SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
----------------- ------------------
Commission File Number: 1-8389
-------
PUBLIC STORAGE, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3551121
- ---------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue, Glendale, California 91201-2394
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080.
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 13, 1996:
Common Stock, $.10 par value, 84,445,228 shares outstanding
- -----------------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
- -------------------------------------------------------
<PAGE>
PUBLIC STORAGE, INC.
INDEX
Pages
-----
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Condensed Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 1996 and 1995 2
Condensed Consolidated Statement of Shareholders' Equity 3
Condensed Consolidated Statements of Cash Flows
for Nine Months Ended September 30, 1996 and 1995 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16 - 27
PART II. OTHER INFORMATION (Items 1, 2, 3, and 5 are not applicable)
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders 28 - 29
Item 6. Exhibits and Reports on Form 8-K 29
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<CAPTION>
September 30, December 31,
1996 1995
---------------- ---------------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents................................................ $ 60,228 $ 80,436
Real estate facilities, at cost:
Land.................................................................. 512,679 382,144
Buildings............................................................. 1,406,578 1,030,990
---------------- ---------------
1,919,257 1,413,134
Accumulated depreciation.............................................. (282,517) (241,966)
---------------- ---------------
1,636,740 1,171,168
Investment in real estate entities....................................... 401,488 416,216
Intangible assets, net................................................... 224,580 231,562
Mortgage notes receivable from affiliates................................ 25,414 23,699
Other assets............................................................. 26,129 14,380
---------------- ---------------
Total assets............................................... $ 2,374,579 $ 1,937,461
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable............................................................ $ 112,647 $ 158,052
Accrued and other liabilities............................................ 37,315 32,533
---------------- ---------------
Total liabilities............................................... 149,962 190,585
Minority interest........................................................ 121,551 112,373
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized, 13,509,805
shares issued, 13,441,180 outstanding (13,444,100 issued and outstanding at
December 31, 1995), at liquidation preference:
Cumulative Preferred Stock, issued in series.................... 618,900 450,150
Convertible Preferred Stock..................................... 115,519 85,970
Common stock, $0.10 par value, 200,000,000 shares authorized, 84,411,391
shares issued and outstanding (71,513,799 at December 31, 1995).......
8,442 7,152
Class B Common Stock, $0.10 par value, 7,000,000 shares authorized
and issued.......................................................... 700 700
Paid-in capital....................................................... 1,357,855 1,100,088
Cumulative net income................................................. 353,317 242,871
Cumulative distributions paid......................................... (351,667) (252,428)
---------------- ---------------
Total shareholders' equity...................................... 2,103,066 1,634,503
---------------- ---------------
Total liabilities and shareholders' equity................. $ 2,374,579 $ 1,937,461
================ ===============
</TABLE>
See accompanying notes.
1
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, expect per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------- ------------ -----------
REVENUES:
Rental income:
<S> <C> <C> <C> <C>
Mini-warehouse facilities................ $ 70,434 $ 50,853 $ 195,295 $130,228
Business park facilities................. 6,006 4,666 16,675 13,359
Equity in earnings of real estate entities.. 5,559 418 15,649 997
Facilities management fees.................. 3,609 - 10,918 -
Interest and other income................... 1,820 1,001 6,129 3,464
----------- ------------- ------------ -----------
87,428 56,938 244,666 148,048
----------- ------------- ------------ -----------
EXPENSES:
Cost of operations:
Mini-warehouse facilities................ 20,859 17,446 58,835 45,563
Business park facilities................. 2,739 2,381 7,325 6,606
Cost of facilities management................ 576 - 1,751 -
Depreciation and amortization ............... 16,819 10,961 47,553 27,887
General and administrative................... 1,536 875 4,595 2,611
Advisory fee ................................ - 2,036 - 5,462
Interest expense............................. 2,080 2,035 6,893 5,249
----------- ------------- ------------ -----------
44,609 35,734 126,952 93,378
----------- ------------- ------------ -----------
Income before minority interest................ 42,819 21,204 117,714 54,670
Minority interest in income.................... (2,453) (1,734) (7,268) (5,449)
----------- ------------- ------------ -----------
Net income..................................... $ 40,366 $ 19,470 $ 110,446 $ 49,221
=========== ============= ============ ===========
Net income allocation:
Allocable to preferred shareholders......... $ 17,056 $ 8,596 $ 50,118 $ 21,904
Allocable to common shareholders............ 23,310 10,874 60,328 27,317
----------- ------------- ------------ -----------
$ 40,366 $ 19,470 $ 110,446 $ 49,221
=========== ============= ============ ===========
PER COMMON SHARE:
Net income..................................... $0.30 $0.26 $0.81 $0.76
=========== ============= ============ ===========
Weighted average common shares outstanding 78,338 42,217 74,690 35,847
=========== ============= ============ ===========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996
(Amounts in thousands except share data)
(Unaudited)
<CAPTION>
Preferred Stock
------------------------- Class B
Cumulative Common Common
Senior Convertible Stock Stock
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1995......................... $450,150 $85,970 $7,152 $700
Issuance of Preferred Stock:
Series H (6,750 shares).......................... 168,750 - - -
Mandatory Convertible, Series CC (58,955 shares). - 58,955 - -
Issuance of Common Stock:
In connection with mergers (4,974,471 shares).... - - 499 -
Conversion of Mandatory Convertible
Participating Preferred Stock into Common
Stock (1,611,265 shares)....................... - (28,470) 161 -
Conversion of 8.25% Convertible Preferred Stock
into Common Stock (62,993 shares).............. - (936) 6 -
In connection with a private offerings
(6,151,200 shares)............................. - - 615 -
Other (97,663 shares)............................ - - 9 -
Net income............................................ - - - -
Cash distributions:
Cumulative Senior Preferred Stock.................. - - - -
Mandatory Convertible Preferred Stock, Series CC... - - - -
8.25% Convertible Preferred Stock.................. - - - -
Mandatory Convertible Participating Preferred
Stock............................................ - - - -
Common Stock....................................... - - - -
---------- ----------- --------- ---------
Balances at September 30, 1996........................ $618,900 $115,519 $8,442 $700
========== =========== ========== =========
</TABLE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996
(Amounts in thousands except share data)
(Unaudited)
<CAPTION>
Total
Paid-in Cumulative Cumulative Shareholders'
Capital Net Income Distributions Equity
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1995......................... $1,100,088 $242,871 $(252,428) $1,634,503
Issuance of Preferred Stock:
Series H (6,750 shares).......................... (5,617) - - 163,133
Mandatory Convertible, Series CC (58,955 shares). - - - 58,955
Issuance of Common Stock:
In connection with mergers (4,974,471 shares).... 105,786 - - 106,285
Conversion of Mandatory Convertible
Participating Preferred Stock into Common
Stock (1,611,265 shares)....................... 27,799 - - (510)
Conversion of 8.25% Convertible Preferred Stock
into Common Stock (62,993 shares).............. 930 - - -
In connection with a private offerings
(6,151,200 shares)............................. 127,886 - - 128,501
Other (97,663 shares)............................ 983 - - 992
Net income............................................ - 110,446 - 110,446
Cash distributions:
Cumulative Senior Preferred Stock.................. - - (41,063) (41,063)
Mandatory Convertible Preferred Stock, Series CC... - - (3,832) (3,832)
8.25% Convertible Preferred Stock.................. - - (3,523) (3,523)
Mandatory Convertible Participating Preferred
Stock............................................ - - (1,700) (1,700)
Common Stock....................................... - - (49,121) (49,121)
---------- ---------- ------------- ----------
Balances at September 30, 1996........................ $1,357,855 $353,317 $(351,667) $2,103,066
========== ========== ============= ==========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------
1996 1995
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income........................................................... $110,446 $ 49,221
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization (including amortization of mortgage
notes receivable discounts)...................................... 47,483 27,797
Depreciation included in equity in earnings of real estate entities 13,241 -
Minority interest in income........................................ 7,268 5,449
---------------- ----------------
Total adjustments.............................................. 67,992 33,246
---------------- ----------------
Net cash provided by operating activities.................. 178,438 82,467
---------------- ----------------
Cash flows from investing activities:
Principal payments received on mortgage notes receivable from
affiliates....................................................... 1,364 344
Acquisition of real estate facilities.............................. (101,972) (101,021)
Acquisition cost of business combinations.......................... (83,620) (35,434)
Capital improvements to real estate facilities..................... (13,465) (6,380)
Construction in process............................................ (30,579) (3,866)
Acquisition of minority interests in consolidated real estate
partnerships..................................................... (10,075) (35,901)
Acquisition of mortgage notes receivable........................... (3,709) (2,215)
Acquisition of interests in real estate entities................... (86,508) (3,988)
Other.............................................................. (6,381) 132
---------------- ----------------
Net cash used in investing activities...................... (334,945) (188,329)
---------------- ----------------
Cash flows from financing activities:
Net pay downs on note payable to banks............................. - (20,447)
Net proceeds from the issuance of preferred stock.................. 163,133 108,377
Net proceeds from the issuance of common stock..................... 129,493 80,525
Principal payments on mortgage notes payable....................... (47,106) (6,394)
Distributions paid to shareholders................................. (99,239) (46,042)
Distributions from operations to minority interests in real estate
partnerships..................................................... (15,976) (13,642)
Net reinvestment by minority interests into real estate
partnerships....................................................... 2,023 (1,969)
Other.............................................................. 3,971 -
---------------- ----------------
Net cash provided by financing activities.................. 136,299 100,408
---------------- ----------------
Net decrease in cash and cash equivalents............................... (20,208) (5,454)
Cash and cash equivalents at the beginning of the period................ 80,436 20,151
---------------- ----------------
Cash and cash equivalents at the end of the period...................... $ 60,228 $ 14,697
================ ================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
(Continued)
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------
1996 1995
---------------- ----------------
Supplemental schedule of noncash investing and financing activities:
--------------------------------------------------------------------
<S> <C> <C>
Acquisition of real estate facilities in exchange for the cancellation of
mortgage notes receivable, the assumption of mortgage notes payable,
and issuance of common and preferred stock.............................. $ (2,401) $ (82,426)
Business combinations:
Real estate facilities.................................................. (351,907) (211,190)
Other assets............................................................ (5,076) (4,251)
Accrued and other liabilities........................................... 9,370 7,478
Mortgage notes payable.................................................. - 3,387
Minority interest....................................................... 20,139 16,566
Reduction to investment in real estate entities in connection with business
combinations............................................................ 82,113 4,729
Acquisition of partnership interests in real estate entities in exchange
for common stock........................................................ - (4,034)
Assumption of mortgage notes payable in connection with the acquisition of
real estate facilities.................................................. 1,701 56,908
Cancellation of mortgage notes receivable in connection with the
acquisition of real estate facilities................................... 700 14,920
Issuance of Mandatory Convertible Preferred Stock, Series CC............... 58,955 -
Issuance of Convertible Participating Preferred Stock in connection with
the acquisition of partnership interests................................ - 28,470
Issuance of common stock:
- in connection with mergers............................................ 106,285 99,972
- to acquire real estate facilities..................................... - 10,598
- to acquire partnership interests in real estate entities.............. - 4,034
- in connection with the conversion of Convertible Preferred Stock...... 28,896 -
Conversion of 8.25% Convertible Preferred Stock............................ (936) -
Conversion of Mandatory Convertible Preferred Stock........................ (28,470) -
</TABLE>
See accompanying notes.
4
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. Description of the business
---------------------------
Public Storage, Inc. (the "Company") is a California corporation which
was organized in 1980. The Company is a fully integrated, self-administered
and self-managed real estate investment trust ("REIT") that acquires,
develops, owns and operates self-service mini-warehouse facilities which
offer self-storage spaces for lease, usually on a month-to-month basis, for
personal and business use. The Company, to a lesser extent, also owns and
operates business park facilities containing commercial and industrial
rental space.
Prior to November 16, 1995, the Company's operations were managed,
pursuant to contractual arrangements, by Public Storage Advisers, Inc. (the
"Adviser"), the Company's investment advisor, by Public Storage Management,
Inc. ("PSMI"), its mini-warehouse property operator and by Public Storage
Commercial Properties Group, Inc. ("PSCP"), its business park facility
operator.
On November 16, 1995, in a series of mergers among PSMI and its
affiliates, culminating in the merger of PSMI into the Company (the "PSMI
Merger"), the Company became self-administered and self-managed and
acquired substantially all of the United States real estate operations of
PSMI. As a result of the PSMI Merger, the Company's name was changed from
Storage Equities, Inc. to Public Storage, Inc.
The Company invests in real estate facilities primarily through the
acquisition of wholly-owned facilities combined with the acquisition of
equity interests in real estate entities owning real estate facilities. At
September 30, 1996, the Company had direct and indirect equity interests in
1,072 properties located in 37 states, including 1,037 mini-warehouse
facilities and 35 business parks. All of these facilities are operated by
the Company under the "Public Storage" name. In addition, the Company
operates real estate facilities on behalf of various ownership entities,
substantially all of which are partnerships and REITs in which the Company
has an ownership interest.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
The consolidated financial statements include the accounts of the
Company, majority owned subsidiaries, and twenty-one limited partnerships
(the "Consolidated Partnerships") in which the Company has significant
economic interest and is able to exercise significant control through its
ownership of limited and general partnership interests.
The Company also has equity investments in other affiliated limited
partnerships and REITs which principally own mini-warehouse facilities
managed by the Company. The Company's ownership interest in such real
estate entities is less than 50% of the total equity interest, accordingly,
the Company's investments in these real estate entities are accounted for
using the equity method.
6
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Income taxes
------------
For all taxable years subsequent to 1980, the Company qualified and
intends to continue to qualify as a REIT, as defined in Section 856 of the
Internal Revenue Code. As a REIT, the Company is not taxed on that portion
of its taxable income which is distributed to its shareholders provided
that the Company meets certain tests. The Company believes it will meet
these tests during 1996, accordingly, no provision for income taxes has
been made in the accompanying financial statements.
Allowance for possible losses
-----------------------------
The Company has no allowance for possible losses relating to any of
its real estate investments, including mortgage notes receivable. The need
for such an allowance is evaluated by management by means of periodic
reviews of its investment portfolio.
Cash and cash equivalents
-------------------------
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Depreciation
------------
Depreciation is computed using the straight-line method over the
estimated useful lives of the buildings and improvements, which are
generally between 5 and 25 years.
Intangible assets
-----------------
Intangible assets consist of property management contracts and the
cost over the fair value of net tangible and identifiable intangible assets
acquired in the PSMI Merger and are amortized straight-line over 25 years.
At September 30, 1996, intangible assets are net of accumulated
amortization of $8,146,000 ($1,164,000 at December 31, 1995). Included in
depreciation and amortization expense for the three and nine months ended
September 30, 1996 is $2,328,000 and $6,982,000, respectively, related to
the amortization of intangible assets (none for the three and nine months
ended September 30, 1995).
Net income per common share
---------------------------
Net income per common share is computed using the weighted average
common shares outstanding (adjusted for stock options). The inclusion of
the Class B Common Stock in the determination of earnings per common share
has been determined to be anti-dilutive (after giving effect to the pro
forma additional income required to satisfy certain contingencies required
for the Class B common stock to convert into common stock) and accordingly,
the conversion of the Class B common stock into common stock has not been
assumed.
The Company's preferred stocks are not common stock equivalents. In
computing earnings per common share, preferred stock dividends reduced
income available to common stockholders.
Fully diluted earnings per common are not presented, as the assumed
conversion of the Company's convertible preferred stocks would be
anti-dilutive.
Revenue/expense recognition
---------------------------
Property rents are recognized as earned. Equity in earnings of real
estate entities are recognized based on the Company's ownership interest in
the earnings of each of the unconsolidated real estate entities. Leasing
commissions relating to the business park operations are expensed as
incurred.
7
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
3. Business combinations
---------------------
Mergers with affiliated REITs
-----------------------------
During the first nine months of 1996, the Company completed merger
transactions with five affiliated public REITs whereby the Company acquired
all the outstanding stock of the REITs which it did not previously own in
exchange for cash and common stock of the Company. The aggregate
acquisition cost of these mergers is summarized as follows:
<TABLE>
<CAPTION>
Merger consideration
----------------------------------------------
Pre-
Common existing
Entity Date of merger Stock Cash investment Total
---------------------------------------------------- ------------------- -------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Public Storage Properties IX, Inc. ("Properties 9") March 26, 1996 $24,719 $ 9,907 $12,937 $ 47,563
Public Storage Business Parks, Inc. ("PSBP") March 26, 1996 5,249 2,719 3,337 11,305
Storage Properties, Inc. ("SPI") June 27, 1996 17,148 4,801 1,799 23,748
Public Storage Properties X, Inc. ("Properties 10") September 16, 1996 26,012 14,178 9,333 49,523
Public Storage Properties XII, Inc.("Properties 12") September 16, 1996 33,157 7,436 9,472 50,065
-------- -------- -------- ---------
$106,285 $39,041 $36,878 $182,204
======== ======== ======== =========
</TABLE>
As a result of these mergers, the Company acquired 48 mini-warehouse
(2,932,000 square feet) facilities and 4 business park facilities (405,000
square feet).
Other business combinations:
----------------------------
During the second quarter of 1996, the Company acquired all of the
limited partnership units of two affiliated partnerships for $58,955,000,
consisting of the issuance of the Company's Convertible Preferred Stock,
Series CC (Note 8). The Company'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 the Company. The remaining partnership
owns 15 mini-warehouses. During the first quarter of 1996, the Company
acquired approximately 64% of the limited partnership units of an
affiliated partnership which owns 28 mini-warehouse facilities for
approximately $41,080,000 in cash. The acquisition of interests in the two
remaining partnerships combined with the Company's existing general
partnership interest in the partnerships significantly increased the
Company's ownership interest and control of the partnerships and, as a
result, the Company began to consolidate the accounts of these partnerships
for financial statement purposes.
Each of the above mergers with affiliated REITs and acquisitions of
partnership interests discussed above has been accounted for as a purchase;
accordingly, allocations of the total acquisition cost to the net assets
acquired were made based on the fair value of such assets and liabilities
as of the dates of each respective transaction. The fair market values of
the assets acquired and liabilities assumed with respect to the
transactions are summarized as follows:
<TABLE>
<CAPTION>
REIT Partnership
mergers acquisitions Total
----------- ------------------ ----------
(In thousands)
<S> <C> <C> <C>
Real estate facilities................... $185,097 $166,810 $351,907
Other assets............................. 4,259 817 5,076
Accrued and other liabilities............ (7,152) (2,218) (9,370)
Minority interest........................ - (20,139) (20,139)
---------- ------------------ ----------
$182,204 $145,270 $327,474
========== ================== ==========
</TABLE>
8
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
The historical operating results of the above business combinations
prior to each respective acquisition date have not been included in the
Company's historical operating results. Pro forma selected financial data
for the nine months ended September 30, 1996 and 1995 as though the above
business combinations had been effective at the beginning of each period
are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
(In thousands, except per share data) September 30, 1996 September 30, 1995
------------------------------------- ------------------ ------------------
<S> <C> <C>
Revenues $263,045 $189,182
Net Income $117,078 $ 61,493
Net income per common share $.83 $.83
</TABLE>
The pro forma data does not purport to be indicative of operations
that would have occurred had the business combinations occurred at the
beginning of each period or future results of operations of the Company.
Certain pro forma adjustments were made to the combined historical amounts
to reflect (i) expected reductions in general and administrative expenses,
(ii) estimated increased interest expense from bank borrowings to finance
the cash portion of the acquisition cost, (iii) estimated increase in
depreciation and amortization expense.
4. Real estate facilities
----------------------
Activity in real estate facilities during 1996 consists of the
following:
<TABLE>
<CAPTION>
Number of
real estate Net rentable Net
facilities square feet carrying cost
---------- ----------- -------------
(in thousands, except number of facilities)
OPERATING FACILITIES:
---------------------
<S> <C> <C> <C>
Beginning balance - December 31, 1995..... 540 32,782 $ 1,163,189
Property acquisitions:
Business combinations.................. 103 6,379 351,907
Other acquisitions..................... 19 1,289 104,373
Developed facilities...................... 3 179 12,050
Acquisition of minority interest.......... - - 5,799
Capital improvements...................... - - 13,465
Depreciation expense...................... - - (40,551)
---------- ----------- -------------
Ending balance - September 30, 1996....... 665 40,629 1,610,232
---------- ----------- -------------
CONSTRUCTION IN PROGRESS:
-------------------------
Beginning balance - December 31, 1995..... 2 120 7,979
Current development cost.................. 10 603 30,579
Newly opened development facilities....... (3) (179) (12,050)
---------- ----------- -------------
Ending balance - September 30, 1996....... 9 544 26,508
---------- ----------- -------------
Total operating and development cost at
September 30, 1996....................... 674 41,173 $1,636,740
========== =========== =============
</TABLE>
9
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
During the nine months ended September 30, 1996, the Company was
developing 12 mini-warehouse facilities (722,000 square feet) three of
which were completed and commenced operation during the first and third
quarters of 1996. The Company's policy is to capitalize interest incurred
on debt during the course of construction of its mini-warehouse facilities.
Interest capitalized during the three and nine months ended September 30,
1996, was $549,000 and $1,142,000, respectively.
Subsequent to September 30, 1996, the Company acquired 17
mini-warehouses (1,098,000 square feet) and 5 business park facilities
(303,000 square feet) from three limited partnerships which were not
affiliated with the Company. The aggregate acquisition cost was
approximately $55.7 million.
5. Investment in real estate entities
----------------------------------
The Company's investment in real estate entities at September 30,
1996, generally consists of limited and general partnership interests in
approximately 42 affiliated partnerships and common stock in 11 affiliated
REITs. Such interests consist of ownership interests ranging from 15% to
45% and are accounted for using the equity method of accounting. Provisions
of the agreements of the partnerships and REITs provide for the payment of
preferred cash distributions to certain investors in the entity (until
certain specified amounts have been paid) without regard to the pro rata
interest of investors in current earnings. The Company's ownership
interests in such entities generally represents interests which are not
entitled to these preferred cash distributions.
During the three and nine months ended September 30, 1996, the Company
recognized earnings from its investments totaling $5,559,000 and
$15,649,000, respectively. Included in equity in earnings of real estate
entities for the three and nine months ended September 30, 1996 is the
Company's share of depreciation expense totaling $4,415,000 and $13,241,000
(including amortization totaling $1,957,000 and $6,009,000, respectively,
representing the amortization of the Company's cost basis over the
underlying book value of the Company's equity interest in each of the
entities).
In 1996, in connection with business combinations (Note 3), the
Company reduced its investment in real estate entities by approximately
$82.1 million, as a result of (i) the elimination of Company's pre-existing
investment in five REITs which were merged into the Company and included as
part of the purchase price allocation with respect to the net assets
acquired by the Company and (ii). the elimination in consolidation of the
Company's investment in newly consolidated partnerships during 1996.
6. Mortgage notes receivable from affiliates
-----------------------------------------
At September 30, 1996, mortgage notes receivable balance of
$25,414,000 is net of related discounts totaling $333,000. The mortgage
notes bear interest at stated rates ranging from 7.4% to 14.0% and are
secured by 14 mini-warehouse facilities owned by affiliated partnerships.
All of the notes are current as to the payment of principal and interest.
During the first nine months of 1996, the Company canceled mortgage
notes which had a net carrying value of $700,000 as part of the acquisition
cost of the underlying real estate facility securing the mortgage note.
7. Minority interest
-----------------
The Company classifies ownership interests other than its own in the
net assets of each of the Consolidated Partnerships as minority interest on
the Company's consolidated financial statements. Minority interest in
income consists of such interests' share of the operating results of the
Company relating to the consolidated operations of the Consolidated
Partnerships.
10
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
During 1996, in connection with business combinations (Notes 3 and 5)
the Company began to consolidate the accounts of two partnerships. As a
result, minority interest was increased by $20,139,000, representing the
remaining partners' equity interests in the aggregate net assets of the two
partnerships.
During 1996, the Company acquired additional limited partnership
interests in existing Consolidated Partnerships for an aggregate cost of
$10,075,000. These transactions had the effect of reducing minority
interest by approximately $4,276,000 (the historical book value of such
interests in the underlying net assets of the partnerships). The excess of
the underlying book value over cost ($5,799,000) has been allocated to real
estate facilities in consolidation.
8. Shareholders' equity
--------------------
Preferred stock
---------------
At September 30, 1996 and December 31, 1995, the Company had the
following series of Preferred Stock outstanding:
<TABLE>
<CAPTION>
Shares Outstanding Liquidation Amount
------------------ ------------------
Dividend September 30, December 31, September 30, December 31,
Series Rate 1996 1995 1996 1995
---------------------------------- ---------- ------------- ------------ ------------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Series A 10.00% 1,825.00 1,825.00 $ 45,625 $ 45,625
Series B 9.20% 2,386.00 2,386.00 59,650 59,650
Series C Adjustable 1,200.00 1,200.00 30,000 30,000
Series D 9.50% 1,200.00 1,200.00 30,000 30,000
Series E 10.00% 2,195.00 2,195.00 54,875 54,875
Series F 9.75% 2,300.00 2,300.00 57,500 57,500
Series G 8.875% 6.90 6.90 172,500 172,500
Series H 8.45% 6.75 - 168,750 -
------------- ------------ ------------- -------------
Senior Preferred Stock totals 11,119.65 11,112.90 618,900 450,150
------------- ------------ ------------- -------------
Convertible 8.25% 2,262.57 2,300.00 56,564 57,500
Mandatory Convertible - Series CC 13.00% 58.96 - 58,955 -
Mandatory Convertible Participating Variable - 31.20 - 28,470
------------- ------------ ------------- -------------
Convertible Preferred Stock totals 2,321.53 2,331.20 115,519 85,970
------------- ------------ ------------- -------------
13,441.18 13,444.10 $734,419 $536,120
============= ============ ============= =============
</TABLE>
During 1996, the Company issued 6,750,000 depository shares
(depository shares, each representing 1/1,000 of a share) of its 8.45%
Series H Preferred Stock (January 25, 1996) raising net proceeds of
approximately $163.1 million and 4,000,000 depository shares of its 8-5/8%
Series I Preferred Stock (November 1, 1996) raising net proceeds of
approximately $96.7 million.
11
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
In April 1996, in connection with the acquisition of limited
partnership interests (Note 3), the Company issued $58,955,000 (58,955
shares) of its Mandatory Convertible Preferred Stock, Series CC (the
"Series CC Preferred Stock"). The Series CC Preferred Stock ranks junior to
the Company's Cumulative Senior Preferred Stock with respect to general
preference rights and has a liquidation value of $1,000 per share. Other
significant terms of the Series CC Preferred Stock include: (i) quarterly
distributions equal to $32.50 per share, (ii) conversion, at anytime at the
option of the holder, into common stock of the Company at a conversion
price of $28.56 or 35.014 shares of common stock for each share of Series
CC Preferred Stock, and (iii) automatic conversion into common stock of the
Company on March 31, 2000 at the conversion price described above.
The Series A, Series B, Series C, Series D, Series E, Series F, Series
G, Series H and Series I (collectively the "Cumulative Senior Preferred
Stock") have general preference rights with respect to liquidation and
quarterly distributions. With respect to the payment of dividends and
amounts upon liquidation, all of the Company's Convertible Preferred Stock
ranks junior to the Cumulative Senior Preferred Stock and any other shares
of preferred stock of the Company ranking on a parity with or senior to the
Cumulative Senior Preferred Stock. The Convertible Preferred Stock ranks
senior to the common stock, any additional class of common stock and any
series of preferred stock expressly made junior to the Convertible
Preferred Stock.
During the second quarter of 1996, the Mandatory Convertible
Participating Preferred Stock was exchanged into 1,611,265 shares of common
stock. Costs incurred in connection with the exchange have been charged to
Additional Paid in Capital.
The 8.25% Convertible Preferred Stock is convertible at any time at
the option of the holders of such stock into shares of the Company's common
stock at a conversion rate of 1.6835 shares of common stock for each share
of Convertible Preferred Stock, subject to adjustment in certain
circumstances. During the first nine months of 1996, at the option of
shareholders, a total of 37,425 shares ($936,000 liquidation amount) of
Convertible Preferred Stock were converted into 62,993 common shares.
Common stock
------------
During 1996, the Company issued shares of its common as follows: (i)
4,974,471 shares ($106,285,000) in connection with the mergers, (ii) 62,993
shares ($936,000) in connection with the conversion of Convertible
Preferred Stock into common stock, (iii) 6,151,200 shares ($128,501,000) in
connection with private offerings, (iv) 1,611,265 shares ($28,470,000) in
connection with the conversion of the Mandatory Convertible Preferred
Stock, and (v) 97,663 shares ($992,000) in connection with exercise of
stock options. The shares of common stock issued in connection with the
mergers were issued at the prevailing market price at the time of issuance.
During the second quarter of 1996, the Company granted non-qualified
options to certain officers and key employees to purchase a total of
810,000 shares of the Company' common stock at $19-7/8 per share.
12
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Class B Common Stock
--------------------
The Class B Common Stock will (i) not participate in distributions
until the later to occur of funds from operations ("FFO") per Common Share
as defined below, aggregating $1.80 during any period of four consecutive
calendar quarters, or January 1, 2000; thereafter, the Class B Common Stock
will participate in distributions (other than liquidating distributions),
at the rate of 97% of the per share distributions on the Common Stock,
provided that cumulative distributions of at least $0.22 per quarter per
share have been paid on the Common Stock, (ii) not participate in
liquidating distributions, (iii) not be entitled to vote (except as
expressly required by California law) and (iv) automatically convert into
Common Stock, on a share for share basis, upon the later to occur of FFO
per Common Share aggregating $3.00 during any period of four consecutive
calendar quarters or January 1, 2003.
For these purposes, FFO means net income (loss) (computed in
accordance with generally accepted accounting principles) before (i) gain
(loss) on early extinguishment of debt, (ii) minority interest in income
and (iii) gain (loss) on disposition of real estate, adjusted as follows:
(i) plus depreciation and amortization (including the Company's pro-rata
share of depreciation and amortization of unconsolidated equity interests
and amortization of assets acquired in the Merger, including property
management agreements and goodwill), and (ii) less FFO attributable to
minority interest.
For these purposes, FFO per Common Share means FFO less preferred
stock dividends (other than dividends on convertible preferred stock)
divided by the outstanding weighted average shares of Common Stock assuming
conversion of all outstanding convertible securities and the Class B Common
Stock.
For these purposes, FFO per share of Common Stock (as defined) was
$1.83 for the four consecutive calendar quarters ended September 30, 1996.
Dividends
---------
The following summarizes dividends paid during the first nine months
of 1996:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1996
-----------------------------------------
Distributions Per
Share or
Depository Share Total Distributions
------------------ --------------------
<S> <C> <C>
Series A $ 1.875 $ 3,423,000
Series B $ 1.725 4,116,000
Series C $ 1.358 1,630,000
Series D $ 1.781 2,138,000
Series E $ 1.875 4,116,000
Series F $ 1.828 4,205,000
Series G $ 1.688 11,652,000
Series H $ 1.450 9,783,000
Convertible $ 1.547 3,523,000
Series CC $65.000 3,832,000
Mandatory Convertible Participating $54.490 1,700,000
--------------------
50,118,000
Common $ 0.660 49,121,000
--------------------
$99,239,000
====================
</TABLE>
13
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
The dividend rate on the Series C Preferred Stock for the first,
second, and third quarters of 1996 was equal to 6.75%, 7.24%, and 7.77%
respectively, per annum. The dividend rate per annum will be adjusted
quarterly and will be equal to the highest of one of three U.S. Treasury
indices (Treasury Bill Rate, Ten Year Constant Maturity Rate, and Thirty
Year Constant Maturity Rate) multiplied by 110%. However, the dividend rate
for any dividend period will not be less than 6.75% per annum nor greater
than 10.75%. The dividend rate for the quarter ending December 31, 1996
will be equal to 7.744% per annum.
Dividends on the Series H shares (issued January 25, 1996) and the
Series CC shares (issued April 1, 1996) have been pro-rated from the date
issued.
The Mandatory Convertible Participating Preferred Stock was issued in
connection with the acquisition of all of the limited partnership interests
in a real estate limited partnership in 1995. Dividends with respect to the
Mandatory Convertible Participating Preferred Stock varied depending on
operating results of the underlying real estate facilities of the
partnership. During June 1996, the Mandatory Convertible Participating
Preferred Stock was exchanged for common stock of the Company.
9. Proposed mergers and property acquisitions
------------------------------------------
Proposed affiliated REIT mergers
--------------------------------
In August 1996, Partners Preferred Yield, Inc. ("PPY"), Partners
Preferred Yield II, Inc. ("PPY-2") and Partners Preferred Yield III, Inc.
("PPY-3") each agreed, subject to certain conditions, to merge with and
into the Company. PPY, PPY-2 and PPY-3 are affiliated publicly traded
equity real estate investment trusts. Each of the mergers is conditioned on
approval by the respective shareholders of PPY, PPY-2 and PPY-3, however,
the mergers are not conditioned on approval of each other. The Company
expects that if approved by the shareholders, the mergers would be
completed by December 31, 1996.
The estimated value of the PPY merger is approximately $68.5 million.
PPY 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. The Company owns 438,503 shares of common stock series A, 336,700
shares of common stock series B, 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 (other than shares
held by the Company) would be converted, at the election of the
shareholders of PPY, into either shares of the Company's common stock with
a market value of $19.00 or, with respect to up to 20% of the PPY common
stock series A, $19.00 in cash. In addition, each share of PPY series B, C
and D (other than shares held by the Company) will be converted into the
right to receive $11.66 in the Company's common stock, plus the estimated
required REIT distributions attributable to the PPY common stock series B
of $0.70 per share. The shares of PPY common stock series A, B, C and D
held by the Company will be canceled in the merger. PPY owns 19
mini-warehouse properties (1,249,000 square feet).
The estimated value of the PPY-2 merger is approximately $74.4
million. PPY-2 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. The Company owns 441,503 shares of common stock series A,
336,700 shares of common stock series B, 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-2 (other
than shares held by the Company) would be converted, at the election of the
shareholders of PPY-2, into either shares of the Company's common stock
14
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
with a market value of $20.39 or, with respect to up to 20% of the PPY-2
common stock series A, $20.39 in cash. In addition, each share of PPY-2
series B, C and D (other than shares held by the Company) will be converted
into the right to receive $12.26 in the Company's common stock, plus the
estimated required REIT distributions attributable to the PPY-2 common
stock series B of $0.83 per share. The shares of PPY-2 common stock series
A, B, C and D held by the Company will be canceled in the merger. PPY-2
owns 24 mini-warehouse properties (1,362,000 square feet).
The estimated value of the PPY-3 merger is approximately $31.1
million. PPY-3 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. The Company 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-3 (other
than shares held by the Company) would be converted, at the election of the
shareholders of PPY-3, into either shares of the Company's common stock
with a market value of $20.47 or, with respect to up to 20% of the PPY-3
common stock series A, $20.47 in cash. In addition, each share of PPY-3
series B, C and D (other than shares held by the Company) will be converted
into the right to receive $12.30 in the Company's common stock, plus the
estimated required REIT distributions attributable to the PPY-2 common
stock series B of $0.74 per share. The shares of PPY-3 common stock series
A, B, C and D held by the Company will be canceled in the merger. PPY-3
owns 9 mini-warehouse properties (567,000 square feet).
Property acquisitions
---------------------
The Company has agreements in principle to acquire 8 mini-warehouses
(569,000 square feet) and 5 business park facilities (428,000 square feet)
from two limited partnerships which are not affiliated with the Company.
The Company currently manages these properties on behalf of the
partnerships. 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 $30.2 million.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW: Since the beginning of fiscal 1995, the Company completed a
number of transactions which have significantly affected the financial
complexion of the Company.
* On November 16, 1995, the Company completed a merger transaction with
Public Storage Management, Inc. ("PSMI") with an aggregate cost of
$549.3 million (the "PSMI Merger"). In the PSMI Merger, the Company
acquired all the real estate operations of PSMI, principally including
(i) general and limited partnership interests in 47 limited
partnerships owning an aggregate of 286 mini-warehouses, (ii) shares
of common stock in 16 REITs owning an aggregate of 218 mini-warehouses
and 14 commercial properties (five of which have subsequently merged
with the Company), (iii) property management contracts, exclusive of
facilities owned by the Company, for 563 mini-warehouses and through
ownership of 95% economic interest in a subsidiary, 24 commercial
properties and (iv) a 95% economic interest in another subsidiary that
currently sells locks and boxes in mini-warehouses operated by the
Company.
* Since January 1, 1995, the Company completed seven mergers with
affiliated REITs, two in 1995 with an aggregate cost of $135.4 million
and five in 1996 (through September 30, 1996) with an aggregate cost
of $182.2 million.
* From January 1, 1995 through September 30, 1996, through various
mergers and acquisitions the number of real estate facilities included
in the Company's consolidated financial statements has increased from
387 at the beginning of 1995 to 665 at September 30, 1996.
At September 30, 1996 the Company's investment portfolio consists of (i)
wholly-owned properties owned by the Company, (ii) properties owned by real
estate partnerships in which the Company has significant ownership interests
(the "Consolidated Partnerships"), and (iii) properties owned by real estate
entities (partnership and REITs) in which the Company's ownership interest and
control are not sufficient to warrant the consolidation of such entities (the
"Unconsolidated Entities"). The following table summarizes the Company's
investment in real estate facilities as of September 30, 1996:
<TABLE>
<CAPTION>
Number of Facilities in which the Net Rentable Square Footage
Company has an ownership interest (in thousands)
--------------------------------- ---------------------------------
Mini- Business Mini- Business
warehouses Parks Total warehouses Parks Total
---------- ------------ ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Wholly-owned facilities.................... 348 11 359 21,020 902 21,922
Facilities owned by Consolidated
Partnerships............................... 292 14 306 17,155 1,552 18,707
---------- ------------ ------- ------------ ---------- -------
Total consolidated facilities.......... 640 25 665 38,175 2,454 40,629
Facilities owned by Unconsolidated Entities 397 10 407 23,992 649 24,641
---------- ------------ ------- ------------ ---------- -------
Total facilities in which the Company
has an ownership interest............ 1,037 35 1,072 62,167 3,103 65,270
========== ============ ======= ============ ========== =======
</TABLE>
Results of Operations
---------------------
Net income for the three months ended September 30, 1996 was $40,366,000
compared to $19,470,000 for the same period in 1995, representing an increase of
$20,896,000. Net income allocable to common shareholders increased to
$23,310,000 for the three months ended September 30, 1996 from $10,874,000 for
the three months ended September 30, 1995. The increases in net income and net
income allocable to common shareholders were primarily the result of improved
property operations, the acquisition of additional real estate facilities during
1996 and 1995, and the acquisition of additional partnership interests during
1996 and 1995. Net income per common share was $0.30 per share (based on
weighted average shares outstanding of 78,338,000) for the three months ended
16
<PAGE>
September 30, 1996 compared to $0.26 per share (based on weighted average shares
outstanding of 42,217,000) for the same period in 1995.
Net income for the nine months ended September 30, 1996 was $110,446,000
compared to $49,221,000 for the same period in 1995, representing an increase of
$61,225,000. Net income allocable to common shareholders increased to
$60,328,000 for the nine months ended September 30, 1996 from $27,317,000 for
the nine months ended September 30, 1995. The increases in net income and net
income allocable to common shareholders were primarily the result of improved
property operations, the acquisition of additional real estate facilities during
1996 and 1995, and the acquisition of additional partnership interests during
1996 and 1995. Net income per common share was $0.81 per share (based on
weighted average shares outstanding of 74,690,000) for the nine months ended
September 30, 1996 compared to $0.76 per share (based on weighted average shares
outstanding of 35,847,000) for the same period in 1995.
PROPERTY OPERATIONS: Rental income and cost of operations have increased
significantly for the three and nine months ended September 30, 1996 compared to
the same periods in 1995. The following table summarizes the operating results
of the Company's mini-warehouse and business park operations for the three and
nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------------- -------------------------------------------
1996 1995 Change 1996 1995 Change
-------------- ------------ ------------- ------------ ------------- --------------
(dollar amounts in thousands)
Rental income:
<S> <C> <C> <C> <C> <C> <C>
Mini-warehouse....... $70,434 $50,853 38.5% $195,295 $130,228 50.03%
Business park........ 6,006 4,666 28.7% 16,675 13,359 24.97%
-------------- ------------ ------------- ------------ ------------- --------------
76,440 55,519 37.7% 211,970 143,587 47.7%
-------------- ------------ ------------- ------------ ------------- --------------
Cost of operations:
Mini-warehouse....... 20,859 17,446 19.6% 58,835 45,563 29.2%
Business park........ 2,739 2,381 15.0% 7,325 6,606 10.9%
-------------- ------------ ------------- ------------ ------------- --------------
23,598 19,827 19.0% 66,160 52,169 26.8%
-------------- ------------ ------------- ------------ ------------- --------------
Net operating income (a):
Mini-warehouse....... 49,575 33,407 48.4% 136,460 84,665 61.2%
Business park........ 3,267 2,285 43.0% 9,350 6,753 38.7%
-------------- ------------ ------------- ------------ ------------- --------------
$52,842 $35,692 48.0% $145,810 $91,418 59.5%
============== ============ ============= ============ ============= ==============
Gross profit margin (b):
Mini-warehouse....... 70.4% 65.7% 7.1% 69.9% 65.0% 7.5%
Business park........ 54.4% 49.0% 11.1% 56.1% 50.6% 10.9%
Number of facilities (at
the end of the period):
Mini-warehouse....... 640 509 25.7% 640 509 25.7%
Business park........ 25 20 25.0% 25 20 25.0%
</TABLE>
(a) Net operating income equals rental income less cost of operations which
does not include depreciation expense related to the facilities.
(b) Gross profit margins are equal to net operating income divided by
rental income.
This increase in property operations for each of the three and nine months
ended September 30, 1996 compared to the same periods in 1995 are principally
the result of the Company's merger and acquisition activities throughout 1995
and 1996. As a result of these activities, the number of facilities included in
the Company's consolidated financial statements has increased from 529 at the
end of September 30, 1995 to 665 at the end of September 30, 1996.
17
<PAGE>
MINI-WAREHOUSE OPERATIONS: The Company's mini-warehouse operations account
for over 90% of the total property operations and represents the largest source
of comparison of variances from period to period. As a result, the following
table is presented to further illustrate variances from period to period by (i)
comparing the operating results of mini-warehouse facilities which were owned by
the Company throughout 1995 and 1996 and (ii) outlining operating results for
those mini-warehouse facilities which were acquired by the Company in 1995 and
1996 whereby the operations represent partial results from the date the facility
was acquired through the end of the period.
<TABLE>
Summary of Mini-warehouse Facility Operations
-------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------------------------- ------------------------------------------
1996 1995 Change 1996 1995 Change
-------------- ------------ ------------- ------------ ------------- -------------
(dollar amounts in thousands)
Rental income:
<S> <C> <C> <C> <C> <C> <C>
Pre-1995 acquisitions....... $40,219 $38,603 4.2% $117,199 $112,493 4.2%
1995 acquisitions........... 17,569 12,250 43.4% 50,889 17,735 186.9%
1996 acquisitions........... 12,646 - - 27,207 - -
-------------- ------------ ------------- ------------ ------------- -------------
70,434 50,853 38.5% 195,295 130,228 50.0%
-------------- ------------ ------------- ------------ ------------- -------------
Cost of operations:
Pre-1995 acquisitions....... 12,079 13,270 (9.0%) 35,780 39,594 (9.6%)
1995 acquisitions........... 4,982 4,176 19.3% 14,705 5,969 146.4%
1996 acquisitions........... 3,798 - - 8,350 - -
-------------- ------------ ------------- ------------ ------------- -------------
20,859 17,446 19.6% 58,835 45,563 29.1%
-------------- ------------ ------------- ------------ ------------- -------------
Net operating income:
Pre-1995 acquisitions....... 28,140 25,333 11.1% 81,419 72,899 11.7%
1995 acquisitions........... 12,587 8,074 55.9% 36,184 11,766 207.5%
1996 acquisitions........... 8,848 - - 18,857 - -
-------------- ------------ ------------- ------------ ------------- -------------
$49,575 $33,407 48.4% $136,460 $84,665 61.2%
============== ============ ============= ============ ============= =============
Net rentable square feet, in
thousands (at the end of the
period):
Pre-1995 acquisitions....... 22,106 22,106 -% 22,106 22,106 -%
1995 acquisitions........... 8,400 4,256 97.4% 8,400 4,256 97.4%
1996 acquisitions........... 7,669 - -% 7,669 - -%
Number of facilities (at the end
of the period):
Pre-1995 acquisitions....... 375 375 -% 375 375 -%
1995 acquisitions........... 145 134 8.2% 145 134 8.2%
1996 acquisitions........... 120 - -% 120 - -%
Pre-1995 acquisitions:
Annualized realized rent per
occupied square foot (a)... $7.92 $7.68 3.1% $7.80 $7.68 1.6%
Annualized scheduled rent
per occupied square foot (b) $9.16 $7.80 17.4% $9.16 $7.80 17.4%
Weighted average occupancy
for the period.............. 92.3% 90.8% 1.7% 90.5% 89.5% 1.1%
</TABLE>
----------------------------------
(a) Realized rent per square foot represents the actual revenue
earned per occupied square foot after giving effect to discounts
through the use of promotions.
(b) Scheduled rent per square foot represents the posted revenue per
occupied square foot prior to giving effect to discounts through
the use of promotions.
18
<PAGE>
The increases in rental income for the pre-1995 acquisitions for the three
and nine months ending September 30, 1996 compared to the same periods in 1995
are due to increasing realized rent per occupied square foot combined with an
increased weighted average occupancy level. The decreases in cost of operations
for the pre-1995 acquisitions for the three and nine months ended September 30,
1996 compared to the same period in 1995 is principally the result of decreased
property management fees.
Prior to the PSMI Merger in November, 1995, the Company's mini-warehouse
facilities were managed by PSMI for a fee. Fees from managing the Company's
mini-warehouse facilities totaled $3.0 million and $7.8 million for the three
and nine months ended September 30, 1995, respectively, and are included in cost
of operations ($2.3 million and $6.7 million, respectively, relate to pre-1995
acquisitions). As a result of the PSMI Merger, the Company became self-managed
and no longer incurs property management fees for the outside management of its
facilities. The Company, however, now incurs operating costs relating to its own
personnel managing the facilities which for the three and nine months ending
September 30, 1996 totaled $576,000 and $1,751,000, respectively ($315,000 and
$964,000, respectively, relate to pre-1995 acquisitions).
Commencing in early 1996, the Company began to experiment with a telephone
reservation system designed to provide added customer service. Customers calling
either the Company's toll-free telephone referral system, (800) 44-STORE, or a
mini-warehouse facility are directed to the Company's reservation system where a
trained representative discusses with the customer space requirements, price and
location preferences and also informs the customer of other products and
services provided by the Company. As of September 30, 1996, the telephone
reservation system was supporting rental activity at all of the Company's
properties, with the exception of one major market, which will be included by
February 1997.
In connection with the telephone reservation system, the Company
experimented with pricing and promotional discounts designed to increase rental
activity. As a result, rental discounts increased significantly. Rental income
for the Company's mini-warehouse facilities is net of promotional discounts
totaling $1,351,000 and $86,000 for the three months ended September 30, 1996
and 1995, respectively, and $1,955,000 and $296,000 for the nine months ended
September 30, 1996 and 1995, respectively. In addition, included in cost of
operations are expenses with respect to the telephone reservation system
totaling $406,000 and $639,000 for the three and nine months ended September 30,
1996.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: The Company currently has
ownership interests in 42 limited partnerships and 11 REITs (collectively the
"Unconsolidated Entities"). The Company's ownership interest in these entities
ranges from 15% to 45%, but generally averages approximately 30%. Due to the
Company's limited ownership interest and control of these entities, the Company
does not consolidate the accounts of these entities for financial reporting
purposes and accounts for such investments using the equity method.
Equity in earnings of real estate entities was $5,559,000 and $418,000 for
the three months ended September 30, 1996 and 1995, respectively. Equity in
earnings of real estate entities was $15,649,000 and $997,000 for the nine
months ended September 30, 1996 and 1995, respectively. For the 1995 periods,
equity in earnings of real estate entities principally consists of earnings from
partnerships which are now consolidated with the Company and, accordingly, are
no longer included in equity in earnings of real estate entities in 1996. The
1996 earnings principally consists of earnings related to the interests acquired
pursuant to the PSMI Merger.
Equity in earnings of real estate entities for three and nine months ended
September 30, 1996 consists of the Company's pro rata share of earnings
(including the Company's share of depreciation expense - $2,458,000 and
$7,232,000, respectively) of the Unconsolidated Entities based upon the
Company's ownership interest in each for the period. In addition, equity in
earnings of real estate entities for three and nine months ended September 30,
1996 includes amortization totaling $1,957,000 and $6,009,000, respectively,
representing the amortization of the Company's cost basis over the underlying
book value of the Company's equity interest in each of the entities.
19
<PAGE>
Similar to the Company, the Unconsolidated Entities generate substantially
all of their income from their ownership of mini-warehouse facilities. In the
aggregate, the Unconsolidated Entities own a total of 407 facilities at
September 30, 1996, including 397 mini-warehouse facilities. The following
summarizes combined operating data with respect to those Unconsolidated Entities
existing at September 30, 1996:
<TABLE>
<CAPTION>
Selected Financial Data of Unconsolidated Entities
-----------------------------------------------------------------------------------
(in thousands)
For the nine months ended September 30, 1996:
<S> <C>
Rental income.............................................. $153,716
Total revenues............................................. 155,111
Cost of operations......................................... 56,885
Depreciation............................................... 24,179
Net income................................................. 65,460
At September 30, 1996:
Total assets............................................... $947,480
Total debt................................................. 90,684
Total equity............................................... 819,362
</TABLE>
The Company expects that its equity in earnings from Unconsolidated
Entities will generally decrease as a result of the acquisition of additional
interests in the Unconsolidated Entities by the Company. The Company has in the
past, and may continue to seek to acquire in the future, real estate facilities
owned by or additional interests in the Unconsolidated Entities. During 1996, in
connection with mergers and other business combinations, the Company acquired
several entities which were previously included in Unconsolidated Entities and
accounted for under the equity method. Included in equity in earnings of real
estate entities for the three and nine months ended September 30, 1996 is
$199,000 and $1,010,000 of income derived from entities which have since been
acquired by the Company and, accordingly, will no longer be recurring as equity
in earnings of real estate entities.
PROPERTY MANAGEMENT OPERATIONS: In connection with the PSMI Merger, the
Company acquired property management contracts for mini-warehouse facilities
owned by affiliated entities and third party owners. In addition, the Company
acquired a 95% economic interest in a subsidiary which manages commercial
properties. These facilities constitute all of the United States mini-warehouses
and business parks doing business under the "Public Storage" name and all those
in which the Company has an interest, which include all the facilities owned by
the Consolidated Partnerships, Unconsolidated Entities, and 69 facilities owned
by third parties in which the Company has no equity interest. Subsequent to
September 30,1996, the Company acquired 13 of these properties.
The property management contracts generally provide for compensation equal
to 6%, in the case of the mini-warehouses, and 5%, in the case of the business
parks, of gross revenues of the facilities managed. Under the supervision of the
property owners, the Company coordinates 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. In addition, the Company assists and advises the property owners in
establishing policies for the hire, discharge and supervision of employees for
the operation of these facilities, including resident managers, assistant
managers, relief managers and billing and maintenance personnel.
During the three months ended September 30, 1996, the Company's property
management operations generated net operating income of $3,033,000 on revenues
of $3,609,000 and expenses of $576,000. During the nine months ended September
30, 1996, the Company's property management operations generated net operating
income of $9,167,000 on revenues of $10,918,000 and expenses of $1,751,000.
Because the Company has significant ownership interests in all but 69 of the
facilities it manages, the revenues generated from its property management
operations are generally predictable and are dependent upon the future growth of
rental income for those facilities the Company manages.
As noted above, the Company has in the past, and may continue to seek to
acquire in the future, real estate facilities owned by the Unconsolidated
Entities. Although the acquisition such facilities will have the affect of
reducing management fee income to the Company there will be a corresponding
benefit to the Company from the reduction in the operating costs of these
facilities as a result of being managed by the Company.
20
<PAGE>
INTEREST AND OTHER INCOME: Interest and other income increased $819,000, to
$1,820,000 for the three months ended September 30, 1996 from $1,001,000 for the
same period in 1995. Interest and other income increased $2,665,000 to
$6,129,000 for the nine months ended September 30, 1996 from $3,464,000 for the
same period in 1995.
Interest and other income principally consists of interest earned on cash
balances and interest related to mortgage notes receivable. The increase in
interest income for the three and nine months ended September 30, 1996 compared
to the same periods in 1995 is primarily due to interest income on excess cash
balances and an increase in mortgage notes receivable balances. From mid
December 1995 through late January 1996, the Company, through two equity
offerings of preferred stock, raised net proceeds of approximately $330 million.
Additionally during the second and third quarters the Company raised
approximately $128.5 million from two private common stock offerings. Due to the
timing to invest these proceeds into real estate assets, cash balances in
interest bearing accounts during the three and nine months ended September 30,
1996 on average were approximately $15 million and $58 million, respectively.
Also included in interest and other income for the three and nine months
ended September 31, 1996 is $447,000 and $829,000 related to the Company's
ancillary business activities, specifically lock and box sales and truck rental
operations.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense has
increased from $10,961,000 for the three months ended September 30, 1995 to
$16,819,000 for the same period in 1996. Depreciation and amortization expense
has increased from $27,887,000 for the nine months ended September 30, 1995 to
$47,553,000 for the same period in 1996.
These increases are principally due to the acquisition of additional real
estate facilities during 1995 and 1996 combined with amortization of intangible
assets acquired in connection with the PSMI Merger. Amortization expense with
respect to intangible assets acquired in the PSMI Merger totaled $2,328,000 and
$6,982,000 for the three and nine months ended September 30, 1996, respectively
(none for the periods in 1995).
GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative expense was
$1,536,000 for the three months ended September 30, 1996 and $875,000 the same
period in 1995. General and administrative expense was $4,595,000 for the nine
months ended September 30, 1996 and $2,611,000 the same period in 1995.
The Company has experienced and expects to continue to experience increased
general and administrative costs during 1996 due to the following: (i) the
growth in the size of the Company has resulted in increased expenses, (ii) the
Company's property acquisition activities has continued to expand, resulting in
certain additional costs incurred in connection with the acquisition of
additional real estate facilities, and (iii) pursuant to the PSMI Merger, the
Company has become self-advised, resulting in the Company internalizing
management functions which previously was provided by the Adviser. However,
offsetting the expected increases in general and administrative expenses will be
the elimination of advisory fee expense. General and administrative costs for
each year principally consist of state income taxes (for states in which the
Company is a non-resident), investor relation expenses, and certain costs
incurred in the acquisition and development of real estate facilities.
ADVISORY FEE: During 1995, the Company's day-to-day operations were
performed by an adviser for a contractual fee which during the three and nine
months ended September 30, 1995 amounted to $2,036,000 and $5,462,000,
respectively. Pursuant to the PSMI Merger, effective November 16, 1995, the
Company became self-advised and as a result will no longer incur advisory fees.
MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Partnerships which are
not owned by the Company. Minority interest in income for the three months ended
September 30, 1996 was $2,453,000 compared to $1,734,000 for the same period in
1995, representing an increase of $719,000. This increase is principally the
result of the consolidation of additional partnerships (and corresponding
increase in minority interest) during the first and second quarters of 1996. In
21
<PAGE>
determining income allocable to the minority interest for the three months ended
September 30, 1996 and 1995, consolidated depreciation and amortization expense
of approximately $2,999,000 and $2,801,000, respectively, was allocated to the
minority interest.
Minority interest in income for the nine months ended September 30, 1996
was $7,268,000 compared to $5,449,000 for the same period in 1995, representing
an increase of $1,819,000. Similar to the third quarter comparisons, this
increase is principally a result of the consolidation of additional
partnerships. In determining income allocable to the minority interest for the
nine months ended September 30, 1996 and 1995, consolidated depreciation and
amortization expense of approximately $8,708,000, and $8,193,000, respectively,
was allocated to the minority interest.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has operated and intends to continue to operate in a
self-sufficient manner without reliance on external sources of financing to fund
its ongoing operating needs. The Company believes that funds internally
generated from ongoing operations will continue to be sufficient to enable it to
meet its operating expenses, capital improvements, debt service requirements and
distributions to shareholders for the foreseeable future. Over the past nine
years, funds internally generated from ongoing operations were in excess of the
Company's operating needs, allowing the Company to retain cash flow, which it
used to invest in the acquisition of additional real estate investments or make
optional principal repayments on debt.
Despite the Company's ability to retain a portion of its internally
generated cash flow, the Company's growth strategies have required the Company
to seek external financing. The Company has an unsecured $125.0 million
revolving credit facility with a group of banks which it uses as a temporary
source of acquisition financing. The Company, however, seeks to ultimately
finance all acquisitions with permanent sources of capital. As a result, the
Company has raised capital through the public issuance of both common and
preferred stock which was used to repay borrowings and make additional
investments in real estate assets.
INTERNALLY GENERATED CASH FLOWS: The Company believes that important
measures of its performance as well as its liquidity are cash provided by
operations and funds from operations ("FFO").
Net cash provided by operations (as determined in accordance with generally
accepted accounting principles) reflects the cash generated from the Company's
business before distributions to various equity holders, including the preferred
shareholders, capital expenditures or mandatory principal payments on debt. Net
cash provided by operations has increased to $178,438,000 from $82,467,000 for
the nine months ended September 30, 1996 and 1995, respectively
The following table summarizes the Company's ability to pay the minority
interests' distributions, its dividends to the preferred shareholders and
capital improvements to maintain the facilities through the use of cash provided
by operating activities. The remaining cash flow is available to the Company to
make both scheduled and optional principal payments on debt, pay distributions
to common shareholders and for reinvestment.
22
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
1996 1995 1996 1995
------------- -------------- ------------ ---------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Net income...................................... $40,366 $19,470 $110,446 $49,221
Depreciation and amortization................... 16,819 10,961 47,553 27,887
Depreciation from unconsolidated real
estate investments............................ 4,415 - 13,241 -
Minority interest in income..................... 2,453 1,734 7,268 5,449
Amortization of discounts on mortgage notes
receivable.................................... (23) (23) (70) (90)
------------- -------------- ------------ ---------------
Net cash provided by operating
activities................................ 64,030 32,142 178,438 82,467
Distributions from operations to minority
interests (funds from operations
allocable to minority interests).............. (5,452) (4,535) (15,976) (13,642)
------------- -------------- ------------ ---------------
Cash from operations/FFO available to the
Company's shareholders........................ 58,578 27,607 162,462 68,825
Less: preferred stock dividends............... (17,056) (8,596) (50,118) (21,904)
------------- -------------- ------------ ---------------
Cash from operations/FFO available to
common shareholders........................... 41,522 19,011 112,344 46,921
Capital improvements to maintain facilities:
Mini-warehouses............................... (4,557) (2,193) (10,884) (4,590)
Business parks................................ (1,171) (881) (2,581) (1,790)
Add back: minority interest share of
capital improvements.......................... 815 593 2,295 1,452
------------- -------------- ------------ ---------------
Funds available for principal payments on
debt, common dividends and reinvestment....... 36,609 16,530 101,174 41,993
Cash distributions to common shareholders....... (16,945) (9,254) (49,121) (24,140)
------------- -------------- ------------ ---------------
Funds available for principal payments on
debt and investment........................... $19,664 $7,276 $52,053 $17,853
============= ============== ============ ===============
</TABLE>
See the consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995 for additional information regarding the Company's
investing and financing activities.
FUNDS FROM OPERATIONS ("FFO"): FFO is used by many financial analysts in
evaluating REITs. The Company defines FFO as net income (loss) (computed in
accordance with GAAP) before (i) gain (loss) on disposition of real estate,
adjusted as follows: (i) plus depreciation and amortization, and (ii) less FFO
attributable to minority interest. The National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") definition of FFO does not specifically
address the treatment of minority interest in the determination of FFO. In the
case of the Company, FFO represents amounts attributable to its shareholders
after deducting amounts attributable to the minority interests. FFO does not
take into consideration scheduled principal payments on debt, capital
improvements, distributions and other obligations of the Company which are
further discussed below. Accordingly, FFO is a supplemental performance measure
and is not a substitute for the Company's cash flow or net income (as discussed
above) as a measure of the Company's liquidity or operating performance.
FFO applicable to the common shareholders (after deducting all preferred
stock dividends) increased to $41,522,000 for the three months ended September
30, 1996 compared to $19,011,000 for the same period in 1995. FFO applicable to
the common shareholders (after deducting all preferred stock dividends)
23
<PAGE>
increased to $112,344,000 for the nine months ended September 30, 1996 compared
to $46,921,000 for the same period in 1995. Although the Company does not
present FFO per common share, those computing this amount need to take into
consideration the dilutive effects of the Company's 8.25% convertible preferred
stock.
The Company accounts for the Unconsolidated Entities using the equity
method of accounting, and accordingly, earnings are recognized based upon the
Company's economic interest in each of the partnerships and REITs. Provisions of
the agreements of these partnerships and REITs provide for the payment of
preferred cash distributions to other investors (until certain specified amounts
have been paid) without regard to the pro rata interest of all investors in
current earnings. As a result, cash distributions to be paid to the Company for
a period of time will be less than the Company's FFO, as defined, from these
entities (distributable FFO to the Company was approximately $12.6 million less
than the FFO recognized by the Company for the nine months ended September 30,
1996). Preferred cash distributions paid to other investors during each period
have the effect of increasing the Company's economic interest in each of the
respective entities and reducing the amount of future preference payments which
must be paid to other investors before cash distributions will be shared on a
pro rata basis with respect to each investor's actual interest. At September 30,
1996, the aggregate future preference payments to other investors is
approximately $93.9 million and is expected to be paid over approximately 15
years, with approximately 50% of the amount being paid over the next 3.5 years.
RETENTION OF OPERATING CASH FLOWS: Operating as a REIT, the Company's
ability to retain cash flow for reinvestment is restricted. In order for the
Company to maintain its REIT status, a substantial portion of its operating cash
flows must be used to make distributions to its shareholders. Remaining cash
flows must then be sufficient to fund necessary capital improvements and
scheduled debt service requirements. Accordingly, the Company's ability to be
self-sufficient is predicated on its ability to generate sufficient operating
cash flows to satisfy its REIT distribution requirements, capital improvement
requirements, scheduled debt service requirements, and provide funds for
additional investments.
Over the past four years, the Company's distribution policy has enabled it
to retain significant funds (after capital improvements) to make additional
investments and debt reductions. During first nine months of 1996 and 1995, the
Company distributed to common shareholders approximately 44% and 51% of its FFO
available to common shareholders, respectively, allowing it to retain
approximately $52.1 million and $17.9 million (an increase of approximately
191%), respectively, after satisfying its capital improvements and preferred
stock dividend requirements (see table above).
DISTRIBUTION REQUIREMENTS: During the first nine months of 1996, the
Company paid dividends totaling $41,063,000 to the holders of the Company's
Senior Preferred Stock, $9,055,000 to the holders of the Convertible Preferred
Stock, and $49,121,000 to the holders of Common Stock. Dividends with respect to
the Senior Preferred Stock and the Convertible Preferred Stock include pro-rated
amounts for securities issued during 1996.
CAPITAL IMPROVEMENT REQUIREMENTS: During 1996, the Company has budgeted
approximately $17.1 million for capital improvements ($13.6 million for its
mini-warehouse and $3.5 million for its business park facilities). The minority
interests' share of the budgeted capital improvements is approximately $3.4
million. During the first nine months of 1996, the Company incurred capital
improvements of approximately $13.5 million.
During 1995, the Company commenced a program to enhance its visual icon and
modernize the appearance of its mini-warehouse facilities, including
modernization of signs, paint color schemes, and rental offices. Included in the
1996 capital improvement budget is approximately $4.0 million with respect to
these expenditures.
DEBT SERVICE REQUIREMENTS: The Company does not believe it has any
significant refinancing risks with respect to its mortgage debt and nominal
interest rate risks associated with its variable rate mortgage debt. The Company
uses its $125.0 million of bank credit facility (all of which was unused as of
November 13, 1996) primarily to fund acquisitions and provide financial
flexibility and liquidity. The credit facility currently bears interest at LIBOR
plus 0.75%.
24
<PAGE>
At September 30, 1996, the Company had total outstanding notes payable of
approximately $112.6 million. Approximate principal maturities of notes payable
at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Mortgage Debt
------------------------------
7.08% Unsecured Variable
Senior Notes Fixed Rate (1) Rate (2) Total (3)
------------ -------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
1996 (remainder of).......... $ 2,875 $ 1,213 $ 5 $ 4,093
1997......................... 6,500 4,812 804 12,116
1998......................... 7,250 7,900 - 15,150
1999 ........................ 8,000 6,484 - 14,484
2000......................... 8,750 2,721 - 11,471
Thereafter................... 29,250 26,083 - 55,333
------------ -------------- ----------- ----------
$62,625 $49,213 $809 $112,647
============ ============== =========== ==========
</TABLE>
(1) Weighted average rate of 10.25% at September 30, 1996.
(2) Weighted average rate of 7.38% at September 30, 1996.
(3) Weighted average rate of 8.5% at September 30, 1996.
EXTERNAL FINANCING: The Company intends to continue to expand its asset and
capital base through the acquisition of real estate assets and interests in real
estate assets from both unaffiliated and affiliated parties through direct
purchases, mergers, tender offers or other transactions. The Company expects to
fund these transactions with internally generated retained cash flows and
borrowings under its $125.0 million credit facility. The Company intends to
repay amounts borrowed under the credit facility from undistributed operating
cash flow or, as market conditions permit and are determined to be advantageous,
from the public or private placement of securities. The Company issued for cash
$163.1 million of its Series H Preferred Stock in January 1996 and a total of
$128.5 million of Common Stock in June and September 1996. The proceeds were
used to repay debt and make additional real estate investments.
In April 1996, the Company acquired all of the limited partnership interest
in two partnerships in which the Company had previously acquired the general
partnership interests. These limited partnership interest were acquired from an
institutional investor in exchange for $58,955,000 of the Company's Convertible
Preferred Stock, Series CC ("Series CC").
In November 1996, the Company issued 4,000,000 depository shares of its
8-5/8% Series I Preferred Stock raising net proceeds of approximately $96.7
million. The Company intends to use the net proceeds from this offering to make
investments in real estate and to satisfy cash elections in connection with
mergers with affiliated REITs which are expected to close in December 1996.
The Company believes that its size and financial flexibility enable it to
access capital for growth when appropriate. The Company's financial profile is
characterized by a low level of debt to total capitalization, increasing net
income, increasing cash flow from operations, and a conservative dividend payout
ratio with respect to the common stock. The Company's credit ratings on its
Senior Preferred Stock were upgraded at the beginning of 1996 by each of the
three major credit agencies (Baa2 by Moody's and BBB+ by Standard and Poors and
Duff & Phelps). Security ratings are not recommendations to buy, sell or hold
securities, may be subject to revision or withdrawal at any time and should be
evaluated independently of any other rating.
The Company's portfolio of real estate facilities remains substantially
unencumbered. At September 30, 1996, the Company had mortgage debt outstanding
of approximately $50 million and had consolidated real estate facilities with a
book value of $1.6 billion. The Company, however, has been adverse to financing
its acquisitions with debt and generally will only increase its mortgage
borrowing through the assumption of pre-existing debt on acquired real estate
facilities.
25
<PAGE>
Over the past three years the Company has funded substantially all of its
acquisitions with permanent capital (both common and preferred stock). Unlike
many other real estate companies, the Company has elected to use preferred stock
despite the fact that the coupon rates of its preferred stock exceeds current
rates on conventional debt. The Company has chosen this alternative for the
following reasons: (i) the Company's perpetual preferred stock has no sinking
fund requirements, or maturity date and does not require redemption, all of
which eliminate any future refinancing risks, (ii) preferred stock allows the
Company to leverage the common stock without the attendant interest rate or
refinancing risks of debt, and (iii) dividends on the preferred stock can be
applied to the Company's REIT distributions requirements, which have helped the
Company to satisfy these requirements.
Mergers and property acquisitions: During the first nine months of 1996,
the Company completed five merger transactions with affiliated public REITs
whereby the Company acquired all the outstanding stock of the REITs in exchange
for cash and common stock of the Company. In the mergers, the Company issued an
aggregate of 5 million ($106.3 million) shares of Common Stock and paid $39.0
million in cash.
In August 1996, Partners Preferred Yield, Inc. ("PPY"), Partners Preferred
Yield II, Inc. ("PPY-2") and Partners Preferred Yield III, Inc. ("PPY-3") each
agreed, subject to certain conditions, to merge with and into the Company. PPY,
PPY-2 and PPY-3 are affiliated publicly traded equity real estate investment
trusts. Each of the proposed mergers is not conditioned on each other. Each of
the mergers is conditioned on approval by the respective shareholders of PPY,
PPY-2 and PPY-3. The Company expects that if approved by the shareholders, the
mergers would be completed by December 31, 1996. After giving effect to the
Company's existing ownership of common stock in each of these entities, the
Company expects that the acquisition cost of the remaining shares to be
approximately $140.0 million.
The estimated value of the PPY merger is approximately $68.5 million. PPY
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. The Company
owns 438,503 shares of common stock series A, 336,700 shares of common stock
series B, 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 (other than shares held by the Company) would be
converted, at the election of the shareholders of PPY, into either shares of the
Company's common stock with a market value of $19.00 or, with respect to up to
20% of the PPY common stock series A, $19.00 in cash. In addition, each share of
PPY series B, C and D (other than shares held by the Company) will be converted
into the right to receive $11.66 in the Company's common stock, plus the
estimated required REIT distributions attributable to the PPY common stock
series B of $0.70 per share. The shares of PPY common stock series A, B, C and D
held by the Company will be canceled in the merger. PPY owns 19 mini-warehouse
properties (1,249,000 square feet).
The estimated value of the PPY-2 merger is approximately $74.4 million.
PPY-2 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.
The Company owns 441,503 shares of common stock series A, 336,700 shares of
common stock series B, 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-2 (other than shares held by the Company)
would be converted, at the election of the shareholders of PPY-2, into either
shares of the Company's common stock with a market value of $20.39 or, with
respect to up to 20% of the PPY-2 common stock series A, $20.39 in cash. In
addition, each share of PPY-2 series B, C and D (other than shares held by the
Company) will be converted into the right to receive $12.26 in the Company's
common stock, plus the estimated required REIT distributions attributable to the
PPY-2 common stock series B of $0.83 per share. The shares of PPY-2 common stock
series A, B, C and D held by the Company will be canceled in the merger. PPY-2
owns 24 mini-warehouse properties (1,362,000 square feet).
The estimated value of the PPY-3 merger is approximately $31.1 million.
PPY-3 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. The
Company 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
26
<PAGE>
common stock series A of PPY-3 (other than shares held by the Company) would be
converted, at the election of the shareholders of PPY-3, into either shares of
the Company's common stock with a market value of $20.47 or, with respect to up
to 20% of the PPY-3 common stock series A, $20.47 in cash. In addition, each
share of PPY-3 series B, C and D (other than shares held by the Company) will be
converted into the right to receive $12.30 in the Company's common stock, plus
the estimated required REIT distributions attributable to the PPY-2 common stock
series B of $0.74 per share. The shares of PPY-3 common stock series A, B, C and
D held by the Company will be canceled in the merger. PPY-3 owns 9
mini-warehouse properties (567,000 square feet).
Subsequent to September 30, 1996, the Company acquired 17 mini-warehouses
(1,098,000 square feet) and 5 business park facilities (303,000 square feet)
from three limited partnerships which were not affiliated with the Company. the
aggregate acquisition cost was approximately $55.7 million.
The Company has agreements in principle to acquire 8 mini-warehouses
(569,000 square feet) and 5 business park facilities (428,000 square feet) from
two limited partnerships which are not affiliated with the Company. The Company
currently manages these properties on behalf of the partnerships. The
acquisition of the real estate assets from each of the limited partnerships is
subject to certain conditions. The aggregate acquisition cost is approximately
$30.2 million.
DEVELOPMENT ACTIVITIES: Historically, the Company only acquired interests
in existing/operating real estate facilities. However, commencing in 1995, the
Company began to construct mini-warehouse facilities. Through September 30,
1996, the Company constructed and opened for operation four facilities, one of
which began operations in August 1995 and three in 1996. At September 30, 1996,
the Company had nine mini-warehouses under development with an aggregate cost
incurred to date of approximately $22.5 million and total additional estimated
cost to complete of $18.8 million.
The Company currently has plans to develop an additional 13 mini-warehouses
(811,000 square feet) in various locations at an estimated cost of approximately
$57.1 million. The Company is evaluating the feasibility of developing
additional mini-warehouses in selected markets in which there are few, if any,
facilities to acquire at attractive prices and where the scarcity of other
undeveloped parcels of land or other impediments to development make it
difficult to construct additional competing facilities and has incurred
approximately $4.0 in connection with these additional facilities.
Generally the construction period takes 9 to 12 months followed by a 18 to
24 month fill-up process until the newly constructed facility reaches a
stabilized occupancy level of approximately 90%. Due to the timing of the
employment of the capital to construct the facilities and the relatively long
"fill-up" period until the facilities reach a stabilized occupancy level, the
Company believes that its development plans may create earnings dilution in the
short-term.
OTHER ACTIVITIES: In August 1996, a subsidiary of the Company acquired a
company engaged in the portable self-storage business in Southern California.
The subsidiary plans to open locations during the fourth quarter of 1996. The
operations of this subsidiary are not expected to be significant to the
Company's operations during 1996.
FUTURE TRANSACTIONS: The Company intends to continue to expand its assset
and capital base through the acquisition of real estate assets and interests in
real estate assets from unaffiliated parties and affiliates of The Company
through direct purchase, merger, tender offers or other transactions.
REIT STATUS: The Company believes that it has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT under the Internal
Revenue Code of 1986, but no assurance can be given that it will at all times so
qualify. To the extent that the Company continues to qualify as a REIT, it will
not be taxed, with certain limited exceptions, on the taxable income that is
distributed to its shareholders.
As a REIT, the Company is not taxed on that portion of its taxable income
which is distributed to its shareholders provided that at least 95% of its
taxable income is so distributed prior to filing of the Company's tax return.
The Company has satisfied the REIT distribution requirement since 1980.
27
<PAGE>
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held an annual meeting of shareholders on October 7, 1996.
Proxies for the annual meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The annual meeting involved the following
matters:
1. ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Number of Shares of Convertible
Number of Shares of Common Stock Preferred Stock, Series CC
-------------------------------- --------------------------
Name Voted For Withheld Voted For Withheld
------------------------------- --------- -------- --------- --------
<S> <C> <C> <C>
B. Wayne Hughes 62,222,007 321,179 58,955 -
Harvey Lenkin 62,227,394 315,792 58,955 -
Robert J. Abernethy 62,228,191 314,995 58,955 -
Dann V. Angeloff 62,226,802 316,384 58,955 -
William C. Baker 62,224,518 318,668 58,955 -
Uri P. Harkham 62,224,001 319,185 58,955 -
</TABLE>
<TABLE>
<CAPTION>
Total Common Stock and Convertible Preferred Stock, Series CC
-------------------------------------------------------------
Name Voted For Withheld
----------------------------------- --------- --------
<S> <C> <C>
B. Wayne Hughes 62,280,962 321,179
Harvey Lenkin 62,286,349 315,792
Robert J. Abernethy 62,287,146 314,995
Dann V. Angeloff 62,285,757 316,384
William C. Baker 62,283,473 318,668
Uri P. Harkham 62,282,956 319,185
</TABLE>
2. Adoption of amendments to the Company's articles of incorporation in the
form of Exhibit A to the Company's Proxy Statement dated August 30, 1996 to
authorize 200,000,000 shares of Equity Stock - approval of this proposal
required the affirmative vote of the holders of (i) a majority of the
Company's outstanding shares of Common Stock and (ii) a majority of the
Company's outstanding shares of Common Stock and Convertible Preferred
Stock, Series CC, voting together as a single class, and this proposal was
approved by the following vote:
<TABLE>
<CAPTION>
For Against Abstain No Vote
--- ------- ------- -------
<S> <C> <C> <C> <C>
Common Stock 53,697,808 5,576,843 447,671 2,820,864
Convertible Preferred Stock, Series CC 58,955 - - -
---------- --------- ------- ---------
Total Common Stock and Convertible
Preferred Stock, Series CC 53,756,763 5,576,843 447,671 2,820,864
========== ========= ======= =========
</TABLE>
3. Approval of adoption of the Company's 1996 Stock Option and Incentive Plan
in the form of Exhibit B to the Company's Proxy Statement dated August 30,
1996 - approval of this proposal required the affirmative vote of a
majority of the votes cast on the proposal, and this proposal was approved
by the following vote:
<TABLE>
<CAPTION>
For Against Abstain No Vote
--- ------- ------- -------
<S> <C> <C> <C> <C>
Common Stock 60,876,527 1,166,963 499,694 2
Convertible Preferred Stock, Series CC 58,955 - - -
---------- --------- ------- ---------
Total Common Stock and Convertible
Preferred Stock, Series CC 60,935,482 1,166,963 499,694 2
========== ========= ======= =========
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are included herein:
(11) Statement re: Computation of Earnings per Share
(12) Statement re: Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated September 6,
1996, pursuant to Item 5, which filed the following financial
information relating to the Company's mergers with Public Storage
Properties X, Inc. and Public Storage Properties XII, Inc., and
proposed mergers and acquisitions:
- Combined Summary of Historical Information Relating to Operating
Revenues and Specified Expenses Certain Properties
- Pro Forma Consolidated Financial Statements
The Company filed a Current Report on Form 8-K dated September 18,
1996, pursuant to Item 5, which filed certain exhibits relating to the
Company's public offering of Common Stock.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 13, 1996
PUBLIC STORAGE, INC.
BY: /s/ Ronald L. Havner, Jr.
-----------------------------
Ronald L. Havner, Jr.
Senior Vice President and
Chief Financial Officer
(Principal financial officer)
BY: /s/ John Reyes
-----------------------------
John Reyes
Vice President and Controller
(Principal accounting officer)
30
<TABLE>
PUBLIC STORAGE, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
Primary Earnings Per Share: 1996 1995 1996 1995
- --------------------------------------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Net income $40,366 $19,470 $110,446 $49,221
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A (1,141) (1,140) (3,423) (3,422)
9.20% Cumulative Preferred Stock, Series B (1,372) (1,372) (4,116) (4,116)
Variable Rate Preferred Stock, Series C (582) (544) (1,630) (1,824)
9.50% Cumulative Preferred Stock, Series D (712) (713) (2,138) (2,138)
10.0% Cumulative Preferred Stock, Series E (1,372) (1,372) (4,116) (3,658)
9.75% Cumulative Preferred Stock, Series F (1,402) (1,402) (4,205) (2,321)
8.875% Cumulative Preferred Stock, Series G (3,827) - (11,652) -
8.45% Cumulative Preferred Stock, Series H (3,564) - (9,783) -
8.25% Convertible Preferred Stock (1,168) (1,186) (3,523) (3,558)
Mandatory Convertible Participating Preferred Stock - (867) (1,700) (867)
Mandatory Convertible - Series CC (1,916) - (3,832) -
--------------- --------------- --------------- -------------
Total preferred dividends (17,056) (8,596) (50,118) (21,904)
--------------- --------------- --------------- -------------
Net income allocable to common shareholders $23,310 $10,874 $60,328 $27,317
=============== =============== =============== =============
Weighted Average common and common equivalent shares
- ----------------------------------------------------
outstanding:
------------
Weighted average common shares outstanding 78,052 42,064 74,440 35,736
Net effect of dilutive stock options - based on
treasury stock method using average market price 286 153 250 111
--------------- --------------- --------------- -------------
Total 78,338 42,217 74,690 35,847
=============== =============== =============== =============
Primary earnings per common and common equivalent
share $0.30 $0.26 $0.81 $0.76
=============== =============== =============== =============
</TABLE>
Exhibit 11
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- -----------------------------
FULLY-DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE: 1996 1995 1996 1995
- ------------------------------------------------ ------------ ------------ ------------ ------------
Net income allocable to common shareholders per
<S> <C> <C> <C> <C>
Primary calculation above $23,310 $10,874 $60,328 $27,317
Add dividends paid to holders of Convertible
Preferred Stocks:
* 8.25% Convertible Preferred Stock 1,168 1,186 3,523 3,558
* Mandatory Convertible Participating
Preferred Stock - 867 1,700 867
* Series CC Preferred Stock 1,916 - 3,832 -
------------ ------------ ------------ ------------
Net income allocable to common shareholders for
purposes of determining Fully-diluted Earnings
per Common and Common Equivalent Share $26,394 $12,927 $69,383 $31,742
============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding 78,338 42,217 74,690 35,847
Proforma weighted average common shares
assuming conversion of Convertible
Preferred Stock:
* 8.25% Convertible Preferred Stock 3,814 3,872 3,837 3,872
* Mandatory Convertible Participating
Preferred Stock - 1,504 985 501
* Series CC Preferred Stock 2,064 - 1,376 -
------------ ------------ ------------ ------------
Weighted average common and common
equivalent shares for purposes of computation
of Fully-diluted Earnings per Common and Common
Equivalent Share 84,216 47,593 80,888 40,220
============ ============ ============ ============
Fully-diluted Earnings per Common
and Common Share (1) $0.31 $0.27 $0.86 $0.79
============ ============ ============ ============
</TABLE>
(1) Such amounts are anti-dilutive and are not presented in the Company's
consolidated financial statements.
In addition, the Company has 7,000,000 shares of Class B Common Stock which
are convertible into shares of the Company's Common Stock subject to
certain contingencies such as the passage of time and the attainment of
certain earnings milestone by the Company. The assumption of such earnings
and the pro forma conversion of the Class B Common Stock into Common Stock
in the above computations would have resulted in an increase in the
fully-diluted earnings per common share, and accordingly, is anti-dilutive.
Exhibit 11
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net income $110,446 $49,221
Add: Minority interest in income 7,268 5,449
Less: Gain on disposition of real estate - -
Less: Minority interests in income which do not have
fixed charges (6,451) (3,795)
----------- -----------
Income from continuing operations 111,263 50,875
Interest expense 6,893 5,249
----------- -----------
Total Earnings Available to Cover Fixed Charges $118,156 $56,124
=========== ===========
Total Fixed Charges - Interest expense $8,035 $5,249
=========== ===========
Total Preferred Stock dividends $50,118 $21,904
=========== ===========
Total Combined Fixed Charges and Preferred Stock dividends $58,153 $27,153
=========== ===========
Ratio of Earnings to Fixed Charges 14.71 10.69
=========== ===========
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock dividends 2.03 2.07
=========== ===========
SUPPLEMENTAL DISCLOSURE OF RATIO OF FUNDS
- -------------------------------------------
FROM OPERATIONS ("FFO") TO FIXED CHARGES:
-------------------------------------------
FFO $162,462 $68,825
Interest expense 6,893 5,249
----------- -----------
Adjusted FFO available to cover fixed charges $169,355 $74,074
=========== ===========
</TABLE>
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- --------- --------- --------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Net income $70,386 $42,118 $28,036 $15,123 $11,954
Add: Minority interest in income 7,137 9,481 7,291 6,895 6,693
Less: Gain on disposition of real estate - - - (398) -
Less: Minority interests in income which do not have
fixed charges (4,700) (5,906) (737) (694) (501)
----------- ---------- --------- --------- --------
Income from continuing operations 72,823 45,693 34,590 20,926 18,146
Interest expense 8,508 6,893 6,079 9,834 10,621
----------- ---------- --------- --------- --------
Total Earnings Available to Cover Fixed Charges $81,331 $52,586 $40,669 $30,760 $28,767
=========== ========== ========= ========= ========
Total Fixed Charges - Interest expense $8,815 $6,893 $6,079 $9,834 $10,621
=========== ========== ========= ========= ========
Total Preferred Stock dividends 31,124 $16,846 $10,889 $ 812 $ -
=========== ========== ========= ========= ========
Total Combined Fixed Charges and Preferred Stock dividends $58,153 $27,153 $39,939 $23,739 $16,968
=========== =========== =========== ========== =========
Ratio of Earnings to Fixed Charges 14.71 10.69 9.23 7.63 6.69
=========== =========== =========== ========== =========
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock dividends 2.03 2.07 2.04 2.22 2.40
=========== =========== =========== ========== =========
SUPPLEMENTAL DISCLOSURE OF RATIO OF FUNDS
- -------------------------------------------
FROM OPERATIONS ("FFO") TO FIXED CHARGES:
-------------------------------------------
FFO $162,462 $68,825 $105,086 $56,143 $35,830
Interest expense 6,893 5,249 8,508 6,893 6,079
----------- ----------- ----------- ---------- ---------
Adjusted FFO available to cover fixed charges $169,355 $74,074 $113,594 $63,036 $41,909
=========== =========== =========== ========== =========
</TABLE>
Exhibit 12
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Total Fixed Charges - Interest expense $8,035 $5,249
=========== ===========
Total Preferred Stock dividends $50,118 $21,904
=========== ===========
Total Combined Fixed Charges and Preferred Stock
dividends $58,153 $27,153
=========== ===========
Ratio of FFO to Fixed Charges 21.08 14.11
=========== ===========
Ratio of FFO to Combined Fixed Charges and Preferred
Stock dividends 2.91 2.73
=========== ===========
</TABLE>
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- --------- --------- --------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Total Fixed Charges - Interest expense $8,815 $6,893 $6,079 $9,834 $10,621
=========== ========== ========= ========= ========
Total Preferred Stock dividends $31,124 $16,846 $10,889 $ 812 $ -
=========== ========== ========= ========= ========
Total Combined Fixed Charges and Preferred Stock
dividends $39,939 $23,739 $16,968 $10,646 $10,621
=========== ========== ========= ========= ========
Ratio of FFO to Fixed Charges 12.88 9.15 6.89 3.15 2.62
=========== ========== ========= ========= ========
Ratio of FFO to Combined Fixed Charges and Preferred
Stock dividends 2.84 2.66 2.47 2.91 2.62
=========== ========== ========= ========= ========
</TABLE>
Exhibit 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000318380
<NAME> PUBLIC STORAGE, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 60,228,000
<SECURITIES> 0
<RECEIVABLES> 25,414,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 85,642,000
<PP&E> 1,919,257,000
<DEPRECIATION> (282,517,000)
<TOTAL-ASSETS> 2,374,579,000
<CURRENT-LIABILITIES> 37,315,000
<BONDS> 112,647,000
0
734,419,000
<COMMON> 9,142,000
<OTHER-SE> 1,359,505,000
<TOTAL-LIABILITY-AND-EQUITY> 2,374,579,000
<SALES> 0
<TOTAL-REVENUES> 244,666,000
<CGS> 0
<TOTAL-COSTS> 67,911,000
<OTHER-EXPENSES> 52,148,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,893,000
<INCOME-PRETAX> 110,446,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 110,446,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,446,000
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
