<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) NOVEMBER 16, 1995
---------------------
PUBLIC STORAGE, INC.
--------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 1-8389 95-3551121
- ---------- ------ ----------
(State or other jurisdiction (Commission (I.R.S. Employer of
incorporation) File Number) Identification
Number)
600 NORTH BRAND BLVD., GLENDALE, CALIFORNIA 91203-1241
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
STORAGE EQUITIES, INC.
----------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
------------------------------------
On November 16, 1995, Public Storage Management, Inc. ("PSMI") was
merged into the Registrant (the "Merger") pursuant to an Agreement and
Plan of Reorganization by and among Public Storage, Inc. ("Old Public
Storage"), PSMI and the Registrant, dated as of June 30, 1995 (the
"Agreement and Plan of Reorganization"), as amended by an Amendment to
Agreement and Plan of Reorganization by and among Old Public Storage,
PSMI, and the Registrant, dated as of November 13, 1995 (the
"Amendment"). In the Merger, the Registrant's name was changed from
Storage Equities, Inc. to Public Storage, Inc. The Agreement and Plan
of Reorganization and the Amendment, which are referenced under Item
7, are incorporated herein by this reference.
ITEM 5. OTHER EVENTS.
------------
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
References
----------
<S> <C>
Report of Independent Auditors.................................................................. 3
Combined Statements of Assets, Liabilities and Equity at December 31, 1994 and,................. 4
1993 and September 30, 1995
For the years ended December 31, 1994, 1993, 1992 and the
nine months ended September 30, 1995 and 1994:
Combined Statements of Operations............................................................ 5
Combined Statements of Cash Flows............................................................ 6
Notes to Financial Statements................................................................ 7
Pro Forma Consolidated Financial Statements
-------------------------------------------
Pro Forma Consolidated Balance Sheet at September 30, 1995................................... 14
Pro Forma Consolidated Statements of Income:
For the nine months ended September 30, 1995............................................. 18
For the year ended December 31, 1994..................................................... 19
</TABLE>
2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholder of
Public Storage, Inc.
We have audited the accompanying combined statements of assets, liabilities and
equity of the property management and advisory businesses and real estate assets
of Public Storage, Inc. (Operating Companies and Real Estate Interests) as of
December 31, 1994 and 1993 and the related combined statements of operations and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying financial statements of the Operating Companies and Real Estate
Interests were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in a Form 8-
K of Public Storage, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Operating Companies and
Real Estate Interests at December 31, 1994 and 1993, and results of operations
and its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
October 6, 1995
3
<PAGE>
OPERATING COMPANIES AND REAL ESTATE INTERESTS
COMBINED STATEMENTS OF ASSETS, LIABILITIES AND EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
---------------------------------------
SEPTEMBER 30, 1995 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
(unaudited)
Assets:
Cash $ 547 $ 1,388 $ 387
Restricted cash 1,021 - 1,111
Receivables from affiliates 3,008 3,033 2,751
Notes receivable 6,695 8,141 8,433
Investments in real estate entities 78,198 68,445 56,861
Real estate facilities:
Land 5,710 5,710 5,710
Buildings 14,337 14,326 14,282
------------------- ------------------ ------------------
20,047 20,036 19,992
Accumulated depreciation (2,576) (2,207) (1,718)
------------------- ------------------ ------------------
17,471 17,829 18,274
Other assets 84 202 559
------------------- ------------------ ------------------
Total assets $ 107,024 $ 99,038 $ 88,376
=================== ================== ==================
Liabilities
Accounts payable $ 763 $ 1,167 $ 1,281
Interest payable 1,712 527 561
Secured notes payable 4,440 4,807 5,015
Senior Secured Notes due 2003 (net of
$314, $359 and $519 of issuance costs
at September 30, 1995, December 31,
1994 and 1993, respectively)
67,686 70,141 74,481
------------------- ------------------ ------------------
Total liabilities 74,601 76,642 81,338
------------------- ------------------ ------------------
Equity 32,423 22,396 7,038
------------------- ------------------ ------------------
Total liabilities and equity $ 107,024 $ 99,038 $ 88,376
=================== ================== ==================
</TABLE>
See accompanying notes
4
<PAGE>
OPERATING COMPANIES AND REAL ESTATE INTERESTS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION> NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------- -----------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Facility management fees, primarily
from affiliates $ 19,902 $ 18,492 $ 25,224 $ 23,105 $ 21,416
Equity in earnings of real estate
entities 20,485 18,093 24,555 19,742 15,026
Advisory fee from affiliate 5,462 3,644 4,983 3,619 2,612
Merchandise operations 1,613 1,423 1,872 1,564 1,263
Rental revenues 2,474 2,345 3,152 2,884 2,867
Interest income 705 733 996 792 847
----------- ----------- ----------- ----------- -----------
Total revenues 50,641 44,730 60,782 51,706 44,031
----------- ----------- ----------- ----------- -----------
Expenses
Cost of managing facilities 3,877 3,632 4,909 5,544 5,839
Cost of advisory services and
administrative expenses 1,414 1,280 1,850 1,410 975
Cost of merchandise 779 666 866 800 689
Cost of rental operations 676 635 834 813 653
Depreciation 439 767 1,011 556 476
Interest expense 3,988 4,235 5,607 1,005 7,732
----------- ----------- ----------- ----------- -----------
Total expenses 11,173 11,215 15,077 10,128 16,364
----------- ----------- ----------- ----------- -----------
Income before extraordinary item 39,468 33,515 45,705 41,578 27,667
Extraordinary item
Gain on retirement of debt - - - 14,440 3,311
----------- ----------- ----------- ----------- -----------
Net income $ 39,468 $ 33,515 $ 45,705 $ 56,018 $ 30,978
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
<CAPTION>
OPERATING COMPANIES AND REAL ESTATE INTERESTS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31,
----------------------------- ----------------------------------------------
1995 1994 1994 1993 1992
-------------- ------------- ------------- --------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 39,468 $ 33,515 $ 45,705 $ 56,018 $ 30,978
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 439 767 1,011 556 1,971
Less: Equity in earnings of real estate
entities (20,485) (18,093) (24,555) (19,742) (15,026)
Distributions from real estate entities 10,732 9,797 12,971 9,843 9,645
Gain on retirement of debt - - - (14,440) (3,311)
Change in restricted cash (1,021) (298) 1,111 (1,111) -
Other 899 1,106 (435) 8 (386)
-------------- ------------- ------------ -------------- ------------
Total adjustments (9,436) (6,721) (9,897) (24,886) (7,107)
-------------- ------------- ------------ -------------- ------------
Net cash provided by operating
activities 30,032 26,794 35,808 31,132 23,871
-------------- ------------- ------------ -------------- ------------
Cash flows from investing activities:
Payments eceived on notes receivable 1,446 219 292 390 224
Capital expenditures (35) (33) (44) (103) (38)
-------------- ------------- ------------ -------------- ------------
Net cash provided by investing
activities 1,411 186 248 287 186
-------------- ------------- ------------ -------------- ------------
Cash flows from financing activities:
Principal payments on debt (2,867) (2,387) (4,708) (185) (137)
Repurchase of debt - - - (42,905) (6,143)
Issuance of Senior Secured Notes, net
of issuance costs - - - 74,475 -
Net distributions to affiliates (29,417) (18,733) (30,347) (62,738) (17,509)
-------------- ------------- ------------ -------------- ------------
Net cash used in financing activities (32,284) (21,120) (35,055) (31,353) (23,789)
-------------- ------------- ------------ -------------- ------------
Net increase (decrease) in cash (841) 5,860 1,001 66 268
Cash at beginning of period 1,388 387 387 321 53
-------------- ------------- ------------ -------------- ------------
Cash at end of period $ 547 $ 6,247 $ 1,388 $ 387 $ 321
============== ============= ============ ============== ============
Supplemental disclosure:
Interest paid $ 2,758 $ 2,834 $ 5,481 $ 1,606 $ 6,513
============== ============= ============ ============== ============
</TABLE>
See accompanying notes
6
<PAGE>
OPERATING COMPANIES AND REAL ESTATE INTERESTS
NOTES TO COMBINED FINANCIAL STATEMENTS
A. Basis of Presentation
The financial statements include the property management operations of
Public Storage Management, Inc. ("PSMI") and Public Storage Commercial
Properties Group, Inc. ("PSCP"), the advisory business of Public Storage
Adviser, Inc. ("Adviser") and merchandise sales operations of PSMI
(collectively "Operating Companies") and the real estate assets in which
Storage Equities, Inc. ("SEI") acquired an interest ("Real Estate
Interests"). PSMI, PSCP and Adviser are subsidiaries of Public Storage,
Inc. ("PSI"). Under an Agreement and Plan of Reorganization dated June 30,
1995, on November 16, 1995 the Operating Companies, along with the Real
Estate Interests, were acquired by SEI, a California corporation organized
as a real estate investment trust (the "Merger") and SEI changed its name
to Public Storage, Inc..
The accompanying financial statements have been prepared from the books and
records of the Operating Companies and the accounts related to the Real
Estate Interests and present the assets, liabilities and equity of the
Operating Companies and Real Estate Interests as of December 31, 1994 and
1993 and September 30, 1995, and the related revenues and expenses for the
years ended December 31, 1994, 1993, 1992 and the nine months ended
September 30, 1995 and 1994. Accordingly, these statements do not purport
to represent the financial position or results of operations of PSI or any
of its subsidiaries. The Combined Statements of Operations may not
necessarily be indicative of the revenues and expenses that would have
resulted had the Operating Companies and Real Estate Interests operated as
a stand-alone entity. Information subsequent to December 31, 1994 is
unaudited.
PSMI operated and managed, at September 30, 1995, pursuant to property
management agreements, 1,076 self-storage mini-warehouses, including 1,016
facilities owned by SEI, PSI or entities affiliated with PSI. It operated
all of the United States mini-warehouses operating under the "Public
Storage" name and all of those in which SEI has an interest.
PSCP operated and managed, at September 30, 1995, pursuant to property
management agreements, 45 commercial office buildings and light industrial
business parks, including 35 facilities owned by SEI, PSI or entities
affiliated with PSI, which operate under the Public Storage name in the
United States and all commercial facilities in which SEI has an interest.
The Adviser acts, pursuant to an advisory contract, as an investment
advisor to SEI. It advises SEI with respect to its investments and
administers the daily corporate operations of SEI for an advisory fee (see
Advisory Contract) and pays the salaries and expenses of the executive
officers, the acquisition staff of SEI and other corporate overhead,
including rent.
PSMI sells merchandise (primarily locks and boxes) to customers and tenants
at substantially all of the mini-warehouse facilities managed by PSMI.
These products are ancillary to renting storage space and are provided as a
convenience to the tenants.
Real Estate Interests consist of partial equity interests in 63 REITs and
partnerships, which own 505 mini-warehouses and 14 commercial facilities, a
fee interest in six mini-warehouses and one commercial facility, all
operated under the "Public Storage" name, and 10 mortgage notes receivable
secured by mini-warehouse facilities.
7
<PAGE>
B. Summary of Significant Accounting Policies
1. Method of accounting. The financial statements are prepared in
accordance with generally accepted accounting principles.
2. Cash and cash equivalents. Cash and cash equivalents consist of
demand deposits and cash investments which are highly liquid
investments with a maturity of three months or less. Cash is invested
in commercial paper and US Government securities.
3. Real estate facilities. Cost of land includes appraisal fees and
legal fees related to acquisition and closing costs. Buildings reflect
costs incurred to develop mini-warehouses and to a lesser extent
business park facilities. The mini-warehouse facilities provide self-
service storage spaces for lease, generally on a month-to month basis,
to the general public.
4. Depreciation and amortization. Depreciation expense represents
depreciation on real estate facilities and equipment and is provided
on a straight-line basis over the estimated useful life of twenty-five
years and three years, respectively. Amortization expense represents
amortization of debt issuance costs and is provided on the effective
interest method over the life of the debt.
5. Allocated costs. Included in the accompanying Statements of
Operations are allocations of expenses for corporate overhead,
including salaries of support personnel, facilities and other
expenses, incurred by the Operating Companies. The personnel and
facilities subject to these allocations support other entities
affiliated with PSI. In management's opinion, the allocation
methodology, which is based on the estimated utilization of such
services and costs, provides a reasonable allocation of the costs that
were incurred by the Operating Companies.
6. Income taxes. The financial statements exclude the effects of income
taxes since they reflect a partial presentation (after allocated
costs).
7. Equity. Equity represents the excess of assets over liabilities and
reflects the effect of net distributions, capital transactions, and
loans between the Operating Companies and affiliated companies.
C. Notes Receivable
Notes receivable includes ten notes with an aggregate carrying amount of
$8,141,000 at December 31, 1994 and which are secured by mini-warehouse
facilities. Four of the notes are subject to underlying mortgage debt.
Interest income and interest expense are included in the Combined
Statements of Operations with respect to the notes receivable and
underlying mortgage debt, respectively.
The notes receivable have interest rates ranging from 7.0% to 14.5%
(weighted average of 11.8%) and mature from 1995 to 2013. The underlying
mortgages have interest rates ranging from 7.1% to 9.9% (weighted average
of 7.5%) and are due from 1997 to 2000.
D. Investments in Real Estate Entities
Investments in real estate entities consist generally of a 20% to 30%
interest in 63 affiliated REITs and partnerships which own 505 mini-
warehouses and 14 business parks, all operated under the "Public Storage"
name. These investments are accounted for using the equity method of
accounting, recognizing in income its proportionate share of the earnings
while correspondingly increasing the investment balance and accounting for
distributions as a reduction in the investment balance.
The impact of facility management fees paid by these unconsolidated
affiliated entities have been eliminated to the extent of PSI's investment
in each entity ($2.9 million and $2.5 million for the year ended December
31, 1994 and nine months ended September 30, 1995, respectively).
8
<PAGE>
E. Secured Notes Payable
Secured Notes Payable ($4,807,000 as of December 31, 1994) consist of
underlying debt related to four of the notes receivable and mortgage debt
secured by one facility. The debt bears interest at rates ranging from
7.1% to 9.9%. The repayment of principal related to this debt at December
31, 1994 is due as follows:
<TABLE>
<S> <C>
1995 $ 213,000
1997 1,038,000
1998 2,633,000
1999 561,000
Thereafter 131,000
----------
$4,807,000
==========
</TABLE>
F. Long-term Debt
During 1992 and 1993, debt of PSMI was extinguished through a series of
purchases from unaffiliated note holders, resulting in "extraordinary"
gains from retirement of debt of $3.3 million and $14.4 million in 1992 and
1993, respectively.
In November 1993, PSMI issued $75 million in Senior Secured Notes due 2003
("Notes"). The Notes bear interest at 7.08%, with interest and principal
payments due semi-annually. The Notes are collateralized by cash flow
rights from the property management agreements for mini-warehouses and
other assets of PSI, including trademarks and marketable and non-marketable
securities of affiliates. The Notes have various restrictive covenants on
dividends, investments and additional indebtedness. As required by the
Notes, cash is segregated between the amount which must be invested
pursuant to the terms of the Notes (restricted cash) and an amount which
may be used to declare dividends or invested without restriction.
Restricted funds of $1.1 million, none and $1.0 million are included in
cash as of December 31, 1993, and 1994 and September 30, 1995,
respectively. In addition, the Notes contain various financial covenants.
PSMI is in compliance with all covenants.
As of December 31, 1994, the scheduled principal payments of the Notes were
as follows:
<TABLE>
<S> <C>
1995 $ 5,000,000
1996 5,750,000
1997 6,500,000
1998 7,250,000
1999 8,000,000
Thereafter 38,000,000
-----------
$70,500,000
===========
</TABLE>
G. Management Agreements
The property management agreements generally provide for compensation equal
to six percent of the gross revenues of the mini-warehouse facilities
managed, and five percent of the gross revenues of the commercial
facilities managed. Management fees of $26,835,000, $24,554,000,
$22,656,000, $18,777,000 and $17,400,000 were earned on properties in which
PSI and SEI have an interest for the years ended December 31, 1994, 1993,
1992 and for the nine months ended September 30, 1995 and 1994,
respectively. The management agreements, except as noted below, are
cancelable by either party upon sixty days notice.
9
<PAGE>
The impact of property management fees paid to PSI for properties which it
owns and by unconsolidated affiliated entities in which PSI has an interest
have been eliminated to the extent of PSI's investment ($3.1 million and
$2.6 million for the year ended December 31, 1994 and nine months ended
September 30, 1995, respectively).
For the property management fees, under the supervision of the property
owners, PSMI and PSCP coordinate rental policies, rent collections,
marketing activities, the purchase of equipment and supplies, maintenance
activity, and the selection and engagement of vendors, suppliers and
independent contractors. PSMI and PSCP assist and advise the property
owners in establishing policies for the hire, discharge and supervision of
employees for the operation of their facilities, including resident
managers, assistant managers, relief managers and billing and maintenance
personnel.
For the duration of the management agreements, PSMI grants to the property
owners a non-exclusive license to use two PSI service marks and related
designs, including the "Public Storage" name. Upon termination of the
management agreement, the property owner would no longer have the right to
use the service marks and related designs, except as described below.
In February 1995, the management agreements of sixteen companies (including
SEI) were amended to revise the termination provision. The management
agreements, as amended, provide that the agreements with respect to
properties directly owned by the sixteen companies will expire seven years
from the date modified, provided that on each anniversary of such
modification, it shall be automatically extended for one year (thereby
maintaining a seven year term) unless either party notifies the other that
the agreement is not being extended. With respect to properties in which
SEI has an interest, but are not wholly-owned by SEI, the management
agreements may be terminated upon sixty days notice by SEI and upon seven
years notice by the Operating Companies. The management agreements of the
sixteen companies may also be terminated by either party for cause, but if
terminated by the property owner, for cause, the property owner will retain
the rights to use the PSI service marks until the scheduled expiration
date.
Regardless of the termination provisions, all management agreements with
PSI affiliated entities are subject to termination upon the sale of the
facilities.
H. Advisory Contract
Pursuant to an advisory contract, the Adviser, for an advisory fee, directs
SEI, under the supervision of SEI's Board of Directors, with respect to its
investments and daily corporate operations. The contract provided for the
monthly payment of advisory fees equal to the sum of (i) 12.75% of SEI's
adjusted income (as defined, and after reduction for SEI's share of capital
improvements) per share of SEI common stock on the first 14,989,454 shares
outstanding and (ii) 6% of adjusted income per share on common shares in
excess of 14,989,454 of SEI common stock. The advisory contract provide d s
that, in computing the advisory fee, adjusted income will be reduced by
dividends paid on all SEI preferred stock and that the Adviser will also
receive an amount equal to 6% of such dividends. Pursuant to the merger,
SEI acquired the Adviser, and accordingly, the payment of advisory fees
terminated.
The Adviser paid the salaries and expenses of the executive officers, the
acquisition staff of SEI and other corporate overhead, including rent.
I. Contingencies
PSI and PSMI have entered into various operating leases including a lease
for the facilities utilized by personnel of the Operating Companies. Rent
of $748,000, $725,000, $777,000, $537,000 and
10
<PAGE>
$559,000 is included in the Statements of Operations for the years ended
December 31, 1994, 1993, and 1992 and the nine months ended September 30,
1995 and 1994, respectively, related to these leases.
Minimum lease payments due under these leases as of December 31, 1994 are:
<TABLE>
<CAPTION>
<S> <C>
1995 $841,000
1996 397,000
1997 129,000
1998 107,000
1999 5,000
</TABLE>
In connection with the management of mini-warehouses, the Operating
Companies have established trust accounts to collect, from various property
owners, on a monthly basis, amounts for property tax payments. Payments of
the property tax bills which generally occur annually or semi-annually are
made from these accounts. Funds relating to these property tax impounds
held on behalf of non-affiliates and affiliates in the approximate amounts
of $913,000 and $1,000,000, respectively, at December 31, 1994 and $891,000
and $1,183,000, respectively, at December 31, 1993. The impounds are not
reflected in the accompanying Statement of Assets, Liabilities and Equity.
The Operating Companies are involved in various legal proceedings arising
from the normal course of business. In the opinion of management, the
ultimate outcome of these proceedings will not have a material effect on
the Operating Companies' financial position, results of operations or its
liquidity.
11
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
In a series of November 1995 mergers among Public Storage Management,
Inc. and its affiliates (collectively "PSMI"), which was Storage Equities,
Inc.'s ("SEI") mini-warehouse property operator, culminating in the merger of
PSMI into SEI, (the "Merger"), SEI changed its name to Public Storage, Inc. (the
"Company" or "PSI"), became self-administered and self-managed and acquired
substantially all of the United States real estate operations of PSMI. The
outstanding capital stock of PSMI was converted into an aggregate of 30,000,000
shares of Common Stock and the right to receive 7,000,000 shares of Class B
Common Stock. The Class B Common Stock shall be issued upon the later to occur
of (i) January 2, 1996 pr (ii) the date on which the Company shall have sold and
issued securities providing a cumulative total of $50 million or more in
additional Shareholders' equity. The following pro formas financial statements
have been prepared in connection with the proposed issuance of $100 million of
preferred stock. Although no pro forma adjustments have been made to reflect the
proposed issuance of $100 million of preferred stock, pro forma adjustments have
been made to reflect the issuance of the 7,000,000 shares of Class B Common
Stock.
The following unaudited pro forma consolidated financial statements
were prepared to reflect the Merger transaction between the Company and
PSMI.
Pursuant to the Merger, the Company acquired substantially all of the
United States real estate operations of PSMI consisting of the Operating
Companies and the Real Estate Interests, which include (1) the "Public Storage"
name, (2) seven wholly owned properties, (3) all inclusive deeds of trust
secured by ten mini-warehouses, (4) general and limited partnership interests in
47 limited partnerships owning an aggregate of 286 mini-warehouses, (5) equity
interests in 16 REITs which, exclusive of the Company's facilities, own an
aggregate of 218 mini-warehouses and 14 commercial properties, (6) property
management contracts, exclusive of the Company's facilities, for 563 mini-
warehouses and, through a 95% economic interest in a subsidiary PSCP, 24
commercial properties (522 of which collectively are owned by entities
affiliated with PSI), and (7) a 95% economic interest in another subsidiary that
currently sells locks and boxes in mini-warehouses operated by the Company.
In addition to adjustments to reflect the proposed Merger, pro forma
adjustments were made to reflect the following transactions:
ISSUANCE OF PREFERRED AND COMMON STOCK:
. On February 15, 1994, the Company issued 5,484,000 shares of
Common Stock in a public offering. The net offering proceeds were
approximately $76.5 million, which combined with the use of cash
reserves were used to repay debt, acquire real estate facilities,
acquire mortgage notes receivable and acquire additional minority
interests.
. On June 30, 1994, the Company issued 1,200,000 shares of
Adjustable Rate Cumulative Preferred Stock, Series C (the "Series
C Preferred Stock"). The aggregate net offering proceeds of the
offering ($28.9 million) were used to retire bank borrowings
(borrowings which were used primarily to acquire real estate
facilities and minority interests in real estate partnerships).
. On September 1, 1994, the Company issued 1,200,000 shares of
9.5% Cumulative Preferred Stock, Series D (the "Series D
Preferred Stock"). The aggregate net offering proceeds of the
offering ($29.0 million) were used to acquire real estate
facilities and minority interests in real estate partnerships.
. On November 25, 1994, the Company issued 2,500,000 shares of
Common Stock in a public offering. The offering provided net
proceeds of approximately $33.8 million, which were utilized to
repay borrowings on SEI's credit facilities (borrowings which
were used to fund the acquisition of real estate facilities,
minority interests and the cash portion of the PSP VIII merger,
see below).
. On February 1, 1995, the Company issued 2,195,000 shares of
10% Cumulative Preferred Stock, Series E (the "Series E Preferred
Stock"). The aggregate net offering proceeds of $52.9 million
were used to acquire real estate facilities, minority interests
in real estate partnerships and retire bank borrowings
(borrowings which were used to acquire real estate facilities).
. On May 3, 1995, the Company issued 2,300,000 shares of 9.75%
Cumulative Preferred Stock, Series F (the "Series F Preferred
Stock"). The aggregate net offering proceeds of $55.5 million
were used to acquire real
12
<PAGE>
estate facilities, minority interests in real estate partnerships
and retire bank borrowings (borrowings which were used to acquire
real estate facilities).
. On May 31, 1995, the Company issued 5,482,200 shares of
Common Stock in a public offering. The aggregate net offering
proceeds of $82.0 million were used to acquire real estate
facilities.
MERGERS:
. On September 30, 1994, the Company completed a merger
transaction with Public Storage Properties VIII, Inc. ("PSP
VIII") whereby the Company acquired all of the outstanding
shares of PSP VIII's common stock for an aggregate cost of
$55,839,000, consisting of the issuance of 2,593,914 shares of
Common Stock and $17,341,000 in cash.
. On February 28, 1995, the Company completed a merger
transaction with Public Storage Properties VI, Inc. ("PSP VI")
whereby SEI acquired all of the outstanding shares of PSP VI's
common stock for an aggregate cost of $65,343,000, consisting of
the issuance of 3,147,015 shares of Common Stock and
$21,427,000 in cash.
. On June 30, 1995, the Company completed a merger transaction
with Public Storage Properties VII, Inc. ("PSP VII") whereby the
Company acquired all of the outstanding shares of PSP VII's
common stock for an aggregate cost of $70,064,000 consisting of
the issuance of approximately 3,517,272 shares of Common
Stock and $14,007,000 in cash.
The pro forma consolidated balance sheet at September 30, 1995
has been prepared to reflect (i) the issuance and utilization of the remaining
net offering proceeds of the Common Stock issued on May 31, 1995, and (ii) the
proposed Merger with PSMI.
The pro forma consolidated statement of income for the nine months
ended September 30, 1995 has been prepared assuming (i) the issuance of
preferred and Common Stock and the utilization of the proceeds therefrom, (ii)
the merger transactions with PSP VI and PSP VII, and (iii) the proposed Merger,
as if all such transactions were completed at the beginning of the period. The
pro forma consolidated statement of income for the year ended December 31, 1994
has been prepared assuming (i) the issuance of the Preferred and Common Stock
and the utilization of the proceeds therefrom, (ii) the merger transactions with
PSP VIII, PSP VI and PSP VII, and (iii) the proposed Merger, as if all such
transactions were completed on January 1, 1994.
The pro forma adjustments are based upon available information and
upon certain assumptions as set forth in the notes to the pro forma consolidated
financial statements that the Company believes are reasonable in the
circumstances. The pro forma condensed consolidated financial statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Company, the combined financial
statements of the Operating Companies and the Real Estate Interests to be
acquired. The following pro forma consolidated financial statements do not
purport to represent what the Company's results of operations would actually
have been if the transactions in fact had occurred at the beginning of the
respective periods or to project the Company's results of operations for any
future date or period.
13
<PAGE>
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEI PRE-MERGER
-----------------------------------------------------
PRO FORMA
ADJUSTMENTS FOR
THE ACQUISITION OF SEI
SEI REAL ESTATE PRE-MERGER
ASSETS (HISTORICAL) FACILITIES (1) (PRO FORMA)
--------------- ------------------ ---------------
<S> <C> <C> <C>
Cash and cash equivalents $ 14,697,000 $ (10,771,000) $ 3,926,000
Investments in real estate entities 12,151,000 - 12,151,000
Real estate facilities, net of accumulated depreciation 1,144,709,000 23,739,000 1,168,448,000
Mortgage loans receivable, primarily from affiliates 10,103,000 (6,927,000) 3,176,000
Intangible assets - - -
Other assets 8,401,000 - 8,401,000
--------------- ------------------ ---------------
Total assets $1,190,061,000 $ 6,041,000 $1,196,102,000
=============== ================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to banks $ 5,000,000 $ - $ 5,000,000
Senior Notes - - -
Mortgage notes payable 105,689,000 6,041,000 111,730,000
--------------- ------------------ ---------------
Total debt 110,689,000 6,041,000 116,730,000
Accrued and other liabilities 22,636,000 - 22,636,000
Minority interest 133,795,000 - 133,795,000
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares authorized:
Senior Preferred Stock 277,650,000 - 277,650,000
Convertible Preferred Stock 85,970,000 - 85,970,000
Common stock, $.10 par value, 60,000,000 shares authorized
42,064,283 shares issued and outstanding (79,042,616 pro forma
shares issued and outstanding)
Common Stock (72,064,283 issued and outstanding pro forma) 4,207,000 - 4,207,000
Class B (7,000,000 issued and outstanding pro forma) - - -
Paid-in capital 562,168,000 - 562,168,000
Cumulative net income 221,706,000 - 221,706,000
Cumulative distribution paid (228,760,000) - (228,760,000)
Equity - - -
--------------- ------------------ ---------------
Total shareholders' equity 922,941,000 - 922,941,000
--------------- ------------------ ---------------
Total liabilities and shareholders' equity $1,190,061,000 $ 6,041,000 $1,196,102,000
=============== ================== ===============
<CAPTION>
COMBINED
OPERATING
COMPANIES AND
REAL ESTATE PSI
ASSETS INTERESTS PRO FORMA MERGER POST-MERGER
(HISTORICAL) ADJUSTMENTS (2) (PRO FROMA)
--------------- ------------------ ---------------
<S> <C> <C> <C>
Cash and cash equivalents $ 1,568,000 $ - $ 5,494,000
Investments in real estate entities 78,198,000 286,802,000 377,151,000
Real estate facilities, net of accumulated depreciation 17,471,000 2,472,000 1,188,391,000
Mortgage loans receivable, primarily from affiliates 6,695,000 - 9,871,000
Intangible assets - 236,757,000 236,757,000
Other assets 3,092,000 - 11,493,000
--------------- ------------------ ---------------
Total assets $ 107,024,000 $ 526,031,000 $1,829,157,000
=============== ================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to banks $ - $ - $ 5,000,000
Senior Notes 67,686,000 314,000 68,000,000
Mortgage notes payable 4,440,000 - 116,170,000
--------------- ------------------ ---------------
Total debt 72,126,000 314,000 189,170,000
Accrued and other liabilities 2,475,000 2,000,000 27,111,000
Minority interest - - 133,795,000
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares authorized:
Senior Preferred Stock - - 277,650,000
Convertible Preferred Stock - - 85,970,000
Common stock, $.10 par value, 60,000,000 shares authorized
42,064,283 shares issued and outstanding (79,042,616 pro forma
shares issued and outstanding)
Common Stock (72,064,283 issued and outstanding pro forma) - 3,000,000 7,207,000
Class B (7,000,000 issued and outstanding pro forma) - 700,000 700,000
Paid-in capital - 552,440,000 1,114,608,000
Cumulative net income - - 221,706,000
Cumulative distribution paid - - (228,760,000)
Equity 32,423,000 (32,423,000) -
--------------- ------------------ ---------------
Total shareholders' equity 32,423,000 523,717,000 1,479,081,000
--------------- ------------------ ---------------
Total liabilities and shareholders' equity $ 107,024,000 $ 526,031,000 $1,829,157,000
=============== ================== ===============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheets.
14
<PAGE>
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
1. Acquisition of real estate facilities:
--------------------------------------
The Company is currently pursuing the acquisition of eight mini-warehouse
facilities with an aggregate cost of approximately $23.7 million which have
not been completed as of September 30, 1995. These real estate facilities
are owned by three limited partnerships and the general partner is
currently in the process of seeking the approval of the limited partners of
the partnerships to sell the partnerships' real estate facilities to SEI
for cash, the cancellation of mortgage debt owed to the Company and the
assumption of mortgage debt secured by the facilities. There is no
assurance that such transactions will be approved by the limited partners
of each of the partnerships and therefore consummated; however, the Company
believes, based on past experience, that the approval of the limited
partners is probable.
The following pro forma adjustments were made to reflect the above
transactions:
<TABLE>
<S> <C>
. Real estate facilities were increased to reflect
the acquisition of mini-warehouse facilities
Cash portion of acquisition cost..................... $ 10,771,000
Cancellation of mortgage notes receivable secured by
acquired mini-warehouses facilities................ 6 927,000
Assumption of mortgage notes payable secured by
acquired mini-warehouse facilities................. 6,041,000
------------
$ 23,739,000
============
. Mortgage notes receivable were decreased to
reflect the cancellation of notes in connection
with the acquisition of mini-warehouse facilities
securing such notes.................................... $ (6,927,000)
============
. Mortgage notes payable were increased to reflect
the assumption of such notes in connection with
the acquisition of mini-warehouse facilities........... $ 6,041,000
============
</TABLE>
2. Merger Pro Forma Adjustments
----------------------------
The Merger has been accounted for using the purchase method of
accounting and the total purchase cost will be allocated to the acquired net
assets; first to the tangible and identifiable intangible assets and liabilities
acquired based upon their respective fair values, and the remainder will be
allocated to the excess of purchase cost over fair value of assets acquired. The
outstanding shares of PSMI capital stock were converted into an aggregate of
30,000,000 shares of Common Stock and 7,000,000 shares of Class B Common Stock,
subject to adjustment.
Pursuant to the Merger, the Company acquired substantially all of the
United States operations of PSMI consisting of the Operating Companies and the
Real Estate Interests, which include (1) the "Public Storage" name, (2) seven
wholly owned properties, (3) all inclusive deeds of trust secured by ten mini-
warehouses, (4) general and limited partnership interests in 47 limited
partnerships owning an aggregate of 286 mini-warehouses, (5) equity interests in
16 REITs which, exclusive of the Company's facilities, own an aggregate of 218
mini-warehouses and 14 commercial properties, (6) property management contracts,
exclusive of the Company's facilities, for 563 mini-warehouses and 24 commercial
properties (522 of which collectively are owned by entities affiliated with PS M
I), and (7) a 95% economic interest in a merchandise company which currently
sells locks and boxes to the Company's mini-warehous e tenants and others.
15
<PAGE>
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
The Company has determined the purchase cost of the net assets to be acquired in
the Merger to be equal to the fair value of the securities issued combined with
direct costs of the Merger. The fair value of the Common Stock is based on the
average closing market prices on the NYSE for the thirty consecutive trading
days prior to the date the Merger Agreement was executed (June 30, 1995). The
fair value of the Class B Common Stock (which is not publicly traded) is based
on an independent appraisal. The aggregate purchase cost and its preliminary
allocation to the historical assets and liabilities assuming the Merger was
consummated on September 30, 1995 is as follows:
<TABLE>
<CAPTION>
Purchase cost (1):
------------------
<S> <C>
Issuance of 30,000,000 shares of Common Stock (at $16.088 per share) (1)..................... $ 482,640,000
Issuance of 7,000,000 shares of Class B Common Stock (at $10.50 per share)................... 73,500,000
Estimated direct costs and expenses of the Merger............................................ 2,000,000
-------------
$ 558,140,000
=============
Preliminary allocation of purchase cost:
----------------------------------------
Intangible assets attributable to the Operating Companies (2)................................ 236,757,000
Fair value of net assets acquired from the Operating Companies
Cash..................................................................................... 1,568,000
Other assets............................................................................. 3,092,000
Senior note payable (face amount of note at September 30, 1995).......................... (68,000,000)
Accrued and other liabilities............................................................ (2,475,000)
-------------
Total fair value of net assets of the Operating Companies.............................. 170,942,000
-------------
Fair value of real estate investments (including general and limited partnership
interests and equity interests in REITs).................................................... 365,000,000
Fair value of fee simple interest in seven properties........................................ 19,943,000
Fair value of mortgage debt secured by properties acquired................................... (515,000)
Fair value of all-inclusive trust deeds:
Mortgage notes receivable.................................................................. 6,695,000
Mortgage notes payable..................................................................... (3,899,000)
------------
Total fair value of the net assets of the Real Estate Interests to be acquired......... 387,198,000
------------
$ 558,140,000
============
</TABLE>
- --------------------
(1) Pursuant to the terms of the Merger, the number of shares of Common Stock
and Class B Common Stock to be issued as consideration for the Merger will
not be subjected to market price fluctuations. In addition, with respect to
the determination of the value of consideration to be paid for the
acquisition, market fluctuations subsequent to the announcement of the
proposed Merger were not taken into consideration.
(2) Intangible assets consist of the following:
<TABLE>
<S> <C>
Management contracts $165,000,000
Excess purchase cost over identifiable tangible and intangible assets 71,757,000
------------
$236,757,000
</TABLE>
The following pro forma adjustments have been made to reflect the Merger as of
September 30, 1995:
16
<PAGE>
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
NOTES TO PRO FORMA CONSOLIDATEDBALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
. Pro forma Merger adjustments:
-----------------------------
. Investments in real estate entities has been increased to reflect the fair
value of real estate investments acquired in the Merger:
Fair value of real estate investments............................................. $ 365,000,000
Less: historical carrying value................................................... (78,198,000)
------------
Pro forma adjustment............................................................. $ 286,802,000
============
. Real estate facilities has been increased to reflect the fair value of the
seven properties to be acquired in the Merger:
Fair value of real estate facilities.............................................. 19,943,000
Less: historical carrying value................................................... (17,471,000)
------------
Pro forma adjustment............................................................ 2,472,000
============
. Intangible assets have been increased to reflect intangible assets relating
to the Operating Companies.......................................................... $ 236,757,000
============
. Secured notes has been adjusted by an amount to reflect the face amount of
the secured note at September 30, 1995.............................................. 314,000
============
. Accrued and other liabilities has been increased for the estimated costs
and expenses of the Merger.......................................................... $ 2,000,000
============
. Shareholders' equity has been increased to reflect the following:
Issuance of 30,000,000 shares of Common Stock ($.10 par value per share).......... $ 3,000,000
============
Issuance of 7,000,000 shares of Class B Common Stock ($.10 par value per
share).......................................................................... $ 700,000
============
. Paid-in capital has been increased to reflect the value of issued shares of
Common Stock and Class B Common Stock in excess of par value (30,000,000
shares of Common Stock at $16.088 per share and 7,000,000 shares of Class B
Common Stock at $10.50 per share less aggregate par
value of $3,700,000)................................................................ $ 552,440,000
============
. Equity has been eliminated to reflect the acquisition of the net assets of the
Operating Companies and Real Estate Interests to be acquired........................ $ (32,423,000)
============
</TABLE>
17
<PAGE>
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEI - PRE-MERGER
-----------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
---------------------------------
ISSUANCE
OF PREFERRED SEI
SEI & COMMON REIT PRE-MERGER
(HISTORICAL) STOCK(1) MERGERS(2) (PRO FORMA)
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Rental Income $143,587,000 $15,540,000 $8,465,000 $167,592,000
Facility management fees - - - -
Advisory fee income - - - -
Merchandise operations - - - -
Equity in earnings of real
estate entities - 383,000 - 383,000
Interest and other Income 4,461,000 (1,766,000) 25,000 2,720,000
----------------- ---------------- --------------- -----------------
148,048,000 14,157,000 8,490,000 170,695,000
----------------- ---------------- --------------- -----------------
EXPENSES:
Cost of operations 52,169,000 5,146,000 3,489,000 60,804,000
Cost of managing facilities - - - -
Cost of merchandise - - - -
Depreciation and
amortization 27,887,000 3,126,000 1,254,000 32,267,000
General and administrative 2,611,000 - 149,000 2,760,000
Advisory fee 5,462,000 450,000 175,000 6,087,000
Interest expense 5,249,000 1,543,000 1,017,000 7,809,000
----------------- ---------------- --------------- -----------------
93,378,000 10,265,000 6,084,000 109,727,000
----------------- ---------------- --------------- -----------------
Income before minority
interest in income and
gain on disposition of
real estate 54,670,000 3,892,000 2,406,000 60,968,000
Minority interest in income (5,449,000) 145,000 - (5,304,000)
----------------- ---------------- --------------- -----------------
Net Income $ 49,221,000 $ 4,037,000 $2,406,000 $ 55,664,000
================= ================ =============== =================
Net income allocable to
preferred shareholders $ 21,904,000 $ 2,342,000 $ - $ 24,246,000
Net income allocable to
Class B Shareholders - - - -
Net income allocable to
Common Stock shareholders 27,317,000 1,695,000 2,406,000 31,418,000
----------------- ---------------- --------------- -----------------
Net Income $ 49,221,000 $ 4,037,000 $2,406,000 $ 55,664,000
================= ================ =============== =================
PER SHARE OF COMMON STOCK:
Net Income $ 0.76(3) $ 0.75(3)
================= =================
Weighted Average Shares 35,847,202(3) 42,144,020(3)
================= =================
PSMI
-----------------------------------------
COMBINED COMBINED
OPERATING OPERATION
COMPANIES COMPANIES
AND REAL AND REAL PRO FORMA
ESTATE PRO FORMA ESTATE MERGER PSI
INTERESTS ADJUSTMENTS(4) INTERESTS ADJUSTMENTS(5) POST-MERGER
(HISTORICAL) (PRO FORMA) (PRO FORMA)
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental Income $ 2,474,000 $ - $ 2,474,000 $ - $170,066,000
Facility management fees 19,902,000 91,000 19,993,000 (9,770,000) 10,223,000
Advisory fee income 5,462,000 625,000 6,087,000 (6,087,000) -
Merchandise operations 1,613,000 - 1,613,000 - 1,613,000
Equity in earnings of real 20,485,000 - 20,485,000 (9,163,000) 11,705,000
estate entities
Interest and other Income 705,000 - 705,000 - 3,425,000
---------------- ---------------- ---------------- ---------------- ----------------
50,641,000 716,000 51,357,000 (25,020,000) 197,032,000
---------------- ---------------- ---------------- ---------------- ----------------
EXPENSES:
Cost of operations 676,000 - 676,000 (9,770,000) 51,710,000
Cost of managing facilities 3,877,000 (170,000) 3,707,000 - 3,707,000
Cost of merchandise 779,000 - 779,000 - 779,000
Depreciation and
amortization 439,000 - 439,000 7,103,000 39,809,000
General and administrative 1,414,000 (228,000) 1,186,000 - 3,946,000
Advisory fee - - - (6,087,000) -
Interest expense 3,988,000 - 3,988,000 - 11,797,000
---------------- ---------------- ---------------- ---------------- ----------------
11,173,000 (398,000) 10,775,000 (8,754,000) 111,748,000
---------------- ---------------- ---------------- ---------------- ----------------
Income before minority
interest in income and
gain on disposition of
real estate 39,468,000 1,114,000 40,582,000 (16,266,000) 85,284,000
Minority interest in income - - - - (5,304,000)
---------------- ---------------- ---------------- ---------------- ----------------
Net Income $39,468,000 $ 1,114,000 $40,582,000 $(16,266,000) $79,980,000
================ ================ ================ ================ ================
Net income allocable to
preferred shareholders $ - $ - $ - $ - $24,246,000
Net income allocable to
Class B Shareholders - - - - -
Net income allocable to
Common Stock shareholders 39,468,000 1,114,000 40,582,000 (16,266,000) 55,734,000
---------------- ---------------- ---------------- ---------------- ----------------
Net Income $39,468,000 $ 1,114,000 $40,582,000 $(16,266,000) $79,980,000
================ ================ ================ ================ ================
PER SHARE OF COMMON STOCK:
Net Income $ 0.77(6)
================
Weighted Average Shares 72,144,020(6)
================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statements of Income.
18
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
SEI - PRE-MERGER
-----------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
---------------------------------
ISSUANCE
OF PREFERRED SEI
SEI & COMMON REIT PRE-MERGER
(HISTORICAL) STOCK(1) MERGERS(2) (PRO FORMA)
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Rental Income $141,845,000 $42,701,000 $30,672,000 $215,218,000
Facility management fees - - - -
Advisory fee income - - - -
Merchandise operations - - - -
Equity in earnings of real
estate entities - 748,000 - 748,000
Interest and other Income 5,351,000 (4,315,000) 218,000 1,254,000
----------------- ---------------- --------------- -----------------
147,196,000 39,134,000 30,890,000 217,220,000
----------------- ---------------- --------------- -----------------
EXPENSES:
Cost of operations 52,816,000 14,639,000 12,114,000 79,569,000
Cost of managing facilities - - - -
Cost of merchandise - - - -
Depreciation and
amortization 28,274,000 7,917,000 4,780,000 40,971,000
General and administrative 2,631,000 - 433,000 3,064,000
Advisory fee 4,983,000 1,794,000 699,000 7,476,000
Interest expense 6,893,000 (1,135,000) 4,985,000 10,743,000
----------------- ---------------- --------------- -----------------
95,597,000 23,215,000 23,011,000 141,823,000
----------------- ---------------- --------------- -----------------
Income before minority
interest in income and
gain on disposition of
real estate 51,599,000 15,919,000 7,879,000 75,397,000
Minority interest in income (9,481,000) 2,563,000 - (6,918,000)
----------------- ---------------- --------------- -----------------
42,118,000 18,482,000 7,879,000 68,479,000
Gain on disposition of
real estate - - 203,000 203,000
----------------- ---------------- --------------- -----------------
Net Income $ 42,118,000 $18,482,000 $ 8,082,000 $ 68,682,000
================= ================ =============== =================
Net income allocable to
preferred shareholders $ 16,846,000 $14,360,000 $ - $ 31,206,000
Net income allocable to
Class B Shareholders - - - -
Net income allocable to
Common Stock shareholders 25,272,000 4,122,000 8,082,000 37,476,000
----------------- ---------------- --------------- -----------------
Net Income $ 42,118,000 $18,482,000 $ 8,082,000 $ 68,682,000
================= ================ =============== =================
PER SHARE OF COMMON STOCK:
Net Income $ 1.05(3) $ 0.90(3)
----------------- -----------------
Weighted Average Shares 24,077,055(3) 41,844,644(3)
================= =================
PSMI
-----------------------------------------
COMBINED COMBINED
OPERATING OPERATING
COMPANIES COMPANIES
AND EQUITY AND EQUITY SEI
INTERESTS PRO FORMA INTERESTS PRO FORMA POST-MERGER
(HISTORICAL) ADJUSTMENTS(4) (PRO FORMA) ADJUSTMENTS(5) (PRO FORMA)
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental Income $ 3,152,000 $ - $ 3,152,000 $ - $218,370,000
Facility management fees 25,224,000 576,000 25,800,000 (12,937,000) 12,863,000
Advisory fee income 4,983,000 2,493,000 7,476,000 (7,476,000) -
Merchandise operations 1,872,000 - 1,872,000 - 1,872,000
Equity in earnings of real
estate entities 24,555,000 - 24,555,000 (12,217,000) 13,086,000
Interest and other Income 996,000 - 996,000 - 2,250,000
---------------- ---------------- ---------------- ---------------- ----------------
60,782,000 3,069,000 63,851,000 (32,630,000) 248,441,000
---------------- ---------------- ---------------- ---------------- ----------------
EXPENSES:
Cost of operations 834,000 - 834,000 (12,937,000) 67,466,000
Cost of managing facilities 4,909,000 (167,000) 4,742,000 - 4,742,000
Cost of merchandise 866,000 - 866,000 - 866,000
Depreciation and
amortization 1,011,000 (362,000) 649,000 9,402,000 51,022,000
General and administrative 1,850,000 (255,000) 1,595,000 - 4,659,000
Advisory fee - - - (7,476,000) -
Interest expense 5,607,000 - 5,607,000 - 16,350,000
---------------- ---------------- ---------------- ---------------- ----------------
15,077,000 (784,000) 14,293,000 (11,011,000) 145,105,000
---------------- ---------------- ---------------- ---------------- ----------------
Income before minority
interest in income and
gain on disposition of
real estate 45,705,000 3,853,000 49,558,000 (21,619,000) 103,336,000
Minority interest in income - - - - (6,918,000)
---------------- ---------------- ---------------- ---------------- ----------------
45,705,000 3,853,000 49,558,000 (21,619,000) 96,418,000
Gain on disposition of
real estate - - - - 203,000
---------------- ---------------- ---------------- ---------------- ----------------
Net Income $45,705,000 $3,853,000 $49,558,000 $(21,619,000) $ 96,621,000
================ ================ ================ ================ ================
Net income allocable to
preferred shareholders $ - $ - $ - $ - $ 31,206,000
Net income allocable to
Class B Shareholders - - - - -
Net income allocable to
Common Stock shareholders 45,705,000 3,853,000 49,558,000 (21,619,000) 65,415,000
---------------- ---------------- ---------------- ---------------- ----------------
Net Income $45,705,000 $3,853,000 $49,558,000 $(21,619,000) $ 96,621,000
================ ================ ================ ================ ================
PER SHARE OF COMMON STOCK:
Net Income $ 0.91(6)
================
Weighted Average Shares 71,844,644(6)
================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statement of Income.
19
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
1. Issuance of preferred and Common Stock
--------------------------------------
During 1994 and 1995, the Company issued shares of both its preferred and
Common Stock as follows:
. On February 15, 1994, the Company issued 5,484,000 shares of Common
Stock in a public offering. The net offering proceeds $76.5 million
were used to repay debt, to acquire real estate facilities, to
acquire mortgage notes receivable and to acquire additional
minority interests.
. On June 30, 1994, the Company issued 1,200,000 shares of Series C
Preferred Stock. The aggregate net offering proceeds of the
offering ($28.9 million) were used to retire bank borrowings
(borrowings which were used primarily to acquire real estate
facilities and minority interests in real estate partnerships).
. On September 1, 1994, the Company issued 1,200,000 shares of Series
D Preferred Stock. The aggregate net offering proceeds ($29.0
million) were used to acquire real estate facilities and minority
interests in real estate partnerships.
. On November 25, 1994, the Company issued 2,500,000 shares of Common
Stock pursuant to a public offering. The aggregate offering
proceeds ($33.8 million) were used to repay borrowings on the
Company's credit facilities (borrowings which were used to fund
the acquisition of real estate facilities, minority interests and
the cash portion of the PSP VIII merger, see Note 2 below).
. On February 1, 1995, the Company issued 2,195,000 shares of Series
E Preferred Stock. The aggregate net offering proceeds ($52.9
million) were used to acquire real estate facilities, minority
interests in real estate partnerships and retire bank borrowings
(borrowings which were used to acquire real estate facilities).
. On May 3, 1995, the Company issued 2,300,000 shares of Series F
Preferred Stock. The aggregate net offering proceeds( $55.5
million) were used to repay borrowings on the Company's credit
facilities (borrowings which were used to fund the acquisition of
real estate facilities, minority interests and the cash portion of
the PSP VI merger).
. On May 31, 1995, the Company issued 5,482,200 shares of Common
Stock pursuant to a public offering. The aggregate net offering
proceeds were $82.0 million, a portion of which has been utilized
to repay borrowings on the Company's credit facilities (borrowings
which were used to fund the acquisition of real estate facilities,
and the cash portion of the PSP VII merger). The remaining proceeds
were utilized to acquire additional real estate facilities and
minority interests.
The following pro forma adjustments have been made to the pro forma consolidated
statements of income to reflect the above uses (the acquisition of real estate
facilities, minority interests and the repayment of bank borrowings) of the
proceeds as if the transactions were completed as of January 1, 1994:
20
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------------ -----------------
<S> <C> <C>
. Rental income has been increased to
reflect the incremental difference
between the actual rental income
included in the historical statement
of operations and the pro forma
rental income as if the acquired
real estate facilities were in
operation for a full period.............. $15,540,000 $42,701,000
=========== ===========
. Equity in earnings of real estate
entities has been increased to
reflect income with respect to the
acquisition of limited partnership
units in affiliated unconsolidated
partnerships. Such acquisitions
occurred subsequent to June 30, 1995
and do not represent limited
partnership units in either the PSP
Partnership or the partnerships
included in the Real Estate
Interests................................ $ 383,000 $ 748,000
=========== ===========
. Interest and other income has been
decreased to reflect:
. cancellation of mortgage notes
receivable, in connection with
the acquisition of the above
properties, from which the
Company recognized interest
income during the year ended
December 31, 1994. A pro forma
adjustment has been made to
eliminate such interest as if
the notes were canceled at the
beginning of the period
(including amortization of
mortgage note discounts
totaling $90,000 in 1995 and
$693,000 in 1994)................... $(1,336,000) $(4,315,000)
. elimination of historical
interest income earned on
excess net offering proceeds
during the third quarter of
1995................................ (430,000) -
----------- -----------
$(1,766,000) $(4,315,000)
=========== ===========
. Cost of operations has been
increased to reflect the incremental
difference between the actual cost
of operations included in the
historical statement of income and
the pro forma cost of operations as
if the real estate facilities were
in operation for a full period........... $ 5,146,000 $14,639,000
=========== ===========
. Depreciation has been increased to
reflect the incremental difference
between the actual depreciation
expense included in the historical
statements of income and the pro
forma depreciation expense as if the
real estate facilities were in
operation for a full period.............. $ 3,126,000 $ 7,917,000
=========== ===========
</TABLE>
21
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------------ -----------------
<S> <C> <C>
. Interest expense has been increased
(decreased) to reflect the
following:
Interest expense was decreased to
eliminate the historical interest
expense related to the pay down of
the debt through the use of net
offering proceeds...................... $ (293,000) $(1,097,000)
Mortgage notes payable were
assumed in connection with the
acquisition of the real estate
facilities. An adjustment was made
to reflect the interest expense as
if the notes were assumed at the
beginning of the period................ 2,840,000 4,801,000
the Company typically uses its
bank line of credit to fund the
cash portion of real estate
acquisitions and subsequently
repays the borrowings with the net
proceeds of equity offerings. In
Note 2 below, a pro forma
adjustment has been made to
reflect the interest expense
relating the REIT Mergers (see
Note 2), assuming that the Company
borrowed on its bank line of
credit to fund the cash portion of
such mergers thus reflecting the
pro forma cost of capital to
finance the mergers. Accordingly,
a pro forma adjustment has been
made to offset that interest
expense to reflect the repayment
of bank borrowings with the net
proceeds of the above preferred
and Common Stock offerings............. (1,004,000) (4,839,000)
---------- -----------
Net increase (decrease) in
interest expense..................... $ 1,543,000 $(1,135,000)
=========== ===========
. Minority interest in income has been
decreased due to the acquisition of
such minority interests by the
Company.................................. $ 145,000 $ 2,563,000
=========== ===========
. Advisory fees have been increased to
reflect the effect of the above
adjustments.............................. $ 450,000 $ 1,794,000
=========== ===========
</TABLE>
22
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
2. REIT Mergers
------------
During 1994 and 1995, the Company completed merger transactions
(collectively, the "REIT Mergers") with PSP VIII (September 30, 1994),
PSP VI (February 28, 1995), and PSP VII (June 30, 1995) (collectively the
"PSP REITs"). The following pro forma adjustments have been made assuming
the merger transactions with the PSP REITs were completed at the beginning
of the year ended December 31, 1994:
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
. A pro forma adjustment has
been made to reflect the PSP
REITs historical rental
income............................ $8,465,000 $30,672,000
========== ===========
. A pro forma adjustment has
been made to reflect the PSP
REITs historical interest and
other income...................... $ 25,000 $ 218,000
========== ===========
. A pro forma adjustment has
been made to reflect the PSP
REITs historical cost of
operations........................ $3,489,000 $12,114,000
========== ===========
. Depreciation and amortization
was adjusted as follows:
A pro forma adjustment has
been made to reflect the
PSP REITs historical
depreciation.................... $1,175,000 $ 3,960,000
As a result of the REIT
Mergers, the real estate
facilities were recorded by
the Company at their fair
values (which were in
excess of the historical
carrying value at the PSP
REITs). A pro forma
adjustment has been made to
reflect the incremental
increase in depreciation
expense based upon the
allocation of the purchase
cost to buildings (straight-
line over 25 years)............. 79,000 820,000
---------- -----------
$1,254,000 $ 4,780,000
========== ===========
</TABLE>
23
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------------ -----------------
<S> <C> <C>
. General and administrative expense
was adjusted as follows:
A pro forma adjustment has been
made to reflect the PSP REITs
historical general and
administrative expenses................ $191,000 $ 633,000
A pro forma adjustment has been
made to reduce certain general and
administrative expenses which the
Company has determined would be
eliminated as a result of the
mergers. Such expenses include the
elimination of PSP REITs board of
directors fees, stock exchange
listing fees, audit and tax fees
and certain administrative
expenses which will no longer be
applicable............................. (42,000) (200,000)
-------- ----------
$149,000 $ 433,000
======== =========
. Interest expense has been increased
as follows:
For the pro forma, additional
borrowings on the Company's bank
lines of credit to consummate the
merger transactions has been
assumed. The pro forma interest
expense was determined based on an
interest rate of 9.50%. (see
adjustment to interest expense
included in Note 1):
PSP VIII ($20.7 million
borrowings outstanding from
January 1, 1994 through September
30, 1994)............................. $ - $1,472,000
PSP VI ($21.4 million borrowings
outstanding from January 1, 1994
through February 28, 1995)............ 339,000 2,036,000
PSP VII ($14.0 million borrowings
outstanding from January 1, 1994
through June 30, 1995)................ 665,000 1,331,000
---------- ----------
subtotal......................... 1,004,000 4,839,000
Historical interest expense of
the PSP REITs........................ 13,000 146,000
--------- ----------
Total adjustment to interest
expense............................ $1,017,000 $4,985,000
========= =========
. A pro forma adjustment has been made
to reflect the historical gain on
the disposition of real estate of
the PSP REITs............................ $ - $ 203,000
========= =========
. A pro forma adjustment has been made
to the advisory fee to reflect the
above adjustments combined with the
effects of the operations of the PSP
REITs and the issuance of additional
shares of the Company's Common Stock..... $ 175,000 $ 699,000
========= ========
</TABLE>
24
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
3. Net income per share of Common Stock has been computed as follows:
-----------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------------ -----------------
<S> <C> <C>
Historical net income....................... $ 49,221,000 $ 42,118,000
Less: Historical preferred
stock dividends............................ (21,904,000) (16,846,000)
------------ ------------
Income applicable to Common Stock
shareholders............................... $ 27,317,000 $ 25,272,000
============ ============
Historical weighted average shares of
Common Stock............................... 35,847,202 24,077,055
============ ============
Historical net income per share of
Common Stock...................... $ 0.76 $ 1.05
============ ============
Pro forma net income........................ $ 55,664,000 $ 68,682,000
Less: Pro forma preferred
stock dividends (1)........................ (24,246,000) (31,206,000)
------------ ------------
Income applicable to Common Stock
shareholders............................... $ 31,418,000 $ 37,476,000
============ ============
Pro forma weighted average shares of
Common Stock(2)............................ 42,144,020 41,844,644
============ ============
Pro forma net income per share of
Common Stock............................... $ 0.75 $ 0.90
============ ============
</TABLE>
(1) As adjusted to give effect to the issuance of the Series C, Series D,
Series E, and Series F Preferred Stock as if such stock were outstanding at
the beginning of the period. The dividend rate on the Series C Preferred
Stock is adjustable quarterly and is equal to the highest of the three
separate indices as published by the Federal Reserve Board, multiplied by
110%. However, the dividend rate will not be less than 6.75% per annum nor
greater than 10.75% per annum. At the date of issuance, the dividend rate
was equal to 8.15% per annum, which rate was used in the determination of
pro forma dividends applicable to the Series C Preferred Stock for the year
ended December 31, 1994. If the dividend rate used was 10.75% per annum,
the pro forma Preferred Stock dividends would have been approximately
$595,000 higher for the nine months ended September 30, 1995 ($780,000
higher for the year ended December 31, 1994). Accordingly, income
applicable to common shareholders would have been reduced by a like amount
or approximately $0.02 per common for the year ended December 31, 1994
($0.02 for the nine months ended September 30, 1995).
(2) As adjusted to give effect to the issuance of additional shares of Common
Stock in connection with the acquisition of additional investments in real
estate entities, the public offering of Common Stock during 1994 and 1995,
and Common Stock issued in connection with the REIT Mergers.
25
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
4. Pro forma adjustments to the historical combined income of the Operating
------------------------------------------------------------------------
Companies and Real Estate Interests:
------------------------------------
The following pro forma adjustments have been made to reflect (i) additional
Facility management fees and Advisory fee income as a result of pro forma
adjustments made to the Company historical financial statements which have a
corresponding effect on the Operating Companies and (ii) to eliminate certain
non-recurring costs and expenses included in the Operating Companies.
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
. A pro forma adjustment has made
to Facility management fees to
reflect the incremental
increase in management fees
from properties (only for
properties which were not
previously managed by PSMI)
acquired by the Company during
1995 and 1994....................... $ 91,000 $ 576,000
========= ==========
. A pro forma adjustment has been
made to the Advisory fee income
to reflect the adjustments
(Notes 1 and 2) to the
Company's advisory fee expense
in connection with the issuance
of Preferred and Common Stock,
the REIT Mergers, and the
Company's increased operating
income.............................. $ 625,000 $2,493,000
========= ==========
. A pro forma adjustment has been
made to Cost of managing
facilities to eliminate certain
non-recurring costs and
expenses............................ $(170,000) $ (167,000)
========= ==========
. A pro forma adjustment has been
made to depreciation and
amortization to eliminate
certain non-recurring expenses
in connection with the write-
off of tenant improvements $ - $ (362,000)
========= ==========
. A pro forma adjustment has been
made to General and
administrative expense to
eliminate certain non-recurring
costs and expenses.................. $(228,000) $ (255,000)
========= ==========
</TABLE>
26
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS EDNDED SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
5. Pro forma Merger adjustments:
----------------------------
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- --------------
<S> <C> <C>
. The "Operating Companies" have included
in Facility management fee income fees
paid by the Company for the management of
its real estate facilities (likewise, the
Company has included such fees as
part of Cost of operations). As a result
of the Merger, this facility management
fee income and operating expense will no
longer occur. Accordingly, pro forma
adjustments have been made to decrease
both Facility management fees and cost of
operations to eliminate these property
management fees (the remaining facility
management fees represent principally
fees received from the management of
properties owned by affiliated entities,
which the Company will acquire an
interest in pursuant to the acquisition
of the Real Estate Interests):
Facility management fee income..... $(9,770,000) $(12,937,000)
========== ===========
Cost of operations................. $(9,770,000) $(12,937,000)
========== ===========
As a result of the Merger,
Advisory fee income and expense
will no longer occur.
Accordingly, a pro forma $(6,087,000) $ (7,476,000)
adjustment has been made to each: ========== ==========
Advisory fee income................ $(6,087,000) $ (7,476,000)
========== ==========
Advisory fee (expense).............
. Included in the "Real Estate Interests" are general and
limited partnership interests in limited
partnerships and equity interests in
REITs. These interests will be accounted
for under the equity method. The
aggregate fair value of these interests
($365 million) is in excess of the amount
of the underlying historical equity in
net assets of the investees by
approximately $305 million. the Company
attributes this difference to the
fair values of the underlying real estate
properties and has allocated the
difference to buildings. A pro forma
adjustment has been made to "Equity in
earnings of real estate entities" to
reflect additional depreciation expense
related to the allocated difference to
buildings (straight-line over a 25 year
life) as if the investees were
consolidated entities..................... $(9,163,000) $(12,217,000)
========== ===========
27
</TABLE>
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSIDATED STATEMENTS OF INCOME
For the Nine Months Ended September 30, 1995 and Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- ----------------
<S> <C> <C>
. A pro forma adjustment has been made
to increase depreciation and
amortization to reflect the
amortization of intangible assets
acquired in connection with the
Merger; management contracts ($165
million) and purchase price in excess
of identifiable tangible and
intangible assets acquired
($71 million), each of which
are amortized over a 25 year period.
See Note 2 to the Pro Forma
Consolidated Balance................... $ 7,103,000 $ 9,402,000
----------- -----------
</TABLE>
6. Pro forma net income per share of Common Stock has been computed as
-------------------------------------------------------------------
follows:
========
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------------ ----------------
<S> <C> <C>
Pro forma net income.......... $ 79,980,000 $ 96,621,000
Less: Pro forma preferred stock (24,246,000) (31,206,000)
dividends.............................. ------------ ------------
. Income allocable to common shareholders 55,734,000 65,415,000
Less: Pro forma income allocable to - -
Class B shareholders................... ------------ ------------
Income allocable to Common Stock 55,734,000 65,415,000
shareholders........................... ============
Pro forma weighted average shares of 72,144,020 71,844,644
Common Stock (1)....................... ============ ============
Pro forma net income per share of $ 0. 77 $ .91
Common Stock........................... ============ ============
</TABLE>
(1) As adjusted to give effect to the issuance of 30,000,000 additional shares
of Common Stock in connection with the Merger.
28
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
(c) Exhibits.
---------
2.1 Agreement and Plan of Reorganization by and among Public Storage,
Inc., Public Storage Management, Inc. and Storage Equities, Inc.
dated as of June 30, 1995. Filed as Appendix A to the
Registrant's Proxy Statement dated October 11, 1995 (Filed
October 13, 1995) and incorporated herein by reference.
2.2 Amendment to Agreement and Plan of Reorganization by and among
Public Storage, Inc., Public Storage Management, Inc. and Storage
Equities, Inc. dated as of November 13, 1995.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Public Storage, Inc.
Date: November 28, 1995 By: /s/ Harvey Lenkin
------------------ --------------------
Harvey Lenkin
President
30
<PAGE>
EXHIBIT 2.2
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the "AMENDMENT
"), dated as of November 13, 1995, by and among Storage Equities, Inc. ("SEI"),
a California corporation, Public Storage, Inc. ("PSI"), a California
corporation, and Public Storage Management, Inc. ("PSMI"), a California
corporation.
RECITALS
A. The parties have entered into an Agreement and Plan of
Reorganization as of June 30, 1995 (the "AGREEMENT").
B. Section 8.3(q) of the Agreement provides, as a condition to
closing, that SEI and the Special Committee receive an analysis demonstrating
compliance immediately following the Merger with the "5/50 Rule" (as defined in
the Agreement).
C. In order to give greater assurance of such compliance, the
parties believe that it is in their best interests and the best interests of
their respective shareholders that the Agreement be modified as provided in this
Amendment.
D. In connection with the Merger (as defined in the Agreement),
SEI, PSMI, PSI and the holders (the "Purchasers") of $68,000,000 aggregate
outstanding principal amount of notes of PSMI expect to enter into Note
Assumption and Exchange Agreements, dated as of November 13, 1995, pursuant to
which the Purchasers and SEI will agree to modify and restate the terms of such
notes in connection with the assumption of the obligations represented thereby
by SEI, with such assumption and modification to be facilitated by means of the
exchange of such notes for new notes to be issued by SEI.
NOW, THEREFORE, the parties hereby agree as follows:
1. Section 4.1(a) of the Agreement is hereby amended to read
in its entirety as follows :
(a) At the Effective Time, by virtue of the Merger and
without any action by holders thereof, the PSMI Shares
shall be converted into the right to receive 30,000,000 SEI
Common Shares (subject to adjustment pursuant to Section
4.2) and 7,000,000 SEI Class B Shares (subject to the
condition to issuance provided below). The SEI Common
Shares shall be issued as of the Effective Time and the SEI
Class B Shares shall be issued upon the later to occur of
(i) January 2, 1996 or (ii) the date on which SEI shall
have sold and issued securities providing a cumulative
total of $50 million or more in additional shareholders'
equity (exclusive of increases in shareholders' equity
resulting from the Merger) from and after November 13,
1995. The SEI Shares shall be allocated among the PSMI
Shareholders in such proportions as they shall agree.
2. The first paragraph of Section 4.8(a) of the Agreement is
hereby amended to read in its entirety as follows:
(a) Upon issuance, the SEI Class B Shares (the
"INDEMNIFICATION SHARES") shall be deposited in escrow
with Wells Fargo Bank, N.A., as escrow agent, or such other
party may be agreed upon by the parties prior to Closing
(the "INDEMNIFICATION ESCROW AGENT"), to be held and
administered in accordance with the terms and conditions of
an Indemnification and an Escrow Agreement (collectively,
the "INDEMNIFICATION ESCROW AGREEMENT"). The
Indemnification Shares
<PAGE>
shall be registered in the name of the PSMI Shareholders
owning such shares and shall be accompanied by stock powers
endorsed in blank.
3. Section 8.3(r) of the Agreement is hereby amended to read in
its entirety as follows:
(r) The terms and covenants of any indebtedness for which
SEI shall become obligated by virtue of the Merger shall be
satisfactory to SEI (in this regard, SEI, PSMI, PSI and the
Purchasers shall have entered into one or more agreements in
form and substance reasonably satisfactory to SEI providing
for the assumption of the indebtedness represented by
$68,000,000 aggregate outstanding principal amount of notes
of PSMI and the exchange of such notes for new notes to be
issued by SEI, or they shall have made other satisfactory
arrangements regarding the assumption of such obligations by
SEI).
4. Other than as set forth in this Amendment, the Agreement
shall remain in full force and effect, notwithstanding Section 10.7 of the
Agreement.
IN WITNESS WHEREOF, this Amendment has been executed and
delivered by the parties set forth below.
STORAGE EQUITIES, INC.
a California corporation
By: /s/OBREN B. GERICH
--------------------
Obren B. Gerich
Vice President
PUBLIC STORAGE, INC.,
a California corporation
By: /s/B. WAYNE HUGHES
--------------------
B. Wayne Hughes
President
PUBLIC STORAGE MANAGEMENT, INC.,
a California corporation
By: /s/B. WAYNE HUGHES
--------------------
B. Wayne Hughes
Director
