<PAGE>
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, 1995
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 0-8676
------
PUBLIC STORAGE PARTNERS II, LTD.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3146963
- ---------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 N. Brand Boulevard
Glendale, California 91203
- ---------------------------------------- ----------------------
(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
----- -----
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Condensed balance sheets at September 30, 1995
and December 31, 1994 2
Condensed statements of operations for the three and nine
months ended September 30, 1995 and 1994 3
Condensed statement of partners' deficit for the
nine months ended September 30, 1995 4
Condensed statements of cash flows for the
nine months ended September 30, 1995 and 1994 5
Notes to condensed financial statements 6-7
Management's discussion and analysis of
financial condition and results of operations 8-9
PART II. OTHER INFORMATION 10-11
</TABLE>
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PUBLIC STORAGE PARTNERS II, LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 242,000 $ 159,000
Marketable securities of affiliate
at market value (cost of $68,000) 93,000 72,000
Rent and other receivables 25,000 32,000
Real estate facilities at cost:
Building, land improvements and equipment 3,234,000 3,194,000
Land 1,267,000 1,267,000
----------- -----------
4,501,000 4,461,000
Less accumulated depreciation (2,226,000) (2,117,000)
----------- -----------
2,275,000 2,344,000
----------- -----------
Other assets 199,000 206,000
----------- -----------
Total assets $ 2,834,000 $ 2,813,000
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Accounts payable $ 25,000 $ 10,000
Deferred revenue 80,000 74,000
Notes payable 8,988,000 9,384,000
Partners' deficit:
Limited partners' deficit, $500 per
unit, 10,000 units authorized, 9,890
issued and outstanding (4,661,000) (4,939,000)
General partner's deficit (1,623,000) (1,720,000)
Unrealized gain on marketable
securities 25,000 4,000
----------- -----------
Total partners' deficit (6,259,000) (6,655,000)
----------- -----------
Total liabilities and partners' deficit $ 2,834,000 $ 2,813,000
=========== ===========
</TABLE>
see accompanying notes.
2
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PUBLIC STORAGE PARTNERS II, LTD.
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1995 1994 1995 1994
--------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $558,000 $551,000 $1,646,000 $1,642,000
Dividends and other income
(including dividends from marketable
securities of affiliate) 2,000 2,000 7,000 2,000
-------- -------- ---------- ----------
560,000 553,000 1,653,000 1,644,000
-------- -------- ---------- ----------
COSTS AND EXPENSES:
Costs of operations 107,000 106,000 315,000 311,000
Management fees paid to affiliate 33,000 34,000 99,000 99,000
Depreciation and amortization 37,000 36,000 109,000 103,000
Administrative 9,000 8,000 37,000 27,000
Interest expense 236,000 255,000 718,000 781,000
-------- -------- ---------- ----------
422,000 439,000 1,278,000 1,321,000
-------- -------- ---------- ----------
NET INCOME $138,000 $114,000 $ 375,000 $ 323,000
======== ======== ========== ==========
Limited partners' share of net income
($37.51 per unit in 1995 and
$32.25 per unit in 1994) $ 371,000 $ 319,000
General partner's share of net income 4,000 4,000
---------- ----------
$ 375,000 $ 323,000
========== ==========
</TABLE>
see accompanying notes.
3
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PUBLIC STORAGE PARTNERS II, LTD.
CONDENSED STATEMENT OF PARTNERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Gain on Total
Limited General Marketable Partners'
Partners Partner Securities Deficit
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $(4,939,000) $(1,720,000) $ 4,000 $(6,655,000)
Change in unrealized gain on
marketable securities - - 21,000 21,000
Net income 371,000 4,000 - 375,000
Equity transfer (93,000) 93,000 - -
----------- ----------- ------- -----------
Balance at September 30, 1995 $(4,661,000) $(1,623,000) $25,000 $(6,259,000)
=========== =========== ======= ===========
</TABLE>
see accompanying notes.
4
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PUBLIC STORAGE PARTNERS II, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 375,000 $ 323,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 109,000 103,000
Decrease (increase) in rent and other receivables 7,000 (6,000)
Decrease in prepaid loan fees 8,000 8,000
(Increase) decrease in other assets (1,000) 36,000
Increase in accounts payable 15,000 13,000
Increase (decrease) in deferred revenue 6,000 (14,000)
--------- ---------
Total adjustments 144,000 140,000
--------- ---------
Net cash provided
by operating activities 519,000 463,000
--------- ---------
Cash flows from investing activities:
Additions to real estate facilities (40,000) (40,000)
--------- ---------
Net cash used in investing activities (40,000) (40,000)
--------- ---------
Cash flows from financing activities:
Proceeds from note payable - 850,000
Principal payment on note payable
to affiliate - (850,000)
Principal payments on note payable (396,000) (303,000)
--------- ---------
Net cash used in financing activities (396,000) (303,000)
--------- ---------
Net increase in cash and cash equivalents 83,000 120,000
Cash and cash equivalents at the beginning of the period 159,000 90,000
--------- ---------
Cash and cash equivalents at the end of the period $ 242,000 $ 210,000
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Increase in fair value of marketable securities $ (25,000) $ -
========= =========
Unrealized gain on marketable securities $ 25,000 $ -
========= =========
</TABLE>
see accompanying notes.
5
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PUBLIC STORAGE PARTNERS II, LTD.
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 Partnership's Form 10-K for the year ended
December 31, 1994.
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 Partnership's financial
position at September 30, 1995, the results of its operations for the
three and nine months ended September 30, 1995 and 1994 and its cash
flows for the nine months then ended.
3. The results of operations for the three and nine months ended September
30, 1995 are not necessarily indicative of the results expected for the
full year.
4. Marketable securities at September 30, 1995 consist of 5,000 common
shares of Storage Equities, Inc. ("SEI"), a publicly traded real estate
investment trust, whose investment advisor is an affiliate of Public
Storage, Inc. (a general partner of the Partnership). FASB Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
requires marketable securities to be classified as trading or available
for sale. The Partnership has designated its portfolio of marketable
securities as available for sale. Accordingly, at September 30, 1995, the
Partnership has recorded the marketable securities at fair value and,
based upon the closing quoted price of the securities at September 30,
1995, recorded a corresponding unrealized gain totaling $25,000 as a
credit to Partnership equity.
5. Substantially all of the Partnership's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the six month
6
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period ended June 30, 1995, the Partnership completed environmental
assessments on its properties. Those assessments indicated that the
Partnership's property sites do not have any significant environmental
issues which would have a materially adverse effect on the Company's
financial position. Included in administrative expenses on the statements
of operations for nine months ended September 30, 1995 is approximately
$9,000 incurred in connection with the environmental assessments.
6. PSI, the general partner of the Partnership, and Public Storage
Management, Inc. ("PSMI"), the Partnership's mini-warehouse property
manager, have entered into an Agreement and Plan of Reorganization by and
among PSI, PSMI and SEI, dated as of June 30, 1995, pursuant to which PSMI
would be merged into SEI. Prior to the merger, substantially all of the
United States real estate interests of PSI, together with Public Storage
Commercial Properties Group, Inc. and Public Storage Advisers, Inc. (SEI's
investment adviser), will be combined with PSMI. Upon completion of the
merger, which is scheduled to occur in November 1995, SEI would replace
PSI as a general partner of the Partnership. The merger is subject to a
number of conditions.
In November 1995, the Management Agreement with PSMI was amended to
provide that upon demand from PSMI or SEI made prior to December 15, 1995,
the Partnership agrees to prepay (within 15 days after such demand) up to
12 months of management fees (based on the management fees for the
calendar year immediately preceding such prepayment) discounted at the
rate of 14% per year to compensate for early payment.
7
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PUBLIC STORAGE PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1994:
The Partnership's net income for the nine months ended September 30, 1995
was $375,000 compared to $323,000 for the nine months ended September 30,
1994, representing an increase of $52,000, or 16%. The Partnership's net
income for the three months ended September 30, 1995 was $138,000 compared to
$114,000 for the three months ended September 30, 1994, representing an
increase of $24,000, or 21%. These increases are primarily a result of
decreased interest expense due to lower outstanding loan balances in 1995
compared to 1994.
Rental income was $1,646,000 compared to $1,642,000 for the nine months
ended September 30, 1995 and 1994, respectively, representing an increase of
$4,000. Rental income was $558,000 compared to $551,000 for the three months
ended September 30, 1995 and 1994, respectively, representing an increase of
$7,000. The slight increase for the nine months ended is primarily
attributable to higher occupancy levels partially as a result of lowering
rental rates at three of the Partnership's four facilities. The weighted
average occupancy levels at the mini-warehouse facilities were 83% and 80%
for the nine months ended September 30, 1995 and 1994, respectively.
Realized rent for the nine months ended September 30, 1995 decreased to $.86
per occupied square foot from $.90 per occupied square foot for the nine
months ended September 30, 1994.
Cost of operations (including management fees paid to an affiliate)
increased $4,000 to $414,000 from $410,000 for the nine months ended
September 30, 1995 and 1994, respectively. This increase is mainly
attributable to increases in payroll offset by a decrease in repairs and
maintenance. Cost of operations (including management fees paid to an
affiliate) remained stable for the three months ended September 30, 1995 and
1994 respectively.
Administrative expenses increased $10,000 for the nine months ended
September 30, 1995 compared to the same period in 1994 primarily as the
result of cost incurred on environmental assessments on the Partnership's
properties. Substantially all of the Partnership's facilities were acquired
prior to the time that it was customary to conduct extensive environmental
investigations in connection with the property
8
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acquisitions. During the first quarter of 1995, the Partnership commenced
environmental assessments on its properties. The result of those assessments
have been completed. However, the Partnership is not presently aware of any
significant environmental matters with respect to any of its properties which
would have a materially adverse effect on the Partnership's financial
position.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash generated from operations ($519,000 for the nine months ended
September 30, 1995) has been sufficient to meet all current obligations of
the Partnership.
In the fourth quarter of 1990, quarterly distributions were discontinued
to enable the Partnership to make principal repayments that commenced in 1990
and will continue through 1996, at which time the remaining principal balance
is due.
At September 30, 1995 the Partnership held 5,000 shares of common stock
(marketable securities) with a fair value totaling $93,000 (cost basis of
$68,000 at September 30, 1995) in Storage Equities, Inc. ("SEI"), a publicly
traded real estate investment trust, whose investment advisor is an affiliate
of Public Storage, Inc. (a general partner of the Partnership). The
Partnership recognized $1,000 and $3,000 in dividends for the three and nine
months ended September 30, 1995 and included these amounts in other income on
the condensed Statements of Operations. As of September 30, 1995, SEI's
stock price per share has increased $5.00 over the Partnership's cost
resulting in a $25,000 increase in the aggregate value of these securities.
9
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PART II. OTHER INFORMATION
ITEMS 1 through 5 are inapplicable.
ITEM 6 Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(10) Amendment to Management Agreement among Public Storage
Management, Inc., Storage Equities, Inc. and the
Partnership, dated as of November 13, 1995.
(27) Financial Data Schedule
(b) Form 8 - K
None.
10
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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, 1995
PUBLIC STORAGE PARTNERS II, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ Ronald L. Havner, Jr.
----------------------------
Ronald L. Havner, Jr.
Vice President and Chief
Financial Officer
(principal accounting and
financial officer)
11
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EXHIBIT 10
AMENDMENT TO MANAGEMENT AGREEMENTS
This Amendment to Management Agreements is executed as of November 13,
1995, by and among Public Storage Management, Inc. ("PSMI"), Storage Equities,
Inc. ("SEI") and each of the entities whose name appears on the signature
pages hereof under the designation "Owners" (collectively, the "Owners" and
individually, an "Owner").
A. At various dates between May 1976 and May 1978, PSMI and each of
the Owners entered into Management Agreements (collectively, the "Management
Agreements") providing for the management by PSMI of the mini-warehouses owned
by the Owners and monthly payments of management fees equal to 6% of the gross
revenues generated by Owners' mini-warehouses.
B. SEI and PSMI have entered into an Agreement and Plan of
Reorganization dated as of June 30, 1995 pursuant to which PSMI would be
merged with and into SEI. Upon completion of the merger, SEI will manage the
mini-warehouses owned by the Owners.
C. The general partners of the Owners believe that the Owners'
prepayment of management fees on the terms set forth in this Amendment is
financially beneficial to the Owners, and the parties hereto desire to modify
each of the Management Agreements to provide for such prepayment.
Now, therefore, the parties agree as follows:
1. The following shall be added as the last two sentences of the first
paragraph of Section 4 of each of the Management Agreements:
"Upon demand from SEI or PSMI made prior to December 15, 1995, each
of the Owners agrees to pay within 15 days after such demand in advance
up to 12 months of management fees discounted at the rate of 14% per year
(based on the management fees for the comparable period during the
calendar year immediately preceding such prepayment). The property
manager shall be deemed to have earned such prepayments at the time of
payment thereof, and Owners shall not be entitled to a return of such
prepayment, or any portion thereof, under any circumstances. In
addition, the property manager shall not be entitled to any further or
additional payment of management fees for a period with respect to which
a prepayment is made hereunder because the actual gross revenues for such
period would have resulted in a higher management fee had such prepayment
not been made."
2. Other than as set forth in this Amendment, all of the provisions
contained in each of the Management Agreements are hereby ratified and
approved.
1
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In witness whereof, the undersigned have executed this Amendment, as of
the day and year first above written.
"PSMI"
PUBLIC STORAGE MANAGEMENT, INC.
By: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.,
Vice President
"SEI"
STORAGE EQUITIES, INC.
By: /s/ B. Wayne Hughes
-------------------
B. Wayne Hughes,
Chairman of the Board
"Owners"
PUBLIC STORAGE PARTNERS, LTD.
By: Public Storage, Inc.
General Partner
By: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.,
Vice President
PUBLIC STORAGE PARTNERS II, LTD.
By: Public Storage, Inc.
General Partner
By: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.,
Vice President
2
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PUBLIC STORAGE PROPERTIES, LTD.
By: Public Storage, Inc.
General Partner
By: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.,
Vice President
PUBLIC STORAGE PROPERTIES IV, LTD.
By: Public Storage, Inc.
General Partner
By: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.,
Vice President
PUBLIC STORAGE PROPERTIES V, LTD.
By: Public Storage, Inc.
General Partner
By: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.,
Vice President
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 242,000
<SECURITIES> 93,000
<RECEIVABLES> 25,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 360,000
<PP&E> 4,501,000
<DEPRECIATION> (2,226,000)
<TOTAL-ASSETS> 2,834,000
<CURRENT-LIABILITIES> 105,000
<BONDS> 8,988,000
<COMMON> 0
0
0
<OTHER-SE> (6,259,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,834,000
<SALES> 0
<TOTAL-REVENUES> 1,653,000
<CGS> 0
<TOTAL-COSTS> 523,000
<OTHER-EXPENSES> 37,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 718,000
<INCOME-PRETAX> 375,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 375,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375,000
<EPS-PRIMARY> 37.51
<EPS-DILUTED> 0
</TABLE>
