UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 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 1-10850
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PUBLIC STORAGE PROPERTIES XX, INC.
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(Exact name of registrant as specified in its charter)
California 95-4300893
- ---------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
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
September 30, 1997:
860,734 shares of $.01 par value Series A shares
90,859 shares of $.01 par value Series B shares
257,432 shares of $.01 par value Series C shares
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at September 30, 1997
and December 31, 1996 2
Condensed Statements of Income for the three
and nine months ended September 30, 1997 and 1996 3
Condensed Statement of Shareholders' Equity for the
nine months ended September 30, 1997 4
Condensed Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION 10
PUBLIC STORAGE PROPERTIES XX, INC.
CONDENSED BALANCE SHEETS
September 30, December 31,
1997 1996
---------------------- --------------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $1,053,000 $881,000
Marketable securities of affiliate, at market value (cost of $148,000) 296,000 310,000
Rent and other receivables 37,000 40,000
Prepaid expenses 36,000 46,000
Real estate facilities at cost:
Building, land improvements and equipment 11,889,000 11,795,000
Land 5,824,000 5,824,000
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17,713,000 17,619,000
Less accumulated depreciation (3,525,000) (3,170,000)
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14,188,000 14,449,000
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Total assets $15,610,000 $15,726,000
====================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $392,000 $383,000
Dividends payable 267,000 714,000
Advance payments from renters 92,000 81,000
Shareholders' equity:
Series A common, $.01 par value, 1,393,165 shares authorized,
860,734 shares issued and outstanding in 1997 and 1996 8,000 8,000
Convertible Series B common, $.01 par value,
90,859 shares authorized, issued and outstanding 1,000 1,000
Convertible Series C common, $.01 par value,
257,432 shares authorized, issued and outstanding 3,000 3,000
Paid-in-capital 15,634,000 15,634,000
Cumulative net income 6,296,000 5,170,000
Cumulative distributions (7,231,000) (6,430,000)
Unrealized gain in marketable securities 148,000 162,000
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Total shareholders' equity 14,859,000 14,548,000
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Total liabilities and shareholders' equity $15,610,000 $15,726,000
====================== ====================
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES XX, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
1997 1996 1997 1996
---------------- ------------ ---------------- --------------
REVENUES:
Rental income $899,000 $826,000 $2,534,000 $2,361,000
Dividends from marketable securities of affiliate 2,000 2,000 6,000 6,000
Interest income 11,000 8,000 24,000 17,000
---------------- ------------ ---------------- --------------
912,000 836,000 2,564,000 2,384,000
---------------- ------------ ---------------- --------------
COSTS AND EXPENSES:
Cost of operations 256,000 236,000 843,000 758,000
Management fees paid to affiliate 54,000 44,000 152,000 120,000
Depreciation 118,000 117,000 355,000 352,000
Administrative 28,000 26,000 88,000 78,000
Interest expense - - - 2,000
---------------- ------------ ---------------- --------------
456,000 423,000 1,438,000 1,310,000
---------------- ------------ ---------------- --------------
NET INCOME $456,000 $413,000 $1,126,000 $1,074,000
================ ============ ================ ==============
Earnings per share:
Primary - Series A $0.50 $0.45 $1.22 $1.15
================ ============ ================ ==============
Fully diluted - Series A $0.38 $0.34 $0.93 $0.88
================ ============ ================ ==============
Dividends declared per share:
Series A $0.28 $0.28 $0.84 $0.84
================ ============ ================ ==============
Series B $0.28 $0.28 $0.84 $0.84
================ ============ ================ ==============
Weighted average Common
shares outstanding:
Primary - Series A 860,734 866,701 860,734 869,390
================ ============ ================ ==============
Fully diluted - Series A 1,209,025 1,214,992 1,209,025 1,217,681
================ ============ ================ ==============
See accompanying notes.
3
Public Storage Properties XX, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Convertible Convertible
Series A Series B Series C Paid-in
Shares Amount Shares Amount Shares Amount capital
--------- ------- ------- ------- -------- ------- -----------
Balances at December 31, 1996 860,734 $8,000 90,859 $1,000 257,432 $3,000 $15,634,000
Net income
Unrealized loss in marketable
securities
Cash distributions declared:
$.84 per share - Series A
$.84 per share - Series B
--------- ------- ------- ------- -------- ------- -----------
Balances at September 30, 1997 860,734 $8,000 90,859 $1,000 257,432 $3,000 $15,634,000
========= ======= ======= ======= ======== ======= ===========
Unrealized
Cumulative gain (loss) Total
net Cumulative in marketable shareholders'
income distributions securities equity
---------- -------------- ------------- -----------
Balances at December 31, 1996 $5,170,000 ($6,430,000) $162,000 $14,548,000
Net income 1,126,000 1,126,000
Unrealized loss in marketable
securities (14,000) (14,000)
Cash distributions declared:
$.84 per share - Series A (723,000) (723,000)
$.84 per share - Series B (78,000) (78,000)
---------- -------------- ------------- -----------
Balances at September 30, 1997 $6,296,000 ($7,231,000) $148,000 $14,859,000
========== ============== ============= ===========
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES XX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES: (Restated)
Net income $1,126,000 $1,074,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 355,000 352,000
Decrease (increase) in rent and other receivables 3,000 (12,000)
Decrease (increase) in prepaid expenses 10,000 (11,000)
Amortization of prepaid management fees - 103,000
Increase (decrease) in accounts payable 9,000 (31,000)
Increase (decrease) in advance payments from renters 11,000 (7,000)
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Total adjustments 388,000 394,000
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Net cash provided by operating activities 1,514,000 1,468,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate facilities (94,000) (22,000)
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Net cash used in investing activities (94,000) (22,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to shareholders (1,248,000) (1,096,000)
Borrowing on credit facility - 150,000
Repayment of borrowing on credit facility - (150,000)
Purchase of Company Series A common stock - (162,000)
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Net cash used in financing activities (1,248,000) (1,258,000)
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Net increase in cash and cash equivalents 172,000 188,000
Cash and cash equivalents at the beginning of the period 881,000 538,000
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Cash and cash equivalents at the end of the period $1,053,000 $726,000
================== ==================
Supplemental schedule of non-cash investing and financing activities:
Decrease (increase) in fair value of marketable securities $14,000 $(36,000)
================== ==================
Unrealized (loss) gain on marketable securities $(14,000) $36,000
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See accompanying notes.
5
PUBLIC STORAGE PROPERTIES XX, 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
September 30, 1997 and December 31, 1996, the results of its operations for
the three and nine months ended September 30, 1997 and 1996 and its cash
flows for the nine months then ended.
3. The results of operations for the three and nine months ended September 30,
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. In February 1994, the Company purchased 10,000 common shares of Public
Storage, Inc., a publicly traded real estate investment trust and an
affiliate of the Company, for $148,000. The market value of these
securities at September 30, 1997 was $296,000. The Company recognized
$2,000 and $6,000 in dividends for the three and nine months ended
September 30, 1997, respectively.
6. The Company has an unsecured revolving credit facility with a bank for
borrowings up to $750,000 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 September 30, 1997 and for the nine months then ended, there
was no outstanding balance on the credit facility.
6
PUBLIC STORAGE PROPERTIES XX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors occurring during the periods presented in the accompanying
Condensed Financial Statements.
RESULTS OF OPERATIONS.
- ---------------------
The Company's net income for the nine months ended September 30, 1997 and
1996 was $1,126,000 and $1,074,000, respectively, representing an increase of
$52,000 or 5%. Net income for the three months ended September 30, 1997 and
1996 was $456,000 and $413,000, respectively, representing an increase of
$43,000 or 10%. These increases are primarily the result of increases in
property net operating income (rental income less cost of operations,
management fees paid to affiliate and depreciation expense).
Rental income for the nine months ended September 30, 1997 and 1996 was
$2,534,000 and $2,361,000, respectively, representing an increase of $173,000
or 7%. Rental income for the three months ended September 30, 1997 and 1996 was
$899,000 and $826,000, respectively, representing an increase of $73,000 or 9%.
These increases are primarily due to increases in rental rates at a majority of
the Company's mini-warehouse facilities.
The Company's mini-warehouse operations had weighted average occupancy
levels of 92% and 94% for the nine month periods ended September 30, 1997 and
1996, respectively.
Cost of operations (including management fees paid to affiliate and
depreciation expense) for the nine months ended September 30, 1997 and 1996 was
$995,000 and $878,000, respectively, representing an increase of $117,000 or
13%. Cost of operations for the three months ended September 30, 1997 and 1996
was $310,000 and $280,000, respectively, representing an increase of $30,000 or
11%. The increases for both the three and nine month periods ended September
30, 1997 compared to 1996 are primarily attributable to increases in payroll,
property taxes, management fees and advertising costs.
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 nine months ended
September 30, 1996 was $22,000 lower than it would have been under the
customary, undiscounted fee structure.
During the nine months ended September 30, 1996, the Company incurred
$2,000 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.
- -------------------------------
The Company believes that net cash provided by operating activities and
funds from operations (FFO) are important measures of its performance. The
Company's financial profile has been characterized by increasing net cash
provided by operating activities and increasing FFO.
Net cash provided by operating activities for the nine months ended
September 30, 1997 was $1,514,000 compared to $1,468,000 for the same period in
the prior year.
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.
Nine months ended September 30,
-------------------------------------
1997 1996
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Net income $1,126,000 $1,074,000
Depreciation 335,000 352,000
Change in working capital 53,000 42,000
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Net cash provided by operating activities 1,514,000 1,468,000
Capital improvements to maintain facilities (94,000) (22,000)
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Funds available for distributions to shareholders and
repurchases of stock 1,420,000 1,446,000
Cash distributions to shareholders (1,248,000) (1,096,000)
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Excess funds available for principal payments, cash
distributions to shareholders and repurchase of stock $172,000 $350,000
================== ================
Funds from operations (FFO) is defined by the Company, consistent with the
definition of FFO by the National Association of Real Estate Investment Trusts
(NARIET) as net income (loss), computed in accordance with generally accepted
accounting principles (GAAP), before depreciation and extraordinary or
non-recurring items. FFO is presented because the Company considers FFO to be a
useful measure of the operating performance of a REIT which, together with net
income and cash flows, provides investors with a basis to evaluate the
operating and cash flow performances of a REIT. FFO does not represent net
income or cash flows from operations as defined by GAAP. FFO does not take into
consideration scheduled principal payments on debt and capital improvements.
Accordingly, FFO is not necessarily a substitute for cash flow or net income as
a measure of liquidity or operating performance or ability to make acquisitions
and capital improvements or ability to pay distributions or debt principal
payments. Also, FFO as computed and disclosed by the Company may not be
comparable to FFO computed and disclosed by other REITs.
Funds from operation for the Company is computed as follows:
Nine Months Ended September 30,
-------------------------------------
1997 1996
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Net income $1,126,000 $1,074,000
Depreciation 335,000 352,000
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Funds from Operations $1,461,000 $1,426,000
================= ================
8
The Company believes that its rental revenues and interest and other income
will sufficient in the future to meet the Company's operating expenses, capital
improvements and distributions to shareholders. The Company believes its
geographically diverse portfolio has resulted in a relatively stable and
predictable investment portfolio.
The Company has an unsecured revolving credit facility with a bank for
borrowings up to $750,000 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
September 30, 1997 and for the nine 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 300,000 shares of Series A common stock. As of September 30, 1997, the
Company had repurchased 184,140 shares of Series A common stock, none of which
were purchased in 1997.
In February 1994, the Company purchased 10,000 common shares of Public
Storage, Inc., a publicly traded real estate investment trust and an affiliate
of the Company, for $148,000. The market value of these securities at September
30, 1997 was $296,000. The Company recognized $2,000 and $6,000 in dividends
for the three and nine months ended September 30, 1997, respectively.
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 $296,000.
9
PART II. OTHER INFORMATION
ITEMS 1 through 5 are inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS: The following exhibit is included herein:
(27) Financial Data Schedule
b) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 13, 1997
PUBLIC STORAGE PROPERTIES XX, INC.
BY: /s/ David P. Singelyn
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David P. Singelyn
Vice President and
Chief Financial Officer
10