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 June 30, 2000
-------------
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 91201-2349
---------------------------------------- ----------------------
(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 August 3, 2000:
Common Stock, $.10 Par Value - 124,304,775 shares
-------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
-------------------------------------------------------
Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock, Series
--------------------------------------------------------------------------------
A, $.01 Par Value - 4,353,102 depositary shares (representing 4,353.102 shares
--------------------------------------------------------------------------------
of Equity Stock, Series A)
--------------------------
Equity Stock, Series AA, $.01 Par Value - 225,000 shares
--------------------------------------------------------
Equity Stock, Series AAA, $.01 Par Value - 4,289,544 shares
-----------------------------------------------------------
<PAGE>
PUBLIC STORAGE, INC.
INDEX
Pages
-----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 2000 3
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and 1999 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 19
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20 - 31
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
PART II. OTHER INFORMATION (Items 1, 2, 3 and 5 are not applicable)
-----------------
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 6. Exhibits and Reports on Form 8-K 32 - 37
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------------- --------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents.......................................... $ 239,951 $ 55,125
Real estate facilities, at cost:
Land.......................................................... 1,050,461 1,036,958
Buildings..................................................... 2,860,695 2,785,475
-------------- --------------
3,911,156 3,822,433
Accumulated depreciation...................................... (597,875) (533,412)
-------------- --------------
3,313,281 3,289,021
Construction in process....................................... 169,903 140,764
-------------- --------------
3,483,184 3,429,785
Investment in real estate entities................................. 459,006 457,529
Intangible assets, net............................................. 189,670 194,326
Notes receivable from affiliates................................... 31,558 18,798
Other assets....................................................... 72,863 58,822
-------------- --------------
Total assets......................................... $ 4,476,232 $ 4,214,385
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable...................................................... $ 161,386 $ 167,338
Distributions payable.............................................. - 82,086
Accrued and other liabilities...................................... 87,112 89,261
-------------- --------------
Total liabilities.................................... 248,498 338,685
Minority interest:
Preferred operating partnership units......................... 315,000 -
Other......................................................... 165,259 186,600
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
11,141,100 shares issued and outstanding, at liquidation
preference.................................................. 1,155,150 1,155,150
Common Stock, $0.10 par value, 200,000,000 shares authorized,
124,153,422 shares issued and outstanding (126,697,023 at
December 31, 1999).......................................... 12,415 12,671
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 4,353.102 shares issued and outstanding (none
issued and outstanding at December 31, 1999)................ - -
Class B Common Stock, $0.10 par value, 7,000,000 shares
authorized and issued....................................... 700 700
Paid-in capital............................................... 2,487,855 2,463,193
Cumulative net income......................................... 1,236,837 1,089,973
Cumulative distributions paid................................. (1,145,482) (1,032,587)
-------------- --------------
Total shareholders' equity................................ 3,747,475 3,689,100
-------------- --------------
Total liabilities and shareholders' equity........... $ 4,476,232 $ 4,214,385
============== ==============
</TABLE>
See accompanying notes.
1
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
REVENUES:
Rental income:
<S> <C> <C> <C> <C>
Self-storage facilities................. $ 161,295 $ 149,745 $ 315,929 $ 278,774
Commercial properties................... 2,827 1,948 5,586 3,862
Portable self-storage................... 9,240 6,448 16,789 11,876
Equity earnings of real estate entities...... 9,155 9,347 17,431 17,469
Interest and other income.................... 5,633 4,749 9,010 8,271
------------- ------------- ------------- -------------
188,150 172,237 364,745 320,252
------------- ------------- ------------- -------------
EXPENSES:
Cost of operations:
Self-storage facilities................. 51,272 45,602 101,629 86,231
Commercial properties................... 881 631 1,830 1,269
Portable self-storage................... 8,648 7,690 16,502 15,525
Depreciation and amortization............... 35,744 34,769 71,778 64,925
General and administrative.................. 5,576 3,060 8,621 5,418
Interest expense............................ 1,261 2,530 2,667 3,734
------------- ------------- ------------- -------------
103,382 94,282 203,027 177,102
------------- ------------- ------------- -------------
Income before minority interest............. 84,768 77,955 161,718 143,150
Minority interest in income:
Preferred operating partnership units....... (7,411) - (8,336) -
Other....................................... (3,054) (4,304) (6,518) (7,657)
------------- ------------- ------------- -------------
NET INCOME..................................... $ 74,303 $ 73,651 $ 146,864 $ 135,493
============= ============= ============= =============
NET INCOME ALLOCATION:
Allocable to preferred shareholders.......... $ 25,045 $ 23,824 $ 50,083 $ 45,354
Allocable to equity shareholders, Series A... 2,666 - 4,924 -
Allocable to common shareholders............. 46,592 49,827 91,857 90,139
------------- ------------- ------------- -------------
$ 74,303 $ 73,651 $ 146,864 $ 135,493
============= ============= ============= =============
PER COMMON SHARE:
Net income per share - Basic................. $0.35 $0.39 $0.69 $0.73
============= ============= ============= =============
Net income per share - Diluted............... $0.35 $0.39 $0.69 $0.73
============= ============= ============= =============
Net income per depositary share of Equity
Stock, Series A - Basic and Diluted.......... $0.61 - $1.23 -
============= ============= ============= =============
Weighted average common shares - Basic....... 131,588 128,904 132,184 123,793
============= ============= ============= =============
Weighted average common shares - Diluted..... 131,734 129,250 132,335 124,133
============= ============= ============= =============
Weighted average depositary shares of Equity
Stock, Series A - Basic and Diluted...... 4,353 - 4,028 -
============= ============= ============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Senior Class B
Preferred Common Common Paid-in
Stock Stock Stock Capital
------------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1999.......................... $ 1,155,150 $ 12,671 $ 700 $ 2,463,193
Issuance of common stock:
Exercise of stock options (197,599 shares).......... 19 3,698
Conversion of OP units (98,900 shares) ............. 9 2,631
Repurchase of common stock (2,840,100 shares) ......... (284) (63,303)
Issuance of Equity Stock, Series A to Public (4,300.555
shares)................................................ 83,810
Issuance of Equity Stock, Series A to affiliate
(52.547 shares)........................................ 1,026
Costs in connection with issuance of preferred operating
partnership units (see note 7)......................... (3,200)
Net income.............................................
Cash distributions:
Cumulative Senior Preferred Stock ..................
Equity Stock, Series A..............................
Class B Common Stock................................
Common Stock........................................
------------ ----------- ---------- -------------
Balances at June 30, 2000.............................. $ 1,155,150 $ 12,415 $ 700 $ 2,487,855
============ =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
Total
Cumulative Cumulative Shareholders'
Net Income Distributions Equity
------------- ------------- -------------
<S> <C> <C> <C>
Balances at December 31, 1999.......................... $ 1,089,973 $ (1,032,587) $ 3,689,100
Issuance of common stock:
Exercise of stock options (197,599 shares).......... 3,717
Conversion of OP units (98,900 shares) ............. 2,640
Repurchase of common stock (2,840,100 shares) ......... (63,587)
Issuance of Equity Stock, Series A to Public (4,300.555
shares)................................................ 83,810
Issuance of Equity Stock, Series A to related party
(52.547 shares)........................................ 1,026
Costs in connection with issuance of preferred operating
partnership units (see note 7)......................... (3,200)
Net income............................................. 146,864 146,864
Cash distributions:
Cumulative Senior Preferred Stock .................. (50,083) (50,083)
Equity Stock, Series A.............................. (4,924) (4,924)
Class B Common Stock................................ (2,988) (2,988)
Common Stock........................................ (54,900) (54,900)
------------- ------------- -------------
Balances at June 30, 2000.............................. $ 1,236,837 $ (1,145,482) $ 3,747,475
============= ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------------
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income.................................................................. $ 146,864 $ 135,493
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 71,778 64,925
Depreciation included in equity earnings of real estate entities.......... 10,130 9,574
Minority interest in income............................................... 14,854 7,657
-------------- --------------
Total adjustments..................................................... 96,762 82,156
-------------- --------------
Net cash provided by operating activities......................... 243,626 217,649
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on notes receivable from affiliates........... 1,980 26,818
Notes receivable from affiliates.......................................... (11,400) (29,500)
Capital improvements to real estate facilities............................ (9,182) (10,156)
Construction in process................................................... (93,002) (45,238)
Acquisition of minority interests......................................... (28,141) (14,654)
Proceeds from the disposition of real estate facilities................... 8,652 8,417
Proceeds from the disposition of real estate investments.................. 20,276 -
Acquisition of investment in real estate entities......................... (49,462) (50,456)
Acquisition of real estate facilities..................................... (14,848) (5,243)
Acquisition cost of business combinations................................. - (171,896)
-------------- --------------
Net cash used in investing activities............................. (175,127) (291,908)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................................... (5,952) (8,875)
Net proceeds from the issuance of common stock............................ 3,717 8,083
Net proceeds from the issuance of preferred stock......................... - 222,555
Net proceeds from the issuance of equity stock............................ 39,800 -
Net proceeds from the issuance of preferred partnership units............. 311,800 -
Repurchase of common stock................................................ (63,587) (17,578)
Distributions paid to preferred and common shareholders................... (112,895) (102,121)
Special distribution paid to common shareholders.......................... (38,076) -
Investment by minority interests.......................................... 6,593 -
Distributions to holders of preferred partnership units................... (8,336)
Distributions from operations to minority interests....................... (18,328) (12,472)
Net reinvestment (divestment) of minority interests....................... 5,753 (2,068)
Other..................................................................... (4,162) 3,445
-------------- --------------
Net cash provided by financing activities......................... 116,327 90,969
-------------- --------------
Net increase in cash and cash equivalents..................................... 184,826 16,710
Cash and cash equivalents at the beginning of the period...................... 55,125 51,225
-------------- --------------
Cash and cash equivalents at the end of the period............................ $ 239,951 $ 67,935
============== ==============
</TABLE>
See accompanying notes.
4
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
----------------------------------
2000 1999
-------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Business combinations:
<S> <C> <C>
Real estate facilities......................................... $ - $ (720,197)
Construction in process........................................ - (11,449)
Investment in real estate entities............................. - (356)
Mortgage notes receivable...................................... - (6,739)
Other assets................................................... - (1,633)
Accrued and other liabilities.................................. - 22,824
Minority interest.............................................. - 32,201
Notes payable.................................................. - 100,000
Reduction to investment in real estate entities in connection with:
Business combinations.......................................... - 66,230
Acquisitions of real estate facilities......................... 3,143
Disposition of real estate investment in exchange for other assets:
Investment in real estate entities............................. 14,435 -
Other assets................................................... (14,435) -
Real estate acquired in exchange for equity stock and reduction to
investment in real estate entities.............................. (19,017) -
Acquisition of minority interest and real estate in exchange for
common stock:
Real estate facilities......................................... (15,681) (17,155)
Minority interest.............................................. (15,450) (13,446)
Mortgage notes receivable forgiven in exchange for minority interest
and real estate.................................................. 350 -
Real estate facilities and accumulated depreciation disposed of in
exchange for notes receivable, minority interests and other assets 18,769 22,677
Minority interests acquired in exchange for the disposition of
real estate facilities........................................... (6,427) -
Note receivable received in exchange for the disposition of real
estate facilities................................................ (3,690) (10,460)
Issuance of Equity Stock, Series A:
In connection with special distribution to common shareholders.. 44,010 -
In connection with acquisition of real estate facilities........ 1,026 -
Decrease in distributions payable through the issuance of Equity
Stock, Series A.................................................. (44,010) -
Other assets received in connection with real estate dispositions... - (3,800)
Issuance of common stock :
In connection with business combinations....................... - 347,223
To acquire minority interest in consolidated real estate 2,640 15,947
entities.......................................................
</TABLE>
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. Description of the business
---------------------------
Public Storage, Inc. (the "Company") is a California corporation,
which was organized in 1980. We are a fully integrated, self-administered
and self-managed real estate investment trust ("REIT") whose principal
business activities include the acquisition, development, ownership and
operation of storage facilities which offer storage spaces and containers
for lease, usually on a month-to-month basis, for personal and business
use. In addition, to a much lesser extent, we have interests in commercial
properties.
In 1996 and 1997, we organized Public Storage Pickup and Delivery,
Inc., as a separate corporation and partnership (the corporation and
partnership are collectively referred to as "PSPUD") to operate storage
facilities that rent portable storage containers to customers for storage
in central warehouses. At June 30, 2000, PSPUD had 37 facilities in
operation.
We invest in real estate facilities by acquiring wholly owned
facilities or by acquiring interests in real estate entities which own real
estate facilities. At June 30, 2000, we had direct and indirect equity
interests in 1,455 properties located in 38 states, including 1,325 storage
facilities and 130 commercial properties. We operate all of the
self-storage facilities under the "Public Storage" name.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The consolidated financial statements include the accounts of the
Company and 34 controlled entities (the "Consolidated Entities").
Collectively, the Company and these entities own a total of 1,219 real
estate facilities, consisting of 1,213 storage facilities and six
commercial properties.
At June 30, 2000, we had equity investments in 11 limited
partnerships in which we do not have a controlling interest. These limited
partnerships collectively own 112 self-storage facilities, which are
managed by the Company. In addition, we own approximately 41% of the common
interest in PS Business Parks, Inc. ("PSB"), which owns and operates 124
commercial properties. We do not control these entities, accordingly, our
investments in these limited partnerships and PSB are accounted for using
the equity method.
Use of estimates
----------------
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Income tax
----------
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, we are not taxed on that portion of
our taxable income, which is distributed to our shareholders, provided that
we meet certain tests. We believe we will meet these tests during 2000 and,
accordingly, no provision for income taxes has been made in the
accompanying financial statements.
6
<PAGE>
Financial instruments
---------------------
The methods and assumptions used to estimate the fair value of
financial instruments is described below. We have estimated the fair value
of our financial instruments using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop estimates of market value. Accordingly,
estimated fair values are not necessarily indicative of the amounts that
could be realized in current market exchanges.
For purposes of financial statement presentation, we consider all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Due to the short period to maturity of our cash and cash
equivalents, accounts receivable, other assets, and accrued and other
liabilities, the carrying values as presented on the consolidated balance
sheets are reasonable estimates of fair value.
Financial assets that are exposed to credit risk consist primarily
of cash and cash equivalents, accounts receivable, and notes receivable.
Cash and cash equivalents, which consist of short-term investments,
including commercial paper and treasury securities, are only invested in
entities with an investment grade rating. Notes receivable are
substantially all secured by real estate facilities that we believe are
valued in excess of the related note receivable. Accounts receivable are
not a significant portion of total assets and are comprised of a large
number of individual customers.
Real estate facilities
----------------------
Real estate facilities are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the buildings and improvements, which are generally between 5 and 25 years.
Evaluation of asset impairment
------------------------------
In 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which requires impairment losses to be
recorded on long-lived assets. We annually evaluate long-lived assets
(including goodwill), by identifying indicators of impairment and by
comparing the sum of the estimated undiscounted future cash flows for each
asset to the asset's carrying amount. When indicators of impairment are
present and the sum of the undiscounted cash flows is less than the
carrying value of such asset, an impairment loss is recorded equal to the
difference between the asset's current carrying value and its value based
upon discounting its estimated future cash flows. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. Such assets are to be reported at the lower of their carrying
amount or fair value, less cost to sell. Our evaluations have indicated no
impairment in the carrying amount of our assets.
Other assets
------------
Other assets primarily consist of furniture, fixtures, equipment,
and other assets, including those associated with the portable self-storage
business. Included in other assets with respect to the portable
self-storage business is furniture, fixtures, and equipment (net of
accumulated depreciation) of $32,999,000 and $34,704,000 at June 30, 2000
and December 31, 1999, respectively. Included in depreciation and
amortization expense for the three months ended June 30, 2000 and 1999 is
$1,255,000 and $1,250,000, respectively, and $2,408,000 and $2,432,000 for
the six months ended June 30, 2000 and 1999, respectively, of depreciation
of furniture, fixtures, and equipment of the portable self-storage
business.
7
<PAGE>
Intangible assets
-----------------
Intangible assets consist of property management contracts
($165,000,000) and the cost over the fair value of net tangible and
identifiable intangible assets ($67,726,000) acquired. Intangible assets
are amortized straight-line over 25 years. At June 30, 2000 intangible
assets are net of accumulated amortization of $43,056,000 ($38,400,000 at
December 31, 1999). Included in depreciation and amortization expense for
the three and six months ended June 30, 2000 and 1999 is $2,328,000 and
$4,656,000, respectively, related to the amortization of intangible assets.
Revenue and expense recognition
-------------------------------
Property rents are recognized as earned. Equity in earnings of
real estate entities is recognized based on our ownership interest in the
earnings of each of the unconsolidated real estate entities. Advertising
costs are expensed as incurred.
Environmental costs
-------------------
Our policy is to accrue environmental assessments and/or
remediation cost when it is probable that such efforts will be required and
the related costs can be reasonably estimated. Our current practice is to
conduct environmental investigations in connection with property
acquisitions. Although there can be no assurance, we are not aware of any
environmental contamination of any of our facilities which individually or
in the aggregate would be material to our overall business, financial
condition, or results of operations.
Net income per common share
---------------------------
Dividends paid to our preferred shareholders totaling $25,045,000
and $23,824,000 for the three months ended June 30, 2000 and 1999,
respectively, and $50,083,000 and $45,354,000 for the six months ended June
30, 2000 and 1999, respectively, have been deducted from net income to
arrive at net income allocable to our common shareholders.
Net income allocated to our common shareholders has been further
allocated among our two classes of common stock; our regular common stock
and our Equity Stock, Series A. The allocation among each class was based
upon the two-class method. Under the two-class method, earnings per share
for each class of common stock is determined according to dividends
declared (or accumulated) and participation rights in undistributed
earnings. Under the two-class method, the Equity Stock, Series A for the
three and six months ended June 30, 2000 was allocated approximately
$2,666,000 and $4,924,000, respectively, of net income and the remaining
$46,592,000 and $91,857,000, respectively, was allocated to the regular
common shares.
Diluted net income per common share is computed using the weighted
average common shares outstanding (adjusted for stock options). Commencing
January 1, 2000, the Company's 7,000,000 Class B common shares outstanding
began to participate in distributions of the Company's earnings.
Distributions per share of Class B common stock are equal to 97% of the per
share distribution paid to the Company's regular common shares. As a result
of this participation in distribution of earnings, for purposes of
computing net income per common share, we began to include 6,790,000
(7,000,000 x 97%) Class B common shares in the weighted average common
equivalent shares for the three and six months ended June 30, 2000.
Weighted average shares for the three and six months ended June 30, 1999
does not include any shares with respect to the Class B common stock as
these shares did not participate in distributions of the Company's earnings
prior to January 1, 2000.
8
<PAGE>
Stock-based compensation
------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 "Accounting for Stock-Based Compensation" which provides
companies an alternative to accounting for stock-based compensation as
prescribed under APB Opinion No. 25 (APB 25). Statement 123 encourages, but
does not require companies to recognize expense for stock-based awards
based on their fair value at date of grant. Statement No. 123 allows
companies to continue to follow existing accounting rules (intrinsic value
method under APB 25) provided that pro-forma disclosures are made of what
net income and earnings per share would have been had the new fair value
method been used. We have elected to adopt the disclosure requirements of
Statement No. 123 but will continue to account for stock-based compensation
under APB 25.
Reclassifications
-----------------
Certain reclassifications have been made to the consolidated financial
statements for 1999 in order to conform to the 2000 presentation.
3. Merger with Storage Trust Realty, Inc.
--------------------------------------
On March 12, 1999, we completed a merger with Storage Trust
Realty, Inc. ("Storage Trust"). All the outstanding stock of Storage Trust
was exchanged for 13,009,485 shares of the Company's common stock and an
additional 1,011,963 shares were reserved for issuance upon conversion of
limited partnership units in Storage Trust's operating partnership. In this
merger, the Company acquired interests in 215 storage facilities located in
16 states totaling approximately 12 million net rentable square feet.
The historical operating results of the merger with Storage Trust
prior to March 12, 1999 have not been included in our historical operating
results. Pro forma selected financial data for the six months ended June
30, 1999 as though the merger had been effective at January 1, 1999 are as
follows:
Six Months Ended
(In thousands, except per share data) June 30, 1999
-------------------------------------------- -----------------
Revenues.................................... $ 337,651
Net income.................................. $ 139,422
Net income per common share (Basic)......... $ 0.73
Net income per common share (Diluted)....... $ 0.73
The pro forma data does not purport to be indicative of
operations that would have occurred had the merger occurred at the
beginning of the 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 costs to finance the cash portion of the
acquisition cost, and (iii) estimated increased depreciation expense.
9
<PAGE>
4. Real estate facilities
----------------------
Activity in real estate facilities during 2000 is as follows:
In thousands
---------------
Operating facilities, at cost
Balance at December 31, 1999.................... $ 3,822,433
Developed facilities............................ 63,863
Acquired facilities............................. 19,017
Disposition of facilities....................... (19,020)
Acquisition of minority interest................ 15,681
Capital improvements............................ 9,182
---------------
Balance at June 30,2000......................... 3,911,156
---------------
Accumulated depreciation:
Balance at December 31, 1999.................... (533,412)
Additions during the year....................... (64,714)
Disposition of facilities....................... 251
---------------
Balance at June 30,2000......................... (597,875)
---------------
Construction in progress:
Balance at December 31, 1999.................... 140,764
Current development............................. 93,002
Developed facilities............................ (63,863)
---------------
Balance at June 30,2000......................... 169,903
---------------
Total real estate facilities at June 30, 2000... $ 3,483,184
===============
During the six months ended June 30, 2000, we opened 13 newly
developed facilities having approximately 910,000 aggregate net rentable
square feet and a total cost of $57.5 million, and two expansions of
facilities having a total cost of $6.4 million. Construction in progress at
June 30, 2000 consists of 29 storage facilities, and 15 expansions of
existing storage facilities.
During the six months ended June 30, 2000 we acquired two
commercial facilities and two storage facilities in separate transactions
for an aggregate cost of $19,017,000, comprised of $14,848,000 cash, a
$3,143,000 investment in real estate entities, and $1,026,000 in the
issuance of the Company's Equity Stock, Series A.
As previously reported in our Form 10-K, we granted an option to
acquire eight of our properties. In January, 2000, the buyer exercised the
option and, as a result, we disposed of eight storage facilities for an
aggregate of $18,769,000, composed of cash ($8,652,000), a reduction of
minority interests ($6,427,000), and a note receivable ($3,690,000). There
was no gain or loss on this transaction.
Our policy is to capitalize interest incurred on debt during the
course of construction of our self-storage and industrial facilities.
Interest capitalized during the three and six months ended June 30, 2000
was $2,045,000 and $4,156,000, respectively, compared to $988,000 and
$1,946,000, respectively, for the same periods in 1999.
10
<PAGE>
5. Investment in real estate entities:
-----------------------------------
At June 30, 2000, our investment in real estate entities consists
of (i) partnership interests in 11 partnerships, which principally own
self-storage facilities and (ii) our ownership interest in PSB. Such
interests are non-controlling interests of less than 50% and are accounted
for using the equity method of accounting. Accordingly, earnings are
recognized based upon our ownership interest in each of the partnerships.
During the three and six months ended June 30, 2000 we recognized earnings
from our investments of $9,155,000 and $17,431,000, respectively, compared
to $9,347,000 and $17,469,000 for the same period in 1999.
In April 1997, we formed a joint venture partnership with an
institutional investor (the "Joint Venture") to participate in the
development of approximately $220 million of storage facilities. The Joint
Venture has a total of 45 opened facilities with a total cost of $217.4
million at June 30, 2000, and has two projects in process with an aggregate
cost incurred to date of approximately $10.8 million ($1.3 million
estimated to complete) at June 30, 2000.
Summarized combined financial data (based on historical cost) with
respect to those unconsolidated real estate entities in which the Company
had an ownership interest at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
For the six months ended June 30, 2000
--------------------------------------------------------------------------
Other Equity Development
Investments Joint Venture PSB Total
-------------- -------------- -------------- --------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Rental income......................... $ 19,945 $ 11,614 $ 70,467 $ 102,026
Other income.......................... 612 122 3,485 4,219
-------------- -------------- -------------- --------------
Total revenues........................ 20,557 11,736 73,952 106,245
-------------- -------------- -------------- --------------
Cost of operations.................... 6,257 5,040 19,670 30,967
Depreciation.......................... 2,221 3,096 17,274 22,591
Other expenses........................ 1,805 73 2,722 4,600
-------------- -------------- -------------- --------------
Total expenses........................ 10,283 8,209 39,666 58,158
-------------- -------------- -------------- --------------
Income before minority interest....... 10,274 3,527 34,286 48,087
Minority interest .................... - - (12,031) (12,031)
-------------- -------------- -------------- --------------
Net income............................ $ 10,274 $ 3,527 $ 22,255 $ 36,056
============== ============== ============== ==============
At June 30, 2000:
-----------------
Real estate, net...................... $ 68,777 $ 219,496 $ 822,054 $ 1,110,327
Total assets.......................... 98,594 224,085 906,321 1,229,000
Total liabilities..................... 47,991 4,087 57,964 110,042
Minority interest..................... - - 291,296 291,296
Total equity.......................... 50,603 219,998 557,061 827,662
The Company's investment (book value) at
June 30, 2000....................... $ 142,594 $ 65,999 $ 250,413 $ 459,006
The Company's effective average
ownership interest at June 30, 2000. 46% 30% 41%
</TABLE>
6. Revolving line of credit
------------------------
The credit agreement (the "Credit Facility") has a borrowing limit
of $150 million and an expiration date of July 1, 2002. The expiration date
may be extended by one year on each anniversary of the credit agreement.
Interest on outstanding borrowings is payable monthly. At our option, the
rate of interest charged is equal to (i) the prime rate or (ii) a rate
11
<PAGE>
ranging from the London Interbank Offered Rate ("LIBOR") plus 0.40% to
LIBOR plus 1.10% depending on the Company's credit ratings and coverage
ratios, as defined. In addition, the Company is required to pay a quarterly
commitment fee of 0.250% (per annum). The Credit Facility allows us, at our
option, to request the group of banks to propose the interest rate they
would charge on specific borrowings not to exceed $50 million; however, in
no case may the interest rate proposal be greater than the amount provided
by the Credit Facility. At June 30, 2000, we had no borrowings on our line
of credit.
7. Minority interest
-----------------
In consolidation, we classify ownership interests in the net
assets of each of the Consolidated Entities, other than our own, as
minority interest on the consolidated financial statements. Minority
interest in income consists of the minority interests' share of the
operating results of the Company relating to the consolidated operations of
the Consolidated Entities.
In November 1999, we formed a second development joint venture
with a joint venture partner to develop $100 million of storage facilities
and to purchase $100 million of the Company's Equity Stock, Series AAA. The
joint venture is funded solely with equity capital consisting of 51% from
the Company and 49% from the joint venture partner. The joint venture is
consolidated and, accordingly, the Equity Stock, Series AAA is eliminated
in consolidation. Included in minority interest is approximately
$69,893,000 contributed by our joint venture partner since inception of the
venture. Minority interest has increased $6,593,000 since December 31, 1999
as a result of contributions by our joint venture partner.
On March 17, 2000, one of our operating partnerships issued $240.0
million of 9.5% Series N Cumulative Redeemable Perpetual Preferred Units
and on March 29, 2000, one of our operating partnerships issued $75.0
million of 9.125% Series O Cumulative Redeemable Perpetual Preferred Units.
The units are not redeemable during the first 5 years, thereafter, at our
option, we can call the units for redemption at the issuance amount plus
any unpaid distributions. The units are not redeemable by the holder.
Subject to certain conditions, the Series N preferred units are convertible
into shares of 9.5% Series N Cumulative Preferred Stock and the Series O
preferred units are convertible into shares of 9.125% Series O Cumulative
Preferred Stock of the Company. We incurred $3,200,000 in costs in these
issuances; these costs were recorded as a reduction to Paid in Capital.
These transactions had the effect of increasing minority interest by $315.0
million. For the three and six months ended June 30, 2000, the holders of
these preferred units were paid in aggregate approximately $7,411,000 and
$8,336,000, respectively, in distributions and received a corresponding
allocation of minority interest in earnings.
In connection with the merger with Storage Trust in March 1999,
minority interest increased by approximately $27,009,000, reflecting the
fair value of operating partnership units ("OP Units") in Storage Trust's
operating partnership owned by minority interests. OP Units are convertible
on a one-for-one basis (subject to certain limitations) into common shares
of the Company at the option of the unitholder. Minority interest in income
with respect to OP Units reflects the OP Units' share of the net income of
the Company, with net income allocated to weighted average outstanding OP
Units on a per unit basis equal to diluted earnings per common share.
During the six months ended June 30, 2000, 376,004 OP units were redeemed
in connection with the sale of real estate facilities and other minority
interest transactions, and the related impact on minority interest is
included in the transactions summarized below. As of June 30, 2000, 394,888
of such units are outstanding.
During the six months ended June 30, 2000, minority interest was
reduced by $6,427,000 in connection with the disposition of real estate
facilities. In addition, in the six months ended June 30, 2000, the Company
acquired interests in the Consolidated Entities for an aggregate cost of
$31,131,000, comprised of $28,141,000 cash, forgiveness of a note
12
<PAGE>
receivable of $350,000, and issuance of common stock of $2,640,000; these
acquisitions had the effect of reducing minority interest by $15,450,000,
with the excess of cost over underlying book value ($15,681,000) allocated
to real estate.
8. Shareholders' equity
--------------------
Preferred stock
---------------
At June 30, 2000, we had the following series of Preferred Stock
outstanding:
Dividend Shares Carrying
Series Rate Outstanding Amount
----------------------- ----------- ------------ ------------
(Dollar amount in thousands)
Series A 10.000% 1,825,000 $ 45,625
Series B 9.200% 2,386,000 59,650
Series C Adjustable 1,200,000 30,000
Series D 9.500% 1,200,000 30,000
Series E 10.000% 2,195,000 54,875
Series F 9.750% 2,300,000 57,500
Series G 8.875% 6,900 172,500
Series H 8.450% 6,750 168,750
Series I 8.625% 4,000 100,000
Series J 8.000% 6,000 150,000
Series K 8.250% 4,600 115,000
Series L 8.250% 4,600 115,000
Series M 8.750% 2,250 56,250
------------ ------------
Total Senior Preferred Stock 11,141,100 $ 1,155,150
============ ============
The Series A through Series M preferred stock (collectively the
"Senior Preferred Stock") have general preference rights with respect to
liquidation and quarterly distributions. Holders of the preferred stock,
except under certain conditions and as noted above, will not be entitled to
vote on most matters. In the event of a cumulative arrearage equal to six
quarterly dividends or failure to maintain a Debt Ratio (as defined in the
governing documents) of 50% or less, holders of all outstanding series of
preferred stock (voting as a single class without regard to series) will
have the right to elect two additional members to serve on the Company's
Board of Directors until events of default have been cured. At June 30,
2000, there were no dividends in arrears and the Debt Ratio was 3.2%.
Except under certain conditions relating to the Company's
qualification as a REIT, the Senior Preferred Stock is not redeemable prior
to the following dates: Series A - September 30, 2002, Series B - March 31,
2003, Series C - June 30, 1999, Series D - September 30, 2004, Series E -
January 31, 2005, Series F - April 30, 2005, Series G - December 31, 2000,
Series H - January 31, 2001, Series I - October 31, 2001, Series J - August
31, 2002, Series K - January 19, 2004, Series L - March 10, 2004, Series M
- August 17, 2004. On or after the respective dates, each of the series of
Senior Preferred Stock will be redeemable at the option of the Company, in
whole or in part, at $25 per share (or depositary share in the case of the
Series G, Series H, Series I, Series J, Series K, Series L and Series M),
plus accrued and unpaid dividends.
13
<PAGE>
Equity Stock
------------
The Company is authorized to issue 200,000,000 shares of Equity
Stock. The Articles of Incorporation provide that the Equity Stock may be
issued from time to time in one or more series and gives the Board of
Directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, redemption provisions and liquidation rights
of each series of Equity Stock.
In January 2000, we issued 4,300,555 depositary shares (2,200,555
shares as part of a special distribution declared on November 15, 1999 and
2,100,000 shares in a separate public offering) each representing 1/1,000
of a share of Equity Stock, Series A ("Equity Stock A"). In addition, in
the second quarter of 2000, we issued 52,547 depositary shares of Equity
Stock A to a related party in connection with the acquisition of real
estate facilities. The Equity Stock A ranks on a parity with common stock
and junior to the Senior Preferred Stock with respect to general preference
rights and has a liquidation amount which cannot exceed $24.50 per share.
Distributions with respect to each depositary share shall be the lesser of:
a) five times the per share dividend on the Common Stock or b) $2.45 per
annum (prorated for the year 2000). Except in order to preserve the
Company's federal income tax status as a REIT, we may not redeem the
depositary shares before March 31, 2005. On or after March 31, 2005, we
may, at our option, redeem the depositary shares at $24.50 per depositary
share. If the Company fails to preserve its federal income tax status as a
REIT, the depositary shares will be convertible into common stock on a one
for one basis. The depositary shares are otherwise not convertible into
common stock. Holders of depositary shares vote as a single class with our
holders of common stock on shareholder matters, but the depositary shares
have the equivalent of one-tenth of a vote per depositary share. We have no
obligation to pay distributions if no distributions are paid to common
shareholders.
In June 1997, we contributed $22,500,000 (225,000 shares) of
equity stock, now designated as Equity Stock, Series AA ("Equity Stock AA")
to a partnership in which we are the general partner. As a result of this
contribution, we obtained a controlling interest in the partnership and
began to consolidate the accounts of the partnership and therefore the
equity stock is eliminated in consolidation. The Equity Stock AA ranks on a
parity with Common Stock and junior to the Senior Preferred Stock with
respect to general preference rights and has a liquidation amount of ten
times the amount paid to each Common Share up to a maximum of $100 per
share. Quarterly distributions per share on the Equity Stock AA are equal
to the lesser of (i) 10 times the amount paid per Common Stock or (ii)
$2.20. We have no obligation to pay distributions if no distributions are
paid to common shareholders.
In November 1999, we sold $100,000,000 (4,289,544 shares) of
Equity Stock, Series AAA ("Equity Stock AAA") to a newly formed joint
venture. We control the joint venture and consolidate the accounts of the
joint venture, and accordingly the Equity Stock AAA is eliminated in
consolidation. The Equity Stock AAA ranks on a parity with common stock and
junior to the Senior Preferred Stock (as defined below) with respect to
general preference rights, and has a liquidation amount equal to 120% of
the amount distributed to each common share. Annual distributions per share
are equal to the lesser of (i) five times the amount paid per common share
or (ii) $2.1564. We have no obligation to pay distributions if no
distributions are paid to common shareholders.
Common Stock
------------
During the six months ended June 30, 2000, the Company issued
197,599 shares of common stock in connection with the exercise of stock
options and 98,900 shares in connection with the redemption of Storage
Trust OP Units.
14
<PAGE>
As previously announced, the Company's Board of Directors
authorized the repurchase from time to time of up to 15,000,000 shares of
the Company's common stock on the open market or in privately negotiated
transactions. In the six months ended June 30, 2000, the Company
repurchased a total of 2,840,100 shares, for a total aggregate cost of
approximately $63,585,000. From the initial authorization through June 30,
2000, the Company has repurchased a total of 10,248,927 shares of common
stock at an aggregate cost of approximately $244,406,000. From July 1, 2000
through August 9, 2000, we have not repurchased any additional shares.
Class B Common Stock
--------------------
The Class B Common Stock was eligible to receive distributions
commencing January 1, 2000 and will participate in 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, (i) not participate in liquidating
distributions, (ii) not be entitled to vote (except as expressly required
by California law) and (iii) automatically convert into Common Stock, on a
share for share basis, upon the later to occur of FFO per common share
aggregating $3.00 during any period of four consecutive calendar quarters
or January 1, 2003.
For these purposes, FFO means net income (loss) before (i) gain
(loss) on early extinguishment of debt, (ii) minority interest in income
and (iii) gain (loss) on disposition of real estate, adjusted as follows:
(a) plus depreciation and amortization, and (b) less FFO attributable to
minority interest. FFO per common share means FFO less preferred stock
dividends and Equity Stock A dividends 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
above) was $2.57 for the four consecutive calendar quarters ended June 30,
2000.
15
<PAGE>
Dividends
---------
The following summarizes dividends during the first six months of
2000:
Distributions Per
Share or
Depositary Share Total Distributions
----------------- -------------------
Series A........................... $1.250 $2,280,000
Series B........................... $1.150 2,744,000
Series C........................... $0.867 1,041,000
Series D........................... $1.188 1,426,000
Series E........................... $1.250 2,744,000
Series F........................... $1.219 2,802,000
Series G........................... $1.109 7,656,000
Series H........................... $1.056 7,130,000
Series I........................... $1.078 4,312,000
Series J........................... $1.000 6,000,000
Series K .......................... $1.031 4,744,000
Series L .......................... $1.031 4,744,000
Series M .......................... $1.094 2,460,000
-------------------
50,083,000
Equity Stock, Series A............. $1.130 4,924,000
Common............................. $0.440 54,900,000
Common, Series B................... $0.427 2,988,000
-------------------
Total dividends................. $112,895,000
===================
At December 31, 1999, the Company had accrued distributions
totaling $82,086,000 ($0.64 per share) of the common dividend for 1999, of
which $38,076,000 was paid on January 14, 2000 in cash and $44,010,000 was
paid in the issuance of depositary shares of Equity Stock A.
The dividend rate on the Series C Preferred Stock for the first
and second quarters of 2000 was equal to 6.897% and 6.974%, 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, or Thirty Year Constant
Maturity Rate) multiplied by 110%. However, the dividend rate for any
dividend period will neither be less than 6.75% per annum nor greater than
10.75%. The dividend rate for the quarter ending September 30, 2000 will be
equal to 6.75% per annum.
10. Segment Information
-------------------
In July 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"), which establishes standards for the way that
public business enterprises report information about operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. We adopted this standard effective for the year
ended December 31, 1998.
Description of each reportable segment
--------------------------------------
Our reportable segments reflect significant operating activities
that are evaluated separately by management. We have three reportable
segments: self-storage operations, portable self-storage operations, and
commercial property operations.
16
<PAGE>
The self-storage segment comprises the direct ownership,
development, and operation of traditional storage facilities and the
ownership of equity interests in entities that own storage properties. The
portable self-storage operations reflect the containerized portable
self-storage operations of PSPUD. The commercial property segment reflects
our interest in the ownership and operation of commercial properties. The
vast majority of the commercial property operations are conducted through
PSB, and to a much lesser extent the Company and certain of its
unconsolidated subsidiaries own commercial space, managed by PSB, in
facilities that combine storage and commercial space for rent.
Measurement of segment profit or loss
-------------------------------------
We evaluate performance and allocate resources based upon the net
segment income of each segment. Net segment income represents net income in
conformity with generally accepted accounting principles and our
significant accounting policies as denoted in Note 2, before interest and
other income, interest expense, general and administrative expense, and
minority interest in income. The accounting policies of the reportable
segments are the same as those described in the Summary of Significant
Accounting Policies.
Interest and other income, interest expense, corporate general and
administrative expense, and minority interest in income are not allocated
to segments because management does not utilize them to evaluate of the
results of operations of each segment.
Measurement of segment assets
-----------------------------
No segment data relative to assets or liabilities is presented,
because we do not evaluate performance based upon the assets or liabilities
of the segments. We believe that the historical cost of the Company's real
property does not have any significant bearing upon the performance of the
commercial property and storage segments. In the same manner, management
believes that the book value of investment in real estate entities as
having no bearing upon the results of those investments. The only other
types of assets that might be allocated to individual segments are trade
receivables, payables, and other assets which arise in the ordinary course
of business, but they are also not a significant factor in the measurement
of segment performance. We perform post-acquisition analysis of various
investments; however, such evaluations are beyond the scope of FAS 131.
Our income statement provides most of the information required in
order to determine the performance of each of our three segments. The
following tables reconcile the performance of each segment, in terms of
segment revenues and segment income, to our consolidated revenues and net
income. It further provides detail of the segment components of the income
statement item, "Equity in earnings of real estate entities."
17
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 Change 2000 1999 Change
--------- --------- --------- --------- --------- ---------
(Dollar amounts in thousands)
RECONCILIATION OF REVENUES BY SEGMENT
SELF STORAGE
<S> <C> <C> <C> <C> <C> <C>
Self-storage property rentals........................ $161,295 $149,745 $11,550 $315,929 $278,774 $37,155
Equity in earnings - self storage property operations 5,733 6,852 (1,119) 10,982 11,119 (137)
Equity in earnings - Depreciation (self storage) .... (1,384) (2,505) 1,121 (3,026) (3,967) 941
--------- --------- --------- --------- --------- ---------
Self storage segment revenues.................... 165,644 154,092 11,552 323,885 285,926 37,959
--------- --------- --------- --------- --------- ---------
PORTABLE SELF STORAGE ................................. 9,240 6,448 2,792 16,789 11,876 4,913
--------- --------- --------- --------- --------- ---------
COMMERCIAL PROPERTIES
Commercial property rentals.......................... 2,827 1,948 879 5,586 3,862 1,724
Equity in earnings - commercial property operations.. 10,729 8,878 1,851 20,558 17,300 3,258
Equity in earnings - Depreciation (commercial
properties)....................................... (3,714) (2,940) (774) (7,104) (5,607) (1,497)
--------- --------- --------- --------- --------- ---------
Commercial properties segment revenues.......... 9,842 7,886 1,956 19,040 15,555 3,485
--------- --------- --------- --------- --------- ---------
OTHER ITEMS NOT ALLOCATED TO SEGMENTS
Equity in earnings - general and administrative and (2,209) (938) (1,271) (3,979) (1,376) (2,603)
other.............................................
Interest and other income............................ 5,633 4,749 884 9,010 8,271 739
--------- --------- --------- --------- --------- ---------
Total other items not allocated to segments...... 3,424 3,811 (387) 5,031 6,895 (1,864)
--------- --------- --------- --------- --------- ---------
Total revenues................................... $188,150 $172,237 $15,913 $364,745 $320,252 $44,493
========= ========= ========= ========= ========= =========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------- --------- ----------------------
2000 1999 Change 2000 1999 Change
--------- --------- --------- --------- --------- ---------
(Dollar amounts in thousands)
RECONCILIATION OF NET INCOME BY SEGMENT
Self storage
<S> <C> <C> <C> <C> <C> <C>
Self-storage properties ............................. $110,023 $104,143 $5,880 $214,300 $192,543 $21,757
Depreciation and amortization - self storage......... (33,730) (33,089) (641) (68,165) (61,639) (6,526)
Equity in earnings - self storage property operations 5,733 6,852 (1,119) 10,982 11,119 (137)
Equity in earnings - depreciation (self-storage) .... (1,384) (2,505) 1,121 (3,026) (3,967) 941
--------- --------- --------- --------- --------- ---------
Total self storage segment net income............ 80,642 75,401 5,241 154,091 138,056 16,035
--------- --------- --------- --------- --------- ---------
Portable self storage.................................. (663) (2,492) 1,829 (2,121) (6,081) 3,960
--------- --------- --------- --------- --------- ---------
Commercial properties
Commercial properties................................ 1,946 1,317 629 3,756 2,593 1,163
Depreciation and amortization - commercial properties (759) (430) (329) (1,205) (854) (351)
Equity in earnings - commercial property operations.. 10,729 8,878 1,851 20,558 17,300 3,258
Equity in earnings - depreciation (commercial
properties) ........................................ (3,714) (2,940) (774) (7,104) (5,607) (1,497)
--------- --------- --------- --------- --------- ---------
Total commercial property segment net income..... 8,202 6,825 1,377 16,005 13,432 2,573
--------- --------- --------- --------- --------- ---------
Other items not allocated to segments:
Equity in earnings - general and administrative and
other............................................. (2,209) (938) (1,271) (3,979) (1,376) (2,603)
Interest and other income............................ 5,633 4,749 884 9,010 8,271 739
General and administrative........................... (5,576) (3,060) (2,516) (8,621) (5,418) (3,203)
Interest expense..................................... (1,261) (2,530) 1,269 (2,667) (3,734) 1,067
Minority interest in income.......................... (10,465) (4,304) (6,161) (14,854) (7,657) (7,197)
--------- --------- --------- --------- --------- ---------
Total other items not allocated to segments...... (13,878) (6,083) (7,795) (21,111) (9,914) (11,197)
--------- --------- --------- --------- --------- ---------
Total net income ................................ $74,303 $73,651 $652 $146,864 $135,493 $11,371
========= ========= ========= ========= ========= =========
</TABLE>
11. Subsequent Event
----------------
On August 11, 2000, one of our operating partnerships issued $50.0
million of 8.75% Series P Cumulative Redeemable Perpetual Preferred Units.
The units are not redeemable during the first 5 years, thereafter, at our
option, we can call the units for redemption at the issuance amount plus
any unpaid distributions. The units are not redeemable by the holder.
Subject to certain conditions, the Series P preferred units are convertible
into shares of 8.75% Series P Cumulative Preferred Stock.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and notes thereto.
FORWARD LOOKING STATEMENTS: When used within this document, the words
"expects," "believes," "anticipates," "should," "estimates," and similar
expressions are intended to identify "forward-looking statements" within the
meaning of that term in Section 27A of the Securities Exchange Act of 1933, as
amended, and in Section 21F of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors, which may cause our actual results and performance to be
materially different from those expressed or implied in the forward looking
statements. Such factors include the impact of competition from new and existing
self-storage and commercial facilities which could impact rents and occupancy
levels at our facilities; our ability to evaluate, finance, and integrate
acquired and developed properties into our existing operations; our ability to
effectively compete in the markets that it does business in; the impact of the
regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Real Estate
Investment Trusts; the acceptance by consumers of the Pickup and Delivery
concept; the impact of general economic conditions upon rental rates and
occupancy levels at our facilities; and the availability of permanent capital at
attractive rates.
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Net income for the three months ended June 30, 2000 was $74,303,000
compared to $73,651,000 for the same period in 1999, representing an increase of
$652,000 or 0.9%. The increase in net income was primarily the result of
improved property operations, reduced operating losses from the portable storage
business, and the acquisition of additional real estate investments during 1999
and 2000. The impact of these items was offset partially by certain factors
including increased dilution from uninvested proceeds from the issuance of
equity securities, increased dilution from development activities and increased
general and administrative expense.
Net income for the six months ended June 30, 2000 was $146,864,000
compared to $135,493,000 for the same period in 1999, representing an increase
of $11,371,000 or 8.4%. The increase in net income was primarily the result of
improved property operations, reduced operating losses from the portable storage
business, and the acquisition of additional real estate investments during 1999
and 2000 (including the acquisition of Storage Trust). The impact of these items
was offset partially by certain factors including increased dilution from
uninvested proceeds from the issuance of equity securities, increased dilution
from development activities and increased general and administrative expense.
Net income allocable to common shareholders was $46,592,000 or $0.35
per common share on a diluted basis (based on 131,734,000 weighted average
diluted common equivalent shares) for the three months ended June 30, 2000. For
the same period in 1999, net income allocable to common shareholders was
$49,827,000 or $0.39 per common share on a diluted basis (based on 129,250,000
weighted average diluted common equivalent shares). In addition to the factors
noted above with respect to the change in net income, the decrease in net income
allocable to common shareholders includes the impact of the issuance of the
Equity Stock, Series A. The decrease in net income per common share also
reflects the inclusion of 6,790,000 common equivalent shares related to the
Class B common shares in 2000, but not in 1999, as described more fully below.
Net income allocable to common shareholders was $91,857,000 or $0.69
per common share on a diluted basis (based on 132,335,000 weighted average
diluted common equivalent shares) for the six months ended June 30, 2000. For
the same period in 1999, net income allocable to common shareholders was
$90,139,000 or $0.73 per common share on a diluted basis (based on 124,133,000
weighted average diluted common equivalent shares). In addition to the factors
noted above with respect to net income, the decrease in net income allocable to
common shareholders reflects the impact of the issuance of Equity Stock, Series
A. The decrease in net income per common share also reflects the inclusion of
6,790,000 common equivalent shares related to the Company's Class B common
shares in 2000, but not in 1999, as described more fully below.
20
<PAGE>
In computing net income allocable to common shareholders for each
period, aggregate dividends paid to the holders of the Equity Stock, Series A
and preferred equity securities have been deducted in determining net income
allocable to the common shareholders.
Commencing January 1, 2000, the 7,000,000 Class B common shares
outstanding began to participate in distributions of the Company's earnings.
Distributions per share of Class B common stock are equal to 97% of the per
share distribution paid to the Company's regular common shares. As a result of
this participation in distributions of earnings, for purposes of computing net
income per common share, we began to include 6,790,000 (7,000,000 x 97%) Class B
common shares in the weighted average common equivalent shares for the quarter
and six months ended June 30, 2000. Weighted average diluted shares for the
three and six months ended June 30, 1999 does not include any shares with
respect to the Class B common stock as these shares did not participate in
distributions of earnings prior to January 1, 2000.
REAL ESTATE OPERATIONS
--------------------------------------------------------------------------------
Rental income and cost of operations have increased for the three and
six months ended June 30, 2000 compared to the same period in 1999 due to our
merger and acquisition activities throughout 1999 and 2000. As a result of these
items, the number of facilities included in the consolidated financial
statements has increased from 951 at December 31, 1998 to 1,213 at June 30,
2000.
SELF-STORAGE OPERATIONS: The following table summarizes the operating
results (before depreciation) of (i) the 946 stabilized self-storage facilities
(56.1 million net rentable square feet) that we owned as of December 31, 1998
(the "Consistent Group") and (ii) all other facilities for which operations were
not reflected in the Company's financial statements throughout the three and six
months ended June 30, 2000 and the same periods in 1999 (the "Other
Facilities"):
21
<PAGE>
SUMMARY OF SELF-STORAGE OPERATIONS - HISTORICAL
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- Percentage ---------------------- Percentage
2000 1999 Change 2000 1999 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands, except per square foot data)
Rental income
<S> <C> <C> <C> <C> <C> <C>
Consistent Group............. $ 135,339 $ 129,517 4.5% $ 265,313 $ 255,441 3.9%
Other Facilities............. 25,956 20,228 28.3% 50,616 23,333 116.9%
--------- --------- --------- --------- --------- ---------
161,295 149,745 7.7% 315,929 278,774 13.3%
--------- --------- --------- --------- --------- ---------
Cost of Operations
Consistent Group............. 40,910 38,053 7.5% 81,263 77,515 4.8%
Other Facilities............. 10,362 7,549 37.3% 20,366 8,716 133.7%
--------- --------- --------- --------- --------- ---------
51,272 45,602 12.4% 101,629 86,231 17.9%
--------- --------- --------- --------- --------- ---------
Net operating income
Consistent Group............. 94,429 91,464 3.2% 184,050 177,926 3.4%
Other Facilities............. 15,594 12,679 23.0% 30,250 14,617 107.0%
--------- --------- --------- --------- --------- ---------
110,023 104,143 5.6% 214,300 192,543 11.3%
Depreciation and amortization 33,730 33,089 1.9% 68,165 61,639 10.6%
--------- --------- --------- --------- --------- ---------
Net Income $ 76,293 $ 71,054 7.4% $ 146,135 $ 130,904 11.6%
========= ========= ========= ========= ========= =========
CONSISTENT GROUP DATA
Gross margin........................ 69.8% 70.6% (0.8)% 69.4% 69.7% (0.3)%
Weighted average :
Occupancy........................ 92.9% 92.8.% 0.1% 92.2% 91.9% 0.3%
Realized annual rent per square
foot............................. $10.41 $9.97 4.4% $10.28 $9.93 3.5%
Scheduled annual rent per square
foot............................. $11.07 $10.32 7.3% $10.80 $10.29 5.0%
Number of facilities at end of period:
Consistent group.................... 946 946 0.0% 946 946 0.0%
Other Facilities.................... 267 245 9.0% 267 245 9.0%
Net rentable sq. ft. at end of period
(in thousands):
Consistent group.................... 56,050 56,050 0.0% 56,050 56,050 0.0%
Other Facilities.................... 16,194 14,356 12.8% 16,194 14,356 12.8%
</TABLE>
Rental income for the three and six months ended June 30, 2000 is net
of promotional discounts totaling $4.1 million and $8.6 million, respectively
compared to $3.9 million and $8.0 million, respectively for the same period in
1999. In addition, included in cost of operations for the three and six months
ended June 30, 2000 are costs associated with the telephone reservation center
and advertising totaling $2.4 million and $4.6 million, respectively compared to
$1.9 million and $3.9 million, respectively for the same period in 1999.
The 7.5% increase in cost of operations for the three months ended June
30, 2000 as compared to the same period in 1999 includes increases in
advertising and promotion (including the telephone reservation center), repair
and maintenance expense, and payroll.
22
<PAGE>
During the six months ended June 30, 2000, we have opened 13 newly
developed facilities with a total cost of approximately $57.5 million. Included
above with respect to these facilities was revenues of $225,000 and $256,000 for
the three and six months ended June 30, 2000, respectively, and cost of
operations of $249,000 and $381,000 for the three and six months ended June 30,
2000, respectively.
In addition, during the six months ended June 30, 2000, the Company
acquired two storage facilities for an aggregate cost of $13,087,000. Included
above with respect to these facilities was revenues of $328,000 for the three
and six months ended June 30, 2000, and cost of operations of $96,000 for the
three and six months ended June 30, 2000.
COMMERCIAL PROPERTY OPERATIONS:. Our commercial property operations
included in the consolidated financial statements include commercial space owned
by the Company and Consolidated Entities. Our investment in PSB is accounted for
on the equity method of accounting, and accordingly our share of PSB's earnings
is reflected as "Equity in earnings of real estate entities."
During the six months ended June 30, 2000, the Company acquired two
commercial facilities (which are expected to be converted into storage
facilities) for an aggregate cost of $5,930,000. Included within commercial
property operations with respect to these facilities was revenues of $136,000
for the three and six months ended June 30, 2000, and cost of operations of
$21,000 for the three and six months ended June 30, 2000.
The following table sets forth the historical commercial property
amounts included in the financial statements:
COMMERCIAL PROPERTY OPERATIONS - HISTORICAL
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------- --------- -----------------------
2000 1999 Change 2000 1999 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental income............. $ 2,827 $ 1,948 45.1% $ 5,586 $ 3,862 44.6%
Cost of operations........ 881 631 39.6% 1,830 1,269 44.2%
--------- --------- --------- --------- --------- ---------
Net operating income prior
to depreciation expense 1,946 1,317 47.8% 3,756 2,593 44.9%
Depreciation expense...... 759 430 76.5% 1,205 854 41.1%
--------- --------- --------- --------- --------- ---------
Net income................ $ 1,187 $ 887 33.8% $ 2,551 $ 1,739 46.7%
========= ========= ========= ========= ========= =========
</TABLE>
PORTABLE SELF-STORAGE OPERATIONS: At June 30, 2000, PSPUD operated 36
facilities. Due to the start-up nature of the business, PSPUD incurred operating
losses totaling approximately $633,000 and $2,121,000 for the three and six
months ended June 30, 2000, compared to $2,492,000 and $6,081,000 for the same
periods in 1999:
23
<PAGE>
PORTABLE SELF-STORAGE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ -------------------------
2000 1999 Change 2000 1999 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental and other income ......... $ 9,240 $ 6,448 $ 2,792 $ 16,789 $ 11,876 $ 4,913
--------- --------- --------- --------- --------- ---------
Cost of operations:
Direct operating costs......... 6,076 4,524 1,552 11,232 9,137 2,095
Marketing and advertising...... 358 307 51 802 729 73
Facility lease expense......... 2,214 2,859 (645) 4,468 5,659 (1,191)
--------- --------- --------- --------- --------- ---------
Total cost of operations..... 8,648 7,690 958 16,502 15,525 977
Operating income (loss) prior to
depreciation................... 592 (1,242) 1,834 287 (3,649) 3,936
Depreciation .................. 1,255 1,250 5 2,408 2,432 (24)
--------- --------- --------- --------- --------- ---------
Operating losses................. $ (663) $ (2,492) $ 1,829 $ (2,121) $ (6,081) $ 3,960
========= ========= ========= ========= ========= =========
</TABLE>
Until the PSPUD facilities are operating profitably, PSPUD's operations
are expected to continue to adversely impact the Company's earnings and cash
flows. There can be no assurance as to the level of PSPUD's expansion, level of
gross rentals, level of move-outs or profitability.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to our
ownership of equity interests in PSB, we had general and limited partnership
interests in 12 limited partnerships at June 30, 2000. (PSB and the limited
partnerships are collectively referred to as the "Unconsolidated Entities.") Due
to our limited ownership interest and control of these entities, we do not
consolidate the accounts of these entities for financial reporting purposes, and
account for such investments using the equity METHOD.
Equity in earnings of real estate entities for the year ended June 30,
2000 consists of our pro rata share of the Unconsolidated Entities based upon
our ownership interest for the period. Similar to the Company, the
Unconsolidated Entities (other than PSB) generate substantially all of their
income from their ownership of storage facilities, which we manage. In the
aggregate, the Unconsolidated Entities (including PSB) own a total of 236 real
estate facilities, 112 of which are storage facilities. The following table sets
forth the significant components of equity in earnings of real estate entities:
24
<PAGE>
HISTORICAL SUMMARY
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2000 1999 Change 2000 1999 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Property operations:
<S> <C> <C> <C> <C> <C> <C>
PSB...................... $ 10,729 $ 8,878 $ 1,851 $ 20,558 $ 17,300 $ 3,258
Development Joint Venture 1,087 569 518 1,972 915 1,057
Other partnerships....... 4,646 6,283 (1,637) 9,010 10,204 (1,194)
---------- ---------- ---------- ---------- ---------- ----------
16,462 15,730 732 31,540 28,419 3,121
---------- ---------- ---------- ---------- ---------- ----------
Depreciation:
PSB...................... (3,714) (2,940) (774) (7,104) (5,607) (1,497)
Development Joint Venture (467) (304) (163) (928) (565) (363)
Other partnerships....... (917) (2,201) 1,284 (2,098) (3,402) 1,304
---------- ---------- ---------- ---------- ---------- ----------
(5,098) (5,445) 347 (10,130) (9,574) (556)
---------- ---------- ---------- ---------- ---------- ----------
Other: (1)
PSB...................... (1,903) (1,057) (846) (3,439) (1,883) (1,556)
Development Joint Venture (38) 21 (59) 15 43 (28)
Other partnerships....... (268) 98 (366) (555) 464 (1,019)
---------- ---------- ---------- ---------- ---------- ----------
(2,209) (938) (1,271) (3,979) (1,376) (2,603)
---------- ---------- ---------- ---------- ---------- ----------
Total equity in earnings of
real estate entities....... $ 9,155 $ 9,347 $ (192) $ 17,431 $ 17,469 $ (38)
========== ========== ========== ========== ========== ==========
</TABLE>
(1) "Other" reflects our share of general and administrative expense,
interest expense, interest income, and other non-property,
non-depreciation related operating results of these entities.
The decrease in 2000 equity in earnings of real estate entities
compared to 1999 includes the acquisition of controlling interests in certain
entities and the Company's beginning to include the accounts of such entities in
the Company's consolidated financial statements. Prior to the inclusion of these
entities in the Company's financial statements, the Company used the equity
method to report its share of these entities' earnings. This decrease was offset
by improved earnings of PSB and an increase in earnings from the Development
Joint Venture. Equity in earnings with respect to the Development Joint Venture
represent our pro rata share of the operating results of an unconsolidated joint
venture formed in April 1997 in which we have a 30% ownership interest. The
joint venture was formed for the purpose of developing approximately $220
million of self-storage facilities. As of June 30, 2000, 45 of the joint
venture's 47 properties are completed and operating, substantially all of which
are in the fill-up process and have not reached stabilized occupancy levels.
OTHER INCOME AND EXPENSE ITEMS
--------------------------------------------------------------------------------
INTEREST AND OTHER INCOME: Interest in other income includes (i) the
net operating results from our property management operations, (ii) merchandise
sales and consumer truck rentals and (iii) interest income.
Interest and other income has increased in the three and six months
ended June 30, 2000 as compared to the same periods in 1999 as a result of
higher uninvested cash balances, primarily due to our issuance of preferred
operating partnership units in 2000.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
has increased $975,000 to $35,744,000 for the three months ended June 30, 2000
as compared to $34,769,000 for the same period in 1999. Depreciation and
amortization expense has increased $6,853,000 to $71,778,000 for the six months
ended June 30, 2000 as compared to $64,925,000 for the same period in 1999.
These increases are principally due to the acquisition of additional real estate
facilities during 1999 and 2000. Included in depreciation and amortization
expense is amortization expense with respect to intangible assets of $2,328,000
and $4,656,000 for the three and six months ended June 30, 2000 and 1999.
Included in depreciation and amortization expense for the three months ended
25
<PAGE>
June 30, 2000 and 1999 is $1,255,000 and $1,250,000, respectively, and
$2,408,000 and $2,432,000 for the six months ended June 30, 2000 and 1999,
respectively, of depreciation of furniture, fixtures, and equipment of the
portable self-storage business.
GENERAL AND ADMINISTRATIVE: General and administrative expense has
increased $2,516,000 to $5,576,000 for the three months ended June 30, 2000 as
compared to $3,060,000 for the same period in 1999. General and administrative
expense has increased $3,203,000 to $8,621,000 for the six months ended June 30,
2000 as compared to $5,418,000 for the same period in 1999. The increase
includes an expansion in our product research and development efforts, as well
as costs associated with lease terminations on leased Pickup and Delivery
facilities which were replaced by newly-developed facilities, and increased
consulting fees. We anticipate that additional product research and development
efforts and lease termination costs will continue to be incurred throughout
fiscal 2000.
MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by us. Minority interest in income was $10,465,000 and $14,854,000,
respectively, for the three and six months ended June 30, 2000, compared to
$4,304,000 and $7,657,000, respectively, for the same periods in 1999.
In November 1999, we formed a joint venture partnership for the purpose
of developing approximately $100 million of self-storage facilities and to
purchase $100 million of our Equity Stock, Series AAA. The venture, which has
been consolidated, is funded solely with equity capital consisting of 51% from
us and 49% from the joint venture partner. Minority interest in income includes
approximately $138,000 of loss allocated to our joint venture partner.
On March 17, 2000, one of our operating partnerships issued $240.0
million of 9.5% Series N Cumulative Redeemable Perpetual Preferred Units and on
March 29, 2000, one of our operating partnerships issued $75.0 million of 9.125%
Series O Cumulative Redeemable Perpetual Preferred Units. The issuance of
preferred partnership units had the effect of increasing minority interest by
$315 million. For the six months ended June 30, 2000, these preferred units were
paid in aggregate approximately $8,336,000 in distributions and received a
corresponding allocation of minority interest in earnings for the partial period
in which the units were outstanding. On March 30, 2000, we acquired the
remaining minority interest in one of our consolidated partnerships. The
aggregate cost of the acquisition was approximately $23.6 million in cash.
Minority interest in income for the three months ended March 31, 2000, includes
income allocated to these interests of approximately $602,000.
SUPPLEMENTAL PROPERTY DATA AND TRENDS
--------------------------------------------------------------------------------
At June 30, 2000, there were approximately 46 ownership entities owning
in aggregate 1,325 storage facilities, including the facilities which we own
and/or operate. At June 30, 2000, 112 of these facilities were owned by
Unconsolidated Entities, entities in which we have an ownership interest and use
the equity method for financial statement presentation. The remaining 1,213
facilities are owned by the Company and Consolidated Entities.
The following table summarizes our investment in real estate facilities
as of June 30, 2000:
<TABLE>
<CAPTION>
Number of Facilities in which the Net Rentable Square Footage
Company has an ownership interest (in thousands)
---------------------------------------- ---------------------------------------
Self-Storage Commercial Self-Storage Commercial
Facilities Properties Total Facilities Properties Total
------------ ------------ ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Wholly-owned facilities.................... 609 6 615 37,191 394 37,585
Facilities owned by Consolidated Entities.. 604 - 604 35,053 - 35,053
------------ ------------ ---------- ------------ ------------ ---------
Total consolidated facilities.......... 1,213 6 1,219 72,244 394 72,638
Facilities owned by Unconsolidated Entities 112 124 236 6,602 12,274 18,876
------------ ------------ ---------- ------------ ------------ ---------
Total facilities in which the Company
has an ownership interest............ 1,325 130 1,455 78,846 12,668 91,514
============ ============ ========== ============ ============ =========
</TABLE>
26
<PAGE>
In order to evaluate how our overall portfolio has performed, management
analyzes the operating performance of a consistent group of self-storage
facilities representing 949 (55.3 million net rentable square feet) of the 1,325
self-storage facilities (herein referred to as "Same Store" self-storage
facilities). The 949 facilities represent a pool of properties, which have been
operated under the "Public Storage" name, at a stabilized level, by the Company
since January 1, 1994. From time to time, the Company removes facilities from
the "Same Store" pool as a result of expansions or other activities, which make
such facilities' results not comparable to previous periods. The Same Store
group of properties includes 884 consolidated facilities and 65 facilities owned
by Unconsolidated Entities. The following table summarizes the pre-depreciation
historical operating results of the Same Store self-storage facilities:
SAME STORE MINI-WAREHOUSE FACILITIES (949 FACILITIES):
------------------------------------------------------
(historical property operations)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------- ---------------------------------------
2000 1999 Change 2000 1999 Change
------------ ------------ ---------- ------------ ------------ ---------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental income............... $ 135,991 $ 129,717 4.8% $ 266,402 $ 255,670 4.2%
Cost of operations (includes
an imputed 6% property
management fee) (1)....... 47,106 43,954 7.2% 93,706 89,304 4.9%
------------ ------------ ---------- ------------ ------------ ---------
Net operating income........ $ 88,885 $ 85,763 3.6% $ 172,696 $ 166,366 3.8%
============ ============ ========== ============ ============ =========
Gross profit margin (2)..... 65.4% 66.1% (0.7)% 64.8% 65.1% (0.3)%
Weighted Average:
----------------
Occupancy during the
period................ 93.3% 93.1% 0.2% 92.5% 92.2% 0.3%
Annualized realized rent
per sq. ft. for period.(3) $10.54 $10.09 4.5% $10.42 $10.04 3.8%
Annualized scheduled rent
per sq. ft. for period (3) $11.24 $10.45 7.6% $10.95 $10.42 5.1%
</TABLE>
1. Cost of operations includes both direct and indirect costs of
ownership, management and operations of the properties. Cost of
operations includes a 6% management fee on all facilities, including
those facilities owned by the Company for which no fee is paid. The
7.2% increase in cost of operations for the three months ended June 30,
2000 as compared to the same period in 1999 includes increases in
advertising and promotion, repair and maintenance expense, and payroll.
2. Gross profit margin is computed by dividing property net operating
income (before depreciation expense) by rental revenues. The gross
profit margin excluding the facility management fee was 71.4% and 72.1%
for the three months ended June 30, 2000 and 1999, respectively, and
70.8% and 71.1% for the six months ended June 30, 2000 and 1999,
respectively.
3. Realized rent per square foot as presented throughout this report
represents the actual revenue earned per occupied square foot.
Management believes this is a more relevant measure than the scheduled
rental rates, since scheduled rates can be discounted through the use
of promotions.
Rental income for the Same Store facilities included promotional
discounts totaling $3.9 million and $8.4 million, respectively, for the three
and six months ended June 30, 2000, respectively as compared to $3.8 million and
$7.8 million for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
We believe that our internally generated net cash provided by operating
activities will continue to be sufficient to enable it to meet our operating
expenses, capital improvements, debt service requirements and distributions to
shareholders for the foreseeable future.
27
<PAGE>
Operating as a real estate investment trust ("REIT"), our ability to
retain cash flow for reinvestment is restricted. In order for us to maintain our
REIT status, a substantial portion of our operating cash flow must be used to
make distributions to our shareholders (see "REIT STATUS" below). However,
despite the significant distribution requirements, we have been able to retain a
significant amount of our operating cash flow. The following table summarizes
our ability to make the minority interests' distributions, dividend payments to
the preferred shareholders and capital improvements to maintain the facilities
through the use of cash provided by operating activities. The remaining cash
flow generated is available to make both scheduled and optional principal
payments on debt and for reinvestment.
<TABLE>
<CAPTION>
For the six months ended
June 30,
-------------------------
2000 1999
---------- ----------
(Amounts in thousands)
<S> <C> <C>
Net income........................................................................... $ 146,864 $ 135,493
Depreciation and amortization........................................................ 71,778 64,925
Less: Depreciation with respect to non-real estate assets........................... (2,408) (2,432)
Depreciation from Unconsolidated Entities............................................ 10,130 9,574
Minority interest in income.......................................................... 14,854 7,657
---------- ----------
Net cash provided by operating activities.......................................... 241,218 215,217
Distributions to Minority Interests:
Preferred operating partnership units............................................. (8,336) -
Other............................................................................. (9,992) (12,472)
---------- ----------
Cash from operations allocable to the Company's shareholders......................... 222,890 202,745
Less: preferred stock dividends...................................................... (50,083) (45,354)
Less: equity stock, Series A dividends............................................... (4,924) -
---------- ----------
Cash from operations available to common shareholders................................ 167,883 157,391
Capital improvements to maintain facilities.......................................... (9,182) (10,156)
Add back: minority interest share of capital improvements to maintain facilities..... 177 518
---------- ----------
Funds available for principal payments on debt, common dividends and reinvestment.... 158,878 147,753
Cash distributions to common shareholders (A)........................................ (57,888) (56,767)
---------- ----------
Funds available for principal payments on debt and reinvestment (A).................. $ 100,990 $ 90,986
========== ==========
</TABLE>
(A) Cash distributions to common shareholders for the six months ended June
30, 2000 and 1999 only include the Company's regular common
distributions ($0.44 per common share in each period). In November
1999, the Company declared a special distribution in the amount of
$82,086,000. The Company expects to increase its common distribution in
the final six months of the year ended December 31, 2000 and in future
years from the level paid in the six months ended June 30, 2000
assuming a continuation of its increasing level of taxable income.
These increased distributions will be in the form of special
distributions in cash or securities, an increase in the regular
quarterly common distribution, or a combination thereof.
We expect to fund our growth strategies with cash on hand at June 30,
2000, internally generated retained cash flows, proceeds from issuing equity
securities and borrowings under our $150 million credit facility. We intend to
repay amounts borrowed under the credit facility from undistributed operating
cash flow or, as market conditions permit and are determined to be advantageous,
from the public or private placement of equity securities.
Our portfolio of real estate facilities remains substantially
unencumbered. At June 30, 2000, we had mortgage debt outstanding of $27.8
million and had consolidated real estate facilities with a book value of $3.5
billion. We have not financed our acquisitions with debt and generally our
borrowing has increased through the assumption of pre-existing debt on acquired
real estate facilities, including $100 million in debt assumed in connection
with the merger with Storage Trust.
During the first quarter of 2000, one of our operating partnerships
issued $240.0 million of 9.5% Series N Cumulative Redeemable Perpetual Preferred
Units (issued March 17, 2000) and $75.0 million of 9.125% Series O Cumulative
Redeemable Perpetual Preferred Units (issued March 29, 2000). The units are not
28
<PAGE>
redeemable during the first 5 years, thereafter, at our option, we can call the
units for redemption at the issuance amount plus any unpaid distributions. The
units are not redeemable by the holder. Subject to certain conditions, the
Series N preferred units are convertible into shares of 9.5% Series N Cumulative
Preferred Stock and the Series O preferred units are convertible into shares of
9.125% Series O Cumulative Preferred Stock of the Company. The net proceeds
raised through the issuance of the preferred units are expected to be used
primarily to fund our development activities.
DISTRIBUTION REQUIREMENTS: Our conservative distribution policy has
been the principal reason for the Company's ability to retain significant
operating cash flows which have been used to make additional investments and
reduce debt. In 1999, we distributed to common shareholders, in regular and in a
special distribution of Equity Stock A and cash declared in November 1999,
approximately 58% of our cash available from operations allocable to common
shareholders.
During the six months ended June 30, 2000 and 1999, we distributed to
common shareholders in regular common distributions ($0.44 per common share in
each period) approximately 34.5% and 36.1% of our cash available from operations
allocable to common shareholders, respectively. The Company expects to increase
its common distribution in the final six months of the year ended December 31,
2000 and in future years from the level paid in the six months ended June 30,
2000 assuming a continuation of its increasing level of taxable income. These
increased distributions will be in the form of special distributions of cash or
securities, an increase in the regular quarterly common distribution, or a
combination thereof.
During the six months ended June 30, 2000, we paid cash dividends
totaling $50,083,000 to the holders of our Senior Preferred Stock and $4,924,000
to the holders of Equity Stock, Series A. We estimate the regular distribution
requirements for fiscal 2000 with respect to Senior Preferred Stock outstanding
at June 30, 2000 to be approximately $100.2 million. With respect to the Equity
Stock, Series A, the prorated annual distribution for 2000 (assuming at least
$0.49 is paid per common share) is approximately $10.3 million.
During the six months ended June 30, 2000, we paid dividends totaling
$139,975,000 to the holders of our common stock which includes a special
distribution of approximately $82,086,000 related to fiscal 1999. The special
distribution was paid on January 14, 2000 to our common shareholders and
consisted of $38,076,000 in cash and $44,010,000 in the issuance of depositary
shares of Equity Stock, Series A. As of June 30, 2000 we paid cash dividends
totaling $54,900,000 to common shareholders and $2,988,000 to Class B common
shareholders. Distributions with respect to the classes of common stock will be
determined based upon our REIT distribution requirements after taking into
consideration distributions to the Company's preferred shareholders.
PREFERRED OPERATING PARTNERSHIP UNIT DISTRIBUTION REQUIREMENTS: For the
three and six months ended June 30, 2000, the holders of these preferred units
were paid in aggregate approximately $7,411,000 and $8,336,000, respectively, in
distributions, which represented a prorated dividend for the period the units
were outstanding. We estimate that the annual distribution requirement for the
preferred operating partnership units outstanding at June 30, 2000 will be
approximately $29.6 million.
On August 11, 2000, one of our operating partnerships issued $50.0
million of 8.75% Series P Cumulative Redeemable Perpetual Preferred Units. The
units are not redeemable during the first 5 years, thereafter, at our option, we
can call the units for redemption at the issuance amount plus any unpaid
distributions. The units are not redeemable by the holder. Subject to certain
conditions, the Series P preferred units are convertible into shares of 8.75%
Series P Cumulative Preferred Stock. We estimate the annual distribution
requirement for these units will be approximately $4.4 million; these units will
receive a prorated distribution in 2000 based upon the period the units were
outstanding.
CAPITAL IMPROVEMENT REQUIREMENTS: During 2000, we have budgeted
approximately $26.2 million for capital improvements. The minority interests'
share of the budgeted capital improvements is approximately $0.7 million. During
the six months ended June 30, 2000, we incurred capital improvements of
approximately $9,182,000.
29
<PAGE>
DEBT SERVICE REQUIREMENTS: We do not believe we have any significant
refinancing risks with respect to our notes payable, all of which is fixed rate.
At June 30, 2000, we had total outstanding notes payable of $161,386,000.
Approximate principal maturities of notes payable at June 30, 2000 are as
follows:
Unsecured
Senior Notes Mortgage debt Total
------------ -------------- -----------
(Amounts in thousands)
2000 (remainder of).......... $ 4,375 $ 1,045 $ 5,420
2001......................... 9,500 2,910 12,410
2002......................... 24,450 3,530 27,980
2003......................... 35,900 3,585 39,485
2004......................... 25,800 15,063 40,863
Thereafter................... 33,600 1,628 35,228
------------ -------------- -----------
$ 133,625 $ 27,761 $ 161,386
============ ============== ===========
Weighted average rate........ 7.4% 10.3% 7.9%
============ ============== ===========
REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, our
Board of Directors authorized the repurchase from time to time of up to
15,000,000 shares of the Company's common stock in the open market or in
privately negotiated transactions. In the quarter ended June 30, 2000, we
repurchased a total of 1,459,800 shares, for a total aggregate cost of
approximately $32.8 million. From the initial authorization through June 30,
2000, the Company has repurchased a total of 10,262,027 shares of common stock
at an aggregate cost of approximately $244.7 million. From July 1, 2000 through
August 9, 2000, we have not repurchased any additional shares.
DEVELOPMENT OF SELF-STORAGE FACILITIES: As previously announced, in
April 1997, we formed a joint venture partnership with an institutional investor
for the purpose of developing up to $220 million of self-storage facilities. The
joint venture is funded solely with equity capital consisting of 30% from us and
70% from the institutional investor. Our share of the cost of the real estate in
the joint venture is approximately $68.4 million at June 30, 2000.
As of June 30, 2000, the joint venture had 45 operating facilities,
with 2,740,000 net rentable square feet and total development costs of
approximately $217.4 million. As of June 30, 2000, the joint venture is
developing two additional projects (approximately 140,000 net rentable square
feet) that were in process, with total costs incurred of $10.8 million and
estimated remaining costs to complete of $1.3 million.
In November 1999, we formed a second joint venture partnership for the
development of approximately $100 million of self-storage facilities. The
venture is funded solely with equity capital consisting of 51% from us and 49%
from the joint venture partner. At June 30, 2000, the second development joint
venture was committed to develop eight facilities (approximately 530,000 net
rentable sq. ft.) with an estimated development cost of approximately $35.8
million, of which seven facilities (approximately 446,000 net rentable sq. ft.)
were completed at an aggregate cost of approximately $30.3 million. As of June
30, 2000, the second development joint venture is developing one additional
project (approximately 84,000 net rentable square feet) that was in process,
with total costs incurred of $5.2 million and estimated remaining costs to
complete of $0.3 million. We have submitted 12 additional facilities for
approval with total estimated costs of approximately $60.5 million; we have
incurred approximately $35.2 million through June 30, 2000 with respect to these
12 projects. Upon approval, these projects will be transferred to the joint
venture and the joint venture partner will contribute its 49% share.
Excluding the 12 properties that are being reviewed by the second
development joint venture and the three properties that the two joint ventures
are developing, we are developing 18 additional storage facilities. At June 30,
2000, we had incurred costs of $82.3 million with respect to these 18 facilities
(estimated remaining costs to complete of approximately $44.4 million). We have
also identified 35 additional storage facilities for development, with total
estimated costs of approximately $214.8 million. These projects are subject to
significant contingencies.
30
<PAGE>
REIT STATUS: We believe that we have operated, and intend 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 we will at all times so
qualify. To the extent that we continue to qualify as a REIT, we will not be
taxed, with certain limited exceptions, on the taxable income that is
distributed to our shareholders, provided that at least 95% of our taxable
income is so distributed prior to filing of our tax return. We have satisfied
the REIT distribution requirement since 1980.
FUNDS FROM OPERATIONS: Total funds from operations or "FFO" increased
to $222,890,000 for the six months ended June 30, 2000 compared to $202,745,000
for the same period in 1999. FFO available to common shareholders (after
deducting preferred stock dividends but before deducting Equity Stock A
dividends) increased to $172,807,000 for the six months ended June 30, 2000
compared to $157,391,000 for the same period in 1999. FFO means net income or
(loss) (computed in accordance with generally accepted accounting principles)
before: (i) gain or (loss) on early extinguishment of debt, (ii) minority
interest in income and (iii) gain or (loss) on the disposition of real estate,
adjusted as follows: (a) plus depreciation and amortization (including our
pro-rata share of depreciation and amortization of unconsolidated equity
interests and amortization of assets acquired in a merger, including property
management agreements and goodwill), and (b) less FFO attributable to minority
interest.
FFO is a supplemental performance measure for equity REITs as defined
by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT").
The NAREIT definition does not specifically address the treatment of minority
interest in the determination of FFO or the treatment of the amortization of
property management agreements and goodwill. In our case, FFO represents amounts
attributable to our shareholders after deducting amounts attributable to the
minority interests and before deductions for the amortization of property
management agreements and goodwill. FFO is presented because management, as well
as many industry analysts, consider FFO to be one measure of our performance and
it is used in establishing the terms of the Class B Common Stock. FFO does not
take into consideration capital improvements, scheduled principal payments on
debt, distributions and our other obligations. Accordingly, FFO is not a
substitute for cash flow or net income (as discussed above) as a measure of our
liquidity or operating performance. FFO is not comparable to similarly entitled
items reported by other REITs that do not define it exactly as we have defined
it.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
To limit our exposure to market risk, we principally finance our
operations and growth with permanent equity capital, consisting of either common
or preferred stock. At June 30, 2000, our debt as a percentage of total
shareholders' equity (based on book values) was 4.3%.
Our preferred stock is not redeemable by the holders. Except under
certain conditions relating to our qualification as a REIT, we may not redeem
the Senior Preferred Stock prior to the following dates: Series A - September
30, 2002, Series B - March 31, 2003, Series C - June 30, 1999, Series D -
September 30, 2004, Series E - January 31, 2005, Series F - April 30, 2005,
Series G - December 31, 2000, Series H - January 31, 2001, Series I - October
31, 2001, Series J - August 31, 2002, Series K - January 19, 2004, Series L -
March 10, 2004 and Series M - August 17, 2004. On or after the respective dates,
each of the series of Senior Preferred Stock will be redeemable at the our
option, in whole or in part, at $25 per share (or depositary share in the case
of the Series G, Series H, Series I, Series J, Series K, Series L and Series M),
plus accrued and unpaid dividends.
Our preferred operating partnership units are not redeemable by the
holders. Five years after issuance, we can call the units for redemption at the
issuance amount plus any unpaid distributions.
Our market risk sensitive instruments include notes payable, which
totaled $161.4 million at June 30, 2000. Substantially all of the Company's
notes payable bear interest at fixed rates. See Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources for approximate principal maturities of the notes payable as
of June 30, 2000.
31
<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 May 1, 2000.
Proxies for the annual meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The annual meeting involved the following
matter:
Election of Directors
<TABLE>
<CAPTION>
Total Common Stock and Equity Stock, Series A
---------------------------------------------------------------
Name Total Votes For Total Votes Withheld Total Votes Abstained
------------------------ --------------- -------------------- ---------------------
<S> <C> <C> <C>
B. Wayne Hughes 99,484,724.2 394,612.1 770.3
Harvey Lenkin 99,495,224.2 384,112.1 770.3
Marvin M. Lotz 99,490,947.8 388,388.5 770.3
B. Wayne Hughes, Jr. 99,484,594.4 394,741.9 770.3
Robert J. Abernethy 99,497,382.7 381,953.6 770.3
Dann V. Angeloff 99,488,931.8 390,404.5 770.3
William C. Baker 99,493,558.1 385,778.2 770.3
Thomas J. Barrack, Jr. 89,789,748.5 10,089,587.8 770.3
Uri P. Harkham 99,497,037.7 382,298.6 770.3
Daniel C. Staton 99,497,281.8 382,054.5 770.3
</TABLE>
There was no solicitation in opposition to the management's nominees to
the Board of Directors listed in the proxy statement.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 33-54557 and incorporated herein by
reference.
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B. Filed with Registrant's Registration
Statement No. 33-56925 and incorporated herein by reference.
3.5 Certificate of Determination for the 8.25% Convertible Preferred Stock.
Filed with Registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.50% Cumulative Preferred Stock, Series D and
incorporated herein by reference.
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 10% Cumulative Preferred Stock, Series E and
incorporated herein by reference.
32
<PAGE>
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F. Filed with Registration's Form 8-A/A Registration Statement
relating to the 9.75% Cumulative Preferred Stock, Series F and
incorporated herein by reference.
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock. Filed with Registrant's Registration Statement No.
33-63947 and incorporated herein by reference.
3.11 Certificate of Amendment of Articles of Incorporation, Filed with
Registrant's Registration Statement No. 33-63947 and incorporated
herein by reference.
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred Stock,
Series G. Filed with Registration's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000th of a
Share of 8-7/8% Cumulative Preferred Stock, Series G and incorporated
herein by reference.
3.13 Certificate of Determination for the 8.45% Cumulative Preferred Stock,
Series H. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000th of a
Share of 8.45% Cumulative Preferred Stock, Series H and incorporated
herein by reference.
3.14 Certificate of Determination for the Convertible Preferred Stock,
Series CC. Filed with Registrant's Registration Statement No. 333-03749
and incorporated herein by reference.
3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed with Registrant's
Registration Statement No. 333-08791 and incorporated herein by
reference.
3.16 Certificate of Determination for 8-5/8% Cumulative Preferred Stock,
Series I. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-5/8% Cumulative Preferred Stock, Series I and incorporated herein
by reference.
3.17 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 333-18395 and incorporated
herein by reference.
3.18 Certification of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated herein by reference.
3.19 Certificate of Determination for Equity Stock, Series AA. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.
3.20 Certificate Decreasing Shares Constituting Equity Stock, Series A.
Filed with Registrant's Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.
3.21 Certificate of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.
3.22 Certification of Determination for 8% Cumulative Preferred Stock,
Series J. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8% Cumulative Preferred Stock, Series J and incorporated herein by
reference.
3.23 Certificate of Correction of Certificate of Determination for the 8.25%
Convertible Preferred Stock. Filed with Registrant's Registration
Statement No. 333-61045 and incorporated herein by reference.
3.24 Certification of Determination for 8-1/4% Cumulative Preferred Stock,
Series K. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-1/4% Cumulative Preferred Stock, Series K and incorporated herein
by reference.
33
<PAGE>
3.25 Certificate of Determination for 8-1/4% Cumulative Preferred Stock,
Series L. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8-1/4% Cumulative Preferred Stock, Series L and incorporated herein
by reference.
3.26 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series M. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1000 of a Share
of 8.75% Cumulative Preferred Stock, Series M and incorporated herein
by reference.
3.27 Certificate of Determination for Equity Stock, Series AAA. Filed with
Registrant's Current Report on Form 8-K dated November 15, 1999 and
incorporated herein by reference.
3.28 Certification of Determination for 9.5% Cumulative Preferred Stock,
Series N. Filed with Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999 and incorporated herein by reference.
3.29 Certification of Determination for 9.125% Cumulative Preferred Stock,
Series O. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000 and incorporated herein by
reference.
3.30 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series P. Filed herewith.
3.31 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
3.32 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
3.33 Amendment to Bylaws adopted on June 26, 1997. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.34 Amendment to Bylaws adopted on January 6, 1998. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.
3.35 Amendment to Bylaws adopted on February 10, 1998. Filed with
Registrant's Current Report on Form 8-K dated February 10, 1998 and
incorporated herein by reference.
3.36 Amendment to Bylaws adopted on March 4, 1999. Filed with Registrant's
Current Report on Form 8-K dated March 4, 1999 and incorporated herein
by reference.
3.37 Amendment to Bylaws adopted on May 6, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
10.1 Second Amended and Restated Management Agreement by and among
Registrant and the entities listed therein dated as of November 16,
1995. Filed with PS Partners, Ltd.'s Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
10.2 Amended Management Agreement between Registrant and Public Storage
Commercial Properties Group, Inc. dated as of February 21, 1995. Filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.3 Loan Agreement between Registrant and Aetna Life Insurance Company
dated as of July 11, 1988. Filed with Registrant's Current Report on
Form 8-K dated July 14, 1988 and incorporated herein by reference.
34
<PAGE>
10.4 Amendment to Loan Agreement between Registrant and Aetna Life Insurance
Company dated as of September 1, 1993. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
10.5 Second Amended and Restated Credit Agreement by and among Registrant,
Wells Fargo Bank, National Association, as agent, and the financial
institutions party thereto dated as of February 25, 1997. Filed with
Registrant's Registration Statement No. 333-22665 and incorporated
herein by reference.
10.6 Note Assumption and Exchange Agreement by and among Public Storage
Management, Inc., Public Storage, Inc., Registrant and the holders of
the notes dated as of November 13, 1995. Filed with Registrant's
Registration Statement No. 33-64971 and incorporated herein by
reference.
10.7 Registrant's 1990 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.8 Registrant's 1994 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
10.9 Registrant's 1996 Stock Option and Incentive Plan. Filed with
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference.
10.10 Deposit Agreement dated as of December 13, 1995, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-7/8 Cumulative Preferred Stock, Series G. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8-7/8
Cumulative Preferred Stock, Series G and incorporated herein by
reference.
10.11 Deposit Agreement dated as of January 25, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8.45% Cumulative Preferred Stock, Series H. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8.45%
Cumulative Preferred Stock, Series H and incorporated herein by
reference.
10.12 Employment Agreement between Registrant and B. Wayne Hughes dated as of
November 16, 1995. Filed with Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference.
10.13 Deposit Agreement dated as of November 1, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-5/8% Cumulative Preferred Stock, Series I. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8-5/8%
Cumulative Preferred Stock, Series I and incorporated herein by
reference.
10.14 Limited Partnership Agreement of PSAF Development Partners, L. P.
between PSAF Development, Inc. and the Limited Partner dated as of
April 10, 1997. Filed with Registrant's Form 10-Q for the quarterly
period ended March 31, 1997 and incorporated herein by reference.
35
<PAGE>
10.15 Deposit Agreement dated as of August 28, 1997 among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8% Cumulative Preferred Stock, Series J. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1,000 of a Share of 8% Cumulative
Preferred Stock, Series J and incorporated herein by reference.
10.16 Agreement and Plan of Reorganization between Registrant and Public
Storage Properties XX, Inc. dated as of December 13, 1997. Filed with
Registrant's Registration Statement No. 333-49247 and incorporated
herein by reference.
10.17 Agreement of Limited Partnership of PS Business Parks, L. P. dated as
of March 17, 1998. Filed with PS Business Parks, Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998 and
incorporated herein by reference.
10.18 Deposit Agreement dated as of January 19, 1999 among Registrant,
BankBoston, N. A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of 8-1/4%
Cumulative Preferred Stock, Series K. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock,
Series K and incorporated herein by reference.
10.19 Agreement and Plan of Merger among Storage Trust Realty, Registrant and
Newco Merger Subsidiary, Inc. dated as of November 12, 1998. Filed with
Registrant's Registration Statement No. 333-68543 and incorporated
herein by reference.
10.20 Amendment No. 1 to Agreement and Plan of Merger among Storage Trust
Realty, Registrant, Newco Merger Subsidiary, Inc. and STR Merger
Subsidiary, Inc. dated as of January 19, 1999. Filed with Registrant's
Registration Statement No. 333-68543 and incorporated herein by
reference.
10.21 Amended and Restated Agreement of Limited Partnership of Storage Trust
Properties, L. P., dated as of March 12, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended June 30, 1999 and incorporated
herein by reference.
10.22 Storage Trust Realty 1994 Share Incentive Plan. Filed with Storage
Trust Realty's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.
10.23 Amended and Restated Storage Trust Realty Retention Bonus Plan
effective as of November 12, 1998. Filed with Registrant's Registration
Statement No. 333-68543 and incorporated herein by reference.
10.24 Deposit Agreement dated as of March 10, 1999 among Registrant, Bank
Boston, N.A. and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 8-1/4%
Cumulative Preferred Stock, Series L. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock,
Series L and incorporated herein by reference.
10.25 Note Purchase Agreement and Guaranty Agreement with respect to
$100,000,000 of Senior Notes of Storage Trust Properties, L.P. Filed
with Storage Trust Realty's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
10.26 Deposit Agreement dated as of August 17, 1999 among Registrant, Bank
Boston, N.A. and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 8.75%
Cumulative Preferred Stock, Series M. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.75% Cumulative Preferred Stock,
Series M and incorporated herein by reference.
36
<PAGE>
10.27 Limited Partnership Agreement of PSAC Development Partners, L.P. among
PS Texas Holdings, Ltd., PS Pennsylvania Trust and PSAC Storage
Investors, L.L.C. dated as November 15, 1999. Filed with Registrant's
Current Report on Form 8-K dated November 15, 1999 and incorporated
herein by reference.
10.28 Agreement of Limited Liability Company of PSAC Storage Investors,
L.L.C. dated as of November 15, 1999. Filed with Registrant's Current
Report on Form 8-K dated November 15, 1999 and incorporated herein by
reference.
10.29 Deposit Agreement dated as of January 14, 2000 among Registrant,
BankBoston, N.A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of Equity
Stock, Series A. Filed with Registrant's Form 8-A/A Registration
Statement relating to the Depositary Shares Each Representing 1/1,000
of a Share of Equity Stock, Series A and incorporated herein by
reference.
10.30 Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. among PS Texas Holdings, Ltd. and the
Limited Partners dated as of March 29, 2000. Filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference.
10.31 Amendment to Amended and Restated Agreement of Limited Partnership of
PSA Institutional Partners, L.P. among PS Texas Holdings, Ltd. and the
Limited Partners dated as of August 11, 2000. Filed herewith.
11. Statement re: Computation of Earnings per Share. Filed herewith.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges. Filed
herewith.
27. Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
None.
37
<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: August 14, 2000
PUBLIC STORAGE, INC.
BY: /s/ John Reyes
--------------
John Reyes
Senior Vice President and Chief Financial Officer
(Principal financial officer and duly authorized
officer)
38
