfied the REIT distribution requirement since 1980.
FUNDS FROM OPERATIONS: Total funds from operations or "FFO" increased
to $317,232,000 for the nine months ended September 30, 1999 compared to
$247,955,000 for the same period in 1998. FFO available to common shareholders
(after deducting preferred stock dividends) increased to $247,466,000 for the
nine months ended September 30, 1999 compared to $188,633,000 for the same
period in 1998. 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: (i) plus
depreciation and amortization (including the Company's 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 (ii) 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 the case of the Company, FFO
represents amounts attributable to its 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 the performance of the Company 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 other
obligations of the Company. Accordingly, FFO is not a substitute for the
Company's cash flow or net income (as discussed above) as a measure of the
Company's liquidity or operating performance. FFO is not comparable to similarly
entitled items reported by other REITs that do not define it exactly as the
Company defines it.
IMPACT OF YEAR 2000
-------------------
The Company has completed an assessment of all of its hardware and
software applications to identify susceptibility to what is commonly referred to
as the "Y2K Issue" whereby certain computer programs have been written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware with the Y2K Issue that have date-sensitive
applications or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000, resulting in miscalculations or system failure
causing disruptions of operations.
The Company has two phases in its process with respect to each of its
systems; i) assessment, whereby the Company evaluates whether the system is Y2K
compliant and identifies the plan of action with respect to remediating any Y2K
issues identified and ii) implementation, whereby the Company completes the plan
of action prepared in the assessment phase and verifies that Y2K compliance has
been achieved.
Implementations have been completed on the Company's critical
applications that impact the Company, such as the general ledger, property
operations, and related systems. Contingency plans have been developed for use
in case the Company's assessment did not identify all Y2K issues, or if the
implementation were subsequently determined to not fully remediate Y2K issues
that were identified. While the Company presently believes that the impact of
the Y2K Issue on its systems can be mitigated, if the Company's plan for
ensuring Year 2000 compliance and the related contingency plans were to fail, be
insufficient, or not be implemented on a timely basis, Company operations could
be materially impacted.
28
Certain of the Company's other non-computer related systems that may be
impacted by the Y2K Issue, such as security systems, have been evaluated. Based
upon its evaluation, the Company has no reason to believe that lack of
compliance or failure of required solutions would materially impact the
Company's operations.
The Company exchanges electronic data with certain outside vendors in
the banking and payroll processing areas. The Company has been advised by these
vendors that their systems are Year 2000 compliant. The Company is not aware of
any other vendors, suppliers, or other external agents with a Y2K Issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that external
agents will be Year 2000 compliant, and there can be no assurance that the
Company has identified all such external agents. The inability of external
agents to complete their Year 2000 compliance process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
The cost of the Company's year 2000 compliance activities (which
primarily consists of the costs of new systems) is estimated at approximately
$4.4 million, of which approximately $4.2 million has been incurred to date.
These costs are capitalized. The Company's year 2000 compliance efforts have not
resulted in any significant deferrals in other information system projects.
The costs of the projects and the date on which the Company expects to
achieve Year 2000 Compliance are based upon management's best estimates, and
were derived utilizing numerous assumptions of future events. There can be no
assurance that these estimates will be achieved, and actual results could differ
materially from those anticipated. There can be no assurance that the Company
has identified all potential Y2K Issues either within the Company or at external
agents. In addition, the impact of the Y2K issue on governmental entities and
utility providers and the resultant impact on the Company, as well as
disruptions in the general economy, may be material but cannot be reasonably
determined or quantified.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
To limit the Company's exposure to market risk, the Company principally
finances its operations and growth with permanent equity capital, consisting of
either common or preferred stock. At September 30, 1999, the Company's debt as a
percentage of total shareholders' equity (based on book values) was 4.5%.
The Company's preferred stock is not redeemable by the holders. Except
under certain conditions relating to the Company's qualification as a REIT, the
Senior Preferred Stock is not redeemable by the Company prior to the following
dates: Series A - September 30, 2002, Series B - March 31, 2003, Series C - June
30, 1999, Series D - September 30, 2004, Series E - January 31, 2005, Series F -
April 30, 2005, Series G - December 31, 2000, Series H - January 31, 2001,
Series I - October 31, 2001, Series J - August 31, 2002, Series K - January 19,
2004, Series L - March 10, 2004 and Series M - August 17, 2004. On or after the
respective dates, each of the series of Senior Preferred Stock will be
redeemable at the option of the Company, in whole or in part, at $25 per share
(or depositary share in the case of the Series G, Series H, Series I, Series J,
Series K, Series L and Series M), plus accrued and unpaid dividends.
The Company's market risk sensitive instruments include notes payable,
which totaled $172.0 million at September 30, 1999. Substantially all of the
Company's notes payable bear interest at fixed rates. See Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources for approximate principal maturities of the
notes payable as of September 30, 1999.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Anderson v. Public Storage, Inc., San Francisco Superior Court (filed September
- ----------------------------------
19, 1997)
Grant v. Public Storage, Inc., San Diego Superior Court (filed October 6, 1997)
- ------------------------------
Wren v. Public Storage, Inc., San Francisco Superior Court (filed October 16,
- -------------------------------
1997)
Each of the plaintiffs in these cases is suing the Company on behalf of
a purported class of California tenants who rented storage spaces from the
Company and contends that the Company's fees for late payments under its rental
agreements for storage space constitute unlawful "penalties" under the
liquidated damages provisions of California law and under California's unfair
business practices act. None of the plaintiffs has assigned any dollar amount to
the claims.
In February 1998, the lower court dismissed the Anderson case, but in
May 1999 the court of appeal reversed the lower court's dismissal of the
plaintiff's claim under the California unfair business practices act and
affirmed the dismissal under the liquidated damages provisions of California
law. The Company is continuing to vigorously contest the claims in all three
legal proceedings.
Grinnel v. Public Storage, Inc., Baltimore City Circuit Court (filed August 4,
- ---------------------------------
1999)
Plaintiff in this case is suing the Company on behalf of a purported
class of Maryland tenants who rented storage spaces from the Company and
contends that the Company's fees for late payments under its rental agreements
for storage space exceeds the amount of interest that can be charged under the
Maryland constitution and are therefore unlawful "penalties." None of the
plaintiffs has assigned any dollar amount to the claims.
The Company intends to vigorously contest the claims in the proceedings.
In addition, the Company is a party to various claims, complaints and
other legal actions that have arisen in the normal course of business from time
to time. The Company believes the outcome of these pending legal proceedings, in
the aggregate, will not have a material adverse effect on the operations or
financial position of the Company.
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.
30
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.7 Certificate of Determination for the 9.50% Cumulative Preferred
Stock, Series D. Filed with Registrant's Form 8-A/A Registration
Statement relating to the 9.50% Cumulative Preferred Stock, Series D
and incorporated herein by reference.
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 10% Cumulative Preferred Stock, Series E and
incorporated herein by reference.
3.9 Certificate of Determination for the 9.75% Cumulative Preferred
Stock, Series F. Filed with Registration's Form 8-A/A Registration
Statement relating to the 9.75% Cumulative Preferred Stock, Series F
and incorporated herein by reference.
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock. Filed with Registrant's Registration Statement No.
33-63947 and incorporated herein by reference.
3.11 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 33-63947 and incorporated
herein by reference.
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred
Stock, Series G. Filed with Registration's Form 8-A/A Registration
Statement relating to the Depositary Shares Each Representing
1/1,000th of a Share of 8-7/8% Cumulative Preferred Stock, Series G
and incorporated herein by reference.
3.13 Certificate of Determination for the 8.45% Cumulative Preferred
Stock, Series H. Filed with Registrant's Form 8-A/A Registration
Statement relating to the Depositary Shares Each Representing
1/1,000th of a Share of 8.45% Cumulative Preferred Stock, Series H
and incorporated herein by reference.
3.14 Certificate of Determination for the Convertible Preferred Stock,
Series CC. Filed with Registrant's Registration Statement No.
333-03749 and incorporated herein by reference.
3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed with Registrant's
Registration Statement No. 333-08791 and incorporated herein by
reference.
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
herewith.
3.20 Certificate Decreasing Shares Constituting Equity Stock, Series A.
Filed herewith.
31
3.21 Certificate of Determination for Equity Stock, Series A. Filed
herewith.
3.22 Certification of Determination for 8% Cumulative Preferred Stock,
Series J. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a
Share of 8% Cumulative Preferred Stock, Series J and incorporated
herein by reference.
3.23 Certificate of Correction of Certificate of Determination for the
8.25% Convertible Preferred Stock. Filed with Registrant's
Registration Statement No. 333-61045 and incorporated herein by
reference.
3.24 Certification of Determination for 8-1/4% Cumulative Preferred
Stock, Series K. Filed with Registrant's Form 8-A/A Registration
Statement relating to the Depositary Shares Each Representing
1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock, Series K
and incorporated herein by reference.
3.25 Certificate of Determination for 8-1/4% Cumulative Preferred Stock,
Series L. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a
Share of 8-1/4% Cumulative Preferred Stock, Series L and
incorporated herein by reference.
3.26 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series M. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1000 of a
Share of 8.75% Cumulative Preferred Stock, Series M and incorporated
herein by reference.
3.27 Bylaws, as amended. Filed with Registrant's Registration Statement
No. 33-64971 and incorporated herein by reference.
3.28 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
3.29 Amendment to Bylaws adopted on June 26, 1997. Filed with
Registrant's Registration Statement No. 333-41123 and incorporated
herein by reference.
3.30 Amendment to Bylaws adopted on January 6, 1998. Filed with
Registrant's Registration Statement No. 333-41123 and incorporated
herein by reference.
3.31 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.
3.32 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.
3.33 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.
32
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, 1997 and incorporated herein by reference.
10.10 Agreement and Plan of Reorganization among Registrant, Public
Storage Properties IX, Inc., and PS Business Parks, Inc. dated as of
December 13, 1995. Filed with Registrant's Registration Statement
No. 333-00591 and incorporated herein by reference.
10.11 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 1/1,000th of a Share of 8-7/8
Cumulative Preferred Stock, Series G and incorporated herein by
reference.
10.12 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 1/1,000th of a Share of 8.45%
Cumulative Preferred Stock, Series H and incorporated herein by
reference.
10.13 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.
33
10.14 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 1/1,000th of a Share of 8-5/8%
Cumulative Preferred Stock, Series I and incorporated herein by
reference.
10.15 Agreement and Plan of Reorganization among Registrant, Public
Storage Properties XIV, Inc. and, Public Storage Properties XV, Inc.
dated as of December 5, 1996. Filed with Registrant's Registration
Statement No. 333-22665 and incorporated herein by reference.
10.16 Agreement and Plan of Reorganization among Registrant, Public
Storage Properties XVI, Inc., Public Storage Properties XVII, Inc.,
Public Storage Properties XVIII, Inc. and Public Storage Properties
XIX, Inc. dated as of April 9, 1997. Filed with Registrant's
Registration Statement No. 333-26959 and incorporated herein by
reference.
10.17 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.
10.18 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.
10.19 Agreement and Plan of Reorganization between Registrant and Public
Storage Properties XX, Inc. dated as of December 13, 1997. Filed
with Registrant's Registration Statement No. 333-49247 and
incorporated herein by reference.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
34
10.24 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.
10.25 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.
10.26 Amended and Restated Storage Trust Realty Retention Bonus Plan
effective as of November 12, 1998. Filed with Registrant's
Registration Statement No. 333-68543 and incorporated herein by
reference.
10.27 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.
10.28 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.
10.29 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.
11 Statement Re: Computation of Earnings Per Share. Filed herewith.
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
Filed herewith.
27 Financial data schedule. Filed herewith.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated August 12,
1999, pursuant to Item 5, which filed certain exhibits relating to
the Company's public offering of Depositary Shares each
representing 1/1,000 of a share of 8.75% Cumulative Preferred
Stock, Series M.
35
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 9, 1999
PUBLIC STORAGE, INC.
BY: /s/ John Reyes
--------------
John Reyes
Senior Vice President and Chief Financial Officer
(Principal financial officer and duly authorized
officer)
36