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 September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 1-10859
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PUBLIC STORAGE PROPERTIES XVII, INC.
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(Exact name of registrant as specified in its charter)
California 95-4300891
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2349
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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
-- --
The number of shares outstanding of the Company's classes of common stock as of
September 30, 1996:
2,776,023 shares of $.01 par value Series A shares
324,989 shares of $.01 par value Series B shares
920,802 shares of $.01 par value Series C shares
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at September 30, 1996
and December 31, 1995 2
Condensed Statements of Income for the three and nine
months ended September 30, 1996 and 1995 3
Condensed Statement of Shareholders' Equity for the
nine months ended September 30, 1996 4
Condensed Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION 10
PUBLIC STORAGE PROPERTIES XVII, INC.
CONDENSED BALANCE SHEETS
September 30, December 31,
1996 1995
-------------------- --------------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 469,000 $ 437,000
Rent and other receivables 66,000 43,000
Prepaid expenses 123,000 399,000
Real estate facilities at cost:
Building, land improvements and equipment 43,995,000 43,686,000
Land 22,837,000 22,837,000
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66,832,000 66,523,000
Less accumulated depreciation (18,553,000) (17,125,000)
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48,279,000 49,398,000
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Total assets $48,937,000 $50,277,000
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 1,112,000 $ 1,033,000
Dividends payable 962,000 1,522,000
Advance payments from renters 305,000 307,000
Notes payable 4,650,000 5,650,000
Shareholders' equity:
Series A common, $.01 par value,
4,983,165 shares authorized,
2,776,023 shares issued and
outstanding (2,780,323 shares issued
and outstanding in 1995) 28,000 28,000
Convertible Series B common, $.01 par
value, 324,989 shares authorized,
issued and outstanding 3,000 3,000
Convertible Series C common, $.01 par
value, 920,802 shares authorized,
issued and outstanding 9,000 9,000
Paid-in-capital 51,769,000 51,842,000
Cumulative income 20,046,000 16,944,000
Cumulative distributions (29,947,000) (27,061,000)
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Total shareholders' equity 41,908,000 41,765,000
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Total liabilities and shareholders' equity $48,937,000 $50,277,000
==================== ====================
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES XVII, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
------------- -------------- ------------- --------------
REVENUES:
Rental income $2,772,000 $2,717,000 $8,145,000 $7,898,000
Interest income 3,000 5,000 13,000 24,000
------------- -------------- ------------- --------------
2,775,000 2,722,000 8,158,000 7,922,000
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COSTS AND EXPENSES:
Cost of operations 873,000 786,000 2,522,000 2,293,000
Management fees paid to affiliates 149,000 155,000 433,000 456,000
Depreciation 512,000 511,000 1,526,000 1,543,000
Interest expense 113,000 106,000 371,000 217,000
Administrative 85,000 88,000 204,000 232,000
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1,732,000 1,646,000 5,056,000 4,741,000
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NET INCOME $1,043,000 $1,076,000 $3,102,000 $3,181,000
============= ============== ============= ==============
Earnings per share:
Primary - Series A $0.34 $0.34 $1.01 $0.97
============= ============== ============= ==============
Fully diluted - Series A $0.26 $0.25 $0.77 $0.75
============= ============== ============= ==============
Dividends declared per share:
Series A $0.31 $0.31 $0.93 $0.91
============= ============== ============= ==============
Series B $0.31 $0.31 $0.93 $0.91
============= ============== ============= ==============
Weighted average common shares
outstanding:
Primary - Series A 2,776,023 2,874,373 2,776,023 2,979,534
============= ============== ============= ==============
Fully diluted - Series A 4,021,814 4,120,164 4,021,814 4,225,325
============= ============== ============= ==============
See accompanying notes.
3
Public Storage Properties XVII, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Convertible Convertible
Series A Series B Series C Paid-in
Shares Amount Shares Amount Shares Amount Capital
--------- ------- ------- ------ ------- ------ -----------
Balances at December 31, 1995 2,780,323 $28,000 324,989 $3,000 920,802 $9,000 $51,842,000
Net income - - - - - - -
Repurchase of shares (4,300) - - - - - (73,000)
Cash distributions declared:
$.93 per share - Series A - - - - - - -
$.93 per share - Series B - - - - - - -
--------- ------- ------- ------ ------- ------ -----------
Balances at September 30, 1996 2,776,023 $28,000 324,989 $3,000 920,802 $9,000 $51,769,000
========= ======= ======= ====== ======= ====== ===========
Public Storage Properties XVII, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Cumulative Total
Net Cumulative Shareholders'
Income Distributions Equity
----------- ------------- -----------
Balances at December 31, 1995 $16,944,000 ($27,061,000) $41,765,000
Net income 3,102,000 - 3,102,000
Repurchase of shares - - (73,000)
Cash distributions declared:
$.93 per share - Series A - (2,583,000) (2,583,000)
$.93 per share - Series B - (303,000) (303,000)
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Balances at September 30, 1996 $20,046,000 ($29,947,000) $41,908,000
=========== ============= ===========
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES XVII, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
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1996 1995
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Cash flows from operating activities:
Net income $3,102,000 $3,181,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,526,000 1,543,000
Increase in rent and other receivables (23,000) (4,000)
Amortization of prepaid management fees 298,000 -
Increase in prepaid expenses (22,000) -
Increase in accounts payable 79,000 36,000
(Decrease) increase in advance payments from renters (2,000) 18,000
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Total adjustments 1,856,000 1,593,000
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Net cash provided by operating activities 4,958,000 4,774,000
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Cash flows from investing activities:
Additions to real estate facilities (407,000) (198,000)
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Net cash used in investing activities (407,000) (198,000)
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Cash flows from financing activities:
(Payments) proceeds from note payable to bank (1,000,000) 4,550,000
Distributions paid to shareholders (3,446,000) (3,039,000)
Purchase of Company Series A common stock (73,000) (7,503,000)
------------------- -------------------
Net cash used in financing activities (4,519,000) (5,992,000)
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Net increase (decrease) in cash and cash equivalents 32,000 (1,416,000)
Cash and cash equivalents at the beginning of the period 437,000 1,849,000
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Cash and cash equivalents at the end of the period $ 469,000 $ 433,000
=================== ===================
See accompanying notes.
5
PUBLIC STORAGE PROPERTIES XVII, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed 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 financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Company's Form 10-K for the year ended December 31, 1995.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Company's financial position at
September 30, 1996 and December 31, 1995, the results of its operations for
the three and nine months ended September 30, 1996 and 1995 and its cash
flows for the nine months then ended.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results expected for the full
year.
4. In 1995, the Company prepaid eight months of 1996 management fees at a
total cost of $298,000. The amount has been expensed as management fees
paid to affiliate during the nine months ended September 30, 1996.
5. The Company has an unsecured revolving credit facility with a bank for
borrowings up to $7,500,000 for working capital purposes and general
corporate purposes. Outstanding borrowings on the credit facility which, at
the Company's option, bear interest at either the bank's prime rate plus
.25% (8.50% at September 30, 1996) or the bank's LIBOR rate plus 2.25%
(7.875% at September 30, 1996), will convert to a term loan on April 1,
1997. Principal will be payable quarterly beginning on April 1, 1997.
Interest is payable monthly until maturity. On January 1, 2002, the
remaining unpaid principal and interest is due and payable. At September
30, 1996, the outstanding balance on the credit facility was $4,650,000. In
October 1996, the Company borrowed an additional $850,000. The Company is
subject to certain covenants including cash flow coverages and dividend
restrictions. As of September 30, 1996, the Company was in compliance with
the covenants of the credit facility.
6
PUBLIC STORAGE PROPERTIES XVII, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors occurring during the periods presented in the accompanying
Condensed Financial Statements.
RESULTS OF OPERATIONS.
- ----------------------
The Company's net income for the nine months ended September 30, 1996 and
1995 was $3,102,000 and $3,181,000, respectively, representing a decrease of
$79,000 or 2%. This decrease is primarily due to an increase in interest expense
partially offset by an increase in property net operating income (rental income
less cost of operations, management fees paid to affiliates and depreciation
expense). Net income for the three months ended September 30, 1996 and 1995 was
$1,043,000 and $1,076,000, respectively, representing a decrease of $33,000 or
3%. This decrease is primarily due to an increase in interest expense combined
with a decrease in property net operating income.
Rental income increased $247,000 or 3% from $7,898,000 to $8,145,000 for
the nine months ended September 30, 1995 and 1996, respectively, and increased
$55,000 or 2% from $2,717,000 to $2,772,000 for the three months ended September
30, 1995 and 1996, respectively. The Company's mini-warehouse operations
generated increases in rental income of $178,000 and $33,000 for the nine and
three months ended September 30, 1996, respectively, compared to the same
periods in 1995 primarily due to increased occupancy levels at a majority of the
Company's properties. The Company's three business park facilities also
contributed to the increase in rental income as a result of increased rental
rates.
The Company's mini-warehouse operations had weighted average occupancy
levels of 90% and 88% for the nine month periods ended September 30, 1996 and
1995, respectively. The Company's business park operations had weighted average
occupancy levels of 92% for both the nine month periods ended September 30, 1996
and 1995.
Cost of operations (including management fees paid to affiliates and
depreciation expense) for the nine months ended September 30, 1996 and 1995 was
$4,481,000 and $4,292,000, respectively, representing an increase of $189,000 or
4%. Cost of operations for the three months ended September 30, 1996 and 1995
was $1,534,000 and $1,452,000, respectively, representing an increase of $82,000
or 6%. These increases are primarily due to increases in repairs and
maintenance, advertising and property taxes. The increase in repairs and
maintenance costs is primarily due to increases in snow removal costs due to
higher than normal snow levels at the Company's facilities located in the
eastern states as well as various other costs such as painting and fence and
gate repairs. The increase in property taxes is primarily due to a one-time tax
refund received in early 1995 at the Company's San Diego, California business
park and an increase in the property tax rate at the Company's Wheatridge,
Colorado property.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. The Company has
expensed the prepaid management fees. The amount is included in management fees
7
paid to affiliates in the condensed statement of income. As a result of the
prepayment, the Company saved approximately $38,000 in management fees, based on
the management fees that would have been payable on rental income generated in
the nine months ended September 30, 1996 compared to the amount prepaid.
Interest expense for the nine month period ended September 30, 1996
increased by $154,000, as compared to the same period in 1995 due primarily to a
higher outstanding loan balance in 1996 over 1995.
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
Cash flows from operating activities ($4,958,000 in 1996), cash reserves
and borrowings from the Company's credit facility discussed below were
sufficient to meet all current obligations and distributions of the Company
during the nine months ended September 30, 1996. Management expects cash flows
from operations will be sufficient to fund capital expenditures and quarterly
distributions.
The Company has an unsecured revolving credit facility with a bank for
borrowings up to $7,500,000 for working capital purposes and general corporate
purposes. Outstanding borrowings on the credit facility which, at the Company's
option, bear interest at either the bank's prime rate plus .25% (8.50% at
September 30, 1996) or the bank's LIBOR rate plus 2.25% (7.875% at September 30,
1996), will convert to a term loan on April 1, 1997. Principal will be payable
quarterly beginning on April 1, 1997. Interest is payable monthly until
maturity. On January 1, 2002, the remaining unpaid principal and interest is due
and payable. At September 30, 1996, the outstanding balance on the credit
facility was $4,650,000. In October 1996, the Company borrowed an additional
$850,000. The Company is subject to certain covenants including cash flow
coverages and dividend restrictions. As of September 30, 1996, the Company was
in compliance with the covenants of the credit facility.
On November 12, 1996, the Company's Board of Directors declared a regular
quarterly distribution per share of $0.31. In addition, consistent with the
Company's REIT distribution requirements, the Company's Board of Directors
declared a special distribution of $0.15 per share. The distributions are
payable on January 15, 1997 to shareholders of record on December 31, 1996.
The Company's Board of Directors has authorized the Company to purchase up
to 1,300,000 shares of Series A common stock. The Company has repurchased
961,351 shares of Series A common stock, of which 4,300 shares were purchased in
1996.
The Company has elected and intends to continue to qualify as a real estate
investment trust ("REIT") for federal income tax purposes. As a REIT, the
Company must meet, among other tests, sources of income, share ownership, and
certain asset tests. The Company is not taxed on that portion of its taxable
income which is distributed to its shareholders provided that at least 95% of
its taxable income is so distributed to its shareholders prior to filing of the
Company's tax return. The primary difference between book income and taxable
income is depreciation expense. In 1995, the Company's federal tax depreciation
was $1,446,000.
The bylaws of the Company provide that, during 1999, unless shareholders
have previously approved such a proposal, the shareholders will be presented
with a proposal to approve or disapprove (a) the sale or financing of all or
substantially all of the properties and (b) the distribution of the proceeds
from such transaction and, in the case of a sale, the liquidation of the
Company.
8
SUPPLEMENTAL INFORMATION.
- -------------------------
The Company's funds from operations ("FFO") is defined generally by the
National Association of Real Estate Investment Trusts as net income before loss
on early extinguishment of debt and gain on disposition of real estate, plus
depreciation and amortization. FFO for the nine months ended September 30, 1996
and 1995 was $4,628,000 and $4,724,000, respectively. FFO for the three months
ended September 30, 1996 and 1995 was $1,555,000 and $1,587,000, respectively.
FFO is a supplemental performance measure for equity Real Estate Investment
Trusts used by industry analysts. FFO does not take into consideration principal
payments on debt, capital improvements, distributions and other obligations of
the Company. The only depreciation or amortization that is added to income to
derive FFO is depreciation and amortization directly related to physical real
estate. All depreciation and amortization reported by the Company relates to
physical real estate and does not include any depreciation or amortization
related to goodwill, deferred financing costs or other intangibles. FFO is not a
substitute for the Company's net cash provided by operating activities or net
income computed in accordance with generally accepted accounting principles, as
a measure of liquidity or operating performance.
9
PART II. OTHER INFORMATION
ITEMS 1 through 5 are inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(A) EXHIBITS: The following exhibit is included herein:
(27) Financial Data Schedule
(B) REPORTS ON 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: November 13, 1996
PUBLIC STORAGE PROPERTIES XVII, INC.
BY: /s/ Ronald L. Havner, Jr.
----------------------------
Ronald L. Havner, Jr.
Senior Vice President and
Chief Financial Officer
10