SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 6, 1996
-----------------
PUBLIC STORAGE, INC.
--------------------
(Exact name of registrant as specified in its charter)
California 1-8389 95-3551121
---------- ------ ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification
Number)
701 Western Ave. Glendale, California 91201-2397
------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
N/A
---
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. Other Events
------------
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS Page
References
----------
Report of Independent Auditors....................................... 3
Combined Summary of Historical Information
Relating to Operating Revenues and Specified
Expenses - Certain Properties................................. 4
Notes to Combined Summary of Historical Information
Relating to Operating Revenues and Specified
Expenses - Certain Properties....................................... 5
Pro Forma Consolidated Financial Statements
-------------------------------------------
Pro Forma Consolidated Balance Sheet at June 30, 1996.............. 12
Pro Forma Consolidated Statements of Income:
For the six months ended June 30, 1996........................... 17
For the year ended December 31, 1995............................. 18
ITEM 7. Financial Statements and Exhibits.
----------------------------------
EXHIBITS
23 Consent of Independent Auditors. Filed herewith.
2
<PAGE>
Report of Independent Auditors
The Board of Directors
Public Storage, Inc.
We have audited the accompanying combined summary of historical information
relating to operating revenues and specified expenses - certain properties (the
"Combined Summary") for the properties indicated in Note 1 for the years ended
December 31, 1995, 1994 and 1993. The Combined Summary is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
Combined Summary based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Combined Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall Combined Summary presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Combined Summary presents fairly the operating revenues and
specified expenses, exclusive of expenses described in Note 2, for the
properties identified in Note 1 for the years ended December 31, 1995, 1994 and
1993, in conformity with generally accepted accounting principles and the
applicable accounting rules and regulations of the Securities and Exchange
Commission.
ERNST & YOUNG LLP
September 6, 1996
Los Angeles, California
3
<PAGE>
COMBINED SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES - CERTAIN PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
FOR THE PROPERTIES IDENTIFIED IN NOTE 1
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenue - rental income $90,996,000 $89,581,000 $82,105,000
Specified expenses - Cost of operations 33,988,000 33,523,000 31,852,000
------------ ------------ ------------
Excess of operating revenues over specified expenses $57,008,000 $56,058,000 $50,253,000
=========== =========== ===========
</TABLE>
See Accompanying Notes to Combined Summary of Historical Information
Related to Operating Revenues and Specified Expenses - Certain Properties
4
<PAGE>
NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION
RELATED TO OPERATING REVENUES AND
SPECIFIED EXPENSES - CERTAIN PROPERTIES
1. BACKGROUND AND BASIS FOR COMBINATION
------------------------------------
The accompanying combined summary of historical information relating to
operating revenues and specified expenses certain properties (the "Combined
Summary") include the results of operations for the years ended December
31, 1995, 1994 and 1993 for the following properties in which Public
Storage, Inc. (the "Company") has acquired an interest or is probable of
acquisition by the Company. The properties were acquired or proposed to be
acquired primarily from affiliates of the Company:
<TABLE>
<CAPTION>
Properties Acquired from January 1, 1996 to June 30, 1996
---------------------------------------------------------
<S> <C> <C> <C>
Property Location Date of Acquisition Property Location Date of Acquisition
- ----------------- ------------------- ----------------- -------------------
Bensenville, IL January 1, 1996 Baltimore (Liberty Rd.), MD March 26, 1996
Louisville, KY January 1, 1996 Carrollton, TX March 26, 1996
San Jose, CA January 1, 1996 Dallas, TX March 26, 1996
Englewood, CO January 1, 1996 Houston (Fondren Rd.), TX March 26, 1996
W. Hollywood, CA January 1, 1996 Houston (Interstate 45), TX March 26, 1996
Orland Hills, IL January 1, 1996 Plano, TX March 26, 1996
Merrionette Park, IL January 1, 1996 Milwaukee, WI March 26, 1996
Denver, CO January 1, 1996 San Jose, CA March 26, 1996
Tigard, OR January 1, 1996 Irvine (Alton Pkwy.), CA March 26, 1996
Coram, NY January 1, 1996 Irvine (Hughes Dr.), CA March 26, 1996
Houston, TX January 1, 1996 Oakland, CA March 26, 1996
Kent, WA January 1, 1996 Saratoga, CA March 26, 1996
Turnersville, NJ January 1, 1996 Torrance, CA March 26, 1996
Sewell, NJ January 1, 1996 West Haven, CT March 26, 1996
Maple Shade, NJ January 1, 1996 Jacksonville, FL March 26, 1996
Hyattsville, MD January 1, 1996 Baltimore (Interstate 695), MD March 26, 1996
Waterbury, CT January 1, 1996 Baltimore (Liberty Rd.), MD March 26, 1996
Bedford Heights, OH January 1, 1996 Carrollton, TX March 26, 1996
Livonia, MI January 1, 1996 Dallas, TX March 26, 1996
Sunland, CA January 1, 1996 Houston (Fondren Rd.), TX March 26, 1996
Des Moines, WA January 1, 1996 Houston (Interstate 45), TX March 26, 1996
Oxonhill, MD January 1, 1996 Plano, TX March 26, 1996
Sacramento, CA January 1, 1996 Milwaukee, WI March 26, 1996
Houston, TX January 1, 1996 San Jose, CA March 26, 1996
San Pablo, CA January 1, 1996 San Diego, CA April 1, 1996
Bowie, D.C. January 1, 1996 Miami, FL April 1, 1996
Milwaukee, WI January 1, 1996 Silver Springs, MD April 1, 1996
Clinton, MD January 1, 1996 Chicago (East 95th), IL April 1, 1996
Irvine (Alton Pkwy.), CA March 26, 1996 Chicago (Harlem Ave.), IL April 1, 1996
Irvine (Hughes Dr.), CA March 26, 1996 St. Charles, MO April 1, 1996
Oakland, CA March 26, 1996 Chicago (Frontage Rd.), IL April 1, 1996
Saratoga, CA March 26, 1996 St. Louis, MO April 1, 1996
Torrance, CA March 26, 1996 Island Park, NY April 1, 1996
West Haven, CT March 26, 1996 Yonkers, NY April 1, 1996
Jacksonville, FL March 26, 1996 Los Angeles, CA April 1, 1996
Baltimore (Interstate 695), MD March 26, 1996 Houston (Interstate 45), TX March 31, 1996
</TABLE>
5
<PAGE>
NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION
RELATED TO OPERATING REVENUES AND
SPECIFIED EXPENSES - CERTAIN PROPERTIES
1. BACKGROUND AND BASIS FOR COMBINATION (continued)
------------------------------------------------
<TABLE>
<CAPTION>
Properties Acquired from January 1, 1996 to June 30, 1996
---------------------------------------------------------
<S> <C> <C> <C>
Property Location Date of Acquisition Property Location Date of Acquisition
- ----------------- ------------------- ----------------- -------------------
Plano, TX March 31, 1996 Bethesda, MD April 1, 1996
Milwaukee, WI March 31, 1996 Dundalk, MD April 1, 1996
San Jose, CA March 31, 1996 Chicago, IL April 1, 1996
San Diego, CA April 1, 1996 Las Vegas, NV April 1, 1996
Miami, FL April 1, 1996 Torrance, CA April 1, 1996
Silver Springs, MD April 1, 1996 Weymouth, MA April 1, 1996
Chicago (East 95th), IL April 1, 1996 St. Louis, MO April 1, 1996
Chicago (Harlem Ave.), IL April 1, 1996 Rockville, MD April 1, 1996
St. Charles, MO April 1, 1996 Simi Valley, CA April 1, 1996
Chicago (Frontage Rd.), IL April 1, 1996 Houston, TX April 1, 1996
St. Louis, MO April 1, 1996 Las Vegas, NV June 27, 1996
Island Park, NY April 1, 1996 Bedford Park, IL June 27, 1996
Yonkers, NY April 1, 1996 Los Angeles, CA June 27, 1996
Los Angeles, CA April 1, 1996 Newark, CA June 27, 1996
Akron, OH April 1, 1996 Silver Spring, MD June 27, 1996
Chicago, IL April 1, 1996 Hillside, NJ June 27, 1996
Brooklyn, NY June 27, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Properties Proposed to be Acquired
----------------------------------
<S> <C>
Property Location Property Location
- ----------------- -----------------
Canoga Park, CA Richmond (Midlothian), VA
Petaluma, CA Roanoke, VA
San Diego, CA Norfolk, VA
Santa Rosa, CA Fern Park, FL
Colorado Springs, CO Orlando, FL
Denver, CO Carmichael, CA
Littleton, CO Napa, CA
Sarasota, FL West Hollywood, CA
Jacksonville, FL Englewood, CO
Las Vegas, NV Wheatridge, CO
Green Brook, NJ Fort Lauderdale, FL
Rockland, NY Tampa, FL
Upper Moreland, PA Winter Springs, FL
Dallas, TX Lilburn, GA
Lewisville, TX Broadview, IL
Houston, TX Warren, MI
Newport News, VA Las Vegas (Arville St.), NV
Mesa, AZ Las Vegas (Charleston Blvd.), NV
</TABLE>
6
<PAGE>
NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION
RELATED TO OPERATING REVENUES AND
SPECIFIED EXPENSES - CERTAIN PROPERTIES
1. BACKGROUND AND BASIS FOR COMBINATION (continued)
------------------------------------------------
<TABLE>
<CAPTION>
Properties Proposed to be Acquired
----------------------------------
<S> <C>
Property Location Property Location
- ----------------- -----------------
Tempe, AZ Portland ( Interstate 84), OR
Glendale, CA Portland (Southeast 105th Ave.), OR
Irvine, CA Philadelphia (Byberry Rd.), PA
San Francisco, CA Plymouth, PA
Torrance, CA Upper Darby, PA
Las Vegas, CA Seattle (154th and Hwy.99), WA
Cincinnati, OH Eagle Rock, CA
Fort Worth, TX Pittsburg, CA
Houston (Harwin Dr.), TX Whittier, CA
Houston (Gulf Freeway), TX Denver, CO
Richland, TX Federal Heights, CO
Alexandria, VA Ft. Lauderdale, FL
Austin (Reinli), TX Green Acres, FL
Austin (Santiago), TX Mangonia Park, FL
Dallas (E. Northwest), TX Pompano Beach (Sample Rd.), FL
Dallas (Denton Dr.), TX Pompano Beach (S. Dixie Hwy.), FL
Houston(Hempstead Hwy.), TX W. Palm Beach, FL
Pasadena, TX Decatur, GA
Cherry Hill, NJ Forest Park (Jonesboro Rd.), GA
Oklahoma City (S.W. 74th Expressway), OK Alsip, IL
Oklahoma City (S. Santa Fe), OK Overland, KS
Oklahoma City (S. May ), OK Topeka, KS
Arlington (S. Watson Rd.), TX Philadelphia (Oxford Ave.), PA
Richardson, TX Wyndmoor, PA
Broken Arrow, OK Nashville (Dickerson Pike), TN
Capital Heights, MD Nashville (Gallatin Pike), TN
Houston (Joel Wheaton Dr.), TX Dallas (Lemmon Ave.), TX
Mt. Holly, NJ Auburn, WA
Mesquite (LBJ Freeway), TX Kent, WA
Garland, TX Renton, WA
Missouri City, TX Phoenix, AZ
Little Rock, AR Sacramento, CA
Tulsa, OK Southington, CT
Forest Park (Frontage Rd.), GA Lakeworth, FL
Mesquite (U.S. Hwy. 80), TX Arlington Heights, IL
Nashville (Downtown), TN Bedford Park, IL
Nashville (Airport South), TN Clifton, NJ
Woodrige,VA Hillside, NJ
Virginia, FL Seattle (15th Ave.), WA
Chesapeake, VA
Hampton, VA
Richmond, (Mechanicsville), VA
</TABLE>
7
<PAGE>
NOTES TO COMBINED SUMMARY OF HISTORICAL INFORMATION
RELATED TO OPERATING REVENUES AND
SPECIFIED EXPENSES - CERTAIN PROPERTIES
1. BACKGROUND AND BASIS FOR COMBINATION (continued)
------------------------------------------------
The properties are primarily mini-warehouse facilities which provide
self-service storage spaces for lease, usually on a month-to-month basis,
to the general public. Revenues from rentals are recognized when earned and
expenses are recognized when incurred.
2. BASIS OF PRESENTATION
---------------------
The Combined Summary excludes depreciation of buildings, improvements and
equipment, and interest expense which is not comparable to the proposed
future operations of the properties under the ownership of the Company.
3. RELATED PARTY TRANSACTIONS
--------------------------
The Company was the property operator of the above facilities that have
been acquired. The Company currently operates the facilities that are
proposed to be acquired for a fee which is equal to 6% of the gross
revenues of the mini-warehouse facilities and 5% of the gross revenues of
the business park facilities managed.
8
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma financial statements have been prepared in connection
with the proposed issuance of common stock by Public Storage, Inc. ("PSI").
Although no pro forma adjustments have been made to reflect the proposed
issuance of $100 million of common stock, pro forma adjustments have been made
to reflect the following transactions:
MERGERS:
* On March 26, 1996, PSI completed a merger transaction with Public
Storage Properties IX, Inc. ("PSP IX") whereby PSI acquired all of the
outstanding shares of PSP IX's common stock for an aggregate cost of
$47.6 million, consisting of the issuance of PSI's Common Stock ($24.7
million), $9.9 million in cash and PSI's existing ownership of shares
of common stock of PSP IX totaling approximately $13.0 million.
* On March 26, 1996, PSI completed a merger transaction with PS Business
Parks, Inc. ("PSBP") whereby PSI acquired all of the outstanding
shares of PSPB's common stock for an aggregate cost of $11.3 million,
consisting of the issuance of PSI's Common Stock ($5.2 million), $2.7
million in cash and PSI's existing ownership of shares of common stock
of PSBP totaling approximately $3.4 million.
* On June 27, 1996, PSI completed a merger transaction with Storage
Properties, Inc. ("SPI") whereby PSI acquired all of the outstanding
shares of SPI's common stock for an aggregate cost of $23.7 million,
consisting of the issuance of PSI's Common Stock ($17.1 million), $4.8
million in cash and PSI's existing ownership of shares of common stock
of SPI totaling approximately $1.8 million.
* In June 1996, PSI and Public Storage Properties X, Inc. ("PSP X")
agreed to merge, subject to certain conditions, including the approval
of the shareholders of PSP X. Upon completion of the merger, each
outstanding share of PSP X common stock (other than shares held by
PSI) would be converted, at the election of the shareholders of PSP X,
into either shares of PSI's common stock with a market value of $20.92
or, with respect to up to 20% of the PSP X common stock, $20.92 in
cash. PSP X has 2,157,484 outstanding shares (PSI owns 452,094 shares)
of common stock and an estimated value of $45.1 million. The shares of
PSP X held by PSI will be canceled in the merger.
* In June 1996, PSI and Public Storage Properties XII, Inc. ("PSP XII")
agreed to merger subject to certain conditions, including the approval
of the shareholders of PSP XII. The estimated value of the merger is
approximately of $50.8 million. PSP XII has 1,730,099 outstanding
shares of common stock series A, 184,453 outstanding shares of common
stock series B, and 522,618 outstanding shares of common stock series
C. PSI owns 29,300 shares of common stock series A, 114,952 shares of
common stock series B, and 358,934 shares of common stock series C.
Upon completion of the merger, each outstanding share of common stock
series A of PSP XII (other than shares held by PSI) would be
converted, at the election of the shareholders of PSP XII, into either
shares of PSI's common stock with a market value of $22.34 or, with
respect to up to 20% of the PSP XII common stock series A, $22.34 in
cash. In addition, each share of PSP XII common stock series B and C
(other than shares held by PSI) would be converted into the right to
receive $17.95 in PSI's common stock, plus the estimated required REIT
distributions attributable to the PSP XII common stock series B of
$1.07 per share. The shares of PSP XII common stock series A, B and C
held by PSI will be canceled in the merger..
* In August 1996, PSI and Partners Preferred Yield, Inc. ("PPY I")
agreed to merge, subject to certain conditions, including the approval
of the shareholders of PPY I. The estimated value of the merger is
approximately $68.5 million. PPY I has 3,077,028 outstanding shares of
common stock series A, 420,875 outstanding shares of common stock
series B, 247,574 outstanding shares of common stock series C and
163,036 outstanding shares of common stock series D. PSI owns 438,503
shares of common stock series A, 336,700 shares of common stock series
B, and 198,059 shares of common stock series C and 130,429 shares of
common stock series D. Upon completion of the merger, each outstanding
share of common stock series A of PPY I (other than shares held by
PSI) would be converted, at the election of the shareholders of PPY I,
into either shares of PSI's common stock with a market value of $19.00
or, with respect to up to 20% of the PPY I common stock series A,
$19.00 in cash. In addition, each share of PPY I common stock series B
and C (other than shares held by PSI) would be converted into the
right to receive $11.66 in PSI's common stock, plus the estimated
required REIT distributions attributable to the PPY I common stock
series B of $.70 per share. The shares of PPY I common stock series A,
B, C and D held by PSI will be canceled in the merger.
9
<PAGE>
* In August 1996, PSI and Partners Preferred Yield II, Inc. ("PPY II")
agreed to merge, subject to certain conditions, including the approval
of the shareholders of PPY II. The estimated value of the merger is
approximately of $74.4 million. PPY II has 3,130,103 outstanding
shares of common stock series A, 420,875 outstanding shares of common
stock series B, 247,574 outstanding shares of common stock series C
and 163,036 outstanding shares of common stock series D. PSI owns
441,503 shares of common stock series A, 336,700 shares of common
stock series B, and 198,059 shares of common stock series C and
130,429 shares of common stock series D. Upon completion of the
merger, each outstanding share of common stock series A of PPY II
(other than shares held by PSI) would be converted, at the election of
the shareholders of PPY II, into either shares of PSI's common stock
with a market value of $20.39 or, with respect to up to 20% of the PPY
II common stock series A, $20.39 in cash. In addition, each share of
PPY II common stock series B, C and D (other than shares held by PSI)
would be converted into the right to receive $12.26 in PSI's common
stock, plus the estimated required REIT distributions attributable to
the PPY II common stock series B of $.83 per share. The shares of PPY
II common stock series A, B, C and D held by PSI will be canceled in
the merger.
* In August 1996, PSI and Partners Preferred Yield III, Inc. ("PPY III")
agreed to merge, subject certain conditions, including to the approval
of the shareholders of PPY III. The estimated value of the merger is
approximately of $31.1 million. PPY III has 1,313,384 outstanding
shares of common stock series A, 168,709 outstanding shares of common
stock series B, 99,241 outstanding shares of common stock series C and
65,354 outstanding shares of common stock series D. PSI owns 82,547
shares of common stock series A, 134,967 shares of common stock series
B, 79,393 shares of common stock series C and 52,283 shares of common
stock series D. Upon completion of the merger, each outstanding share
of common stock series A of PPY III (other than shares held by PSI)
would be converted, at the election of the shareholders of PPY III,
into either shares of PSI's common stock with a market value of $20.47
or, with respect to up to 20% of the PPY III common stock series A,
$20.47 in cash. In addition, each share of PPY III common stock series
B, C and D (other than shares held by PSI) would be converted into the
right to receive $12.30 in PSI's common stock, plus the estimated
required REIT distributions attributable to the PPY III common stock
series B of $.74 per share. The shares of PPY III common stock series
A, B, C and D held by PSI will be canceled in the merger.
OTHER BUSINESS COMBINATIONS:
* Effective January 1, 1996, PSI acquired approximately 64% of the
limited partnership interest in an affiliated limited partnership
owning 28 mini-warehouse facilities. The acquisition cost totaled
approximately $41.1 million. As a result of the acquisition and PSI's
pre-existing ownership interest and control of the partnership, PSI
began to consolidate the accounts of the partnership in PSI's
financial statements effective January 1, 1996.
* During the second quarter of 1996, PSI acquired all of the limited
partnership units of two affiliated partnerships for $58,955,000,
consisting of the issuance of PSI's Mandatory Convertible Preferred
Stock, Series CC. PSI's acquisition in one of the partnerships
increased its ownership interest in the partnership to 100%,
accordingly, the partnership was dissolved and the partnership's 8
mini-warehouse facilities became wholly-owned by PSI. The remaining
partnership owns 15 mini-warehouses. As a result of the acquisition of
partnership interests combined with PSI's existing ownership interest
and control in the partnership, PSI began to consolidate the accounts
of the partnership in PSI's financial statements effective April 1,
1996.
OTHER PROPERTY ACQUISITIONS:
* PSI has agreements in principle to acquire 23 mini-warehouses and 15
business park facilities from five limited partnerships which are not
affiliated with PSI. PSI currently manages on behalf of four of the
partnerships an aggregate of 16 mini-warehouses and 15 business parks
facilities. The acquisition of the real estate assets from each of the
limited partnerships is subject to certain conditions, including the
approval of the limited partners in each of the partnerships. The
aggregate acquisition cost is approximately $79.9 million.
10
<PAGE>
The pro forma consolidated balance sheet at June 30, 1996 has been prepared to
reflect the effects of the transactions described above. Pro forma adjustments
have been made to reflect the impact to the historical consolidated balance
sheet for those transactions, which as of the balance sheet date, were not
consummated.
The pro forma consolidated statement of income for the six months ended June 30,
1996 has been prepared assuming (i) that each of the merger transactions, (ii)
the business combinations with affiliated limited partnerships, and (iii) the
acquisition of real estate facilities, were completed at the beginning of the
period. The pro forma consolidated statement of income for the year ended
December 31, 1995 has been prepared assuming (i) each of the merger
transactions, (ii) the business combinations with affiliated limited
partnerships, and (iii) the acquisition of real estate facilities, were
completed at the beginning of the period.
The pro forma adjustments are based upon available information and upon certain
assumptions as set forth in the notes to the pro forma consolidated financial
statements that PSI believes are reasonable in the circumstances. The pro forma
condensed consolidated financial statements and accompanying notes should be
read in conjunction with the historical consolidated financial statements of
PSI. The following pro forma consolidated financial statements do not purport to
represent what PSI's results of operations would actually have been if the
transactions in fact had occurred at the beginning of the respective periods or
to project PSI's results of operations for any future date or period.
The accompanying pro forma financial statements should be read in conjunction
with PSI's Form 10-K for the year ending December 31, 1995 and Form 10-Q for the
period ending June 30, 1996.
11
<PAGE>
PUBLIC STORAGE, INC.
CONSOLIDATED PRO FORMA BALANCE SHEET
June 30, 1996
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro forma Adjustments
---------------------
Partnership
REIT and property
PSI Mergers acquisitions PSI
ASSETS (Historical) (Note 1) (Note 2) (Pro forma)
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................. $ 19,827 $ - $ - $ 19,827
Real estate facilities, net of accumulated depreciation... 1,520,165 278,575 80,181 1,878,921
Investments in real estate entities....................... 408,965 (61,026) - 347,939
Intangible assets......................................... 226,908 - - 226,908
Mortgage loans receivable................................. 25,960 - - 25,960
Other assets.............................................. 20,971 1,552 (6,381) 16,142
------------ ------------ ----------- -------------
Total assets......................................... $ 2,222,796 $ 219,101 $ 73,800 $ 2,515,697
============ ============ =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to banks..................................... $ 5,000 $ 66,254 $ 73,800 $ 145,054
Notes payable............................................. 116,070 - - 116,070
Accrued and other liabilities............................. 36,739 (563) - 36,176
Minority interest......................................... 125,917 - - 125,917
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares authorized:
Senior Preferred Stock............................... 618,900 - - 618,900
Convertible Preferred Stock.......................... 115,672 - - 115,672
Common stock, $.10 par value, 200,000,000 shares authorized
84,001,691 shares issued and outstanding (91,306,691 pro
forma shares issued and outstanding)..................
Common Stock(84,306,691 pro forma shares
issued and outstanding ............................ 7,700 730 - 8,430
Class B.............................................. 700 - - 700
Paid-in capital........................................... 1,200,813 152,680 - 1,353,493
Cumulative net income..................................... 312,951 - - 312,951
Cumulative distribution paid.............................. (317,666) - - (317,666)
------------ ------------ ----------- -------------
Total shareholders' equity............................. 1,939,070 153,410 - 2,092,480
------------ ------------ ----------- -------------
Total liabilities and shareholders' equity............. $ 2,222,796 $ 219,101 $ 73,800 $ 2,515,697
============ ============ =========== =============
See Accompanying Notes to Pro Forma Consolidated Balance Sheet .
12
</TABLE>
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Amounts in thousands, except per share data)
(Unaudited)
1. REIT Mergers
------------
As of June 30, 1996, PSI had completed the mergers with PSP IX, PSBP, and
SPI and the effects of such mergers are reflected in PSI's historical
consolidated balance sheet at June 30, 1996. The mergers with PSP X, PSP
XII, PPY I, PPY II, and PPY III have not been completed and accordingly pro
forma adjustments have been made to reflect the effects of these mergers on
PSI's historical balance sheet at June 30, 1996, assuming such mergers had
occurred on June 30, 1996.
PSI will account for the mergers using the purchase method of accounting
and the total purchase cost will be allocated to the acquired net assets;
first to the tangible and identifiable intangible assets and liabilities
based upon their respective fair values, and the remainder, if any, will be
allocated to excess of purchase cost over book value of assets acquired.
The aggregate purchase cost of approximately $263.5 million has been
determined to be the sum of (1) the fair market value of real estate assets
and (2) the estimated book value of non-real estate assets as of June 30,
1996 less (3) liabilities as of June 30, 1996.
The proposed mergers are structured in such a manner that the cash
component of the purchase price can vary from 0% to 20% of the aggregate
purchase price and will depend on the number of shareholders of the REITs
electing cash. For purposes of these pro forma financial statements, the
maximum cash elections of 20% of the aggregate purchase price has been
assumed. PSI believes that this assumption is the most likely based on
PSI's experience with similar mergers which have been consummated over the
past two years. Accordingly, the purchase cost is assumed to consist of the
payment of cash ($52.7 million, representing 20%) and the remainder of the
purchase price will consist of the issuance of PSI Common Stock ($153.4
million) and PSI's existing investment in the REITs ($57.4 million). PSI's
existing investment represents the fair value of common stock owned by PSI
in each of the REITs as of June 30, 1996, which upon completion of the
merger will be canceled.
The following table, and notes thereto, summarize the pro forma adjustment
column with respect to the REIT mergers on the preceding page:
<TABLE>
<CAPTION>
Combined Pro forma Other Pro Net Pro forma
REITs at merger forma Adjustment to
June 30, 1996 adjustments adjustments PSI's historical
ASSETS (Historical) Note (1a) Note (1b) Balance Sheet
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,473 $ - $ (5,473) $ -
Real estate facilities, net of accumulated depreciation 164,259 114,316 - 278,575
Investments in real estate entities - (61,026) - (61,026)
Other assets 1,552 - - 1,552
------------ ----------- ------------ -------------
Total assets $ 171,284 $ 53,290 $ (5,473) $ 219,101
============ =========== ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to banks $ 6,650 $ 56,903 $ 2,701 $ 66,254
Accrued and other liabilities 7,611 - (8,174) (563)
Shareholders' equity
REITs' equity 157,023 (157,023) - -
PSI's common stock - 730 - 730
PSI's additional paid in capital - 152,680 - 152,680
------------ ----------- ------------ -------------
Total liabilities and shareholders' equity $ 171,284 $ 53,290 $ (5,473) $ 219,101
============ =========== ============ =============
</TABLE>
13
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Amounts in thousands, except per share data)
(Unaudited)
(1a) PRO FORMA MERGER ADJUSTMENTS: The following pro forma purchase
adjustments have been made assuming the mergers are consummated as of
June 30, 1996:
<TABLE>
<S> <C>
Aggregate net book value of assets acquired in the mergers...................... $157,023
Step up to reflect real estate assets at fair value............................. 106,491
--------
Fair value of net assets acquired in mergers............................... $263,514
========
Aggregate acquisition cost:
Cash component of acquisition cost ....................................... $52,703
Fair value of PSI's pre-existing interest in the REITs.................... 57,401
PSI common equity to be issued............................................ 153,410
--------
$263,514
========
----------------------------------------------------------------------------------------------------------------
* INVESTMENT IN REAL ESTATE ENTITIES: At June 30, 1996, PSI owned
common stock in each of the REITs. In connection with the
mergers, PSI's ownership interest will be canceled. Accordingly,
a pro forma adjustment has been made to eliminate PSI's
historical book value of its investment in each of the
REITs..................................................................... $(61,026)
========
* REAL ESTATE FACILITIES: A pro forma adjustment has been made to
step up the historical carrying value of the real estate
facilities acquired in the mergers to reflect:
- the step up from REITs book value to estimated fair
values............................................................... $106,491
- the net difference between PSI's carrying value of its
equity investment in the REITs ($61,026) and fair value of
such interest ($57,401) in the
REITs................................................................ 3,625
- the estimated cost and expensed of consummating the
mergers.............................................................. 4,200
--------
$114,316
========
* NOTE PAYABLE TO BANKS: A pro forma adjustment has been made to
reflect estimated bank borrowings to fund the cash component of
the mergers combined with the estimated expenses........................... $ 56,903
========
* REIT equity: A pro forma adjustment has been made to eliminate
the historical equity of the REITs in connection with the
mergers.................................................................... $(157,023)
========
* PSI'S COMMON STOCK AND ADDITIONAL PAID IN CAPITAL: Pro forma
adjustments have been made to reflect the issuance of PSI common
stock in the mergers:
- Common stock (7,305,000 shares, based upon a $21.00
estimated market value of PSI's common
stock)................................................................ $ 730
- Additional paid in capital............................................ 152,680
--------
$153,410
========
</TABLE>
14
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Amounts in thousands, except per share data)
(Unaudited)
(1b) OTHER'S PRO FORMA MERGER ADJUSTMENTS: Other pro forma merger adjustments
have been made to reflect the use of the REITs cash to pay for (i)
accrued distributions payable included in the historical accrued and
other liabilities of the REITs, and (ii) repay a portion of the
historical borrowings of the REITs on their respective lines of credit:
<TABLE>
<S> <C>
* CASH AND CASH EQUIVALENTS: A pro forma adjustment has been made
to reduce cash and cash equivalents as follows:
- Pro forma adjustment to fund the REITs' accrued
distributions Included in their historical balance sheets at
June 30, 1996......................................................... $(3,373)
- Pro forma adjustment to utilize the REITs' remaining cash
reserves to repay a portion of their historical borrowings
on lines of credit..................................................... (2,100)
---------
$(5,473)
=========
* NOTES PAYABLE TO BANKS: A pro forma adjustment has been made to
reflect:
- the use of the REIT cash and cash equivalents to reduce
their line of credit borrowings........................................ $(2,100)
- Pro forma adjustment to utilize PSI's line of credit to pay
for accrued merger costs with respect to the SPI merger
included in PSI's historical accrued and other liabilities............. 4,801
---------
$2,701
=========
* Accrued and other liabilities: A pro forma adjustment has been
made to reflect the payment of the REIT historical accrued
distributions and historical merger costs with respect to the SPI
merger which was completed at the end of June 1996........................... $(8,174)
=========
</TABLE>
15
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Amounts in thousands, except per share data)
(Unaudited)
2. Partnership and other acquisitions:
-----------------------------------
PSI has agreements in principle to acquire 23 mini-warehouses and 15
business park facilities from five limited partnerships which are not
affiliated with PSI. PSI currently manages on behalf of four of the
partnerships an aggregate of 16 mini-warehouses and 15 business parks. The
acquisition of the real estate assets from each of the limited partnerships
is subject to certain conditions, including the approval of the limited
partners in each of the partnerships. There is no assurance that such
transactions will be approved by the limited partners of each of the
partnerships and therefore consummated; however, PSI believes that the
approval of the limited partners is probable.
The aggregate acquisition cost is approximately $79.9 million in cash.
The following pro forma adjustments were made to reflect the above
transactions:
<TABLE>
<S> <C>
* OTHER ASSETS: Included in other assets at June 30, 1996 are
deposits made PSI towards the purchase price of the real estate
facilities from these partnerships. A pro forma adjustment has
been made to eliminate these deposits upon consummation of the
acquisition by PSI......................................................... $(6,381)
========
* REAL ESTATE FACILITIES: A pro forma adjustment has been made to
real estate facilities to reflect the acquisition
cost....................................................................... $80,181
========
* NOTES PAYABLE TO BANKS: A pro forma adjustment has been made to
reflect bank borrowings to fund the remaining acquisition costs
($80,181 acquisition cost less deposits made as of June 30, 1996
totaling $6,381)........................................................... $73,800
========
</TABLE>
16
<PAGE>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 30, 1996
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
Real Estate Acquisitions included in
Rule 3.14 Financial Statements (Note 2)
---------------------------------------------
Partnership Other Pro
PSI and property forma
(Historical) REIT Mergers acquisitions adjustments PSI
(Note 1) (Note 3) (Note 4) Total (Note 5) (Pro forma)
----------- ----------- ----------- ----------- ----------- ----------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Rental income.................. $ 135,530 $ 23,934 $ 9,160 $ 33,094 $ - $ 168,624
Facility management fees....... 7,309 - - - (1,685) 5,624
Equity in earnings of real 10,090 (1,592) (75) (1,667) - 8,423
estate entities
Interest and other income...... 4,309 152 17 169 - 4,478
----------- ----------- ----------- ----------- ----------- ----------
157,238 22,494 9,102 31,596 (1,685) 187,149
----------- ----------- ----------- ----------- ----------- ----------
Expenses:
Cost of operations............. 42,562 8,456 3,748 12,204 (1,414) 53,352
Cost of managing facilities.... 1,175 - - - (271) 904
Depreciation and amortization.. 30,734 4,624 1,667 6,291 - 37,025
General and administrative..... 3,059 475 25 500 - 3,559
Interest expense............... 4,813 2,842 3,137 5,979 - 10,792
----------- ----------- ----------- ----------- ----------- ----------
82,343 16,397 8,577 24,974 (1,685) 105,632
----------- ----------- ----------- ----------- ----------- ----------
Income before minority
interest in income.......... 74,895 6,097 525 6,622 - 81,517
Minority interest in income.... (4,815) - - - - (4,815)
----------- ----------- ----------- ----------- ----------- ----------
Net income..................... $ 70,080 $6,097 $ 525 $ 6,622 $ - $ 76,702
=========== =========== =========== =========== =========== ==========
Net income allocable to $ 33,062 $- $ 1,916 $ 1,916 $ - $ 34,978
preferred shareholders
Net income allocable to Common
Stock shareholders.......... 37,018 6,097 (1,391) 4,706 - 41,724
----------- ----------- ----------- ----------- ----------- ----------
Net income............... $ 70,080 $6,097 $ 525 $ 6,622 $ - $ 76,702
=========== =========== =========== =========== =========== ==========
Per share of Common Stock:
Net income................... $ 0.51 $ 0.69 $ - $ 0.53 $ - $ 0.51
=========== =========== =========== =========== =========== ==========
Weighted Average Shares...... 72,749 8,836 - 8,836 - 81,585
=========== =========== =========== =========== =========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statements of Income.
17
<PAGE>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1995
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Real Estate Acquisitions included in
Rule 3.14 Financial Statements (Note 2)
---------------------------------------
Partnership Other Pro
REIT and property forma PSI
PSI Mergers acquisitions adjustments (Pro forma)
(Note 1) (Note 3) (Note 4) Total (Note 5)
----------- ----------- ----------- ----------- ----------- ----------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Rental income.................... $ 229,026 $ 51,340 $ 39,656 $ 90,996 $ - $ 320,022
Facility management fees......... 13,708 - - - (5,162) 8,546
Equity in earnings of real estate 20,769 (4,147) (2,773) (6,920) - 13,849
entities
Interest and other income........ 4,573 372 200 572 - 5,145
----------- ----------- ----------- ----------- ----------- ----------
268,076 47,565 37,083 84,648 (5,162) 347,562
----------- ----------- ----------- ----------- ----------- ----------
Expenses:
Cost of operations............... 70,158 18,337 15,651 33,988 (3,367) 100,779
Cost of managing facilities...... 4,766 - - - (1,795) 2,971
Depreciation and amortization.... 53,727 10,103 5,993 16,096 - 69,823
General and administrative....... 8,060 2,117 312 2,429 - 10,489
Interest expense................. 15,930 5,450 6,273 11,723 - 27,653
----------- ----------- ----------- ----------- ----------- ----------
152,641 36,007 28,229 64,236 (5,162) 211,715
----------- ----------- ----------- ----------- ----------- ----------
Income before minority interest in
income........................ 115,435 11,558 8,854 20,412 - 135,847
Minority interest in income...... (6,992) - - - - (6,992)
----------- ----------- ----------- ----------- ----------- ----------
Net income....................... $ 108,443 $ 11,558 $ 8,854 $ 20,412 $ - $128,855
=========== =========== =========== =========== =========== ==========
Net income allocable to preferred $ 33,466 $ - $ 7,664 $ 7,664 $ - $ 41,130
shareholders
Net income allocable to Common
Stock shareholders............ 74,977 11,558 1,190 12,748 - 87,725
----------- ----------- ----------- ----------- ----------- ----------
Net income................. $ 108,443 $11,558 $ 8,854 $ 20,412 $ - $128,855
=========== =========== =========== =========== =========== ==========
Per share of Common Stock:
Net income..................... $ 1.05 $ 1.21 $ - $ 1.34 $ - $ 1.08
=========== =========== =========== =========== =========== ==========
Weighted Average Shares........ 71,736 9,544 - 9,544 - 81,280
=========== =========== =========== =========== =========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statements of Income.
18
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME For the Six Months Ended June 30, 1996 and
Year Ended December 31, 1995
(Dollar amounts in thousands, except per share data)
(Unaudited)
1. PSI's pro forma net income
--------------------------
The presentation of the pro forma consolidated income statement for the
year ended December 31, 1995 commences with pro forma balances rather
than historical balances. In 1995, the Company completed numerous
transactions including (i) issuances of both common and preferred
stock, (ii) mergers with affiliated REITs, (iii) significant real
estate acquisitions, and (iv) a merger with Public Storage Management,
Inc. In connection with the merger with Public Storage Management,
Inc., the Company filed pro forma financial statements which included
the effects of the above transactions on PSI's historical amounts. Such
pro forma financial statements were updated in a Form 8-K dated
November 16, 1995 and in PSI's 1996 Form 10-K for the year ended
December 31, 1995. PSI's 1996 Form 10-K included pro forma operating
results for the year ending December 31, 1995 reflecting the effects of
these transactions and serves as the starting point for the
consolidated income statement for the transactions described in the
following footnotes.
The historical consolidated income statement for the six months ended
June 30, 1996 reflects the effects of the 1995 transactions.
Accordingly, no further pro forma adjustments are necessary to reflect
the effects of these 1995 transactions.
2. Rule 3.14 of Regulation S-X
---------------------------
Included elsewhere in this Form 8-K is financial information filed
pursuant to Rule 3.14 of Regulation S-X. Such financial information
includes audited information with respect to certain real estate
operations acquired and to be acquired which in the aggregate are
significant to PSI's financial data and representing a majority of the
real estate operations acquired and to be acquired by PSI.
3. REIT Mergers
------------
As describe more fully in Note 1 to the pro forma consolidated balance
sheet, during the first six months of 1996 PSI completed mergers with
PSP IX (completed on March 26, 1996), PSBP (completed on March 26,
1996) and SPI (completed on June 27, 1996), each representing an
affiliated REIT owning principally mini-warehouse facilities (PSBP
owned a single business park facility). Due to the timing of the
mergers which have been completed, PSI's historical consolidated
statement of income for the year ending December 31, 1995 does not
reflect any impact from these mergers and only partially reflects the
impact in the historical consolidated statement of income for the six
months ended June 30, 1996.
In addition to the mergers which have been completed, PSI and five
other affiliated REITs (PSP X, PSP XII, PPY I, PPY II, and PPY III)
have agreed, subject to certain conditions, to merge. Such mergers have
not been consummated as of the date of this Form 8-K.
The following pro forma adjustments have been made to reflect the
impact of each of the above mergers as if such mergers were completed
as of the beginning of each period:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
* RENTAL INCOME: A pro forma adjustment has been made to reflect
the combined historical rental income of the REITs................. $23,934 $51,340
======= =======
</TABLE>
19
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME For the Six Months Ended June 30, 1996 and
Year Ended December 31, 1995
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
* EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Prior to the
mergers, PSI accounts for its existing ownership interests in
the REITs under the equity method of accounting. Upon completion
of the mergers, PSI's interest will be canceled and PSI will own
100% of the equity interest in each REIT. A pro forma adjustment
has been
made to eliminate equity in earnings in these REITs................ $(1,592) $(4,147)
============= =================
* INTEREST AND OTHER INCOME: A pro forma adjustment has been made
to reflect the historical amounts of each of the REITs............. $152 $372
============= =================
* COST OF OPERATIONS: A pro forma adjustment has been made to
reflect the combined historical cost of operations of the REITs.... $8,456 $18,337
============= =================
* DEPRECIATION AND AMORTIZATION: A pro forma adjustment has been
made to reflect the incremental difference between the actual
depreciation expense included in PSI's historical statements of
income and the pro forma depreciation expense, as if the real
estate facilities were in operation for a full period..............
- Pro forma depreciation expense for a full period based
upon the allocation of the merger acquisition cost.
Generally, the purchase cost allocated to real estate
facilities is further allocated 70% to buildings and 30%
to land. Buildings are depreciated, straight-line over 25
years..................................................... $5,052 $10,103
- Less: amounts included in PSI's historical statements of
income.................................................... (428) -
------------- -----------------
$4,624 $10,103
============= =================
* General and administrative expense was adjusted as follows:
- A pro forma adjustment has been made to reflect each of
the REITs historical general and administrative expenses. $656 $2,385
- A pro forma adjustment has been made to reduce certain
general and administrative expenses which PSI has
determined would be eliminated as a result of the
mergers. Such expenses include the elimination of the
REITs board of directors fees, stock exchange listing
fees, audit and tax fees and certain administrative
expenses which will no longer be applicable.............. (181) (268)
------------- -----------------
$475 $2,117
============= =================
</TABLE>
20
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME For the Six Months Ended June 30, 1996 and
Year Ended December 31, 1995
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
* INTEREST EXPENSE: A pro forma adjustment has been made to
reflect the following:
- The cash portion of the acquisition cost for those REIT
mergers which have not been consummated is assumed to be
funded with borrowings under PSI's revolving line of
credit. Accordingly, a pro forma adjustment has been
made to reflect additional interest expense which would
have been incurred as a result of such borrowings.
Interest rate is assumed to be 8.5% per annum on
borrowings
totaling $59,604........................................... $2,533 $5,066
- the combined historical interest expense of the REITs..... 309 384
------------- -----------------
$2,842 $5,450
============= =================
* WEIGHTED AVERAGE COMMON SHARES: In connection with the REIT
mergers, PSI as part of the consideration, issued (or will issue)
shares of its common stock. The following pro forma adjustments
have been made to reflect the effect on the historical weighted
average shares outstanding:
- Shares issued in connection with the mergers completed
during the first six months of 1996 (PSP IX, PSBP and
SPI)
2,239 2,239
- Estimated number of shares to be issued in proposed
mergers (PSP X, PSP XII, PPY I, PPY II, and PPY III),
see note 1 to Consolidated Pro Forma Balance Sheet............. 7,305 7,305
- Less weighted average shares already included in PSI's
historical amounts with respect to completed mergers....... (708) -
------------- -----------------
8,836 9,544
============= =================
</TABLE>
21
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME For the Six Months Ended June 30, 1996 and
Year Ended December 31, 1995
(Dollar amounts in thousands, except per share data)
(Unaudited)
4. Partnership and property acquisitions
-------------------------------------
Effective January 1, 1996, PSI acquired approximately 64% of the
limited partnership interest in an affiliated limited partnership
owning 28 mini-warehouse facilities. The acquisition cost totaled $41.1
million in cash; funded with the use of net proceeds of a preferred
stock offering in January 1996. As a result of the acquisition combined
with PSI's existing ownership interest and control of the partnership,
PSI began to consolidate the accounts of the partnership in PSI's
financial statements effective January 1, 1996.
During the second quarter of 1996, PSI acquired all of the limited
partnership units of two affiliated partnerships for $5.90 million,
consisting of the issuance of PSI's Mandatory Convertible Preferred
Stock, Series CC. PSI's acquisition in one of the partnerships
increased its ownership interest in the partnership to 100%,
accordingly, the partnership was dissolved and the partnership's 8
mini-warehouse facilities became wholly-owned by PSI. The remaining
partnership owns 15 mini-warehouses. As a result of the acquisition of
partnership interests combined with PSI's existing ownership interest
and control in the partnership, PSI began to consolidate the accounts
of the partnership in PSI's financial statements effective April 1,
1996.
PSI has agreements in principle to acquire 23 mini-warehouses and 15
business park facilities from five limited partnerships which are not
affiliated with PSI. PSI currently manages on behalf of four of the
partnerships an aggregate of 16 mini-warehouses and 15 business parks.
The acquisition of the real estate assets from each of the limited
partnerships is subject to certain conditions, including the approval
of the limited partners in each of the partnerships. The aggregate
acquisition cost is approximately $80.2 million.
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
* RENTAL INCOME: A pro forma adjustment has been made to reflect
the historical rental income of the newly consolidated
partnerships and properties acquired, as if such transactions
occurred at the beginning of the period ............................ $9,160 $39,656
============= =================
* INTEREST AND OTHER INCOME: A pro forma adjustment has been made
to reflect the historical amounts with respect to the newly
consolidated partnerships, as if such transaction occurred at
the beginning of the period......................................... $17 $200
============= =================
* COST OF OPERATIONS: A pro forma adjustment has been made to
reflect the historical cost of operations of the newly
consolidated partnerships and acquired properties, as if such
transactions occurred at the beginning of the period................ $3,748 $15,651
============= =================
</TABLE>
22
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME For the Six Months Ended June 30, 1996 and
Year Ended December 31, 1995
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
* DEPRECIATION AND AMORTIZATION: A pro forma adjustment was
adjusted to reflect:
- in the case of newly consolidated partnerships; historical
depreciation and amortization for the period of time
not included in PSI's historical operations combined
additional depreciation from the step up in basis of
the historical carrying cost of the partnerships' real
estate facilities in consolidation...................... $544 $3,747
- additional depreciation on property acquisitions, as if
such transactions occurred at the beginning of the period 1,123 2,246
------------- -----------------
$1,667 $5,993
============= =================
* GENERAL AND ADMINISTRATIVE: A pro forma adjustment was made to
general and administrative expense to reflect the historical amounts
with respect to the newly consolidated partnerships.............. $25 $312
============= =================
* INTEREST EXPENSE: PSI expects to acquire real estate facilities
from five limited partnerships for a total acquisition cost of
$80,181. As of June 30, 1996, PSI had paid $6,381 deposit
towards this acquisition cost leaving a remaining balance of
$73,800 which PSI expects to fund with borrowings on its
revolving line of credit. A pro forma adjustment has been made
to reflect interest expense with respect to the borrowing as if
such amounts were outstanding throughout each period
(interest rate of 8.5% per annum)................................ $3,137 $6,273
============= =================
* NET INCOME ALLOCABLE TO PREFERRED STOCK: In connection with the
acquisition of partnership interests in one of the newly
consolidated partnerships, PSI issued its Series CC preferred
Stock. A pro forma adjustment was made to reflect the
distributions with respect to the terms of the Series CC for a
full period......................................................
- Distributions for a full period.......................... $3,832 $7,664
- Less: amounts included in PSI's historical amounts....... (1,916) -
------------- -----------------
$1,916 $7,664
============= =================
</TABLE>
23
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME For the Six Months Ended June 30, 1996 and
Year Ended December 31, 1995
(Dollar amounts in thousands, except per share data)
(Unaudited)
5. Other Pro Forma Adjustments
---------------------------
PSI manages the real estate facilities owned by the affiliated REIT and
partnerships discussed in notes 3 and 4 for a fee. As a result of
mergers and acquisitions as discussed in notes 3 and 4, PSI will
continue to operate the facilities, however, since the facilities will
be owned by PSI, PSI will no longer collect fees for managing the
facilities. Accordingly, the following pro forma adjustments have been
made to (i) eliminate management fee income recognized by PSI with
respect to the real estate facilities acquired, (2) eliminate the
corresponding management fee expense included in the historical cost of
operations of the facilities acquired, and (3) allocate a portion of
the cost of managing facilities to the cost of operations with respect
to the facilities acquired. With respect to item (3) such amounts
represent cost of managing the facilities acquire for management fees
which will continue to be incurred by PSI, however, will be included in
the cost of operations of the facilities as a cost now incurred to
generate rental revenues as opposed to management fees.
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
* FACILITY MANAGEMENT FEES: A pro forma adjustment has been made to
eliminate the property management fees included in PSI's historical
revenues ......................................................... $1,685 $5,162
============= =================
* COST OF MANAGING FACILITIES: A pro forma adjustment has been made
to eliminate a portion of the cost of managing facilities and
reallocate such amounts of cost of operations..................... $(271) $(1,795)
============= =================
* COST OF OPERATIONS: A pro forma adjustment has been made to
reflect:
- elimination of property management fee paid to PSI....... $(1,685) $(5,162)
- reflect reallocation of costs to mange such facilities... 271 1,795
------------- -----------------
$(1,414) $(3,367)
============= =================
</TABLE>
24
<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: September 6, 1996 By: /s/ Ronald L. Havner, Jr.
----------------- -----------------------------
Ronald L. Havner, Jr.
Senior Vice President and
Chief Financial Officer
25
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-36004) of Public Storage, Inc., formerly Storage Equities,
Inc., pertaining to the 1990 Stock Option Plan, the Registration Statement on
Form S-8 (No. 33-55541) pertaining to the 1994 Stock Option Plan, the
Registration Statements on Form S-3 (Nos. 333-00965 and 33-54755) and in the
related prospectus and Registration Statements on Form S-4 (Nos. 33-64971 and
33-49696) and in the related prospectus of our report dated February 26, 1996
with respect to the consolidated financial statements and schedules of Public
Storage, Inc. for the years ended December 31, 1995, 1994 and 1993 included in
the Annual Report (Form 10-K), as amended by a Form 10-K/A (Amendment No. 3)
dated May 15, 1996, for 1995 filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference of our report dated September
6, 1996 on the combined summary of historical information relating to operating
revenues and specified expenses - certain properties which is included in the
Current Report on Form 8-K dated September 6, 1996, and incorporated by
reference in the Registration Statements on Form S-8 (Nos. 33-36004 and
33-55541), the Registration Statements on Form S-3 (Nos. 333-00965 and 33-54755)
and related prospectus and Registration Statements on Form S-4 (Nos. 33-64971
and 33-49696) and related prospectus.
ERNST & YOUNG L L P
September 6, 1996
Los Angeles, California
Exhibit-23
