<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 September 30, 1995
--------------------
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________.
Commission File Number: 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 November 10, 1995:
Common Stock, $.10 par value, 42,064,283 shares outstanding
- -------------------------------------------------------------
<PAGE>
STORAGE EQUITIES, INC.
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Balance Sheets at September 30, 1995
and December 31, 1994 1
Condensed Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1995 and 1994 2
Condensed Consolidated Statement of Shareholders' Equity 3
Condensed Consolidated Statements of Cash Flows for Nine
Months Ended September 30, 1995 and 1994 4-5
Notes to Condensed Consolidated Financial Statements 6-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-29
PART II. OTHER INFORMATION (Items 2, 3 , 4 and 5 are not applicable)
- ---------------------------
Item 1. Legal Proceedings 30
Item 6. Exhibits and Reports on Form 8-K 30
</TABLE>
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 14,697,000 $ 20,151,000
Real estate facilities, at cost, net of accumulated depreciation
of $230,553,000 ($202,745,000 at December 31, 1994) 1,144,709,000 764,973,000
Mortgage notes receivable from affiliates 10,103,000 23,062,000
Other assets 20,552,000 12,123,000
-------------- -------------
Total assets $1,190,061,000 $ 820,309,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Note payable to banks $ 5,000,000 $ 25,447,000
Mortgage notes payable 105,689,000 51,788,000
Accrued and other liabilities 22,636,000 14,061,000
-------------- -------------
Total liabilities 133,325,000 91,296,000
Minority interest 133,795,000 141,227,000
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares authorized,
13,437,200 shares issued and outstanding (8,911,000 shares
at December 31, 1994): (Note 9)
Cumulative Senior Preferred Stock, issued in series 277,650,000 165,275,000
Convertible Preferred Stock 85,970,000 57,500,000
Common stock, $.10 par value, 60,000,000 shares authorized,
42,064,283 shares issued and outstanding (28,826,707 at
December 31, 1994) 4,207,000 2,883,000
Paid-in capital 562,168,000 372,361,000
Cumulative net income 221,706,000 172,485,000
Cumulative distributions paid (228,760,000) (182,718,000)
-------------- -------------
Total shareholders' equity 922,941,000 587,786,000
-------------- -------------
Total liabilities and shareholders' equity $1,190,061,000 $ 820,309,000
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
1995 1994 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $55,519,000 $36,662,000 $143,587,000 $101,909,000
Interest and other income 1,419,000 887,000 4,461,000 4,180,000
----------- ----------- ------------ ------------
56,938,000 37,549,000 148,048,000 106,089,000
----------- ----------- ------------ ------------
EXPENSES:
Cost of operations 19,827,000 12,990,000 52,169,000 37,678,000
Depreciation and amortization 10,961,000 6,991,000 27,887,000 20,532,000
General and administrative 875,000 722,000 2,611,000 2,101,000
Advisory fee 2,036,000 1,288,000 5,462,000 3,644,000
Interest expense 2,035,000 1,611,000 5,249,000 4,455,000
----------- ----------- ------------ ------------
35,734,000 23,602,000 93,378,000 68,410,000
----------- ----------- ------------ ------------
Income before minority interest 21,204,000 13,947,000 54,670,000 37,679,000
Minority interest in income (1,734,000) (3,004,000) (5,449,000) (7,795,000)
----------- ----------- ------------ ------------
Net income $19,470,000 $10,943,000 $ 49,221,000 $ 29,884,000
=========== =========== ============ ============
Allocation of net income:
- -------------------------
Net income allocable to preferred shareholders $ 8,596,000 $ 4,504,000 $ 21,904,000 $ 11,802,000
Net income allocable to common shareholders 10,874,000 6,439,000 27,317,000 18,082,000
----------- ----------- ------------ ------------
Net income $19,470,000 $10,943,000 $ 49,221,000 $ 29,884,000
=========== =========== ============ ============
Net income per common share $ 0.26 $ 0.27 $ 0.76 $ 0.79
=========== =========== ============ ============
Weighted average common shares outstanding 42,217,481 23,826,953 35,847,202 22,951,407
=========== =========== ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1995
(Amounts in thousands, except share and per share date)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock
---------------------------- Total
Cumulative Common Paid-in Cumulative Cumulative Shareholders'
Senior Convertible Stock Capital Net Income Distribution 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:
Series E (2,195,000 shares) 54,875 - - (1,987) - - 52,888
Series F (2,300,000 shares) 57,500 - - (2,011) - - 55,489
Mandatory Convertible
Participating Preferred Stock
(31,200 shares) - 28,470 - - - - 28,470
Issuance of Common Stock:
In connection with mergers
(6,664,287 shares) - - 667 99,305 - - 99,972
Less: cost of issuance shares
in connection with mergers - - - (2,500) - - (2,500)
Public offerings (5,482,200
shares) - - 548 81,520 - - 82,068
Other (1,091,089 shares) - - 109 15,480 - - 15,589
Net income - - - - 49,221 - 49,221
Cash distributions:
Cumulative Senior Preferred
Stock - - - - - (17,479) (17,479)
Convertible Preferred Stock - - - - - (3,558) (3,558)
Mandatory Convertible
Participating Preferred Stock - - - - - (867) (867)
Common Stock - - - - - (24,138) (24,138)
-------- ------- ------ -------- -------- --------- --------
Balances at September 30, 1995 $277,650 $85,970 $4,207 $562,168 $221,706 $(228,760) $922,941
======== ======= ====== ======== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 49,221,000 $ 29,884,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization (including
amortization of mortgage notes
receivable discounts) 27,797,000 19,896,000
Minority interest in income 5,449,000 7,795,000
Other 132,000 1,903,000
------------- -------------
Total adjustments 33,378,000 29,594,000
------------- -------------
Net cash provided by operating activities 82,599,000 59,478,000
------------- -------------
Cash flows from investing activities:
Principal payments received on mortgage
notes receivable from affiliates 344,000 6,562,000
Acquisition of real estate facilities (101,021,000) (75,713,000)
Acquisition cost of mergers (35,434,000) -
Capital improvements to maintain real
estate facilities (6,380,000) (4,765,000)
Construction in process (3,866,000) -
Acquisition of minority interests in
real estate partnerships (35,901,000) (29,338,000)
Acquisition of mortgage notes receivable (2,215,000) (4,020,000)
Investment in real estate entities (3,988,000) (413,000)
------------- -------------
Net cash used in investing activities (188,461,000) (107,687,000)
------------- -------------
Cash flows from financing activities:
Net pay downs on note payable to banks (20,447,000) (35,770,000)
Net proceeds from the issuance
of preferred stock 108,377,000 57,899,000
Net proceeds from the issuance
of common stock 80,525,000 78,747,000
Principal payments on mortgage notes payable (6,394,000) (7,843,000)
Distributions paid to shareholders (46,042,000) (26,478,000)
Distributions from operations to
minority interests in real estate partnerships (13,642,000) (18,129,000)
Net reinvestment by minority interests
into real estate partnerships (1,969,000) 6,139,000
------------- -------------
Net cash provided by financing activities 100,408,000 54,565,000
------------- -------------
Net (decrease) increase in cash and cash equivalents (5,454,000) 6,356,000
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 $ 14,697,000 $ 16,888,000
============= =============
</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 Nine Months Ended
September 30,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
Supplemental schedule of noncash investing and financing activities:
- -------------------------------------------------------------------
Acquisition of partnership interests in real estate entities in exchange
for common stock $ (4,034,000) $ -
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 and preferred stock (82,426,000) (34,494,000)
Merger acquisitions (Note 3):
Real estate facilities (140,775,000) (57,415,000)
Other assets (1,441,000) (1,620,000)
Accrued and other liabilities 6,809,000 695,000
Partnership consolidations (Note 2):
Real estate facilities (70,415,000) -
Other assets (2,810,000) -
Accrued and other liabilities 669,000 -
Mortgage notes payable 3,387,000 -
Minority interest 16,566,000 -
Investment in real estate partnerships 4,729,000 -
Assumption of mortgage notes payable in connection with the
acquisition of real estate facilities 56,908,000 5,913,000
Cancellation of mortgage notes receivable in connection with
the acquisition of real estate facilities 14,920,000 23,452,000
Reduction in other assets - deposits on real estate acquisitions - 4,350,000
Issuance of Convertible Participating Preferred Stock in
connection with the acquisition of partnership interests 28,470,000 -
Issuance of common stock:
- to acquire participation interests in real estate facilities 10,598,000 -
- to acquire partnership interests in real estate entities 4,034,000 -
- in connection with mergers 99,972,000 37,369,000
Increase in accrued and other liabilities:
- acquisition cost of real estate facilities - 779,000
- accrued distributions payable - 236,000
- in connection with mergers - 20,654,000
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 1995, the Company had equity interests (through
direct ownership, as well as general and limited partnership interests) in
529 (262 properties are wholly-owned wholly by the Company and 265
properties which are owned by real estate partnerships) operating
properties located in 37 states, including 489 mini-warehouse facilities,
20 business parks and 20 combination mini-warehouse/business park
facilities. All but two of the facilities have been included in the
consolidated financial statements (see below). All of these facilities are
operated under the "Public Storage" name. The Company is also currently
developing three mini-warehouse facilities.
As of September 30, 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 and nine months ended September
30, 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
SEPTEMBER 30, 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 consolidated partnerships in which the Company
has a significant controlling ownership interest, principally 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.
During 1995, the Company acquired additional ownership interests in
twelve limited partnerships (other than the PSP Partnerships) and thereby
increased its ownership interest above 50% in each partnership. Based on
its ownership interest and its ability to control the partnerships, the
Company has included these partnerships in its consolidated financial
statements. The fair market values of the partnerships' assets and
liabilities at September 30, 1995 are summarized as follows:
Real estate facilities $70,415,000
Other assets 2,810,000
Accrued and other liabilities (669,000)
Mortgage notes payable (3,387,000)
-----------
$69,169,000
===========
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.
7
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
2. Summary of significant accounting policies (Cont'd.)
----------------------------------------------------
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.
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 and Convertible Participating Preferred Stock would be anti-
dilutive.
Revenue recognition
-------------------
Property rents are recognized as earned. Rents from business park
operations are not straight-lined, but are recognized based on billings for
sums payable.
Interest income on mortgage notes receivable is recognized using
the effective rate of interest.
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") and Public
-----------------------------------------------------------------------------
Storage Properties VII, Inc. ("Properties 7")
---------------------------------------------
On February 28, 1995 and June 30, 1995, the Company completed separate
merger transactions with Properties 6 and Properties 7, respectively,
whereby the Company acquired all the outstanding stock of Properties 6 and
Properties 7 in exchange for cash and common stock of the Company.
Properties 6 and Properties 7 were real estate investment trusts and
affiliates of the Company's investment adviser (Public Storage Advisers,
Inc., the "Adviser").
Properties 6 owned and operated 22 mini-warehouse facilities and one
combination mini-warehouse/business park facility (approximately 1,453,000
aggregate rentable square feet). Pursuant to the merger, the Company
acquired all of the outstanding stock of Properties 6 at a cost of
$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
8
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") and
----------------------------------------------------------------------
Public Storage Properties VII, Inc. ("Properties 7") (Cont'd.)
--------------------------------------------------------------
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:
At February 28, 1995
--------------------
Real estate facilities $66,475,000
Other assets 279,000
Accrued and other liabilities (1,412,000)
-----------
$65,342,000
===========
Properties 7 owned and operated 34 mini-warehouse facilities, three
business parks, and one combination mini-warehouse/business park facility
(approximately 2,014,000 aggregate rentable square feet). Pursuant to the
merger, the Company acquired all of the outstanding stock of Properties 7
at a cost of $70,064,000 consisting of the issuance of 3,517,272 shares of
the Company's common stock (with an aggregate value of $56,057,000) and
$14,007,000 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 June 30, 1995. The fair market values of the assets acquired and
liabilities assumed are summarized as follows:
At June 30, 1995
----------------
Real estate facilities $74,300,000
Other assets 1,162,000
Accrued and other liabilities (5,398,000)
-----------
$70,064,000
===========
The historical operating results of Properties 6 and Properties 7
prior to each respective merger date have not been included in the
Company's historical operating results. Pro forma data (unaudited) for the
nine months ended September 30, 1995 and 1994 as though the merger
transactions had been effective at the beginning of each period are as
follows:
For the Nine Months Ended
September 30,
--------------------------
1995 1994
------------ -----------
Revenues $156,538,000 $123,912,000
Net income 51,782,000 35,776,000
Net income per common share $ 0.77 $ 0.81
9
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") and
----------------------------------------------------------------------
Public Storage Properties VII, Inc. ("Properties 7") (Cont'd)
-------------------------------------------------------------
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 (consisting of principally expenses of Properties 6 and Properties
7 relating to board of directors fees, stock exchange listing fees, audit
and tax fees), (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
----------------------
Activity in real estate facilities during 1995 consists of the following:
<TABLE>
<CAPTION>
Number of real Net Carrying
estate facilities Cost
----------------- -------------
<S> <C> <C>
Beginning balance 387 $ 764,973,000
Property Acquisitions:
In connection with Mergers (Note 3) 61 140,775,000
Other wholly-owned facilities 52 172,041,000
Properties of newly consolidated
real estate partnerships 27 70,415,000
Construction in process 3 3,866,000
Acquisition of Participation interests - 11,406,000
Acquisition of minority interests (Note 11) - 2,661,000
Capital improvements - 6,380,000
Depreciation expense - (27,808,000)
----- --------------
Ending balance 530 $1,144,709,000
===== ==============
</TABLE>
In addition to the 61 wholly-owned real estate facilities acquired
in connection with the mergers, the Company acquired 52 mini-warehouse
facilities (approximately 4,256,000 aggregate rentable square feet) during
1995 for an aggregate cost of $168,043,000, consisting of the cancellation
of mortgage notes receivable totaling $14,920,000, the assumption of
mortgage notes payable totaling $56,908,000 and cash totaling $96,215,000.
10
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
4. Real estate facilities (Cont'd.)
--------------------------------
During 1995, the Company acquired limited partnership interests in
twelve real estate partnerships for an aggregate cost of $47,874,000,
consisting of the issuance of Mandatory Convertible Participating Preferred
Stock totaling $28,470,000 and cash totaling $19,404,000. The acquisition
of these interests has increased the Company's ownership interest in each
of the partnerships above 50%. The Company's ownership interest combined
with its ability to control the partnerships has resulted in the inclusion
of the accounts of these partnerships in the Company's consolidated
financial statements. The aggregate cost of the 27 real estate facilities
(1,1680,000 square feet) totaling $70,415,000 includes the aggregate cost
of the Company's investment in the partnerships ($52,194,000, which
includes the Company's pre-1995 investment in the partnerships of
$4,320,000), the assumption of mortgage notes payable ($3,387,000) and the
minority interests' equity ownership ($14,834,000).
During 1995, the Company began construction of four mini-warehouse
facilities, one of which has been completed and put into operation during
August 1995. Included in real estate facilities at September 30, 1995 is
approximately $3,866,000 of costs related to the remaining three facilities
under construction.
At December 31, 1994, affiliates of Adviser, had participation
interests of up to 25% in 21 mini-warehouse facilities owned by the
Company. During the first nine months of 1995, the Company acquired these
participation interests from such affiliates for an aggregate cost of
$11,406,000, consisting of $10,598,000 in common stock of the Company and
cash totaling $808,000. The cost of these participation interests has been
included in real estate facilities as part of the acquisition cost of the
respective facilities.
Several mini-warehouse facilities which were acquired during 1995
were acquired directly from affiliates 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 these real estate facilities was approximately $120.4
million.
5. Mortgage notes receivable from affiliates
-----------------------------------------
At September 30, 1995, mortgage notes receivable balance of
$10,103,000 is net of related discounts totaling $426,000. The mortgage
notes bear interest at stated rates ranging from 7.69% to 10.75% (effective
interest rates ranging from 7.69% to 14.7%) and are secured by 8 mini-
warehouse facilities owned by affiliated partnerships.
During 1995, the Company canceled mortgage notes which had a net
carrying value of $14,920,000, as part of the acquisition cost of the
underlying real estate facility securing the mortgage note. See Note 4.
11
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
6. Minority interest
-----------------
Minority interest consists principally of equity interests in the
PSP Partnerships which are not owned by the Company consisting of limited
partnership interests owned by unaffiliated third parties.
During 1995, the Company acquired additional limited partnership
interests in the PSP Partnerships for an aggregate cost of approximately
$16,497,000. These transactions had the effect of reducing minority
interest by approximately $13,836,000 (the historical book value of such
interests in the underlying net assets of the partnerships). The excess
cost over the underlying book value of $2,661,000 has been allocated to
real estate facilities in consolidation.
During 1995, the Company increased its ownership interest in twelve
real estate limited partnerships in excess of 50%. As a result of the
Company's ownership interest and its ability to control each of the
partnerships, the Company has included the accounts of these partnerships
in its consolidated financial statements. In consolidation minority
interest was increased by $16,566,000, representing the remaining partners'
equity interests in the aggregate real estate facilities ($14,834,000) and
net assets and liabilities of the partnerships ($1,732,000).
Minority interest in income consists of the minority interests'
share of the operating results of the Company. In determining income
allocable to the minority interests for the nine months ended September 30,
1995 and 1994 consolidated depreciation and amortization expense of
approximately $8,193,000 and $10,334,000, respectively, was allocated to
the minority interest ($2,801,000 and $3,039,000 for the three months ended
September 30, 1995 and 1994, respectively).
7. Advisory and management contracts
---------------------------------
Pursuant to an advisory contract, the Company paid the Adviser
advisory fees of approximately $5,462,000 and $3,644,000 for the nine
months ended September 30, 1995 and 1994, respectively ($2,036,000 and
$1,288,000 for the three months ended September 30, 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 $8,489,000 and $6,002,000 for the nine
months ended September 30, 1995 and 1994, respectively ($3,284,000 and
$2,162,000 for the three months ended September 30, 1995 and 1994,
respectively).
12
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
8. Shareholders' equity
--------------------
Common stock
------------
During 1995, the Company issued shares of its common as follows:
(i) 46,667 shares ($365,000) in connection with exercise of stock options,
(ii) 40,000 shares ($582,00) to directors/officers of the Company for cash,
(iii) 747,355 shares ($10,598,000) to acquire participation interests in
mini-warehouse facilities owned by the Company (see Note 4), (iv) 257,067
shares ($4,034,000) to acquire the participation interests in mini-
warehouses owned by affiliates of the Adviser, (v) 5,482,200 shares
($82,068,000) in a public offering, and (vi) 6,664,287 shares ($99,972,000)
in connection with the mergers (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
mergers, the Company incurred related costs and expenses of approximately
$2,500,000.
Preferred stock
---------------
At September 30, 1995 and December 31, 1994, the Company had the
following series of Preferred Stock outstanding:
<TABLE>
<CAPTION>
Shares Outstanding Carrying Amount
--------------------------------- ---------------------------------
Dividend September 30, December 31, September 30, December 31,
Series Rate 1995 1994 1995 1994
-------------------------------- ---------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Series A 10.00% 1,825,000 1,825,000 $ 45,625,000 $ 45,625,000
Series B 9.20% 2,386,000 2,386,000 59,650,000 59,650,000
Series C Adjustable 1,200,000 1,200,000 30,000,000 30,000,000
Series D 9.50% 1,200,000 1,200,000 30,000,000 30,000,000
Series E 10.00% 2,195,000 - 54,875,000 -
Series F 9.75% 2,300,000 - 57,500,000 -
---------- --------- ------------ ------------
Senior Preferred Stock totals 11,106,000 6,611,000 277,650,000 165,275,000
---------- --------- ------------ ------------
Convertible 8.25% 2,300,000 2,300,000 57,500,000 57,500,000
Mandatory Convertible Participating Variable 31,200 - 28,470,000 -
---------- --------- ------------ ------------
Convertible Preferred Stock totals 2,331,200 2,300,000 85,970,000 57,500,000
---------- --------- ------------ ------------
13,437,200 8,911,000 $363,620,000 $222,775,000
========== ========= ============ ============
</TABLE>
The carrying amounts are equivalent to the liquidation preference,
with the exception of the Convertible Participating Preferred Stock which
has a liquidation preference equal to $31,200,000.
On February 1, 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.
13
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
9. Shareholders' equity (Cont'd.)
------------------------------
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
$55,489,000.
Effective July 1, 1995, the Company issued 31,200 shares of its
Mandatory Convertible Participating Preferred Stock to an unaffiliated
investor to acquire the investor's limited partnership interest in an
affiliated real estate partnership. On June 30, 2002, the Mandatory
Convertible Participating Preferred Stock will mandatory convert into
common stock of the Company, however, prior to that time it is convertible
at the option of the holder. At conversion, the number of common shares to
be issued to the holder will determined based upon the Company's acquired
partnership interest in the then aggregate property values of the real
estate partnership divided by the average market price of the Company's
common stock (if converted prior to June 30, 2000 the lesser of $18.00 or
the average market price of the Company's common stock will be used). At
September 30, 1995, the Mandatory Convertible Participating Preferred Stock
was convertible into approximately 1,503,800 shares of the Company's common
stock.
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 (including the Mandatory Convertible
Participating 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. The Mandatory
Convertible Participating Preferred Stock has voting rights on a share for
share basis as the common stock. The payment of advisory fees is
subordinated to the payment of quarterly dividends to the Cumulative Senior
Preferred Stock.
Dividends
---------
The dividend rate on the Series C Preferred Stock for the third
quarter of 1995 was equal to 7.249% 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
fourth quarter of 1995 will be equal to 7.205% per annum.
14
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
9. Shareholders' equity (Cont'd.)
------------------------------
Dividends
---------
The Mandatory Convertible Participating Preferred Stock was issued
in connection with the acquisition of limited partnership interests in a
real estate limited partnership. Quarterly dividends on the Mandatory
Convertible Participating Preferred Stock vary depending on operating
results of the real estate facilities of the partnership. For the first
eight quarters dividends are equal to $390,000 plus the Company's acquired
interest in property cash flows, as defined, in excess of a base amount of
$45,000. Thereafter quarterly dividends will be equal to $390,000 plus the
Company's acquired interest in property cash flows, as defined, in excess
of a base amount of $525,000.
The following summarizes dividends paid during the third quarter of
1995:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, 1995
------------------------------
Distributions Total
Per Share Distributions
------------- -------------
<S> <C> <C>
Series A $ 0.625 $ 1,140,000
Series B $ 0.575 1,372,000
Series C $ 0.453 544,000
Series D $ 0.594 713,000
Series E $ 0.625 1,372,000
Series F $ 0.609 1,402,000
Convertible $ 0.516 1,186,000
Mandatory Convertible Participating $27.700 867,000
-----------
8,596,000
Common $ 0.220 9,252,000
-----------
$17,848,000
===========
</TABLE>
10. Proposed Merger and Restructure
-------------------------------
The Company has entered into an Agreement and Plan of
Reorganization by and among Public Storage, Inc. ("PSI"), PSMI and the
Company, dated as of June 30, 1995 (the "Agreement and Plan of
Reorganization"), pursuant to which PSMI would be merged into the Company.
Prior to the merger, substantially all of the United States real estate
interests of PSI, together with the Adviser and PSCP, will be combined with
PSMI. In the merger, the outstanding capital stock of PSMI would be
converted into an aggregate of 30,000,000 shares of Common Stock of the
Company (subject to certain adjustments) and 7,000,000 shares of newly
created Class B Common Stock of the Company, and the Company would be
renamed "Public Storage, Inc." The merger was approved by a special
committee of disinterested directors of the Company and by the Company's
Board of Directors. The merger is subject to a number of conditions,
including approval by the Company's common shareholders. The Agreement and
Plan of Reorganization, which is included as an exhibit to the Company's
Proxy Statement dated October 11, 1995 (filed October 13, 1995) is
incorporated herein by this reference.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
RESULTS OF OPERATIONS
---------------------
Three months ended September 30, 1995 compared to the three months ended
------------------------------------------------------------------------
September 30, 1994
------------------
Net income for the three months ended September 30, 1995 was
$19,470,000 compared to $10,943,000 for the same period in 1994,
representing an increase of $8,527,000. Net income allocable to common
shareholders increased to $10,874,000 for the three months ended September
30, 1995 from $6,439,000 for the three months ended September 30, 1994. The
increase in net income and net income allocable to common shareholders were
primarily the result of improved property operations, 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 $0.26 per share (based on weighted average shares
outstanding of 42,217,481) for the three months ended September 30, 1995
compared to $0.27 per share (based on weighted average shares outstanding
of 23,826,953) for the same period in 1994. The decrease in net income per
share was principally due to increasing depreciation expense allocable to
the common shareholders, including depreciation allocable to the limited
partnership interests acquired by the Company.
The Company generally analyzes the operating results of its real
estate portfolio in three different categories; (i) mini-warehouse
properties owned since December 31, 1991 (referred to as "Same Stores"),
consisting of 246 mini-warehouses, (ii) mini-warehouse facilities acquired
subsequent to December 31, 1991 (referred to as "Newly Acquired"),
consisting of 261 mini-warehouses, and (iii) 20 business park facilities.
The Company's revenues are generated principally through the operation of
its real estate facilities. The Company's core business, however, is the
operation of mini-warehouse facilities which, during the nine months ended
September 30, 1995, represented approximately 91% of the Company's property
operations (based on 1995 rental income).
Rental income was $55,519,000 and $36,662,000 for the three months
ended September 30, 1995 and 1994, respectively, representing an increase
of $18,857,000 or 51.4%. The following table illustrates rental income by
portfolio category:
<TABLE>
<CAPTION>
For the Three Months
Ended September 30, Net increase
-------------------- ---------------
1995 1994 $$ %%
------ ------ ------ -----
(dollar amounts in 000's)
<S> <C> <C> <C> <C>
RENTAL INCOME:
--------------
Mini-warehouses:
Same Stores $24,292 $23,682 $ 610 2.6%
Newly Acquired 26,561 8,971 17,590 196.1%
Business Parks 4,666 4,009 657 16.4%
------- ------- ------- -----
Total rental income $55,519 $36,662 $18,857 51.4%
======= ======= ======= =====
</TABLE>
16
<PAGE>
The increase in rental income for the Same Stores is principally
due to increased average rental rates. Weighted average occupancy levels
were 91.2% and 92.4% for the Same Store facilities for the three months
ended September 30, 1995 and 1994, respectively. Realized monthly rent per
square foot for these facilities was $0.61 and $0.59 for the three months
ended September 30, 1995 and 1994, respectively.
The increase in rental income for the Newly Acquired mini-
warehouses reflect the acquisition of 140 and 71 mini-warehouses in 1995
and 1994, respectively. For the Newly Acquired mini-warehouses which were
owned by the Company as of the beginning of 1994 (52 facilities), rental
income increased by $221,000 or 4.1% from $5,403,000 in 1994 to $5,624,000
in 1995. This increase was due to increased weighted average occupancy
levels combined with an increase in average rental rates. Weighted average
occupancy levels were 91.1% for these facilities for the three months ended
September 30, 1995 compared to 90.7% for the same period in 1994. Realized
monthly rent per square foot for these facilities was $0.67 and $0.65 for
the three months ended September 30, 1995 and 1994, respectively.
The increase in rental income with respect to the business park
facilities is principally due to the acquisition of 5 facilities during
1994 and 1995. Rental income for those business park facilities owned since
the beginning of 1994 was $3,563,000 and $3,404,000 for the three months
ended September 30, 1995 and 1994, representing an increase of $159,000 or
4.7%. Weighted average occupancy levels for these facilities were 96.9% and
95.6% for the business park facilities for the three months ended September
30, 1995 and 1994, respectively. Monthly realized rent per square foot for
the business park facilities was $0.71 and $0.68 for the three months ended
September 30, 1995 and 1994, respectively.
Cost of operations was $19,827,000 and $12,990,000 for the three
months ended September 30, 1995 and 1994, respectively, representing an
increase of $6,837,000 or 52.6%. The following table illustrates cost of
operations by portfolio category:
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, Net increase
---------------------- ---------------
1995 1994 $$ %%
-------- --------- ------- -----
(dollar amounts in 000's)
<S> <C> <C> <C> <C>
COST OF OPERATIONS:
-------------------
Mini-warehouses:
Same Stores $ 8,379 $ 8,120 $ 259 3.2%
Newly Acquired 9,068 2,961 6,107 206.3%
Business Parks 2,380 1,909 471 24.7%
------- ------- ------ -----
Total cost of operations $19,827 $12,990 $6,837 52.6%
======= ======= ====== =====
</TABLE>
The increase in cost of operations is principally due to the
acquisition of additional real estate facilities during 1995 and the last
half of fiscal 1994. Cost of operations includes property management fees
of $3,284,000 and
17
<PAGE>
$2,162,000 for the three months ended September 30, 1995 and 1994,
respectively. In addition, cost of operations includes property tax expense
of $4,757,000 and $3,017,000 for the three months ended September 30, 1995
and 1994, respectively. Cost of operations for the Same Stores increased
principally due to higher property taxes (1994 included refunds which
reduced expenses) of approximately $100,000 and higher payroll expense of
approximately $150,000.
During the three months ended September 30, 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 and cost of operations increased for the three months ended
September 30, 1995 compared to the same period in 1994 as discussed above.
Depreciation expense increased by $4,100,000 from $6,782,000 for the three
months ended September 30, 1994 to $10,882,000 for the same period in 1995,
resulting in a net increase in property net operating income of $7,920,000
or 46.9%. Property net operating income prior to the reduction for
depreciation expense increased by $12,020,000 or 50.8% from $23,672,000 for
the three months ended September 30, 1994 to $35,692,000 for the same
period in 1995.
Property net operating income for the Same Stores remained stable
at $12,193,000 for the three months ended September 30, 1995 compared to
$12,043,000 for the same period in 1994. Property net operating income
prior to the reduction for depreciation expense for the Same Stores
increased by $351,000 or 2.3% from $15,562,000 for the three months ended
September 30, 1994 to $15,913,000 for the same period in 1995.
The Newly Acquired facilities contributed approximately $11,714,000
and $3,924,000 of property net operating income for the three months ended
September 30, 1995 and 1994, respectively ($17,493,000 and $6,010,000 of
property net operating income prior to the reduction for depreciation
expense for the three months ended September 30, 1995 and 1994,
respectively). Property net operating income for Newly Acquired facilities
which were owned as of the beginning of 1994 (52 facilities), were
$2,865,000 and $2,840,000 respectively, representing an increase of $25,000
or 1.0% ($3,758,000 and $3,644,000 of property net operating income prior
to the reduction for depreciation expense for the three months ended
September 30, 1995 and 1994, respectively, representing an increase of
$114,000 or 3.1%).
Property net operating income for the business park facilities
decreased by $20,000 from $923,000 for the three months ended September 30,
1994 to $903,000 for the same period in 1995. Property net operating income
prior to the reduction for depreciation expense with respect to the
business park facilities increased by $186,000 or 9% from $2,100,000 for
the three months ended September 30, 1994 to $2,286,000 for the same period
in 1995.
Interest and other income increased from $887,000 for the three
months ended September 30, 1994 to $1,419,000 for the same period in 1995
for a net increase of $532,000. The increase is primarily attributable to
increased interest income on cash balances invested in short-term interest
bearing securities partially offset with reduced interest income from
mortgage notes receivable.
18
<PAGE>
On May 31, 1995, the Company completed a public offering of its
common stock raising net proceeds of approximately $82 million. At June 30,
1995 and July 31, 1995, approximately $75 million and $33 million,
respectively, remained invested in short-term interest bearing securities
(with weighted average yields of approximately 5.6% per annum). However,
the remaining proceeds had been invested in real estate assets by August
31, 1995. As a result interest income from cash balances increased by
approximately $378,000. SEE LIQUIDITY AND CAPITAL RESOURCES.
The Company canceled approximately $14,920,000 and $23,452,000 of
mortgage notes receivable during 1995 and 1994, respectively, in connection
with the acquisition of real estate facilities securing such notes. As a
result, interest income from mortgage notes receivable decreased from
$1,013,000 to $310,000 for the three months ended September 30, 1994 and
1995, respectively, as the average outstanding mortgage notes receivable
balance was significantly lower during the three months ended September 30,
1995 compared to the same period in 1994.
Depreciation and amortization expense was $10,961,000 and
$6,991,000 for the three months ended September 30, 1995 and 1994,
respectively, representing an increase of $3,970,000 which is due to the
acquisition of additional properties in 1994 and 1995. Net income allocable
to the common shareholders includes net depreciation and amortization
expense of approximately $8,137,000 ($0.19 per common share) and $3,822,000
($0.16 per common share) for the three months ended September 30, 1995 and
1994, respectively. This increase is due to increased depreciation from the
acquisition of real estate facilities during 1994 and 1995 combined with
increased allocations of depreciation from the consolidated PSP
Partnerships to the Company's shareholders. During 1994 and 1995, the
Company acquired additional partnership interests in the PSP Partnerships
(see below) and as a result an increasing amount of depreciation expense
from the existing real estate portfolio has been allocated to the Company
rather than to the minority interest.
"Minority interest in income" represents the income allocable to
equity (partnership) interests primarily in the PSP Partnerships (whose
accounts are consolidated with the Company) which are not owned by the
Company. Since 1990, the 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 September 30, 1995 and 1994, consolidated depreciation
and amortization expense of approximately $2,801,000 and $3,039,000,
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.
Advisory fees increased by $748,000 from $1,288,000 for the three
months ended September 30, 1994 to $2,036,000 for the same period in 1995.
The advisory fee, which is based on a contractual computation, increased
as a
19
<PAGE>
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.
Nine months ended September 30, 1995 compared to the nine months ended
----------------------------------------------------------------------
September 30, 1994
------------------
Net income for the nine months ended September 30, 1995 was
$49,221,000 compared to $29,884,000 for the same period in 1994,
representing an increase of $19,337,000. Net income allocable to common
shareholders increased to $27,317,000 for the nine months ended September
30, 1995 from $18,082,000 for the nine months ended September 30, 1994. The
increase in net income and net income allocable to common shareholders were
primarily the result of improved property operations for the Same Stores,
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 $0.76 per share (based on weighted
average shares outstanding of 35,847,202) for the nine months ended
September 30, 1995 compared to $0.79 per share (based on weighted average
shares outstanding of 22,951,407) for the same period in 1994. The decrease
in net income per share was principally due to increasing depreciation
expense allocable to the common shareholders, including depreciation
allocable to the limited partnership interests acquired by the Company.
Rental income was $143,587,000 and $101,909,000 for the nine months
ended September 30, 1995 and 1994, respectively, representing an increase
of $41,678,000 or 40.9%. The following table illustrates rental income by
portfolio category:
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, Net increase
---------------------- ---------------
1995 1994 $$ %%
-------- --------- ------- -----
(dollar amounts in 000's)
<S> <C> <C> <C> <C>
RENTAL INCOME:
--------------
Mini-warehouses:
Same Stores $ 70,867 $ 68,669 $ 2,198 3.2%
Newly Acquired 59,361 22,003 37,358 169.8%
Business Parks 13,359 11,237 2,122 18.9%
-------- -------- ------- -----
Total rental income $143,587 $101,909 $41,678 40.9%
======== ======== ======= =====
</TABLE>
The increase in rental income for the Same Stores is principally
due to increased average rental rates. Weighted average occupancy levels
were 90.0% and 90.3% for the Same Store facilities for the nine months
ended September 30, 1995 and 1994, respectively. Realized monthly rent per
square foot for these facilities was $0.60 and $0.58 for the nine months
ended September 30, 1995 and 1994, respectively.
The increase in rental income for the Newly Acquired mini-
warehouses reflect the acquisition of 140 and 71 mini-warehouses in 1995
and 1994, respectively. For the Newly Acquired mini-warehouses which were
owned by the Company throughout each of the periods (52 facilities), rental
income increased by $765,000 or 4.9% from $15,488,000
20
<PAGE>
in 1994 to $16,253,000 in 1995. This increase was due to increased weighted
average occupancy levels combined with an increase in average rental rates.
Weighted average occupancy levels were 89.5% for these facilities for the
nine months ended September 30, 1995 compared to 88.4% for the same period
in 1994. Realized monthly rent per square foot for these facilities was
$0.66 and $0.64 for the nine months ended September 30, 1995 and 1994,
respectively.
The increase in rental income with respect to the business park
facilities is principally due to the acquisition of 5 facilities during
1994 and 1995. Rental income for those business park facilities owned since
the beginning of 1994 was $10,756,000 and $10,136,000 for the nine months
ended September 30, 1995 and 1994, representing an increase of $620,000 or
6.1%. Weighted average occupancy levels for these facilities were 96.5% and
94.9% for the business park facilities for the nine months ended September
30, 1995 and 1994, respectively. Monthly realized rent per square foot for
the business park facilities was $0.72 and $0.68 for the nine months ended
September 30, 1995 and 1994, respectively.
Cost of operations was $52,169,000 and $37,678,000 for the three
months ended September 30, 1995 and 1994, respectively, representing an
increase of $14,491,000 or 38.5%. The following table illustrates cost of
operations by portfolio category:
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, Net increase
---------------------- ---------------
1995 1994 $$ %%
-------- --------- ------- -----
(dollar amounts in 000's)
<S> <C> <C> <C> <C>
COST OF OPERATIONS:
-------------------
Mini-warehouses:
Same Stores $25,168 $24,623 $ 545 2.2%
Newly Acquired 20,394 7,536 12,858 170.6%
Business Parks 6,605 5,519 1,086 19.7%
------- ------- ------- -----
Total cost of operations $52,167 $37,678 $14,489 38.5%
======= ======= ======= =====
</TABLE>
The increase in cost of operations is principally due to the
acquisition of additional real estate facilities during 1995 and 1994. Cost
of operations includes property management fees of $8,489,000 and
$6,002,000 for the nine months ended September 30, 1995 and 1994,
respectively. In addition, cost of operations includes property tax expense
of $12,501,000 and $8,912,000 for the nine months ended September 30, 1995
and 1994, respectively. Cost of operations for the Same Stores increased
principally due to higher property taxes (1994 included refunds which
reduced expenses) of approximately $360,000 and higher payroll expense of
approximately $270,000.
During the nine months ended September 30, 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 and cost of operations increased for the nine months ended
September 30, 1995 compared to the same period in 1994 as discussed above.
Depreciation expense increased by $7,485,000 from $20,323,000 for the nine
months ended September 30, 1994 to $27,808,000 for the same period in 1995,
resulting in a net increase in property net operating income of $19,702,000
or
21
<PAGE>
44.9%. Property net operating income prior to the reduction for
depreciation expense increased by $27,187,000 or 42.3% from $64,231,000 for
the nine months ended September 30, 1994 to $91,418,000 for the same period
in 1995.
Property net operating income for the Same Stores increased by
$935,000 or 2.9% from $31,801,000 for the nine months ended September 30,
1994 to $32,736,000 for the same period in 1995. Property net operating
income prior to the reduction for depreciation expense for the Same Stores
increased by $1,653,000 or 3.8% from $44,046,000 for the nine months ended
September 30, 1994 to $45,699,000 for the same period in 1995.
The Newly Acquired facilities contributed approximately $28,080,000 and
$10,344,000 of property net operating income for the nine months ended
September 30, 1995 and 1994, respectively ($38,967,000 and $14,467,000 of
property net operating income prior to the reduction for depreciation expense
for the nine months ended September 30, 1995 and 1994, respectively).
Property net operating income for Newly Acquired facilities which were owned
throughout each of the nine months ended September 30, 1995 and 1994 (52
facilities), were $8,178,000 and $7,795,000 respectively, representing an
increase of $383,000 or 4.9% ($10,755,000 and $10,186,000 of property net
operating income prior to the reduction for depreciation expense for the nine
months ended September 30, 1995 and 1994, respectively, representing an
increase of $569,000 or 5.6%).
Property net operating income of the Company's business park
operations increased by $967,000 from $1,851,000 for the nine months ended
September 30, 1994 to $2,818,000 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 $1,036,000 from
$5,718,000 for the nine months ended September 30, 1994 to $6,754,000 for the
same period in 1995. The increase is due principally to the acquisition of 5
business park facilities during 1994 and 1995 which contributed approximately
$685,000 to the increase in the property net operating income.
Interest and other income increased from $4,180,000 for the nine months
ended September 30, 1994 to $4,461,000 for the same period in 1995 for a net
increase of $281,000. The increase is primarily attributable to increased
interest income on the cash balances (as a result of uninvested net common
stock offering proceeds) partially offset by the reduction in interest income
from mortgage notes receivable. The Company canceled approximately
$14,920,000 and $23,452,000 of mortgage notes receivable during 1995 and
1994, respectively, in connection with the acquisition of real estate
facilities securing such notes. As a result, interest income from the
mortgage notes receivable decreased from $3,654,000 to $1,430,000 for the
nine months ended September 30, 1994 and 1995, respectively, as the average
outstanding mortgage notes receivable balance was significantly lower
($16,080,000) during the nine months ended September 30, 1995 compared to the
same period in 1994 ($44,459,000). As of September 30, 1995, the mortgage
notes bear interest at stated rates ranging from 7.7% to 10.8% and effective
interest rates ranging from 7.7% to 14.8%.
22
<PAGE>
As noted above, on May 31, 1995, the Company completed a public
offering of its common stock raising net proceeds of approximately $82
million. At June 30, 1995 and July 31, 1995, approximately $75 million and
$33 million, respectively, remained invested in short-term interest bearing
securities (with weighted average yields of approximately 5.6% per annum).
The remaining proceeds had been invested in real estate assets by August 31,
1995. As a result of the timing to invest the net proceeds into real estate
assets, interest income from cash balances increased by approximately
$1,046,000. SEE LIQUIDITY AND CAPITAL RESOURCES.
Depreciation and amortization expense was $27,887,000 and $20,532,000
for the nine months ended September 30, 1995 and 1994, respectively,
representing an increase of $7,355,000 which is due to the acquisition of
additional properties in 1994 and 1995. Net income allocable to the common
shareholders includes net depreciation and amortization expense of
approximately $19,604,000 ($0.55 per common share) and $9,562,000 ($0.42 per
common share) for the nine months ended September 30, 1995 and 1994,
respectively. This increase is due to increased depreciation from the
acquisition of real estate facilities combined with increased allocations of
depreciation from the consolidated PSP Partnerships to the Company's
shareholders. During 1994 and 1995, the Company acquired additional
partnership interests in the PSP Partnerships (see below) and as a result an
increasing amount of depreciation expense from the existing real estate
portfolio has been allocated to the Company rather than to the minority
interest.
General and administrative expense was $2,611,000 and $2,101,000 for
the nine months ended September 30, 1995 and 1994, respectively,
representing an increase of $510,000. 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 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 nine months ended September 30,
1995 and 1994 consolidated depreciation and amortization expense of
approximately $8,193,000 and $10,334,000, 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.
Advisory fees increased by $1,818,000 from $3,644,000 for the nine
months ended September 30, 1994 to $5,462,000 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.
23
<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.
Since 1992 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 $197 million of common stock.
. The issuance of approximately $138.4 million of common stock in
connection with the mergers with Public Storage Properties VIII,
Inc., Public Storage Properties VI, Inc., and Public Storage
Properties VII, Inc.
. The issuance of approximately $28.5 million of Mandatory
Convertible Participating Preferred Stock which will automatically
convert into common stock on June 30, 2002, if not previously
converted at the option of the holder.
. The retention of approximately $42.0 million of funds available for
debt payments or investment.
As a result of these transactions, the Company's capitalization has
increased. Shareholders' equity increased from $188,112,500 on December
31, 1991 to $922,941,000 on September 30, 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 12% at
September 30, 1995. The Company's ratio of debt to total assets also
decreased from 19% at December 31, 1991 to 9% at September 30, 1995.
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 $36.4 million at September 30, 1995. The Company uses its $125
million credit facility primarily to fund acquisitions and provide
financial flexibility and liquidity. The credit facility (i) is unsecured,
(ii) provides for interest rates ranging from LIBOR plus .75% to LIBOR plus
1.50%, based upon interest coverage levels attained by the Company, and
(iii) matures in April 1998, with two one-year extensions. At November
10, 1995, the Company had $30 million in borrowings under the credit
facility.
24
<PAGE>
Funds Available for Principal Payments and Investment:
------------------------------------------------------
The Company believes that important measures of its performance as
well as its liquidity are funds available for principal payments and
investment and funds provided by operating activities. 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.
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 $59,478,000 to $82,599,000 for the nine months ended September 30,
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 funds 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
investment.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1995 1994
--------------- -----------------
<S> <C> <C>
Net Income $ 49,221,000 $ 29,884,000
Depreciation and amortization 27,887,000 20,532,000
Minority interest in income 5,449,000 7,795,000
Amortization of discounts on
mortgage notes receivable (90,000) (636,000)
------------ ------------
Funds provided by operating activities 82,467,000 57,575,000
Distributions from operations to minority interests
(funds from operations allocable to minority
interests) (13,642,000) (18,129,000)
------------ ------------
Funds from operations allocable to the Company's
shareholders 68,825,000 39,446,000
Less: preferred stock dividends (21,904,000) (11,802,000)
------------ ------------
Funds from operations available to common shareholders 46,921,000 27,644,000
Capital improvements to maintain facilities:
Mini-warehouses (4,590,000) (3,559,000)
Business parks (1,790,000) (1,206,000)
Add back: minority interest share of capital improvements 1,452,000 1,706,000
------------ ------------
Funds available for principal payments on debt, common
dividends and reinvestment 41,993,000 24,585,000
Cash distributions to common shareholders (24,138,000) (14,912,000)
------------ ------------
Funds available for principal payments on debt and
investment $ 17,855,000 $ 9,673,000
============ ============
</TABLE>
25
<PAGE>
The increases in cash provided by operating activities and funds
available for principal payments on debt, common dividends and investment
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 nine months ended September 30, 1995 and 1994 for
additional information regarding the Company's investing and financing
activities.
FFO increased to $68,825,000 for the nine months ended September 30,
1995 compared to $39,446,000 for the same period in 1994 ($27,604,000 for
the three months ended September 30, 1995 compared to $14,765,000 for the
same period in 1994). FFO applicable to the common shareholders (after
deducting preferred stock dividends) increased to $46,921,000 for the nine
months ended September 30, 1995 compared to $27,644,000 for the same period
in 1994 ($19,008,000 for the three months ended September 30, 1995 compared
to $10,261,000 for the same period in 1994). FFO is used by many
financial analysts in evaluating REITs. The Company defines FFO as net
income (loss) (computed in accordance with GAAP) before (i) gain (loss) on
disposition of real estate, adjusted as follows: (i) plus depreciation
and amortization, and (ii) less FFO attributable to minority interest.
The National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
definition of FFO does not specifically address the treatment of minority
interest in the determination of FFO. In the case of the Company, FFO
represents amounts attributable to its shareholders after deducting amounts
attributable to the minority interests. FFO does not take into
consideration scheduled principal payments on debt, capital improvements,
distributions and other obligations of the Company. Accordingly, FFO is a
supplemental performance measure and 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.
On May 31, 1995, the Company issued 5,482,200 shares of its common
stock in a public offering, raising net proceeds of approximately $82
million to be invested into real estate assets. Due to the timing of
investing in real estate assets, the net proceeds remained invested in
interest bearing accounts for a portion of the second and third quarters.
The interest bearing accounts generated yields which were less than the
cash yields generated by the Company's portfolio of real estate assets.
Approximately $75 million and $33 million remained invested in interest
bearing accounts at June 30, 1995 and July 31, 1995, respectively. At
August 31, 1995, substantially all of the remaining net proceeds were
invested into real estate assets.
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 nine months of 1995, the Company incurred
capital improvements of approximately $6.4 million. The Company believes
that it is not subject to any significant refinancing risks. During 1993
and 1994, the Company either
26
<PAGE>
repaid or extended the maturities of its mortgage notes such that in no
year, until 1999, will there be more than $10 million of principal payments
on mortgage notes becoming due and payable.
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 the Company's ability
to maintain its REIT status. The Company's policy is also conservative
with respect to FFO. The Company's 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 nine months ended September 30, 1995 and 1994, the
Company distributed to common shareholders 51% and 54% of its FFO available
to common shareholders, respectively. Distributions to shareholders
during the first nine months of 1995 were as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1995
-----------------------------------
Distributions Per Total
Shares Distributions
----------------- -------------
<S> <C> <C>
Series A $ 1.875 $ 3,422,000
Series B $ 1.725 4,116,000
Series C $ 1.520 1,824,000
Series D $ 1.782 2,138,000
Series E $ 1.666 3,658,000
Series F $ 1.008 2,321,000
Convertible $ 1.546 3,558,000
Mandatory Convertible $27.700 867,000
Participating -----------
21,904,000
Common $ 0.660 24,138,000
-----------
$46,042,000
===========
</TABLE>
Dividends with respect to the Series E and Series F Preferred
Stock are pro rated from the date of issuance (February 1, 1995 and May 3,
1995, respectively). The annual distribution requirement with respect to
the Series E and Series F Preferred stock are $2.50 and $2.44 per share,
respectively. 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 third quarter of 1995 was equal to 7.249% per
annum and is 7.205% per annum for the fourth quarter of 1995.
27
<PAGE>
The Mandatory Convertible Participating Preferred Stock was issued in
connection with the acquisition of limited partnership interests in a real
estate limited partnership. Quarterly dividends on the Mandatory
Convertible Participating Preferred Stock vary depending on operating
results of the real estate facilities of the partnership. For the first
eight quarters dividends are equal to $390,000 plus the Company's acquired
interest in property cash flows, as defined, in excess of a base amount
of $45,000. Thereafter quarterly dividends will be equal to $390,000 plus
the Company's acquired interest in property cash flows, as defined, in
excess of a base amount of $525,000.
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 Company's
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 an additional 113 wholly-owned
properties for an aggregate cost of $312,816,000. The acquisitions were
financed through a combination of the issuance of equity securities,
cancellation of mortgage notes receivable, assumption of debt and payment
of cash. Sixty-one of these facilities were acquired pursuant to merger
transactions.
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 Adviser, owned and
operated 22 mini-warehouse facilities and one combination mini-
warehouse/business park facility prior to the merger.
On June 30, 1995, the Company completed a merger transaction with
Public Storage Properties VII, Inc. ("Properties 7") whereby the Company
acquired all the outstanding stock of Properties 7 in exchange for cash and
common stock of the Company. In the merger, Properties 7 was merged with
and into the Company, and the outstanding Properties 7 common stock
(3,806,491 shares) was converted into an aggregate of approximately (i)
3,517,272 shares of the Company's common stock (with a value of
approximately $56,057,000) and (ii) $14,007,000 in cash. Properties 7, a
real estate investment trust and an affiliate of the Adviser, owned and
operated 34 mini-warehouse facilities, three business park facilities and
one combination mini-warehouse/business park facility prior to the merger.
28
<PAGE>
During 1995, the Company acquired limited partnership interests in
twelve real estate partnerships (owning in aggregate 27 mini-warehouse
facilities) for an aggregate cost of $47,874,000, consisting of the
issuance of Convertible Participating Preferred Stock totaling $28,470,000
and cash totaling $19,404,000. The acquisition of these interests has
increased the Company's ownership interest above 50%. The Company's
ownership interest combined with its ability to control the partnerships
has resulted in the inclusion of the accounts of these partnerships in the
Company's consolidated financial statements.
In 1995, the Company began development of four mini-warehouse
facilities in Atlanta, Georgia. One of the facilities opened in late
August 1995 and the other three are scheduled to open within the next six
months.
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 $125
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 Merger and Restructure
-------------------------------
The Company has entered into an Agreement and Plan of Reorganization
by and among PSI, PSMI and the Company, dated as of June 30, 1995 (the
"Agreement and Plan of Reorganization"). The Agreement and Plan of
Reorganization, which is included as an exhibit to the Company's Proxy
Statement dated October 11, 1995 (filed October 13, 1995) is incorporated
herein by this reference.
29
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
The Company's Supplement dated November 8, 1995 to Proxy Statements
dated October 10, 1995 and October 11, 1995 is incorporated herein by
this reference.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are included herein:
(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 June 30, 1995
(filed July 19, 1995), as amended by Form 8-K/A dated June 30, 1995
(filed September 8, 1995), pursuant to Item 5, which filed the
following exhibits and financial information relating to the
Company's proposed merger with PSMI:
-Agreement and Plan of Reorganization by and among PSI, PSMI
and the Company dated as of June 30, 1995
-Historical Financial Statements of Operating Companies to be
Acquired
-Combined Summaries of Historical Information Relating to Real
Estate Interests to be Acquired
-Pro Forma Consolidated Financial Statements
30
<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: November 10, 1995
STORAGE EQUITIES, INC.
BY: /s/ Ronald L. Havner, Jr.
--------------------------------
Ronald L. Havner, Jr.
Vice President and
Chief Financial Officer
31
<PAGE>
STORAGE EQUITIES, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
- --------------------------
Net income $19,470,000 $10,943,000 $49,221,000 $29,884,000
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A (1,140,000) (1,140,000) (3,422,000) (3,422,000)
9.20% Cumulative Preferred Stock, Series B (1,372,000) (1,324,000) (4,116,000) (3,968,000)
Variable Rate Preferred Stock, Series C (544,000) (618,000) (1,824,000) (618,000)
9.50% Cumulative Preferred Stock, Series D (713,000) (236,000) (2,138,000) (236,000)
10.0% Cumulative Preferred Stock, Series E (1,372,000) - (3,658,000) -
9.75% Cumulative Preferred Stock, Series F (1,402,000) - (2,321,000) -
8.25% Convertible Preferred Stock (1,186,000) (1,186,000) (3,558,000) (3,558,000)
Convertible Participating Preferred Stock (867,000) - (867,000) -
----------- ----------- ----------- -----------
Net income allocable to common shareholders $10,874,000 $ 6,439,000 $27,317,000 $18,082,000
=========== =========== =========== ===========
Weighted Average common and common
equivalent shares outstanding:
Weighted average common shares outstanding 42,064,283 23,714,460 35,735,608 22,839,672
Net effect of dilutive stock options - based on
treasury stock method using average market price 153,198 112,493 111,594 111,735
----------- ----------- ----------- -----------
Total 42,217,481 23,826,953 35,847,202 22,951,407
=========== =========== =========== ===========
Primary earnings per common and common equivalent
share $ 0.26 $ 0.27 $ 0.76 $ 0.79
=========== =========== =========== ===========
</TABLE>
Exhibit 11
<PAGE>
STORAGE EQUITIES, INC.
EXHIBIT 11 - STATMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
FULLY-DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
- -------------------------------------
Net income allocable to common shareholders per Primary
calculation above $10,847,000 $ 6,439,000 $27,317,000 $18,082,000
Add: dividends to 8.25% Convertible Preferred Stock 1,186,000 1,186,000 3,558,000 3,558,000
Add: dividends to Mandatory Convertible Participating
Preferred Stock 867,000 - 867,000 -
----------- ----------- ----------- -----------
Net income allocable to common shareholders for purposes of
determining Fully-diluted Earnings per Common and Common
Equivalent Share $12,900,000 $ 7,625,000 $31,742,000 $21,640,000
=========== =========== =========== ===========
Weighted average common and common equivalent shares
outstanding 42,217,481 23,826,953 35,847,202 22,951,407
Pro forma weighted average common shares assuming
conversion of 8.25% Convertible Preferred Stock 3,872,054 3,872,054 3,872,054 3,872,054
Pro forma weighted average common shares assuming
conversion of Mandatory Convertible Participating
Preferred Stock 1,503,768 - 501,256 -
----------- ----------- ----------- -----------
Weighted average common and common equivalent shares for
purposes of computation of Fully-diluted Earnings per
Common and Common Equivalent Share 47,593,303 27,699,007 40,220,512 26,823,461
=========== =========== =========== ===========
Fully-diluted Earnings per Common and Common Share (1) $ 0.27 $ 0.28 $ 0.79 $ 0.81
=========== =========== =========== ===========
</TABLE>
(1) Such amounts are not dilutive and are not presented in the Company's
consolidated financial statements
Exhibit 11
<PAGE>
STORAGE EQUITIES, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Year Ended December 31,
------------------- --------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- -------- ------- ------- -------- -------- --------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $49,221 $29,884 $42,118 $28,036 $15,123 $11,954 $11,994
Add: Minority interest in income 5,449 7,795 9,481 7,291 6,895 6,693 9,154
Less: Gain on disposition
of real estate - - - - (398) - (1,146)
Less: Minority interests in income
which do not have fixed charges (3,795) (4,549) (5,906) (737) (694) (501) (470)
------- ------- ------- ------- ------- ------- -------
Income from continuing operations 50,875 33,130 45,693 34,590 20,926 18,146 19,532
Interest expense 5,249 4,455 6,893 6,079 9,834 10,621 10,920
------- ------- ------- ------- ------- ------- -------
Total Earnings Available to Cover Fixed
Charges $56,124 $37,585 $52,586 $40,669 $30,760 $28,767 $30,452
======= ======= ======= ======= ======= ======= =======
Total Fixed Charges - Interest expense $ 5,249 $ 4,455 $ 6,893 $ 6,079 $ 9,834 $10,621 $10,920
======= ======= ======= ======= ======= ======= =======
Preferred Stock dividends:
Series A $ 3,422 $ 3,422 $ 4,563 $ 4,563 $ 812 $ - $ -
Series B 4,116 3,968 5,339 4,147 - - -
Series C 1,824 618 1,250 - - - -
Series D 2,138 236 950 - - - -
Series E 3,658 - - - - - -
Series F 2,321 - - - - - -
Convertible 3,558 3,558 4,744 2,179 - - -
Convertible Participating 867 - - - - - -
------- ------- ------- ------- ------- ------- -------
Total Preferred Stock dividends $21,904 $11,802 $16,846 $10,889 $ 812 $ - $ -
======= ======= ======= ======= ======= ======= =======
Total Combined Fixed Charges
and Preferred Stock dividends $27,153 $16,257 $23,739 $16,968 $10,646 $10,621 $10,920
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 10.69 8.44 7.63 6.69 3.13 2.71 2.79
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Combined Fixed 2.07 2.31 2.22 2.40 2.89 2.71 2.79
======= ======= ======= ======= ======= ======= =======
</TABLE>
Exhibit 12
<PAGE>
STORAGE EQUITIES, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Year Ended December 31,
------------------- --------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- -------- ------- ------- -------- -------- --------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
RATIO OF FUNDS FROM
OPERATIONS ("FFO") TO FIXED
CHARGES:
- ----------------------------
FFO $68,825 $39,446 $56,143 $35,830 $21,133 $17,176 $11,985
Interest expense 5,249 4,455 6,893 6,079 9,834 10,621 10,920
------- ------- ------- ------- ------- ------- -------
Adjusted FFO available to cover fixed
charges $74,074 $43,901 $63,036 $41,909 $30,967 $27,797 $22,905
======= ======= ======= ======= ======= ======= =======
Total Fixed Charges - Interest expense $ 5,249 $ 4,455 $ 6,893 $ 6,079 $ 9,834 $10,621 $10,920
======= ======= ======= ======= ======= ======= =======
Total Preferred Stock dividends $21,904 $11,802 $16,846 $10,889 $ 812 $ - $ -
======= ======= ======= ======= ======= ======= =======
Total Combined Fixed Charges
and Preferred Stock dividends $27,153 $16,257 $23,739 $16,968 $10,646 $10,621 $10,920
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 14.11 9.85 9.14 6.69 3.15 2.62 2.10
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to Combined Fixed 3.35 2.70 2.66 2.47 2.91 2.62 2.10
======= ======= ======= ======= ======= ======= =======
</TABLE>
Exhibit 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 14,697,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,697,000
<PP&E> 1,375,262,000
<DEPRECIATION> (230,553,000)
<TOTAL-ASSETS> 1,190,061,000
<CURRENT-LIABILITIES> 22,636,000
<BONDS> 105,689,000
<COMMON> 4,207,000
0
363,620,000
<OTHER-SE> 555,114,000
<TOTAL-LIABILITY-AND-EQUITY> 1,190,061,000
<SALES> 0
<TOTAL-REVENUES> 148,048,000
<CGS> 0
<TOTAL-COSTS> 80,056,000
<OTHER-EXPENSES> 8,073,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,249,000
<INCOME-PRETAX> 49,221,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 49,221,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,221,000
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
