SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 13, 2003
PUBLIC STORAGE, INC.
--------------------
(Exact name of registrant as specified in its charter)
California 1-8389 95-3551121
---------- ------ ----------
(State or Other Jurisdiction (Commission File Number) I.R.S. Employer
of Incorporation) Identification Number)
701 Western Avenue, Glendale, California 91201-2397
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
N/A
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits
c. Exhibits
99.1 Press Release dated March 13, 2003
Item 9. Regulation FD Disclosure
On March 13, 2003, the Company issued a press release announcing the
company's results for the year ended December 31, 2002. The Company is
attaching the press release as Exhibit 99.1 to this Current Report on
Form 8-K. The information included pursuant to this Item 9 (including
the exhibits) shall not be deemed to be incorporated by reference into
any filing made by the Company pursuant to the Securities Act of 1933,
other than to the extent that such filing incorporates by reference any
or all of such information by express reference thereto.
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 hereunto duly authorized.
PUBLIC STORAGE, INC.
Dated: March 13, 2003
By: /s/ Harvey Lenkin
-----------------
Harvey Lenkin
President
Exhibit 99.1
News Release
Public Storage, Inc.
701 Western Avenue
P.O. Box 25050
Glendale, CA 91221-5050
www. publicstorage.com
--------------------------------------------------------------------------------
For Release: Immediately
Date: March 13, 2003
Contact: Mr. Harvey Lenkin
(818) 244-8080
GLENDALE, CALIFORNIA - Harvey Lenkin, President of Public Storage, Inc. (NYSE
and PCX:PSA), announced today operating results for the fourth quarter and year
ending December 31, 2002.
OPERATING RESULTS FOR THE QUARTER ENDED DECEMBER 31, 2002:
----------------------------------------------------------
Net income for the three months ended December 31, 2002 was $67,214,000 compared
to $84,196,000 for the same period in 2001, representing a decrease of
$16,982,000 or 20.2% This decrease in net income is primarily a result of a
reduction in our Same Store operating results, increased depreciation expense
resulting primarily from new property additions and charges relating to the
planned closure of several containerized storage facilities, as discussed
further below. The impact of these items was offset by an increase in the
earnings generated by the acquisition of additional real estate investments
during 2001 and 2002, the earnings generated by the tenant reinsurance business
which was acquired on December 31, 2001, reduced general and administrative
expense and a decrease in income allocated to minority interests due to the
repurchase of preferred operating partnership units during 2001.
Net income allocable to our regular common shareholders was $24,617,000 or $0.20
per common share on a diluted basis (based on 124,984,000 weighted average
diluted common equivalent shares) for the three months ended December 31, 2002
compared to $46,350,000 or $0.38 per common share on a diluted basis (based on
122,274,000 weighted average diluted common equivalent shares) for the same
period in 2001, representing a decrease of 46.9% in the aggregate or 47.4% on a
per share basis.
Weighted average diluted shares increased from 122,274,000 for the three months
ended December 31, 2001 to 124,984,000 for the three months ended December 31,
2002. This increase was due primarily to the net issuance of 1,138,733 shares on
December 31, 2001 in connection with the acquisition of the tenant reinsurance
business, the issuance of 1,091,608 shares during 2002 in connection with the
acquisition of partnership interests, as well as the issuance of an aggregate of
1,653,833 shares during 2002 and 2001 in connection with the exercise of
employee stock options. This increase was offset partially by the impact of a
832,000 share reduction in the dilutive impact of stock options outstanding,
which was attributable to the exercise of employee stock options as well as an
overall decrease in our average stock price, which impacts the weighted average
calculation using the treasury stock method.
During the three months ended December 31, 2002 and 2001, we allocated
$37,222,000 and $32,471,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing an increase of 14.6%.
This increase is due to the issuance of additional preferred stock in both the
fourth quarter of 2001 and throughout 2002, offset partially by the redemption
of several series of our higher coupon preferred stock in 2001 and 2002. In
addition, during each of the three months ended December 31, 2002 and 2001, we
allocated $5,375,000 of our net income to our Equity Stock, Series A
shareholders.
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2002:
-------------------------------------------------------
Net income for the year ended December 31, 2002 was $318,738,000 compared to
$324,208,000 for the same period in 2001, representing a decrease of $5,470,000
or 1.7%. The decrease in net income was caused primarily by a decrease in Same
Store property operations, increased depreciation expense resulting primarily
from new property additions, and charges relating to the planned closure of
several containerized storage facilities, as discussed below. The impact of
these items was partially offset by the earnings generated by the acquisition of
additional real estate investments during 2001 and 2002, the earnings generated
by the tenant reinsurance business acquired in 2001, reduced general and
administrative expense, a decrease in income allocated to minority interests due
to the repurchase of preferred operating partnership units during 2001 and
increased earnings from equity investments.
1
Net income allocable to our regular common shareholders was $148,311,000 or
$1.19 per common share on a diluted basis (based on 124,571,000 weighted average
diluted common equivalent shares) for the year ended December 31, 2002 compared
to $186,774,000 or $1.51 per common share on a diluted basis (based on
123,577,000 weighted average diluted common equivalent shares) for the same
period in 2001, representing a decrease of 20.6% in the aggregate or 21.2% on a
per share basis.
Weighted average diluted shares outstanding increased from 123,577,000 for the
year ended December 31, 2001 to 124,571,000 for the year ended December 31,
2002, due primarily to an increase of approximately 299,000 in the dilutive
impact of employee stock options outstanding computed using the treasury stock
method, the net issuance of approximately 1,138,733 shares on December 31, 2001
in connection with the acquisition of the tenant reinsurance business, the
issuance of 1,091,608 shares during 2002 in connection with the acquisition of
partnership interests, as well as the issuance of an aggregate of 1,653,833
shares during 2002 and 2001 in connection with the exercise of employee stock
options. These factors were offset partially by the impact of share repurchases
in the first half of 2001.
During the year ended December 31, 2002 and 2001, we allocated $148,926,000 and
$117,979,000 of our net income (based on distributions paid), respectively, to
our preferred shareholders, representing an increase of 26.2%. This increase is
due to the issuance of additional preferred stock in 2001 and 2002, partially
offset by the redemption of several series of our higher coupon preferred stock
in 2001 and 2002. In addition, during the years ended December 31, 2002 and
2001, we allocated $21,501,000 and $19,455,000 of our net income, respectively,
to our Equity Stock, Series A shareholders, representing an increase of 10.5%.
This increase is due to the issuance of additional shares of equity stock in
2001.
FUNDS FROM OPERATIONS:
----------------------
Funds from operations per common share for the fourth quarter of 2002 was $0.60
per common equivalent share compared to $0.75 per common equivalent share for
the same period in 2001, representing a decrease of 20.0%. Funds from operations
per common share for the year ended December 31, 2002 was $2.74 per common
equivalent share compared to $2.93 per common equivalent share for the same
period in 2001, representing a decrease of 6.5%. The reduction in funds from
operations per common share was primarily due to a reduction in our Same Store
operating results and charges relating to the planned closure of several
containerized storage facilities, as discussed further below. The impact of
these items was partially offset by an increase in the earnings generated by the
acquisition of additional real estate investments during 2001 and 2002, the
earnings generated by the tenant reinsurance business which was acquired on
December 31, 2001, reduced general and administrative expense and a decrease in
income allocated to minority interests due to the repurchase of preferred
operating partnership units during 2001.
Funds from operations is a term defined by the National Association of Real
Estate Investment Trusts by which real estate investment trusts ("REITs") may be
compared. Funds from operations is a supplemental disclosure and it is generally
defined as net income before depreciation and extraordinary items and, in the
case of the Company, does not include gains or losses on the disposition of real
estate assets.
PROPERTY OPERATIONS:
--------------------
The Company derives substantially all of its revenues from the ownership and
management of self-storage facilities. In order to evaluate the performance of
the Company's overall storage facility portfolio, management analyzes the
operating performance of a consistent group of self-storage facilities.
As previously announced, beginning with the first quarter of 2002, we have
increased the number of facilities included in the "Same Store" pool from 945 at
December 31, 2001 to 1,258 facilities (which at December 31, 2002 includes 32
facilities that are owned by unconsolidated entities in which the Company has an
interest).
As a result of the change in the "Same Store" pool, the relative weighting of
markets has changed. Accordingly, comparisons should not be made between
information presented in 2001 for the "Same Store" pool of 945 facilities and
this current pool of 1,258 facilities in order to identify trends in
occupancies, realized rents per square foot or operating results.
2
The following table summarizes the pre-depreciation historical operating results
of the Same Store facilities:
Selected Operating Data for the Same Store
-------------------------------------------
Facilities (1,258 Facilities):
------------------------------
Three months ended December 31, Year Ended December 31,
------------------------------------ ------------------------------------
Percentage Percentage
2002 2001 Change 2002 2001 Change
--------- --------- ----------- --------- --------- ----------
(Dollar amounts in thousands, except rents per square foot)
Rental income:
Base rental income.......................... $178,400 $182,803 (2.4)% $716,453 $723,764 (1.0%)
Promotional discounts....................... (7,993) (149) 5264.4% (20,154) (5,497) 266.6%
--------- --------- ----------- --------- --------- ----------
Adjusted base rental income ................ 170,407 182,654 (6.7)% 696,299 718,267 (3.1%)
Late charges and administrative fees collected 6,338 5,672 11.7% 23,682 24,990 (5.2%)
--------- --------- ----------- --------- --------- ----------
Total rental income......................... 176,745 188,326 (6.1%) 719,981 743,257 (3.1)%
Cost of operations:
Property taxes............................ 16,724 16,182 3.3% 65,515 63,309 3.5%
Direct property payroll................... 14,568 13,193 10.4% 55,331 51,650 7.1%
Cost of managing facilities............... 5,722 5,267 8.6% 21,190 19,523 8.5%
Advertising and promotion................. 7,851 5,953 31.9% 19,733 20,714 (4.7%)
Utilities................................. 4,391 4,076 7.7% 16,952 17,302 (2.0%)
Repairs and maintenance................... 4,988 5,394 (7.5%) 16,683 18,608 (10.3%)
Telephone reservation center.............. 2,378 2,378 0.0% 9,915 10,717 (7.5%)
Property insurance........................ 1,463 1,431 2.2% 6,134 6,019 1.9%
Other..................................... 4,461 4,515 (1.2%) 16,696 15,277 9.3%
--------- --------- ----------- --------- --------- ----------
Total cost of operations.................... 62,546 58,389 7.1% 228,149 223,119 2.3%
Net operating income........................... $114,199 $129,937 (12.1%) $491,832 $520,138 (5.4%)
========= ========= =========== ========= ========= ==========
Gross margin................................... 64.6% 69.0% (6.4%) 68.3% 70.0% (2.4%)
Weighted average for the period:
Square foot occupancy(a).................... 85.1% 86.9% (2.1%) 85.2% 88.9% (4.2%)
Realized annual rent per occupied square foot $10.98 $11.52 (4.7%) $11.20 $11.07 1.2%
(b)............................................
Annualized revenue per available square foot $9.34 $10.01 (6.7%) $9.54 $9.85 (3.1%)
(c)............................................
Weighted average at December 31:
Square foot occupancy....................... 84.4% 85.4% (1.2%)
In place annual rent per occupied square foot $11.82 $11.89 (0.6%)
(d).........................................
Posted annual rent per square foot (e)...... $11.86 $13.52 (12.3%)
Total net rentable square feet (in thousands).. 72,961 72,961 -
(a) Square foot occupancies represent weighted average occupancy levels over
the entire period.
(b) Realized annual rent per occupied square foot is computed by dividing
annualized adjusted base rental income by the weighted average occupied
square footage for the period. Realized rents per square foot takes into
consideration promotional discounts, bad debt costs, credit card fees and
other costs which reduce rental income from the contractual amounts due.
(c) Annualized revenue per available square foot represents annualized adjusted
base rental income divided by total available net rentable square feet.
(d) In place annual rent per occupied square foot represents contractual rents
per occupied square foot without reductions for promotional discounts.
(e) Posted annual rent per square foot represents the rents charged to new
tenants without reductions for any promotional discounts.
3
In the fourth quarter of 2002, our Same Store net operating income decreased
12.1% as compared to the same period in 2001. The decrease was due to a decrease
of 6.7% in adjusted base rental income and a 7.1% increase in cost of
operations. The 6.7% decrease in adjusted base rental income for the fourth
quarter is attributable to a 2.1% decrease in the weighted average occupancy
level combined with a 4.7% decrease in realized rent per occupied square foot
during the period attributable to increased promotional discounts and lower
rental rates. The 7.1% increase in cost of operations is due primarily to an
increase in television advertising from $2,913,000 in the fourth quarter of 2001
to $4,260,000 in the fourth quarter of 2002, and a $1,830,000 increase in
payroll and management costs.
HISTORICAL OVERVIEW OF TRENDS IN SELF-STORAGE OPERATIONS AND OPERATING STRATEGY
-------------------------------------------------------------------------------
During each of calendar years 1999 and 2000, the Same Store facilities'
occupancy levels averaged approximately 92%. These relatively high occupancy
levels were attained and sustained through a variety of promotional activities
offering new tenants move-in discounts aggregating approximately $20 million per
year. During 2001, we changed our marketing strategy to aggressively increase
rental rates and reduce the amount of discounts offered at the risk of lower
occupancy levels. As a result of this strategy, rental income for 2001 was
approximately 7.4% higher than the prior year. However, this improvement in
rental income came at the expense of declining occupancy levels in 2001. During
the first nine months of 2001, average occupancy levels were approximately 2.0%
below those of 2000 for the same period, which we believed to be a manageable
reduction. However, during the fourth quarter of 2001 and through February 2002,
there was a rapid decline in occupancy levels which caused the year-over-year
reduction to increase to 5.3% as of the end of February 2002. This reduction in
occupancy level coincided with a reduction in call volume to our national
telephone reservation center. We believe that these reductions were attributable
to the absence of any significant promotional discounts offered to tenants as
well as to general economic conditions.
In the second half of March 2002, we reduced rental rates charged to new
incoming tenants and began a national television campaign. The national
television campaign, which offered a significant promotional discount as part of
the advertisement, was run from the second half of March 2002 through the first
half of May 2002, resulting in increased move-in activity during April and May
2002 compared to the prior year. This campaign was terminated in the middle of
May, and in the absence of significant promotional discounts from mid-May
through the end of July 2002, rental activity during June and July 2002
decreased and the average occupancy for the Same Store facilities at July 31,
2002 was approximately 6.0% less than at July 31, 2001.
FOURTH QUARTER SELF-STORAGE OPERATING RESULTS
---------------------------------------------
Beginning in mid-August 2002, we reinstated a discount program and advertised on
television in selected markets in an effort to enhance move-in activity and
improve occupancy levels. This program had a positive impact upon move-in
activity throughout the remainder of 2002. In addition, move-out activity began
to subside which also contributed to positive occupancy gains. Average occupancy
for the Same Store facilities at the end of September 2002 was 85.9%, as
compared to 89.9% at the end of September 2001, representing a decrease of 4.4%.
Average occupancy for the Same Store facilities at the end of December 2002 was
84.4%, as compared to 85.4% at the end of December 2001, representing a decrease
of 1.2%.
During the fourth quarter of 2002, we narrowed the year-over-year spread in
occupancy rates from a 4.4% decrease at September 30, 2002 to 1.2% at December
31, 2002. However, Same Store net operating income was 12.1% lower in the fourth
quarter of 2002 as compared to the same period in 2001, primarily because of the
following:
o A significant increase in promotional discounts given to incoming
tenants from $149,000 for the fourth quarter of 2001 to $7,993,000 for
the fourth quarter of 2002.
o A 12.3% reduction in annual "posted" rent charged to incoming tenants
from an average of $13.52 per square foot at the end of 2001 to $11.86
per square foot at the end of 2002.
o A reduction in average occupancy from 86.9% for the fourth quarter of
2001 to 85.1% for the fourth quarter of 2002, a decrease of 2.1%.
o An increase in television advertising expense from $2,913,000 for the
fourth quarter of 2001 to $4,260,000 for the fourth quarter of 2002.
o An increase in direct property payroll and cost of managing facilities
of $1,830,000 due primarily to increased incentives paid to property
operating personnel.
4
COMPARISON OF THIRD QUARTER SAME STORE RESULTS TO FOURTH QUARTER RESULTS
------------------------------------------------------------------------
The 12.1% year-over-year decrease in Same Store net operating income for the
fourth quarter of 2002 was significantly worse than the 5.2% year-over-year
decrease experienced in the third quarter of 2002. This worsening was primarily
attributable to the impact of discounting and television advertising; offset
partially by improvements in average occupancy, as follows:
o On a year-over-year basis, the increase in promotional discounts was
$4,280,000 in the third quarter of 2002 as compared to $7,844,000 for
the fourth quarter of 2002.
o On a year-over-year basis, television advertising decreased by
$2,477,000 in the third quarter of 2002, but increased $1,347,000 in
the fourth quarter of 2002.
o These increases in promotional discounts and television advertising
were only partially mitigated by the decrease in average year-over-year
occupancy spread from 5.3% for the third quarter of 2002 as compared to
2.1% for the fourth quarter of 2002.
OUTLOOK
-------
We expect to continue promotional discounting and television advertising during
2003, though the level of such activities cannot be estimated at this time. The
up front costs of these marketing activities, and the increases in discounts,
are expected to continue to adversely impact our net operating income during
2003. The following table summarizes our quarterly discounting and television
advertising activities in 2002 and for the first two months of 2003 for our Same
Store Facilities:
Q1 Q2 Q3 Q4 Total
------------- ----------- ---------- ---------- --------
(Dollar amounts in thousands)
2002 discounts.................. $1,117 $5,887 $5,157 $7,993 $20,154
2002 television cost............ $ 544 $1,526 $2,152 $4,260 $ 8,482
2002 weighted average occupancy
during the period.............. 83.6% 86.4% 85.9% 85.1% 85.2%
Jan - Feb 2002 discounts........ $ 112
Jan - Feb 2003 discounts........ $7,799
Jan - Feb 2002 television cost.. $ 377
Jan - Feb 2003 television cost.. $ 923
Weighted average occupancy at:
February 28, 2002........... 83.2%
February 28, 2003........... 84.7%
As indicated in the above table, the weighted average occupancy level for our
Same Store facilities was 84.7% at February 28, 2003 as compared to 83.2% at
February 28, 2002, representing an increase of 1.8%. This increase, however, has
come at a significant cost; promotional discounts and television advertising
cost have increased significantly. As a result, net operating income for our
Same Store facilities was lower in the two months ended February 28, 2003 as
compared to the same period in 2002.
PROPERTY DEVELOPMENT AND ACQUISITIONS:
--------------------------------------
During the fourth quarter of 2002, we opened 2 newly developed self-storage
facilities (108,500 net rentable square feet), at a total cost of approximately
$12.7 million. For 2002, we opened a total of 14 newly developed self-storage
facilities (907,100 net rentable square feet) at a total cost of approximately
$92.1 million.
At December 31, 2002, there are 38 projects that are in construction or are
expected to begin construction generally by June 30, 2003, which includes new
developments and expansions to existing self-storage facilities. These 38
projects, which will be fully funded by the Company, had total estimated costs
of approximately $199.8 million, of which $87.5 million had been spent through
December 31, 2002, with opening dates estimated through the second quarter of
2004. The development of these facilities is subject to significant
contingencies. In addition, at December 31, 2002, we had approximately $17.8
million of land held for development.
5
No new facilities were acquired during the fourth quarter of 2002. For 2002, we
acquired a total of 9 self-storage facilities (502,400 net rentable square feet)
from third parties for an aggregate cost of approximately $30.1 million. In
addition, we acquired 78 self-storage facilities (4,574,291 net rentable square
feet) from related parties for an aggregate cost of approximately $330.4
million.
CLOSURE OF SEVERAL CONTAINERIZED STORAGE FACILITIES:
----------------------------------------------------
During the year ended December 31, 2002, management adopted a business plan that
included the closure of several non-strategic containerized storage facilities
(the "Closed Facilities"). Charges amounting to $3,843,000 and $8,634,000 were
recorded for the three and twelve months ended December 31, 2002, respectively,
consisting of asset impairment charges of $3,487,000 and $6,187,000,
respectively with respect to the furniture, fixtures, and equipment of the
facilities closed, and $356,000 and $2,447,000, respectively representing the
estimated remaining lease and other liabilities following the closure of these
facilities.
The historical operations of the Closed Facilities (including the asset
impairment and lease termination costs) are classified as discontinued
operations. Rental income, cost of operations, and depreciation expense with
respect to these closed facilities for current and prior periods is included in
the line-item "Discontinued Operations - Containerized Storage" on the income
statement.
The number of containerized facilities operated decreased from 55 facilities in
14 states at December 31, 2001, to 33 facilities in 11 states at December 31,
2002. Many of the Closed Facilities are in the process of closing which may take
up to several months to complete. We expect that these facilities will continue
to generate operating losses during 2003 until final closure.
In addition, during the fourth quarter of 2002, we recorded a charge of $750,000
relating to the disposition of machinery and equipment located at the facilities
that will remain open, because such equipment is no longer needed based upon our
business plan. This charge is included in "Cost of Operations - Containerized
storage facilities" on the income statement.
During the first quarter of 2003, we started to reposition the containerized
storage product vis-a-vis our self storage product. In part of this
repositioning, we significantly increased rental rates per customer and delivery
rates. The ultimate impact of these actions on our containerized storage
occupancies, revenues, and net operating income is uncertain at this time.
Management continues to evaluate the optimum level of containerized facility
operations in each market in which it operates.
REDEMPTION OF PREFERRED EQUITY:
-------------------------------
On October 7, 2002, we redeemed all 6,000,000 depositary shares each
representing 1/1,000 of a share ($150 million) of our 8.0% Cumulative Preferred
Stock, Series J (NYSE:PSAPrJ) at a redemption price of $25.00 per share, plus a
sum equal to all accrued and unpaid dividends from October 1, 2002 through the
redemption date.
We have called for redemption the 9.20% Cumulative Preferred Stock, Series B
($57.5 million, NYSE:PSAPrB) on March 31, 2003 at $25 per share plus accrued
dividends from January 1, 2003 through the date of redemption. We expect to
redeem the Series B with cash on-hand and, if needed, borrowings on our line of
credit.
DISTRIBUTIONS DECLARED:
-----------------------
As previously announced, on March 4, 2003, the Board of Directors declared a
quarterly distribution of $0.45 per regular common share and $0.6125 per share
on the depositary shares each representing 1/1,000 of a share of Equity Stock,
Series A. Distributions were also declared with respect to the Company's various
series of preferred stock. All of the distributions are payable on March 31,
2003 to shareholders of record as of March 14, 2003.
ANNUAL CONFERENCE CALL:
-----------------------
As previously announced, a conference call is scheduled for Friday, March 14,
2003, at 9:00 a.m. (PST) to discuss these results. The toll free number is (877)
516-1540, the conference ID is 7798604. An instant replay of the conference call
will be available through March 21, 2003 at (800) 642-1687 or (706) 645-9291,
the conference ID is 7798604. The replay can also be accessed under the
"Investor Relations" section of our web site.
6
Public Storage, Inc. is a fully integrated, self-administered and self-managed
real estate investment trust that primarily acquires, develops, owns and
operates self-storage facilities. The Company's headquarters is located in
Glendale, California. The Company's self-storage properties are located in 37
states. At December 31, 2002 the Company had interests in 1,409 storage
facilities.
When used within this press release, 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 the actual results and performance of the Company to be materially
different from those expressed or implied in the forward-looking statements.
Such factors which are described in the Company's Form 10-K for the year ended
December 31, 2001 include the impact of competition from new and existing
self-storage and commercial facilities which could impact rents and occupancy
levels at the Company's facilities; the Company's ability to evaluate, finance,
and integrate acquired and developed properties into the Company's existing
operations; the Company's 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
containerized storage concept; the impact of general economic conditions upon
rental rates and occupancy levels at the Company's facilities; and the
availability of permanent capital at attractive rates.
More information about Public Storage, Inc. is available on the Internet. The
Company's Form 10-K for the year ended December 31, 2002, which will be
certified by the Company's CEO, President, and Chief Financial Officer in
accordance with recent legislation, will be posted to our website,
www.publicstorage.com, when it is filed with the Securities and Exchange
Commission.
Additional financial data attached.
7
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
For the Three Months Ended For the Twelve months Ended
--------------------------------- ---------------------------------
December 31, December 31,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
(in thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities................. $ 189,307 $ 184,132 $ 763,287 $ 721,662
Commercial properties (a)............... 2,864 3,062 11,781 12,070
Containerized storage facilities (b).... 10,272 8,715 37,776 34,212
Tenant reinsurance premiums................. 5,104 - 19,947 -
Interest and other income.................... 1,656 4,309 8,661 14,225
--------------- --------------- --------------- ---------------
209,203 200,218 841,452 782,169
--------------- --------------- --------------- ---------------
Expenses:
Cost of operations:
Self-storage facilities................. 69,538 59,458 250,957 229,211
Commercial properties (a)............... 1,190 1,107 4,462 3,861
Containerized storage facilities (b).... 9,544 8,029 30,687 29,916
Tenant reinsurance...................... 2,208 - 9,411 -
Depreciation and amortization............... 45,669 43,896 179,634 166,178
General and administrative.................. 3,346 4,489 15,619 21,038
Interest expense............................ 525 204 3,809 3,227
--------------- --------------- --------------- ---------------
132,020 117,183 494,579 453,431
--------------- --------------- --------------- ---------------
Income before equity in earnings, minority
interest in income, discontinued
operations, and gain (loss) on disposition
of real estate........................... 77,183 83,035 346,873 328,738
--------------- --------------- --------------- ---------------
Equity in earnings of real estate entities..... 6,149 9,630 29,888 38,542
Minority interest in income:
Preferred partnership interests............. (6,727) (6,907) (26,906) (31,737)
Other partnership interests................. (3,897) (3,738) (17,181) (14,278)
--------------- --------------- --------------- ---------------
Income before disposition of real estate and
discontinued operations.................. 72,708 82,020 332,674 321,265
Discontinued Operations:
Commercial properties (a)................... (44) 66 77 233
Containerized storage (b)................... (4,748) (413) (11,472) (1,381)
Gain (loss) on disposition of real estate...... (702) 2,523 (2,541) 4,091
--------------- --------------- --------------- ---------------
Net income..................................... $ 67,214 $ 84,196 $ 318,738 $ 324,208
=============== =============== =============== ===============
Net income allocation:
----------------------
Allocable to preferred shareholders.......... $ 37,222 $ 32,471 $ 148,926 $ 117,979
Allocable to equity shareholders, Series A... 5,375 5,375 21,501 19,455
Allocable to common shareholders............. 24,617 46,350 148,311 186,774
--------------- --------------- --------------- ---------------
$ 67,214 $ 84,196 $ 318,738 $ 324,208
=============== =============== =============== ===============
Per common share:
-----------------
Net income per share - Basic................. $0.20 $0.38 $1.21 $1.53
=============== =============== =============== ===============
Net income per share - Diluted............... $0.20 $0.38 $1.19 $1.51
=============== =============== =============== ===============
Weighted average common shares - Basic....... 123,949 120,407 123,005 122,310
=============== =============== =============== ===============
Weighted average common shares - Diluted..... 124,984 122,274 124,571 123,577
=============== =============== =============== ===============
a. The historical operations of a commercial facility that the Company
disposed of in the fourth quarter of 2002 are reclassified as Discontinued
Operations - Commercial Facilities.
b. During the year ended December 31, 2002, management adopted a business plan
that included the closure of certain non-strategic containerized storage
facilities (the "Closed Facilities"), and recorded asset impairment and
lease liability and other costs following closure in connection with these
closures in the amount of $3.8 million and $8.6 million for the three
months and year ended December 31, 2002, respectively. The historical
operating results of the Closed Facilities, along with the asset impairment
and lease termination costs, have been reclassified to Discontinued
Operations - Containerized Storage. In addition, asset impairment charges
were recorded in the amount of $750,000 in the quarter ended December 31,
2002, and reflected in containerized storage cost of operations, with
respect to machinery and equipment no longer required at the containerized
storage facilities that remain open based upon the Company's business plan.
8
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
December 31, December 31,
2002 2001
-------------- --------------
(in thousands, except share
ASSETS and per share data)
------
Cash and cash equivalents ...................................................... $ 103,124 $ 49,347
Operating real estate facilities:
Land and buildings, at cost ................................................. 4,988,526 4,431,054
Accumulated depreciation .................................................... (987,546) (819,932)
-------------- --------------
4,000,980 3,611,122
Construction in process ....................................................... 87,516 121,181
Land held for development ...................................................... 17,807 30,001
-------------- --------------
4,106,303 3,762,304
Investment in real estate entities ............................................. 329,679 479,300
Goodwill ....................................................................... 78,204 78,204
Intangible assets, net ......................................................... 117,893 124,497
Mortgage notes receivable from affiliates ...................................... 24,324 59,344
Other assets ................................................................... 84,135 72,883
-------------- --------------
Total assets .......................................................... $ 4,843,662 $ 4,625,879
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable .................................................................. $ 115,867 $ 143,552
Borrowings on line of credit ................................................... -- 25,000
Accrued and other liabilities .................................................. 129,327 93,143
-------------- --------------
Total liabilities ..................................................... 245,194 261,695
Minority interest - preferred .................................................. 285,000 285,000
Minority interest - other ...................................................... 154,499 169,601
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized, 9,258,486
shares issued and outstanding (11,156,500 at December 31, 2001), at
liquidation preference:
Cumulative Preferred Stock, issued in series .......................... 1,817,025 1,540,150
Common Stock, $0.10 par value, 200,000,000 shares authorized, 116,991,455
shares issued and outstanding (114,961,915 at December 31, 2001) .......... 11,699 11,496
Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
8,776.102 shares issued and outstanding at December 31, 2002 and December
31, 2001 .................................................................. -- --
Class B Common Stock, $0.10 par value, 7,000,000 shares authorized and issued
700 700
Paid-in capital ............................................................. 2,371,194 2,325,898
Cumulative net income ....................................................... 2,030,007 1,711,269
Cumulative distributions paid ............................................... (2,071,656) (1,679,930)
-------------- --------------
Total shareholders' equity ............................................ 4,158,969 3,909,583
-------------- --------------
Total liabilities and shareholders' equity ....................... $ 4,843,662 $ 4,625,879
============== ==============
9
Public Storage, Inc.
Computation of Funds from Operations
(unaudited)
For the Three Months Ended For the Twelve months Ended
December 31, December 31,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(Amounts in thousands, except per share data)
Net income................................................. $ 67,214 $ 84,196 $ 318,738 $ 324,208
Depreciation and amortization.......................... 45,669 43,896 179,634 166,178
Depreciation/Amortization included in Discontinued
Operations.......................................... 379 519 2,014 1,883
Less - Depreciation with respect to non-real estate (1,330) (1,583) (6,053) (5,851)
assets..............................................
(Gain) loss on sale of real estate assets.............. 702 (2,523) 2,541 (4,091)
Less - our share of PSB's gain on sale of real estate.. (1,013) - (3,737) -
Depreciation from unconsolidated real estate investments 7,361 7,369 27,078 25,096
Minority interest in income............................ 10,624 10,645 44,087 46,015
----------- ----------- ----------- -----------
Net cash provided by operating activities.................. 129,606 142,519 564,302 553,438
FFO to minority interests - common......................... (5,686) (5,851) (25,268) (22,125)
FFO to minority interest - preferred....................... (6,727) (6,907) (26,906) (31,737)
----------- ----------- ----------- -----------
Funds from operations...................................... 117,193 129,761 512,128 499,576
Senior Preferred....................................... (37,222) (32,471) (148,926) (117,979)
Equity Stock, Series A................................. (5,375) (5,375) (21,501) (19,455)
----------- ----------- ----------- -----------
Less: preferred stock and equity stock dividends........... (42,597) (37,846) (170,427) (137,434)
----------- ----------- ----------- -----------
Funds from operations to Common and Class B Common Stock
(a).................................................... $ 74,596 $ 91,915 $ 341,701 $ 362,142
=========== =========== =========== ===========
Weighted average shares:
Regular common shares...................................... 116,949 113,617 116,075 115,520
Class B common stock....................................... 7,000 7,000 7,000 7,000
Stock option dilution (b).................................. 1,035 1,867 1,566 1,267
----------- ----------- ----------- -----------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share..................... 124,984 122,484 124,641 123,787
=========== =========== =========== ===========
FFO per common share (c) (d)............................... $ 0.60 $ 0.75 $ 2.74 $ 2.93
=========== =========== =========== ===========
---------------------------------
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT") by which real estate investment
trusts ("REITs") may be compared. It is generally defined as net income
before depreciation and extraordinary items. FFO computations do not factor
out the REIT's requirement to make either capital expenditures or principal
payments on debt.
(b) The impact of employee options outstanding has increased in the twelve
months ended December 31, 2002 as compared to the same period in 2001 due
to an increase in the Company's average stock price (the Company determines
the dilutive impact of stock options based upon the treasury stock method).
(c) FFO per share was negatively affected by dilution relating to the 66 newly
developed facilities opened by the Company or the Consolidated Development
Joint Venture since January 1, 1999. Based upon an average cost of capital
of 8%, this dilution amounted to approximately $0.04 and $0.15 per share
for the three and twelve months ended December 31, 2002, respectively, as
compared to $0.02 and $0.11 for the same periods in 2001. FFO per share was
also positively impacted by the December 31, 2001 acquisition of the tenant
reinsurance business of approximately $0.02 in the three months ended
December 31, 2002 and $0.06 in the twelve months ended December 31, 2002.
(d) FFO per common share was negatively impacted $0.04 and $0.08 per share for
the three and twelve months ended December 31, 2002 with respect to the
Company's containerized storage operations, which was primarily due to
asset impairment and lease termination liabilities totaling $3.8 million
and $8.6 million for the three and twelve months ended December 31, 2002
relating to the closure of non-strategic containerized storage facilities.
In addition, asset impairment charges were recorded in the amount of
$750,000 in the quarter ended December 31, 2002, with respect to machinery
and equipment of the containerized storage facilities that remain open,
because such equipment is no longer required based upon the Company's
current operating plan.
10