SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 7, 1998
PUBLIC STORAGE, INC.
--------------------
(Exact name of registrant as specified in its charter)
California 1-8389 95-3551121
- ---------------------------- ------------------------ ---------------------
(State or Other Jurisdiction (Commission File Number) I.R.S. Employer
of Incorporation) Identification Number)
701 Western Avenue, Glendale, California 91201-2397
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
---------------
N/A
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
<TABLE>
<CAPTION>
Pro forma consolidated financial statements
<S> <C>
Pro Forma Balance Sheet at September 30, 1998............................................................3
Notes to pro forma balance sheet (unaudited) at September 30, 1998...................................4 - 7
Pro forma statement of income (unaudited) for the year ended December 31, 1997...........................8
Pro forma statement of income (unaudited) for the nine months ended September 30, 1998...................9
Notes to pro forma statements of income............................................................10 - 20
</TABLE>
<PAGE>
PUBLIC STORAGE INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements were
prepared to reflect the proposed transaction between Public Storage, Inc.
("Public Storage") and Storage Trust Realty ("Storage Trust"). On November 12,
1998, Public Storage and Storage Trust entered into an Agreement and Plan of
Merger (the "Merger Agreement"). Under the Merger Agreement, Storage Trust would
become a subsidiary of Public Storage and Public Storage would issue to Storage
Trust shareholders 0.86 of a share of Public Storage common stock in exchange
for each Storage Trust common share that they own (the transaction herein
referred to as the "Merger").
The Merger will be accounted for using the purchase method. All of the
assets and liabilities of Storage Trust will be recorded at fair value. Prior to
the Merger, in several open-market and private transactions which occurred
between April and August 1998, Public Storage acquired 964,000 common shares of
Storage Trust at a cost of approximately $22.8 million.
In addition to adjustments to reflect the proposed Merger, pro forma
adjustments were made to Storage Trust's historical financial statements to
reflect the acquisition of properties and other transactions (as discussed in
Notes 1 and 2 to the pro forma consolidated statements of income), which are
significant to Storage Trust's historical financial statements:
1. During 1997, Storage Trust acquired 38 self-storage properties for an
aggregate cost of approximately $105.6 million, consisting of $81.9 million
in cash and 16 self-storage properties valued at $23.7 million that were
exchanged.
2. In the fourth quarter of 1996, Storage Trust received commitments from
various institutional investors for the private placement of $100 million
of unsecured, long-term, fixed-rate senior notes. $75 million of this
amount was funded in January 1997, and the remaining $25 million was funded
in April 1997.
3. In October and November 1997, Storage Trust completed a direct sale of
common stock. In this offering, 2,530,000 shares of common stock were sold,
raising net proceeds of approximately $59.7 million.
4. In April 1998, Storage Trust completed a direct sale of common stock. In
this offering, 613,811 shares of common stock were sold, raising net
proceeds of approximately $14.2 million.
5. During the period from January 1, 1998 through September 30, 1998, Storage
Trust acquired 34 self-storage facilities at a cost of $106.1 million,
composed of cash (or assumption of debt which was immediately paid off) of
$96.1 million, the conversion of a note receivable relative to the seller
of one of the facilities acquired in the amount of $1.6 million, and the
issuance of 329,583 operating partnership units ("OP Units") valued at $8.4
million.
The unaudited pro forma balance sheet at September 30, 1998 has been
prepared to reflect the Merger, as if the Merger occurred on September 30, 1998.
The allocation of purchase price reflected in the pro forma balance sheet is
preliminary. The unaudited pro forma consolidated statements of income for the
year ended December 31, 1997 and the nine months ended September 30, 1998 have
been prepared assuming (i) the Merger, (ii) the aforementioned Storage Trust
acquisitions and dispositions in exchange of properties and (iii) the
aforementioned issuances by Storage Trust of its common stock and $100 million
in unsecured debt were completed as of January 1, 1997.
The pro forma adjustments made to the pro forma income statements for each
period presented reflect historical operating results of the newly acquired
properties. Pro forma adjustments have been made to eliminate certain duplicate
administrative costs that will be eliminated as a result of the Merger, as well
as to reclassify certain items in Storage Trust's amounts in order to conform
to Public Storage's presentation.
1
<PAGE>
The pro forma adjustments are based upon available information and upon
certain assumptions as set forth in the notes to the pro forma consolidated
financial statements that Public Storage and Storage Trust believe are
reasonable in the circumstances. The pro forma consolidated financial statements
and accompanying notes should be read in conjunction with the historical
financial statements of Public Storage, Storage Trust, and other documents filed
by Public Storage and Storage Trust with the Securities and Exchange Commission
(such as Form 8-K's which reference property acquisitions) from time to time.
The following pro forma consolidated financial statements do not purport to
represent what Public Storage's results of operations would actually have been
if the transactions had in fact occurred as of January 1, 1997 or to project
Public Storage's results of operations for any future date or period.
As a result of the Merger, Public Storage believes that there will be
certain cost efficiencies due to the economies of scale of having a larger
number facilities in certain markets after the Merger is consummated. Such cost
efficiencies are expected to occur in that areas of telephone directory (yellow
page) advertising, property insurance, and payroll cost with respect to
supervisory personnel. Public Storage is evaluating the potential cost savings
and is not able to quantify the amount of such savings at this time.
Accordingly, no pro forma adjustments have been made to the pro forma income
statements to reflect cost expected cost savings as note above.
In addition, no adjustments were made to reflect the merged company's
expected reduced borrowing cost with respect to the borrowings on its line of
credit. During the year ended December 31, 1997 and the nine months ended
september 30, 1998, Public Storage's average interest rate on line of credit
borrowings was approximately the London Interbank Offered Rate ("LIBOR") plus
0.40% per annum compared to Storage Trust's average interest interest rates of
approximately LIBOR plus 1.45% per annum for the year ended December 31, 1997
and LIBOR plus 1.20% per annum for the nine months ended September 30, 1998.
2
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
(Amounts in thousands, except share and per share data)
Pro Forma Merger Adjustments
----------------------------
Public Storage Public Storage
Storage Trust Purchase Valuation Post-Merger
(Historical) (Historical) (Note 1) (Note 1) (Pro Forma)
------------ ------------ ------------ ----------- -------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 54,950 $ 3,025 $ (12,300) $ - $ 45,675
Real estate facilities, net of accumulated
depreciation 2,624,277 500,277 - 105,968 3,230,522
Intangible assets, net of accumulated
amortization 205,960 1,437 - (1,437) 205,960
Investment in real estate entities 430,171 219 (22,800) - 407,590
Mortgage notes receivable 24,856 5,394 30,250
Other assets 71,619 1,764 - - 73,383
Purchase cost - - 588,860 (588,860) -
------------ ------------ ------------ ----------- -------------
Total assets $3,411,833 $ 512,116 $ 553,760 $ (484,329) $3,993,380
============ ============ ============ =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities $ 77,380 $ 27,787 $ - $ - $ 105,167
Notes payable and line of credit 85,617 183,470 183,470 (183,470) 269,087
Minority interest 150,532 23,426 23,426 (23,426) 173,958
Shareholder's equity:
Preferred stock, $.01 par value, 50,000,000
shares authorized 11,129,650 issued and
outstanding 868,900 - - - 868,900
Common stock, $.10 par value, 200,000,000 shares
authorized 115,713,762 issued and outstanding
(128,709,784 pro forma shares issued
and outstanding) 11,573 161 1,300 (161) 12,873
Class B Common stock, $0.10 par value,
7,000,000 shares issued and outstanding 700 - - - 700
Paid-in capital 2,172,115 294,740 345,564 (294,740) 2,517,679
Cumulative net income 742,918 59,066 - (59,066) 742,918
Cumulative distributions paid (697,902) (76,534) - 76,534 (697,902)
------------ ------------ ------------ ----------- -------------
Total shareholders' equity 3,098,304 277,433 346,864 (277,433) 3,445,168
------------ ------------ ------------ ----------- -------------
Total liabilities and shareholders' equity $3,411,833 $ 512,116 $ 553,760 $ (484,329) $3,993,380
============ ============ ============ =========== =============
Book value per share of common stock (Note 2) $ 19.26 $ 17.26 $ 20.01
============ ============ =============
Shares outstanding (Note 2) 115,713,762 16,075,653 128,709,784
============ ============ =============
</TABLE>
See attached notes to pro forma balance sheet
3
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
1. MERGER PRO FORMA ADJUSTMENTS
-----------------------------
The Merger will be accounted for using the purchase method of accounting.
The total purchase cost will be allocated to the acquired assets and
liabilities based upon their respective fair values. Under the Merger
Agreement, Storage Trust would become a subsidiary of Public Storage and
Public Storage would issue to Storage Trust shareholders 0.86 of a share of
Public Storage common stock in exchange for each Storage Trust common share
that they own. The purchase cost of the net assets to be acquired pursuant
to the Merger will be equal to the fair value of the Public Storage common
stock to be issued combined with the direct costs associated with the
Merger.
In determining the fair value of the Public Storage common stock to be
issued in the Merger a share price of $26.69 will be utilized in these pro
forma financial statements. This fair value was based upon the closing
market price of a share of Public Storage common stock on the New York
Stock Exchange immediately prior to the announcement of the Merger on
November 11, 1998. For the period between the five business days before and
the five business days after the announcement of the Merger, Public
Storage's closing price on the New York Stock Exchange ranged from $25.88
to $27.88, with an average of $26.75. Direct costs related to the Merger
are estimated at approximately $12.3 million, consisting of (i) financial
advisory, legal, accounting, and filing fees, cost of environmental
assessments and other miscellaneous expenses of approximately $7.8 million,
(ii) estimated severance payments and retention bonuses in the amount of
$2.0 million, and (iii) estimated costs associated with "in the money"
Storage Trust stock options of approximately $2.5 million.
The following reflects the preliminary determination of purchase price, and
the allocation of the purchase price to the net assets acquired.
<TABLE>
<CAPTION>
PURCHASE COST: (Amounts in thousands)
-------------
<S> <C>
Fair value of Public Storage common stock issued to shareholders of Storage
Trust's common stock:
Outstanding Storage Trust common shares at
September 30, 1998 16,075,653
Less shares owned by Public Storage (964,000)
--------------
Storage Trust common shares subject to conversion 15,111,653
Conversion ratio into Public Storage common stock 0.86
--------------
Pro forma Public Storage common shares to be
issued pursuant to the Merger 12,996,022
Fair value of Public Storage common stock $26.69
Aggregate fair value of Public Storage common stock $346,863,827 $ 346,864
==============
Estimated direct costs of the Merger...................................................... 12,300
Public Storage's existing investment in Storage Trust of 964,000 shares, at
Public Storage's historical cost ..................................................... 22,800
----------
Total Purchase Cost before the assumption of debt and minority interest........... 381,964
Assumption of Storage Trust's existing debt............................................. 183,470
Minority interests of Storage Trust..................................................... 23,426
----------
Total Purchase Cost............................................................... $ 588,860
==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
PRELIMINARY ALLOCATION OF PURCHASE COST: (Amounts in thousands)
- ---------------------------------------- ----------------------
<S> <C>
Real estate facilities.................................................... $ 606,245
Cash and cash equivalents................................................. 3,025
Investment in real estate entities........................................ 219
Notes receivable.......................................................... 5,394
Other assets.............................................................. 1,764
Accrued and other liabilities............................................. (27,787)
----------------------
Total allocated purchase cost of net assets acquired.................. $ 588,860
======================
The following pro forma adjustments have been made to reflect the above purchase
cost of the Merger and the preliminary allocation of the purchase cost to the
net assets acquired as of September 30, 1998:
PURCHASE ADJUSTMENTS (Amounts in thousands)
- -------------------- ----------------------
* Cash and cash equivalents have been reduced to reflect the cash
necessary for the estimated direct costs and expenses of the merger........... $ (12,300)
=============
* Investment in real estate entities has been reduced to
reclassify the historical book value of Public Storage's
existing investment in shares of Storage Trust stock as purchase
cost of the Merger ............................................................ $ (22,800)
=============
* Unallocated purchase cost has been increased to reflect the
aggregate purchase cost ....................................................... $ 588,860
=============
* Notes payable and line of credit have been increased to
reflect the assumption of Storage Trust's debt as part of the
aggregate purchase cost........................................................ $ 183,470
=============
* Minority interest has been increased to reflect such interest as a
part of the aggregate purchase cost............................................ $ 23,426
=============
* Common stock has been increased to reflect the issuance of
12,996,022 shares of Public Storage common stock with a par
value of $0.10 per share....................................................... $ 1,300
=============
* Paid-in Capital has been increased to reflect the issuance of
common stock (total fair value of $346,863,827 less par value of
$1,300,000).................................................................... $ 345,564
=============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUATION ADJUSTMENTS: (Amounts in thousands)
- ---------------------- ----------------------
<S> <C>
* Real estate facilities has been increased to reflect the fair
value of the real estate facilities to be acquired in the
Merger (purchase price allocation of $606,245,000 less Storage
Trust's historical net book value of $500,277,000)............................. $ 105,968
=============
* Intangible assets have been reduced to reflect no allocated purchase
cost associated with Storage Trust's historical unamortized loan costs......... $ (1,437)
=============
* Unallocated purchase cost has been decreased to reflect the
allocation of the aggregate purchase cost...................................... $ (588,860)
=============
* A pro forma adjustment has been made to eliminate Storage Trust's
notes payable and borrowings on its line of credit ............................ $ (183,470)
=============
* A pro forma adjustment has been made to eliminate Storage Trust's
minority interest (based on historical carrying value) ........................ $ (23,426)
=============
* Storage Trust's historical equity has been eliminated as follows:
Common stock................................................................ $ (161)
Paid-in-capital............................................................. (294,740)
Cumulative net income....................................................... (59,066)
Cumulative distributions.................................................... 76,534
-------------
$ (277,433)
=============
</TABLE>
6
<PAGE>
2. BOOK VALUE PER SHARE OF COMMON STOCK
------------------------------------
Book value per common share has been determined by dividing total
shareholders' equity less the book value of the Preferred Stock and Class B
Common Stock by the outstanding common shares. The following summarizes the
pro forma common shares outstanding:
<TABLE>
<CAPTION>
Common shares
outstanding
------------
<S> <C>
* Public Storage's historical common shares outstanding at September
30, 1998 ................................................................... 115,713,762
* Pro forma Public Storage common shares to be issued to shareholders
of Storage Trust (see Note 1 above)......................................... 12,996,022
------------
Pro Forma Public Storage common shares outstanding....................... 128,709,784
============
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
Storage Trust
----------------------------------------------------------
Storage
Public Storage Acquisitions Other Trust
Storage Trust of Properties Transactions Pre-Merger
(Historical) (Historical) (Note 1) (Note 2) (Pro forma)
------------ ------------ -------- -------- -----------
REVENUES:
<S> <C> <C> <C> <C> <C>
Rental income:
Self-storage facilities $ 385,540 $ 57,859 $ 16,652 $ - $ 74,511
Commercial properties 40,575 - - - -
Portable self-storage 7,893 - - - -
Equity in earnings of real estate entities 17,569 93 - - 93
Facility management fees 10,141 236 (11) - 225
Interest and other income 9,126 1,518 479 (40) 1,957
------------ ------------ -------- -------- -----------
470,844 59,706 17,120 (40) 76,786
------------ ------------ -------- -------- -----------
EXPENSES:
Cost of operations:
Self-storage facilities 117,963 17,236 6,699 - 23,935
Commercial properties 16,665 - - - -
Portable self-storage 39,558 - - - -
Facility Management 1,793 - - - -
Depreciation and amortization 91,356 10,002 3,678 - 13,680
General and administrative 6,384 3,152 - - 3,152
Interest expense 6,792 7,646 9,637 (4,568) 12,715
------------ ------------ -------- -------- -----------
280,511 38,036 20,014 (4,568) 53,482
------------ ------------ -------- -------- -----------
Income before minority interest in income 190,333 21,670 (2,894) 4,528 23,304
Minority interest in income (Notes 3 and 6) (11,684) (1,293) - (317) (1,610)
------------ ------------ -------- -------- -----------
Net income (loss) $178,649 $20,377 $(2,894) $4,211 $21,694
============ ============ ========= ========= ===========
PER SHARE OF COMMON STOCK (NOTES 4 AND 7)
Net income, Basic $ 0.92 $ 1.52 $ 1.35
============ ============ ===========
Net income, Diluted $ 0.91 $ 1.51 $ 1.34
============ ============ ===========
Basic Weighted average shares 98,446 13,378 16,049
============ ============ ===========
Diluted Weighted average shares 98,961 14,373 17,374
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
Pro Forma Public
Merger Storage
Adjustments Post-Merger
(Note 5) (Pro forma)
-------- -----------
REVENUES:
<S> <C> <C>
Rental income:
Self-storage facilities $ - $ 460,051
Commercial properties - 40,575
Portable self-storage - 7,893
Equity in earnings of real estate entities - 17,662
Facility management fees - 10,366
Interest and other income (1,120) 9,963
-------- -----------
(1,120) 546,510
-------- -----------
EXPENSES:
Cost of operations:
Self-storage facilities (451) 141,447
Commercial properties - 16,665
Portable self-storage - 39,558
Facility Management 40 1,833
Depreciation and amortization 6,345 111,381
General and administrative (2,293) 7,243
Interest expense - 19,507
-------- -----------
3,641 337,634
-------- -----------
Income before minority interest in income (4,761) 208,876
Minority interest in income (Notes 3 and 6) 620 (12,674)
-------- -----------
Net income (loss) $(4,141) $196,202
========= ===========
PER SHARE OF COMMON STOCK (NOTES 4 AND 7)
Net income, Basic $ 0.97
===========
Net income, Diluted $ 0.96
===========
Basic Weighted average shares 111,419
===========
Diluted Weighted average shares 112,957
===========
</TABLE>
See Accompanying Notes to Pro-Forma Consolidated Statements of Income
8
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1998
(Unaudited)
(Amounts in thousands, except per share data)
Storage Trust
Storage
Public Storage Acquisitions Other Trust
Storage Trust of Properties Transactions Pre-Merger
(Historical) (Historical) (Note 1) (Note 2) (Pro forma)
------------ ------------ -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income:
Self-storage facilities $ 360,950 $ 56,561 $ 2,608 $ - $ 59,169
Commercial properties 21,229 - - - -
Portable self-storage 18,069 - - - -
Equity in earnings of real estate entities 16,598 65 - - 65
Facility management fees 4,805 159 (8) - 151
Interest and other income 11,925 1,750 12 - 1,762
------------ -------- -------- -------- --------
433,576 58,535 2,612 - 61,147
------------ -------- -------- -------- --------
Expenses:
Cost of operations:
Self-storage facilities 108,593 18,051 864 - 18,915
Commercial properties 7,187 - - - -
Portable self-storage 43,226 - - -
Facility management 780 - - - -
Depreciation and amortization 79,628 9,985 514 - 10,499
General and administrative 7,246 3,306 - - 3,306
Interest expense 2,926 8,530 1,300 (325) 9,505
Hedging loss - 5,464 - - 5,464
------------ -------- -------- -------- --------
249,586 45,336 2,678 (325) 47,689
------------ -------- -------- -------- --------
Income before minority interest in income 183,990 13,199 (66) 325 13,458
Minority interest in income (Notes 3 and 6) (16,141) (893) - 29 (864)
------------ -------- -------- -------- --------
Net income (loss) $167,849 $12,306 $(66) $354 $12,594
============ ======== ========= ======== ========
Per share of Common Stock (Notes 4 and 7)
Net income, Basic $ 0.96 $ 0.78 $ 0.78
============ ======== ========
Net income, Diluted $ 0.95 $ 0.77 $ 0.78
============ ======== ========
Basic Weighted average shares 113,311 15,816 16,070
============ ======== ========
Diluted Weighted average shares 113,762 17,027 17,352
============ ======== ========
</TABLE>
<TABLE>
<CAPTION>
PUBLIC STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1998
(Unaudited)
(Amounts in thousands, except per share data)
Pro Forma Public
Merger Storage
Adjustments Post-Merger
(Note 5) (Pro forma)
-------- -----------
<S> <C> <C>
Revenues:
Rental income:
Self-storage facilities - $ 420,119
Commercial properties - 21,229
Portable self-storage - 18,069
Equity in earnings of real estate entities (782) 15,881
Facility management fees - 4,956
Interest and other income (1,055) 12,632
-------- ----------
(1,837) 492,886
-------- ----------
Expenses:
Cost of operations:
Self-storage facilities (338) 127,170
Commercial properties - 7,187
Portable self-storage - 43,226
Facility management 25 805
Depreciation and amortization 4,312 94,439
General and administrative (2,589) 7,963
Interest expense - 12,431
Hedging loss - 5,464
-------- ----------
1,410 298,685
-------- ----------
Income before minority interest in income (3,247) 194,201
Minority interest in income (Notes 3 and 6) (82) (17,087)
-------- ----------
Net income (loss) $(3,329) $177,114
======== ==========
Per share of Common Stock (Notes 4 and 7)
Net income, Basic $ 0.93
==========
Net income, Diluted $ 0.93
==========
Basic Weighted average shares 126,302
==========
Diluted Weighted average shares 127,767
==========
</TABLE>
See Accompanying Notes to Pro-Forma Consolidated Statements of Income.
9
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
1. ACQUISITION OF PROPERTIES BY STORAGE TRUST
------------------------------------------
Since January 1, 1997, Storage Trust has acquired and exchanged real estate
facilities which have had a material impact upon its operations. These
transactions are as follows:
* During 1997, Storage Trust acquired a total of 38 facilities for a
total acquisition cost of $105.6 million. The acquisition cost
consisted of $81.9 million in cash and the exchange of 16 facilities
having a value of approximately $23.7 million. The 38 facilities
acquired are herein referred to as the "1997 Acquisitions" and the 16
facilities exchanged are herein referred to as the "1997 Exchanged
Properties."
* During the period from January 1, 1998 through September 30, 1998,
Storage Trust acquired a total of 34 self-storage facilities and
completed the expansion of one existing facility at a cost of $106.1
million, composed of cash (or assumption of debt which was immediately
paid off) of $96.1 million, the conversion of a note receivable in the
amount of $1.6 million relative to the seller of one of the facilities
acquired, and the issuance of 329,583 OP units valued at $8.4 million.
These 34 self-storage facilities are herein referred to as the "1998
Acquisitions."
The following pro forma adjustments have been made to the pro forma
consolidated statements of income for the year ended December 31, 1997 and
the nine months ended September 30, 1998 to reflect the above as if the
transactions were completed as of January 1, 1997:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------------------------
(Amounts in thousands)
<S> <C> <C>
a) Rental income has been increased to reflect:
* The pro forma rental income for the above mentioned
property acquisitions for the entire period:
The 1997 Acquisitions................................ $ 15,360 $ -
The 1998 Acquisitions................................ 12,003 10,099
* Less the historical rental income for the property acquisitions which
are already included in Storage Trust's historical amounts:
The 1997 Acquisitions................................ (8,975) -
The 1998 Acquisitions................................ - (7,491)
* Less the historical rental income for the 1997 Exchanged
Properties................................................. (1,736) -
--------------- -----------------
Total incremental pro forma rental income............. $16,652 $ 2,608
=============== =================
</TABLE>
10
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------------------------
(Amounts in thousands)
<S> <C> <C>
b) Facility management fee income has been decreased to eliminate the
historical management fee income earned on a property which Storage Trust
previously managed for a fee and as a result of an acquisition no longer
earns management fees relative to this property.............................. $ (11) $ (8)
============ ==========
c) Interest and other income has been adjusted as follows:
* To reflect incremental pro forma sales of locks, boxes,
packing supplies, and other miscellaneous income with
respect to the facilities acquired....................................... $ 537 $ 71
* To eliminate the historical interest income with respect to a note
receivable on one of the acquired facilities; this note was converted
in connection with the acquisition and interest is no longer collected... (58) (59)
------------ ----------
Total incremental pro forma interest and other income $ 479 $ 12
============ ==========
d) Cost of operations has been increased to reflect:
* The pro forma cost of operations for the property
acquisitions for the entire period presented:
The 1997 Acquisitions.............................................. $ 5,428 $ -
The 1998 Acquisitions.............................................. 4,408 2,964
* Less the historical cost of operations for the property acquisitions
which is already included in Storage Trust's historical amounts:
The 1997 Acquisitions.............................................. (2,789) -
The 1998 Acquisitions.............................................. - (2,160)
* Less the historical cost of operations for the 1997
Exchanged Properties..................................................... (548) -
* Additional incremental costs to manage facilities not
included in the net impact of the adjustments noted herein. 200 60
------------ ----------
Total incremental pro forma cost of operations.......................... $ 6,699 864
============ ==========
</TABLE>
11
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------------------------
(Amounts in thousands)
<S> <C> <C>
e) Depreciation expense has been increased as follows:
* The pro forma depreciation for the above mentioned
property acquisitions for the entire period presented:
The 1997 Acquisitions................................ $ 2,706 $ -
The 1998 Acquisitions................................ 2,718 2,038
* Less the historical depreciation for the property acquisitions
which is already included in the Storage Trust's historical
amounts:
The 1997 Acquisitions................................ (1,624) -
The 1998 Acquisitions................................ - (1,524)
* Less the historical depreciation for the 1997 Exchanged
Properties................................................. (122) -
------------ ----------
Total incremental pro forma depreciation expense $ 3,678 $ 514
============ ==========
f) Interest expense has been increased as follows:
* To reflect the incremental interest expense which would have
been incurred for the period prior to the actual acquisition
date, as a result of assumed borrowings on Storage Trust's
line of credit to fund the cash portion of the acquisition
cost, at an interest rate of 7.25%:
The 1997 Acquisitions........................................ $ 2,675 $ -
The 1998 Acquisitions........................................ 6,962 1,300
------------ ----------
Total incremental pro forma interest expense $ 9,637 $ 1,300
============ ==========
</TABLE>
12
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
2. OTHER STORAGE TRUST TRANSACTIONS IN 1997 AND 1998
-------------------------------------------------
During 1997 and 1998, Storage Trust completed several significant
transactions as follows:
* In the fourth quarter of 1996, Storage Trust received commitments from
various institutional investors for the private placement of $100
million of unsecured, long-term, fixed-rate senior notes (the "Senior
Notes"). In January 1997 a total of $75 million of the Senior Notes
was funded and the remaining $25 million was funded in April 1997. The
net proceeds were utilized to fund the cash portion of the acquisition
cost of real estate facilities or to repay borrowings incurred to
acquire real estate facilities.
* In October and November 1997, Storage Trust completed direct sales of
common stock. In these offerings, a total of 2,530,000 shares of
common stock were sold, raising net proceeds of approximately $59.7
million. The net proceeds were utilized to fund the cash portion of
the acquisition cost of real estate facilities or to repay borrowings
incurred to acquire real estate facilities.
* In April 1998, Storage Trust completed a direct sale of common stock.
In this offering, 613,811 shares of common stock were sold, raising
net proceeds of approximately $14.2 million. The net proceeds were
utilized to fund the cash portion of the acquisition cost of real
estate facilities or to repay borrowings incurred to acquire real
estate facilities.
The following pro forma adjustments have been made to reflect these
transactions as if they had occurred on January 1, 1997:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------------------------
(Amounts in thousands)
<S> <C> <C>
a) Interest and other income has been reduced to eliminate the historical
interest income earned on uninvested proceeds from Storage Trust's
January 22, 1997 funding of senior notes, as such uninvested proceeds
were ultimately utilized to fund in part the cash portion of the 1997
Acquisitions................................................ $ (40) $ -
============== ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------------------------
(Amounts in thousands)
<S> <C> <C>
b) Interest expense has been adjusted as follows:
* Additional interest expense which would have been incurred
on the Senior Notes if they were issued on January 1, 1997 (Full year
interest expense of $7,576,000 which is based upon $100,000,000
borrowings multiplied by the respective coupon rates on the Senior
Notes, less $6,692,000 included in the historical amounts) ............ $ 884 $ -
* Less: reduction of interest expense relative to the assumed payoff of
the line of credit with the proceeds from the Senior Notes ($884,000
above divided by the average interest rate on the senior notes of
approximately 7.58%, then multiplied by the interest rate on the line
of credit of 7.25%).................................................... (845) -
* Interest expense was reduced to reflect the assumed paydown of assumed
borrowings on Storage Trust's line of credit as a result of proceeds
from the issuance of 2,530,000 shares of common stock in October and
November 1997 ($51,896,000 at 7.25% for 294 days and $7,784,000 at
7.25% for 323 days for the year ended December 31, 1997) .............. (3,578) -
* Interest expense was reduced to reflect the assumed paydown of assumed
borrowings on Storage Trust's line of credit as a result of proceeds
from the issuance of 613,811 shares of common stock in April 1998
($14,167,000 at 7.25% during the year ended December 31, 1997;
$14,167,000 at 7.25% for 114 days during the nine months ended
September 30, 1998).................................................... (1,029) (325)
-------------- -----------
Total net reduction to interest expense $ (4,568) $ (325)
============== ===========
c) Minority interest was adjusted to reflect the Minority Interests' in the
above noted transactions and the issuance of 329,583 OP Units $ (317) $ 29
============== ===========
</TABLE>
3. MINORITY INTEREST COMPUTATIONS FOR STORAGE TRUST PRE-MERGER PRO FORMA
----------------------------------------------------------------------
Minority interest in income for Storage Trust primarily reflects the
ownership interests of the limited partners of a controlled operating
partnership of Storage Trust. These ownership interests are represented by
OP Units, and are exchangeable on a one-for-one basis with Storage Trust's
common stock subject to certain limitations. Minority interest in income
with respect to the controlled operating partnership of Storage Trust is
based upon the ratio of weighted average OP Units to the total of weighted
average common shares and weighted average OP Units, which is then
multiplied by the operating income prior to the operating partnership
minority interest.
14
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
4. NET INCOME PER COMMON SHARE (STORAGE TRUST PRE-MERGER PRO FORMA)
HAS BEEN COMPUTED AS FOLLOWS:
----------------------------------------------------------------
The following table sets forth Storage Trusts's Pre-Merger Pro Forma
earnings per share ("EPS"):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------------------------------
(Amounts in thousand, except
per share data)
<S> <C> <C>
HISTORICAL STORAGE TRUST EPS:
Historical net income, for basic EPS................................... $ 20,377 $ 12,306
Add Back: Income allocated to minority interest OP Units............... 1,291 885
----------------- ----------------
HISTORICAL NET INCOME FOR DILUTED EPS........................ $ 21,668 $ 13,191
================= ================
Historical weighted average shares, for basic EPS ..................... 13,378 15,816
Add: Impact of stock options.......................................... 135 103
Add: OP Units......................................................... 860 1,108
----------------- ----------------
WEIGHTED AVERAGE SHARES FOR DILUTED EPS..................... 14,373 17,027
================= ================
Historical basic EPS................................................... $1.52 $0.78
Historical diluted EPS................................................. $1.51 $0.77
PRO FORMA PRE-MERGER STORAGE TRUST EPS:
Pro forma net income................................................... $ 21,694 $ 12,594
Add Back: income allocated to minority interest OP Units............... 1,608 856
----------------- ----------------
HISTORICAL NET INCOME FOR DILUTED EPS........................ $ 23,302 $ 13,450
================= ================
Historical weighted average shares, for basic EPS per above............ 13,378 15,816
Issuance of common shares in October and November 1997 (2,530,000
shares less 472,849 included in the historical amounts for the
year ended December 31, 1997)...................................... 2,057 -
Issuance of 613,811 shares in April, 1998 (613,811 shares for the year
ended December 31, 1997; 613,811 shares issued less 359,743
shares included in the historical amounts for the nine months ended
September 30, 1998)................................................ 614 254
----------------- ----------------
WEIGHTED AVERAGE SHARES FOR BASIC EPS (PRO-FORMA PRE MERGER
STORAGE TRUST) .............................................. 16,049 16,070
Add: Impact of stock options.......................................... 135 103
Add: OP Units, historical per above................................... 860 1,108
Add: Impact of 329,583 OP Units issued in January, March, and August
1998 (329,583 OP Units for the year ended December 31, 1997;
329,583 OP Units less 258,417 OP Units included in the historical
amounts for the nine months ended September 30, 1998).............. 330 71
----------------- ----------------
WEIGHTED AVERAGE SHARES FOR DILUTED EPS ..................... 17,374 17,352
================= ================
Pro forma pre merger Storage Trust basic EPS........................... $1.35 $0.78
Pro forma pre merger Storage Trust diluted EPS......................... $1.34 $0.78
</TABLE>
15
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
5. PRO-FORMA MERGER ADJUSTMENTS
----------------------------
Following are the significant components of the Merger as they are
reflected in the pro forma financial statements of income:
* Prior to the Merger, in several open-market and private transactions
which occurred between April and August 1998, Public Storage acquired
a total of 964,000 common shares of Storage Trust for a total
acquisition cost of approximately $22.8 million. A pro forma
adjustment has been made to eliminate Public Storage's historical
equity in earnings with respect to this investment.
* Storage Trust's existing common shares not held by Public Storage
(16,075,653 shares at September 30, 1998, less the 964,000 shares
currently held by Public Storage) will be exchanged for Public Storage
common stock at a ratio of 0.86 per Storage Trust share. A total of
12,996,022 shares of Public Storage stock will be issued to common
shareholders.
* Storage Trust's existing OP Units are, according to the related
partnership agreement, exchangeable into common shares of Storage
Trust on a one-for-one basis or redeemed in cash at the Company's
option. After the Merger, the OP Units will be exchangeable into
Public Storage common stock at a ratio of 0.86 per OP Unit, subject to
the same conditions as the original agreement.
* Direct costs related to the Merger are estimated at approximately
$12.3 million consisting of i) financial advisory, legal, accounting,
and filing fees, costs of environmental assessments and other
miscellaneous expenses of approximately $7.8 million, ii) estimated
severance payments and retention bonuses in the amount of $2.0
million, iii) estimated costs associated with "in the money" Storage
Trust stock options of approximately $2.5 million.
The following pro forma adjustments have been recorded to reflect the
impact of the related Merger transactions described above:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------ -----------------
(Amounts in thousands)
<S> <C> <C>
a) A pro forma adjustment has been recorded to eliminate historical
earnings recognized by Public Storage with respect to its investment in
Storage Trust ............................................................ $ - (782)
================== =================
b) A pro forma adjustment has been made to interest and other income to:
* Reduce interest and other income to reclassify cost of merchandise
sold associated with Storage Trust's product and merchandising sales to
conform to Public Storage's financial presentation
(offset to adjustment 5 c) below)...................................... $ (505) (594)
* Reduce interest income to reflect the use of available cash for
the $12,300,000 direct cash costs of the merger ....................... (615) (461)
------------------ -----------------
$ (1,120) (1,055)
================== =================
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------ -----------------
(Amounts in thousands)
<S> <C> <C>
c) Pro forma adjustments have been made to cost of operations - self storage
facilities to reflect:
* The reclassification of cost of merchandise sold relative to Storage
Trusts's product and merchandising sales to conform to
Public Storage's presentation (offset to adjustment 5 b) above).... $ (505) $ (594)
* The reclassification of facility management costs associated with
Storage Trust's facility management revenue to conform to Public
Storage's financial presentation (offset to adjustment 5 d) below).. (40) (25)
* The reclassification of supervisory property management expenses which
are included in Storage Trust's general and administrative expense to
conform to Public Storage financial presentation of including such
expenses in cost of operations (offset to adjustment
5 f) below)......................................................... 94 281
------------------ -----------------
$ (451) $ (338)
================== =================
d) A pro forma adjustment has been made to increase cost of operations -
property management to reclassify facility management costs associated
with Storage Trust's facility management revenue to conform to Public
Storage's financial presentation (offset to adjustment 5 c) above)..... $ 40 $ 25
================== =================
e) A pro forma adjustment has been made to depreciation expense to:
* Eliminate Storage Trust's pre-Merger Pro Forma depreciation
expense............................................................ $ (13,055) $ (10,238)
* Record depreciation expense based upon the purchase price
allocated to real estate facilities................................ 19,400 14,550
------------------ -----------------
$ 6,345 $ 4,312
================== =================
</TABLE>
17
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------ -----------------
(Amounts in thousands)
<S> <C> <C>
f) Pro forma adjustments have been recorded to reduce general and
administrative expenses for expenses that will no longer be incurred as a
result of the Merger, and other items, as follows:
* Reduction in payroll and related employee expenses for overlapping
job duties which will be eliminated as a result of the Merger....... $ (1,611) $ (1,582)
* Elimination of Storage Trust's strategic evaluation costs........... - (212)
* Storage Trust's historical costs associated with being a public entity
that will no longer be incurred as a result of the Merger, including
accounting fees, costs of printing annual reports, stock
exchange fees, and costs associated with the Board of Trustees...... (588) (514)
* The reclassification of certain expenses which were classified by
Storage Trust as General and Administrative Expense, but which Public
Storage classifies as cost of operations (offset to
adjustment 5 c) above) ............................................. (94) (281)
------------------ -----------------
$ (2,293) $ (2,589)
================== =================
g) A pro forma adjustment has been made to minority interest in income to
adjust minority interest in income to the amounts described in Note 6... $ 620 $ (82)
================== =================
</TABLE>
18
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
6. PRO FORMA MINORITY INTEREST IN INCOME
-------------------------------------
Historical minority interest in income for Public Storage reflects the
minority interests' share of the operating results of the Public Storage
relative to consolidated operations of certain entities that are
consolidated with Public Storage.
Pro forma minority interest in income reflects Public Storage's historical
minority interest, plus the share of consolidated net income allocable to
the OP Unitholders. The former OP Unitholders of Storage Trust will have
the right, subject to the same limitations as included in the original
related Storage Trust partnership agreement, to convert their units into
0.86 shares of Public Storage common stock.
As a result, similar to the accounting used by Storage Trust for the OP
units, the OP units will be allocated income on the same adjusted per share
basis as the common shareholders. The computation of Pro Forma minority
interest in income is set forth as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------ -----------------
(Amounts in thousands)
<S> <C> <C>
Public Storage's historical minority interest in income................. $ (11,684) $(16,141)
Minority interest with respect to OP Units (1) ......................... (990) (946)
------------------ -----------------
Total pro forma consolidated minority interest in income................ $ (12,674) $ (17,087)
================== =================
(1) Minority interest with respect to OP Units:
Pro forma net income, before minority interest................... $208,876 $194,201
Less: Public Storage's historical minority interest.............. (11,684) (16,141)
Less: net income allocated to Public Storage's preferred
shareholders..................................................... (88,393) (59,322)
------------------ -----------------
Pro forma net income allocable to OP Units and Common Shares... 108,799 118,738
Multiplied by: Percentage allocated to minority interest, based upon
weighted average OP units outstanding (which is adjusted for the
merger exchange ratio of 0.86) of 1,023,485 and 1,014,226 for the
year ended December 31, 1997 and the nine months ended September
30, 1998, divided by total weighted average OP units outstanding
plus pro forma weighted average common shares outstanding of
112,442,244 and 127,316,281 for the year ended December 31, 1997
and the nine months ended September 30, 1998,
respectively...................................................... 0.9102% 0.7966%
------------------ -----------------
Minority interest with respect to OP Units............................... $(990) $(946)
================== =================
</TABLE>
19
<PAGE>
PUBLIC STORAGE INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1997 and the nine
months ended September 30, 1998
(Unaudited)
7. POST-MERGER PRO FORMA EPS HAS BEEN COMPUTED AS FOLLOWS:
--------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------------ -----------------
(Amounts in thousands)
<S> <C> <C>
Post-Merger pro forma net income............................................. $ 196,202 $ 177,114
Less: Income Allocated to Preferred Shareholders (Public Storage
Preferred Stock)........................................................ (88,393) (59,322)
------------------ -----------------
NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS FOR BASIC EPS............... $ 107,809 $ 117,792
Add: Minority interest with respect to OP Units per Note 6. above............ 990 946
------------------ -----------------
NET INCOME ALLOCABLE TO COMMON SHARES AND OP UNITS FOR DILUTED EPS...... $108,799 $118,738
================== =================
Post-Merger pro forma weighted average common shares, for Basic EPS..........
(1).......................................................................... 111,419 126,302
Post-Merger pro forma weighted average common shares for Diluted EPS
(1) ......................................................................... 112,957 127,767
Basic EPS - Post merger pro forma....................................... $0.97 $0.93
Diluted EPS - Post merger pro forma..................................... $0.96 $0.93
- -------------------------------------------------------------------------------------------------------------------------
(1)
Public Storage's weighted average shares, for basic purposes................. 98,446 113,311
Pro Forma Pre-Merger Storage Trust weighted average shares per Note 4,
for basic EPS.......................................................... 16,049 16,070
Adjustment to reflect exchange ratio (0.86 times Pre-Merger pro forma
weighted average shares above, less pre-merger pro forma
weighted average shares above) ........................................ (2,247) (2,250)
Less: Storage Trust Shares already owned by Public Storage (964,000
shares times 0.86 exchange ratio) ..................................... (829) (829)
------------------ -----------------
POST-MERGER PRO FORMA WEIGHTED AVERAGE SHARES, FOR BASIC EPS........... 111,419 126,302
Add: Impact of Public Storage Stock Options.................................. 515 451
Add: Impact of OP Units which are convertible into common stock of
Public Storage at the ratio of 0.86 shares of common stock per
unit (1,190,099 and 1,179,333, respectively, for the year ended
December 31, 1997 and the nine months ended September 30, 1998,
multiplied by the exchange ratio of 0.86).............................. 1,023 1,014
------------------ -----------------
POST-MERGER PRO FORMA WEIGHTED AVERAGE SHARE, FOR DILUTED EPS........... 112,957 127,767
================== =================
</TABLE>
20
<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: December 7, 1998
PUBLIC STORAGE, INC.
BY: /s/ John Reyes
-------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
(Principal financial officer)
21
