UNITED STATES
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 period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
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Commission File Number 0-11981
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PS PARTNERS II, LTD.
--------------------------
(Exact name of registrant as specified in its charter)
California 95-3878680
- ------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2394
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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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.
Yes X No
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INDEX
PART I. FINANCIAL INFORMATION
Condensed consolidated balance sheets at June 30, 1997
and December 31, 1996 2
Condensed consolidated statements of income for the three
and six months ended June 30, 1997 and 1996 3
Condensed consolidated statements of cash flows for the
six months ended June 30, 1997 and 1996 4-5
Notes to condensed consolidated financial statements 6-7
Management's discussion and analysis of financial condition
and results of operations 8-11
PART II. OTHER INFORMATION
(Items 1 through 5 are not applicable)
Item 6 - Exhibits and Reports on Form 8-K 12
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
---------------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 863,000 $ 1,239,000
Rent and other receivables 80,000 123,000
Real estate facilities, at cost:
Land 10,580,000 17,414,000
Buildings and equipment 58,639,000 73,222,000
---------------------------------------
69,219,000 90,636,000
Less accumulated depreciation (30,682,000) (37,683,000)
---------------------------------------
38,537,000 52,953,000
Investment in real estate entity 13,934,000 -
Other assets 146,000 243,000
---------------------------------------
$ 53,560,000 $ 54,558,000
=======================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 423,000 $ 519,000
Advance payments from renters 464,000 427,000
Minority interest in general partnerships 14,999,000 15,069,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 37,215,000 38,077,000
General partner's equity 459,000 466,000
---------------------------------------
Total partners' equity 37,674,000 38,543,000
---------------------------------------
$ 53,560,000 $ 54,558,000
=======================================
See accompanying notes.
2
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------
1997 1996 1997 1996
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REVENUE:
Rental income $ 3,404,000 $ 3,820,000 $ 6,657,000 $ 7,583,000
Equity in income of real estate entity 209,000 - 357,000 -
Interest income 10,000 11,000 25,000 23,000
--------------------------------------------------------------------
3,623,000 3,831,000 7,039,000 7,606,000
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COSTS AND EXPENSES:
Cost of operations 1,030,000 1,248,000 2,091,000 2,560,000
Management fees 204,000 223,000 399,000 443,000
Depreciation and amortization 711,000 861,000 1,420,000 1,716,000
Interest expense - - - 14,000
Administrative 52,000 69,000 72,000 86,000
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1,997,000 2,401,000 3,982,000 4,819,000
--------------------------------------------------------------------
Income before minority interest 1,626,000 1,430,000 3,057,000 2,787,000
Minority interest in income (436,000) (419,000) (820,000) (784,000)
--------------------------------------------------------------------
NET INCOME $ 1,190,000 $ 1,011,000 $ 2,237,000 $ 2,003,000
====================================================================
Limited partners' share of net income
($14.90 per unit in 1997 and $13.63
per unit in 1996) $ 1,907,000 $ 1,745,000
General partner's share of net income 330,000 258,000
-----------------------------------
$ 2,237,000 $ 2,003,000
===================================
See accompanying notes.
3
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
-----------------------------------------
1997 1996
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,237,000 $ 2,003,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,420,000 1,716,000
Decrease in rent and other receivables 43,000 66,000
Decrease (increase) in other assets 97,000 (37,000)
Decrease in accounts payable (96,000) (27,000)
Increase in advance payments from renters 37,000 52,000
Equity in income of real estate entity (357,000) -
Minority interest in income 820,000 784,000
-----------------------------------------
Total adjustments 1,964,000 2,554,000
-----------------------------------------
Net cash provided by operating activities 4,201,000 4,557,000
-----------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in real estate entity (3,000) -
Additions to real estate facilities (578,000) (344,000)
-----------------------------------------
Net cash used in investing activities (581,000) (344,000)
-----------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on mortgage notes payable - (2,260,000)
Distributions to holder of minority interest (890,000) (876,000)
Contribution from holder of minority interest - 1,438,000
Distributions to partners (3,106,000) (2,403,000)
-----------------------------------------
Net cash used in financing activities (3,996,000) (4,101,000)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (376,000) 112,000
Cash and cash equivalents at the beginning of the period 1,239,000 904,000
-----------------------------------------
Cash and cash equivalents at the end of the period $ 863,000 $1,016,000
=========================================
See accompanying notes.
4
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
Six Months Ended
June 30,
--------------------------------------
1997 1996
--------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Investment in real estate entity $ (13,574,000) $ -
Transfer of real estate facilities for interest in real estate entity 13,574,000 -
See accompanying notes.
5
PS PARTNERS II, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed consolidated financial statements
should be read in conjunction with the financial statements and related
notes appearing in the Partnership's Form 10-K for the year ended December
31, 1996.
2. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
only normal accruals, necessary to present fairly the Partnership's
financial position at June 30, 1997, the results of operations for the
three and six months ended June 30, 1997 and 1996 and cash flows for the
six months then ended.
3. The results of operations for the three and six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full
year.
4. Effective January 2, 1997, Public Storage, Inc. ("PSI"), the Partnership's
general partner, formed a new private real estate investment trust named
American Office Park Properties, Inc. ("AOPP") which will focus its
investment efforts on the ownership and management of commercial properties
(also referred to as business park facilities). In connection with the
formation of AOPP, PSI and affiliated partnerships transferred commercial
properties to a newly created partnership underlying AOPP in exchange for
limited partnership interests (AOPP and the underlying partnership
collectively referred to as the "New REIT"). The Partnership participated
in the initial transaction by exchanging its two commercial properties, one
of which was owned jointly by the Partnership and PSI, for 576,250 limited
partnership units, which represented approximately 8.6% of the initial
capitalization of the partnership underlying AOPP.
The number of limited partnership units received by the Partnership was
based on the relative fair market value of the Partnership's commercial
properties exchanged compared to the aggregate of all other real estate
assets exchanged for limited partnership units in the underlying
partnership. The Partnership's limited partnership units, pursuant to the
terms and conditions of the governing documents, are convertible into
shares of common stock of AOPP.
6
4. (Continued)
The general partners believe that the concentration of PSI's, the
Partnership's and affiliate entities' commercial properties into a single
entity will create a vehicle which should facilitate future growth in this
segment of the real estate industry. PSI, the Partnership and the
affiliates transferring real estate assets to the New REIT will participate
in the growth through their ownership interests in the New REIT.
The Partnership accounts for its investment in New REIT using the equity
method of accounting; accordingly, equity in earnings of real estate
entity, as reflected on the Partnership's statement of income for the three
and six months ended June 30, 1997, reflects the Partnership's pro rata
share of the earnings of the New REIT. The investment was initially
recorded at the Partnership's net book value of its properties exchanged
for limited partnership units. The investment is subsequently adjusted for
the Partnership's pro rata share of income and distributions from the
underlying partnership of the New REIT.
7
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996:
The Partnership's net income for the three months ended June 30, 1997 was
$1,190,000 compared to $1,011,000 for the three months ended June 30, 1996,
representing an increase of $179,000, or 18%. Excluding the 1996 operations for
the Partnership's business park facilities as compared to the 1997 equity in
income of real estate entity, the increase is due to an increase in the
Partnership's mini-warehouse operations.
Rental income for the Partnership's mini-warehouse operations was
$3,404,000 compared to $3,264,000 for the three months ended June 30, 1997 and
1996, respectively, representing an increase of $140,000, or 4%. The increase in
rental income was primarily attributable to increased rental rates at the
Partnership's mini-warehouse facilities, partially offset by decreased average
occupancy levels. The monthly average realized rent per square foot for the
mini-warehouse facilities was $.64 compared to $.60 for the three months ended
June 30, 1997 and 1996, respectively. The weighted average occupancy levels at
the mini-warehouse facilities decreased from 92% to 90% for the three months
ended June 30, 1996 and 1997, respectively. Cost of operations (including
management fees) increased $107,000, or 9%, to $1,234,000 from $1,127,000 for
the three months ended June 30, 1997 and 1996, respectively. This increase was
primarily attributable to increases in repairs and maintenance, advertising, and
property tax expenses. Accordingly, for the Partnership's mini-warehouse
operations, property net operating income increased by $33,000, or 2%, from
$2,137,000 to $2,170,000 for the three months ended June 30, 1996 and 1997,
respectively.
Effective January 2, 1997, Public Storage, Inc. ("PSI"), the Partnership's
general partner, formed a new private real estate investment trust named
American Office Park Properties, Inc. ("AOPP") which will focus its investment
efforts on the ownership and management of commercial properties. In connection
with the formation of AOPP, PSI and affiliated partnerships transferred
commercial properties to a newly created partnership underlying AOPP in exchange
for limited partnership interests (AOPP and the underlying partnership
collectively referred to as the "New REIT"). The Partnership participated in the
initial transaction by exchanging its two commercial properties, one of which
was owned jointly by the Partnership and PSI, for 576,250 limited partnership
units, which represented approximately 8.6% of the initial capitalization of the
partnership underlying AOPP.
The Partnership accounts for its investment in New REIT using the equity
method of accounting. The following table summarizes the Partnership's equity in
earnings from its investment in the New REIT for the three months ended June 30,
9
1997 compared to the operation of the exchanged business park facilities for the
three months ended June 30, 1996:
Three Months Ended June 30,
------------------------------
1997 1996
------------------------------
Equity in earnings of real estate entity $ 209,000 $ -
Rental income - 556,000
Cost of operations - 344,000
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Net operating income 209,000 212,000
Depreciation - 169,000
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$ 209,000 $ 43,000
============== ==============
Depreciation and amortization attributable to the Partnership's
mini-warehouses increased $19,000 from $692,000 to $711,000 for the three months
ended June 30, 1996 and 1997, respectively. This increase was primarily
attributable to the depreciation of capital expenditures made during 1996 and
1997.
Minority interest in income increased $17,000, or 4%, to $436,000 from
$419,000 for the three months ended June 30, 1997 and 1996, respectively. This
increase was primarily attributable to an increase in operations at the
Partnership's real estate facilities owned jointly with PSI.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996:
The Partnership's net income for the six months ended June 30, 1997 was
$2,237,000 compared to $2,003,000 for the six months ended June 30, 1996,
representing an increase of $234,000, or 12%. Excluding the 1996 operations for
the Partnership's business park facilities as compared to the 1997 equity in
income of real estate entity, the increase is due to an increase in the
Partnership's mini-warehouse operations.
Rental income for the Partnership's mini-warehouse operations was
$6,657,000 compared to $6,413,000 for the six months ended June 30, 1997 and
1996, respectively, representing an increase of $244,000, or 4%. The increase in
rental income was primarily attributable to increased rental rates at the
Partnership's mini-warehouse facilities, partially offset by decreased average
occupancy levels. The monthly average realized rent per square foot for the
mini-warehouse facilities was $.63 compared to $.60 for the six months ended
June 30, 1997 and 1996, respectively. The weighted average occupancy levels at
the mini-warehouse facilities decreased from 90% to 89% for the six months ended
June 30, 1996 and 1997, respectively. Cost of operations (including management
fees) increased $157,000, or 7%, to $2,490,000 from $2,333,000 for the six
months ended June 30, 1997 and 1996, respectively. This increase was primarily
attributable to increases in advertising, office, and property tax expenses.
9
Accordingly, for the Partnership's mini-warehouse operations, property net
operating income increased by $87,000, or 2%, from $4,080,000 to $4,167,000 for
the six months ended June 30, 1996 and 1997, respectively.
The Partnership accounts for its investment in New REIT using the equity
method of accounting. The following table summarizes the Partnership's equity in
earnings from its investment in the New REIT for the six months ended June 30,
1997 compared to the operation of the exchanged business park facilities for the
six months ended June 30, 1996:
Six Months Ended June 30,
------------------------------
1997 1996
-------------- --------------
Equity in earnings of real estate entity $ 357,000 $ -
Rental income - 1,170,000
Cost of operations - 670,000
-------------- --------------
Net operating income 357,000 500,000
Depreciation - 350,000
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$ 357,000 $ 150,000
============== ==============
Depreciation and amortization attributable to the Partnership's
mini-warehouses increased $54,000 from $1,366,000 to $1,420,000 for the six
months ended June 30, 1996 and 1997, respectively. This increase was primarily
attributable to the depreciation of capital expenditures made during 1996 and
1997.
Minority interest in income was $820,000 in 1997 compared to $784,000 in
1996, representing an increase of $36,000, or 5%. This increase was primarily
attributable to an increase in operations at the Partnership's real estate
facilities owned jointly with PSI.
Interest expense in 1996 represents interest on the Partnership's mortgage
note payable that was repaid prior to maturity in March 1996.
Liquidity and Capital Resources
- -------------------------------
The Partnership has adequate sources of cash to finance its operations,
both on a short-term and long-term basis, primarily from internally generated
cash from property operations and cash reserves. Cash generated from operations
($4,201,000 for the six months ended June 30, 1997) has been sufficient to meet
all current obligations of the Partnership.
During 1997, the Partnership anticipates approximately $1,252,000 of
capital improvements (of which $257,000 represents PSI's joint venture share).
During 1995, the Partnership's property manager commenced a program to enhance
the visual appearance of the mini-warehouse facilities. Such enhancements
10
include new signs, exterior color schemes, and improvements to the rental
offices. This program continued in 1997. Total capital improvements were
$578,000 for the six months ended June 30, 1997 of which $460,000 represents the
Partnership's share.
The Partnership paid distributions to the limited and general partners
totaling $2,767,000 ($21.62 per unit) and $339,000, respectively, during the
first six months of 1997. Future distribution rates may be adjusted to levels
which are supported by operating cash flow after capital improvements and any
other necessary obligations.
PART II. OTHER INFORMATION
ITEMS 1 through 5 are not applicable.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a)The following Exhibits are included herein:
(27) Financial Data Schedule
(b) Form 8-K
none
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 13, 1997
PS PARTNERS II, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
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Senior Vice President and Chief Financial
Officer of Public Storage, Inc.
(principal financial and accounting
officer)
12