SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996
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
--------
PUBLIC STORAGE, 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)
701 Western Avenue
Glendale, California 91201-2394
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 6, 1996:
Common Stock, $.10 par value, 73,042,480 shares outstanding
- -----------------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
- -------------------------------------------------------
<PAGE>
PUBLIC STORAGE, INC.
INDEX
Pages
-----
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 1
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1995 2
Condensed Consolidated Statement of Shareholders' Equity 3
Condensed Consolidated Statements of Cash Flows for Three
Months Ended March 31, 1996 and 1995 4-5
Notes to Condensed Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-22
PART II. OTHER INFORMATION (Items 1, 2, 3 , 4 and 5 are not applicable)
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 23
<PAGE>
PUBLIC STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
March 31, December 31,
1996 1995
-------------- --------------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents.................................................... $ 68,525 $ 80,436
Real estate facilities, at cost:
Land...................................................................... 443,090 382,144
Buildings................................................................. 1,201,729 1,030,990
-------------- --------------
1,644,819 1,413,134
Accumulated depreciation.................................................. (254,231) (241,966)
-------------- --------------
1,390,588 1,171,168
Investment in real estate entities........................................... 382,612 416,216
Intangible assets, net....................................................... 229,235 231,562
Mortgage notes receivable from affiliates.................................... 26,347 23,699
Other assets................................................................. 16,903 14,380
-------------- --------------
Total assets................................................... $ 2,114,210 $ 1,937,461
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Revolving line of credit..................................................... $ - $ -
Notes payable................................................................ 120,839 158,052
Accrued and other liabilities................................................ 36,187 32,533
-------------- --------------
Total liabilities................................................... 157,026 190,585
Minority interest............................................................ 127,528 112,373
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares authorized, 13,436,250
shares issued and outstanding (13,444,100 at December 31, 1995), at
liquidation preference:
Cumulative Preferred Stock, issued in series........................ 618,900 450,150
Convertible Preferred Stock......................................... 85,605 85,970
Common stock, $.10 par value, 200,000,000 shares authorized, 73,018,556
shares issued and outstanding (71,513,799 at December 31, 1995)......... 7,302 7,152
Class B Common Stock, $.10 par value, 7,000,000 shares authorized and
issued.................................................................. 700 700
Paid-in capital........................................................... 1,125,279 1,100,088
Cumulative net income..................................................... 275,212 242,871
Cumulative distributions paid............................................. (283,342) (252,428)
-------------- --------------
Total shareholders' equity.......................................... 1,829,656 1,634,503
-------------- --------------
Total liabilities and shareholders' equity..................... $ 2,114,210 $ 1,937,461
=============== ==============
</TABLE>
See accompanying notes.
1
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, expect per share data)
(Unaudited)
<TABLE>
For the Three Months Ended
March 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Rental income................................................ $ 63,709 $ 41,974
Equity in earnings of real estate entities................... 4,611 199
Facility management fee...................................... 3,760 -
Interest and other income.................................... 2,887 1,025
------------ ------------
74,967 43,198
Expenses:
Cost of operations............................................ 20,685 15,807
Cost of facility management................................... 1,068 -
Depreciation and amortization ................................ 14,592 8,147
General and administrative.................................... 1,361 1,091
Advisory fee ................................................. - 1,610
Interest expense.............................................. 2,581 1,520
------------ ------------
40,287 28,175
Income before minority interest................................. 34,680 15,023
Minority interest in income..................................... (2,339) (1,823)
------------ ------------
Net income...................................................... $ 32,341 $ 13,200
============ ============
Net income allocation:
Allocable to preferred shareholders.......................... $ 15,166 $ 5,976
Allocable to common shareholders............................. 17,175 7,224
------------ ------------
$ 32,341 $ 13,200
============ ============
Per common share:
Net income...................................................... $ .24 $ .24
============ ============
Weighted average common shares outstanding...................... 71,666 30,567
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1996
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
Preferred Stock
----------------------------- Class B
Cumulative Common Common
Senior Convertible Stock Stock
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1995......................... $450,150 $85,970 $7,152 $700
Issuance of Preferred Stock:
Series H (6,750 shares).......................... 168,750 - -
Issuance of Common Stock:
In connection with mergers (1,416,883 shares).... - - 142
Conversion of Convertible Preferred Stock into
Common Stock (24,376 shares)................... - (365) 2 -
Other (63,498 shares)............................ - - 6
Net income............................................ - - -
Cash distributions:
Cumulative Senior Preferred Stock.................. - - -
Convertible Preferred Stock........................ - - -
Mandatory Convertible Participating Preferred Stock - - -
Common Stock....................................... - - -
------------- ------------- ---------- ----------
Balances at March 31, 1996............................ $618,900 $85,605 $7,302 $700
============= ============= ========== ==========
</TABLE>
<TABLE>
Total
Paid-in Cumulative Cumulative Shareholders'
Capital Net Income Distributions Equity
------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995........................ $1,100,088 $242,871 $(252,428) $1,634,503
Issuance of Preferred Stock:
Series H (6,750 shares)......................... (5,617) - - 163,133
Issuance of Common Stock:
In connection with mergers (1,416,883 shares)... 29,826 - - 29,968
Conversion of Convertible Preferred Stock into
Common Stock (24,376 shares).................. 363 - - -
Other (63,498 shares)........................... 619 - - 625
Net income........................................... - 32,341 - 32,341
Cash distributions:
Cumulative Senior Preferred Stock................. - - (13,154) (13,154)
Convertible Preferred Stock....................... - - (1,186) (1,186)
Mandatory Convertible Participating Preferred Stock - - (826) (826)
Common Stock...................................... - - (15,748) (15,748)
------- ---------- ------------- -------------
Balances at March 31, 1996........................... $1,125,279 $275,212 $(283,342) $1,829,656
======= ========== ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
For the Three Months Ended
March 31,
--------------------------
1996 1995
----------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income............................................................... $ 32,341 $ 13,200
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization (including amortization of mortgage
notes receivable discounts).......................................... 14,568 8,107
Depreciation included in equity in earnings of real estate entities.... 4,494 -
Minority interest in income............................................ 2,339 1,823
----------- ----------
Total adjustments.................................................. 21,401 9,930
----------- ----------
Net cash provided by operating activities...................... 53,742 23,130
----------- ----------
Cash flows from investing activities:
Principal payments received on mortgage notes receivable from affiliates 385 284
Acquisition of real estate facilities.................................. (72,954) (33,662)
Acquisition cost of business combinations.............................. (53,706) (21,427)
Capital improvements to real estate facilities......................... (2,817) (1,058)
Construction in process................................................ (4,396) (2,100)
Acquisition of minority interests in consolidated real estate (655) (8,536)
partnerships.........................................................
Acquisition of mortgage notes receivable............................... (3,709) -
Acquisition of interests in real estate entities....................... (16,025) -
----------- ----------
Net cash used in investing activities.......................... (153,877) (66,499)
----------- ----------
Cash flows from financing activities:
Net pay downs on note payable to banks................................. - 9,553
Net proceeds from the issuance of preferred stock...................... 163,133 52,888
Net proceeds from the issuance of common stock......................... 625 460
Principal payments on mortgage notes payable........................... (38,914) (409)
Distributions paid to shareholders..................................... (30,914) (12,434)
Distributions from operations to minority interests in real estate
partnerships......................................................... (5,240) (4,596)
Net reinvestment by minority interests into real estate partnerships... 747 864
Other.................................................................. (1,213) (2,576)
----------- ----------
Net cash provided by financing activities...................... 88,224 43,750
----------- ----------
Net (decrease) increase in cash and cash equivalents........................ (11,911) 381
Cash and cash equivalents at the beginning of the period.................... 80,436 20,151
----------- ----------
Cash and cash equivalents at the end of the period.......................... $ 68,525 $ 20,532
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
(Continued)
<TABLE>
For the Three Months Ended
March 31,
--------------------------------
1996 1995
------------- ------------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C>
Acquisition of real estate facilities in exchange for the cancellation of
mortgage notes receivable, the assumption of mortgage notes payable,
and issuance of common and preferred stock.............................. $(2,401) $(11,338)
Business combinations:
Real estate facilities.................................................. (148,663) (66,475)
Other assets............................................................ (484) (279)
Accrued and other liabilities........................................... 3,826 1,412
Minority interest....................................................... 17,510 -
Reduction to investment in real estate entities in connection with business
combinations............................................................ 44,137 -
Assumption of mortgage notes payable in connection with the acquisition of
real estate facilities.................................................. 1,701 740
Cancellation of mortgage notes receivable in connection with the
acquisition of real estate facilities................................... 700 2,273
Issuance of common stock:
- in connection with mergers............................................ 29,968 43,915
- to acquire real estate facilities..................................... - 10,598
- to acquire partnership interests in real estate entities.............. - 757
- in connection with the conversion of Preferred Stock.................. 365 -
Conversion of 8.25% Convertible Preferred Stock............................ (365) -
Increase in accrued and other liabilities:
- common stock issue costs.............................................. - 738
</TABLE>
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. Description of the business
---------------------------
Public Storage, Inc. (the "Company") is a California corporation which was
organized in 1980. The Company is a fully integrated, self-administered and
self-managed real estate investment trust ("REIT") that acquires, develops, owns
and operates self-service mini-warehouse facilities 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, also owns and operates business park
facilities containing commercial and industrial rental space.
Prior to November 16, 1995, the Company's operations were managed, pursuant
to contractual arrangements, by Public Storage Advisers, Inc. (the "Adviser"),
the Company's investment advisor, by Public Storage Management, Inc. ("PSMI"),
its mini-warehouse property operator and by Public Storage Commercial Properties
Group, Inc. ("PSCP"), its business park facility operator.
On November 16, 1995, in a series of mergers among PSMI and its affiliates,
culminating in the merger of PSMI into the Company (the "PSMI Merger"), the
Company became self-administered and self-managed and acquired substantially all
of the United States real estate operations of PSMI. As a result of the PSMI
Merger, the Company's name was changed from Storage Equities, Inc. to Public
Storage, Inc.
The Company invests in real estate facilities primarily through the
acquisition of wholly-owned facilities combined with the acquisition of equity
interests in real estate entities owning real estate facilities. At March 31,
1996, the Company had direct and indirect equity interests in 1,065 properties
located in 37 states, including 1,030 mini-warehouse facilities and 35 business
parks. All of these facilities are operated by the Company under the "Public
Storage" name. In addition, the Company operates real estate facilities on
behalf of various ownership entities, substantially all of which are
partnerships and REITs in which the Company has an ownership interest.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
The consolidated financial statements include the accounts of the Company,
majority owned subsidiaries, and twenty-one limited partnerships (the
"Consolidated Partnerships") in which the Company has significant economic
interest and is able to exercise significant control through its ownership of
limited and general partnership interests. The Company and the Consolidated
Partnerships own a total of 598 real estate facilities (307 which are owned
wholly by the Company) consisting of 576 mini-warehouses and 22 business parks.
The Consolidated Partnerships principally consist of a series of eight
partnerships owning a total of 240 real estate facilities, 211 of which are
owned jointly between the partnerships and the Company. During 1995 and the
first quarter of 1996, the Company increased its ownership interest and control
in the remaining thirteen Consolidated Partnerships, and as a result, the
accounts of these partnerships have been included in the Company's consolidated
financial statements.
6
<PAGE>
Basis of presentation
---------------------
The Company's aggregate cost of its interests in the Consolidated
Partnerships is less than the historical carrying amount of the underlying net
assets of the Consolidated 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.
The Company also has equity investments in limited partnerships and other
REITs owning in aggregate 467 real estate facilities (454 mini-warehouses and 13
business park facilities). Substantially all of these investments are accounted
for using the equity method.
Income taxes
------------
For all taxable years subsequent to 1980, the Company qualified and intends
to continue to qualify as a REIT, as defined in Section 856 of the Internal
Revenue Code. As a REIT, the Company is not taxed on that portion of its taxable
income which is distributed to its shareholders provided that the Company meets
certain tests. The Company believes it will meet these tests during 1996,
accordingly, no provision for income taxes has been made in the accompanying
financial statements.
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.
Cash and cash equivalents
-------------------------
For purposes of financial statement presentation, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Depreciation
------------
Depreciation is computed using the straight-line method over the estimated
useful lives of the buildings and improvements, which are generally between 5
and 25 years.
Intangible assets
-----------------
Intangible assets consist of property management contracts ($165,000,000)
and the cost over the fair value of net tangible and identifiable intangible
assets ($67,726,000) acquired in the PSMI Merger. Intangible assets are
amortized straight-line over 25 years. At March 31, 1996, intangible assets are
net of accumulated amortization of $3,491,000 ($1,164,000 at December 31, 1995).
Included in depreciation and amortization expense for the three months ended
March 31, 1996 is $2,327,000 related to the amortization of intangible assets
(none for the three months ended March 31, 1995).
7
<PAGE>
Net income per common share
---------------------------
Net income per common share is computed using the weighted average common
shares outstanding (adjusted for stock options). The inclusion of the Class B
Common Stock in the determination of earnings per common share has been
determined to be anti-dilutive (after giving effect to the pro forma additional
income required to satisfy certain contingencies required for the Class B common
stock to convert into common stock) and accordingly, the conversion of the Class
B common stock into common stock has not been assumed.
The Company's preferred stocks were determined not to be common stock
equivalents. In computing earnings per common share, preferred stock dividends
reduced income available to common stockholders.
Fully diluted earnings per common are not presented, as the assumed
conversion of the Company's convertible preferred stock would be anti-dilutive.
Revenue/expense recognition
---------------------------
Property rents are recognized as earned. Equity in earnings of real estate
entities are recognized based on the Company's ownership interest in the
earnings of each of the unconsolidated real estate entities. Leasing commissions
relating to the business park operations are expensed as incurred.
3. Business combinations
-----------------------
On March 26, 1996, the Company completed separate merger transactions with
Public Storage Properties IX, Inc. ("Properties 9") and Public Storage Business
Parks, Inc. ("PSBP"), respectively, whereby the Company acquired all the
outstanding stock of Properties 9 and PSBP in exchange for cash and common stock
of the Company. Properties 9 and PSBP were REITs and affiliates of the Company.
Properties 9 owned and operated 14 mini-warehouses and one business park and
PSBP owned and operated one business park. The aggregate acquisition cost of
Properties 9 was $47,563,000, consisting of the issuance of common stock -
$24,719,0000, cash - $9,907,000 and the Company's pre-existing investment in
Properties 9 of $12,937,000. The aggregate acquisition cost of PSBP was
$11,305,000, consisting of the issuance of common stock - $5,249,0000, cash -
$2,719,000 and the Company's pre-existing investment in PSBP of $3,337,000.
During the first quarter of 1996, the Company acquired approximately 64% of
the limited partnership units of an affiliated partnership which owns 28
mini-warehouse facilities for approximately $41,080,000 in cash. This
acquisition combined with the Company's existing general partnership interest in
the partnership significantly increased the Company's ownership interest and
control of the partnership and, as a result, the Company began to consolidate
the accounts of this partnership for financial statement purposes.
Each of the above transactions 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
the dates of each respective transaction. The fair market values of the assets
acquired and liabilities assumed with respect to the transactions are summarized
as follows:
8
<PAGE>
<TABLE>
Properties 9 PSBP Other
merger merger Acquisitions Total
------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Real estate facilities................... $49,090 $ 12,004 $87,569 $148,663
Other assets............................. 249 15 220 484
Accrued and other liabilities............ (1,776) (714) (1,336) (3,826)
Minority interest........................ - - (17,510) (17,510)
------- ------- ------- --------
$47,563 $11,305 $68,943 $127,811
======= ======= ======= ========
</TABLE>
The historical operating results of the above business combinations prior
to each respective acquisition date have not been included in the Company's
historical operating results and on a pro forma basis would not materially
effect reported revenues, net income or earnings per common share.
4. Real estate facilities
----------------------
In addition to the 44 real estate facilities acquired in connection with
business acquisitions, the Company acquired 13 mini-warehouse facilities during
the first quarter of 1996 for an aggregate cost of $75,355,000, consisting of
the cancellation of mortgage notes receivable totaling $700,000, the assumption
of mortgage notes payable totaling $1,701,000 and cash totaling $72,954,000.
During the first quarter of 1996, the Company expended approximately
$4,396,000 constructing seven mini-warehouse facilities, one of which has been
completed and put into operation during March 1996. Included in real estate
facilities at March 31, 1996 is approximately $7,799,000 of costs related to the
remaining six facilities under construction.
5. Investments in real estate entities
-----------------------------------
The Company's investment in real estate entities at March 31, 1996,
generally consists of limited and general partnership interests in real estate
limited partnerships in approximately 46 partnerships and common stock in 14
REITs. Such interests consists generally of ownership interests ranging from 15%
to 45% and are accounted for using the equity method of accounting. Accordingly,
earnings are recognized by the Company based upon the Company's ownership
interest in each of the partnerships and REITs. Provisions of the agreements of
the partnerships and REITs provide for the payment of preferred cash
distributions to other investors (until certain specified amounts have been
paid) without regard to the pro rata interest of investors in current earnings.
During the three months ended March 31, 1996, the Company recognized
earnings from its investments of $4,611,000 and received cash distributions
totaling $3,626,000. Included in equity in earnings of real estate entities for
the three months ended March 31, 1996 is the Company's share of depreciation
expense totaling $4,494,000 (including amortization totaling $2,094,000,
representing the amortization of the Company's cost basis over the underlying
book value of the Company's equity interest in each of the entities).
6. Mortgage notes receivable from affiliates
-----------------------------------------
At March 31, 1996, mortgage notes receivable balance of $26,347,000 is net
of related discounts totaling $380,000. The mortgage notes bear interest at
stated rates ranging from 7.4% to 14.0% and are secured by 14 mini-warehouse
facilities owned by affiliated partnerships.
9
<PAGE>
During the first quarter of 1996, the Company canceled mortgage notes which
had a net carrying value of $700,000 as part of the acquisition cost of the
underlying real estate facility securing the mortgage note.
7. Minority interest
-----------------
In consolidation, the Company classifies outsiders' ownership interests in
the net assets of each of the Consolidated Partnerships as minority interest on
the Company's consolidated financial statements. Minority interest in income
consists of such outsiders' share of the operating results of the Company
relating to the consolidated operations of the Consolidated Partnerships.
During 1996, in connection with a business combination (Note 3) minority
interest was increased by $17,510,000, representing the remaining partners'
equity interests in the aggregate net assets of the partnership.
During 1996 the Company acquired limited partnership interests in the
Consolidated Partnerships for an aggregate cost of $655,000. These transactions
had the effect of reducing minority interest by approximately $201,000 (the
historical book value of such interests in the underlying net assets of the
partnerships). The excess of the underlying book value over cost ($454,000) has
been allocated to real estate facilities in consolidation.
8. Shareholders' equity
--------------------
Preferred stock
---------------
At March 31, 1996 and December 31, 1995, the Company had the following
series of Preferred Stock outstanding:
<TABLE>
Shares Outstanding Carrying Amount
-------------------------- ----------------------------
Dividend March 31, December 31, March 31, December 31,
Series Rate 1996 1995 1996 1995
- ---------------------------------- ------------ ------------ ------------ -------------- -------------
<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 2,195,000 54,875,000 54,875,000
Series F 9.75% 2,300,000 2,300,000 57,500,000 57,500,000
Series G 8.875% 6,900 6,900 172,500,000 172,500,000
Series H 8.45% 6,750 - 168,750,000 -
------------ ------------ -------------- -------------
Senior Preferred Stock totals 11,119,650 11,112,900 618,900,000 450,150,000
------------ ------------ -------------- -------------
Convertible 8.25% 2,285,400 2,300,000 57,135,000 57,500,000
Mandatory Convertible Participating Variable 31,200 31,200 28,470,000 28,470,000
------------ ------------ -------------- -------------
Convertible Preferred Stock totals 2,316,600 2,331,200 85,605,000 85,970,000
------------ ------------ -------------- -------------
13,436,250 13,444,100 $704,505,000 $536,120,000
============ ============ ============== =============
</TABLE>
The carrying amounts are equivalent to the liquidation preference, with the
exception of the Mandatory Convertible Participating Preferred Stock which has a
liquidation preference equal to $31,200,000.
On January 25, 1996, the Company issued 6,750,000 depository shares
(depository shares, each representing 1/1,000 of a share) of its 8.45% Series H
Preferred Stock raising net proceeds of approximately $163.1 million.
10
<PAGE>
The Mandatory Convertible Participating Preferred Stock will automatically
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 be 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 March 31, 1996, the
Mandatory Convertible Participating Preferred Stock was convertible into
approximately 1,523,619 shares of the Company's common stock.
The Convertible Preferred Stock is convertible at any time at the option of
the holders of such stock into shares of the Company's common stock at a
conversion rate of 1.6835 shares of common stock for each share of Convertible
Preferred Stock, subject to adjustment in certain circumstances. During the
first quarter of 1996, at the option of shareholders, a total of 14,600 shares
of Convertible Preferred Stock were converted into 24,376 common shares.
The Series A, Series B, Series C, Series D, Series E, Series F, Series G,
and Series H (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.
In April 1996, in connection with the acquisition of limited partnership
interests, the Company issued $58,955,000 (58,955 shares) of its Convertible
Preferred Stock, Series CC (the "Series CC Preferred Stock"). The Series CC
Preferred Stock ranks junior to the Company's Cumulative Senior Preferred Stock
with respect to general preference rights and has a liquidation value of $1,000
per share. Other significant terms of the Series CC Preferred Stock include: (i)
quarterly distributions equal to $32.50 per share, (ii) conversion, at anytime
at the option of the holder, into common stock of the Company at a conversion
price of 35.014 shares of common stock for each share of Series CC Preferred
Stock, and (iii) on March 31, 2000 will automatically convert into common stock
of the Company at the conversion price described above.
Common stock
------------
During 1996, the Company issued shares of its common as follows: (i)
1,416,883 shares ($29,968,000) in connection with the mergers, (ii) 24,376
shares ($365,000) in connection with the conversion of Convertible Preferred
Stock into common stock, and (iii) 63,498 shares ($625,000) in connection with
exercise of stock options. The shares of common stock issued in connection with
the mergers were issued at the prevailing market price at the time of issuance.
Class B Common Stock
--------------------
The Class B Common Stock will (i) not participate in distributions until
the later to occur of funds from operations ("FFO") per Common Share as defined
below, aggregating $1.80 during any period of four consecutive calendar
quarters, or January 1, 2000; thereafter, the Class B Common Stock will
participate in distributions (other than liquidating distributions), at the rate
of 97% of the per share distributions on the Common Stock, provided that
cumulative distributions of at least $0.22 per quarter per share have been paid
on the Common Stock, (ii) not participate in liquidating distributions, (iii)
not be entitled to vote (except as expressly required by California law) and
(iv) automatically convert into Common Stock, on a share for share basis, upon
the later to occur of FFO per Common Share aggregating $3.00 during any period
of four consecutive calendar quarters or January 1, 2003.
For these purposes FFO, means net income (loss) (computed in accordance
with generally accepted accounting principles) before (i) gain (loss) on early
extinguishment of debt, (ii) minority interest in income and (iii) gain (loss)
on disposition of real estate, adjusted as follows: (i) plus depreciation and
amortization (including the Company's pro-rata share of depreciation and
amortization of unconsolidated equity interests and amortization of assets
acquired in the Merger, including property management agreements and goodwill),
and (ii) less FFO attributable to minority interest.
11
<PAGE>
For these purposes, FFO per Common Share means FFO less preferred stock
dividends (other than dividends on convertible preferred stock) divided by the
outstanding weighted average shares of Common Stock assuming conversion of all
outstanding convertible securities and the Class B Common Stock.
For these purposes, FFO per share of Common Stock (as defined) was $1.74
for the four consecutive calendar quarters ended March 31, 1996.
Dividends
---------
The dividend rate on the Series C Preferred Stock for the first quarter of
1996 was equal to 6.75% 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%.
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 first quarter of 1996:
For the Three Months Ended
March 31, 1996
-------------------------------------------
Distributions Per
Share or Depositary
Share Total Distributions
-------------------- --------------------
Series A $ 0.625 $ 1,140,000
Series B $ 0.575 1,372,000
Series C $ 0.422 506,000
Series D $ 0.594 712,000
Series E $ 0.625 1,372,000
Series F $ 0.609 1,401,000
Series G $ 0.579 3,997,000
Series H $ 0.393 2,654,000
Convertible $ 0.516 1,186,000
Mandatory Convertible Participating $26.470 826,000
-------------------
15,166,000
Common $ 0.220 15,748,000
-------------------
$30,914,000
===================
12
<PAGE>
9. Proposed Merger
---------------
In March 1996, the Company and Storage Properties, Inc. ("SPI"), a publicly
traded equity real estate investment trust agreed, subject to certain
conditions, to merge. Upon the merger, each outstanding share of SPI common
stock would be converted, at the election of the shareholders of SPI, into
either shares of the Company's common stock with a market value of $7.31 or,
with respect to up to 20% of the SPI common stock, $7.31 in cash. SPI has
3,348,167 outstanding shares of common stock and an estimated value of $24.5
million. The merger agreement is conditioned on, among other requirements,
receipt of satisfactory fairness opinions by SPI and approval by the
shareholders of SPI. The Company has an advisory agreement and a property
management agreement with SPI. SPI owns seven mini-warehouses.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------
OVERVIEW: Over the past year, the Company completed a number of
transactions which have had and will continue to have significant impact to the
Company.
* From January 1, 1995 through March 31, 1996, the number of real estate
facilities included in the Company's consolidated financial statements has
increased from 387 facilities to 598 facilities. In addition, during the
same period, principally as a result of the PSMI Merger (see below) the
Company increased its ownership interest in unconsolidated real estate
entities from those owning in aggregate 15 facilities to those owning in
aggregate 467 facilities,
* Since January 1, 1995, the Company completed four mergers with affiliated
REITs, two in 1995 with an aggregate cost of $135.4 million and two at the
end of March 1996 with an aggregate cost of $58.9 million,
* On November 16, 1995, the Company completed the merger with Public Storage
Management, Inc. ("PSMI") with an aggregate cost of $549.3 million. In the
PSMI Merger, the Company acquired all the real estate operations of PSMI,
including (i) general and limited partnership interests in 47 limited
partnerships owning an aggregate of 286 mini-warehouses, (ii) shares of
common stock in 16 REITs owning an aggregate of 218 mini-warehouses and 14
commercial properties, (iii) seven wholly-owned properties, (iv)
all-inclusive deeds of trust secured by ten mini-warehouses, (v) property
management contracts, exclusive of facilities owned by the Company, for 563
mini-warehouses and through ownership of 95% economic interest in a
subsidiary, 24 commercial properties and (vi) a 95% economic interest in
another subsidiary that currently sells locks and boxes in mini-warehouses
operated by the Company.
The PSMI Merger not only doubled the size of the Company and significantly
expanded the Company's ownership interest in mini-warehouse facilities it also
provided the following benefits: (i) the Company became a fully-integrated,
self-advised and self-managed commercial real estate company with expertise in
development, construction, acquisition, operation and leasing services, (ii) the
Company is now able to expand its property holdings without a proportionate
increase in advisory and property management fees, which would have resulted had
its current advisory contract and management agreements remained in effect,
(iii) conflicts of interest between the Company and its executive officers and
directors who were also affiliated with PSMI were reduced, and (iv) the Company
significantly increased it ownership interest in the real estate facilities
operated under the "Public Storage" name.
Results of Operations
---------------------
Three months ended March 31, 1996 compared to the three months ended March
31, 1995
- -------------------------------------------------------------------------------
Net income for the three months ended March 31, 1996 was $32,341,000
compared to $13,200,000 for the same period in 1995, representing an increase of
$19,141,000. Net income allocable to common shareholders increased to
$17,175,000 for the three months ended March 31, 1996 from $7,224,000 for the
three months ended March 31, 1995. The increases 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 1996 and
1995, and the acquisition of additional partnership interests during 1996 and
1995. Net income per common share was $0.24 per share (based on weighted average
shares outstanding of 71,666,000) for the three months ended March 31, 1996
compared to $0.24 per share (based on weighted average shares outstanding of
30,567,000) for the same period in 1995.
PROPERTY OPERATIONS: Rental income and cost of operations presented on the
consolidated statements of income reflect the operations of the 598 properties
owned by the Company and the Consolidated Partnerships. The following table
summarizes the operating results of these facilities:
14
<PAGE>
<TABLE>
For the Three Months
Ended March 31,
--------------------------------
1996 1995 Change
------------------------------------------------
(dollar amounts in thousands)
Rental income:
<S> <C> <C> <C>
Mini-warehouse........................ $58,744 $37,725 55.72%
Business park......................... 4,965 4,249 16.85%
---------- ---------- ----------
63,709 41,974 51.78%
---------- ---------- ----------
Cost of operations: (a)
Mini-warehouse:
Payroll, property taxes, etc..... 18,491 11,529 60.39%
Property management fees......... - 2,217 (100.00)%
Business park:
Payroll, property taxes.......... 2,194 1,820 20.55%
Property management fees......... - 241 (100.00)%
---------- ---------- ----------
20,685 15,807 30.86%
---------- ---------- ----------
Net operating income:
Mini-warehouse........................ 40,253 23,979 67.87%
Business park......................... 2,771 2,188 26.65%
---------- ---------- ----------
$43,024 $26,167 64.42%
========== ========== ==========
Number of facilities (at the end of the
period):
Mini-warehouse........................ 576 421 36.82%
Business park......................... 22 16 37.50%
</TABLE>
(a) During 1995, the Company became self-managed with respect to its
property operations and accordingly no longer incurs property
management fees.
The significant increase in property operations for the Company's
mini-warehouses and business park facilities are principally due to the
acquisition of additional facilities during 1996 and 1995. At March 31, 1996 the
property operations consisted of the operating results of 598 facilities
compared to 437 for the same period in 1995. For comparative purposes, a total
of 373 mini-warehouse facilities (included in the above table) have been in the
Company's portfolio throughout 1995 and 1996. The operating results (rental
income less cost of operations) of these facilities improved 3.30% for the three
months ended March 31, 1996 as compared to the same period in 1995. This
increase is principally due to improve rental rates, as average realized monthly
rent per square foot increased from $0.63 in 1995 to $0.65 in 1996. Weighted
average occupancy levels for these 373 facilities remained stable at 88% for
both 1995 and 1996.
The increase in property operations with respect to the business park
facilities is principally due to the acquisition of facilities during 1996 and
1995. Excluding such acquisitions, 15 business park facilities have been in the
Company's portfolio since the beginning of 1993. The operating results (rental
income less cost of operations) of these 15 facilities improved 2.64% for the
three months ended March 31, 1996 as compared to the same period in 1995. This
increase is principally due to improved rental rates, as average realized
monthly rent per square foot increased from $0.72 in 1995, to $0.73 in 1996.
Weighted average occupancy levels for these 15 facilities were 96% in 1995 and
97% in 1996.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real
estate entities was $4,611,000 and $199,000 for the three months ended March 31,
1996 and 1995, respectively. For 1995, equity in earnings of real estate
entities principally consists of earnings from partnerships which are now
consolidated with the Company and, accordingly, are no longer included in equity
in earnings of real estate entities. The 1996 earnings principally consists of
earnings related to the interests acquired pursuant to the PSMI Merger. The
Company currently has ownership interests in 46 limited partnerships and 14
REITs (collectively the "Unconsolidated Entities"). The Company's ownership
interest in these entities ranges from 15% to 45%, but generally averages
approximately 30%. Due to the Company's limited ownership interest and control
of these entities, the Company does not consolidate the accounts of these
entities for financial reporting purposes.
15
<PAGE>
Similar to the Company, the Unconsolidated Entities generate substantially
all of their income from their ownership of mini-warehouse facilities. In the
aggregate, the Unconsolidated Entities own a total of 467 facilities, 454 of
which are mini-warehouse facilities. The following summarizes combined operating
data with respect to the Unconsolidated Entities for the three months ended
March 31, 1996:
Rental income......................................... $58,917,000
Total revenues........................................ 59,383,000
Cost of operations.................................... 22,164,000
Depreciation.......................................... 9,632,000
Net income............................................ 23,741,000
Equity in earnings of real estate entities for three months ended March 31,
1996 consists of the Company's pro rata share of earnings (including the
Company's share of depreciation expense - $2,400,000) of the Unconsolidated
Entities based upon the Company's ownership interest in each for the period. In
addition, equity in earnings of real estate entities for 1996 includes
amortization totaling $2,094,000 representing the amortization of the Company's
cost basis over the underlying book value of the Company's equity interest in
each of the entities.
The Company has in the past, and may continue to seek to acquire in the
future, real estate facilities owned by the Unconsolidated Entities. During
1996, the Company made several acquisitions of entities which were included in
Unconsolidated Entities at December 31, 1995: (i) the Company acquired a
significant interest in a partnership and as a result began to consolidate the
accounts of the partnership as of January 1, 1996, (ii) on March 26, 1996,
pursuant to mergers, the Company acquired the net assets of two REITs, and (iii)
in April 1996, the Company acquired all of the limited partnership interest in
two partnerships which as of April 1, 1996 will be consolidated with the
Company.
PROPERTY MANAGEMENT OPERATIONS: In connection with the PSMI Merger, the
Company acquired property management contracts, exclusive of facilities owned by
the Company, for 563 mini-warehouses and through ownership of 95% economic
interest in a subsidiary, 24 commercial properties. These facilities constitute
all of the United States mini-warehouses and business parks doing business under
the "Public Storage" name and all those in which the Company has an interest,
which include all the facilities owned by the Consolidated Partnerships,
Unconsolidated Entities, and 75 facilities owned by third parties in which the
Company has no equity interest.
The property management contracts generally provide for compensation equal
to 6%, in the case of the mini-warehouses, and 5%, in the case of the business
parks, of gross revenues of the facilities managed. Under the supervision of the
property owners, the Company coordinates rental policies, rent collections,
marketing activities, the purchase of equipment and supplies, maintenance
activity, and the selection and engagement of vendors, suppliers and independent
contractors. In addition, the Company assists and advises the property owners in
establishing policies for the hire, discharge and supervision of employees for
the operation of these facilities, including resident managers, assistant
managers, relief managers and billing and maintenance personnel.
During the three months ended March 31, 1996, the Company's property
management operations generated net operating income of $2,692,000 on revenues
of $3,760,000 and expenses of $1,068,000. Because the Company has significant
ownership interests in all but 74 of the facilities it manages, the revenues
generated from its property management operations are generally predictable and
are dependent upon the future growth of rental income for those facilities the
Company manages.
As noted above, the Company has in the past, and may continue to seek to
acquire in the future, real estate facilities owned by the Unconsolidated
Entities. Acquisitions of such facilities will have the affect of reducing
management fee income with a corresponding reduction in the cost of property
operations.
16
<PAGE>
INTEREST AND OTHER INCOME: Interest and other income increased $1,862,000,
to $2,887,000 for the three months ended March 31, 1996 from $1,025,000 for the
same period in 1995. Interest and other income principally consists of interest
earning on cash balances and interest related to mortgage notes receivable. The
significant increase in interest income is primarily due to interest income on
excess cash balances. From mid December 1995 through late January 1996, the
Company, through two equity offerings, raised net proceeds of approximately $330
million. Due to the timing to invest these proceeds into real estate assets,
cash balances in interest bearing accounts during the first quarter on average
were approximately $110 million.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense has
increased from $8,147,000 for the three months ended March 31, 1995 to
$14,592,000 for the same period in 1996. These increases are principally due to
the acquisition of additional real estate facilities during 1995 and 1996
combined with amortization of intangible assets acquired in connection with the
PSMI Merger. Amortization expense with respect to intangible assets acquired in
the PSMI Merger totaled $2,327,000 for the three months ended March 31, 1996
(none for the three months ended March 31, 1995).
GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative expense was
$1,361,000 for the three months ended March 31, 1996 and $1,091,000 the same
period in 1995. The Company has experienced and expects to continue to
experience increased general and administrative costs during 1996 due to the
following: (i) the growth in the size of the Company has resulted in increased
expenses, (ii) the Company's property acquisition activities has continued to
expand, resulting in certain additional costs incurred in connection with the
acquisition of additional real estate facilities, and (iii) pursuant to the PSMI
Merger, the Company has become self-advised, resulting in the Company
internalizing management functions which previously was provided by the Adviser.
However, offsetting the expected increases in general and administrative
expenses will be the elimination of advisory fee expense. General and
administrative costs for each year principally consist of state income taxes
(for states in which the Company is a non-resident), investor relation expenses,
and certain costs incurred in the acquisition and development of real estate
facilities.
ADVISORY FEE: During 1995, the Company's day-to-day operations were
performed by an adviser for a contractual fee which during the first quarter of
1995 amounted to $1,610,000. Pursuant to the PSMI Merger, effective November 16,
1995, the Company became self-advised and as a result will no longer incur
advisory fees.
MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Partnerships which are
not owned by the Company. The minority interest in income was $2,339,000 in 1996
compared to $1,823,000 in 1995, representing an increase of $516,000. This
increase is a result of the consolidation of partnerships (and corresponding
increase in minority interest) during the first quarter of 1996 which were not
consolidated during the same period in 1995 resulting in an increase of
$777,000, partially offset by a $261,000 reduction in income allocable to
minority interest relating to partnerships which were consolidated throughout
each period. In determining income allocable to the minority interest for the
three months ended March 31, 1996 and 1995, consolidated depreciation and
amortization expense of approximately $2,901,000, and $2,773,000, respectively,
was allocated to the minority interest.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has operated and intends to continue to operate in a
self-sufficient manner without reliance on external sources of financing to fund
its ongoing operating needs. The Company believes that funds internally
generated from ongoing operations will continue to be sufficient to enable it to
meet its operating expenses, capital improvements, debt service requirements and
distributions to shareholders for the foreseeable future. Over the past three
years, funds internally generated from ongoing operations were in excess of the
Company's operating needs, allowing the Company to retain cash flow, which it
used to invest in the acquisition of additional real estate investments or make
optional principal repayments on debt.
17
<PAGE>
Despite the Company's ability to retain a portion of its internally
generated cash flow, the Company's growth strategies have required the Company
to seek external financing. The Company has an unsecured $125.0 million
revolving credit facility with a group of banks which it uses as a temporary
source of acquisition financing. The Company, however, seeks to ultimately
finance all acquisitions with permanent sources of capital. As a result, the
Company has raised capital through the public issuance of both common and
preferred stock which was used to repay borrowings and make additional
investments in real estate assets.
INTERNALLY GENERATED CASH FLOWS: The Company believes that important
measures of its performance as well as its liquidity are cash provided by
operations, funds from operations ("FFO") and the ability of these measures to
fund the Company's operating requirements (i.e. capital improvements, principal
payments on debt, and distribution requirements).
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 $23,130,000 to $53,742,000 for
the three months ended March 31 1995 and 1996, respectively
The following table summarizes the Company's ability to pay the minority
interests' distributions, its dividends to the preferred shareholders and
capital improvements to maintain the facilities through the use of cash provided
by operating activities. The remaining cash flow is available to the Company to
make both scheduled and optional principal payments on debt, pay distributions
to common shareholders and for reinvestment.
<TABLE>
For the Three Months Ended March 31,
------------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Net Income................................................... $32,341,000 $13,200,000
Depreciation and amortization................................ 14,592,000 8,147,000
Depreciation from unconsolidated real estate investments..... 4,494,000 -
Minority interest in income.................................. 2,339,000 1,823,000
Amortization of discounts on mortgage notes receivable....... (24,000) (40,000)
------------- ------------
Net cash provided by operating activities.............. 53,742,000 23,130,000
Distributions from operations to minority interests (funds
from operations allocable to minority interests)........... (5,240,000) (4,596,000)
------------- ------------
Cash from operations/FFO available to the Company's 48,502,000 18,534,000
shareholders...............................................
Less: preferred stock dividends............................ (15,166,000) (5,976,000)
------------- ------------
Cash from operations/FFO available to common shareholders.... 33,336,000 12,558,000
Capital improvements to maintain facilities:
Mini-warehouses............................................ (2,322,000) (790,000)
Business parks............................................. (495,000) (268,000)
Add back: minority interest share of capital improvements.... 496,000 332,000
------------- ------------
Funds available for principal payments on debt, common
dividends and reinvestment................................. 31,015,000 11,832,000
Cash distributions to common shareholders.................... (15,748,000) (6,458,000)
------------- ------------
Funds available for principal payments on debt and investment $15,267,000 $5,374,000
============= ============
</TABLE>
See the consolidated statements of cash flows for the three months ended
March 31, 1996 and 1995 for additional information regarding the Company's
investing and financing activities.
18
<PAGE>
FFO increased to $48,502,000 for the three months ended March 31, 1996
compared to $18,534,000 for the same period in 1995. FFO applicable to the
common shareholders (after deducting preferred stock dividends) increased to
$33,336,000 for the three months ended March 31, 1996 compared to $12,558,000
for the same period in 1995. 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.
The Company accounts for the Unconsolidated Entities using the equity
method of accounting, and accordingly, earnings are recognized based upon the
Company's economic interest in each of the partnerships and REITs. Provisions of
the agreements of these partnerships and REITs provide for the payment of
preferred cash distributions to other investors (until certain specified amounts
have been paid) without regard to the pro rata interest of all investors in
current earnings. As a result, cash distributions to be paid to the Company for
a period of time will be less than the Company's FFO, as defined, from these
entities (distributable FFO to the Company was approximately $4.7 million less
than the FFO recognized by the Company). Preferred cash distributions paid to
other investors during each period have the effect of increasing the Company's
economic interest in each of the respective entities and reducing the amount of
future preference payments which must be paid to other investors before cash
distributions will be shared on a pro rata basis with respect to each investor's
actual interest. At March 31, 1996, the aggregate future preference payments to
other investors is approximately $114.7 million and is expected to be paid over
approximately 15 years, with approximately 50% of the amount being paid over the
next 3.5 years.
RETENTION OF OPERATING CASH FLOWS: Operating as a REIT, the Company's
ability to retain cash flow for reinvestment is restrictive. In order for the
Company to maintain its REIT status, a substantial portion of its operating cash
flows must be used to make distributions to its shareholders (see "REIT status"
below). Remaining cash flows must then be sufficient to fund necessary capital
improvements and scheduled debt service requirements. Accordingly, the Company's
ability to be self-sufficient is predicated on its ability to generate
sufficient operating cash flows to satisfy its REIT distribution requirements,
capital improvement requirements, scheduled debt service requirements, and
provide funds for additional investments.
Over the past four years, the Company's distribution policy has enabled it
to retain significant funds (after capital improvements) to make additional
investments and debt reductions. During first quarter of 1996 and 1995, the
Company distributed to common shareholders approximately 48% and 55% of its FFO
available to common shareholders, respectively, allowing it to retain
approximately $15.3 million and $5.4 million, respectively after satisfying its
capital improvements and preferred stock dividend requirements.
DISTRIBUTIONS REQUIREMENTS: During the first quarter of 1996, the Company
paid dividends totaling $13,154,000 to the holders of the Company's Senior
Preferred Stock, $2,012,000 to the holders of the Convertible Preferred Stock,
and $15,748,000 to the holders of Common Stock. Dividends with respect to the
Senior Preferred Stock include pro-rated amounts for securities issued during
1996. In January 1996, the Company issued approximately $163.2 million of
additional Senior Preferred Stock (8.45% Series H Preferred Stock). The Company
estimates that the distribution requirements for fiscal 1996 with respect to
Senior Preferred Stock (including the Senior Preferred Stock issued in January
1996) and the Convertible Preferred Stock to be approximately $63.5 million.
19
<PAGE>
CAPITAL IMPROVEMENT REQUIREMENTS: During 1996, the Company has budgeted
approximately $14.1 million for capital improvements ($10.6 million for its
mini-warehouse and $3.5 million for its business park facilities). The minority
interests' share of the budgeted capital improvements is approximately $2.8
million. During the first three months of 1996, the Company incurred capital
improvements of approximately $2.8 million.
During 1995, the Company commenced a program to enhance its visual icon and
modernize the appearance of its mini-warehouse facilities, including
modernization of signs, paint color schemes, and rental offices. Included in the
1996 capital improvement budget is approximately $4.0 million with respect to
these expenditures.
DEBT SERVICE REQUIREMENTS: 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. The Company
uses its $125.0 million of bank credit facility (all of which was unused as of
May 14, 1996) primarily to fund acquisitions and provide financial flexibility
and liquidity. The credit facility currently bears interest at LIBOR plus 1.00%.
At March 31, 1996, the Company had total outstanding borrowings of
approximately $120.8 million. During January 1996, the Company retired early
approximately $36.4 million of debt with the proceeds of a preferred stock
offering. Approximate principal maturities of notes payable at March 31, 1996
are as follows:
<TABLE>
Mortgage Debt
---------------------------
7.08% Unsecured Variable
Senior Notes Fixed Rate Rate Total
----------------- ------------- ---------- -----------
(in thousands)
<C> <C> <C> <C> <C>
1996 (remainder of).......... $5,750 $4,358 $ 13 $10,121
1997......................... 6,500 6,105 804 13,409
1998......................... 7,250 8,006 - 15,256
1999 ........................ 8,000 6,467 - 14,467
2000......................... 8,750 2,707 - 11,457
Thereafter................... 29,250 26,879 - 56,129
-------- -------- ------- ----------
$65,500 $54,522 $817 $120,839
======== ======== ======= ==========
</TABLE>
EXTERNAL FINANCING: 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 both unaffiliated and affiliated parties through direct
purchases, mergers, tender offers or other transactions. The Company expects to
fund these transactions with internally generated retained cash flows and
borrowings under its $125.0 million credit facility. The Company intends to
repay amounts borrowed under the credit facility from undistributed operating
cash flow or, as market conditions permit and are determined to be advantageous,
from the public or private placement of securities. In January 1996, the Company
issued $163.2 million of its Series H Preferred Stock. a portion of the proceeds
have been used to make repay debt and make additional real estate investments.
At March 31, 1995, the Company had approximately $65 million of remaining
proceeds.
In April 1996, the Company acquired all of the limited partnership interest
in two partnerships in which the Company had previously acquired the general
partnership interests. These limited partnership interest were acquired from an
institutional investor in exchange for $58,955,000 of the Company's Convertible
Preferred Stock, Series CC ("Series CC").
20
<PAGE>
The Company believes that its size and financial flexibility enable it to
access capital for growth when appropriate. The Company's financial profile is
characterized by a low level of debt to total capitalization, increasing net
income, increasing cash flow from operations, and a conservative dividend payout
ratio with respect to the common stock. The Company's credit ratings on its
Senior Preferred Stock were recently upgraded by each of the three major credit
agencies (Baa2 by Moody's and BBB+ by Standard and Poors and Duff & Phelps).
The Company's portfolio of real estate facilities remains substantially
unencumbered. At March 31, 1996, the Company had mortgage debt outstanding of
$55.3 million and had consolidated real estate facilities with a book value of
$1.4 billion. The Company, however, has been adverse to financing its
acquisitions with debt and generally will only increase its mortgage borrowing
through the assumption of pre-existing debt on acquired real estate facilities.
Over the past three years the Company has funded substantially all of its
acquisitions with permanent capital (both common and preferred stock). Unlike
many other real estate companies, the Company has elected to use preferred stock
despite the fact that the coupon rates of its preferred stock exceeds current
rates on conventional debt. The Company has chosen this route for the following
reasons: (i) the Company's perpetual preferred stock has no sinking fund
requirements, or maturity date and does not require redemption, all of which
eliminate any future refinancing risks, (ii) preferred stock allows the Company
to leverage the common stock without the attendant interest rate or refinancing
risks of debt, and (iii) dividends on the preferred stock can be applied to the
Company's REIT distributions requirements, which have helped the Company to
satisfy these requirements.
COMPLETED AND PROPOSED MERGERS: On March 26, 1996, the Company completed
the mergers with Public Storage Properties IX, Inc. ("Properties 9") and PS
Business Parks, Inc. ("PSBP"). In the mergers, the Company issued an aggregate
of 1.4 million shares of Common Stock and paid additional $12.6 million in
cash. Properties 9 owned and operated 15 properties: 14 mini-warehouses (881,000
square feet) and one business parks (72,000 square feet). PSBP owned and
operated a single business park (173,000 square feet).
In March 1996, the Company and Storage Properties, Inc. ("SPI"), a publicly
traded equity real estate investment trust agreed, subject to certain
conditions, to merge. Upon the merger, each outstanding share of SPI common
stock would be converted, at the election of the shareholders of SPI, into
either shares of the Company's common stock with a market value of $7.31 or,
with respect to up to 20% of the SPI common stock, $7.31 in cash. SPI has
3,348,167 outstanding shares of common stock and an estimated value of $24.5
million. The merger agreement is conditioned on, among other requirements,
receipt of satisfactory fairness opinions by SPI and approval by the
shareholders of SPI. The Company has an advisory agreement and a property
management agreement with SPI. SPI owns seven mini-warehouses (371,465 square
feet).
DEVELOPMENT ACTIVITIES: Historically, the Company only acquired interests
in existing/operating real estate facilities. During 1995, the Company began the
development of three mini-warehouse facilities, one of which began operations in
1995. The Company currently has plans to develop an additional 14
mini-warehouses in various locations at an estimated cost of approximately $60.0
million. The Company is evaluating the feasibility of developing additional
mini-warehouses in selected markets in which there are few, if any, facilities
to acquire at attractive prices and where the scarcity of other undeveloped
parcels of land or other impediments to development make it difficult to
construct additional competing facilities.
Generally the construction period takes 9 months followed by a 18-24 month
fill-up process until the newly constructed facility reaches a stabilized
occupancy level. Due to the timing of the employment of the capital to construct
the facilities and the relatively long "fill-up" period until the facilities
reach a stabilized occupancy level, the Company believes that its development
plans may create earnings dilution in the short-term.
REIT STATUS: The Company believes that it has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT under the Internal
Revenue Code of 1986, but no assurance can be given that it will at all times so
qualify. To the extent that the Company continues to qualify as a REIT, it will
not be taxed, with certain limited exceptions, on the taxable income that is
distributed to its shareholders.
21
<PAGE>
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.
In addition to certain asset tests, the Company must meet several annual
gross income tests to retain its REIT qualification. Under the 95% gross income
test, the Company must derive at least 95% of its total gross income from
specified classes of income related to real property, dividends, interest or
gains from the sale or other distribution of stock or other securities that do
not constitute "dealer property." If the Company fails to meet the 95% test
during any taxable year, its REIT status would terminate for that year and
future years unless it qualifies for the "good cause" exception. Generally, if
the Company fails the 95% test but still retains its qualification as a REIT
under the "good cause" exception, it would be subject to a 100% excise tax on
the amount of the excess nonqualifying income multiplied by a fraction, the
numerator of which would be the Company's taxable income (computed without its
distribution deduction) and the denominator of which would be the Company's
gross income from all sources. This excise tax would have the general effect of
causing the Company to pay all net profits generated from this excess
nonqualifying income to the Internal Revenue Service.
Subsequent to the PSMI Merger, the Company assumed and is performing
property management activities for the various partnerships and REITs in which
the Company has an interest. The Company receives property management fees from
such partnerships, REITs and other owners in exchange for the performance of
such management activities. The gross income received by the Company from these
property management activities with respect to the facilities owned by third
party entities and REITs in which the Company has an ownership interest will be
treated as income not qualifying under the 95% test. A portion of the gross
income (representing a pro rata amount allocated to partnership interests not
owed by the Company) received by the Company from property management activities
with respect to the facilities owned by partnerships in which the Company has an
ownership interest will also be treated as income not qualifying under the 95%
test.
At the time of the PSMI Merger, if there were no change in current revenues
of the Company and PSMI and the Company took no action to reduce its
nonqualifying income, the Company estimated it would not satisfy the 95% gross
income test for 1996. However, the percentage of nonqualifying income may be
reduced in a variety of ways: (i) through the prepayment of management fees,
(ii) through increase in overall gross income that result from increases in
qualifying rents will reduce the percentage of nonqualifying income (i.e. the
acquisition of additional real estate investments which generate qualifying
rents), and (iii) through the acquisition of properties currently managed by the
Company, thereby the management fees received by the Company would cease to be
nonqualifying income.
In order to reduce the amount of nonqualifying income the Company would
earn in 1996, certain entities prepaid during 1995 to the Company a portion of
the management fees that the Company otherwise would have received in 1996
discounted for early payment. The amount prepaid during 1995 was approximately
$4.5 million. In addition, subsequent to the PSMI Merger, the Company publicly
issued preferred stock raising net offering proceeds of approximately $330.1
million. The net proceeds have been used to repay debt and acquire additional
real estate investments including interests in properties managed by the
Company. The Company believes that the prepayment of management fees combined
with the acquisition of additional real estate investments will enable the
Company to meet the 95% test for 1996 and subsequent years.
22
<PAGE>
PART II. OTHER INFORMATION
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 January 22, 1996
(filed January 22, 1996), pursuant to Item 5, which filed certain exhibits
relating to the Company's public offering of Depositary Shares Each Representing
1/1,000 of a Share of 8.45% Cumulative Preferred Stock, Series H.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: May 15, 1996
PUBLIC STORAGE, INC.
BY: /s/ Ronald L. Havner, Jr.
------------------------------
Ronald L. Havner, Jr.
Senior Vice President and
Chief Financial Officer
(Principal financial officer)
BY: /s/ John Reyes.
------------------------------
John Reyes.
Vice President and Controller
(Principal accounting officer)
24
<PAGE>
PUBLIC STORAGE, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
For the three months ended
March 31,
1996 1995
------------- -------------
Primary Earnings Per Share:
- -----------------------------------------------
Net income $32,341,000 $ 13,200,000
<S> <C> <C>
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A (1,140,000) (1,141,000)
9.20% Cumulative Preferred Stock, Series B (1,372,000) (1,372,000)
Variable Rate Preferred Stock, Series C (505,000) (650,000)
9.50% Cumulative Preferred Stock, Series D (713,000) (713,000)
10.0% Cumulative Preferred Stock, Series E (1,372,000) (914,000)
9.75% Cumulative Preferred Stock, Series F (1,401,000) -
8.875% Cumulative Preferred Stock, Series G (3,997,000) -
8.45% Cumulative Preferred Stock, Series H (2,654,000) -
8.25% Convertible Preferred Stock (1,186,000) (1,186,000)
Convertible Participating Preferred Stock (826,000) -
------------- -------------
Net income allocable to common shareholders $17,175,000 $ 7,224,000
============= =============
Weighted Average common and common equivalent shares outstanding:
Weighted average common shares outstanding 71,574,000 30,567,000
Net effect of dilutive stock options - based on treasury stock
method using average market price 92,000 92,000
------------- -------------
Total 71,666,000 30,567,000
============= =============
Primary earnings per common and common equivalent share $ 0.24 $ 0.24
============= =============
</TABLE>
Exhibit 11
<PAGE>
PUBLIC STORAGE, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
For the three months ended
March 31,
1996 1995
--------------- ---------------
Fully-diluted Earnings per Common and Common
Equivalent Share:
- --------------------------------------------------------
<S> <C> <C>
Net income allocable to common shareholders per Primary
calculation above $17,175,000 $ 7,224,000
Add: dividends to 8.25% Convertible Preferred Stock 1,186,000 1,186,000
Add: dividends to Mandatory Convertible Participating
Preferred Stock 826,000 -
--------------- ---------------
Net income allocable to common shareholders for purposes of
determining Fully-diluted Earnings per Common and Common
Equivalent Share $19,187,000 $ 8,410,000
=============== ===============
Weighted average common and common equivalent shares
outstanding 71,666,000 30,567,000
Pro forma weighted average common shares assuming conversion
of 8.25% Convertible Preferred Stock 3,872,000 3,872,000
Proforma weighted average common shares assuming conversion
of Mandatory Convertible Participating Preferred Stock 1,524,000 -
--------------- ---------------
Weighted average common and common equivalent shares for
purposes of computation of Fully-diluted Earnings per
Common and Common Equivalent Share 77,062,000 34,439,000
=============== ===============
Fully-diluted Earnings per Common and Common Share (1) $ 0.25 $ 0.24
=============== ===============
</TABLE>
(1) Such amounts are anti-dilutive and are not presented in the Company's
consolidated financial statements.
In addition, the Company has 7,000,000 shares of Class B Common Stock which
are convertible into shares of the Company's Common Stock subject to
certain contingencies such as the passage of time and the attainment of
certain earnings milestone by the Company. The assumption of such earnings
and the pro forma conversion of the Class B Common Stock into Common Stock
in the above computations would have resulted in an increase in the
fully-diluted earnings per common share, and accordingly, is anti-dilutive.
<PAGE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
For the Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Net income $70,386 $42,118 $28,036 $15,123 $11,954
Add: Minority interest in income 7,137 9,481 7,291 6,895 6,693
Less: Gain on disposition of real estate - - - (398) -
Less: Minority interests in income which do not have
fixed charges (4,700) (5,906) (737) (694) (501)
------- ------- ------- ------- -------
Income from continuing operations 72,823 45,693 34,590 20,926 18,146
Interest expense 8,508 6,893 6,079 9,834 10,621
------- ------- ------- ------- -------
Total Earnings Available to Cover Fixed Charges $81,331 $52,586 $40,669 $30,760 $28,767
======= ======= ======= ======= =======
Total Fixed Charges - Interest expense $8,508 $6,893 $6,079 $9,834 $10,621
======= ======= ======= ======= =======
Preferred Stock dividends:
Series A $4,563 $4,563 $4,563 $ 812 $ -
Series B 5,488 5,339 4,147 - -
Series C 2,364 1,250 - - -
Series D 2,850 950 - - -
Series E 5,030 - - - -
Series F 3,721 - - - -
Series G 638 - - - -
Series H - - - - -
Convertible 4,744 4,744 2,179 - -
Convertible Participating 1,726 - - - -
------- ------- ------- ------- -------
Total Preferred Stock dividends 31,124 $16,846 $10,889 $ 812 $ -
======= ======= ======= ======= =======
Total Combined Fixed Charges and Preferred Stock
dividends $39,632 $23,739 $16,968 $10,646 $10,621
======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 9.56 7.63 6.69 3.13 2.71
======= ======= ======= ======= =======
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock dividends 2.05 2.22 2.40 2.89 2.71
======= ======= ======= ======= =======
Exhibit 12
</TABLE>
<PAGE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
Three Months Ended
March 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Net income $32,341 $13,200
Add: Minority interest in income 2,339 1,823
Less: Gain on disposition of real estate - -
Less: Minority interests in income which do not have
fixed charges (1,536) (825)
------- -------
Income from continuing operations 33,144 14,198
Interest expense 2,581 1,520
------- -------
Total Earnings Available to Cover Fixed Charges $35,725 $15,718
======= =======
Total Fixed Charges - Interest expense $2,581 $1,520
======= =======
Preferred Stock dividends:
Series A $1,140 $1,141
Series B 1,372 1,372
Series C 506 650
Series D 712 713
Series E 1,372 914
Series F 1,401 -
Series G 3,997 -
Series H 2,654 -
Convertible 1,186 1,186
Convertible Participating 826 -
------- -------
Total Preferred Stock dividends $15,166 $5,976
======= =======
Total Combined Fixed Charges and Preferred Stock
dividends $17,747 $7,496
======= =======
Ratio of Earnings to Fixed Charges 13.84 10.34
======= =======
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock dividends 2.01 2.10
======= =======
</TABLE>
Exhibit 12
<PAGE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
SUPPLEMENTAL DISCLOSURE OF RATIO OF FUNDS
FROM OPERATIONS ("FFO")TO FIXED CHARGES:
- -------------------------------------------
For the Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
FFO $105,086 $56,143 $35,830 $21,133 $17,176
Interest expense 8,508 6,893 6,079 9,834 10,621
------- ------- ------- ------- -------
Adjusted FFO available to cover fixed charges $113,594 $63,036 $41,909 $30,967 $27,797
======= ======= ======= ======= =======
Total Fixed Charges - Interest expense $8,508 $6,893 $6,079 $9,834 $10,621
======= ======= ======= ======= =======
Total Preferred Stock dividends $31,124 $16,846 $10,889 $ 812 $ -
======= ======= ======= ======= =======
Total Combined Fixed Charges and
Preferred Stock dividends $39,632 $23,739 $16,968 $10,646 $10,621
======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 13.35 9.15 6.89 3.15 2.62
======= ======= ======= ======= =======
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock dividends 2.87 2.66 2.47 2.91 2.62
======= ======= ======= ======= =======
</TABLE>
<TABLE>
Three Months Ended
March 31,
---------------------
1996 1995
------- -------
(Amounts in thousands, except ratios)
<S> <C> <C>
FFO $48,502 $18,534
Interest expense 2,581 1,520
------- -------
Adjusted FFO available to cover fixed charges $51,083 $20,054
======= =======
Total Fixed Charges - Interest expense $2,581 $1,520
======= =======
Total Preferred Stock dividends $15,166 $5,976
======= =======
Total Combined Fixed Charges and
Preferred Stock dividends $17,747 $7,496
======= =======
Ratio of Earnings to Fixed Charges 19.79 13.19
======= =======
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock dividends 2.88 2.68
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000318380
<NAME> PUBLIC STORAGE, INC.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 68,525,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,525,000
<PP&E> 1,644,819,000
<DEPRECIATION> (254,231,000)
<TOTAL-ASSETS> 2,114,210,000
<CURRENT-LIABILITIES> 36,187,000
<BONDS> 120,839,000
704,505,000
0
<COMMON> 8,002,000
<OTHER-SE> 1,117,149,000
<TOTAL-LIABILITY-AND-EQUITY> 1,829,656,000
<SALES> 0
<TOTAL-REVENUES> 74,967,000
<CGS> 0
<TOTAL-COSTS> 21,753,000
<OTHER-EXPENSES> 15,953,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,581,000
<INCOME-PRETAX> 32,341,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,341,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,341,000
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
