UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
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 1-10859
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PUBLIC STORAGE PROPERTIES XVII, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4300891
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS 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
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Securities registered pursuant to Section 12(b) of the Act
Common Stock Series A, $.01 par value American Stock Exchange
- -------------------------------------- -------------------------------
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act
None
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(Title of class)
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
-- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
--
The aggregate market value of the voting stock held by non-affiliates of the
Company as of February 28, 1997:
Common Stock Series A, $.01 Par Value-$42,785,910 (computed on the basis of $19
per share which was the reported closing sale price of the Company's Common
Stock Series A on the American Stock Exchange on February 28, 1997).
The number of shares outstanding of the Company's classes of common stock as of
February 28, 1997:
Common Stock, $.01 Par Value - Series A 2,776,023 shares
Common Stock, $.01 Par Value - Series B 324,989 shares
Common Stock, $.01 Par Value - Series C 920,802 shares
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DOCUMENTS INCORPORATED BY REFERENCE
(a) Information required by Part III will be included in an amendment to this
Form 10-K under cover of a Form 10-K/A filed within 120 days of the Company's
1996 fiscal year, which information is incorporated by reference into Part III.
PUBLIC STORAGE PROPERTIES XVII, INC.
PART I.
ITEM 1. BUSINESS
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General
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Public Storage Properties XVII, Inc. (the "Company") is a real estate
investment trust ("REIT") organized as a California corporation that was formed
to succeed to the business of Public Storage Properties XVII, Ltd., a California
limited partnership (the "Partnership"), in a reorganization transaction
completed on September 16, 1991.
The Partnership offered 148,000 units of limited partnership interest
(the "Units") to the public in September, 1986. The Partnership's general
partners were PSI Associates II, ("PSA"), a California corporation, and B. Wayne
Hughes ("Hughes"). PSA was an affiliate of Public Storage Management, Inc., a
California corporation (see below).
Effective September 16, 1991, the Partnership transferred all of its
assets and liabilities to the Company pursuant to a plan of Reorganization
approved by a majority of the limited partners. In exchange for the
Partnership's assets and liabilities, the Company issued 3,737,374 shares of
common stock Series A ("Series A shares"), 324,989 shares of common stock Series
B ("Series B shares"), and 920,802 shares of common stock Series C ("Series C
shares") of the Company to the Partnership. The Partnership then made a
liquidating distribution to the limited partners by distributing 99 percent of
the Series A shares (on the basis of 25 Series A shares for each Unit). The
remaining 1 percent of the Series A shares and all of the Series B shares and
Series C shares were distributed to the general partners in respect of their
interests in the Partnership. Subsequent thereto, the Partnership was dissolved.
The Company has elected to be taxed as a REIT for Federal income tax purposes.
The Company is a finite life REIT, with a term until December 31, 2038
(the same as the predecessor Partnership). However, pursuant to the Company's
by-laws, in 1999 the Company will be required to present the shareholders with a
proposal for the sale or financing of the properties and, in the case of a sale,
a liquidation of the Company, unless the properties have already been sold or
financed. See "Sale or Financing" below.
The Company's investment objectives are (as were the Partnership's) to
maximize cash flow from operations and to maximize capital appreciation.
The Company has acquired 19 properties, all of which are in operation.
The Company believes that its mini-warehouses have attractive operating
characteristics.
The Company's senior officers have been responsible for the
acquisition of more than 350 mini-warehouses, the development of more than 650
mini-warehouses and the management of more than 1,000 mini-warehouses during
their average 18 years of experience with the Public Storage organization.
In 1995, there were a series of mergers among Public Storage
Management, Inc. (which was the Company's mini-warehouse operator), Public
Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the
November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities,
Inc., a REIT listed on the New York Stock Exchange. In the PSMI Merger, Storage
Equities, Inc. was renamed Public Storage, Inc. ("PSI") and PSI acquired
substantially all of PSMI's United States real estate operations and became the
operator of the Company's mini-warehouse properties. Hughes, the Company's Chief
Executive Officer, and members of his family (the "Hughes Family") are the major
shareholders of PSI. As a result of the PSMI Merger, PSI owns all of the shares
of the Company's common stock that was owned by PSMI or its affiliates, and PSI
has an option to acquire all of the shares of the Company's common stock owned
by Hughes.
Investments in Facilities
- -------------------------
At December 31, 1996, the Company owned 19 facilities located in 11
states: California (4), Colorado (2), Florida (1) Georgia (1), Hawaii (1),
Illinois (1), Louisiana (1), Massachusetts (1), New Jersey (1), Texas (5) and
Virginia (1). These facilities consist of 16 mini-warehouses, 1 business park
and 2 combination mini-warehouse/business park facilities.
The Company believes that its operating results have benefited from
favorable industry trends and conditions. Notably, the level of new
2
mini-warehouse construction has decreased while consumer demand has increased.
In addition, the Company's mini-warehouses are characterized by a low level of
capital expenditures to maintain their condition and appearance.
MINI-WAREHOUSES
Mini-warehouses, which comprise the majority of the Company's
investments (approximately 78% of the Company's revenues for the twelve months
ended December 31, 1996), are designed to offer accessible storage space for
personal and business use at a relatively low cost. A user rents a fully
enclosed space which is for the user's exclusive use and to which only the user
has access on an unrestricted basis during business hours. On-site operation is
the responsibility of resident managers who are supervised by area managers.
Some mini-warehouses also include rentable uncovered parking areas for vehicle
storage. Leases for mini-warehouse space may be on a long-term or short-term
basis, although typically spaces are rented on a month-to-month basis. Rental
rates vary according to the location of the property and the size of the storage
space.
Users of space in mini-warehouses include both individuals and large
and small businesses. Individuals usually employ this space for storage of,
among other things, furniture, household appliances, personal belongings, motor
vehicles, boats, campers, motorcycles and other household goods. Businesses
normally employ this space for storage of excess inventory, business records,
seasonal goods, equipment and fixtures.
Mini-warehouses in which the Company has invested generally consist of
three to seven buildings containing an aggregate of between 350 to 750 storage
spaces, most of which have between 25 and 400 square feet and an interior height
of approximately 8 to 12 feet.
The Company experiences minor seasonal fluctuations in the occupancy
levels of mini-warehouses with occupancies higher in the summer months than in
the winter months. The Company believes that these fluctuations result in part
from increased moving activity during the summer.
The Company's mini-warehouses are geographically diversified and are
generally located in heavily populated areas and close to concentrations of
apartment complexes, single family residences and commercial developments.
However, there may be circumstances in which it may be appropriate to own a
property in a less populated area, for example, in an area that is highly
visible from a major thoroughfare and close to, although not in, a heavily
populated area. Moreover, in certain population centers, land costs and zoning
restrictions may create a demand for space in nearby less populated areas.
As with most other types of real estate, the conversion of
mini-warehouses to alternative uses in connection with a sale or otherwise would
generally require substantial capital expenditures. However, the Company does
not intend to convert its mini-warehouses to other uses.
COMMERCIAL PROPERTIES
The Company's non-mini-warehouse investments are business parks and
low-rise office buildings. The business park includes both industrial and office
space. Industrial space may be used for, among other things, light manufacturing
and assembly, storage and warehousing, distribution and research and development
activities. The Company believes that most of the office space is occupied by
tenants who are also renting industrial space. The remaining office space is
used for general office purposes. A business park may also include facilities
for commercial uses such as banks, travel agencies, restaurants, office supply
shops, professionals or other tenants providing services to the public.
A business park property is typically divided into units ranging in
size from 600 to 5,000 square feet. Parking is open or covered, and the ratio of
spaces to rentable square feet ranges from one to four per thousand square feet,
depending upon the use of the property and its location. Office space generally
requires a greater parking ratio than most industrial uses.
Operating Strategies
- --------------------
The Company's mini-warehouses are operated by PSI under the "Public
Storage" name, which the Company believes is the most recognized name in the
mini-warehouse industry. The major elements of the Company's operating
strategies are as follows:
3
* CAPITALIZE ON "PUBLIC STORAGE'S" NAME RECOGNITION. PSI, together with its
predecessor, has more than 20 years of operating experience in the
mini-warehouse business, and is the largest operator of mini-warehouses in
the United States. PSI believes that its marketing and advertising programs
improve its competitive position in the market. PSI's in-house Yellow Pages
staff designs and places advertisements in approximately 700 directories.
Commencing in early 1996, PSI began to experiment with a telephone
reservation system designed to provide added customer service. Customers
calling either PSI's toll-free telephone referral system, (800) 44-STORE,
or a mini-warehouse facility are directed to PSI's reservation system where
a trained representative discusses with the customer space requirements,
price and location preferences and also informs the customer of other
products and services provided by PSI. As of December 31, 1996, the
telephone reservation system was supporting rental activity at all of the
Company's properties. PSI's toll-free telephone referral system services
approximately 120,000 calls per month from potential customers inquiring as
to the nearest Public Storage mini-warehouse.
* MAINTAIN HIGH OCCUPANCY LEVELS AND INCREASE REALIZED RENTS. Subject to
market conditions, the Company generally seeks to achieve average occupancy
levels in excess of 90% and to eliminate promotions prior to increasing
rental rates. Average occupancy for the Company's mini-warehouses has
increased from 88% in 1995 to 90% in 1996. Realized monthly rents per
square foot increased from $.69 in 1995 to $.70 in 1996. The Company has
increased rental rates in many markets where it has achieved high occupancy
levels and eliminated or minimized promotions.
* SYSTEMS AND CONTROLS. PSI has an organizational structure and a property
operation system, "CHAMP" (Computerized Help and Management Program), which
links its corporate office with each mini-warehouse. This enables PSI to
obtain daily information from each mini-warehouse and to achieve
efficiencies in operations and maintain control over its space inventory,
rental rates, promotional discounts and delinquencies. Expense management
is achieved through centralized payroll and accounts payable systems and a
comprehensive property tax appeals department, and PSI has an extensive
internal audit program designed to ensure proper handling of cash
collections.
* PROFESSIONAL PROPERTY OPERATION. In addition to the approximately 150
support personnel at the Public Storage corporate offices, there are
approximately 2,700 on-site personnel who manage the day-to-day operations
of the mini-warehouses in the Public Storage system. These on-site
personnel are supervised by 110 district managers, 15 regional managers and
three divisional managers (with an average of 13 years' experience in the
mini-warehouse industry) who report to the president of the mini-warehouse
property operator (who has 12 years of experience with the Public Storage
organization). PSI carefully selects and extensively trains the operational
and support personnel and offers them a progressive career path. See
"Property Operators."
Property Operators
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The Company's mini-warehouse properties are managed by PSI (as successor to
PSMI) pursuant to a Management Agreement. Through 1996, the Company's commercial
properties were managed by Public Storage Commercial Properties Group, Inc.
("PSCPG") pursuant to a Management Agreement. PSI has a 95% economic interest in
PSCPG (represented by nonvoting preferred stock) and the Hughes Family had a 5%
economic interest in PSCPG (represented by voting common stock) until December
1996, when the Hughes Family sold its interest to Ronald L. Havner, Jr.,
formerly Senior Vice President and Chief Financial Officer of PSI, who became
the Chief Executive Officer of PSCPG. PSCPG issued additional voting common
stock to two other unaffiliated investors. In January 1997, American Office Park
Properties, L.P. ("AOPPLP") became the manager of the Company's commercial
properties pursuant to the Management Agreement. AOPPLP is an operating
partnership formed to own and operate business parks in which PSI has an
approximate 85% economic interest. The general partner of AOPPLP is PSCPG, now
known as American Office Park Properties, Inc.
Under the supervision of the Company, PSI and AOPPLP coordinate the
operation of the facilities, establish rental policies and rates, direct
marketing activity and direct the purchase of equipment and supplies,
maintenance activity, and the selection and engagement of all vendors, supplies
and independent contractors.
PSI and AOPPLP engage, at the expense of the Company, employees for the
operation of the Company's facilities, including resident managers, assistant
managers, relief managers, and billing and maintenance personnel. Some or all of
these employees may be employed on a part-time basis and may also be employed by
other persons, partnerships, REITs or other entities owning facilities operated
by PSI or AOPPLP.
4
In the purchasing of services such as advertising (including broadcast
media advertising) and insurance, PSI and AOPPLP attempt to achieve economies by
combining the resources of the various facilities that they operate. Facilities
operated by PSI and AOPPLP have historically carried comprehensive insurance,
including fire, earthquake, liability and extended coverage.
PSI has developed systems for space inventory, accounting and handling
delinquent accounts, including a computerized network linking PSI operated
facilities. Each project manager is furnished with detailed operating procedures
and typically receives facilities management training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions taken by the project managers when delinquencies occur is
maintained.
The Company's facilities are typically advertised via signage, yellow
pages, flyers and broadcast media advertising (television and radio) in
geographic areas in which many of the Company's facilities are located.
Broadcast media and other advertising costs are charged to the Company's
facilities located in geographic areas affected by the advertising. From time to
time, PSI or AOPPLP adopt promotional programs, such as temporary rent
reductions, in selected areas or for individual facilities.
For as long as the respective Management Agreement is in effect, PSI has
granted the Company a non-exclusive license to use two PSI service marks and
related designs (and AOPPLP has granted the Company a non-exclusive license to
use a PSI service mark and related designs), including the "Public Storage"
name, in conjunction with rental and operation of facilities managed pursuant to
the Management Agreement. Upon termination of the respective Management
Agreement, the Company would no longer have the right to use the service marks
and related designs except as described below. Management believes that the loss
of the right to use the service marks and related designs could have a material
adverse effect on the Company's business.
Each Management Agreement, as amended in February 1995, provides that (i)
the Management Agreement will expire in February 2002 provided that in February
of each year it shall be automatically extended for one year (thereby
maintaining a seven-year term) unless either party notifies the other that the
Management Agreement is not being extended, in which case it expires on the
first anniversary of its then scheduled expiration date. Each Management
Agreement may also be terminated by either party for cause, but if terminated
for cause by the Company, the Company retains the rights to use the service
marks and related designs until the then scheduled expiration date, if
applicable, or otherwise a date seven years after such termination.
Certain of the directors and officers of the Company are also directors and
officers of PSI.
Competition
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Competition in the market areas in which the Company operates is
significant and affects the occupancy levels, rental rates and operating
expenses of certain of the Company's facilities. Competition may be accelerated
by any increase in availability of funds for investment in real estate. Recent
increases in plans for development of mini-warehouses is expected to further
intensify competition among mini-warehouse operators in certain market areas. In
addition to competition from mini-warehouses operated by PSI, there are three
other national firms and numerous regional; and local operators. The Company
believes that the significant operating and financial experience of its
executive officers and directors, PSI, AOPPLP and the "Public Storage" name,
should enable the Company to continue to compete effectively with other
entities.
Other Business Activities
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A corporation owned by the Hughes Family reinsures policies against losses
to goods stored by tenants in the Company's mini-warehouses. The Company
believes that the availability of insurance reduces the potential liability of
the Company to tenants for losses to their goods from theft or destruction. This
corporation receives the premiums and bears the risks associated with the
insurance.
A corporation, in which PSI has a 95% economic interest and the Hughes
Family has a 5% economic interest, sells locks, boxes and tape to tenants to be
used in securing their spaces and moving their goods. PSI believes that the
availability of locks, boxes and tape for sale promotes the rental of spaces.
5
Sale or Financing
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The by-laws 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.
Employees
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As of December 31, 1996, the Company had 60 employees, 25 persons who
render services on behalf of the Company on a full-time basis and 35 persons who
render services on a part-time basis (5 of whom were executive officers). These
persons include resident managers, assistant managers, relief managers, district
managers, and administrative and maintenance personnel.
Federal Income Tax
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The Company intends to continue to operate in a manner so as to qualify as
a REIT under the Internal Revenue Code of 1986, as amended, but no assurance can
be given that the Company will be able to continue to qualify at all times. By
qualifying as a REIT, the Company can deduct dividend distributions to its
shareholders for Federal income tax purposes, thus effectively eliminating the
"double taxation" (at the corporate and shareholder levels) that typically
applies to corporate dividends. The Company believes it is in compliance with
these requirements and, accordingly, no provision for income taxes has been
made.
6
ITEM 2. PROPERTIES.
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The following table sets forth information as of December 31, 1996 about
properties owned by the Company:
Size Number of
Location of Parcel Net Rentable Area Spaces Completion Date
- ----------------------------- ------------- ------------------- ----------- ---------------
CALIFORNIA
Citrus Heights, Verner 2.54 acres 65,000 sq. ft. 643 Dec. 1986
Davis, Olive 2.14 acres 51,000 sq. ft. 626 Feb. 1987
Los Angeles, Olympic Blvd (2) 1.33 acres 95,000 sq. ft. 1,277 Jun. 1987
San Diego, Lusk Blvd. III (1) 7.22 acres 118,000 sq. ft. 45 Jul. 1989
COLORADO
Denver, Belleview 6.97 acres 71,000 sq. ft. 760 Nov. 1987
Wheatridge, 48th Street 3.76 acres 69,000 sq. ft. 595 Nov. 1986
FLORIDA
Duval County, Timuquana 2.96 acres 55,000 sq. ft. 543 Aug. 1987
GEORGIA
Atlanta, Snapfinger Rd. 6.11 acres 61,000 sq. ft. 536 Jul. 1987
HAWAII
Honolulu, Ukee St. 1.46 acres 45,000 sq. ft. 427 Mar. 1987
ILLINOIS
Naperville, Ogden 2.79 acres 67,000 sq. ft. 654 Dec. 1986
LOUISIANA
Gretna, Belle Chasse Hwy. 4.03 acres 85,000 sq. ft. 798 Dec. 1986
MASSACHUSETTS
Chicopee, Jamrog Dr. 8.20 acres 66,000 sq. ft. 568 Sept. 1987
NEW JERSEY
Berlin, Route 13 4.18 acres 52,000 sq. ft. 449 Nov. 1986
TEXAS
Carrollton, Trinity Mills Rd. (1) 5.80 acres 112,000 sq. ft. 716 Apr. 1987
Dallas, Mockingbird 1.13 acres 68,000 sq. ft. 916 Nov. 1986
Harris County, Louetta Rd. 2.30 acres 48,000 sq. ft. 477 Nov. 1986
Houston, Dairy Ashford 2.50 acres 58,000 sq. ft. 521 Dec. 1986
Houston, Steubner-Air 2.53 acres 50,000 sq. ft. 460 Apr. 1987
VIRGINIA
Fairfax County, Shirley Hwy (1) 7.32 acres 189,000 sq. ft. 826 Aug. 1989
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(1) This property or a portion of the property has been developed as a business
park.
(2) The property is owned jointly with an affiliate. The Company has a 25%
interest in the property.
7
Substantially all of the Company's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995, the
Company completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company expensed $186,000 in 1995
for known environmental remediation requirements.
The Company's properties are operated to maximize cash flow through
the regular review of and, when warranted by market conditions, adjustments to
scheduled rents. Approximately 78% of the Company's portfolio (based on revenues
for 1996) are mini-warehouses and the balance consists of commercial properties.
As reflected in the table below, the Company has experienced overall improved
property operations:
For the year ended December 31,
----------------------------------------
1996 1995 1994
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Weighted average occupancy level (1) 90% 88% 88%
Realized monthly rent per occupied square foot (1) (2) $.70 $.69 $.67
Operating margin (3):
Before reduction for depreciation expense 63% 65% 65%
After reduction for depreciation expense: 45% 45% 44%
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(1) Mini-warehouse facilities only.
(2) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions. Includes administrative and late fees. (3) Operating
margin (before reduction for depreciation expense) is computed by dividing
rental income less cost of operations by rental income. Operating margin
(after reduction for depreciation expense) is computed by dividing rental
income less cost of operations by rental income.
Additional information is set forth below with respect to the San
Diego/Lusk Blvd. III and Fairfax County/Shirley Memorial Highway properties
because they are the only properties with a book value of at least 10% of the
total assets of the Company or that have accounted for gross revenues of at
least 10% of the aggregate gross revenues of the Company.
SAN DIEGO/LUSK BLVD. III. This property, a business park, is located
in San Diego's North County area, approximately 15 miles north of downtown San
Diego. The property is close to two freeways, I-805 and I-163. Miramesa Road, a
principal east-west artery, and Miramar Naval Air Station are also within the
property's market area.
The 7.22-acre property, which was completed in 1988, consists of three
buildings containing 118,000 square feet of net rentable area divided into 45
units. No tenant occupies 10% or more of the rentable area. As of December 31,
1996, the property was 100% occupied by 45 tenants.
Set forth below is a schedule showing the occupancy rate and the rent
per square foot for the property at the dates indicated.
Annual Realized
Rent Per
Date Occupancy Rate Square Foot
- ---------------------- -------------------- ------------------
December 31, 1996 100% $7.92
December 31, 1995 89 7.38
December 31, 1994 90 7.20
8
A schedule showing total annual base rent and percentage of total
income relating to leases according to their expiration dates is set forth
below:
Year of Total Amt. Percentage of
Expiration* Base Rent Total Income
--------------- ----------------- ----------------
1997 $574,000 55.30%
1998 294,000 28.32
1999 89,000 8.57
2000 46,000 4.43
2001 35,000 3.38
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Total $1,038,000 100.00%
================= ================
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* Assumes that none of the renewal options included in the
leases will be exercised
FAIRFAX COUNTY/SHIRLEY MEMORIAL HIGHWAY. This 7.32-acre property is
located in Northern Virginia and contains both business park and self-storage
facilities. The project is located at the entrance to the Bren Mar Industrial
Park, across I-395 from the Shirley Industrial Park. To the north along I-395 is
one of the largest concentrations of high-rise apartments and condominiums in
Northern Virginia. The combination of both commercial and residential
development near the property should provide good tenant bases to both the
business and self-storage facilities.
The property, which opened in 1989, consists of nine single-story
mini-warehouse buildings with approximately 76,000 of net rentable square feet
divided into 776 individual storage units. In addition, there are 50 office
units containing approximately 113,000 net rentable square feet. As of December
31, 1996, the mini-warehouse facility had 640 units occupied, representing an
82% occupancy rate, and the business park facility was 86% occupied by 43
tenants. No tenant occupies 10% or more of the rentable area.
Set forth below is a schedule showing the occupancy rate and the rent
per square foot for the mini-warehouse portion of the property at the dates
indicated.
Annual Scheduled
Rent Per
Date Occupancy Rate Square Foot
----------------------- ------------------- ----------------
December 31, 1996 82% $13.92
December 31, 1995 76 10.32
December 31, 1994 76 10.32
Set forth below is a schedule showing the occupancy rate and the rent
per square foot for the business park facility at the dates indicated:
Annual Realized
Rent Per
Date Occupancy Rate Square Foot
----------------------- ------------------- ----------------
December 31, 1996 86% $11.26
December 31, 1995 95 10.06
December 31, 1994 95 11.03
9
A schedule showing the total annual base rent and percentage of total
income relating to leases for the business park portion of the property
according to their expiration dates is set forth below:
Year of Total Amt. Percentage of
Expiration* Base Rent Total Income
- -------------------------- ----------------- ----------------
1997 $1,099,000 34.55%
1998 768,000 24.14
1999 535,000 16.82
2000 243,000 7.64
2001 199,000 6.25
Thereafter 337,000 10.60
----------------- ----------------
Total $3,181,000 100.00%
================= ================
--------------
* Assumes that none of the renewal options included in the leases will
be exercised
ITEM 3. LITIGATION.
-----------
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The Company held an annual meeting of shareholders on December 17,
1996. Proxies for the annual meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. The annual meeting involved the
election of directors, and the vote was as follows (the common Stock Series A,
Series B and Series C vote together as a single class):
Number of Shares of Number of Shares of
Common Stock Series A Common Stock Series B
------------------------------- -------------------------------
Name Voted For Withheld Voted For Withheld
- ------------------------ ------------- ------------- ------------ ------------
B. Wayne Hughes 1,841,093 31,933 324,989 -
------------- ------------- ------------ ------------
Vern O. Curtis 1,841,093 31,933 324,989 -
------------- ------------- ------------ ------------
Jack D. Steele 1,841,093 31,933 324,989 -
------------- ------------- ------------ ------------
Number of Shares of
Common Stock Series C Total Common Stock
------------------------------- -------------------------------
Name Voted For Withheld Voted For Withheld
- ------------------------ ------------- ------------- ------------ ------------
B. Wayne Hughes 920,802 - 3,086,884 31,933
------------- ------------- ------------ ------------
Vern O. Curtis 920,802 - 3,086,884 31,933
------------- ------------- ------------ ------------
Jack D. Steele 920,802 - 3,086,884 31,933
------------- ------------- ------------ ------------
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
---------------------------------------------------------------------
The Company's Series A shares are registered under Section 12(b) of
the Securities Exchange Act of 1934 on the American Stock Exchange ("AMEX"), and
commenced trading on September 30, 1991 under the symbol PSV. The Series B and
Series C shares are not registered under Section 12 of the Securities Exchange
Act of 1934 and no public trading market exists for the Series B and Series C
shares.
The Company's Articles of Incorporation provide that, the Series B
shares and Series C shares will convert automatically into Series A shares on a
share-for-share basis (the "Conversion") when (A) the sum of (1) all cumulative
dividends and other distributions from all sources with respect to the Series A
shares (including liquidating distributions, but not including payments made to
redeem such stock other than in liquidation) and (2) the cumulative Partnership
distributions from all sources with respect to all Units (including the General
Partners' 1% interest) is equal to (B) the product of $20 multiplied by the
number of the then-outstanding "Original Series A shares" ("Total Capital
Return"). The term "Original Series A shares" means the Series A shares issued
in the Reorganization.
10
Market Prices and Dividends
- ---------------------------
The following table sets forth the high and low sales prices on the
AMEX composite tape per Series A share and dividends per Series A share and
Series B share for fiscal 1995 and 1996:
Sales Price Cash
---------------------- Dividends
Year Quarter Ended High Low Declared*
- ------------ ----------------------------- -------- ---------- -------------
1995 March 31 $17-1/8 $14-1/8 $0.29
June 30 17-3/8 15-7/8 0.31
September 30 18 16 0.31
December 31 17-3/8 16-1/4 0.49 (1)
1996 March 31 $17 $16-1/8 $0.31
June 30 17-1/2 16-5/8 0.31
September 30 19-3/4 17 0.31
December 31 20-3/8 18-7/8 0.46 (2)
* No dividends were declared on Convertible Series C shares
(1) Includes special dividend of $0.18
(2) Includes special dividend of $0.15
As of December 31, 1996, there were approximately 1,525 holders of
record of the Company's Series A shares.
Holders of Series A shares are entitled to receive distributions when,
as and if declared by the Board of Directors out of any funds legally available
for that purpose. The Company, as a REIT, is required to distribute, prior to
filing its tax return at least 95% of its "real estate investment trust taxable
income," which, as defined by the relevant tax statutes and regulations, is
generally equivalent to net taxable ordinary income. Under certain
circumstances, the Company can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
A principal policy of the Company is to make quarterly cash
distributions. The Company intends to make quarterly cash distributions out of
funds legally available.
For Federal income tax purposes, distributions to shareholders are
treated as ordinary income, capital gains, return of capital or a combination
thereof, and for the past three years all distributions have been classified as
ordinary income.
Under generally accepted accounting principles, the amount of income
exceeded (was less than) distributions declared to shareholders by $249,000,
$499,000 and ($164,000) during 1994, 1995 and 1996, respectively.
All Series A shares are entitled to participate equally in the
Company's net assets upon dissolution and liquidation after repayment of the
Company's liabilities,
Repurchase of Company's common stock
- ------------------------------------
If considered to be an attractive investment opportunity or in other
appropriate circumstances, the Company may repurchase its Series A shares out of
legally available funds, if approved by the Board of Directors.
As of February 27, 1997, the Board of Directors has authorized the
Company to repurchase up to 1,300,000 Series A shares. From September 9, 1991
through February 28, 1997, the Company has repurchased 961,351 Series A shares.
The Company repurchased 4,300 Series A shares during 1996 and no additional
Series A shares between January 1, 1997 and February 28, 1997.
11
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
The following selected historical financial information has been
derived from the audited financial statements of the Company.
Year Ended December 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ---------- ----------
Operating data:
- ---------------
Revenues:
Rental income $10,894,000 $10,549,000 $10,245,000 $9,489,000 $8,991,000
Interest and other income 15,000 26,000 37,000 30,000 25,000
----------- ----------- ----------- ---------- ----------
10,909,000 10,575,000 10,282,000 9,519,000 9,016,000
----------- ----------- ----------- ---------- ----------
Expenses:
Cost of operations 4,051,000 3,732,000 3,582,000 3,484,000 3,546,000
Depreciation 1,977,000 2,047,000 2,187,000 3,184,000 3,263,000
General and administrative 267,000 297,000 309,000 338,000 506,000
Interest expense 466,000 328,000 - 10,000 154,000
Environmental cost (1) - 186,000 - - -
6,761,000 6,590,000 6,078,000 7,016,000 7,469,000
----------- ----------- ----------- ---------- ----------
Income before gain on sale
of real estate 4,148,000 3,985,000 4,204,000 2,503,000 1,547,000
Gain on sale of real estate - - - 567,000 -
----------- ----------- ----------- ---------- ----------
Net Income $4,148,000 $3,985,000 $4,024,000 $3,070,000 $1,547,000
=========== =========== =========== ========== ==========
Net income per Series A share:
Primary $1.33 $1.20 $1.14 $0.79 $0.36
Fully diluted $1.03 $0.95 $0.91 $0.65 $0.32
Dividends declared per share:
Series A $1.39 $1.40 $1.07 $1.08 $0.77
Series B $1.39 $1.40 $1.07 $0.92 $0.77
Weighted average Common shares
outstanding:
Primary - Series A 2,776,023 2,934,723 3,377,156 3,494,373 3,638,199
Fully diluted - Series A 4,021,814 4,180,514 4,622,947 4,740,164 4,883,990
Other data:
- -----------
Net cash provided by
operating activities $6,286,000 $6,019,000 $6,287,000 $5,674,000 $4,746,000
Net cash used in
investing activities (1,028,000) (534,000) (266,000) (2,306,000) (997,000)
Net cash used in
financing activities (5,481,000) (6,897,000) (5,235,000) (8,321,000) (3,968,000)
Capital expenditures
to maintain facilities (1,028,000) (534,000) (266,000) (319,000) (297,000)
Funds from operations (2) 6,125,000 6,218,000 6,391,000 5,687,000 4,810,000
Balance sheet data:
- -------------------
Total assets $48,920,000 $50,277,000 $52,888,000 $54,043,000 $59,392,000
Total debt 4,650,000 5,650,000 - - 1,736,000
Shareholders' equity 41,528,000 41,765,000 50,790,000 51,796,000 55,178,000
12
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
----------------------------------
(1) Substantially all of the Company's facilities were acquired prior to the
time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995,
the Company completed environmental assessments of its properties to
evaluate the environmental condition of, and potential environmental
liabilities of such properties. These assessments were performed by an
independent environmental consulting firm. Based on the assessments, the
Company expensed $186,000 in 1995 for known environmental remediation
requirements. Although there can be no assurance, the Company is not aware
of any environmental contamination of any of its property sites which
individually or in the aggregate would be material to the Company's overall
business, financial condition, or results of operations.
(2) Funds from operations (FFO) is defined by the Company, consistent with the
definition of FFO by the National Association of Real Estate Investment
Trusts (NAREIT), as net income (loss) (computed in accordance with
generally accepted accounting principles) before depreciation and
extraordinary or non-recurring items. FFO is presented because the Company,
as well as many industry analysts, consider FFO to be one measure of the
performance of the Company, ie, one that generally reflects changes in the
Company's net operating income. FFO does not take into consideration
scheduled principal payments on debt and capital improvements. Accordingly,
FFO is not necessarily a substitute for the Company's cash flow or net
income as a measure of the Company's liquidity or operating performance or
ability to pay distributions. Furthermore, the NAREIT definition of FFO
does not address the treatment of certain items and all REITs do not treat
items the same way in computing FFO. Accordingly, comparisons of levels of
FFO among REITs may not necessarily be meaningful.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
---------------------------------------------------------------
Results of Operations.
- ----------------------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Net income in 1996 was $4,148,000 compared to $3,985,000 in 1995, representing
an increase of $163,000 or 4%. Net income per fully diluted Series A share was
$1.03 in 1996 compared to $0.95 in 1995, representing an increase of $.08 or 8%
per share. These increases are primarily due to an increase in property net
operating income partially offset by an increase in interest expense and
combined with the favorable impact of comparing to expenses for 1995 which
included a non-recurring charge for environmental assessments and provision for
future remediation costs.
During 1996, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $96,000 from $4,770,000 in 1995 to $4,866,000 in 1996. This increase
is primarily attributable to an increase in rental income at both the Company's
mini-warehouse and business park facilities combined with a decrease in
depreciation expense and offset by an increase in cost of operations.
Rental income for the mini-warehouse operations increased $247,000 or
3% from $8,224,000 in 1995 to $8,471,000 in 1996. Cost of operations (including
management fees paid to an affiliate of the Company) increased $233,000 or 9%
from $2,713,000 in 1995 to $2,946,000 in 1996. The results of these changes was
a slight increase in property net operating income before depreciation expense
of $14,000 from $5,511,000 in 1995 to $5,525,000 in 1996. The increase in rental
income is primarily attributable to increases in occupancy levels and rental
rates at a majority of the Company's facilities. The Company's Colorado and
California properties contributed 48% to the increase in rental income as a
result of increased rental rates at all of the properties located in those two
states. The increase in cost of operations is mainly due to increases in
payroll, repairs and maintenance, advertising and property tax expense. Repairs
and maintenance costs increased primarily due to increases in snow removal costs
due to higher than normal snow levels experienced at the Company's facilities
located in the eastern states as well as various other costs such as landscaping
and painting. Property taxes increased due to an increase in the property tax
rate at the Company's Wheatridge, Colorado property.
Property net operating income before depreciation expense with respect
to the Company's business park facilities increased by $12,000 or 1% from
$1,306,000 in 1995 to $1,318,000 in 1996. This increase is primarily due to an
increase in rental income offset by an increase in cost of operations. Rental
income increased as a result of increases in rental rates at the Company's
Fairfax, Virginia and San Diego, California facilities. Cost of operations
increased mainly due to increases in property taxes and repairs and maintenance
costs. The increase in property taxes is primarily attributable to a one-time
tax refund received in 1995 at the Company's San Diego, California facility.
Weighted average occupancy levels were 90% for the mini-warehouse
facilities and 92% for the business park facilities in 1996 compared to 88% for
the mini-warehouse facilities and 92% for the business park facilities in 1995.
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. In 1996, the
Company expensed the prepaid management fees. The amount is included in
management fees paid to affiliates in the statements 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 1996 compared to the amount prepaid.
Interest expense on the Company's credit facility increased $138,000
from $328,000 in 1995 to $466,000 in 1996. This increase is due to a higher
outstanding loan balance in 1996 over 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Net income in 1995 was $3,985,000 compared to $4,204,000 in 1994, representing a
decrease of $219,000 or 5%. Net income per fully diluted Series A share was
$0.95 in 1995 compared to $0.91 in 1994, representing an increase of $.04 or 4%
per share. The decrease in net income is primarily due to an increase in
interest expense combined with environmental cost incurred in 1995 offset by an
increase in property net operating income. Net income per share increased due to
the reduction in the number of Series A shares outstanding as a result of the
Company's repurchase of Series A shares.
14
During 1995, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $294,000 from $4,476,000 in 1994 to $4,770,000 in 1995. This increase
is primarily attributable to an increase in rental income at both the Company's
mini-warehouse and business park facilities and a decrease in depreciation
expense.
Rental income for the mini-warehouse operations increased $251,000 or
3% from $7,973,000 in 1994 to $8,224,000 in 1995. Cost of operations (including
management fees paid to an affiliate of the Company) increased $109,000 or 4%
from $2,604,000 in 1994 to $2,713,000 in 1995. The increase in rental income is
primarily due to increases in rental rates at a majority of the Company's
facilities. Rental income at the Company's two Colorado facilities increased
$56,000 or 5% and revenues at the Company's three California facilities
increased $49,000, also 5%. The increase in cost of operations is mainly due to
increases in payroll, property taxes and management fees paid to an affiliate.
Payroll increased due to an increase in incentive payroll attributable to an
increase in property net operating income. Property taxes increased due to
actual bills paid being more than amounts estimated in 1994. Due to an increase
in rental income, management fees increased.
Property net operating income before depreciation expense with respect
to the Company's business park facilities increased by $12,000 or 1% from
$1,294,000 in 1994 to $1,306,000 in 1995. This increase is primarily due to an
increase in rental income caused by an increase in rental rates. Rental rates
increased primarily at the Company's Fairfax, Virginia facility due to increases
in the value of leases signed by new tenants.
Depreciation expense decreased $140,000 from 1994 to 1995 partially
due to a decrease in tenant improvement write-offs.
Substantially all of the Company's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995, the
Company completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company expensed $186,000 in 1995
for known environmental remediation requirements. Although there can be no
assurance, the Company is not aware of any environmental contamination of any of
its property sites which individually or in the aggregate would be material to
the Company's overall business, financial condition, or results of operations.
Weighted average occupancy levels were 88% for the mini-warehouse
facilities and 92% for the business park facilities in 1995 compared to 88% for
the mini-warehouse facilities and 97% for the business park facilities in 1994.
MINI-WAREHOUSE OPERATING TRENDS.
- --------------------------------
The following table illustrates the operating trends for the Company's
16 mini-warehouses:
Years ended December 31,
----------------------------------------
1996 1995 1994
----------- ---------- ---------
Weighted average occupancy level 90% 88% 88%
Realized monthly rent per occupied
square foot (1) $.70 $.69 $.67
Operating margin (2)
Before reduction for depreciation expense 65% 67% 67%
After reduction for depreciation expense 49% 51% 47%
- -------------
(1) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions. Includes administrative and late fees.
(2) Operating margin (before reduction for depreciation expense) is computed
by dividing rental income less cost of operations by rental income.
Operating margin (after reduction for depreciation expense) is computed by
dividing rental income less cost of operations and depreciation by rental
income.
15
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
CAPITAL STRUCTURE. The Company's financial profile has been
characterized by a low level of debt to total capitalization and increasing cash
provided by operating activities.
NET CASH PROVIDED BY OPERATING ACTIVITIES AND FUNDS FROM OPERATIONS.
The Company believes that important measures of its performance as well as
liquidity are net cash provided by operating activities and funds from
operations ("FFO").
Net cash provided by operating activities (net income plus
depreciation) reflects the cash generated from the Company's business before
distributions to shareholders and capital expenditures. Net cash provided by
operating activities has increased from $6,019,000 in 1995 to $6,286,000 in
1996.
FFO is defined by the Company, consistent with the definition of FFO
by the National Association of Real Estate Investment Trusts (NAREIT), as net
income (loss) (computed in accordance with generally accepted accounting
principles) before depreciation and extraordinary or non-recurring items. FFO
for the years ended December 31, 1996 and 1995 was $6,125,000 and $6,218,000,
respectively. FFO is presented because the Company, as well as many industry
analysts, consider FFO to be one measure of the performance of the Company,
i.e., one that generally reflects changes in the Company's net operating income.
FFO does not take into consideration scheduled principal payments on debt and
capital improvements. Accordingly, FFO is not necessarily a substitute for the
Company's cash flow or net income, as a measure of the Company's liquidity or
operating performance or ability to pay distributions. Furthermore, the NAREIT
definition of FFO does not address the treatment of certain items and all REITs
do not treat items the same way in computing FFO. Accordingly, comparisons of
levels of FFO among REITs may not necessarily be meaningful.
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, at the Company's
option, bear interest at either the bank's prime rate plus .25% (8.50% at
December 31, 1996) or the bank's LIBOR rate plus 2.25% (7.87% at December 31,
1996). The average interest rate on the Company's credit facility during 1996
was approximately 8.15%. Principal will be payable quarterly beginning on April
1, 1997 and interest is payable monthly until maturity. On January 1, 2002, the
remaining unpaid principal and interest is due and payable. At December 31,
1996, the outstanding balance on the credit facility was $4,650,000. In January
1997, the Company borrowed an additional $1,100,000 on its line of credit
facility.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to pay
distributions to shareholders and repurchase its stock.
Years ended December 31,
-----------------------------------------------
1996 1995 1994
------------- ------------ ------------
Net income $4,148,000 $3,985,000 $4,204,000
Environmental cost - 186,000 -
Depreciation 1,977,000 2,047,000 2,187,000
------------- ------------ ------------
Funds from operations
(Net cash provided by operating activities
before changes in working capital components) 6,125,000 6,218,000 6,391,000
Capital improvements to maintain facilities (1,028,000) (534,000) (266,000)
------------- ------------ ------------
Funds available for distributions to
shareholders and repurchase of stock 5,097,000 5,684,000 6,125,000
Cash distributions to shareholders (4,408,000) (4,021,000) (3,980,000)
------------- ------------ ------------
Excess funds available for
principal payments, cash distributions to
shareholders and repurchase of stock $689,000 $1,663,000 $2,145,000
============= ============ ============
The Company believes that its rental revenues and interest and other
income will be sufficient over at least the next twelve months to meet the
Company's operating expenses, capital improvements, debt service requirements
16
and distributions to shareholders. For 1997, the Company anticipates expending
approximately $785,000 for capital improvements. During 1995, the Company's
property operator commenced a program to enhance the visual appearance of the
mini-warehouse facilities managed by it. Such enhancements include new signs,
exterior color schemes, and improvements to the rental offices. The vast
majority of the costs associated with these enhancements were incurred in 1995
and 1996.
The Company believes its geographically diverse portfolio has resulted
in a relatively stable and predictable investment portfolio.
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.
In August 1995, the Management Agreement for the mini-warehouse
facilities was amended to provide that upon demand from PSI made prior to
December 15, 1995, the Company agreed to prepay (within 15 days after such
demand) up to 12 months of management fees (based on the management fees for the
comparable period during the calendar year immediately preceding such
prepayment) discounted at the rate of 14% per year to compensate for early
payment. In November 1995, the Company prepaid, to PSI, 8 months of 1996
management fees at a cost of $298,000. The amount has been expensed as
management fees paid to affiliate during 1996.
DISTRIBUTIONS
- -------------
The Company has established a conservative distribution policy. The
aggregate amount of dividends paid or accrued to the shareholders in each year
since inception of the Company were as follows:
Series A Series B Total
------------- ----------- ------------
1986 $902,000 $79,000 $981,000
1987 1,495,000 131,000 1,626,000
1988 1,495,000 129,000 1,624,000
1989 2,242,000 195,000 2,437,000
1990 2,242,000 195,000 2,437,000
1991 2,239,000 195,000 2,434,000
1992 2,787,000 250,000 3,037,000
1993 3,747,000 299,000 4,046,000
1994 3,604,000 351,000 3,955,000
1995 4,029,000 455,000 4,484,000
1996 3,860,000 452,000 4,312,000
-------------- ----------- ------------
Totals $28,642,000 $2,731,000 $31,373,000
============== =========== ============
The Convertible Series B shares and Convertible Series C shares will
convert automatically into Series A shares on a share-for-share basis (the
"Conversion") when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the Series A shares
(including liquidating distributions, but not including payments made to redeem
such stock other than in liquidation) and (2) the cumulative Partnership
distributions from all sources with respect to all units equals (B) the product
of $20 multiplied by the number of the then outstanding "Original Series A
shares". The term "Original Series A shares" means the Series A shares issued in
the Reorganization. Through December 31, 1996, the Company has made and declared
cumulative cash distributions of approximately $28,642,000 with respect to the
Series A shares. Accordingly, assuming no repurchases or redemptions of Series A
shares after December 31, 1996, Conversion will occur when $26,878,000 in
additional distributions with respect to the Series A shares have been made.
17
REIT DISTRIBUTION REQUIREMENT
- -----------------------------
The Company has elected and intends to continue to qualify as 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. As a REIT,
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 the Company's tax return.
Under certain circumstances, the Company can rectify a failure to meet the 95%
distribution test by making distributions after the close of a particular
taxable year and attributing those distributions to the prior year's taxable
income. The Company has satisfied the REIT distribution requirement for 1994,
1995 and 1996 by attributing distributions in 1995, 1996 and 1997 to the prior
year's taxable income. The extent to which the Company will be required to
attribute distributions to the prior year will depend on the Company's operating
results (taxable income) and the level of distributions as determined by the
Board of Directors. The primary difference between book income and taxable
income is depreciation expense. In 1996, the Company's Federal tax depreciation
was $1,459,000.
The Company's Board of Directors has authorized the Company to
purchase up to 1,300,000 shares of Series A common stock. As of December 31,
1996, the Company had purchased and retired 961,351 shares of Series A common
stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
Company's financial statements are included elsewhere herein.
Reference is made to the Index to Financial Statements and Financial Statement
Schedules in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
----------------------------------------------------------------
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
------------------------------------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements: See Index to Financial Statements and
Financial Statement Schedule.
2. Financial Statement Schedules: See Index to Financial Statements
and Financial Statement Schedule.
3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K filed during the last quarter of the period ended
December 31, 1996:
None.
(c) Exhibits:
See Exhibit Index contained herein.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
PUBLIC STORAGE PROPERTIES XVII, INC.
Dated: March 27, 1997 By:/s/ Harvey Lenkin
---------------------------
Harvey Lenkin, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Capacity Date
- ------------------------- --------------------------------------- -------------------
/s/ B. Wayne Hughes Chairman of the Board, Chief Executive March 27, 1997
- ------------------------- Officer and Director
B. Wayne Hughes (Principal Executive Officer)
/s/ Vern O. Curtis Director March 27, 1997
- -------------------------
Vern O. Curtis
/s/ Jack D. Steele Director March 27, 1997
- -------------------------
Jack D. Steele
/s/ David P. Singelyn Vice President and Chief Financial Officer March 27, 1997
- --------------------- (Principal Financial Officer and
David P. Singelyn Principal Accounting Officer)
PUBLIC STORAGE PROPERTIES XVII, INC.
INDEX TO
FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
(Item 14 (a))
Page
References
----------
Report of Independent Auditors F-1
Financial Statements and Schedule:
Balance Sheets as of December 31, 1996 and 1995 F-2
For each of the three years in the period ended December 31, 1996:
Statements of Income F-3
Statements of Shareholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-10
Schedule for the years ended December 31, 1996, 1995 and 1994:
III Real Estate and Accumulated Depreciation F-11 - F-12
All other schedules have been omitted since the required information
is not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
Report of Independent Auditors
The Board of Directors and Shareholders
Public Storage Properties XVII, Inc.
We have audited the accompanying balance sheets of Public Storage Properties
XVII, Inc. as of December 31, 1996 and 1995, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. Our audits also included the schedule listed in
the index at item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Storage Properties XVII,
Inc. at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
February 18, 1997
Los Angeles, California
F-1
PUBLIC STORAGE PROPERTIES XVII, INC.
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
----------- -----------
ASSETS
------
Cash and cash equivalents $214,000 $437,000
Rent and other receivables 110,000 43,000
Prepaid expenses 147,000 399,000
Real estate facilities at cost:
Building, land improvements and equipment 44,615,000 43,686,000
Land 22,837,000 22,837,000
----------- -----------
67,452,000 66,523,000
Less accumulated depreciation (19,003,000) (17,125,000)
----------- -----------
48,449,000 49,398,000
----------- -----------
Total assets $48,920,000 $50,277,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $1,022,000 $1,033,000
Dividends payable 1,426,000 1,522,000
Advance payments from renters 294,000 307,000
Note 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 net income 21,092,000 16,944,000
Cumulative distributions (31,373,000) (27,061,000)
----------- -----------
Total shareholders' equity 41,528,000 41,765,000
----------- -----------
Total liabilities and shareholders' equity $48,920,000 $50,277,000
=========== ===========
See accompanying notes.
F-2
PUBLIC STORAGE PROPERTIES XVII, INC.
STATEMENTS OF INCOME
For each of the three years in the
period ended December 31, 1996
1996 1995 1994
---------- ---------- ----------
REVENUES:
Rental income $10,894,000 $10,549,000 $10,245,000
Interest income 15,000 26,000 37,000
---------- ---------- ----------
10,909,000 10,575,000 10,282,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 3,460,000 3,123,000 2,992,000
Management fees paid to affiliates 591,000 609,000 590,000
Depreciation 1,977,000 2,047,000 2,187,000
Interest expense 466,000 328,000 2,000
Environmental cost - 186,000 -
Administrative 267,000 297,000 307,000
---------- ---------- ----------
6,761,000 6,590,000 6,078,000
---------- ---------- ----------
NET INCOME $4,148,000 $3,985,000 $4,204,000
=========== =========== ===========
Primary earnings per share-Series A $1.33 $1.20 $1.14
=========== =========== ===========
Fully diluted earnings per share-Series A $1.03 $0.95 $0.91
=========== =========== ===========
Dividends declared per share:
Series A $1.39 $1.40 $1.07
=========== =========== ===========
Series B $1.39 $1.40 $1.07
=========== =========== ===========
Weighted average Common shares outstanding:
Primary Series A 2,776,023 2,934,723 3,377,156
=========== =========== ===========
Fully diluted-Series A 4,021,814 4,180,514 4,622,947
=========== =========== ===========
See accompanying notes.
F-3
PUBLIC STORAGE PROPERTIES XVII, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For each of the three years in the period ended
December 31, 1996
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------------
Balances at December 31, 1993 3,406,873 $34,000 324,989 $3,000 920,802 $9,000
Net income
Repurchase of shares (82,825) (1,000)
Cash distributions declared:
$1.07 per share - Series A
$1.07 per share - Series B
------------------------------------------------------------------------------------
Balances at December 31, 1994 3,324,048 33,000 324,989 3,000 920,802 9,000
Net income
Repurchase of shares (543,725) (5,000)
Cash distributions declared:
$1.40 per share - Series A
$1.40 per share - Series B
-------------------------------------------------------------------------------------
Balances at December 31, 1995 2,780,323 28,000 324,989 3,000 920,802 9,000
Net income
Repurchase of shares (4,300) -
Cash distributions declared:
$1.39 per share - Series A
$1.39 per share - Series B
-------------------------------------------------------------------------------------
Balances at December 31, 1996 2,776,023 $28,000 324,989 $3,000 920,802 $9,000
=====================================================================================
Cumulative Total
Paid-in net Cumulative shareholders'
Capital income distributions equity
------------------------------------------------------------------
Balances at December 31, 1993 $61,617,000 $8,755,000 ($18,622,000) $51,796,000
Net income 4,204,000 4,204,000
Repurchase of shares (1,254,000) (1,255,000)
Cash distributions declared:
$1.07 per share - Series A (3,604,000) (3,604,000)
$1.07 per share - Series B (351,000) (351,000)
------------------------------------------------------------------
Balances at December 31, 1994 60,363,000 12,959,000 (22,577,000) 50,790,000
Net income 3,985,000 3,985,000
Repurchase of shares (8,521,000) (8,526,000)
Cash distributions declared:
$1.40 per share - Series A (4,029,000) (4,029,000)
$1.40 per share - Series B (455,000) (455,000)
-------------------------------------------------------------------
Balances at December 31, 1995 51,842,000 16,944,000 (27,061,000) 41,765,000
Net income 4,148,000 4,148,000
Repurchase of shares (73,000) (73,000)
Cash distributions declared:
$1.39 per share - Series A (3,860,000) (3,860,000)
$1.39 per share - Series B (452,000) (452,000)
-------------------------------------------------------------------
Balances at December 31, 1996 $51,769,000 $21,092,000 ($31,373,000) $41,528,000
===================================================================
See accompanying notes.
F-4
PUBLIC STORAGE PROPERTIES XVII, INC.
STATEMENTS OF CASH FLOWS
For each of the three years in the
period ended December 31, 1996
1996 1995 1994
---------- ---------- ----------
Cash flows from operating activities:
Net income $4,148,000 $3,985,000 $4,204,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,977,000 2,047,000 2,187,000
(Increase) decrease in rent and
other receivables (67,000) (13,000) 25,000
Increase in prepaid expenses (46,000) (3,000) (5,000)
Amortization (payment) of prepaid management fees 298,000 (298,000) -
(Decrease) increase in accounts payable (11,000) 327,000 (89,000)
Decrease in advance payments from renters (13,000) (26,000) (35,000)
---------- ---------- ----------
Total adjustments 2,138,000 2,034,000 2,083,000
---------- ---------- ----------
Net cash provided by operating activities 6,286,000 6,019,000 6,287,000
---------- ---------- ----------
Cash flows from investing activities:
Additions to real estate facilities (1,028,000) (534,000) (266,000)
---------- ---------- ----------
Net cash used in investing activities (1,028,000) (534,000) (266,000)
---------- ---------- ----------
Cash flows from financing activities:
(Payments) proceeds from note payable to bank (1,000,000) 5,650,000 -
Distributions paid to shareholders (4,408,000) (4,021,000) (3,980,000)
Purchase of Company Series A
common stock (73,000) (8,526,000) (1,255,000)
---------- ---------- ----------
Net cash used in financing activities (5,481,000) (6,897,000) (5,235,000)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (223,000) (1,412,000) 786,000
Cash and cash equivalents at the beginning of the year 437,000 1,849,000 1,063,000
---------- ---------- ----------
Cash and cash equivalents at the end of the year $214,000 $437,000 $1,849,000
========== ========== ==========
See accompanying notes.
F-5
PUBLIC STORAGE PROPERTIES XVII, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS
Public Storage Properties XVII, Inc. (the "Company") is a
California corporation which has elected to qualify as a real estate
investment trust ("REIT") for Federal income tax purposes. The Company
succeeded to the business of Public Storage Properties XVII, Ltd. (the
"Partnership") in a reorganization transaction which was effective
September 16, 1991 (the "Reorganization").
The Company owns and operates primarily self-storage
facilities and, to a lesser extent, business park facilities containing
commercial or industrial spaces.
The term of the Company is until all properties have been sold
and, in any event, not later than December 31, 2038. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Certain prior year amounts have been reclassified in order
to conform with the 1996 presentation.
Income Taxes:
The Company has and intends to continue to qualify as a REIT,
as defined in Section 856 of the Internal Revenue Code (the Code). As a
REIT, the Company is not taxed on that portion of its taxable income
which is distributed to its shareholders provided that the Company
meets the requirements of the Code. The Company believes it is in
compliance with these requirements and, accordingly, no provision for
income taxes has been made.
Statements of Cash Flows:
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The Company paid
$472,000, $328,000 and $2,000 in interest costs in 1996, 1995 and 1994,
respectively.
Real Estate Facilities:
Cost of land includes appraisal and legal fees related to
acquisition and closing costs. Buildings, land improvements and
equipment reflect costs incurred through December 31, 1996 and 1995 to
develop primarily mini-warehouse facilities and to a lesser extent,
business park facilities. The mini-warehouse facilities provide
self-service storage spaces for lease, usually on a month-to-month
basis, to the general public. The buildings and equipment are
depreciated on the straight-line basis over estimated useful lives of
25 and 5 years, respectively. Included in depreciation is depreciation
of tenant improvements on the Company's business park facilities of
$162,000, $188,000 and $138,000 in 1996, 1995 and 1994, respectively.
Included in buildings in 1996 is $147,000 in costs incurred for
the expansion of the Company's Sacramento, California facility.
F-6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real Estate Facilities (continued):
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("Statement 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Statement 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Company adopted Statement 121 in
1996 and based on current circumstances, such adoption did not have any
effect on the financial statements.
At December 31, 1996, the basis of real estate facilities
(excluding land) for Federal income tax purposes (after adjustment for
accumulated depreciation of $13,197,000) is $29,464,000.
Revenue Recognition:
Property rents are recognized as earned.
Net Income Per Share:
Net income per share is based on net income attributable to
each series of common shares and the weighted average number of such
shares outstanding during the periods presented.
Net income per share is presented on a primary and fully
diluted basis. Primary earnings per share represents the Series A
shareholders' right to distributions out of the respective period's net
income, which is calculated by dividing net income after reduction for
distributions to the Convertible Series B shareholders (Convertible
Series C shareholders are not entitled to cash distributions) by the
weighted average number of outstanding Series A shares (Note 4). Fully
diluted earnings per share assumes conversion of the Convertible Series
B and Series C shares into Series A shares.
Use of Estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Environmental Cost:
Substantially all of the Company's facilities were acquired
prior to the time that it was customary to conduct environmental
investigations in connection with property acquisitions. During the
fourth quarter of 1995, the Company completed environmental assessments
of its properties to evaluate the environmental condition of, and
potential environmental liabilities of such properties. These
assessments were performed by an independent environmental consulting
firm. Based on the assessments, the Company expensed $186,000 in 1995
for known environmental remediation requirements. Although there can be
no assurance, the Company is not aware of any environmental
contamination of any of its property sites which individually or in the
aggregate would be material to the Company's overall business,
financial condition, or results of operations.
F-7
3. RELATED PARTY TRANSACTIONS
The Company has a Management Agreement with Public Storage,
Inc. ("PSI") pursuant to which PSI operates the Company's
mini-warehouse facilities for a fee equal to 6% of the facilities'
monthly gross revenue (as defined). Through 1996, the Company's
commercial properties were operated by Public Storage Commercial
Properties Group, Inc. ("PSCPG") pursuant to a Management Agreement
which provides for a fee equal to 5% of the facilities' monthly gross
revenue (as defined).
PSI has a 95% economic interest in PSCPG (represented by
nonvoting preferred stock) and B. Wayne Hughes, the Company's Chief
Executive Officer, and members of his family (the "Hughes Family") had
a 5% economic interest in PSCPG (represented by voting common stock)
until December 1996 when the Hughes Family sold its interest to Ronald
L. Havner, Jr., formerly Senior Vice President and Chief Financial
Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG
issued additional voting common stock to two other unaffiliated
investors.
In January 1997, American Office Park Properties, L.P.
("AOPPLP") became the operator of the Company's commercial properties
pursuant to the Management Agreement. AOPPLP is an operating
partnership formed to own and operate business parks in which PSI has
an approximate 85% economic interest. The general partner of AOPPLP is
PSCPG, now known as American Office Park Properties, Inc.
Each Management Agreement, as amended in February 1995,
provides that the agreement will expire in February 2002 provided that
in February of each year it shall be automatically extended for one
year (thereby maintaining a seven-year term) unless either party
notifies the other that the Management Agreement is not being extended,
in which case it expires on the first anniversary of its then scheduled
expiration date. Each Management Agreement may also be terminated by
either party for cause, but if terminated for cause by the Company, the
Company retains the rights to use the service marks and related designs
until the then scheduled expiration date, if applicable, or otherwise a
date seven years after such termination.
In August 1995, the Management Agreement for the
mini-warehouse facilities was amended to provide that upon demand from
PSI made prior to December 15, 1995, the Company agreed to prepay
(within 15 days after such demand) up to 12 months of management fees
(based on the management fees for the comparable period during the
calendar year immediately preceding such prepayment) discounted at the
rate of 14% per year to compensate for early payment. In November 1995,
the Company prepaid, to PSI, 8 months of 1996 management fees at a cost
of $298,000. The amount has been expensed as management fees paid to
affiliate during 1996.
4. SHAREHOLDERS' EQUITY
Series A shares are entitled to all distributions of cash from
sale or refinancing and participate ratably with the Convertible Series
B shares in distributions of cash flow from operations. The Convertible
Series C shares (prior to conversion into Series A shares) will not
participate in any distributions.
The Convertible Series B shares and Convertible Series C
shares will convert automatically into Series A shares on a
share-for-share basis (the "Conversion") when (A) the sum of (1) all
cumulative dividends and other distributions from all sources paid with
respect to the Series A shares (including liquidating distributions,
but not including payments made to redeem such stock other than in
liquidation) and (2) the cumulative Partnership distributions from all
sources with respect to all units equals (B) the product of $20
multiplied by the number of the then outstanding "Original Series A
shares". The term "Original Series A shares" means the Series A shares
issued in the Reorganization. Through December 31, 1996, the Company
has made and declared cumulative cash distributions of approximately
$28,642,000 with respect to the Series A shares. Accordingly, assuming
no repurchases or redemptions of Series A shares after December 31,
1996, Conversion will occur when $26,878,000 in additional
distributions with respect to the Series A shares have been made.
F-8
4. SHAREHOLDERS' EQUITY (CONTINUED)
Assuming liquidation of the Company at its net book value at
December 31, 1996 and 1995, each Series of common shares would receive
the following as a liquidating distribution:
1996 1995
------------- ------------
Series A $36,990,000 $38,385,000
Convertible Series B 1,184,000 881,000
Convertible Series C 3,354,000 2,499,000
------------- ------------
Total $41,528,000 $41,765,000
============= ============
The Series A shares, Convertible Series B shares and Convertible
Series C shares have equal voting rights. The holders of the
Convertible Series B and Convertible Series C shares have agreed to
vote along with the majority of the unaffiliated Series A shareholders
on matters other than control of the Company and its business.
The Company's Board of Directors has authorized the Company to
purchase up to 1,300,000 shares of the Company's Series A common stock.
As of December 31, 1996, the Company had purchased and retired 961,351
shares of Series A common stock, of which 4,300 and 543,725 were
purchased and retired in 1996 and 1995, respectively.
For Federal income tax purposes, all distributions declared by the
Board of Directors in 1996, 1995 and 1994 were ordinary income.
5. NOTE PAYABLE TO BANK
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 at the Company's option, bear interest at either the bank's
prime rate plus .25% (8.50% at December 31, 1996) or the bank's LIBOR
rate plus 2.25% (7.87% at December 31, 1996). Principal payments of
$240,000 will be payable quarterly beginning on April 1, 1997 and
interest is payable monthly until maturity. On January 1, 2002, the
remaining unpaid principal and interest is due and payable.
At December 31, 1996, the outstanding balance on the credit
facility was $4,650,000. In January 1997, the Company borrowed an
additional $1,100,000 on its line of credit facility.
Under covenants of the credit facility, the Company is (1)
required to maintain a ratio of debt to net worth (as defined) of not
more than .5 to 1.0, (2) required to maintain a REIT cash flow coverage
ratio (as defined) measured on a year-to-date basis for each fiscal
quarter of not less than 1.2 to 1.0 and (3) required to maintain a
dividend cash flow coverage ratio (as defined) measured on a year-
to-date basis for each fiscal quarter of not less than 1.0 to 1.0. As
of December 31, 1996, the Company was in compliance with the covenants
of the credit facility.
F-9
6. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of
operations:
Three months ended
-----------------------------------------------------------
March 1996 June 1996 Sept. 1996 Dec. 1996
------------ ----------- ----------- -----------
Revenues $2,639,000 $2,744,000 $2,775,000 $2,751,000
Expenses 1,721,000 1,603,000 1,732,000 1,705,000
------------ ----------- ----------- -----------
Net income $918,000 $1,141,000 $1,043,000 $1,046,000
============ =========== =========== ===========
Primary earnings per share-Series A $0.29 $0.38 $0.34 $0.32
============ =========== =========== ===========
Fully diluted earnings per share-Series A $0.23 $0.28 $0.26 $0.26
============ =========== =========== ===========
Three months ended
-----------------------------------------------------------
March 1995 June 1995 Sept. 1995 Dec. 1995
------------ ----------- ----------- -----------
Revenues $2,566,000 $2,634,000 $2,722,000 $2,653,000
Expenses 1,540,000 1,555,000 1,646,000 1,849,000
------------ ----------- ----------- -----------
Net Income $1,026,000 $1,079,000 $1,076,000 $804,000
============ =========== =========== ===========
Primary earnings per share-Series A $0.30 $0.33 $0.34 $0.23
============ =========== =========== ===========
Fully diluted earnings per share-Series A $0.24 $0.26 $0.25 $0.20
============ =========== =========== ===========
F-10
PUBLIC STORAGE PROPERTIES XVII, INC.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
Initial Cost Costs
-------------------------- subsequent to
Bldg., Land construction
Date Imp & (Improvements)
Completed Description Encumbrances Land Equipment (1)
- ----------------------------------------------------------------------------------------------------------
Mini-warehouses:
11/86 Dallas/E Mockingbird Lake - $1,962,000 $2,631,000 $317,000
11/86 Wheat Ridge/West 48th Av - 726,000 1,341,000 38,000
11/86 Berlin / 55 Harker Ave - 490,000 1,257,000 52,000
12/86 Gretna / Belle Chase Hwy - 729,000 1,994,000 42,000
11/86 Houston / Louetta Road - 557,000 969,000 84,000
12/86 Sacramento / Verner - 829,000 1,577,000 232,000
12/86 Houston / South Dairy - 785,000 1,033,000 59,000
12/86 Naperville / Ogden II - 472,000 1,697,000 51,000
3/87 Honolulu / Ukee - 1,164,000 1,517,000 132,000
2/87 Davis / Olive - 480,000 1,168,000 37,000
7/87 Decatur /Snapfinger Woods - 317,000 1,423,000 77,000
8/87 Jacksonville / Timuquana - 304,000 1,217,000 74,000
9/87 Chicopee / Jamrog - 623,000 1,606,000 31,000
4/87 Houston/Veteran Memorial - 553,000 964,000 71,000
11/87 Littleton / Belleview - 1,092,000 1,616,000 34,000
Business Parks:
7/89 San Diego / Lusk III - 3,270,000 3,345,000 2,040,000
Combinations:
4/87 Carrollton / Trinity Mills - 2,109,000 2,510,000 357,000
8/89 Fairfax / Bren Mar - 4,998,000 8,258,000 3,667,000
2/87 Los Angeles / Olympic - 2,753,000 2,145,000 (2,424,000)
----------------------------------------------------------------
- $24,213,000 $38,268,000 $4,971,000
================================================================
Gross Carrying Amount
At December 31, 1996 Life on Which
--------------------------------------------- Depreciation in
Bldg., Land Latest Income
Date Imp & Accumulated Statement is
Completed Description Land Equipment Total Depreciation Computed
- ----------------------------------------------------------------------------------------------------------------------------
Mini-warehouses:
11/86 Dallas/E Mockingbird Lake $1,962,000 $2,948,000 $4,910,000 ($1,061,000) 5-25 years
11/86 Wheat Ridge/West 48th Av 726,000 1,379,000 2,105,000 (554,000) 5-25 years
11/86 Berlin / 55 Harker Ave 490,000 1,309,000 1,799,000 (508,000) 5-25 years
12/86 Gretna / Belle Chase Hwy 729,000 2,036,000 2,765,000 (823,000) 5-25 years
11/86 Houston / Louetta Road 557,000 1,053,000 1,610,000 (418,000) 5-25 years
12/86 Sacramento / Verner 829,000 1,809,000 2,638,000 (665,000) 5-25 years
12/86 Houston / South Dairy 785,000 1,092,000 1,877,000 (445,000) 5-25 years
12/86 Naperville / Ogden II 472,000 1,748,000 2,220,000 (697,000) 5-25 years
3/87 Honolulu / Ukee 1,164,000 1,649,000 2,813,000 (641,000) 5-25 years
2/87 Davis / Olive 480,000 1,205,000 1,685,000 (487,000) 5-25 years
7/87 Decatur /Snapfinger Woods 317,000 1,500,000 1,817,000 (533,000) 5-25 years
8/87 Jacksonville / Timuquana 304,000 1,291,000 1,595,000 (497,000) 5-25 years
9/87 Chicopee / Jamrog 623,000 1,637,000 2,260,000 (596,000) 5-25 years
4/87 Houston/Veteran Memorial 553,000 1,035,000 1,588,000 (401,000) 5-25 years
11/87 Littleton / Belleview 1,092,000 1,650,000 2,742,000 (600,000) 5-25 years
Business Parks:
7/89 San Diego / Lusk III 3,270,000 5,385,000 8,655,000 (2,919,000) 5-25 years
Combinations:
4/87 Carrollton / Trinity Mills 2,109,000 2,867,000 4,976,000 (1,341,000) 5-25 years
8/89 Fairfax / Bren Mar 4,998,000 11,925,000 16,923,000 (5,461,000) 5-25 years
2/87 Los Angeles / Olympic 1,377,000 1,097,000 2,474,000 (356,000) 5-25 years
-----------------------------------------------------------------
$22,837,000 $44,615,000 $67,452,000 ($19,003,000)
=================================================================
(1) Reduction in costs at the Los Angeles\Olympic facility is due to the sale
of 50% of the Company's interest in the property in 1993.
F-11
PUBLIC STORAGE PROPERTIES XVII, INC.
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)
(a) The following is a reconciliation of costs and related accumulated depreciation.
COSTS RECONCILIATION
Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------
Balance at the beginning of the period $66,523,000 $66,176,000 $66,106,000
Additions during the period:
Improvements 1,028,000 534,000 266,000
Deductions during the period (99,000) (187,000) (196,000)
----------------------------------------------------------------
Balance at the close of the period $67,452,000 $66,523,000 $66,176,000
================================================================
ACCUMULATED DEPRECIATION RECONCILIATION
Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------
Balance at the beginning of the period $17,125,000 $15,265,000 $13,274,000
Additions during the period:
Depreciation 1,972,000 2,033,000 2,187,000
Deductions during the period (94,000) (173,000) (196,000)
----------------------------------------------------------------
Balance at the close of the period $19,003,000 $17,125,000 $15,265,000
================================================================
(b) The aggregate depreciable cost of real estate (excluding land) for Federal
income tax purposes is $42,661,000.
F-12
PUBLIC STORAGE PROPERTIES XVII, INC.
EXHIBIT INDEX
(Item 14(c))
3.1 Articles of Incorporation. Previously filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.
3.2 Certificate of Amendment of Articles of Incorporation. Previously
filed with the Securities and Exchange Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992 and incorporated herein by reference.
3.3 Amended and Restated Bylaws. Previously filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.
3.4 Amendments to Bylaws Adopted on July 30, 1992. Previously filed with
the Securities and Exchange Commission as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.
10.1 Amended Management Agreement dated February 21, 1995 between the
Company and Public Storage Management, Inc. Previously filed with the
Securities and Exchange Commission as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.2 Amended Management Agreement dated February 21, 1995 between the
Company and Public Storage Commercial Properties Group, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.3 Amendment to Amended Management Agreement dated August 8, 1995 between
the Company, Public Storage Management, Inc. and Storage Equities,
Inc. Previously filed with Securities and Exchange Commission as an
exhibit to the Company's Quarterly Report on form 10-Q for the period
ended September 30, 1995 and incorporated herein by reference.
10.4 Revolving credit agreement between the Company and Manufacturers Bank
dated February 24, 1995. Previously filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated herein
by reference.
10.5 Amendment to Revolving Credit Agreement between the Company and
Manufacturers Bank dated September 14, 1995. Previously filed with the
Securities and Exchange Commission as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.
10.6 Amendment to Revolving Credit Agreement between the Company and
Manufacturers Bank dated February 7, 1997. Filed herewith.
27 Financial Data Schedule. Filed herewith.