UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 1-10709
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PUBLIC STORAGE PROPERTIES XI, INC.
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(Exact name of registrant as specified in its charter)
California 95-4300881
- ----------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Ave
Glendale, California 91201-2397
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Company's classes of common stock as of
March 31, 1997:
1,819,937 shares of $.01 par value Series A shares
184,453 shares of $.01 par value Series B shares
522,618 shares of $.01 par value Series C shares
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at March 31, 1997
and December 31, 1996 2
Condensed Statements of Income for the three
months ended March 31, 1997 and 1996 3
Condensed Statement of Shareholders' Equity for the
three months ended March 31, 1997 4
Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION 9
PUBLIC STORAGE PROPERTIES XI, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
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(Unaudited)
ASSETS
------
Cash and cash equivalents $1,623,000 $1,290,000
Rent and other receivables 34,000 53,000
Prepaid expenses 116,000 142,000
Real estate facilities at cost:
Building, land improvements and equipment 26,630,000 26,526,000
Land 12,118,000 12,118,000
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38,748,000 38,644,000
Less accumulated depreciation (12,280,000) (12,000,000)
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26,468,000 26,644,000
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Total assets $28,241,000 $28,129,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $632,000 $633,000
Dividends payable 681,000 681,000
Advance payments from renters 209,000 198,000
Shareholders' equity:
Series A common, $.01 par value, 2,828,989 shares authorized,
1,819,937 shares issued and outstanding in 1997 and 1996 18,000 18,000
Convertible Series B common, $.01 par value,
184,453 shares authorized, issued and outstanding 2,000 2,000
Convertible Series C common, $.01 par value,
522,618 shares authorized, issued and outstanding 5,000 5,000
Paid-in-capital 32,421,000 32,421,000
Cumulative net income 26,754,000 25,971,000
Cumulative distributions (32,481,000) (31,800,000)
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Total shareholders' equity 26,719,000 26,617,000
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Total liabilities and shareholders' equity $28,241,000 $28,129,000
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See accompanying notes.
2
PUBLIC STORAGE PROPERTIES XI, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
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1997 1996
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REVENUES:
Rental income $1,823,000 $1,736,000
Interest income 13,000 5,000
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1,836,000 1,741,000
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COSTS AND EXPENSES:
Cost of operations 615,000 578,000
Management fees paid to affiliates 106,000 93,000
Depreciation 280,000 274,000
Administrative 52,000 56,000
Interest expense - 3,000
---------------- -----------------
1,053,000 1,004,000
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NET INCOME $783,000 $737,000
================ =================
Primary earnings per share - Series A $0.40 $0.37
================ =================
Fully diluted earnings per share - Series A $0.31 $0.29
================ =================
Dividends declared per share:
Series A $0.34 $0.34
================ =================
Series B $0.34 $0.34
================ =================
Weighted average Common shares outstanding:
Primary - Series A 1,819,937 1,841,804
================ =================
Fully diluted - Series A 2,527,008 2,548,875
================ =================
See accompanying notes.
3
Public Storage Properties XI, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
------------- ------------- ------------- ------------- -------------- -------------
Balances at December 31, 1996 1,819,937 $18,000 184,453 $2,000 522,618 $5,000
Net income
Cash distributions declared:
$.34 per share - Series A
$.34 per share - Series B
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Balances at March 31, 1997 1,819,937 $18,000 184,453 $2,000 522,618 $5,000
============= ============= ============= ============= ============== =============
Public Storage Properties XI, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Cumulative Total
Paid-in net Cumulative shareholders'
capital income distributions equity
--------------- -------------- ------------- --------------
Balances at December 31, 1996 $32,421,000 $25,971,000 ($31,800,000) $26,617,000
-
Net income 783,000 783,000
Cash distributions declared:
$.34 per share - Series A (618,000) (618,000)
$.34 per share - Series B (63,000) (63,000)
--------------- -------------- ------------- --------------
Balances at March 31, 1997 $32,421,000 $26,754,000 ($32,481,000) $26,719,000
=============== ============== ============= ==============
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES XI, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
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1997 1996
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(Restated)
Cash flows from operating activities:
Net income $783,000 $737,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 280,000 274,000
Decrease in rent and other receivables 19,000 62,000
Decrease (increase) in prepaid expenses 26,000 (1,000)
Amortization of prepaid management fees - 77,000
(Decrease) increase in accounts payable (1,000) 4,000
Increase in advance payments from renters 11,000 35,000
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Total adjustments 335,000 451,000
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Net cash provided by operating activities 1,118,000 1,188,000
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Cash flows from investing activities:
Additions to real estate facilities (104,000) (53,000)
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Net cash used in investing activities (104,000) (53,000)
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Cash flows from financing activities:
Distributions paid to shareholders (681,000) (694,000)
Borrowing on credit facility - 250,000
Repayment of borrowing on credit facility - (250,000)
Purchase of Company Series A common stock - (350,000)
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Net cash used in financing activities (681,000) (1,044,000)
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Net increase in cash and cash equivalents 333,000 91,000
Cash and cash equivalents at the beginning of the period 1,290,000 746,000
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Cash and cash equivalents at the end of the period $1,623,000 $837,000
============== =============
See accompanying notes.
5
PUBLIC STORAGE PROPERTIES XI, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Company's Form 10-K for the year ended December 31, 1996.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Company's financial position at
March 31, 1997 and December 31, 1996, the results of its operations for the
three months ended March 31, 1997 and 1996 and its cash flows for the three
months then ended.
3. The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results expected for the full year.
4. Certain prior year amounts have been reclassified in order to conform with
current year presentation.
5. The Company has an unsecured revolving credit facility with a bank for
borrowings up to $3,000,000 for working capital purposes and to repurchase
the Company's stock. Outstanding borrowings on the credit facility, at the
Company's option, bear interest at either the bank's prime rate plus .25%
or the bank's LIBOR rate plus 2.25%. Interest is payable monthly. On
December 31, 1999, all unpaid principal and accrued interest is due and
payable. At March 31, 1997 and for the three months then ended, there was
no outstanding balance on the credit facility.
6
PUBLIC STORAGE PROPERTIES XI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors occurring during the periods presented in the accompanying
Condensed Financial Statements.
RESULTS OF OPERATIONS.
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The Company's net income for the three months ended March 31, 1997 and 1996
was $783,000 and $737,000, respectively, representing an increase of $46,000 or
6%. This increase is primarily the result of an increase in property net
operating income (rental income less cost of operations, management fees paid to
affiliates and depreciation expense) at the Company's mini-warehouse facilities.
Rental income for the three months ended March 31, 1997 and 1996 was
$1,823,000 and $1,736,000, respectively, representing an increase of $87,000 or
5%. The Company's mini-warehouse operations contributed $71,000 to the increase
in rental income. Approximately 85% of the increase in mini-warehouse rental
income was generated by the Company's two California properties due to an
increase in rental rates. The Company's business park operations also showed an
increase in rental income due to an increase in rental rates.
The Company's mini-warehouse operations had weighted average occupancy
levels of 91% and 89% for the three months ended March 31, 1997 and 1996,
respectively. The Company's business park operations had weighted average
occupancy levels of 95% and 97% for the three months ended March 31, 1997 and
1996, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) for the three months ended March 31, 1997 and 1996 was
$1,001,000 and $945,000, respectively, representing an increase of $56,000 or
6%. This increase is primarily attributable to an increase in management fees
and property taxes partially offset by a decrease in repairs and maintenance
costs. The increase in property taxes is mainly due to an unfavorable comparison
to a one-time tax refund received in early 1996 from appealing prior years tax
assessments at the Company's Nesconset, New York property. Repairs and
maintenance costs decreased due to a decrease in snow removal costs incurred in
1997 compared to 1996. Snow removal costs were higher in 1996 than amounts
typically incurred due to higher than normal snow levels experienced at the
Company's mini-warehouse facilities located in the eastern states.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations discounted at a 14% effective rate to compensate for
early payment. As a result, management fee expense for the three months ended
March 31, 1996 was $8,000 lower than it would have been under the customary,
undiscounted fee structure.
During the three months ended March 31, 1996, the Company incurred $3,000
in interest expense on its line of credit facility. No such expense was incurred
during the same period in 1997 since the Company did not have any borrowings
against its credit facility.
7
LIQUIDITY AND CAPITAL RESOURCES.
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Cash flows from operating activities ($1,118,000 for the three months ended
March 31, 1997) and cash reserves were sufficient to meet all current
obligations and distributions of the Company during the three months ended March
31, 1997. Management expects cash flows from operations will be sufficient to
fund capital expenditures and quarterly distributions.
The Company has an unsecured revolving credit facility with a bank for
borrowings up to $3,000,000 for working capital purposes and to repurchase the
Company's stock. Outstanding borrowings on the credit facility, at the Company's
option, bear interest at either the bank's prime rate plus .25% or the bank's
LIBOR rate plus 2.25%. Interest is payable monthly. On December 31, 1999, all
unpaid principal and accrued interest is due and payable. At March 31, 1997 and
for the three months then ended, there was no outstanding balance on the credit
facility.
The Company's Board of Directors has authorized the Company to purchase up
to 400,000 shares of Series A common stock. As of March 31, 1997, the Company
had repurchased 301,275 shares of Series A common stock, none of which were
purchased in the first quarter of 1997.
The bylaws of the Company provide that, during 1997, 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.
The Company has elected and intends to continue to qualify as a real estate
investment trust ("REIT") for Federal income tax purposes. As a REIT, the
Company must meet, among other tests, sources of income, share ownership, and
certain asset tests. The Company is not taxed on that portion of its taxable
income which is distributed to its shareholders provided that at least 95% of
its taxable income is so distributed to its shareholders prior to filing of the
Company's tax return. The primary difference between book income and taxable
income is depreciation expense. In 1996, the Company's Federal tax depreciation
was $1,229,000.
SUPPLEMENTAL INFORMATION.
- ------------------------
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 for the three months ended March 31, 1997 and 1996 was $1,063,000 and
$1,011,000, 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, 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.
8
PART II. OTHER INFORMATION
ITEMS 1 through 5 are inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(A) EXHIBITS: The following exhibit is included herein:
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: May 14, 1997
PUBLIC STORAGE PROPERTIES XI, INC.
BY: /s/ David P. Singelyn
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David P. Singelyn
Vice President and
Chief Financial Officer
9