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 1-10859
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PUBLIC STORAGE PROPERTIES XVII, INC.
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(Exact name of registrant as specified in its charter)
California 95-4300891
- ---------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Ave
Glendale, California 91201-2397
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
-----------------------
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:
2,776,023 shares of $.01 par value Series A shares
324,989 shares of $.01 par value Series B shares
920,802 shares of $.01 par value Series C shares
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at 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 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION 11-12
PUBLIC STORAGE PROPERTIES XVII, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
--------------- ---------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $819,000 $214,000
Rent and other receivables 100,000 110,000
Prepaid expenses 120,000 147,000
Real estate facilities at cost:
Building, land improvements and equipment 44,861,000 44,615,000
Land 22,837,000 22,837,000
--------------- ---------------
67,698,000 67,452,000
Less accumulated depreciation (19,467,000) (19,003,000)
--------------- ---------------
48,231,000 48,449,000
--------------- ---------------
Total assets $49,270,000 $48,920,000
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $862,000 $1,022,000
Dividends payable 962,000 1,426,000
Advance payments from renters 306,000 294,000
Note payable 5,510,000 4,650,000
Shareholders' equity:
Series A common, $.01 par value, 4,983,165 shares authorized,
2,776,023 shares issued and outstanding in 1997 and 1996 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 51,769,000
Cumulative net income 22,156,000 21,092,000
Cumulative distributions (32,335,000) (31,373,000)
--------------- ---------------
Total shareholders' equity 41,630,000 41,528,000
--------------- ---------------
Total liabilities and shareholders' equity $49,270,000 $48,920,000
============= ===============
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES XVII, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- -----------------
REVENUES:
Rental income $2,735,000 $2,634,000
Interest income 4,000 5,000
--------------- -----------------
2,739,000 2,639,000
--------------- -----------------
COSTS AND EXPENSES:
Cost of operations 887,000 855,000
Management fees paid to affiliates 158,000 141,000
Depreciation 464,000 528,000
Interest expense 101,000 135,000
Administrative 65,000 62,000
--------------- -----------------
1,675,000 1,721,000
--------------- -----------------
NET INCOME $1,064,000 $918,000
=============== =================
Primary earnings per share - Series A $0.35 $0.29
=============== =================
Fully diluted earnings per share - Series A $0.26 $0.23
=============== =================
Dividends declared per share:
Series A $0.31 $0.31
=============== =================
Series B $0.31 $0.31
=============== =================
Weighted average Common shares outstanding:
Primary - Series A 2,776,023 2,776,023
=============== =================
Fully diluted - Series A 4,021,814 4,021,814
=============== =================
See accompanying notes.
3
Public Storage Properties XVII, 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 2,776,023 $28,000 324,989 $3,000 920,802 $9,000
Net income
Cash distributions declared:
$.31 per share - Series A
$.31 per share - Series B
------------- ------------- ------------- ------------- ------------- -------------
Balances at March 31, 1997 2,776,023 $28,000 324,989 $3,000 920,802 $9,000
============= ============= ============= ============= ============= =============
Public Storage Properties XVII, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Cumulative Total
Paid-in net Cumulative shareholders'
capital income distributions equity
-------------- --------------- -------------- --------------
Balances at December 31, 1996 $51,769,000 $21,092,000 ($31,373,000) $41,528,000
Net income 1,064,000 1,064,000
Cash distributions declared:
$.31 per share - Series A (861,000) (861,000)
$.31 per share - Series B (101,000) (101,000)
-------------- --------------- -------------- --------------
Balances at March 31, 1997 $51,769,000 $22,156,000 ($32,335,000) $41,630,000
============== =============== ============== ==============
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES XVII, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------------
1997 1996
-------------- ----------------
Cash flows from operating activities:
Net income $1,064,000 $918,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 464,000 528,000
Decrease in rent and other receivables 10,000 11,000
Amortization of prepaid management fees - 112,000
Decrease in prepaid expenses 27,000 -
Decrease in accounts payable (160,000) (268,000)
Increase in advance payments from renters 12,000 8,000
-------------- ----------------
Total adjustments 353,000 391,000
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Net cash provided by operating activities 1,417,000 1,309,000
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Cash flows from investing activities:
Additions to real estate facilities (246,000) (38,000)
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Net cash used in investing activities (246,000) (38,000)
-------------- ----------------
Cash flows from financing activities:
Proceeds from note payable to bank 860,000 800,000
Distributions paid to shareholders (1,426,000) (1,522,000)
Purchase of Company Series A common stock - (73,000)
-------------- ----------------
Net cash used in financing activities (566,000) (795,000)
-------------- ----------------
Net increase in cash and cash equivalents 605,000 476,000
Cash and cash equivalents at the beginning of the period 214,000 437,000
-------------- ----------------
Cash and cash equivalents at the end of the period $819,000 $913,000
============== ================
See accompanying notes.
5
PUBLIC STORAGE PROPERTIES XVII, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Company's Form 10-K for the year ended December 31, 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. 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%
(8.75% at March 31, 1997) or the bank's LIBOR rate plus 2.25% (8.0% at
March 31, 1997). Interest is payable monthly until maturity. On January 1,
2002, the remaining unpaid principal and interest is due and payable.
During the three months ended March 31, 1997, the Company borrowed
$1,100,000 and made a scheduled principal payment of $240,000. At March 31,
1997, the outstanding balance on the credit facility was $5,510,000.
In April 1997, the Company's Board of Directors authorized the Company to
obtain a revolving credit facility from Public Storage, Inc. ("PSI"), an
affiliate, for a maximum of $5,500,000 to repay and terminate its existing
credit facility. In May 1997, the Company borrowed $5,425,000 from PSI to
pay off the outstanding balance on its credit facility. The PSI loan bears
interest at 7%, payable monthly and matures in April 1998.
6
5. In April 1997, the Company and Public Storage, Inc. ("PSI") agreed, subject
to certain conditions, to merge. Upon the merger, each outstanding share of
the Company's common stock series A (other than shares held by PSI or by
holders of the Company's common stock series A ("Series A Shareholders")
who have properly exercised dissenters' rights under California law
("Dissenting Shares")) will be converted into the right to receive cash,
PSI common stock or a combination of the two, as follows: (i) with respect
to a certain number of shares of the Company's common stock series A (not
to exceed 20% of the outstanding common stock series A of the Company, less
any Dissenting Shares), upon a Series A Shareholder's election, $19.63 in
cash, subject to reduction as described below or (ii) that number (subject
to rounding) of shares of PSI common stock determined by dividing $19.63,
subject to reduction as described below, by the average of the per share
closing prices on the New York Stock Exchange of PSI common stock during
the 20 consecutive trading days ending on the fifth trading day prior to
the special meeting of the Company's shareholders. The consideration paid
by PSI to the Series A Shareholders in the merger will be reduced by the
amount of cash distributions required to be paid to the Series A
Shareholders by the Company prior to completion of the merger (estimated at
$0.81 per share) in order to satisfy the Company's REIT distribution
requirements ("Required REIT Distributions"). The consideration received by
the Series A Shareholders in the merger, however, along with any Required
REIT Distributions, will not be less than $19.63 per share of the Company's
common stock series A, which amount represents the market value of the
Company's real estate assets at March 17, 1997 (based on an independent
appraisal) and interest of the Series A Shareholders in the estimated net
asset value of its other assets at June 30, 1997. Additional distributions
will be made to the Series A Shareholders to cause the Company's estimated
net asset value allocable to the Series A Shareholders as of the date of
the merger to be substantially equivalent to $19.63 per share. Upon the
merger, each share of the Company's common stock series B and common stock
series C (other than shares held by PSI) would be converted into the right
to receive $10.26 in PSI common stock (valued as in the case of the
Company's common stock series A) plus (i) any additional distributions
equal to the amount by which the Company's estimated net asset value
allocable to the holders of the Company's common stock series B and C as of
the date of the merger exceeds $10.26 per share and (ii) the estimated
Required REIT Distributions payable to the holders of the Company's common
stock series B of $0.81 per share. The common stock of the Company held by
PSI will be canceled in the merger. The merger is conditioned on, among
other requirements, approval by the Company's shareholders. It is expected
that the merger will close in June or July of 1997. PSI is the Company's
mini-warehouse operator and owns 41.1% of the total combined shares of the
Company's common stock series A, B and C.
7
PUBLIC STORAGE PROPERTIES XVII, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors occurring during the periods presented in the accompanying
Condensed Financial Statements.
Results of Operations.
- ----------------------
The Company's net income for the three months ended March 31, 1997 and 1996
was $1,064,000 and $918,000, respectively, representing an increase of $146,000
or 16%. This increase is primarily a 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 business park operations
combined with a decrease in interest expense.
Rental income for the three months ended March 31, 1997 and 1996 was
$2,735,000 and $2,634,000, respectively, representing an increase of $101,000 or
4%. The Company's mini-warehouse facilities contributed $65,000 to the increase
in rental income due to an increase in rental rates at all of the Company's
facilities. The increase in rental income at the Company's mini-warehouse
operations was offset by an increase in cost of operations and management fees.
The Company's business park operations also showed an increase in rental income
due to an increase in rental rates. The increase in rental income combined with
a decrease in cost of operations caused an increase in net operating income at
the Company's business park operations.
The Company's mini-warehouse operations had weighted average occupancy
levels of 89% and 87% for the three month periods ended March 31, 1997 and 1996,
respectively. The Company's business park operations had weighted average
occupancy levels of 94% and 92% for the three month periods ended March 31, 1997
and 1996, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) was $1,509,000 and $1,524,000 for the three months ended
March 31, 1997 and 1996, respectively, representing a decrease of $15,000 or 1%.
Cost of operations at the Company's mini-warehouse operations increased
primarily due to increases in payroll, management fees and advertising costs.
Cost of operations at the Company's business park operations decreased primarily
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 Fairfax, Virginia business
park facility.
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 $11,000 lower than it would have been under the customary,
undiscounted fee structure.
Interest expense was $101,000 and $135,000 for the three months ended March
31, 1997 and 1996, respectively, representing a decrease of $34,000. This
decrease was primarily due to a lower outstanding loan balance for the three
months ended March 31, 1997 compared to the same period in 1996.
8
Liquidity and Capital Resources.
- --------------------------------
Cash flows from operating activities ($1,417,000 for the three months ended
March 31, 1997), cash reserves and borrowings from the Company's credit facility
discussed below were sufficient to meet all current obligations and
distributions of the Company during the 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 $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% (8.75% at March
31, 1997) or the bank's LIBOR rate plus 2.25% (8.0% at March 31, 1997). Interest
is payable monthly until maturity. On January 1, 2002, the remaining unpaid
principal and interest is due and payable. During the three months ended March
31, 1997, the Company borrowed $1,100,000 and made a scheduled principal payment
of $240,000. At March 31, 1997, the outstanding balance on the credit facility
was $5,510,000.
In April 1997, the Company's Board of Directors authorized the Company to
obtain a revolving credit facility from Public Storage, Inc. ("PSI"), an
affiliate, for a maximum of $5,500,000 to repay and terminate its existing
credit facility. In May 1997, the Company borrowed $5,425,000 from PSI to pay
off the outstanding balance on its credit facility. The PSI loan bears interest
at 7%, payable monthly and matures in April 1998.
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 March 31, 1997, the Company
had repurchased 961,351 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 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.
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 $1,459,000.
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 $1,528,000 and
$1,446,000, respectively. FFO is presented because the Company, as well as many
industry analysts, consider FFO to be one measure of the performance of the
9
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.
Proposed Merger.
- ----------------
See footnote 5 to condensed financial statements for a discussion of a
proposed merger.
10
PART II. OTHER INFORMATION
ITEMS 1 through 4 are inapplicable.
ITEM 5. Other Information
-----------------
In April 1997, the Company and Public Storage, Inc. ("PSI") agreed, subject
to certain conditions, to merge. Upon the merger, each outstanding share of
the Company's common stock series A (other than shares held by PSI or by
holders of the Company's common stock series A ("Series A Shareholders")
who have properly exercised dissenters' rights under California law
("Dissenting Shares")) will be converted into the right to receive cash,
PSI common stock or a combination of the two, as follows: (i) with respect
to a certain number of shares of the Company's common stock series A (not
to exceed 20% of the outstanding common stock series A of the Company, less
any Dissenting Shares), upon a Series A Shareholder's election, $19.63 in
cash, subject to reduction as described below or (ii) that number (subject
to rounding) of shares of PSI common stock determined by dividing $19.63,
subject to reduction as described below, by the average of the per share
closing prices on the New York Stock Exchange of PSI common stock during
the 20 consecutive trading days ending on the fifth trading day prior to
the special meeting of the Company's shareholders. The consideration paid
by PSI to the Series A Shareholders in the merger will be reduced by the
amount of cash distributions required to be paid to the Series A
Shareholders by the Company prior to completion of the merger (estimated at
$0.81 per share) in order to satisfy the Company's REIT distribution
requirements ("Required REIT Distributions"). The consideration received by
the Series A Shareholders in the merger, however, along with any Required
REIT Distributions, will not be less than $19.63 per share of the Company's
common stock series A, which amount represents the market value of the
Company's real estate assets at March 17, 1997 (based on an independent
appraisal) and interest of the Series A Shareholders in the estimated net
asset value of its other assets at June 30, 1997. Additional distributions
will be made to the Series A Shareholders to cause the Company's estimated
net asset value allocable to the Series A Shareholders as of the date of
the merger to be substantially equivalent to $19.63 per share. Upon the
merger, each share of the Company's common stock series B and common stock
series C (other than shares held by PSI) would be converted into the right
to receive $10.26 in PSI common stock (valued as in the case of the
Company's common stock series A) plus (i) any additional distributions
equal to the amount by which the Company's estimated net asset value
allocable to the holders of the Company's common stock series B and C as of
the date of the merger exceeds $10.26 per share and (ii) the estimated
Required REIT Distributions payable to the holders of the Company's common
stock series B of $0.81 per share. The common stock of the Company held by
PSI will be canceled in the merger. The merger is conditioned on, among
other requirements, approval by the Company's shareholders. It is expected
that the merger will close in June or July of 1997. PSI is the Company's
mini-warehouse operator and owns 41.1% of the total combined shares of the
Company's common stock series A, B and C.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
A) EXHIBITS: The following exhibits are included herein:
(2) Agreement and Plan of Reorganization among the Company,
Public Storage Properties XVI, Inc., Public Storage Properties
XVIII, Inc., Public Storage Properties XIX, Inc. and PSI dated as
of April 9, 1997. Filed with PSI's Schedule 13D (Amendment No. 9)
relating to the beneficial ownership of securities issued by
Public Storage Properties XVI, Inc. and incorporated herein by
reference.
(27) Financial Data Schedule
B) REPORTS ON FORM 8-K
A Form 8-K dated April 9, 1997 was filed on April 10, 1997, which
reported under Item 5 that the Company and PSI had agreed,
subject to certain conditions, to merge.
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 XVII, INC.
BY: /s/ David P. Singleyn
---------------------
David P. Singelyn
Vice President and
Chief Financial Officer
12