<PAGE>
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 quarterly period ended March 31, 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: 1-8389
----------
STORAGE EQUITIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
California 95-3551121
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 North Brand Blvd., Glendale, California 91203-1241
- ------------------------------------------- -----------------------
(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.
[X] Yes [_] No
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 1, 1995:
Common Stock, $.10 par value, 32,838,310 shares outstanding
- -----------------------------------------------------------
<PAGE>
STORAGE EQUITIES, INC.
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994 1
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 1995 and 1994 2
Condensed Consolidated Statement of Shareholders'
Equity 3
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1995 and 1994 4- 5
Notes to Condensed Consolidated Financial Statements 6 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 22
PART II. OTHER INFORMATION (Items 1, and 3 are not applicable)
- ---------------------------
Item 2 Changes in Securities 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 5 Other Information 25 - 57
Item 6. Exhibits and Reports on Form 8-K 58
</TABLE>
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
A S S E T S
-----------
Cash and cash equivalents $ 20,532,000 $ 20,151,000
Real estate facilities, at cost, net of accumulated
depreciation of $210,881,000 at March 31, 1995 and
$202,745,000 at December 31, 1994) 878,269,000 764,973,000
Mortgage notes receivable from affiliates 20,545,000 23,062,000
Other assets 12,991,000 12,123,000
------------- ------------
Total assets $ 932,337,000 $ 820,309,000
============= =============
L I A B I L I T I E S A N D E Q U I T Y
---------------------------------------------
Note payable to banks $ 35,000,000 $ 25,447,000
Mortgage notes payable 52,119,000 51,788,000
Accrued and other liabilities 14,893,000 14,061,000
------------- -------------
Total liabilities 102,012,000 91,296,000
Minority interest 133,893,000 141,227,000
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares authorized, 11,106,000
shares issued and outstanding (8,911,000 shares at December 31, 1994), at
liquidation preference:
Cumulative Senior Preferred Stock, issued in series (Note 9) 220,150,000 165,275,000
Convertible preferred stock 57,500,000 57,500,000
Common stock, $.10 par value, 60,000,000 shares authorized, 32,838,310 shares
issued and outstanding (28,826,707 at December 31, 1994) 3,284,000 2,883,000
Paid-in capital 424,965,000 372,361,000
Cumulative net income 185,685,000 172,485,000
Cumulative distributions paid (195,152,000) (182,718,000)
------------- -------------
Total shareholders' equity 696,432,000 587,786,000
------------- -------------
Total liabilities and shareholders' equity $ 932,337,000 $ 820,309,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
REVENUES:
Rental income $41,974,000 $31,299,000
Interest and other income 1,224,000 1,650,000
----------- -----------
43,198,000 32,949,000
----------- -----------
EXPENSES:
Cost of operations (including property
management fees paid to affiliates totaling
$2,431,000 and $1,836,000 in 1995 and 1994,
respectively) 15,807,000 11,926,000
Depreciation and amortization 8,147,000 6,811,000
General and administrative 1,091,000 740,000
Advisory fee 1,610,000 1,119,000
Interest expense 1,520,000 1,558,000
----------- -----------
28,175,000 22,154,000
----------- -----------
Income before minority interest 15,023,000 10,795,000
Minority interest in income (1,823,000) (2,049,000)
----------- -----------
Net income $13,200,000 $ 8,746,000
=========== ===========
Allocation of net income:
- -------------------------
Net income allocable to preferred shareholders $ 5,976,000 $ 3,649,000
Net income allocable to common shareholders 7,224,000 5,097,000
----------- -----------
Net income $13,200,000 $ 8,746,000
=========== ===========
Net income per common share $ .24 $ .24
=========== ===========
Weighted average common shares outstanding 30,566,839 21,166,478
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
STORAGE EQUITIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1995
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Preferred Stock Total
--------------- Common Paid-in Cumulative Cumulative Shareholders'
Cumulative Convertible Stock Capital Net Income Distributions Equity
---------- ----------- ------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $165,275 $57,500 $2,883 $372,361 $172,485 $(182,718) $587,786
Issuance of Preferred Stock, net
of issuance costs:
Series E (2,195,000 shares) 54,875 - - (1,987) - - 52,888
Issuance of Common Stock
(4,011,603 shares) - - 401 54,591 - - 54,992
Net income - - - - 13,200 - 13,200
Cash distributions:
Preferred Stock (Series A - $.625
per share, Series B - $.575 per
share, Series C - $.542 per
share, Series D - $.594 per
share , Series E- $.417 per
share and Convertible - $.516
per share) - - - - - (5,976) (5,976)
Common Stock, $0.22 per share - - - - - (6,458) (6,458)
-------- ------- ------ -------- -------- --------- --------
Balances at March 31, 1995 $220,150 $57,500 $3,284 $424,965 $185,685 $(195,152) $696,432
======== ======= ====== ======== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 13,200,000 $ 8,746,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
(including amortization of
mortgage notes receivable
discounts) 8,107,000 6,562,000
Minority interest in income 1,823,000 2,049,000
------------ ------------
Total adjustments 9,930,000 8,611,000
------------ ------------
Net cash provided by operating
activities 23,130,000 17,357,000
------------ ------------
Cash flows from investing activities:
Principal payments received on
mortgage notes receivable from
affiliates 284,000 212,000
Acquisitions of real estate
facilities (33,662,000) (27,452,000)
Acquisition cost of merger (21,427,000) -
Capital improvement to real
estate facilities (1,058,000) (604,000)
Construction in process (2,100,000) -
Acquisition of minority
interests in real estate
partnerships (8,536,000) -
Acquisition of mortgage notes
receivable - (4,020,000)
------------ ------------
Net cash used in investing activities (66,499,000) (31,864,000)
------------ ------------
Cash flows from financing activities:
Net borrowings (pay downs) on
note payable to banks 9,553,000 (35,770,000)
Net proceeds from the issuance
of preferred stock 52,888,000 -
Net proceeds from the issuance
of common stock 460,000 78,527,000
Principal payments on mortgage
notes payable (409,000) (4,137,000)
Distributions paid to
shareholders (12,434,000) (8,601,000)
Distributions from operations to
minority interest in real
estate partnerships (4,596,000) (6,102,000)
Reinvestment by minority
interests into real estate
partnerships 864,000 2,048,000
Other (2,576,000) (1,834,000)
------------ ------------
Net cash provided by financing
activities 43,750,000 24,131,000
------------ ------------
Net increase in cash and cash
equivalents 381,000 9,624,000
Cash and cash equivalents at the
beginning of the period 20,151,000 10,532,000
------------ ------------
Cash and cash equivalents at the
end of the period $ 20,532,000 $ 20,156,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(CONTINUED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cancellation of mortgage notes receivable
to acquire real estate facilities $ 2,273,000 $ 5,001,000
Assumption of mortgage notes payable upon
the acquisition of real estate facilities 740,000 2,350,000
Reduction in other assets - deposits on
real estate acquisitions - 4,350,000
Issuance of common stock:
- to acquire real estate facilities 10,598,000 -
- to acquire partnership interests in
real estate entities 757,000 -
Acquisition of partnership interests in
real estate entities in exchange for
common stock (757,000) -
Acquisition of real estate facilities in
exchange for the cancellation of mortgage
notes receivable, the assumption of
mortgage notes payable, reduction in
deposits made to acquire real estate
facilities and issuance of common stock (11,338,000) (11,701,000)
Increase in Accrued and other liabilities -
common stock issuance costs 738,000 -
Acquisition of Public Storage Properties VI,
Inc. (Note 3):
Real estate facilities (66,475,000) -
Other assets (279,000) -
Accrued and other liabilities 1,412,000 -
Issuance of common stock 43,915,000 -
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,1995
1. Description of the business
---------------------------
Storage Equities, Inc. (the "Company") is a California corporation that
invests primarily in existing mini-warehouses which offer self storage
spaces for lease, usually on a month-to-month basis, for personal and
business use. The Company, to a lesser extent, has also invested in
business park facilities containing commercial and industrial rental space.
At March 31, 1995, the Company had equity interests (through direct
ownership, as well as general and limited partnership interests) in 438
properties located in 37 states, including 403 mini-warehouse facilities,
16 business parks and 19 combination mini-warehouse/business park
facilities. All of these facilities are operated under the "Public Storage"
name.
As of March 31, 1995, the Company has invested in 211 properties
jointly through general partnerships (the "Joint Ventures") with PS
Partners, Ltd. ("PSP-1"); PS Partners II, Ltd. ("PSP-2"); PS Partners III,
Ltd. ("PSP-3"); PS Partners IV, Ltd. ("PSP-4"); PS Partners V, Ltd. ("PSP-
5"); PS Partners VI, Ltd. ("PSP-6"); and PS Partners VII, Ltd. ("PSP-7").
In addition, the Company also owns limited partnership units and general
partnership interests in each of the above partnerships including PS
Partners VIII, Ltd. ("PSP-8"). These eight publicly-held partnerships
(collectively the "PSP Partnerships") are affiliates of the Company.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
year ended December 31, 1994.
6
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
2. Summary of significant accounting policies (Cont'd.)
----------------------------------------------------
Basis of presentation (Cont'd.)
-------------------------------
The condensed consolidated financial statements include the accounts of
the Company and the PSP Partnerships. The Company through its direct
ownership interests in the Joint Ventures combined with its limited and
general partnership interests owns a significant economic interest in each
of the PSP Partnerships (Note 7). In addition, the Company is able to
exercise significant control over the PSP Partnerships through its (i)
position as a co-general partner, (ii) ownership of significant limited
partnership interests and (iii) ability to compel the sale of the properties
held in the Joint Ventures; such properties represent a significant
majority of the PSP Partnerships' investment portfolio.
The Company's aggregate cost of its interests in the PSP Partnerships
is less than the historical book value of such interests in the underlying
net assets of the PSP Partnerships. In consolidation, the difference between
the Company's cost and the historical carrying value of the underlying
properties has been allocated to the real estate facilities and is being
amortized over the remaining lives of the real estate facilities.
Allowance for possible losses
-----------------------------
The Company has no allowance for possible losses relating to any of its
real estate investments, including mortgage notes receivable. The need for
such an allowance is evaluated by management by means of periodic reviews of
its investment portfolio.
Depreciation
------------
Depreciation is computed using the straight-line method over the
estimated useful lives of the buildings and improvements, which is generally
between 5 and 25 years. Leasing commissions relating to the business park
operations are expensed as incurred.
Under the terms of the joint venture agreements, depreciation with
respect to the Joint Ventures is allocated first to the PSP Partnerships to
the extent of their original capital contribution then to the Company to the
extent of its original capital contribution and thereafter pro rata based on
ownership interests in each respective Joint Venture.
7
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
2. Summary of significant accounting policies (Cont'd.)
----------------------------------------------------
Basis of presentation (Cont'd.)
-------------------------------
Net income per common share
---------------------------
Net income per common share is computed using the weighted average
common shares outstanding (adjusted for stock options). The Company's
preferred stock has been determined not to be common stock equivalents. In
computing earnings per common share, the preferred stock dividends reduced
income available to common stockholders. Fully diluted earnings per common
share are not presented, as the assumed conversion of the 8.25% Convertible
Preferred Stock would be anti-dilutive.
Revenue recognition
-------------------
Property rents are recognized as earned.
Interest income on mortgage notes receivable is recognized using the
effective rate of interest.
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6")
----------------------------------------------------------------
On February 28, 1995, the Company completed a merger transaction (the
"Merger") with Properties 6 whereby the Company acquired all the outstanding
stock of Properties 6 in exchange for cash and common stock of the Company.
Properties 6, a real estate investment trust and an affiliate of the
Company's investment adviser, owned and operated 22 mini-warehouse
facilities and one combination mini-warehouse/business park facility prior
to the Merger.
Pursuant to the Merger, the Company acquired all of the outstanding
stock of Properties 6 for $24.05 per share. The aggregate cost of the Merger
(including related costs and expenses) totaled $65,342,000 consisting of the
issuance of 3,147,015 shares of the Company's common stock (with an
aggregate value of $43,915,000) and $21,427,000 in cash. The Merger has been
accounted for as a purchase, accordingly, allocations of the total
acquisition cost to the net assets acquired were made based on the fair
value of such assets and liabilities as of February 28, 1995. The fair
market values of the assets acquired and liabilities assumed are summarized
as follows:
8
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") (Cont'd)
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
At February 28, 1995
--------------------
<S> <C>
Real estate facilities $66,475,000
Other assets 279,000
Accrued and other liabilities (1,412,000)
-----------
$65,342,000
===========
</TABLE>
The historical operating results of Properties 6 prior to February 28,
1995 have not been included in the Company's historical operating results.
Pro forma data (unaudited) for the three months ended March 31, 1995 and
1994 as though the transaction had been effective at the beginning of each
period are as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues $45,000,000 $35,494,000
Net income 13,730,000 9,465,000
Net income per common share $.24 $.24
</TABLE>
The pro forma data does not purport to be indicative either of results
of operations that would have occurred had the purchase been made at the
beginning of each period or future results of operations of the Company.
Certain pro forma adjustments were made to the combined historical amounts
to reflect (i) expected reductions in general and administrative expenses,
(ii) estimated increased interest expense from bank borrowings to finance
the cash portion of the acquisition cost, (iii) estimated increase in
depreciation and amortization expense, and (iv) estimated increased advisory
fee expense.
4. Real estate facilities
----------------------
In addition to the 23 facilities acquired in connection with the
Merger, during the three months ended March 31, 1995, the Company acquired
14 mini-warehouse facilities for an aggregate cost of $36,675,000,
consisting of the cancellation of a mortgage note receivable totaling
$2,273,000, the assumption of a mortgage note payable totaling $740,000 and
cash totaling $33,662,000. At December 31, 1994, affiliates of Public
Storage Advisers, Inc. (the "Adviser"), an affiliate of the Company, had
participation interests of up to 25% in 16 mini-warehouse facilities owned
by the Company. During the first quarter of 1995, the Company acquired
these participation interests from such affiliates for $10,598,000 in common
stock of the Company.
9
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
4. Real estate facilities (Cont'd.)
-------------------------------
Several of the mini-warehouse facilities acquired during the first
quarter of 1995 were acquired directly from affiates of the Adviser
(principally private limited partnerships whose limited partners are
unrelated to the Company and whose general partners are affiliates of the
Adviser). The aggregate acquisition cost of real estate facilities acquired
from these private limited partnerships was approximately $3,075,000. In
addition, one mini-warehouse facility was acquired from an unrelated third
party subject to participation interests owned by an affiliate of the
Adviser (the participation interest was purchased prior to the acquisition).
The aggregate acquisition cost of this facility was approximately
$1,868,000.
During the first quarter of 1995, the Company began construction of
two mini-warehouse facilities. Included in real estate facilities at March
31, 1995 is approximately $2,100,000 of costs related to the construction in
process.
5. Mortgage notes receivable from affiliates
-----------------------------------------
At March 31, 1995, mortgage notes receivable balance of $20,545,000 is
net of related discounts totaling $740,000. The mortgage notes bear
interest at stated rates ranging from 8.5% to 11.97% (effective interest
rates ranging from 10% to 14.8%) and are secured by 11 mini-warehouse
facilities.
During the three months ended March 31, 1995, the Company canceled a
mortgage note which had a net carrying value of $2,273,000, as part of the
acquisition cost of the underlying real estate facility securing the
mortgage note. See Note 4.
6. Minority interest
-----------------
Minority interest consists principally of equity interests in the PSP
Partnerships which are not owned by the Company. These interests
principally consist of the limited partnership interests owned by
unaffiliated third parties.
During the first three months of 1995, pursuant to cash tender offers,
the Company acquired approximately 23.9% and 12.9% of the limited
partnership units in PSP-1 and PSP-8 for an aggregate cost of approximately
$8,536,000. These transactions had the effect of reducing minority interest
by approximately $4,010,000 (the historical book value of such interests in
the underlying net assets of the partnerships).
Minority interest in income consists of the minority interests' share
of the operating results of the Company relating to the consolidated
operations of the PSP Partnerships. In determining income allocable to the
minority interests for the three months ended March 31, 1995 and 1994
consolidated depreciation and amortization expense of approximately
$2,773,000 and $4,053,000, respectively, was allocated to the minority
interest.
10
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
7. Advisory and management contracts
---------------------------------
Pursuant to an advisory contract, the Company paid the Adviser
advisory fees of approximately $1,610,000 and $1,119,000 for the three
months ended March 31, 1995 and 1994, respectively. The Adviser advises
the Company with respect to its investments and administers the daily
corporate operations of the Company.
Public Storage Management, Inc. ("PSMI") and Public Storage Commercial
Properties Group, Inc. ("PSCP"), also affiliates of the Company's Adviser,
operate all of the Company's real property investments pursuant to a
Property Management Agreement for a fee which is equal to 6% of the gross
revenues of the mini-warehouse spaces operated and 5% of the gross revenues
of the business park facilities operated. Management fees relating to the
Company's real estate facilities, which are included in cost of operations,
amounted to $2,431,000 and $1,836,000 for the three months ended March 31,
1995 and 1994, respectively.
8. Shareholders' equity
--------------------
Common stock
------------
During the first quarter of 1995, the Company issued (i) 25,000 shares
of common stock ($190,000) in connection with exercise of stock options,
(ii) 40,000 shares of common stock ($582,000) to directors/officers of the
Company for cash, (iii) 747,355 shares of common stock ($10,598,000) to
acquire participation interests in mini-warehouse facilities (see Note 4),
(iv) 52,233 shares of common stock ($757,000) to acquire the participation
interest in a mini-warehouse owned by an affiliate of the Advisor, and
3,147,015 shares of common stock ($43,915,000) in connection with the Merger
(Note 3). All the shares of common stock, with the exception of the shares
issued in connection with the exercise of stock options, were issued at the
prevailing market price at the time of issuance. In connection with the
issuance of common shares pursuant to the Merger, the Company incurred
related costs and expenses of approximately $1,050,000.
11
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
9. Shareholders' equity (Cont'd.)
-----------------------------
Preferred stock
---------------
At March 31, 1995 and December 31, 1994, the Company had the
following Series of Preferred Stock outstanding:
<TABLE>
<CAPTION>
Shares Outstanding Liquidation Preference
Dividend --------------------- --------------------------
Series Rate 1995 1994 1995 1994
- ------ --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
A 10.00% 1,825,000 1,825,000 $ 45,625,000 $ 45,625,000
B 9.20% 2,386,000 2,386,000 59,650,000 59,650,000
C Adjustable 1,200,000 1,200,000 30,000,000 30,000,000
D 9.50% 1,200,000 1,200,000 30,000,000 30,000,000
E 10.00% 2,195,000 - 54,875,000 -
Convertible 8.25% 2,300,000 2,300,000 57,500,000 57,500,000
---------- --------- ------------ ------------
11,106,000 8,911,000 $277,650,000 $222,775,000
========== ========= ============ ============
</TABLE>
On February 2, 1995, the Company issued 2,195,000 shares of its 10.0%
Cumulative Preferred Stock, Series E (the "Series E Preferred Stock") in
connection with a public offering raising net proceeds of approximately
$52,888,000.
On May 3, 1995, the Company issued 2,300,000 shares of its 9.75%
Cumulative Preferred Stock, Series F (the "Series F Preferred Stock") in
connection with a public offering raising net proceeds of approximately $55.5
million.
The Series A, Series B, Series C, Series D, Series E and Series F
(collectively the "Cumulative Senior Preferred Stock") have general
preference rights with respect to liquidation and quarterly distributions.
With respect to the payment of dividends and amounts upon liquidation, the
Convertible Preferred Stock ranks junior to the Cumulative Senior Preferred
Stock and any other shares of preferred stock of the Company ranking on a
parity with or senior to the Cumulative Senior Preferred Stock. The
Convertible Preferred Stock ranks senior to the common stock, any additional
class of common stock and any series of preferred stock expressly made junior
to the Convertible Preferred Stock. In addition, the payment of advisory fees
is subordinated to the payment of quarterly dividends to the Cumulative
Senior Preferred Stock.
12
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
9. Shareholders' equity (Cont'd.)
-----------------------------
Dividends
---------
Dividends for the first three months of 1995 totaled $6,458,000 ($.22
per quarter for each common share) to common shareholders, $1,141,000
($.625 per quarter for each preferred share) to holders of the Series A
Preferred Stock, $1,372,000 ($.575 per quarter for each preferred share) to
holders of the Series B Preferred Stock, $650,000 ($.542 per quarter for
each preferred share) to holders of the Series C Preferred Stock, $713,000
($.594 per quarter for each preferred share) to holders of the Series D
Preferred Stock, $914,000 ($.417 per quarter for each preferred share, pro
rated from the date of issue (February 1, 1995) through March 31, 1995) to
holders of the Series E Preferred Stock and $1,186,000 ($.516 per quarter
for each preferred share) to holders of the Convertible Preferred Stock.
The dividend rate on the Series C Preferred Stock for the first quarter
of 1995 was equal to 8.668% per annum. The dividend rate per annum will be
adjusted quarterly and will be equal to the highest of one of three U.S.
Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate, and
Thirty Year Constant Maturity Rate) multiplied by 110%. However, the
dividend rate for any dividend period will not be less than 6.75% per annum
nor greater than 10.75% per annum. The dividend rate with respect to the
second quarter of 1995 will be equal to 8.393% per annum.
10. Proposed Mergers
----------------
The Company has formed a special committee of independent directors
which, in March 1995, selected Robertson, Stephens & Company, L. P., as
financial advisor. The special committee was formed to consider a
transaction in which the Company would be combined with substantially all of
the United States real estate operations of PSI, and the Company would
become self-advised and self-managed. Although no terms have been
established, it is expected that the Company would issue shares of its
common stock in the transaction. There is no agreement between the Company
and PSI and no assurance that an agreement can be reached or that a
transaction can be completed. Any such transaction would be subject, among
other things, to prior approval of the Company's common shareholders and a
fairness opinion from Robertson, Stephens & Company, L. P.
PSI, organized in 1972, has been engaged, directly and through
subsidiaries, in the acquisition, development, construction of mini-
warehouses and, to a lesser extent, other commercial properties in the
United States and Canada. PSMI, PSCP and the Adviser are subsidiaries of
PSI. PSMI and PSCP operated approximately 1,123 facilities in the United
States, including the Company's approximately 438 facilities, and PSI has
direct or indirect ownership interests in approximately 1,053 facilities in
the United States, including the Company's facilities.
13
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
10. Proposed Mergers (Cont'd.)
-------------------------
On February 2, 1995, the Company and Public Storage Properties VII,
Inc. ("Properties 7"), a publicly traded equity real estate investment trust
and an affiliate of the Adviser agreed, subject to certain conditions, to
merge. Upon the merger, each outstanding share of Properties 7 common stock
would be converted, at the election of the shareholders of Properties 7,
into either shares of the Company's common stock with a market value of
$18.95 or, with respect to up to 20% of the Properties 7 common stock,
$18.95 in cash. Properties 7 has 3,806,491 outstanding shares of common
stock. The merger agreement is conditioned on, among other requirements,
receipt of satisfactory fairness opinions by Properties 7 and the Company
and approval by the shareholders of both Properties 7 and the Company. PSI
and its affiliates have significant relationships with both Properties 7 and
the Company, own approximately 28% of the Properties 7 common stock and have
informed Properties 7 and the Company that they intend to vote their shares
for the merger and intend to elect to convert their shares of Properties 7
into common shares of the Company. The shareholders' meeting of the Company
and Properties 7 to consider the merger are scheduled for June 14, 1995.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
----------
RESULTS OF OPERATIONS
---------------------
Three months ended March 31, 1995 compared to the three months ended March
--------------------------------------------------------------------------
31, 1994
--------
Net income for the three months ended March 31, 1995 was $13,200,000
compared to $8,746,000 for the same period in 1994, representing an increase
of $4,454,000. Net income allocable to common shareholders increased to
$7,224,000 for the three months ended March 31, 1995 from $5,097,000 for the
three months ended March 31, 1994. The increase in net income and net income
allocable to common shareholders were primarily the result of improved
property operations for the "Same Store" facilities (those mini-warehouse
facilities owned since December 31, 1991), the acquisition of additional
real estate facilities during 1995 and 1994, and the acquisition of
additional partnership interests during 1995 and 1994. Net income per common
share was $.24 per share (based on weighted average shares outstanding of
30,566,839) for the three months ended March 31, 1995 compared to $.24 per
share (based on weighted average shares outstanding of 21,166,478) for the
same period in 1994.
The Company's revenues are generated principally through the operation
of its real estate facilities. The Company's core business is the operation
of mini-warehouse facilities which, during the three months ended March 31,
1995, represented approximately 90% of the Company's property operations
(based on the 1995 rental income).
During the three months ended March 31, 1995, property net operating
income (rental income less cost of operations and depreciation expense)
improved compared to the same period in 1994. Rental income increased
$10,675,000 or 34% from $31,299,000 for the three months ended March 31,
1994 to $41,974,000 for the same period in 1995, cost of operations
increased $3,881,000 or 33% from $11,926,000 for the three months ended
March 31, 1994 to $15,807,000 for the same period in 1995 and depreciation
expense increased by $1,336,000 from $6,811,000 for the three months ended
March 31, 1994 to $8,147,000 for the same period in 1995, resulting in a net
increase in property net operating income of $5,458,000 or 43%. Property
net operating income prior to the reduction for depreciation expense
increased by $6,794,000 or 35% from $19,373,000 for the three months ended
March 31, 1994 to $26,167,000 for the same period in 1995. These increases
were the result of (i) improved property operations at the Same Store
facilities, (ii) the acquisition of additional real estate facilities (161
facilities from January 1, 1992 through March 31, 1995) and (iii) improved
property operations at the Company's business park facilities.
Property net operating income for the Same Store facilities increased
by $504,000 or 5% from $9,343,000 for the three months ended March 31, 1994
to $9,847,000 for the three months ended March 31, 1995. Property net
operating income prior to the reduction for depreciation expense for the
Same Store facilities increased by $721,000 or 5% from $13,790,000 for the
three months ended March 31, 1994 to $14,511,000 for the three months ended
March 31, 1995. These increases are principally due to increased weighted
average occupancy levels combined with an increase in average
15
<PAGE>
rental rates. Weighted average occupancy levels were 88.6% for the Same
Store facilities for the three month ended March 31, 1995 compared to 87.7%
for the same period in 1994. Realized monthly rent per square foot for these
facilities was $.60 and $.58 for the three months ended March 31, 1995 and
1994, respectively.
The mini-warehouse facilities which were acquired subsequent to
December 31, 1991 contributed approximately $7,334,000 and $2,946,000 of
property net operating income for the three months ended March 31, 1995 and
1994, respectively ($9,503,000 and $3,845,000 of property net operating
income prior to the reduction for depreciation expense for the three months
ended March 31, 1995 and 1994, respectively).
Property net operating income with respect to the Company's business
park operations increased by $566,000 from $273,000 for the three months
ended March 31, 1994 to $839,000 for the same period in 1995. Property net
operating income prior to the reduction for depreciation expense with
respect to the Company's business park operations increased by $415,000 from
$1,738,000 for the three months ended March 31, 1994 to $2,153,000 for the
same period in 1995. The increase is due principally to the acquisition of a
business park facility during the second quarter of 1994 which contributed
approximately $165,000 to the increase in the property net operating income.
Weighted average occupancy levels were 95.9% for the business park
facilities for the three months ended March 31, 1995 compared to 94.4% for
the same period in 1994.
Interest and other income decreased from $1,650,000 for the three
months ended March 31, 1994 to $1,224,000 for the same period in 1995 for a
net decrease of $426,000. The decrease is primarily attributable to the
cancellation of approximately $2,273,000 and $24,441,000 of mortgage notes
receivable during 1995 and 1994, respectively, in connection with the
acquisition of real estate facilities securing such notes. As a result,
the average outstanding mortgage notes receivable balance was significantly
lower ($22,388,000) during the three months ended March 31, 1995 compared
to the same period in 1994 ($47,087,000). As of March 31, 1995, the
mortgage notes bear interest at stated rates ranging from 8.5% to 11.97% and
effective interest rates ranging from 10.0% to 14.8%.
Depreciation and amortization expense was $8,147,000 and $6,811,000 for
the three months ended March 31, 1995 and 1994, respectively, representing
an increase of $1,336,000 which is due to the acquisition of additional
properties in 1994 and 1995.
General and administrative expense was $1,091,000 and $740,000 for the
three months ended March 31, 1995 and 1994, respectively, representing an
increase of $351,000. This increase is due to the growth in the Company's
capital base combined with certain costs incurred in connection with the
acquisition of additional real estate facilities.
"Minority interest in income" represents the income allocable to equity
(partnership) interests in the PSP Partnerships (whose accounts are
consolidated with the Company) which are not owned by the Company. Since
1990, the
16
<PAGE>
Company has acquired portions of these equity interests through its
acquisition of limited and general partnership interests in the PSP
Partnerships. These acquisitions have resulted in reductions to the
"Minority interest in income" from what it would otherwise have been in the
absence of such acquisitions, and accordingly, have increased the Company's
share of the consolidated PSP Partnerships' income. In determining income
allocable to the minority interest for the three months ended March 31, 1995
and 1994 consolidated depreciation and amortization expense of approximately
$2,773,000 and $4,053,000, respectively, was allocated to the minority
interest. The decrease in depreciation allocated to the minority interest
was principally the result of the acquisition of limited partnership units
by the Company.
The acquisition of these partnership interests has provided the Company
with increased liquidity through cash distributions from the PSP
Partnerships. The Company has and expects to continue to acquire additional
partnership interests in the PSP Partnerships during 1995. See - LIQUIDITY
AND CAPITAL RESOURCES.
Advisory fees increased by $491,000 from $1,119,000 for the three
months ended March 31, 1994 to $1,610,000 for the same period in 1995. The
advisory fee, which is based on a contractual computation, increased as a
result of increased adjusted net income (as defined) per common share
combined with the issuance of additional preferred and common stock during
1994 and 1995.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Capital structure
-----------------
The Company's financial profile is characterized by a low level of
debt to total capitalization, increasing net income, increasing cash flow
from operations, increasing funds from operations ("FFO") and a
conservative dividend payout ratio with respect to its common stock. These
attributes reflect management's desire to "match" asset and liability
maturities, to minimize refinancing risks and to retain capital to take
advantage of acquisition opportunities and to provide financial
flexibility.
Over the last three years the Company has taken a variety of steps to
enhance its capital structure, including:
. The public issuance of approximately $335 million of Preferred
Stock. The Preferred Stock does not require redemption or
sinking fund payments by the Company.
. The public issuance of approximately $115 million of common stock.
. The issuance of approximately $82.4 million of common stock in
connection with the mergers with Public Storage Properties VIII,
Inc. and Public Storage Properties VI, Inc.
. The retention of approximately $30 million of funds available for
debt payments or reinvestment.
The Company does not believe it has any significant refinancing risks
with respect to its mortgage debt and nominal interest rate risks
associated with its variable rate mortgage debt which had a principal
balance of $18.3 million at March 31, 1995. The Company uses its $115
million of bank credit facilities primarily to fund acquisitions and
provide financial flexibility and liquidity. The credit facility bears
interest at LIBOR plus 1.25%. At March 31, 1995, the Company had
borrowings of $35 million under this facility, all of which was repaid
with the net proceeds of the offering of Series F Preferred Stock in May
1995. The Company recently renegotiated the terms of its credit facility
to provide for (i) an increase in available borrowings to $125 million,
(ii) based interest coverage levels, interest rates would range from LIBOR
plus .75% to LIBOR plus 1.50%, (iii) approval of the proposed restructure
of the Company, and maturity modification to April 1998, with two one-
year extensions. In addition, the credit facility will become unsecured.
These modifications are subject to final documentation and is expected to
become effective May 15, 1995
As a result of these transactions, the Company's capitalization has
increased. Shareholders' equity increased from $188,112,500 on December
31, 1991 to $696,432,000 on March 31, 1995. The increased equity combined
with reductions in total debt has resulted in an improvement in the
Company's debt to equity ratio from 55% at December 31, 1991 to 13% at
March 31, 1995. The Company's ratio of debt to total assets also decreased
from 19% at December 31, 1991 to 9% at March 31, 1995.
18
<PAGE>
Cash Provided by Operations and Funds From Operations ("FFO")
-------------------------------------------------------------
The Company believes that important measures of its performance as
well as its liquidity are cash provided by operations and FFO.
Net cash provided by operations (as determined in accordance with
generally accepted accounting principles) reflects the cash generated from
the Company's business before distributions to various equity holders,
including the preferred shareholders, capital expenditures or mandatory
principal payments on debt. Net cash provided by operations has increased
from $17,357,000 to $23,130,000 for the three months ended March 31, 1994
and 1995, respectively.
The following table summarizes the Company's ability to pay the
minority interests' distributions, its dividends to the preferred
shareholders and capital improvements to maintain the facilities through
the use of cash provided by operating activities. The remaining cash flow
is available to the Company to make both scheduled and optional principal
payments on debt, pay distributions to common shareholders and for
reinvestment.
<TABLE>
<CAPTION>
March 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net Income $13,200,000 $ 8,746,000
Depreciation and amortization 8,147,000 6,811,000
Minority interest in income 1,823,000 2,049,000
Amortization of discounts on
mortgage notes receivable (40,000) (249,000)
----------- -----------
Net cash provided by operating activities 23,130,000 17,357,000
Distributions from operations to minority
interests (4,596,000) (6,102,000)
----------- -----------
Cash from operations allocable to the
Company's shareholders 18,534,000 11,255,000
Less: preferred stock dividends (5,976,000) (3,649,000)
----------- -----------
Cash from operations available to
common shareholders 12,558,000 7,606,000
Capital improvements to maintain facilities:
Mini-warehouses (790,000) (397,000)
Business parks (268,000) (207,000)
Add back: minority interest share of capital
improvements to maintain facilities 332,000 228,000
----------- -----------
Funds available for principal payments on debt,
common dividends and reinvestment 11,832,000 7,230,000
Cash distributions to common shareholders (6,458,000) (4,951,000)
----------- -----------
Funds available for principal payments on debt
and reinvestment $ 5,374,000 $ 2,279,000
=========== ===========
</TABLE>
19
<PAGE>
The increases in cash provided by operating activities and funds
available for principal payments on debt, common dividends and
reinvestment over the past three years is primarily due to (i) increasing
property net operating income at the Same Store facilities, (ii) the
acquisition of limited and general partnership interests in the PSP
Partnerships and (iii) the leverage created through the issuance of
preferred stock and the utilization of the net proceeds in real estate
investments which have provided net cash flows in excess of the preferred
stock dividend requirements. These factors have improved the cash flow
position of the common shareholders as FFO applicable to the common
shareholders has increased over the same period at a rate greater than the
increase in number of common shares. See the consolidated statements of
cash flows for the each of the three months ended March 31, 1995 and 1994
for additional information regarding the Company's investing and financing
activities.
FFO increased to $18,534,000 for the three months ended March 31, 1995
compared to $11,255,000 for the same period in 1994. FFO applicable to
the common shareholders (after deducting preferred stock dividends)
increased to $12,558,000 for the three months ended March 31, 1995 compared
to $7,606,000 for the same period in 1994. FFO is defined by the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. NAREIT has recently
adopted revisions to the definition of funds from operations which will
become effective in 1996. The most material impact of the new guidelines
will be (i) amortization of deferred financing costs will be treated as an
expense - i.e. it will no longer be treated as an add-back to net income
and (ii) certain gains on sales of land will be included in funds from
operations if deemed to be recurring. These changes will have no impact on
the way the Company currently computes its FFO. FFO is a supplemental
performance measure for equity real estate investment trusts used by
industry analysts. FFO does not take into consideration scheduled
principal payments on debt, capital improvements, distributions and other
obligations of the Company. Accordingly, FFO is not a substitute for the
Company's cash flow or net income (as discussed above) as a measure of the
Company's liquidity or operating performance.
The Company believes that its rental revenues, distributions from real
estate partnership interests and interest income will be sufficient over at
least the next 12 months to meet the Company's operating expenses, capital
improvements, debt service requirements and distributions to shareholders.
During 1995, the Company has budgeted approximately $8 million for capital
improvements ($2 million of which is directly attributable to the minority
interest in respect of its ownership interest) to maintain its facilities.
During the first three months of 1995, the Company incurred capital
improvements of approximately $1,058,000. The Company believes that it is
not subject to any significant refinancing risks. During 1993 and 1994,
the Company either repaid or extended the maturities of its mortgage notes
such that in no year, until 1999, will there be more than $5.0 million of
principal payments on mortgage notes becoming due and payable.
20
<PAGE>
The Company believes its geographically diverse portfolio has resulted
in a relatively stable and predictable investment portfolio with increasing
overall property performance over the past four years.
Distributions
-------------
Over the past three years, the Company has established a conservative
distribution policy that is, among other things, supported by its cash
flow from operations (after capital expenditures and debt service),
availability of cash to make such distributions and Company's ability to
maintain its REIT status. The Company's policy is also conservative with
respect to FFO. The Companys conservative distribution policy permits it
after funding its distributions and capital improvements, to retain
significant funds to make additional investments and debt reductions. For
the three months ended March 31, 1995 and 1994, the Company distributed to
common shareholders 51%, and 65% of its FFO available to common
shareholders, respectively. Distributions to shareholders during the
first three months of 1995 were as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1995
-------------------------------
Distributions Total
Per Share Distributions
------------- -------------
<S> <C> <C>
Series A $0.625 $1,141,000
Series B $0.575 1,372,000
Series C $0.542 650,000
Series D $0.594 713,000
Series E $0.417 914,000
Convertible $0.516 1,186,000
-----------
5,976,000
Common $0.220 6,458,000
-----------
$12,434,000
===========
</TABLE>
Dividends with respect to the Series E Preferred Stock are pro rated
from the date of issuance, March 31, 1995. The annual distribution
requirement with respect to the Series E Preferred stock is $2.50 per
share. The dividend rate on the Series C Preferred Stock is adjusted
quarterly such that the dividend rate per annum will be equal to the
highest of one of three U.S. Treasury indices (Treasury Bill Rate, Ten
Year Constant Maturity Rate, and Thirty Year Constant Maturity Rate)
multiplied by 110%. However, the dividend rate for any dividend period
will not be less than 6.75% per annum nor greater than 10.75% per annum.
The dividend rate with respect to the first quarter of 1995 was equal to
8.668% per annum and will be 8.393% per annum for the second quarter of
1995.
The annual distribution level with respect to the Companys preferred
stock (including the Series F Preferred Stock issued on May 3, 1995) will
be approximately $31,227,000.
21
<PAGE>
REIT Distribution Requirement
-----------------------------
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 prior to filing of the Companys tax
return. The Company has satisfied the REIT distribution requirement since
1980.
Increasing Ownership of Real Estate Assets
------------------------------------------
The Company's growth strategies have focused on improving the
operating performance of its existing properties (as discussed above) and
on increasing its ownership of mini-warehouses through additional
investments.
During 1995, the Company acquired 37 mini-warehouse facilities and
one combination mini-warehouse/business park facility for an aggregate cost
of $103,668,000. The acquisitions were financed through a combination of
the issuance of equity securities, cancellation of a mortgage note
receivable, assumption of debt and payment of cash. Twenty-four of these
facilities were acquired pursuant to a merger transaction.
On February 28, 1995, the Company completed a merger transaction with
Public Storage Properties VI, Inc. ("Properties 6") whereby the Company
acquired all the outstanding stock of Properties 6 in exchange for cash and
common stock of the Company. In the merger, Properties 6 was merged with
and into the Company, and the outstanding Properties 6 common stock
(2,716,223 shares) was converted into an aggregate of approximately (i)
3,147,015 shares of the Company's common stock (with a value of
approximately $43,915,000) and (ii) $21,427,000 in cash. Properties 6, a
real estate investment trust and an affiliate of the Company's investment
adviser, owned and operated 22 mini-warehouse facilities and one
combination mini-warehouse/business park facility prior to the merger.
In March 1995, the Company acquired two parcels of land located in
Atlanta, Georgia on which the Company is currently developing mini-
warehouse facilities. The facilities are scheduled to open in late 1995
and have an estimated aggregate cost of approximately $8 million.
In January 1995, the Company completed a cash tender offer for
limited partnership units in PS Partners VIII, Ltd. acquiring 6,815 units
at $260 per unit. In February 1995, the Company completed a cash tender
offer for limited partnership units in PS Partners, Ltd., acquiring 15,767
units at $400 per unit.
Future Transactions
-------------------
The Company intends to continue to expand its asset and capital base
through the acquisition of real estate assets and interests in real estate
assets from unaffiliated parties and affiliates of the Adviser through
direct purchases, mergers, tender offers or other transactions. The
Company expects to fund these transactions with borrowings under its
22
<PAGE>
$115 million credit facility combined with undistributed operating cash
flow. The Company intends to repay amounts borrowed under the credit
facility from undistributed operating cash flow or from the public or
private placement of securities.
Proposed Restructure
--------------------
The Company has formed a special committee of independent directors
which, in March 1995, selected Robertson, Stephens & Company, L. P., as
financial advisor. The special committee was formed to consider a
transaction in which the Company would be combined with substantially all
of the United States real estate operations of PSI, and the Company would
become self-advised and self-managed. Although no terms have been
established, it is expected that the Company would issue shares of its
common stock in the transaction. There is no agreement between the Company
and PSI and no assurance that an agreement can be reached or that a
transaction can be completed. Any such transaction would be subject,
among other things, to prior approval of the Company's common shareholders
and a fairness opinion from Robertson, Stephens & Company, L. P.
PSI, organized in 1972, has been engaged, directly and through
subsidiaries, in the acquisition, development, construction of mini-
warehouses and, to a lesser extent, other commercial properties in the
United States and Canada. PSMI, PSCP and the Adviser are subsidiaries of
PSI. PSMI and PSCP operated approximately 1,123 facilities in the United
States, including the Company's approximately 438 facilities, and PSI has
direct or indirect ownership interests in approximately 1,053 facilities in
the United States, including the Company's facilities.
Proposed Merger
---------------
On February 2, 1995, the Company and Public Storage Properties VII,
Inc. ("Properties 7"), a publicly traded equity real estate investment
trust and an affiliate of the Adviser agreed, subject to certain
conditions, to merge. Upon the merger, each outstanding share of Properties
7 common stock would be converted, at the election of the shareholders of
Properties 7, into either shares of the Company's common stock with a
market value of $18.95 or, with respect to up to 20% of the Properties 7
common stock, $18.95 in cash. Properties 7 has 3,806,491 outstanding shares
of common stock. The merger agreement is conditioned on, among other
requirements, receipt of satisfactory fairness opinions by Properties 7 and
the Company and approval by the shareholders of both Properties 7 and the
Company. PSI and its affiliates have significant relationships with both
Properties 7 and the Company, own approximately 28% of the Properties 7
common stock and have informed Properties 7 and the Company that they
intend to vote their shares for the merger and intend to elect to convert
their shares of Properties 7 into common shares of the Company. The
shareholders' meeting of the Company and Properties 7 to consider the
merger are scheduled for June 14, 1995.
23
<PAGE>
PART II. OTHER INFORMATION
Item 2 Changes in Securities
---------------------
On February 1, 1995, the Company issued 2,195,000 shares, pursuant to
a public offering, of its 10.0% Cumulative Preferred Stock, Series E (the
"Series E Preferred Stock") in connection with a public offering raising
net proceeds of approximately $52,888,000. On May 3, 1995, the Company
issued 2,300,000 shares, pursuant to a public offering, of its 9.75%
Cumulative Preferred Stock, Series F (the "Series F Preferred Stock") in
connection with a public offering raising net proceeds of approximately
$55,489,000.
The Series E and Series F Preferred Stock has general preference
rights with respect to liquidation and quarterly distributions and ranks
pari passu with the Company's Series A, Series B, Series C and Series D
(i.e., with respect to the payment of dividends and amounts upon
liquidation, the Series E and Series F Preferred Stock will rank senior to
the Company's common stock). Except under certain conditions relating to
the Company's maintenance of its ability to qualify as a REIT, the Series E
and Series F Preferred Stock are not redeemable prior to January 31, 2005
and April 30, 2005, respectively. On or after January 31, 2005 (in the case
with the Series E) and April 30, 2005 (in the case with the Series F), the
Series E and Series F Preferred Stock will be redeemable at the option of
the Company, in whole or in part, at $25 per share, plus accrued and unpaid
dividends.
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held a special meeting of shareholders on February 1,
1995. Proxies for the special meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934. The special meeting involved
the approval of Agreement and Plan of Reorganization between the Company
and Public Storage Properties VI, Inc. described in the Joint Proxy
Statement and Prospectus dated December 19, 1994 - approval of this
proposal required the affirmative vote of the holders of a majority of the
shares of the Company's Common Stock voting (provided that the total votes
cast represented a majority of all shares of Common Stock entitled to
vote), and this proposal was approved by the following vote:
For Against Abstain
--- ------- -------
17,102,710 548,391 506,043
24
<PAGE>
Item 5 Other Information
-----------------
Pages
-----
a. Proposed Merger 25
---------------
d. Pro forma Consolidated Financial Statements 26-57
-------------------------------------------
a. Proposed Merger
---------------
On February 2, 1995, the Company and Public Storage Properties
VII, Inc. agreed, subject to certain conditions, to merge. In the merger,
Public Storage Properties VII, Inc. would be merged with and into the
Company, and each outstanding share of Public Storage Properties VII, Inc.s
common stock (currently 3,806,491 shares) would be converted, at the
election of the shareholders of Public Storage Properties VII, Inc., into
either shares of the Company's common stock or, with respect to up to 20% of
Public Storage Properties VII, Inc.'s common stock, $18.95 in cash. This
dollar amount has been based on Public Storage Properties VII, Inc.'s net
asset value (the appraised value of Public Storage Properties VII, Inc.'s
real estate assets as of December 31, 1994 (which took into account certain
potential structural and environmental remediation costs relating to one of
the properties) and the estimated book value of Public Storage Properties
VII, Inc.'s other net assets as of May 31, 1995). The number of shares of
the Company's common stock will be based on dividing this same dollar amount
by the average of the per share closing prices on the NYSE for a specified
period prior to Public Storage Properties VII, Inc.'s shareholders' meeting.
In the event of the merger, pre merger cash distributions would be made to
shareholders of Public Storage Properties VII, Inc. to cause Public Storage
Properties VII, Inc.'s net asset value as of the effective date of the merger
to be substantially equivalent to its estimated net asset value as of May 31,
1995. The number of shares of the Company's common stock issued in the merger
and the amount receivable upon a cash election would be reduced on a pro rata
basis in an aggregate amount equal to such additional distributions required
in order to satisfy Public Storage Properties VII, Inc.s real estate
investment trust distribution requirements . The merger is conditioned on ,
among other requirements, approval by the shareholders of both the Company
and Public Storage Properties VII, Inc.. It is expected that any merger
would close in June 1995. Public Storage, Inc., an affiliate of the
Company's Adviser, and its affiliates have significant relationships with
both the Company and Public Storage Properties VII, Inc., own approximately
28% of the Public Storage Properties VII, Inc.'s common stock and have
informed the Company and Public Storage Properties VII, Inc. that they would
expect to elect to receive common stock in any merger. The shareholders
meeting of the Company and Public Storage Properties VII, Inc. to consider
the merger are scheduled for June 14, 1995.
25
<PAGE>
b. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements were
prepared to reflect the purchase by Storage Equities, Inc. (the "SEI") of the
outstanding Public Storage Properties VII, Inc. ("PSP7") Common Stock pursuant
to a merger transaction (the "Merger"). In the Merger, PSP7 would be merged with
and into SEI, and each outstanding share of PSP7 Common Stock would be
converted, at the election of the shareholders of PSP7, into either shares of
SEI or, with respect to up to 20% of the PSP7 Common Stock, $18.95 in cash per
share. The consideration paid by SEI in the Merger will be reduced by the amount
of aggregate cash distributions required to be paid by PSP7 to its shareholders
prior to completion of the Merger in order to satisfy PSP7's required REIT
distribution. The consideration received by the shareholders of PSP7 in the
Merger, however, along with any required REIT distribution, will not be less
than $18.95 per share of PSP7 Common Stock. The Merger is structured in such a
manner, the result of which is not predictable and is dependent on the
percentage of PSP7's stock electing cash and the amount of aggregate required
REIT distributions to be paid by PSP7 to its shareholders. Accordingly, two
separate scenarios of pro forma consolidated financial statements have been
presented which give effect to the range of possible results: (1) the
consummation of the Merger through the issuance of SEI Common Stock
(representing 80% of the purchase cost) and cash (representing 20% of the
purchase cost) and (2) the consummation of the Merger solely through the
issuance of SEI Common Stock. The amount of required REIT distribution to be
paid by PSP7 prior to the Merger is not determinable and is currently estimated
to be from $.00 to $.60 per PSP7 Common Share. Accordingly, each of the
scenarios have been prepared assuming that PSP7 will not be required to make
cash distributions prior to the completion of the Merger in order to satisfy
PSP7's REIT requirements. This presentation results in higher purchase cost and
number of pro forma SEI Common Shares issued in the Merger, and a lower pro
forma book value per SEI Common Share and earnings per SEI Common Share.
In addition to adjustments to reflect the proposed Merger, pro forma adjustments
were made to reflect the following transactions:
Issuance of Preferred and Common stock:
. On February 15, 1994, SEI issued 5,484,000 shares of Common Stock in a
public offering. The net offering proceeds were approximately $76.5
million which combined with the use of cash reserves were used to repay
debt, acquire real estate facilities, acquire mortgage notes receivable,
and acquire additional minority interests.
. On June 30, 1994, SEI issued 1,200,000 shares of Adjustable Rate
Cumulative Preferred Stock, Series C (the "Series C Preferred Stock"). The
aggregate net offering proceeds of the offering ($28.9 million) was used to
retire bank borrowings (borrowings which were used primarily to acquire
real estate facilities and minority interests in real estate partnerships).
. On September 1, 1994, SEI issued 1,200,000 shares of 9.5% Cumulative
Preferred Stock, Series D (the "Series D Preferred Stock"). The aggregate
net offering proceeds of the offering ($29.0 million) was used to acquire
real estate facilities and minority interests in real estate partnerships.
. On November 25, 1994, SEI issued 2,500,000 shares of Common Stock
pursuant to a public offering. The offering provided gross proceeds of
approximately $33.8 million which were utilized to repay borrowings on
SEI's credit facilities (borrowings which were used to fund the acquisition
of real estate facilities, minority interests and the cash portion of the
PSP VIII merger, see below).
. On February 1, 1995, SEI issued 2,195,000 shares of 10% Cumulative
Preferred Stock, Series E (the "Series E Preferred Stock"). The aggregate
net offering proceeds of $52.9 million were used to acquire real estate
facilities, minority interests in real estate partnerships and retire bank
borrowings (borrowings which were used to acquire real estate facilities).
26
<PAGE>
Mergers:
. On September 30, 1994, SEI completed a merger transaction with Public
Storage Properties VIII, Inc. ("PSP VIII") PSP VIII whereby SEI acquired
all of the outstanding shares of PSP VIII's common stock for an aggregate
cost of $55,839,000 consisting of the issuance of 2,593,910 shares of SEI
Common Stock and $17,341,000 in cash.
. On February 28, 1995, SEI completed a merger transaction with Public
Storage Properties VI, Inc. ("PSP VI") PSP VI whereby SEI acquired all of
the outstanding shares of PSP VI's common stock for an aggregate cost of
$65,343,000 consisting of the issuance of approximately 3,148,000 shares of
SEI Common Stock and $21,427,000 in cash.
The pro forma consolidated balance sheet at March 31, 1995 has been prepared to
reflect the proposed Merger.
The pro forma consolidated statement of income for the three months ended March
31, 1995 has been prepared assuming (i) the proposed Merger, (ii) the issuance
of the Series E Preferred Stock and the utilization of the proceeds therefrom,
and (iii) the merger transaction with PSP VI, as if such transaction was
completed at the beginning of the period. The pro forma consolidated statement
of income for the year ended December 31, 1994 has been prepared assuming (i)
the proposed Merger, (ii) the issuance of the Preferred and Common Stock and the
utilization of the proceeds therefrom, and (iii) the merger transactions with
PSP VIII and PSP VI, as if such transactions were completed at the beginning of
the period. Pro forma adjustments have been made to reflect increased rental
income, cost of operations, depreciation of the real estate facilities, interest
income for the acquired mortgage notes receivable, advisory fees and decreased
interest expense as a result of the repayment of debt. The pro forma adjustments
are based upon available information and upon certain assumptions as set forth
in the notes to the pro forma consolidated financial statements, that SEI
believes are reasonable in the circumstances.
The pro forma consolidated statement of cash flows for the three months ended
March 31, 1995 and year ended December 31, 1994 have been prepared on the same
basis as the pro forma consolidated statement of income for the same period. Pro
forma adjustments have been made to the pro forma consolidated statement of cash
flows, as if such transactions were completed on January 1, 1994.
The following pro forma consolidated financial statements do not purport to
represent what SEI's results of operations would actually have been if the
transactions in fact had occurred at the beginning of the respective periods or
to project SEI's results of operations for any future date or period.
27
<PAGE>
Index to Pro Forma Financial Information
(Scenario 1) the consummation of the Merger through the issuance of SEI Common
Stock (representing 80% of the purchase cost) and cash (representing 20% of the
purchase cost):
. Pro forma consolidated balance sheet at March 31, 1995................. 29
. Pro forma consolidated statements of income:
. For the three months ended March 31, 1995.......................... 32
. For the year ended December 31, 1994............................... 33
. Pro forma consolidated statements of cash flows:
. For the three months ended March 31, 1995.......................... 41
. For the year ended December 31, 1994............................... 42
(Scenario 2) the consummation of the Merger solely through the issuance of SEI
Common Stock:
. Pro forma consolidated balance sheet at March 31, 1995................. 48
. Pro forma consolidated statements of income:
. For the three months ended March 31, 1995.......................... 51
. For the year ended December 31, 1994............................... 52
. Pro forma consolidated statements of cash flows:
. For the three months ended March 31, 1995.......................... 55
. For the year ended December 31, 1994............................... 56
28
<PAGE>
STORAGE EQUITIES, INC.
CONSOLIDATED PRO FORMA BALANCE SHEET
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments (1)
---------------------------
SEI PSP 7 SEI
ASSETS (Historical) (Historical) Purchase Valuation Pro Forma
------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 20,532,000 $ 1,103,000 $(5,273,000) $ - $ 16,362,000
Real estate facilities, net of
accumulated depreciation 878,269,000 38,151,000 36,149,000 952,569,000
Mortgage loans receivable, primarily from
affiliated 20,545,000 20,545,000
Unallocated purchase cost 72,128,000 (70,851,000) 1,277,000
Other assets 12,991,000 539,000 13,530,000
------------- ------------ ----------- ------------ --------------
Total assets $ 932,337,000 $ 39,793,000 $66,855,000 $(34,702,000) $1,004,283,000
============= ============ =========== ============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $ 35,000,000 $ - $14,426,000 $ - $ 49,426,000
Mortgage notes payable 52,119,000 - 52,119,000
------------- ------------ ----------- ------------ --------------
Total debt 87,119,000 - 14,426,000 - 101,545,000
Accrued and other liabilities 14,893,000 2,334,000 (1,066,000) - 16,161,000
Minority interest 133,893,000 - 133,893,000
Shareholder's equity
Preferred Stock, $0.1 par value,
50,000,000 shares authorized,
11,106,000 shares issued and
outstanding
Cumulative preferred stock, issued in
series 220,150,000 - - 220,150,000
Convertible preferred stock 57,500,000 - - - 57,500,000
Common stock, $10 par value, 60,000,000
shares authorized 32,838,310 shares
issued and outstanding (36,283,229 pro
forma shares issued and outstanding) 3,284,000 38,000 344,000 (38,000) 3,628,000
Paid-in capital 424,965,000 49,827,000 53,151,000 (47,070,000) 480,873,000
Cumulative net income 185,685,000 55,566,000 - (55,566,000) 185,685,000
Cumulative distribution paid (195,152,000) (67,972,000) - 67,972,000 (195,152,000)
------------- ------------ ----------- ------------ --------------
Total shareholders' equity 696,432,000 37,459,000 53,495,000 (34,702,000) 752,684,000
------------- ------------ ----------- ------------ --------------
Total liabilities and shareholders
equity $ 932,337,000 $ 39,793,000 $66,855,000 $(34,702,000) $1,004,283,000
============= ============ =========== ============ ==============
Book Value per Common Share $ 12.75 $ 13.09
============= ==============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet (Scenario 1).
29
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
March 31, 1995
(Unaudited)
1. The Merger will be accounted for using the purchase method of accounting and
the total purchase cost will be allocated to the acquired net assets; first
to the tangible and identifiable intangible assets and liabilities of PSP7
based upon their respective fair values, and the remainder, if any, will be
allocated to excess of purchase cost over book value of assets acquired. The
aggregate purchase cost to be paid to the shareholders of PSP7 has been
determined to be the sum of (1) the fair market value of PSP7's real estate
assets, (2) the estimated book value of PSP7's non-real estate assets as of
March 31, 1995 less (3) PSP7's estimated liabilities as of March 31, 1995,
including an estimated adjustment for potential environmental matters. In
addition, concurrent with the Merger, PSP7's outstanding Series D common
stock is assumed to be repurchased and retired. The aggregate purchase cost
and its preliminary allocation to the historical assets and liabilities is
as follows:
<TABLE>
<CAPTION>
Purchase cost, including related fees (see related adjustments below):
Acquisition of 3,806,491 shares of PSP7 Common Stock:
<S> <C>
Fair value of real estate facilities acquired $ 74,300,000
Estimated fair value of other assets at March 31, 1995 539,000
Cash balance at March 31, 1995 1,103,000
Estimated fair value of liabilities at March 31, 1995 (2,334,000)
-----------
73,608,000
Less: Repurchase and retirement of PSP7's Series D
common stock (2,757,000)
Add : Estimated net increase in PSP7's net current
assets projected as of May 31, 1995 1,277,000
-----------
$ 72,128,000
-----------
<CAPTION>
Preliminary allocation of purchase cost:
<S> <C>
Net assets acquired at historical amounts $37,459,000
Repurchase and retirement of PSP7's Series D common
stock (2,757,000)
-----------
Adjusted net assets acquired at historical amounts 34,702,000
Adjustments to reflect the fair value of the real
estate facilities acquired 36,149,000
Unallocated excess purchase cost over net assets acquired 1,277,000
-----------
$ 72,128,000
-----------
</TABLE>
Under Scenario 1, the purchase cost will consist of the payment of cash
($14,426,000) and the issuance of SEI Common Stock ($57,702,000, as determined
using a closing price of $16.75 per share of SEI Common Stock). The unallocated
excess purchase cost over the net assets acquired will ultimately be allocated
to the fair value of PSP7's current assets and liabilities at the completion of
the Merger.
30
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
March 31, 1995
(Unaudited)
The following pro forma purchase adjustments have been made assuming the Merger
is consummated as of March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
. Cash and cash equivalents has been decreased to reflect:
The cash portion of the purchase price $(14,426,000)
Fees and expense expected to be incurred by SEI (1,450,000)
Repurchase and retirement of PSP7's Series D common stock (2,757,000)
Payment of accrued distributions as of March 31, 1995 (1,066,000)
-----------
(19,699,000)
Add back: pro forma amount funded through borrowings on
bank lines of credit 14,426,000
-----------
Net reduction to cash and cash equivalents $ (5,273,000)
-----------
. Accrued and other liabilities has been reduced to reflect
the pro forma payment of PSP7's distributions which were
accrued as of March 31, 1995 $ (1,066,000)
-----------
. Shareholders' equity has been increased to reflect the
issuance of Common Stock in connection with the Merger:
Common Stock (issuance of approximately 3,444,919
shares of SEI Common Stock, par value of $.10 per
share) $ 344,000
Paid in capital 57,358,000
-----------
Equity portion of purchase cost 57,702,000
Additional adjustment to "Paid in capital" to reflect:
Repurchase and retirement of PSP7's Series D common
stock (2,757,000)
Estimated fees and expenses of issuing Common Stock (1,450,000)
-----------
Total adjustment to shareholders' equity $ 53,495,000
-----------
</TABLE>
31
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED PRO FORMA STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI
Common Stock (80%) and Cash (20%))
For the three months ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------
Issurance Of
Preferred &
SEI Common PSP VIII PSP VI SEI
(Historical) Stock(1) Merger(2) Merger(3) (Pro forma)
------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental Income $41,974,000 $ 114,000 -- $1,795,000 $43,883,000
Interest and Other Income 1,224,000 -- -- 7,000 1,231,000
----------- --------- ---------- ---------- -----------
43,198,000 114,000 -- 1,802,000 45,114,000
----------- --------- ---------- ---------- -----------
Expenses
Cost of Operations 15,807,000 46,000 -- 613,000 16,466,000
Depreciation and
Amortization 8,147,000 30,000 -- 288,000 8,465,000
General and Administrative 1,091,000 -- -- 48,000 1,139,000
Advisory Fee 1,610,000 6,000 -- 69,000 1,685,000
Interest Expenses 1,520,000 (159,000) -- 69,000 1,430,000
----------- --------- ---------- ---------- -----------
28,175,000 (77,000) -- 1,087,000 29,185,000
----------- --------- ---------- ---------- -----------
Income before minority
interest in income and
gain on disposition of
real estate 15,023,000 191,000 -- 715,000 15,929,000
Minority interest in income (1,823,000) -- -- -- (1,823,000)
----------- --------- ---------- ---------- -----------
Net Income $13,200,000 $ 191,000 -- $ 715,000 $14,106,000
=========== ========= ========== ========== ===========
Net income allocable to
preferred shareholders $ 5,976,000 $ 458,000 $ -- $ -- $ 6,434,000
Net income allocable to
common shareholders 7,224,000 (267,000) -- 715,000 7,672,000
----------- --------- ---------- ---------- -----------
Net Income $13,200,000 $ 191,000 -- $ 715,000 $14,106,000
=========== ========= ========== ========== ===========
Per Common Share:
Net Income $0.24 $0.24(4)
=========== ===========
Weighted Average Shares 30,566,839 32,629,882(4)
=========== ===========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (7) 2.10 2.10
=========== ===========
<CAPTION>
PSP 7 Offer & Merger SEI
(Historical) Adjustments (5) (Pro forma)
------------ --------------- ------------
<S> <C> <C> <C>
Revenues
Rental Income $3,291,000 $ -- $ 47,174,000
Interest and Other Income 9,000 1,240,000
---------- --------- ------------
3,300,000 -- 48,414,000
---------- --------- ------------
Expenses
Cost of Operations 1,445,000 -- 17,911,000
Depreciation and
Amortization 481,000 15,000 8,961,000
General and Administrative 71,000 (14,000) 1,196,000
Advisory Fee -- 78,000 1,763,000
Interest Expenses 13,000 343,000 1,786,000
---------- --------- ------------
2,010,000 422,000 31,617,000
---------- --------- ------------
Income before minority
interest in income and
gain on disposition of
real estate 1,290,000 (422,000) 16,797,000
Minority interest in income -- -- (1,823,000)
---------- --------- ------------
Net Income $1,290,000 $(422,000) $ 14,974,000
========== ========= ============
Net income allocable to
preferred shareholders $ -- $ -- $ 6,434,000
Net income allocable to
common shareholders 1,290,000 (422,000) 8,540,000
---------- --------- -----------
Net Income $1,290,000 $(422,000) $14,974,000
========== ========= ===========
Per Common Share:
Net Income $ 0.34 $ 0.24(6)
========== ===========
Weighted Average Shares 3,810,908 36,074,802(6)
========== ===========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (7) 2.16
===========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet (Scenario 1).
32
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED PRO FORMA STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI
Common Stock (80%) and Cash (20%))
For the year ended December 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------
Issuance Of
Preferred &
SEI Common PSP VIII PSP VI SEI
(Historical) Stock(1) Merger(2) Merger(3) (Pro forma)
------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental Income $141,845,000 $13,765,000 $6,858,000 $10,557,000 $173,025,000
Interest and Other Income 5,351,000 (1,199,000) 139,000 51,000 4,342,000
------------ ----------- ---------- ----------- ------------
147,196,000 12,566,000 6,997,000 10,608,000 177,367,000
------------ ----------- ---------- ----------- ------------
Expenses
Cost of Operations 52,816,000 4,877,000 2,515,000 3,591,000 63,799,000
Depreciation and
Amortization 28,274,000 2,696,000 1,120,000 1,728,000 33,818,000
General and Administrative 2,631,000 -- 67,000 138,000 2,836,000
Advisory Fee 4,983,000 902,000 152,000 359,000 6,396,000
Interest Expenses 6,893,000 (2,078,000) 1,472,000 879,000 7,166,000
------------ ----------- ---------- ----------- ------------
95,597,000 6,397,000 5,326,000 6,695,000 114,015,000
------------ ----------- ---------- ----------- ------------
Income before minority
interest in income and
gain on disposition of
real estate 51,599,000 6,169,000 1,671,000 3,913,000 63,352,000
Minority interest in income (9,481,000) 1,421,000 -- -- (8,060,000)
------------ ----------- ---------- ----------- ------------
42,118,000 7,590,000 1,671,000 3,913,000 55,292,000
Gain on disposition of
real estate -- -- -- -- --
------------ ----------- ---------- ----------- ------------
Net Income $ 42,118,000 $ 7,590,000 $1,671,000 $ 3,913,000 $ 55,292,000
============ =========== ========== =========== ============
Net income allocable to
preferred shareholders $ 16,846,000 $ 8,606,000 $ $ $ 25,452,000
Net income allocable to
common shareholders 25,272,000 (1,016,000) 1,671,000 3,913,000 29,840,000
------------ ----------- ---------- ----------- ------------
Net Income $ 42,118,000 $ 7,590,000 $1,671,000 $ 3,913,000 $ 55,292,000
============ =========== ========== =========== ============
Per Common Share:
Net Income $ 1.05 $ 0.93(4)
============ ============
Weighted Average Shares 24,077,055 32,046,269(4)
============ ============
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (7) 2.22 1.99
============ ============
<CAPTION>
Pro Forma
PSP 7 Offer & Merger SEI
(Historical) Adjustments (5) (Pro forma)
------------ --------------- ------------
<S> <C> <C> <C>
Revenues
Rental Income $13,257,000 $ -- $186,282,000
Interest and Other Income 28,000 4,370,000
----------- ----------- ------------
13,285,000 -- 190,652,000
----------- ----------- ------------
Expenses
Cost of Operations 6,008,000 -- 69,807,000
Depreciation and
Amortization 1,912,000 96,000 35,826,000
General and Administrative 283,000 (55,000) 3,064,000
Advisory Fee -- 291,000 6,687,000
Interest Expenses 146,000 1,370,000 8,682,000
----------- ----------- ------------
8,349,000 1,702,000 124,066,000
----------- ----------- ------------
Income before minority
interest in income and
gain on disposition of
real estate 4,936,000 (1,702,000) 66,586,000
Minority interest in income -- -- (8,060,000)
----------- ----------- ------------
4,936,000 (1,702,000) 58,526,000
Gain on disposition of
real estate 203,000 -- 203,000
----------- ----------- ------------
Net Income $ 5,139,000 $(1,702,000) $ 58,729,000
=========== =========== ============
Net income allocable to
preferred shareholders $ $ $ 25,452,000
Net income allocable to
common shareholders 5,139,000 (1,702,000) 33,277,000
----------- ----------- ------------
Net Income $ 5,139,000 $(1,702,000) $ 58,729,000
=========== =========== ============
Per Common Share:
Net Income $ 1.35 $ 0.94(6)
=========== ============
Weighted Average Shares 3,810,908 35,491,188(6)
=========== ============
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (7) 2.05
============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet (Scenario 1).
33
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Three Months Ended March 31, 1995 and Year Ended December 31, 1994
(Unaudited)
1. During 1994 and 1995, SEI issued shares of both its Preferred and Common
Stock as follows:
. On February 15, 1994, SEI issued 5,484,000 shares of Common Stock
in a public offering. The net offering proceeds were approximately
$76.5 million of which approximately $37.8 million was used to
repay debt, to acquire real estate facilities, to acquire mortgage
notes receivable and to acquire additional minority interests.
. On June 30, 1994, SEI issued 1,200,000 shares of Adjustable Rate
Cumulative Preferred Stock, Series C (the "Series C Preferred
Stock"). The aggregate net offering proceeds of the offering ($28.9
million) was used to retire bank borrowings (borrowings which were
used primarily to acquire real estate facilities and minority
interests in real estate partnerships).
. On September 1, 1994, SEI issued 1,200,000 shares of 9.5%
Cumulative Preferred Stock, Series D (the "Series D Preferred
Stock"). The aggregate net offering proceeds ($29.0 million) was
used to acquire real estate facilities and minority interests in
real estate partnerships.
. On November 25, 1994, SEI issued 2,500,000 shares of Common Stock
pursuant to a public offering. The offering provided gross proceeds
of approximately $33.8 million which were utilized to repay
borrowings on SEI's credit facilities (borrowings which were used
to fund the acquisition of real estate facilities, minority
interests and the cash portion of the PSP VIII merger, see Note 2
below).
. On February 1, 1995, SEI issued 2,195,000 shares of 10% Cumulative
Preferred Stock, Series E (the "Series E Preferred Stock"). The
aggregate net offering proceeds of the ($52.9 million) were used to
acquire real estate facilities, minority interests in real estate
partnerships and retire bank borrowings (borrowings which were used
to acquire real estate facilities.
The following pro forma adjustments have been made to the pro forma consolidated
statements of income to reflect the above uses (the acquisition of real estate
facilities, minority interests and the repayment of bank borrowings) of the
proceeds as if the transactions were completed at the beginning of the year
ended December 31, 1994:
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- ------------
<S> <C> <C>
. Rental income has been
increased to reflect the
incremental difference
between the actual rental
income included in the
historical statement of
operations and the pro
forma rental income as if
the acquired real estate
facilities were in
operation for a full period $ 114,000 $13,765,000
--------- -----------
. Interest and other income
has been decreased to
reflect the following:
. In connection with the
acquisition of the above
properties, SEI canceled
mortgage notes receivable
from which SEI recognized
interest income during the
year ended December 31,
1994. A pro forma
adjustment has been made to
eliminate such interest as
if the notes were canceled
at the beginning of the
period (including
amortization of mortgage
note discounts totaling
$254,000 in 1994) $ -- $(1,199,000)
--------- -----------
</TABLE>
34
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Three Months Ended March 31, 1995 and Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- ------------
<S> <C> <C>
. Cost of operations has been increased to
reflect the incremental difference
between the actual cost of operations
included in the historical statement of
income and the pro forma cost of operations
as if the real estate facilities were in
operation for a full period $ 46,000 $ 4,877,000
--------- -----------
. Depreciation has been increased to
reflect the incremental difference
between the actual depreciation expense
included in the historical statements
of income and the pro forma depreciation
expense as if the real estate facilities
were in operation for a full period $ 30,000 $ 2,696,000
--------- -----------
. Interest expense has been decreased to
reflect the following:
. Interest expense was decreased to eliminate
the historical interest expense related to
the pay down of the debt through the use of
net offering proceeds $(159,000) $(1,117,000)
. Mortgage notes payable were assumed in
connection with the acquisition of the real
estate facilities. An adjustment was made
to reflect the interest expense as if the
notes were assumed at the beginning of
the period. -- 511,000
. In October, 1994, SEI borrowed on its
bank credit facilities to finance the
cash portion of the merger with PSP VIII.
Accordingly, in Note 2 below a pro forma
adjustment was made to interest expense to
reflect the related outstanding borrowings
for the entire period presented. The net
offering proceeds of the November 25, 1994
Common Stock offering were used to retire
the bank borrowings of the PSP VIII
merger, accordingly, a pro forma adjustment
has been made offset the pro forma interest
expense adjustment made in Note 2 below. -- (1,472,000)
--------- -----------
. Net decrease in interest expense $(159,000) $(2,078,000)
--------- -----------
. Minority interest in income has been
decreased due to the acquisition of such
minority interests by SEI $ -- $ 1,421,000
--------- -----------
. Advisory fees have been increased to
reflect the effect of the above
adjustments $ 6,000 $ 902,000
--------- -----------
</TABLE>
2. On September 30, 1994, SEI completed the merger transaction with PSP VIII.
The following pro forma adjustments have been made assuming the merger
transaction with PSP VIII was completed at the beginning of the year ended
December 31, 1994:
35
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Three Months Ended March 31, 1995 and Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- ------------
<S> <C> <C>
. A pro forma adjustment has
been made to reflect PSP VIII's
historical rental income $ -- $6,858,000
--------- ----------
. A pro forma adjustment has
been made to reflect PSP VIII's
historical interest and other income $ -- $ 139,000
--------- ----------
. A pro forma adjustment has
been made to reflect PSP
VIII's historical cost
of operations $ -- $2,515,000
--------- ----------
. Depreciation and amortization
was adjusted as follows:
. A pro forma adjustment has
been made to reflect PSP
VIII's historical depreciation $ -- $ 825,000
. A pro forma adjustment has
been made to increase the
historical depreciation of
the acquired PSP VIII real estate
facilities to an amount which is
based on the purchase cost of
the buildings (straight-line
over 25 years) -- 295,000
--------- ----------
$ -- $1,120,000
========= ==========
. General and administrative
expense was adjusted as
follows:
. A pro forma adjustment has
been made to reflect PSP
VIII's historical general
and administrative expenses $ -- $ 157,000
. A pro forma adjustment has
been made to reduce certain
general and administrative
expenses which SEI has
determined would be eliminated as
a result of the merger. Such
expenses include the elimination
of PSP VIII's board of
directors fees, PSP VIII's stock
exchange listing fees, audit and
tax fees and certain
administrative expenses which
will no longer be applicable. -- (90,000)
--------- ----------
$ -- $ 67,000
========= ==========
. Interest expense has been
increased for the pro forma
borrowings ($32,389,500) on
SEI's bank lines of credit to
consummate the merger. The pro
forma interest expense was
determined based on an interest
rate of 9.50%. $ -- $1,472,000
--------- ----------
. A pro forma adjustment has
been made to the advisory fee to
reflect the above adjustments
combined with the effects of the
operations of PSP VIII and the
issuance of additional shares of
SEI's Common Stock $ -- $ 152,000
--------- ----------
</TABLE>
36
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Three Months Ended March 31, 1995 and Year Ended December 31, 1994
(Unaudited)
3. On February 28, 1995, SEI completed the merger transaction with PSP VI. The
following pro forma adjustments have been made assuming the merger
transaction with PSP VI was completed at the beginning of the year ended
December 31, 1994:
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- ------------
<S> <C> <C>
. A pro forma adjustment has
been made to reflect PSP
VI's historical rental income $1,795,000 $10,557,000
---------- -----------
. A pro forma adjustment has
been made to reflect PSP
VI's historical interest and
other income $ 7,000 $ 51,000
---------- -----------
. A pro forma adjustment has
been made to reflect PSP
VI's historical cost of
operations $ 613,000 $ 3,591,000
---------- -----------
. Depreciation and amortization
was adjusted as follows:
. A pro forma adjustment has
been made to reflect PSP
VI's historical depreciation $ 208,000 $ 1,223,000
. A pro forma adjustment has
been made to increase the
historical depreciation
of the acquired PSP
VI real estate facilities to
an amount which is based
on the preliminary
purchase cost allocation to
the buildings (straight-line
over 25 years) 80,000 505,000
---------- -----------
$ 288,000 $ 1,728,000
---------- -----------
. General and administrative expense was
adjusted as follows:
. A pro forma adjustment has
been made to reflect PSP
VI's historical general and
administrative expenses $ 62,000 $ 193,000
. A pro forma adjustment has
been made to reduce certain
general and administrative
expenses which SEI has
determined would be eliminated
as a result of the merger.
Such expenses include the
elimination of PSP VI's board
of director fees, PSP VI's
stock exchange listing fees,
audit and tax fees and certain
administrative expenses which
will no longer be applicable. (14,000) (55,000)
---------- -----------
$ 48,000 $ 138,000
---------- -----------
. Interest expense has been made to
increase interest expense for
the pro forma borrowings ($8,710,000)
on SEI's bank lines of credit to
consummate the. The pro forma
interest expense was determined
based on an interest rate of 9.50%. $ 69,000 $ 879,000
---------- -----------
. A pro forma adjustment has
been made to the advisory
fee to reflect the above
adjustments combined with
the effects of the operations
of PSP VI and the issuance
of additional shares of
SEI's Common Stock $ 69,000 $ 359,000
---------- -----------
</TABLE>
37
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of
SEI Common Stock (80%) and Cash (20%))
For the Three Months Ended March 31, 1995 and Year Ended December 31, 1994
(Unaudited)
4. Net income per Common Share has been computed as follows:
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- -------------
<S> <C> <C>
Historical net income $13,200,000 $ 42,118,000
Less: Historical preferred stock dividends (5,976,000) (16,846,000)
----------- ------------
Income applicable to common shareholders $ 7,224,000 $ 25,272,000
----------- ------------
Historical weighted average common shares 30,566,839 24,077,055
----------- ------------
Historical net income per common share $ 0.24 $ 1.05
----------- ------------
Pro forma net income $14,106,000 $ 55,292,000
Less: Pro forma preferred stock dividends (1) 6,434,000 (25,452,000)
----------- ------------
Income applicable to common shareholders $ 7,672,000 $ 29,840,000
----------- ------------
Pro forma weighted average common shares (2) 32,629,882 32,046,269
----------- ------------
Pro forma net income per common share $ 0.24 $ 0.93
----------- ------------
</TABLE>
(1) As adjusted to give effect to the issuance of the Series C, Series D, Series
E and Convertible Preferred Stock as if such stock were outstanding at the
beginning of the period. The dividend rate on the Series C Preferred Stock
is adjustable quarterly and is equal to the highest of the three separate
indices as published by the Federal Reserve Board, multiplied by 110%.
However, the dividend rate will not be less than 6.75% per annum nor greater
than 10.75% per annum. At the date of issuance, the dividend rate was equal
to 8.15% per annum, which rate was used in the determination of pro forma
dividends applicable to the Series C Preferred Stock for the year ended
December 31, 1994. If the dividend rate used was 10.75% per annum, the pro
forma Preferred Stock dividends would have been approximately $156,000
higher for the three months ended March 31, 1995 ($780,000 higher for the
year ended December 31, 1994). Accordingly, income applicable to common
shareholders would have been reduced by a like amount or approximately $.03
per common for the year ended December 31, 1994 (none for the three months
ended March 31, 1995).
(2) As adjusted to give effect to the issuance of additional shares of SEI's
Common Stock in connection with the acquisition of additional investments in
real estate entities, the public offering of Common Stock during 1994, and
the PSP VIII and PSP VI mergers.
38
<PAGE>
5. Pro forma Merger adjustments (with respect to PSP7), assuming that the
Merger is consummated through the issuance of SEI Common Stock (80% of the
purchase cost) and cash (20% of the purchase cost) have been made to reflect
the following:
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- ------------
<S> <C> <C>
Pro forma adjustments have been made to
depreciation and amortization to reflect the
following:
. A pro forma adjustment has been made to
increase the historical depreciation of
the acquired PSP7 real estate facilities
to an amount which is based on the
preliminary purchase cost allocation to
the buildings (straight-line over 25 years) $ 2,000 $ 20,000
. A pro forma adjustment has been made to
reflect the amortization (straight-line
over 25 years) of the unallocated
purchase cost of $1,277,000 (see Note 1 to
Pro Forma Consolidated Balance Sheet) 13,000 76,000
-------- ---------
$ 15,000 $ 96,000
-------- ---------
A pro forma adjustment has been made to
reduce certain general and
administrative expenses which SEI has
determined would be eliminated as a
result of the Merger. Such expenses
include the elimination of PSP7's board
of directors fees, PSP7's stock
exchange listing fees, audit and tax
fees and certain administrative expenses
which will no longer be applicable. $(14,000) $ (55,000)
-------- ---------
A pro forma adjustment has been made to
increase interest expense for the pro forma
borrowings ($14,426,000) on SEI's bank lines
of credit to consummate the Merger (See Note 1
to Pro Forma Consolidated Balance Sheet).
The pro forma interest expense was determined
based on an interest rate of 9.50%. $343,000 $1,370,000
-------- ----------
If the assumed interest rate was 9.75%,
pro forma interest expense would be
$352,000 for the three months ended
March 31, 1995 and $1,407,000 for
the year ended December 31, 1994, resulting
in pro forma net income of $14,966,000 and
$58,717,000 ($8,532,000 and $33,265,000
allocable to common shareholders or ($.24
and $.92 per common share) for the three
months ended March 31, 1995 and year ended
December 31, 1994 after giving effect to
reduced advisory fees as a result of
increased interest expense.
A pro forma adjustment has been made to the
advisory fee to reflect the above adjustments
combined with the effects of the operations of
PSP7 and the issuance of additional shares of
SEI's Common Stock $ 78,000 $ 291,000
-------- ----------
</TABLE>
39
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Three Months Ended March 31, 1995 and Year Ended December 31, 1994
(Unaudited)
6. Pro forma net income per Common Share has been computed as follows:
<TABLE>
<CAPTION>
Year
Three Months Ended
Ended December 31,
March 31, 1995 1994
-------------- -------------
<S> <C> <C>
Pro forma net income $14,974,000 $ 58,729,000
Less: Pro forma preferred stock dividends (6,434,000) (25,452,000)
----------- ------------
Income applicable to common shareholders $ 8,540,000 $ 33,277,000
----------- ------------
Pro forma weighted average common shares (1) 36,074,802 35,491,188
----------- ------------
Pro forma net income per common share $ 0.24 $ .94
----------- ------------
</TABLE>
(1) As adjusted to give effect to the issuance of 3,444,919 additional shares
of Common Stock in connection with the Merger.
7. For purposes of these computations, earnings consists of net income before
minority interest in income, loss on early extinguishment of debt and gain
on disposition of real estate plus fixed charges (other than preferred stock
dividends) and less the portion of minority interest in income for those
consolidated minority interests which had no fixed charges during the
period. Fixed charges and preferred stock dividends consist of interest
expense and the dividend requirements of SEI's Series A, Series B, Series C,
Series D, Series E and Convertible Preferred Stock.
8. The number of shares to be issued in the Merger under this scenario is
dependent upon the market price of SEI Stock. For purposes of these pro
forma financial statements it was assumed that the SEI Stock price would be
approximately $16.75 per share of Common Stock. This share price resulted in
the pro forma issuance of approximately 3,444,919 shares of Common Stock.
The following illustrates the effect of a $.25 per share market price
fluctuation on the above pro forma financial information:
<TABLE>
<CAPTION>
Pro forma Pro forma Net
Net Income Income Per Share
---------------------------- ---------------------------
Three Mos. Twelve Mos. Three Mos. Twelve Mos. Pro forma Book
Number of shares Ended Ended Ended Ended Value per share
Market Price issued in the Merger 3/31/95 12/31/94 3/31/95 12/31/94 at 3/31/95
- ------------ -------------------- ----------- ----------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$16.50 3,497,115 $14,975,000 $58,690,000 $0.24 $0.94 $13.03
$17.00 3,394,259 $14,973,000 $58,686,000 $0.24 $0.94 $13.07
</TABLE>
40
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOW
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Three Months Ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Issuance
SEI Of Preferred & PSP VIII PSP VI
(Historical) Common Stock(1) Merger(2) Merger(3)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 13,200,000 $ 191,000 $ -- $ 715,000
Depreciation and amortization 8,107,000 30,000 -- 288,000
Minority Interest in income 1,823,000 -- -- --
Gain on disposition of real estate -- -- -- --
--------------- --------------- --------------- --------------
Total adjustments 9,930,000 30,000 -- 288,000
--------------- --------------- --------------- --------------
Cash provided by operating activities 23,130,000 221,000 -- 1,003,000
--------------- --------------- --------------- --------------
Cash flows from investing activities:
Principal payments on mortgage notes receivable 284,000 -- -- --
Acquisition of minority interest (8,536,000) -- -- --
Acquisition of real estate facilities (33,662,000) -- -- --
Proceeds from insurance settlement (2,100,000) -- -- --
Purchase cost of the mergers (21,427,000) -- -- --
Capital expenditures (1,058,000) (5,000) -- (8,000)
--------------- --------------- --------------- --------------
Cash provided by (used in) investing activities (66,499,000) (5,000) -- (8,000)
--------------- --------------- --------------- --------------
Cash flows from financing activities:
Principal payments on bank debt 9,553,000 -- -- --
Proceeds from the issuance of Common Stock 460,000 -- -- --
Proceeds from the issuance of Preferred Stock 52,888,000 -- -- --
Principal payments on mortgage debt (409,000) -- -- --
Distributions to shareholders (12,434,000) (458,000) -- (692,000)
Distribution to minority interest (4,596,000) -- -- --
Reinvestment by minority interest 864,000 -- -- --
Other (2,576,000) -- -- (39,000)
--------------- --------------- --------------- --------------
Cash provided by (used in) financing activities 43,750,000 (458,000) -- (731,000)
--------------- --------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 381,000 (242,000) -- 264,000
Cash and cash equivalents at the beginning of the year 20,151,000 -- -- 2,650,000
--------------- --------------- --------------- --------------
Cash and cash equivalents at the end of the year $ 20,532,000 $ (242,000) $ -- $ 2,914,000
=============== =============== =============== ==============
Funds from Operations $ 18,534,000
===============
<CAPTION>
Offer and
SEI PSP 7 Merger SEI
(Pro forma) (Historical) Adjustments (4) (Pro forma)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 14,106,000 $ 1,290,000 $ (422,000) $ 14,974,000
Depreciation and amortization 8,425,000 481,000 15,000 8,921,000
Minority Interest in income 1,823,000 -- -- 1,823,000
Gain on disposition of real estate -- -- -- --
--------------- --------------- --------------- ---------------
Total adjustments 10,248,000 481,000 15,000 10,744,000
--------------- --------------- --------------- ---------------
Cash provided by operating activities 24,354,000 1,771,000 (407,000) 25,718,000
--------------- --------------- --------------- ---------------
Cash flows from investing activities:
Principal payments on mortgage notes receivable 284,000 -- -- 284,000
Acquisition of minority interest (8,536,000) -- -- (8,536,000)
Acquisition of real estate facilities (33,662,000) -- -- (33,662,000)
Proceeds from insurance settlement (2,100,000) -- -- (2,100,000)
Purchase cost of the mergers (21,427,000) -- -- (21,427,000)
Capital expenditures (1,071,000) (76,000) -- (1,147,000)
--------------- --------------- --------------- ---------------
Cash provided by (used in) investing activities (66,512,000) (76,000) -- (66,588,000)
--------------- --------------- --------------- ---------------
Cash flows from financing activities:
Principal payments on bank debt 9,553,000 (917,000) -- 8,636,000
Proceeds from the issuance of Common Stock 460,000 -- -- 460,000
Proceeds from the issuance of Preferred Stock 52,888,000 -- -- 52,888,000
Principal payments on mortgage debt (409,000) -- -- (409,000)
Distributions to shareholders (13,584,000) (1,066,000) 308,000 (14,342,000)
Distribution to minority interest (4,596,000) -- -- (4,596,000)
Reinvestment by minority interest 864,000 -- -- 864,000
Other (2,615,000) (333,000) -- (2,948,000)
--------------- --------------- --------------- ---------------
Cash provided by (used in) financing activities 42,561,000 (2,316,000) 308,000 40,553,000
--------------- --------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 403,000 (621,000) (99,000) (317,000)
Cash and cash equivalents at the beginning of the year 22,801,000 1,724,000 -- 24,525,000
=============== =============== --------------- ===============
Cash and cash equivalents at the end of the year $ 23,204,000 $ 1,103,000 $ (99,000) $ 24,208,000
=============== =============== =============== ===============
Funds from Operations $ 19,758,000 $ 21,122,000
=============== ===============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statement of Cash Flows
(Scenario 1).
41
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOW
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
For the Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Issuance
SEI Of Preferred & PSP VIII PSP VI
(Historical) Common Stock(1) Merger(2) Merger(3)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 42,118,000 $ 7,590,000 $ 1,671,000 $ 3,913,000
Depreciation and amortization 27,581,000 2,950,000 1,120,000 1,728,000
Minority Interest in income 9,481,000 (1,421,000) -- --
Gain on disposition of real estate -- -- -- --
--------------- --------------- --------------- --------------
Total adjustments 37,062,000 1,529,000 1,120,000 1,728,000
--------------- --------------- --------------- --------------
Cash provided by operating activities 79,180,000 9,119,000 2,791,000 5,641,000
--------------- --------------- --------------- --------------
Cash flows from investing activities:
Principal payments on mortgage notes receivable 6,785,000 (557,000) -- --
Investment in real estate partnership (78,000) -- -- --
Acquisition of mortgage notes receivable (4,020,000) -- -- --
Acquisition of minority interest (51,711,000) (1,700,000) -- --
Acquisition of real estate facilities (93,026,000) (24,948,000) -- --
Proceeds form insurance settlement 1,666,000 -- 425,000 --
Purchase cost of the mergers (20,972,000) -- -- (22,478,000)
Capital expenditures (8,312,000) (473,000) (1,507,000) (360,000)
--------------- --------------- --------------- --------------
Cash provided by (used in) investing activities (169,668,000) (27,678,000) (1,082,000) (22,838,000)
--------------- --------------- --------------- --------------
Cash flows from financing activities:
Principal payments on bank debt (10,323,000) (25,447,000) -- 9,249,000
Proceeds from the issuance of Common Stock 110,280,000 -- -- --
Proceeds from the issuance of Preferred Stock 57,899,000 52,946,000 -- --
Principal payments on mortgage debt (8,233,000) (457,000) -- --
Distributions to shareholders (38,095,000) (10,026,000) (1,634,000) (2,676,000)
Distribution to minority interest (23,037,000) 3,670,000 -- --
Reinvestment by minority interest 7,962,000 (2,111,000) -- --
Other 3,654,000 -- (276,000) (336,000)
--------------- --------------- --------------- --------------
Cash provided by (used in) financing activities 100,107,000 18,575,000 (1,910,000) 6,237,000
--------------- --------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 9,619,000 16,000 (201,000) (10,960,000)
Cash and cash equivalents at the beginning of the year 10,532,000 -- 1,470,000 1,408,000
--------------- --------------- --------------- --------------
Cash and cash equivalents at the end of the year $ 20,151,000 $ 16,000 $ 1,269,000 $ (9,552,000)
=============== =============== =============== ==============
Funds from Operations $ 56,143,000
===============
<CAPTION>
Offer and
SEI PSP 7 Merger SEI
(Pro forma) (Historical) Adjustments (4) (Pro forma)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 55,292,000 $ 5,139,000 $ (1,702,000) $ 58,729,000
Depreciation and amortization 33,379,000 1,912,000 96,000 35,387,000
Minority Interest in income 8,060,000 -- -- 8,060,000
Gain on disposition of real estate -- (203,000) -- (203,000)
--------------- --------------- --------------- ---------------
Total adjustments 41,439,000 1,709,000 96,000 43,244,000
--------------- --------------- --------------- ---------------
Cash provided by operating activities 96,731,000 6,848,000 (1,606,000) 101,973,000
--------------- --------------- --------------- ---------------
Cash flows from investing activities:
Principal payments on mortgage notes receivable 6,228,000 -- -- 6,228,000
Investment in real estate partnership (78,000) -- -- (78,000)
Acquisition of mortgage notes receivable (4,020,000) -- -- (4,020,000)
Acquisition of minority interest (53,411,000) -- -- (53,411,000)
Acquisition of real estate facilities (117,974,000) -- -- (117,974,000)
Proceeds form insurance settlement 2,091,000 375,000 -- 2,466,000
Purchase cost of the mergers (43,450,000) -- (15,876,000) (59,326,000)
Capital expenditures (10,652,000) (464,000) -- (11,116,000)
--------------- --------------- --------------- ---------------
Cash provided by (used in) investing activities (221,266,000) (89,000) (15,876,000) (237,231,000)
--------------- --------------- --------------- ---------------
Cash flows from financing activities:
Principal payments on bank debt (26,521,000) (2,116,000) 14,426,000 (14,211,000)
Proceeds from the issuance of Common Stock 110,280,000 -- -- 110,280,000
Proceeds from the issuance of Preferred Stock 110,845,000 -- -- 110,845,000
Principal payments on mortgage debt (8,690,000) -- -- (8,690,000)
Distributions to shareholders (52,431,000) (4,271,000) 1,343,000 (55,359,000)
Distribution to minority interest (19,367,000) -- -- (19,367,000)
Reinvestment by minority interest 5,851,000 -- -- 5,851,000
Other 3,042,000 (457,000) -- 2,585,000
--------------- --------------- --------------- ---------------
Cash provided by (used in) financing activities 123,009,000 (6,844,000) 15,769,000 131,934,000
--------------- --------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,526,000) (85,000) (1,713,000) (3,324,000)
Cash and cash equivalents at the beginning of the year 13,410,000 1,809,000 -- 15,219,000
--------------- --------------- --------------- ---------------
Cash and cash equivalents at the end of the year $ 11,884,000 $ 1,724,000 $ (1,713,000) $ 11,895,000
=============== =============== =============== ===============
Funds from Operations $ 77,364,000 $ 82,606,000
=============== ===============
</TABLE>
42
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
(Unaudited)
1. During 1994 and 1995, SEI issued shares of both its Preferred and Common
Stock as follows:
. On February 15, 1994, SEI issued 5,484,000 shares of Common Stock in a
public offering. The net offering proceeds were approximately $76.5
million which combined with the use of cash reserves were used to repay
debt, acquire real estate facilities, acquire mortgage notes receivable,
and acquire additional minority interests.
. On June 30, 1994, SEI issued 1,200,000 shares of Adjustable Rate
Cumulative Preferred Stock, Series C (the "Series C Preferred Stock").
The aggregate net offering proceeds ($28.9 million) was used to retire
bank borrowings (borrowings which were used primarily to acquire real
estate facilities and minority interests in real estate partnerships).
. On September 1, 1994, SEI issued 1,200,000 shares of 9.5% Cumulative
Preferred Stock, Series D (the "Series D Preferred Stock"). The aggregate
net offering proceeds ($29.0 million) was used to acquire real estate
facilities and minority interests in real estate partnerships.
. On November 25, 1994, SEI issued 2,500,000 shares of Common Stock
pursuant to a public offering. The offering provided gross proceeds of
approximately $33.8 million which were utilized to repay borrowings on
SEI's credit facilities (borrowings which were used to fund the
acquisition of real estate facilities, minority interests and the cash
portion of the PSP VIII merger, see Note 3 below).
. On February 1, 1995, SEI issued 2,195,000 shares of 10% Cumulative
Preferred Stock, Series E (the "Series E Preferred Stock"). The aggregate
net offering proceeds of $52.9 million were used to acquire real estate
facilities, minority interests in real estate partnerships and retire
bank borrowings (borrowings which were used to acquire real estate
facilities).
Pro forma adjustments have been made to the pro forma consolidated
statements of income to reflect the uses of the proceeds as if the
transactions were completed at the beginning of the year ended December 31,
1994. Similarly, the following pro forma adjustments were made to reflect
the effect on net cash provided by operating activities:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
"Net income" was adjusted to reflect the
overall effect of the above offerings and
the use of the net proceeds therefrom on
the pro forma consolidated net income $ 191,000 $ 7,590,000
--------- ----------
"Depreciation and amortization" has been
increased to reflect the incremental
difference between the actual depreciation
expense included in the historical statements
of operations and the pro forma depreciation
expense as if the facilities were in operation
for a full period (including a pro forma
adjustment for the amortization of mortgage
note receivable discounts totaling $254,000
- See Note 1 to the Pro Forma Consolidated
Statement of Income)
$ 30,000 $ 2,950,000
--------- ----------
"Minority interest in income" has been
adjusted to reflect similar
adjustments to the pro forma consolidated
statements of income $ -- $(1,421,000)
--------- ----------
</TABLE>
43
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
(Unaudited)
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
The following pro forma adjustments have been
made to cash flows from investing and financing
activities:
"Principal payments on mortgage notes
receivable" was decreased to reflect the
elimination of historical payments relating
to the canceled mortgage notes (which were
canceled in connection with the acquisition
of real estate facilities) $ - $ (557,000)
----------- -------------
"Acquisitions of minority interests in real
estate partnerships" was increased to reflect
the acquisitions of such interests, which
occurred subsequent to the period $ - $ (1,700,000)
----------- -------------
"Acquisitions of real estate facilities" was
increased to reflect the acquisitions of real
estate facilities, which occurred subsequent
to the period $ (5,000) $(24,948,000)
----------- -------------
"Capital improvements to real estate
facilities" was increased to reflect the
estimated additional capital improvements
which would have been incurred during the
period for the acquired real estate
facilities $ - $ (473,000)
----------- -------------
"Net proceeds (pay downs) from note payable
to bank" has been adjusted to reflect the pro
forma use of the offering proceeds to pay
down the historical borrowings on SEI's
credit facilities during the year ended
December 31, 1994 $ - $(25,447,000)
----------- -------------
"Net proceeds from the issuance of preferred
stock" was increased to reflect the net
proceeds from the issuance of Series E
Preferred Stock, which occurred subsequent to
the period $ - $ 52,946,000
----------- -------------
"Principal payments on mortgage notes
payable" was increased to reflect the
payments which would have been made during
the period with respect to the mortgage notes
payable which were assumed in connection with
the acquisition of real estate facilities $ - $ (457,000)
----------- -------------
"Distributions paid to shareholders" has been
increased to reflect the additional
distributions which would have been paid to
the holders of the Common Stock, Series C,
Series D, Series E issued during 1994 and
1995, as if the common and preferred stock
was outstanding for the entire period $ (458,000) $(10,026,000)
----------- -------------
</TABLE>
44
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
(Unaudited)
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
"Distributions from operations to minority
interest in real estate partnerships" has
been adjusted to reflect the reduction in
distributions to minority interests which
would have resulted in connection with the
acquisition of minority interests by SEI,
assuming SEI had completed such acquisitions
at the beginning of the period $ - $ 3,670,000
------- ------------
"Reinvestment by minority interests into
real estate partnerships" has been adjusted
to reflect the reduction which would have
resulted in connection with the acquisition
of minority interests by SEI, assuming SEI
had completed such acquisitions at the
beginning of the period $ - $(2,111,000)
------- ------------
</TABLE>
2. Effective September 30, 1994, SEI completed the merger transaction with
PSP VIII. The following pro forma adjustments have been made assuming the
merger transaction with PSP VIII was completed at the beginning of the year
ended December 31, 1994:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
An adjustment has been made to reflect the
pro forma increase in net income as a result
of the PSP VIII merger transaction $ - $ 1,671,000
------- -----------
An adjustment has been made to reflect the
pro forma increase in depreciation as a result
of the PSP VIII merger transaction $ - $ 1,120,000
------- -----------
A pro forma adjustment has been made to reflect
PSP VIII's historical proceeds from an insurance
settlement $ - $ 425,000
------- -----------
A pro forma adjustment has been made to reflect
PSP VIII's historical capital improvements $ - $(1,507,000)
------- ------------
Distributions paid to shareholders has been
increased to reflect the additional
distributions which would have been paid (from
January 1, 1994 through September 30, 1994) as
a result of the issuance of 2,593,910 additional
shares of Common Stock (assuming the historical
distribution rate of $.21 per share per quarter) $ - $(1,634,000)
------- ------------
A pro forma adjustment has been made to reflect
PSP VIII's historical net change in other assets
and liabilities during the period $ - $ (276,000)
------- ------------
</TABLE>
45
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
(Unaudited)
3. On February 28, 1995, SEI completed the merger transaction with PSP VI.
The following pro forma adjustments have been made assuming the merger
transaction with PSP VI was completed at the beginning of the year ended
December 31, 1994: Similarly, the following pro forma adjustments were
made to reflect the effect on net cash provided by operating activities:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
An adjustment has been made to reflect the
pro forma increase in net income as a result
of the PSP VI merger transaction $ 715,000 $ 3,913,000
--------- ------------
An adjustment has been made to reflect the pro
forma increase in depreciation as a result of
the PSP VI merger transaction $ 288,000 $ 1,728,000
--------- ------------
A pro forma adjustment has been made to reflect
PSP VI's historical capital improvements $ (8,000) $ (360,000)
--------- ------------
Distributions paid to shareholders has been
increased to reflect the distributions which
would have been paid as a result of the
issuance of 3,148,000 additional shares of
Common Stock (assuming the historical
distribution rate of $.22 and $.85 per common
share for the three months ended March 31,
1995 and year ended December 31, 1994) $(692,000) $(2,676,000)
---------- ------------
A pro forma adjustment has been made to reflect
PSP VI's historical net change in other assets
and liabilities during the period $ (39,000) $ (336,000)
---------- ------------
In addition, pro forma adjustments were made
to cash flows from investing and financing
activities as follows:
"Purchase cost of the Merger" has been
adjusted to reflect:
. the cash portion of the purchase price $ -- $(21,428,000)
. fees and expenses expected to be
incurred by SEI -- (1,050,000)
--------- -------------
$ -- $(22,478,000)
--------- -------------
"Net proceeds (pay downs) from note payable
to bank has been adjusted to reflect additional
borrowings to fund the purchase cost of the
merger $ -- $ 9,249,000
--------- ------------
</TABLE>
4. Pro forma Merger adjustments, assuming that the Merger is consummated
through the issuance of SEI Common Stock (80% of the purchase cost) and cash
(20% of the purchase cost) have been made to the pro forma consolidated
statements of income to reflect the Merger. Similarly, the following pro
forma adjustments were made to reflect the effect on net cash provided by
operating activities:
<TABLE>
<S> <C> <C>
"Net income" was adjusted to reflect the
overall effect of the Merger $ (422,000) $ (1,702,000)
----------- -------------
Pro forma adjustments have been made to
depreciation and amortization expense to
reflect the Merger $ 15,000 $ 96,000
---------- ------------
</TABLE>
46
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(Scenario 1: Consummation of Merger through the issuance of SEI Common Stock
(80%) and Cash (20%))
(Unaudited)
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
In addition, pro forma adjustments were made
to cash flows from investing and financing
activities as follows:
"Purchase cost of the Merger" has been
adjusted to reflect:
. the cash portion of the purchase price $ -- $(14,426,000)
. fees and expenses expected to be incurred
by SEI -- (1,450,000)
----------- -----------
$ -- $(15,876,000)
=========== ===========
"Net proceeds" (pay downs) from note payable to
bank" has been adjusted to reflect additional
borrowings to fund the purchase cost of the
Merger $ -- $ 14,426,000
----------- -----------
"Distributions paid to shareholders" has been
decreased as following:
. to eliminate PSP7 historical distributions $ 1,066,000 $ 4,271,000
. to reflect the additional distributions which
would have been paid as a result of the
issuance of 3,444,919 additional shares of
Common Stock (assuming the historical
distribution rate of $.22 and $.85 per share
for the three months ended March 31, 1995 and
year ended December 31, 1994, respectively) (758,000) (2,928,000)
----------- -----------
$ 308,000 $ 1,343,000
=========== ===========
</TABLE>
47
<PAGE>
STORAGE EQUITIES, INC.
CONSOLIDATED PRO FORMA BALANCE SHEET
(Scenario 2: Consummation of Merger through the issuance of SEI Common Stock)
March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Pro forma Offer and
Merger Adjustments
SEI PSP 7 SEI
ASSETS (Historical) (Historical) Purchase Valuation Pro Forma
------------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 20,532,000 $ 1,103,000 $(5,273,000) $ - $ 16,362,000
Real estate facilities, net of
accumulated depreciation 878,269,000 38,151,000 36,149,000 952,569,000
Mortgage loans receivable, primarily from
affiliated 20,545,000 20,545,000
Unallocated purchase cost 72,128,000 (70,851,000) 1,277,000
Other assets 12,991,000 539,000 13,530,000
------------ ----------- ---------- ----------- -------------
Total assets $ 932,337,000 $ 39,793,000 $66,855,000 $(34,702,000) $1,004,283,000
============ =========== ========== =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $ 35,000,000 $ - $ - $ - $ 35,000,000
Mortgage notes payable 52,119,000 - 52,119,000
------------ ----------- ---------- ----------- -------------
Total debt 87,119,000 - - - 87,119,000
Accrued and other liabilities 14,893,000 2,334,000 (1,066,000) - 16,161,000
Minority interest 133,893,000 - 133,893,000
Shareholder's equity
Preferred Stock, $0.1 par value,
50,000,000 shares authorized,
11,106,000 shares issued and
outstanding
Cumulative preferred stock, issued in
series 220,150,000 - - 220,150,000
Convertible preferred stock 57,500,000 - - - 57,500,000
Common stock , $.10 par value, 60,000,000
shares authorized 32,838,310 shares
issued and outstanding (37,144,459 pro
forma shares issued and outstanding) 3,284,000 38,000 431,000 (38,000) 3,715,000
Paid-in capital 424,965,000 49,827,000 67,490,000 (47,070,000) 495,212,000
Cumulative net income 185,685,000 55,566,000 - (55,566,000) 185,685,000
Cumulative distribution paid (195,152,000) (67,972,000) - 67,972,000 (195,152,000)
------------ ----------- ---------- ----------- -------------
Total shareholders' equity 696,432,000 37,459,000 67,921,000 (34,702,000) 767,110,000
------------ ----------- ---------- ----------- -------------
Total liabilities and shareholders
equity $ 932,337,000 $ 39,793,000 $66,855,000 $(34,702,000) $1,004,283,000
============ =========== ========== =========== =============
Book Value per Common Share $12.75 $13.18
============ =============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet (Scenario 2).
48
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Scenario 2: Consummation of Merger solely through the issuance of
SEI Common Stock)
March 31, 1995
(Unaudited)
1. The Merger will be accounted for using the purchase method of accounting and
the total purchase cost will be allocated to the acquired net assets; first
to the tangible and identifiable intangible assets and liabilities of PSP7
based upon their respective fair values, and the remainder, if any, will be
allocated to excess of purchase cost over book value of assets acquired. The
aggregate purchase cost to be paid to the shareholders of PSP7 has been
determined to be the sum of (1) the fair market value of PSP7's real estate
assets, (2) the estimated book value of PSP7's non-real estate assets as of
March 31, 1995 less (3) PSP7's estimated liabilities as of March 31, 1995,
including an estimated adjustment for potential environmental matters. In
addition, concurrent with the Merger, PSP7's outstanding Series D common
stock is assumed to be repurchased and retired. The aggregate purchase cost
and its preliminary allocation to the historical assets and liabilities is
as follows:
<TABLE>
<S> <C>
Purchase cost, including related fees (see related adjustments below):
Acquisition of 3,806,491 shares of PSP7 Common Stock:
Fair value of real estate facilities acquired $ 74,300,000
Estimated fair value of other assets at March 31, 1995 539,000
Cash balance at March 31, 1995 1,103,000
Estimated fair value of liabilities at March 31, 1995 (2,334,000)
----------
73,608,000
Less: Repurchase and retirement of PSP7's Series D common stock (2,757,000)
Add: Estimated net increase in PSP7's net current assets projected
as of May 31, 1995 1,277,000
-----------
$ 72,128,000
===========
Preliminary allocation of purchase cost:
Net assets acquired at historical amounts $ 37,459,000
Repurchase and retirement of PSP7's Series D common stock (2,757,000)
------------
Adjusted net assets acquired at historical amounts 34,702,000
Adjustments to reflect the fair value of the real estate
facilities acquired 36,149,000
Unallocated excess purchase cost over net assets acquired 1,277,000
-----------
$ 72,128,000
===========
</TABLE>
Under Scenario 2, the purchase cost will consist of the issuance of SEI Common
($72,128,000, as determined using a closing price of $16.75 per share of SEI
Common Stock). The unallocated excess purchase cost over the net assets acquired
will ultimately be allocated to fair value of PSP7's current assets and
liabilities at the completion of the Merger.
49
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Scenario 2: Consummation of Merger solely through the issuance of
SEI Common Stock)
March 31, 1995
(Unaudited)
The following pro forma purchase adjustments have been made assuming the
Merger is consummated as of March 31, 1995:
<TABLE>
<S> <C>
. Cash and cash equivalents has been decreased to reflect:
Fees and expense expected to be incurred by SEI $(1,450,000)
Repurchase and retirement of PSP7's Series D common
stock (2,757,000)
Payment of accrued distributions as of March 31, 1995 (1,066,000)
----------
Net reduction to cash and cash equivalents $(5,273,000)
----------
. Accrued and other liabilities has been reduced to reflect
the pro forma payment of PSP7's distributions which were
accrued as of March 31, 1995 $(1,066,000)
----------
. Shareholders' equity has been increased to reflect the
issuance of Common Stock in connection with the Merger:
Common Stock (issuance of approximately 4,306,149
shares of SEI Common Stock, par value of $.10
per share) $ 431,000
Paid in capital 71,697,000
----------
Equity portion of purchase cost 72,128,000
Additional adjustments to "Paid-in capital" to
reflect:
Repurchase and retirement of PSP7's Series D common
stock (2,757,000)
Estimated fees and expenses of issuing Common Stock (1,450,000)
----------
Total adjustment to shareholders' equity $67,921,000
</TABLE>
50
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 2: Consummation of Merger Solely through the Issuance
of SEI Common Stock)
For the Three Months Ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Per Forma Adjustments
--------------------------------
Issuance
SEI Of Preferred & PSP VIII PSP VI
(Historical) Common Stock(1) Merger(2) Merger(3)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues
Rental Income $41,974,000 $ 114,000 -- $1,795,000
Interest and Other Income 1,224,000 -- -- 7,000
--------------- --------------- --------------- --------------
43,198,000 114,000 -- 1,802,000
--------------- --------------- --------------- --------------
Expenses
Cost of Operations 15,807,000 46,000 -- 613,000
Depreciation and Amortization 8,147,000 30,000 -- 288,000
General and Administrative 1,091,000 -- -- 48,000
Advisory Fee 1,610,000 6,000 -- 69,000
Interest Expenses 1,520,000 (159,000) -- 69,000
--------------- --------------- --------------- --------------
28,175,000 (77,000) -- 1,087,000
--------------- --------------- --------------- --------------
Income before minority interest in income and
gain on disposition of real estate 15,023,000 191,000 -- 715,000
Minority interest in income (1,823,000) -- -- --
--------------- --------------- --------------- --------------
Net Income $13,200,000 $ 191,000 -- $ 715,000
=============== =============== =============== ==============
Net income allocable to preferred shareholders $ 5,976,000 $ 458,000 $ -- $ --
Net income allocable to common shareholders 7,224,000 (267,000) -- 715,000
--------------- --------------- --------------- --------------
Net Income $13,200,000 $ 191,000 -- $ 715,000
=============== =============== =============== ==============
Per Common Share:
Net Income $ 0.24
===============
Weighted Average Shares 30,566,839
===============
Ratio of earnings to combined fixed charges and preferred
stock dividends (7) 2.10
===============
</TABLE>
<TABLE>
<CAPTION>
Pro forma
SEI PSP 7 Offer & Merger SEI
(Pro forma) (Historical) Adjustments(5) (Pro forma)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Rental Income $43,883,000 $ 3,291,000 $ -- $47,174,000
Interest and Other Income 1,231,000 9,000 1,240,000
--------------- --------------- --------------- --------------
45,114,000 3,300,000 -- 48,414,000
--------------- --------------- --------------- --------------
Expenses
Cost of Operations 16,466,000 1,445,000 -- 17,911,000
Depreciation and Amortization 8,465,000 481,000 15,000 8,961,000
General and Administrative 1,139,000 71,000 (14,000) 1,196,000
Advisory Fee 1,685,000 -- 98,000 1,783,000
Interest Expenses 1,430,000 13,000 -- 1,443,000
--------------- --------------- --------------- --------------
29,185,000 2,010,000 99,000 31,294,000
--------------- --------------- --------------- --------------
Income before minority interest in income and
gain on disposition of real estate 15,929,000 1,290,000 (99,000) 17,120,000
Minority interest in income (1,823,000) -- -- (1,823,000)
--------------- --------------- --------------- --------------
Net Income $14,106,000 $ $ (99,000) $15,297,000
=============== =============== =============== ==============
Net income allocable to preferred shareholders $ 6,434,000 $ -- $ -- $ 6,434,000
Net income allocable to common shareholders 7,672,000 1,290,000 (99,000) 8,863,000
--------------- --------------- --------------- --------------
Net Income $14,106,000 $ 1,290,000 $ (99,000) $15,297,000
=============== =============== =============== ==============
Per Common Share:
Net Income $ 0.24(4) $ 0.34 $ 0.24(6)
=============== =============== ==============
Weighted Average Shares 32,629,882(4) 3,810,908 36,936,031(6)
=============== =============== ==============
Ratio of earnings to combined fixed charges and preferred
stock dividends (7) 2.10 2.25
=============== ==============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet (Scenario 2).
51
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Scenario 2: Consummation of Merger Solely through the Issuance
of SEI Common Stock)
For the Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Issuance
SEI Of Preferred & PSP VIII PSP VI
(Historical) Common Stock(1) Merger(2) Merger(3)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues
Rental Income $141,845,000 $13,765,000 $6,858,000 $10,557,000
Interest and Other Income 5,351,000 (1,199,000) 139,000 51,000
--------------- --------------- --------------- --------------
147,196,000 12,566,000 6,997,000 10,608,000
--------------- --------------- --------------- --------------
Expenses
Cost of Operations 52,816,000 4,877,000 2,515,000 3,591,000
Depreciation and Amortization 28,274,000 2,696,000 1,120,000 1,728,000
General and Administrative 2,631,000 -- 67,000 138,000
Advisory Fee 4,983,000 902,000 152,000 359,000
Interest Expenses 6,893,000 (2,078,000) 1,472,000 879,000
--------------- --------------- --------------- --------------
95,597,000 6,397,000 5,326,000 6,695,000
--------------- --------------- --------------- --------------
Income before minority interest in income and
gain on disposition of real estate 51,599,000 6,169,000 1,671,000 3,913,000
Minority interest in income (9,481,000) 1,421,000 -- --
--------------- --------------- --------------- --------------
42,118,000 7,590,000 1,671,000 3,913,000
Gain on disposition of real estate -- -- -- --
--------------- --------------- --------------- --------------
Net Income $ 42,118,000 $ 7,590,000 $1,671,000 $ 3,913,000
=============== =============== =============== ==============
Net income allocable to preferred shareholders $ 16,846,000 $ 8,606,000 $ -- $ --
Net income allocable to common shareholders 25,272,000 (1,016,000) 1,671,000 3,913,000
--------------- --------------- --------------- --------------
Net Income $ 42,118,000 $ 7,590,000 $1,671,000 $ 3,913,000
=============== =============== =============== ==============
Per Common Share:
Net Income $ 1.05
===============
Weighted Average Shares 24,077,055
===============
Ratio of earnings to combined fixed charges and
preferred stock dividends(7) 2.22
===============
</TABLE>
<TABLE>
<CAPTION>
Pro forma
SEI PSP 7 Offer & Merger SEI
(Pro forma) (Historical) Adjustments(5) (Pro forma)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Rental Income $173,025,000 $13,257,000 $ -- $186,282,000
Interest and Other Income 4,342,000 28,000 4,370,000
--------------- --------------- --------------- ---------------
177,367,000 13,285,000 -- 190,652,000
--------------- --------------- --------------- ---------------
Expenses
Cost of Operations 63,799,000 6,008,000 -- 69,807,000
Depreciation and Amortization 33,818,000 1,912,000 96,000 35,826,000
General and Administrative 2,836,000 283,000 (55,000) 3,064,000
Advisory Fee 6,396,000 -- 373,000 6,769,000
Interest Expenses 7,166,000 146,000 -- 7,312,000
--------------- --------------- --------------- ---------------
114,015,000 8,349,000 414,000 122,778,000
--------------- --------------- --------------- ---------------
Income before minority interest in income and
gain on disposition of real estate 63,352,000 4,936,000 (414,000) 67,874,000
Minority interest in income (8,060,000) -- -- (8,060,000)
--------------- --------------- --------------- ---------------
55,292,000 4,936,000 (414,000) 59,814,000
Gain on disposition of real estate -- 203,000 -- 203,000
--------------- --------------- --------------- ---------------
Net Income $ 55,292,000 $ 5,139,000 $ (414,000) $ 60,017,000
=============== =============== =============== ===============
Net income allocable to preferred shareholders $ 25,452,000 $ -- $ -- $ 25,452,000
Net income allocable to common shareholders 29,840,000 5,139,000 (414,000) 34,565,000
--------------- --------------- --------------- ---------------
$ 55,292,000 $ 5,139,000 $ (414,000) $ 60,017,000
=============== =============== =============== ===============
Per Common Share:
Net Income $ 0.93(4) $ 1.35 $ 0.95(6)
=============== =============== ===============
Weighted Average Shares 32,046,269(4) 3,810,908 36,352,418(6)
=============== =============== ===============
Ratio of earnings to combined fixed charges and preferred
stock dividends(7) 1.99 2.13
=============== ===============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet (Scenario 2)
52
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(Scenario 2: Consummation of Merger Solely through the issuance of
SEI Common Stock)
For the Three Months Ended March 31, 1995 and
Year Ended December 31, 1994
(Unaudited)
1. See Note 1 to Pro Forma Consolidated Statements of Income (Scenario 1).
2. See Note 2 to Pro Forma Consolidated Statements of Income (Scenario 1).
3. See Note 3 to Pro Forma Consolidated Statements of Income (Scenario 1).
4. See Note 4 to Pro Forma Consolidated Statements of Income (Scenario 1).
5. Pro forma Merger adjustments, assuming that the Merger is consummated
solely through the issuance of SEI Common Stock have been made to reflect
the following:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, 1995 December 31, 1994
--------------- -----------------
<S> <C> <C>
Pro forma adjustments have been made
to depreciation and amortization expense
to reflect the following:
. A pro forma adjustment has been made
to increase the historical
depreciation of the acquired PSP7 real
estate facilities to an amount which is
based on the preliminary purchase cost
allocation to the buildings (straight-
line over 25 years) $ 2,000 $ 20,000
. A pro forma adjustment has been made to
reflect the amortization of the
unallocated purchase cost (straight-
line over 25 years) 13,000 76,000
------ ------
$15,000 $ 96,000
------ ------
A pro forma adjustment has been made to
reduce certain general and administrative
expenses which SEI has determined would
be eliminated as a result of the Merger.
Such expenses include the elimination of
PSP7's board of directors fees, PSP7's
stock exchange listing fees, audit and tax
fees and certain administrative expenses
which will no longer be applicable. $(14,000) $(55,000)
-------- --------
A pro forma adjustment has been made to the
advisory fee to reflect the above adjustments
combined with the effects of the operations
of PSP7 and the issuance of additional shares
of SEI's Common Stock $ 98,000 $373,000
------- -------
</TABLE>
53
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(Scenario 2: Consummation of Merger Solely through the issuance of
SEI Common Stock)
For the Three Months Ended March 31, 1995 and
Year Ended December 31, 1994
(Unaudited)
6. Pro forma net income per Common Share has been computed as follows:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Pro Forma net income $15,297,000 $ 60,017,000
Less: Pro Forma Preferred Stock
dividends (6,434,000) (25,452,000)
----------- ------------
Income applicable to common
shareholders $ 8,863,000 $ 34,565,000
----------- ------------
Pro forma weighted average common
shares (1) 36,936,031 36,352,418
----------- ------------
Pro forma Net income per common
share $ 0.24 $ 0.95
----------- ------------
</TABLE>
(1) As adjusted to give effect to the issuance of 4,306,149 additional
shares of Common Stock in connection with the Merger.
7. For purposes of these computations, earnings consist of net income before
minority interest in income, loss on early extinguishment of debt and gain
on disposition of real estate plus fixed charges (other than preferred
stock dividends) and less the portion of minority interest in income for
those consolidated minority interests which had no fixed charges during the
period. Fixed charges and preferred stock dividends consist of interest
expense and the dividend requirements of SEI's Series A, Series B, Series
C, Series D, Series E, and Convertible Preferred Stock.
8. The number of shares to be issued in the Merger under this scenario is
dependent upon the market price of SEI Stock. For purposes of these pro
forma financial statements it was assumed that the SEI Stock price would be
approximately $16.75 per share of Common Stock. This share price resulted
in the pro forma issuance of approximately 4,306,149 shares of Common
Stock.
The following illustrates the effect of a $.25 per share market price
fluctuation on the above pro forma financial information:
<TABLE>
<CAPTION>
Pro forma Pro forma Net
Net Income Income Per Share
------------------------- ------------------------
Three Mos. Twelve Three Mos. Twelve Pro forma Book
Number of shares Ended Mos. Ended Ended Mos. Ended Value per share
Market Price issued in the Merger 3/31/95 12/31/94 3/31/95 12/31/94 at 3/31/95
- ---------------- ---------------------- ----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
$16.50 4,371,394 $15,298,000 $59,979,000 $0.24 $0.95 $13.11
$17.00 4,242,824 $15,296,000 $59,973,000 $0.24 $0.95 $13.16
</TABLE>
54
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOW
(Scenario 2: Consummation of Merger through the Issuance of SEI Common Stock)
For the Three Months Ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Issuance Of
SEI Preferred & PSP VIII PSP VI SEI
(Historical) Common Stock(1) Merger(2) Merger(3) (Pro forma)
------------ --------------- --------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 13,200,000 $ 191,000 $ -- $ 715,000 $ 14,106,000
Depreciation and amortization 8,107,000 30,000 -- 288,000 8,425,000
Minority Interest in income 1,823,000 -- -- -- 1,823,000
Gain on disposition of real estate -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total adjustments 9,930,000 30,000 -- 288,000 10,248,000
------------ ------------ ------------ ------------ ------------
Cash provided by operating activities 23,130,000 221,000 -- 1,003,000 24,354,000
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Principal payments on mortgage notes
receivable 284,000 -- -- -- 284,000
Acquisition of minority interest (8,536,000) -- -- -- (8,536,000)
Acquisition of real estate facilities (33,662,000) -- -- -- (33,662,000)
Proceeds form insurance settlement (2,100,000) -- -- -- (2,100,000)
Purchase cost of the mergers (21,427,000) -- -- -- (21,427,000)
Capital expenditures (1,058,000) (5,000) -- (8,000) (1,071,000)
------------ ------------ ------------ ------------ ------------
Cash provided by (used in) investing
activities (66,499,000) (5,000) -- (8,000) (66,512,000)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Principal payments on bank debt 9,553,000 -- -- -- 9,553,000
Proceeds from the issuance of
Common Stock 460,000 -- -- -- 460,000
Proceeds from the issuance of
Preferred Stock 52,888,000 -- -- -- 52,888,000
Principal payments on mortgage debt (409,000) -- -- -- (409,000)
Distributions to shareholders (12,434,000) (458,000) -- (692,000) (13,584,000)
Distribution to minority interest (4,596,000) -- -- -- (4,596,000)
Reinvestment by minority interest 864,000 -- -- -- 864,000
Other (2,576,000) -- -- (39,000) (2,615,000)
------------ ------------ ------------ ------------ ------------
Cash provided by (used in) financing
activities 43,750,000 (458,000) -- (731,000) 42,561,000
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 381,000 (242,000) -- 264,000 403,000
Cash and cash equivalents at the
beginning of the year 20,151,000 -- -- 2,650,000 22,801,000
============ ============ ============ ============ ============
Cash and cash equivalents
at the end of the year $ 20,532,000 $(242,000) $ $2,914,000 $ 23,204,000
============ ============ ============ ============ ============
Funds from Operations $ 18,534,000 $ 19,758,000
============ ============
</TABLE>
<TABLE>
Offer and
PSP 7 Merger SEI
(Historical) Adjustments (4) (Pro forma)
------------ --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 1,290,000 $ (99,000) $ 15,297,000
Depreciation and amortization 481,000 15,000 8,921,000
Minority Interest in income -- -- 1,823,000
Gain on disposition of real estate -- -- --
------------ --------- ------------
Total adjustments 481,000 15,000 10,744,000
------------ --------- ------------
Cash provided by operating activities 1,771,000 (84,000) 26,041,000
------------ --------- ------------
Cash flows from investing activities:
Principal payments on mortgage notes
receivable -- -- 284,000
Acquisition of minority interest -- -- (8,536,000)
Acquisition of real estate facilities -- -- (33,662,000)
Proceeds form insurance settlement -- -- (2,100,000)
Purchase cost of the mergers -- -- (21,427,000)
Capital expenditures (76,000) -- (1,147,000)
------------ --------- ------------
Cash provided by (used in)
investing activities (76,000) -- (66,588,000)
------------ --------- ------------
Cash flows from financing activities:
Principal payments on bank debt (917,000) -- 8,636,000
Proceeds from the issuance of
Common Stock -- -- 460,000
Proceeds from the issuance of
Preferred Stock -- -- 52,888,000
Principal payments on mortgage debt -- -- (409,000)
Distributions to shareholders (1,066,000) 119,000 (14,531,000)
Distribution to minority interest -- -- (4,596,000)
Reinvestment by minority interest -- -- 864,000
Other (333,000) -- (2,948,000)
------------ --------- ------------
Cash provided by (used in)
financing activities (2,316,000) 119,000 40,364,000
------------ --------- ------------
Net increase (decrease) in cash
and cash equivalents (621,000) 35,000 (183,000)
Cash and cash equivalents at the
beginning of the year 1,724,000 -- 24,525,000
============ ========= ============
Cash and cash equivalents
at the end of the year $ 1,103,000 $ 35,000 $ 24,342,000
============ ========= ============
Funds from Operations $ 21,445,000
============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statement of Cash Flows
(Scenario 2).
55
<PAGE>
STORAGE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOW
(Scenario 2: Consummation of Merger through the Issuance of SEI Common Stock)
For the Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Issuance
SEI Of Preferred & PSP VIII PSP VI
(Historical) Common Stock(1) Merger(2) Merger(3)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 42,118,000 $ 7,590,000 $ 1,671,000 $ 3,913,000
Depreciation and amortization 27,581,000 2,950,000 1,120,000 1,728,000
Minority Interest in income 9,481,000 (1,421,000) 0 0
Gain on disposition of real estate 0 0 0 0
--------------- --------------- --------------- --------------
Total adjustments 37,062,000 1,529,000 1,120,000 1,728,000
--------------- --------------- --------------- --------------
Cash provided by operating activities 79,180,000 9,119,000 2,791,000 5,641,000
--------------- --------------- --------------- --------------
Cash flows from investing activities:
Principal payments on mortgage notes receivable 6,785,000 (557,000) -- --
Investment in real estate partnerships (78,000) -- -- --
Acquisition of mortgage notes receivable (4,020,000) -- -- --
Acquisition of minority interest (51,711,000) (1,700,000) -- --
Acquisition of real estate facilities (93,026,000) (24,948,000) -- --
Proceeds from insurance settlement 1,666,000 -- 425,000 --
Purchase cost of the mergers (20,972,000) -- -- (22,478,000)
Capital expenditures (8,312,000) (473,000) (1,507,000) (360,000)
--------------- --------------- --------------- --------------
Cash provided by (used in) investing activities (169,668,000) (27,678,000) (1,082,000) (22,838,000)
--------------- --------------- --------------- --------------
Cash flows from financing activities:
Principal payments on bank debt (10,323,000) (25,447,000) -- 9,249,000
Proceeds from the issuance of Common Stock 110,280,000 -- -- --
Proceeds from the issuance of Preferred Stock 57,899,000 52,946,000 -- --
Principal payments on mortgage debt (8,233,000) (457,000) -- --
Distributions to shareholders (38,095,000) (10,026,000) (1,634,000) (2,676,000)
Distribution to minority interest (23,037,000) 3,670,000 -- --
Reinvestment by minority interest 7,962,000 (2,111,000) -- --
Other 3,654,000 -- (276,000) (336,000)
--------------- --------------- --------------- --------------
Cash provided by (used in) financing activities 100,107,000 18,575,000 (1,910,000) 6,237,000
--------------- --------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 9,619,000 16,000 (201,000) (10,960,000)
Cash and cash equivalents at the beginning of the year 10,532,000 0 1,470,000 1,408,000
--------------- --------------- --------------- --------------
Cash and cash equivalents at the end of the year $ 20,151,000 $ 16,000 $ 1,269,000 $ (9,552,000)
=============== =============== =============== ==============
Funds from Operations $ 56,143,000
===============
<CAPTION>
Offer and
SEI PSP 7 Merger SEI
(Pro forma) (Historical) Adjustments(4) (Pro forma)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 55,292,000 $ 5,139,000 $ (414,000) $ 60,017,000
Depreciation and amortization 33,379,000 1,912,000 96,000 35,387,000
Minority Interest in income 8,060,000 0 0 8,060,000
Gain on disposition of real estate 0 (203,000) 0 (203,000)
--------------- --------------- --------------- ---------------
Total adjustments 41,439,000 1,709,000 96,000 43,244,000
--------------- --------------- --------------- ---------------
Cash provided by operating activities 96,731,000 6,848,000 (318,000) 103,261,000
--------------- --------------- --------------- ---------------
Cash flows from investing activities:
Principal payments on mortgage notes receivable 6,228,000 -- -- 6,228,000
Investment in real estate partnerships (78,000) -- -- (78,000)
Acquisition of mortgage notes receivable (4,020,000) -- -- (4,020,000)
Acquisition of minority interest (53,411,000) -- -- (53,411,000)
Acquisition of real estate facilities (117,974,000) -- -- (117,974,000)
Proceeds from insurance settlement 2,091,000 375,000 -- 2,466,000
Purchase cost of the mergers (43,450,000) -- (1,450,000) (44,900,000)
Capital expenditures (10,652,000) (464,000) -- (11,116,000)
--------------- --------------- --------------- ---------------
Cash provided by (used in) investing activities (221,266,000) (89,000) (1,450,000) (222,805,000)
--------------- --------------- --------------- ---------------
Cash flows from financing activities:
Principal payments on bank debt (26,521,000) (2,116,000) -- (28,637,000)
Proceeds from the issuance of Common Stock 110,280,000 -- -- 110,280,000
Proceeds from the issuance of Preferred Stock 110,845,000 -- -- 110,845,000
Principal payments on mortgage debt (8,690,000) -- -- (8,690,000)
Distributions to shareholders (52,431,000) (4,271,000) 611,000 (56,091,000)
Distribution to minority interest (19,367,000) -- -- (19,367,000)
Reinvestment by minority interest 5,851,000 -- -- 5,851,000
Other 3,042,000 (457,000) -- 2,585,000
--------------- --------------- --------------- ---------------
Cash provided by (used in) financing activities 123,009,000 (6,844,000) 611,000 116,776,000
--------------- --------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,526,000) (85,000) (1,157,000) (2,768,000)
Cash and cash equivalents at the beginning of the year 13,410,000 1,809,000 0 15,219,000
=============== =============== =============== ===============
Cash and cash equivalents at the end of the year $ 11,884,000 $ 1,724,000 $ (1,157,000) $ 12,451,000
=============== =============== =============== ===============
Funds from Operations $ 77,364,000 $ 83,894,000
=============== ===============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statement of Cash Flows
(Scenario 2).
56
<PAGE>
1. See Note 1 to Pro Forma Consolidated Statements of Cash Flows (Scenario 1).
2. See Note 2 to Pro Forma Consolidated Statements of Cash Flows (Scenario 1).
3. See Note 3 to Pro Forma Consolidated Statements of Cash Flows (Scenario 1).
4. Pro forma Merger adjustments, assuming that the Merger is consummated solely
through the issuance of SEI Common Stock have been made to the pro forma
consolidated statements of income to reflect the Merger. Similarly, the
following pro forma adjustments were made to reflect the effect on net cash
provided by operating activities:
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, 1995 December 31, 1994
------------------ ------------------
<S> <C> <C>
"Net income" was adjusted to reflect
the overall effect of the Merger $ (99,000) $ (414,000)
--------- ----------
Pro forma adjustments have been made
to depreciation and amortization
expense to reflect the Merger $ 15,000 $ 96,000
--------- ----------
In addition, pro forma adjustments
were made to cash flows from investing
and financing activities as follows:
"Purchase cost of the Merger" has
been adjusted to reflect the fees
and expenses expected to be incurred
by SEI $ -- $ (1,450,000)
--------- -----------
"Distributions paid to shareholders"
has been decreased as followings:
. to eliminate PSP7 historical
distributions $1,066,000 $ 4,271,000
. to reflect the additional
distributions which would
have been paid as a result
of the issuance of 4,306,149
additional shares of Common
Stock (assuming the historical
distribution rates of $.22 and
$.85 per share for the three
months ended March 31, 1995 and
the year ended December 31, 1994, (947,000) (3,660,000)
respectively) ------- ---------
$ 119,000 $ 611,000
-------- ----------
</TABLE>
57
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are included herein:
(2) Agreement and Plan of Reorganization between Registrant and
Public Storage Properties VII, Inc., dated as of February 2,
1995. Filed with Registrant's Registration Statement No. 33-
58893 and incorporated herein by reference.
(3) Certificate of Determination for the Series F Preferred
Stock. Filed with the Registrant's Form 8-A/A Registration
Statement relating to the Series F Preferred Stock and
incorporated herein by reference.
(11) Statement re: Computation of Earnings per Share
(12) Statement re: Computation of Ratio of Earnings to Fixed
Charges
(27) Financial Data Schedule
(b) Form 8-K
The Company filed a Current Report on Form 8-K dated January 24,
1995, pursuant to Item 5, which filed certain exhibits relating
to the Company's public offering of the Series E Preferred Stock.
58
<PAGE>
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 9, 1995
STORAGE EQUITIES, INC.
BY: /s/ Ronald L. Havner, Jr.
--------------------------
Ronald L. Havner, Jr.
Vice President and
Chief Financial Officer
59
<PAGE>
STORAGE EQUITIES, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
- ---------------------------
Net income $13,200,000 $ 8,746,000
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A (1,141,000) (1,141,000)
9.20% Cumulative Preferred Stock, Series B (1,372,000) (1,322,000)
Variable Rate Preferred Stock, Series C (650,000) -
9.50% Cumulative Preferred Stock, Series D (713,000) -
10.0% Cumulative Preferred Stock, Series E (914,000) -
8.25% Convertible Preferred Stock (1,186,000) (1,186,000)
----------- -----------
Net income allocable to common shareholders $ 7,224,000 $ 5,097,000
=========== ===========
Weighted Average common and common equivalent
shares outstanding:
Weighted average common shares outstanding 30,474,973 20,969,125
Net effect of dilutive stock options - based on
treasury stock method using average market price 91,866 197,353
----------- -----------
Total 30,566,839 21,166,478
=========== ===========
Primary earnings per common and common equivalent share $ 0.24 $ 0.24
=========== ===========
</TABLE>
60
<PAGE>
STORAGE EQUITIES, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
FULLY-DILUTED EARNINGS PER
- --------------------------
COMMON AND COMMON
-----------------
EQUIVALENT SHARE
-----------------
Net income allocable to common shareholders per $ 7,224,000 $ 5,097,000
Primary calculation above
Add: dividends to 8.25% Convertible Preferred Stock 1,186,000 1,186,000
----------- -----------
Net income allocable to common shareholders for
purposes of determining Fully-diluted Earnings
per Common and Common Equivalent Share $ 8,410,000 $ 6,283,000
=========== ===========
Weighed average common and common equivalent
shares outstanding 30,566,839 21,166,478
Pro forma weighted average common shares
assuming conversion of 8.25% Convertible
Preferred Stock 3,872,054 3,872,054
----------- -----------
Weighed average common and common equivalent
shares for purposes of computation of
Fully-diluted Earnings per Common and Common
Equivalent Share 34,438,893 25,038,532
=========== ===========
Fully-diluted Earnings per Common and Common
Share (1) $ 0.24 $ 0.25
=========== ===========
</TABLE>
(1) Such amounts are anti-dilutive and are not presented in the Company's
consolidated financial statements
61
<PAGE>
STORAGE EQUITIES, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Mos. Ended
March 31, For the Year Ended December 31,
----------------- -----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ----- ---- ---- ---- ----
(Amount in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $13,200 $ 8,746 $42,118 $28,036 $15,123 $11,954 $11,994
Add: Minority interest in income 1,823 2,049 9,481 7,291 6,895 6,693 9,154
Less: Gain on disposition of real estate 0 0 0 0 (398) 0 (1,146)
Less: Minority interests in income
which do not have fixed charges (825) (1,261) (5,906) (737) (694) (501) (470)
------- ------- ------- ------- ------- ------- -------
Income from continuing operations 14,198 9,534 45,693 34,590 20,926 18,146 19,532
Interest expense 1,520 1,558 6,893 6,079 9,834 10,621 10,920
------- ------- ------- ------- ------- ------- -------
Total Earnings Available to
Cover Fixed Charges $15,718 $11,092 $52,586 $40,669 $30,760 $28,767 $30,452
======= ======= ======= ======= ======= ======= =======
Interest expense $ 1,520 $ 1,558 $ 6,893 $ 6,079 $ 9,834 $10,621 $10,920
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges $ 1,520 $ 1,558 $ 6,893 $ 6,079 $ 9,834 $10,621 $10,920
======= ======= ======= ======= ======= ======= =======
Preferred Stock dividends:
Series A $ 1,141 $ 1,141 $ 4,563 $ 4,563 $ 812 $ 0 $ 0
Series B 1,372 1,322 5,339 4,147 0 0 0
Series C 650 0 1,250 0 0 0 0
Series D 713 0 950 0 0 0 0
Series E 914 0 0 0 0 0 0
Convertible 1,186 1,186 4,744 2,179 0 0 0
------- ------- ------- ------- ------- ------- -------
Total Preferred Stock dividends $ 5,976 $ 3,649 $16,846 $10,889 $ 812 $ 0 $ 0
======= ======= ======= ======= ======= ======= =======
Total Combined Fixed Charges
and Preferred Stock dividends $ 7,496 $ 5,207 $23,739 $16,968 $10,646 $10,621 $10,920
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 10.34 7.12 7.63 6.69 3.13 2.71 2.79
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock dividends 2.10 2.13 2.22 2.40 2.89 2.71 2.79
======= ======= ======= ======= ======= ======= =======
</TABLE>
62
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 20,532,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,532,000
<PP&E> 1,089,150,000
<DEPRECIATION> (210,881,000)
<TOTAL-ASSETS> 932,337,000
<CURRENT-LIABILITIES> 14,893,000
<BONDS> 87,119,000
<COMMON> 3,284,000
0
277,650,000
<OTHER-SE> 415,498,000
<TOTAL-LIABILITY-AND-EQUITY> 932,337,000
<SALES> 0
<TOTAL-REVENUES> 43,198,000
<CGS> 0
<TOTAL-COSTS> 23,954,000
<OTHER-EXPENSES> 2,701,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,520,000
<INCOME-PRETAX> 13,200,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,200,000
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
