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, 1997
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 April 24, 1997:
Common Stock, $.10 par value, 95,277,290 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, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996 2
Condensed Consolidated Statement of Shareholders' Equity 3
Condensed Consolidated Statements of Cash Flows
for Three Months Ended March 31, 1997 and 1996 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 27
PART II. OTHER INFORMATION (Items 1, 2, 3, and 4 are not applicable)
- --------------------------
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<CAPTION>
March 31, December 31,
1997 1996
--------------- ---------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents................................. $ 125,436 $ 26,856
Real estate facilities, at cost:
Land................................................... 596,459 596,141
Buildings.............................................. 1,650,885 1,625,172
--------------- ---------------
2,247,344 2,221,313
Accumulated depreciation............................... (315,153) (297,655)
--------------- ---------------
1,932,191 1,923,658
Investment in real estate entities........................ 352,258 350,190
Intangible assets, net.................................... 219,926 222,253
Mortgage notes receivable from affiliates................. 24,745 25,016
Other assets.............................................. 26,751 24,179
--------------- ---------------
Total assets................................ $ 2,681,307 $ 2,572,152
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable............................................. $ 107,909 $ 108,443
Accrued and other liabilities............................. 39,993 41,467
--------------- ---------------
Total liabilities................................ 147,902 149,910
Minority interest......................................... 110,535 116,805
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares
authorized, - 13,396,764 shares issued and outstanding
(13,421,580 issued and outstanding at December 31, 1996),
at liquidation preference:
Cumulative Preferred Stock, issued in series..... 718,900 718,900
Convertible Preferred Stock...................... 114,309 114,929
Common stock, $0.10 par value, 200,000,000 shares
authorized, 93,041,461 shares issued and outstanding
(88,362,026 at December 31, 1996).................... 8,837
9,305
Class B Common Stock, $0.10 par value, 7,000,000 shares
authorized and issued................................ 700 700
Paid-in capital........................................ 1,581,673 1,454,387
Cumulative net income.................................. 438,738 396,420
Cumulative distributions paid.......................... (440,755) (388,736)
--------------- ---------------
Total shareholders' equity....................... 2,422,870 2,305,437
--------------- ---------------
Total liabilities and shareholders' equity.. $ 2,681,307 $ 2,572,152
=============== ===============
</TABLE>
See accompanying notes.
1
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------
1997 1996
------------ ------------
Revenues:
<S> <C> <C>
Rental income:
Self-storage facilities............................ $ 82,377 $ 58,744
Commercial properties.............................. 7,597 4,965
Equity earnings of real estate entities................. 5,221 4,611
Facility management fee................................. 3,052 3,760
Ancillary business income............................... 1,322 497
Interest and other income............................... 1,690 2,390
------------ ------------
101,259 74,967
------------ ------------
Expenses:
Cost of operations:
Self-storage facilities............................ 26,491 18,491
Commercial properties.............................. 3,184 2,194
Cost of facility management............................. 476 628
Cost of operations - ancillary business................. 3,340 440
Depreciation and amortization........................... 19,787 14,592
General and administrative.............................. 1,619 1,361
Interest expense........................................ 1,597 2,581
------------ ------------
56,494 40,287
------------ ------------
Income before minority interest........................... 44,765 34,680
Minority interest in income............................... (2,447) (2,339)
------------ ------------
Net income................................................ $ 42,318 $ 32,341
============ ============
Net income allocation:
----------------------
Allocable to preferred shareholders.................... $ 19,150 $ 15,166
Allocable to common shareholders....................... 23,168 17,175
------------ ------------
$ 42,318 $ 32,341
============ ============
Per common share:
-----------------
Net income............................................ $ 0.26 $ 0.24
============ ============
Weighted average common shares outstanding............ 89,476 71,666
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997
(Amounts in thousands except share amounts)
(Unaudited)
<CAPTION>
Preferred Stock
------------------------- Class B
Cumulative Common Common Paid-in
Senior Convertible Stock Stock Capital
----------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996........................... $ 718,900 $ 114,929 $ 8,837 $ 700 $1,454,387
Issuance of common stock:
Public issuance (4,600,000 shares)................. - - 460 - 126,239
Other (37,686 shares).............................. - - 4 - 431
Conversion of 8.25% Convertible Preferred Stock
into common stock (41,749 shares).................... - (620) 4 - 616
Net income.............................................. - - - - -
Cash distributions:
Cumulative Senior Preferred Stock.................... - - - - -
Mandatory Convertible Preferred Stock, Series CC..... - - - - -
8.25% Convertible Preferred Stock.................... - - - - -
Common Stock......................................... - - - - -
----------- ----------- --------- --------- ----------
Balances at March 31, 1997.............................. $718,900 $114,309 $9,305 $700 $1,581,673
=========== =========== ========= ========= ==========
</TABLE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997
(Amounts in thousands except share amounts)
(Unaudited)
<CAPTION>
Total
Cumulative Cumulative Shareholders'
Net Income Distributions Equity
---------- ------------- --------------
<S> <C> <C> <C>
Balances at December 31, 1996........................... $ 396,420 $ (388,736) $ 2,305,437
Issuance of common stock:
Public issuance (4,600,000 shares)................. - - 126,699
Other (37,686 shares).............................. - - 435
Conversion of 8.25% Convertible Preferred Stock
into common stock (41,749 shares).................... - - -
Net income.............................................. 42,318 - 42,318
Cash distributions:
Cumulative Senior Preferred Stock.................... - (16,091) (16,091)
Mandatory Convertible Preferred Stock, Series CC..... - (15,328) (15,328)
8.25% Convertible Preferred Stock.................... - (1,143) (1,143)
Common Stock......................................... - (19,457) (19,457)
---------- ------------- --------------
Balances at March 31, 1997.............................. $438,738 $(440,755) $2,422,870
========== ============= ==============
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1997 1996
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income................................................ $42,318 $ 32,341
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization (including amortization
of mortgage notes receivable discounts)............... 19,770 14,568
Depreciation included in equity in earnings of real
estate entities....................................... 3,629 4,494
Minority interest in income............................. 2,447 2,339
--------------- ---------------
Total adjustments................................... 25,846 21,401
--------------- ---------------
Net cash provided by operating activities....... 68,164 53,742
--------------- ---------------
Cash flows from investing activities:
Principal payments received on mortgage notes
receivable from affiliates............................ 288 385
Capital improvements to real estate facilities.......... (6,292) (2,817)
Construction in process................................. (14,289) (4,396)
Capital expenditures of portable self-storage
operations (included in other assets)................. (4,208) -
Acquisition of minority interests in consolidated real
estate partnerships................................... (9,837) (655)
Acquisition of interests in real estate entities........ (5,697) (16,025)
Acquisition of real estate facilities................... - (72,954)
Acquisition cost of business combinations............... - (53,706)
Acquisition of mortgage notes receivable................ - (3,709)
--------------- ---------------
Net cash used in investing activities........... (40,035) (153,877)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from the issuance of common stock.......... 127,134 625
Net proceeds from the issuance of preferred stock....... - 163,133
Principal payments on mortgage notes payable............ (534) (38,914)
Distributions paid to shareholders...................... (52,019) (30,914)
Distributions from operations to minority interests in
real estate partnerships.............................. (4,792) (5,240)
Net reinvestment by minority interests in consolidated
real estate partnerships.............................. 809 747
Other................................................... (147) (1,213)
--------------- ---------------
Net cash provided by financing activities....... 70,451 88,224
--------------- ---------------
Net increase (decrease) in cash and cash equivalents......... 98,580 (11,911)
Cash and cash equivalents at the beginning of the period..... 26,856 80,436
--------------- ---------------
Cash and cash equivalents at the end of the period........... $125,436 $ 68,525
=============== ===============
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
(Continued)
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1997 1996
--------------- ---------------
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)
Business combinations:
Real estate facilities................................ - (148,663)
Other assets.......................................... - (484)
Accrued and other liabilities......................... - 3,826
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
Cancellation of mortgage notes receivable in connection
with the acquisition of real estate facilities........ - 700
Issuance of common stock:
- in connection with mergers.......................... - 29,968
- in connection with the conversion of Preferred Stock 620 365
Conversion of 8.25% Convertible Preferred Stock.......... (620) (365)
</TABLE>
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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-storage
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 commercial properties containing
commercial and industrial rental space.
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, 1997, the Company had direct and
indirect equity interests in 1,111 properties located in 38 states,
including 1,066 self-storage facilities and 45 commercial properties.
All of the self-storage facilities are operated by 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. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from estimates. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1997. 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,
1996.
The consolidated financial statements include the accounts of
(i) the Company, (ii) majority owned subsidiaries which are involved in
the sale of locks and boxes, rental of trucks and portable
self-storage, and the management and operation of commercial
properties, and (iii) twenty-one limited partnerships in which the
Company has significant economic interest (generally in excess of 50%)
and is able to exercise significant control (the "Consolidated
Partnerships"). Collectively, the Company, the majority owned
subsidiaries, and the Consolidated Partnerships own a total of 758 real
estate facilities, consisting of 723 self-storage facilities and 35
commercial properties.
The Company also has equity investments in 41 other affiliated
limited partnerships and eight REITs owning in aggregate 353 real
estate facilities (343 self-storage facilities and 10 commercial
properties) which are managed by the Company. The Company's ownership
interest in such real estate entities is less than 50% of the total
equity interest and, accordingly, the Company's investments in these
real estate entities are accounted for using the equity method.
6
<PAGE>
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 1997, accordingly, no
provision for income taxes has been made in the accompanying financial
statements.
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.
Real estate investments
-----------------------
Real estate facilities are recorded at cost. 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.
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.
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 a 1995 merger
with an affiliate. Intangible assets are amortized by the straight-line
method over 25 years. At March 31, 1997, intangible assets are net of
accumulated amortization of $12,800,000 ($10,473,000 at December 31,
1996). Included in depreciation and amortization expense for the three
months ended March 31, 1997 and 1996 is $2,327,000 related to the
amortization of intangible assets.
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 commercial property
operations are expensed as incurred.
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 (Note 8) required for the Class B common stock to convert
into common stock) in 1996 and to be immaterial in 1997 and accordingly
the Class B common stock has not been included in the computation in
either period.
The Company's preferred stocks were not determined 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 share are not
presented, as the assumed conversion of the Company's convertible
preferred stocks would be anti-dilutive. The following table summarizes
the computations of earnings per common share:
7
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1997 1996
------------- -------------
(amounts in 000's, except per share data)
Primary Earnings Per Common Share:
----------------------------------
<S> <C> <C>
Net income...................................................... $ 42,318 $ 32,341
Less: Preferred Stock dividends:
Cumulative Senior Preferred Stock............................ (16,091) (13,154)
Mandatory Convertible Preferred Stock, Series CC (1)......... (1,916) -
8.25% Convertible Preferred Stock............................ (1,143) (1,186)
Mandatory Convertible Participating Preferred Stock.......... - (826)
------------- -------------
Net income allocable to common shareholders..................... $ 23,168 $ 17,175
============= =============
Weighted Average common and common equivalent shares outstanding:
Weighted average common shares outstanding.................. 89,086 71,574
Net effect of dilutive stock options - based on treasury
stock method using average market price.................. 390 92
------------- -------------
Total.................................................. 89,476 71,666
============= =============
Primary earnings per common and common equivalent share......... $ 0.26 $ 0.24
============= =============
Fully-diluted Earnings per Common Share:
----------------------------------------
Net income allocable to common shareholders per primary
calculation above............................................ $ 23,168 $ 17,175
Add dividends paid to holders of Convertible Preferred Stocks:
Series CC Preferred Stock................................... 1,916 -
8.25% Convertible Preferred Stock........................... 1,143 1,186
Mandatory Convertible Participating Preferred Stock......... - 826
------------- -------------
Net income allocable to common shareholders for purposes of
determining Fully-diluted Earnings per Common and Common
Equivalent Share............................................. $ 26,227 $ 19,187
============= =============
Weighted average common and common equivalent shares outstanding 89,476 71,666
Pro forma weighted average common shares assuming conversion
of Convertible Preferred Stock:
Series CC Preferred Stock.............................. 2,064 -
8.25% Convertible Preferred Stock...................... 3,769 3,872
Mandatory Convertible Participating Preferred Stock.... - 1,524
------------- -------------
Weighted average common and common equivalent shares for
purposes of computation of fully-diluted Earnings per Common
and Common Equivalent Share.................................. 95,309 77,062
============= =============
Fully-diluted Earnings per Common and Common Share (2).......... $ 0.28 $ 0.25
============= =============
</TABLE>
(1) On March 31, 1997, the Company prepaid dividends totaling
$13,412,000 with respect to the Mandatory Convertible
Participating Preferred Stock. The amount of prepayment has
not been included in the determination of income allocable to
common shareholders for the three months ended March 31,
1997.
(2) 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.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effects of stock
options will be excluded. The impact of the new standard will not have
a material impact on either primary or fully-diluted earnings per
common share for the quarter ended March 31, 1997 and March 31, 1996.
8
<PAGE>
3. Real estate facilities:
-----------------------
Activity in real estate facilities during 1997 is as follows:
<TABLE>
<CAPTION>
Number of real Net rentable Net carrying
estate facilities square feet cost
----------------- ------------ -------------
(Amounts in thousands, except number of facilities)
Operating Facilities
<S> <C> <C> <C>
Balance at December 31, 1996................ 756 46,462 $2,185,498
Developed facilities........................ 2 120 7,380
Acquisition of minority interest............ - - 5,103
Capital improvements........................ - - 6,292
Other....................................... - - 347
----------------- ------------ -------------
Ending balance.............................. 758 46,582 2,204,620
----------------- ------------ -------------
Construction in progress:
Balance at December 31, 1996................ 11 707 35,815
Current development......................... 2 44 14,289
Newly opened development facilities......... (2) (120) (7,380)
----------------- ------------ -------------
Ending balance.............................. 11 631 42,724
----------------- ------------ -------------
Accumulated depreciation:
Beginning balance........................... - - (297,655)
Additions during the year................... - - (17,498)
Ending balance.............................. - - (315,153)
----------------- ------------ -------------
Total real estate facilities.................. 769 47,213 $ 1,932,191
================= ============ =============
</TABLE>
During the first quarter of fiscal 1997, the Company expended
approximately $14.3 million in the development of 13 self-storage
facilities. Two of these facilities were put into operation during the
period. The Company's policy is to capitalize interest incurred on debt
during the course of construction of its self-storage facilities.
Interest capitalized during the three months ended March 31, 1997 was
$735,000 compared to $194,000 for the same period in 1996.
On April 10, 1997, the Company entered into an agreement with
a joint venture partner to develop approximately $220 million of
self-storage facilities. The joint venture partner will contribute 70%
of the capital needs of the venture with the balance to be provided by
the Company. Initially, the Company contributed eight facilities with
an aggregate cost of approximately $30.4 million and as a result, the
Company received cash of approximately $21.3 million from the venture
representing the venture partner's proportionate share of the
development cost.
4. Investment in real estate entities
----------------------------------
The Company's investment in real estate entities at March 31,
1997, generally consists of limited and general partnership interests
in approximately 41 affiliated partnerships and common stock in 8
affiliated REITs. Such interests consist of ownership interests ranging
from 15% to 45% and are accounted for using the equity method of
accounting. Provisions of the agreements of the partnerships and REITs
provide for the payment of preferred cash distributions to certain
investors in the entity (until certain specified amounts have been
paid) without regard to the pro rata interest of investors in current
earnings. The Company's ownership interests in such entities generally
represents interests which are not entitled to these preferred cash
distributions.
During the three months ended March 31, 1997, the Company
recognized earnings from its investments totaling $5,221,000. Included
in equity in earnings of real estate entities for the three months
9
<PAGE>
ended March 31, 1997 is the Company's share of depreciation expense
totaling $3,629,000 (including amortization totaling $1,622,000
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).
Summarized combined financial data (based on historical cost)
with respect to those real estate entities in which the Company had an
ownership interest at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1997 1996
--------------- ---------------
(in thousands)
<S> <C> <C>
Rental income..................................... $46,672 $43,138
Total revenues.................................... 47,159 43,512
Cost of operations................................ 17,494 16,195
Depreciation...................................... 6,918 6,785
Net income........................................ 19,494 17,262
Total assets, net of accumulated depreciation..... $840,552 $839,866
Total debt........................................ 89,821 95,305
Total equity...................................... 713,275 709,846
</TABLE>
5. Mortgage notes receivable from affiliates
-----------------------------------------
At March 31, 1997, mortgage notes receivable balance of
$24,745,000 is net of related discounts totaling $294,000. The mortgage
notes bear interest at stated rates ranging from 7.48% to 14% and are
secured by 13 self-storage facilities owned by affiliated partnerships.
All of the notes are current as to the payment of principal and
interest.
6. Revolving line of credit
------------------------
As of March 31, 1997, the Company had no borrowings on its
unsecured credit agreement with a group of commercial banks. The credit
agreement (the "Credit Facility") has a borrowing limit of $150.0
million and an expiration date of July 31, 2001. The expiration date
may be extended by one year on each anniversary of the credit
agreement. Interest on outstanding borrowings is payable monthly. At
the option of the Company, the rate of interest charged is equal to (i)
the prime rate or (ii) a rate ranging from the London Interbank Offered
Rate ("LIBOR") plus 0.40% to LIBOR plus 1.10% depending on the
Company's credit ratings and coverage ratios, as defined. In addition,
the Company is required to pay a quarterly commitment fee of 0.250%
(per annum) of the unused portion of the Credit Facility. The Credit
Facility allows the Company, at its option, to request the group of
banks to propose the interest rate they would charge on specific
borrowings not to exceed $50 million. However, in no case may the
interest rate proposal be greater than the amount provided by the
Credit Facility.
Under covenants of the Credit Facility, the Company is
required to (i) maintain a balance sheet leverage ratio of less than
0.40 to 1.00, (ii) maintain net income of not less than $1.00 for each
fiscal quarter, (iii) maintain certain cash flow and interest coverage
ratios (as defined) of not less than 1.0 to 1.0 and 5.0 to 1.0,
respectively and (iv) maintain a minimum total shareholders' equity (as
defined). In addition, the Company is limited in its ability to incur
additional borrowings (the Company is required to maintain unencumbered
assets with an aggregate book value equal to or greater than three
times the Company's unsecured recourse debt) or to sell assets. The
Company was in compliance with the covenants of the Credit Facility at
March 31, 1997.
10
<PAGE>
7. Minority interest
-----------------
The Company classifies ownership interests other than its own
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 interests' share of the operating
results of the Company relating to the consolidated operations of the
Consolidated Partnerships.
8. Shareholders' equity
--------------------
Preferred stock
At March 31, 1997 and December 31, 1996, the Company had the
following series of Preferred Stock outstanding:
<TABLE>
<CAPTION>
At March 31, 1997 At December 31, 1996
------------------------------ ------------------------------
Dividend Shares Carrying Shares Carrying
Series Rate Outstanding Amount Outstanding Amount
-------------------------------------- ----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Series A .......................... 10.000% 1,825,000 $ 45,625,000 1,825,000 $ 45,625,000
Series B .......................... 9.200% 2,386,000 59,650,000 2,386,000 59,650,000
Series C........................... Adjustable 1,200,000 30,000,000 1,200,000 30,000,000
Series D........................... 9.500% 1,200,000 30,000,000 1,200,000 30,000,000
Series E........................... 10.000% 2,195,000 54,875,000 2,195,000 54,875,000
Series F........................... 9.750% 2,300,000 57,500,000 2,300,000 57,500,000
Series G .......................... 8.875% 6,900 172,500,000 6,900 172,500,000
Series H .......................... 8.45% 6,750 168,750,000 6,750 168,750,000
Series I .......................... 8.625% 4,000 100,000,000 4,000 100,000,000
-------------------------------------- ----------- ------------- -------------- ------------- --------------
Total Senior Preferred Stock..... 11,123,650 718,900,000 11,123,650 718,900,000
------------- -------------- ------------- --------------
Convertible........................ 8.25% 2,214,159 55,354,000 2,238,975 55,974,000
Mandatory Convertible - Series CC. 13.00% 58,955 58,955,000 58,955 58,955,000
------------- -------------- ------------- --------------
Total Convertible Preferred Stock 2,273,114 114,309,000 2,297,930 114,929,000
------------- -------------- ------------- --------------
13,396,764 $833,209,000 13,421,580 $833,829,000
============= ============== ============= ==============
</TABLE>
The Series A through Series I (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, all of the Company's
Convertible Preferred Stock ranks junior to the Cumulative Senior
Preferred Stock and any other shares of preferred stock of the Company
ranking on a parity with or senior to the Cumulative Senior Preferred
Stock. The Convertible Preferred Stock ranks senior to the common
stock, any additional class of common stock and any series of preferred
stock expressly made junior to the Convertible Preferred Stock.
Holders of the Company's preferred stock, except under certain
conditions and as noted above, will not be entitled to vote on most
matters. In the event of a cumulative arrearage equal to six quarterly
dividends or failure to maintain a Debt Ratio (as defined) of 50% or
less, holders of all outstanding series of preferred stock (voting as a
single class without regard to series) will have the right to elect two
additional members to serve on the Company's Board of Directors until
events of default have been cured. At March 31, 1997, there were no
dividends in arrears and the Debt Ratio was 4.0%.
Except under certain conditions relating to the Company's
qualification as a REIT, the Senior Preferred Stock are not redeemable
prior to the following dates: Series A - September 30, 2002, Series B -
March 31, 2003, Series C - June 30, 1999, Series D - September 30,
2004, Series E - January 31, 2005, Series F - April 30, 2005, Series G
- December 31, 2000, Series H - January 31, 2001, Series I - October
31, 2001. On or after the respective dates, each of the series of
Senior Preferred Stock will be redeemable at the option of the Company,
in whole or in part, at $25 per share (or depository share in the case
of the Series G, Series H and Series I), plus accrued and unpaid
dividends.
11
<PAGE>
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. On or after July 1, 1998, the Convertible Stock
will be redeemable for shares of the Company's common stock at the
option of the Company, in whole or in part, at a redemption price of
1.6835 shares of common stock for each share of Convertible Stock
(subject to adjustment in certain circumstances), if for 20 trading
days within any period of 30 consecutive trading days (including the
last trading day of such period), the closing price of the common stock
on its principal trading market exceeds $14.85 per share (subject to
adjustment in certain circumstances). The Convertible Preferred Stock
is not redeemable for cash.
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 $28.56, i.e, 35.014 shares of common stock for
each share of Series CC Preferred Stock, and (iii) automatic conversion
into common stock of the Company on March 31, 2000 at the conversion
price described above.
Common stock
------------
On March 18, 1997, the Company issued 4,600,000 shares of
common stock, raising net proceeds of approximately $126.7 million. The
Company intends to use the net proceeds from this offering to make
investments in real estate.
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.
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 $1.89 for the four consecutive calendar quarters ended March 31,
1997.
12
<PAGE>
Dividends
---------
The following summarizes dividends paid during the first three
months of 1997:
<TABLE>
<CAPTION>
Distributions
Per Share or Total
Depository Share Distributions
---------------- ---------------
<S> <C> <C>
Series A.............................. $ 0.625 $ 1,140,000
Series B.............................. $ 0.575 1,372,000
Series C.............................. $ 0.454 545,000
Series D.............................. $ 0.594 713,000
Series E.............................. $ 0.625 1,372,000
Series F.............................. $ 0.609 1,401,000
Series G.............................. $ 0.555 3,828,000
Series H.............................. $ 0.528 3,565,000
Series I.............................. $ 0.539 2,156,000
Convertible........................... $ 0.515 1,142,000
Series CC............................. $260.000 15,328,000
---------------
32,562,000
Common................................ $ 0.220 19,457,000
---------------
$52,019,000
===============
</TABLE>
On March 31, 1997, the Company prepaid a portion of the
dividends relating to the Mandatory Convertible Series CC Preferred
Stock which would have been payable quarterly through December 31,
1998. The total amount prepaid was approximately $13,412,000.
The dividend rate on the Series C Preferred Stock for the
first quarter of 1997 was equal to 7.26%, 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
dividend rate for the quarter ending June 30, 1997 will be equal to
7.623% per annum.
9. Events subsequent to March 31, 1997
-----------------------------------
On April 11, 1997, the shareholders of each of Public Storage
Properties XIV, Inc. ("PSP-14") and Public Storage Properties XV, Inc.
("PSP-15") approved the mergers of the respective corporations into the
Company. In connection with the mergers, the Company issued an
aggregate of 2.3 million shares of Common Stock and paid an additional
$18.7 million in cash for the interest of PSP-14 and PSP-15 the Company
did not own.
In April 1997, Public Storage Properties XVI, Inc. ("PSP-16"),
Public Storage Properties XVII, Inc. ("PSP-17"), Public Storage
Properties XVIII, Inc. ("PSP-18") and Public Storage Properties XIX,
Inc. ("PSP-19") each agreed, subject to certain conditions, to merge
with and into the Company. PSP-16, PSP-17, PSP-18 and PSP-19 are
affiliated publicly traded equity real estate investment trusts. Each
of the mergers is conditioned on approval by the respective
shareholders of PSP-16, PSP-17, PSP-18 and PSP-19, however, the mergers
are not conditioned on approval of each other. The Company expects that
if approved by the shareholders, the mergers would be completed in June
or July 1997.
The estimated value of PSP -16's properties is approximately
$76.5 million. PSP-16 owns 22 properties (1,430,000 square feet).
PSP-16 has 2,962,348 outstanding shares of common stock series A,
259,991 outstanding shares of common stock series B and 920,802
outstanding shares of common stock series C. The Company owns 632,050
shares of common stock series A, 210,510 shares of common stock series
B and 607,194 shares of common stock series C. Upon completion of the
merger, each outstanding share of common stock series A of PSP-16
(other than shares held by the Company) would be converted, at the
election of the shareholders of PSP-16, into either shares of the
Company's common stock with a market value of $20.76 or, with respect
to up to 20% of the PSP-16 common stock series A, $20.76 in cash. The
$20.76 conversion value will be reduced by any required final REIT
distributions, such that the total consideration received, inclusive of
any final required REIT distributions, is $20.76. In addition, each
share of PSP-16 common stock series B and series C (other than shares
13
<PAGE>
held by the Company) will be converted into the right to receive $11.82
in the Company's common stock, plus the Series B shares will receive
any required REIT distribution attributable to the PSP-16 common stock
series B. The shares of PSP-16 common stock series A, B and C held by
the Company will be canceled in the merger.
The estimated value of PSP-17's properties is approximately
$72.8 million. PSP-17 owns 19 properties (1,425,000 square feet). One
of these 19 properties, with 95,000 square feet, is jointly held with
PSP-18. PSP-17 has 2,776,023 outstanding shares of common stock series
A, 324,989 outstanding shares of common stock series B and 920,802
outstanding shares of common stock series C. The Company owns 505,400
shares of common stock series A, 295,487 shares of common stock series
B and 851,142 shares of common stock series C. Upon completion of the
merger, each outstanding share of common stock series A of PSP-17
(other than shares held by the Company) would be converted, at election
of the shareholders of PSP-17, into either shares of the Company's
common stock with a market value of $19.63 or, with respect to up to
20% of the PSP-17 common stock series A, $19.63 in cash. The $19.63
conversion value will be reduced by any required final REIT
distributions, such that the total consideration received, inclusive of
any final required REIT distributions, is $19.63. In addition, each
share of PSP-17 common stock series B and series C (other than shares
held by the Company) will be converted into the right to receive $10.26
in the Company's common stock, plus the Series B shares will receive
any required REIT distribution attributable to the PSP-17 common stock
series B. The shares of PSP-17 common stock series A, B and C held by
the Company will be canceled in the merger.
The estimated value of PSP-18's properties is approximately
$73.3 million. PSP-18 owns 18 properties (1,240,000 square feet). One
of these 18 properties, with 95,000 square feet, is jointly held with
PSP-17. PSP-18 has 2,775,900 outstanding shares of common stock series
A, 324,989 outstanding shares of common stock series B and 920,802
outstanding shares of common stock series C. The Company owns 168,000
shares of common stock series A, 324,989 shares of common stock series
B and 920,802 shares of common stock series C. Upon completion of the
merger, each outstanding share of common stock series A of PSP-18
(other than shares held by the Company) would be converted, at election
of the shareholders of PSP-18, into either shares of the Company's
common stock with a market value of $20.38 or, with respect to up to
20% of the PSP-18 common stock series A, $20.38 in cash. The $20.38
conversion value will be reduced by any required final REIT
distributions, such that the total consideration received, inclusive of
any final required REIT distributions, is $20.38. In addition, each
share of PSP-18 Series B and C, (other than shares held by the Company)
will be converted into the right to receive $9.36 in the Company's
Common Stock, plus the Series B shares will receive any required REIT
distribution attributable to the PSP-18 Common Stock Series B. The
shares of PSP-18 common stock series A, B and C held by the Company
will be canceled in the merger.
The estimated value of PSP-19's properties is approximately
$52.3 million. PSP-19 owns 14 properties (990,000 square feet). PSP-19
has 3,023,371 outstanding shares of common stock series A, 283,224
outstanding shares of common stock series B and 802,466 outstanding
shares of common stock series C. The Company owns 646,145 shares of
common stock series A, 283,224 shares of common stock series B and
802,466 shares of common stock series C. Upon completion of the merger,
each outstanding share of common stock series A of PSP-19 (other than
shares held by the Company) would be converted, at election of the
shareholders of PSP-19, into either shares of the Company's common
stock with a market value of $16.72 or, with respect to up to 20% of
the PSP-19 common stock series A, $16.72 in cash. The $16.72 conversion
value will be reduced by any required final REIT distributions, such
that the total consideration received, inclusive of any final required
REIT distributions, is $16.72. In addition, each share of PSP-19 Series
B and C (other than shares held by the Company) will be converted into
the right to receive $1.41 in the Company's common stock, plus the
Series B shares will receive any required REIT distribution
attributable to the PSP-19 common stock Series B. The shares of PSP-19
common stock series A, B and C held by the Company will be canceled in
the merger.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
- ----------------------------------------------------------------
and Results of Operations
- -------------------------
Historical Overview: During 1996 and the first three months of
Fiscal 1997, the Company completed several business initiatives which
have had a significant impact to the Company's comparative operating
results for the three months ended March 31, 1997 and 1996:
* MERGERS WITH AFFILIATED REITS: During 1996, the Company
completed eight mergers with affiliated REITs whereby the
Company acquired 103 additional wholly-owned real estate
facilities. The aggregate cost of these mergers was
approximately $356.8 million which includes the Company's
pre-existing investment in the affiliated REITs totaling
$79.5 million.
* THIRD PARTY ACQUISITIONS: During 1996, the Company acquired
58 real estate facilities from various unaffiliated parties
for an aggregate acquisition cost of approximately $202.7
million.
* DEVELOPMENT OF SELF-STORAGE FACILITIES: In 1995, the
Company commenced development of self-storage facilities,
opening one in 1995, four in 1996, and two in 1997. Eleven
facilities (631,000 net rentable square feet) are under
construction at March 31, 1997, with an aggregate cost
incurred to date of $39.4 million and total additional
estimated costs to complete of $21.4 million.
* PORTABLE SELF-STORAGE BUSINESS: In August 1996, the Company
commenced operations in the portable self-storage business
facilitated by the acquisition of an existing operator. As of
March 31, 1997, the Company has opened 13 facilities.
At March 31, 1997, the Company's investment portfolio consists
of (i) wholly-owned properties owned by the Company, (ii) properties
owned by real estate partnerships in which the Company has significant
ownership interests (the "Consolidated Partnerships"), and (iii)
properties owned by real estate entities (partnerships and REITs) in
which the Company's ownership interest and control are not sufficient
to warrant the consolidation of such entities (the "Unconsolidated
Entities"). The following table summarizes the Company's investment in
real estate facilities as of March 31, 1997:
<TABLE>
<CAPTION>
Number of Facilities in which the Net Rentable Square Footage
Company has an ownership interest (in thousands)
--------------------------------- ----------------------------------
Self-Storage Commercial Self-Storage Commercial
Facilities Properties Total Facilities Properties Total
----------- ---------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Wholly-owned facilities (a) 431 - 431 26,368 - 26,368
Facilities owned by Consolidated
Partnerships 292 35 327 17,169 3,045 20,214
----------- ---------- -------- ----------- ----------- ---------
Total consolidated facilities 723 35 758 45,357 3,045 46,582
Facilities owned by Unconsolidated
Entities 343 10 353 20,600 673 21,273
----------- ---------- -------- ----------- ----------- ---------
Total facilities in which the Company
has an ownership interest 1,066 45 1,111 64,137 3,718 67,855
=========== ========== ======== =========== =========== =========
</TABLE>
15
<PAGE>
(a) 35 commercial properties which were previously "wholly
owned" at December 31, 1996 are now classified as "Facilities Owned by
Consolidated Partnerships." Pursuant to the restructuring of the
commercial properties operations, the Company and its consolidated
partnerships contributed substantially all of their commercial
properties to a newly created operating partnership, which is owned by
American Office Park Properties, Inc., the Company's majority owned
subsidiary and by the Company and its consolidated Partnerships.
Results of Operations
---------------------
Net income for the three months ended March 31, 1997 was
$42,318,000 compared to $32,341,000 for the same period in 1996,
representing an increase of $9,977,000. Net income allocable to common
shareholders increased to $23,168,000 for the three months ended March
31, 1997 compared to $17,175,000 for the same period in 1996. Net
income per common share was $0.26 per share (based on weighted average
shares outstanding of 89,476,000) for the three months ended March 31,
1997 compared to $0.24 per share (based on weighted average shares
outstanding of 71,666,000) for the same period in 1996, representing an
increase of 8.33%.
The increases in net income, net income allocable to common
shareholders, and net income per share were primarily the result of
improved property operations, the acquisition of additional real estate
facilities during 1996, and the acquisition of additional partnership
interests during 1997 and 1996. However, net income per common share
for 1997 included the negative impact of (i) development activities
($0.01 per common share), (ii) the portable self-storage operations
($0.03 per common share), and (iv) the temporary uninvested proceeds
from the issuance of preferred stock during the fourth quarter of 1996
and common stock issued in the first quarter of 1997 ($0.01 per common
share). Net income per common share for the three months ended March
31, 1996 was also negatively impacted by temporary uninvested proceeds
from the issuance of preferred stock ($0.01 per common share).
Operating results of the Company's property operations have
increased significantly for the three months ended March 31, 1997 as
compared to the same period in 1996, due to an improvement in the
facilities owned throughout both periods, and an increase in the number
of facilities through property acquisitions.
SELF-STORAGE OPERATIONS: The Company's self-storage operations
account for over 90% of the total property operations and represent the
largest source of comparison of variances from period to period. As a
result, the following table is presented to further illustrate
variances from period to period by (i) comparing the operating results
of self-storage facilities which were owned by the Company throughout
1996 and 1997 and (ii) outlining operating results for those
self-storage facilities which were acquired by the Company in 1996 and
1997 whereby the operations represent partial results from the date the
facility was acquired through the end of the period.
16
<PAGE>
<TABLE>
SUMMARY OF SELF-STORAGE FACILITY OPERATIONS
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
1997 1996 Change
------------ ------------ -----------
(dollar amounts in thousands, except rents per square foot)
Rental income:
<S> <C> <C> <C>
Pre-1996 acquisitions $61,320 $ 57,865 6.0%
1996 and 1997 acquisitions 21,057 879 2,295.7%
------------ ------------ -----------
82,377 58,744 40.2%
------------ ------------ -----------
Cost of operations:
Pre-1996 acquisitions 19,342 18,298 5.7%
1996 and 1997 acquisitions 7,149 193 3,604.1%
------------ ------------ -----------
26,491 18,491 43.3%
------------ ------------ -----------
Net operating income:
Pre-1996 acquisitions 41,978 39,567 6.1%
1996 and 1997 acquisitions 13,908 686 1,927.4%
------------ ------------ -----------
$ 55,886 $40,253 38.8%
============ ============ ===========
Net rentable square feet, (in thousands
at the end of the period):
Pre-1996 acquisitions 32,139 32,139 -
1996 and 1997 acquisitions 11,398 1,854 514.8%
Number of facilities (at the end of the period):
Pre-1996 acquisitions 547 547 -
1996 and 1997 acquisitions 176 29 506.9%
Pre-1996 acquisitions:
Annualized realized rent per occupied square foot (a) $8.52 $8.16 4.4%
Annualized scheduled rent per occupied square foot (b) $9.12 $7.92 15.2%
Weighted average occupancy for the period 89.3% 88.5% 0.9%
</TABLE>
---------------------------------------------------------
(a) Realized rent per square foot represents the actual
revenue earned per occupied square foot after giving
effect to discounts through the use of promotions.
(b) Scheduled rent per square foot represents the posted
revenue per occupied square foot prior to giving effect
to discounts through the use of promotions.
The comparative increases in the Company's self-storage
operations are principally due to the acquisition of additional
facilities. For the consistent group of facilities which were owned by
the Company throughout each of the periods, improved operations are
principally the result of improved weighted average occupancies
combined with increased realized rent per square foot.
Commencing in early 1996, the Company began to experiment with
a telephone reservation system designed to provide added customer
service. Customers calling either the Company's toll-free telephone
referral system, (800) 44-STORE, or a self-storage facility are
directed to the Company's reservation system where a representative
discusses with the customer space requirements, price and location
preferences and also informs the customer of other products and
services provided by the Company. The national reservation center was
not fully operational for most of the Company's facilities until the
fourth quarter of 1996.
In the second half of 1996, the Company began to increase its
scheduled rents charged to new customers (prior to promotional
discounts) and to existing tenants where warranted. As a result, both
realized and scheduled rents per square foot increased during the three
months ended March 31, 1997 as compared to the same period in 1996.
17
<PAGE>
DEVELOPMENT OF SELF-STORAGE FACILITIES: Commencing in 1995,
the Company began to construct self-storage facilities. Through March
31, 1997, the Company constructed and opened for operation seven
facilities, one of which began operations in 1995, four in 1996 and two
in 1997. At March 31, 1997, the Company had eleven self-storage
facilities (approximately 631,000 square feet) under construction with
an aggregate cost incurred to date of approximately $39.4 million and
total estimated costs to complete of $21.4 million. Generally the
construction period takes 9 to 12 months followed by a 18 to 24 month
fill-up process until the newly constructed facility reaches a
stabilized occupancy level of approximately 90%. 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. However, in April
1997, the Company entered into an agreement with a joint venture
partner to develop approximately $220 million of self-storage
facilities (see "Liquidity and Capital Resources - Development
activities") and expects that the joint development of self-storage
facilities will mitigate this earnings dilution to the extent of the
joint venturer's interest.
COMMERCIAL PROPERTY OPERATIONS: Commercial property rental
income and cost of operations presented on the consolidated statements
of income reflect the operations of the 35 facilities owned by the
Company. The following table summarizes the operating results (before
depreciation) of these facilities for the three months ended March 31,
1997 and 1996.
18
<PAGE>
<TABLE>
Summary of Commercial Property Operations
<CAPTION>
Three Months Ended March 31,
----------------------------------------
1997 1996 Change
---------- ------------ ----------
(dollar amounts in thousands, except rents per square foot)
Rental income:
<S> <C> <C> <C>
Pre-1996 acquisitions $4,991 $4,965 0.5%
1996 and 1997 acquisitions 2,606 - -
---------- ------------ ----------
7,597 4,965 53.0%
---------- ------------ ----------
Cost of operations:
Pre-1996 acquisitions 2,216 2,194 1.0%
1996 and 1997 acquisitions 968 - -
---------- ------------ ----------
3,184 2,194 45.1%
---------- ------------ ----------
Net operating income:
Pre-1996 acquisitions 2,775 2,771 0.1%
1996 and 1997 acquisitions 1,638 - -
---------- ------------ ----------
$4,413 $2,771 59.3%
========== ============ ==========
Net rentable square feet, in thousands (at the end of the
period):
Pre-1996 acquisitions 2,004 2,004 -
1996 and 1997 acquisitions 1,041 291 257.7%
Number of facilities (at the end of the period):
Pre-1996 acquisitions 20 20 -
1996 and 1997 acquisitions 15 2 650.0%
Pre-1996 acquisitions:
----------------------
Annualized realized rent per occupied square foot (a) $9.00 $8.76 2.7%
Weighted average occupancy for the period 95.7% 96.3% (0.6%)
</TABLE>
---------------------------------------------------------
(a) Realized rent per square foot represents the actual
revenue earned per occupied square foot after giving
effect to discounts through the use of promotions.
As indicated in the above table, the Company's commercial
property operations have grown principally as a result of the addition
of new properties. The operations of the consistent group of properties
have been relatively stable, with changes in operations principally the
result of changing occupancy levels and realized rental rates. Due to
the size of the Company's investment in commercial properties relative
to its self-storage facilities, the Company has not emphasized its
growth in this segment of its portfolio.
Effective January 2, 1997, the Company restructured its
commercial property operations to concentrate its investing efforts in
real estate facilities containing commercial and industrial rental
space through a separate entity. The Company believes that the
restructuring will create a vehicle which should facilitate future
growth in this segment of the real estate industry. The Company will
participate in this growth through its ownership interest in the new
entity. The Company currently owns approximately 85% of the economic
interest in the new entity. Accordingly, due to the Company's
significant ownership interest the Company will continue to consolidate
the entity until such time that the Company's ownership and control is
reduced to a level not warranting consolidation.
19
<PAGE>
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: The Company
currently has ownership interests in 41 limited partnerships and 8
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 and accounts for such investments using the equity method.
Equity in earnings of real estate entities was $5,221,000 and
$4,611,000 for the three months ended March 31, 1997 and 1996,
respectively. The increase in 1997 as compared to 1996 reflects the
effect of improved property operations (these improvements were similar
to those experienced by the consolidated facilities in "property
operations" above) and additional equity interests purchased in
numerous other unconsolidated affiliates in 1996 for $83.9 million in
cash. These factors were offset by the Company's purchase of eight
affiliated REIT's and the acquisition of additional partnership
interests in 1996, which resulted in the elimination of $124.7 million
in equity investment (and, after the acquisition, the associated equity
earnings) as these entities were consolidated or merged into the
Company's operations.
Equity in earnings of real estate entities for the three
months ended March 31, 1997 consists of the Company's pro rata share of
earnings (including the Company's share of depreciation expense of
$3,629,000) 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 the three months ended March 31,
1997 includes amortization totaling $1,622,000, 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 following
table summarizes the components of the Company's equity in earnings of
real estate entities:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------
1997 1996 Dollar Change
---------------- ------------- ----------------
(Amounts in thousands)
<S> <C> <C> <C>
Self-storage operations $ 8,635 $ 8,828 $ (193)
Commercial property operations 629 754 (125)
Depreciation:
Self-storage facilities (3,401) (4,213) 812
Commercial properties (228) (281) 53
Other (414) (477) 63
---------------- ------------- ----------------
Total equity in earnings of real
estate entities $ 5,221 $ 4,611 $ 610
================ ============= ================
</TABLE>
20
<PAGE>
Similar to the Company, the Unconsolidated Entities generate
substantially all of their income from their ownership of self-storage
facilities. In the aggregate, the Unconsolidated Entities own a total
of 353 facilities at March 31, 1997, including 343 self-storage
facilities. The following summarizes combined operating data with
respect to the Unconsolidated Entities at March 31, 1997:
Selected Financial Data of Unconsolidated Entities
(in thousands)
---------------------------------------------------------
For the three months ended March 31, 1997:
Rental income $46,672
Total revenues 47,159
Cost of operations 17,494
Depreciation 6,918
Net income 19,494
At March 31, 1997:
Total assets $840,552
Total debt 89,821
Total equity 713,275
The Company expects that its equity in earnings from
Unconsolidated Entities will generally decrease as a result of the
acquisition of additional interests in the Unconsolidated Entities by
the Company. The Company has in the past, and may continue to seek to
acquire in the future, real estate facilities owned by or additional
interests in the Unconsolidated Entities.
PROPERTY MANAGEMENT OPERATIONS:
The property management contracts generally provide for
compensation equal to 6%, in the case of the self-storage facilities,
and 5%, in the case of the commercial properties, 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.
Property management operations reflects the activities with
respect to the management of facilities owned by affiliated
unconsolidated entities. As a result, the revenues generated from its
property management operations are generally predictable and dependent
upon the future growth of rental income for these affiliated
properties. The Company has in the past, and may continue to seek to
acquire in the future, real estate facilities owned by affiliated
entities which are not consolidated with the Company. Although the
acquisition of such facilities will reduce management fee income to the
Company, however, offsetting the reduction in management fee income
will be a corresponding reduction in the cost of property operations as
the facilities acquired by the Company will no longer incur property
management fees.
21
<PAGE>
During the three months ended March 31, 1997, the Company's
property management operations generated net operating income of
$2,576,000, as compared to $3,132,000 in the same period in 1996. This
decrease is due to the business combinations which occurred during
fiscal 1996, which resulted in fewer unconsolidated properties being
managed by the Company in 1997 as compared to 1996, and by the
acquisition of 25 properties during the fourth quarter of 1996 that
were owned by unaffiliated parties and managed by the Company.
ANCILLARY BUSINESS: In an effort to attract a wider variety of
customers, to further differentiate the Company from its competition
and to generate new sources of revenues, additional business are being
developed to complement the Company's self-storage business. These
products include the sale of locks, boxes and packing supplies and the
rental of trucks and other moving equipment through the implementation
of (i) a retail expansion program, (ii) a truck rental program and more
importantly (iii) a portable self-storage business. Although not
material to the Company's overall operations, its ancillary business is
expected to play a more important role in the future of the Company.
The following table summarizes the Company's ancillary business
operations:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------
1997 1996 Dollar Change
---------------- ---------------- ---------------
(Amounts in thousands)
Ancillary revenues:
-------------------
<S> <C> <C> <C>
Packaging material and truck rental $ 850 $ 497 $ 353
Portable self-storage rents 472 - 472
---------------- ---------------- ---------------
1,322 497 825
---------------- ---------------- ---------------
Cost of operations - ancillary business
---------------------------------------
Packaging material and truck rental 519 440 79
Portable self-storage 2,821 - 2,821
---------------- ---------------- ---------------
3,340 440 2,900
---------------- ---------------- ---------------
Net operating income (loss) - ancillary business
------------------------------------------------
Packaging material and truck rental 331 57 274
Portable self-storage (2,349) - (2,349)
---------------- ---------------- ---------------
$(2,018) $ 57 $(2,075)
================ ================ ===============
</TABLE>
22
<PAGE>
In 1996, the Company organized Public Storage Pickup and
Delivery, Inc. ("PSPUD") as a separate corporation to operate a
portable self-storage business that rents storage containers to
customers for storage in central warehouses and provides related
transportation services. The Company believes PSPUD's business
complements the Company's existing operations and PSPUD is using the
national telephone reservation system and various marketing
initiatives, including radio and television, to promote its rental
activity. At March 31, 1997, PSPUD has opened a total of 13 facilities,
with an additional 8 facilities being opened through April 30, 1997.
PSPUD presently anticipates expanding its operations to additional
areas during 1997, subject to continuing evaluation of this business
and the satisfaction of regulatory requirements. There can be no
assurance on the level of PSPUD's expansion or profitability.
PSPUD's operations generated a loss of approximately $2.4
million in the first quarter of 1997, due to the start-up concerns
mentioned above. PSPUD's operating experience is limited and its
operations may be affected by such factors as the level of competition
in the business, the demand for storage containers, general economic
conditions, either nationally or in the market areas in which PSPUD
operates, the rate of facility move-ins and move-outs, the availability
of acceptable locations, the level of PSPUD's operating expenses and
the cost of capital equipment. Until the facilities are operating
profitably, PSPUD's operations are expected to adversely impact the
Company's earnings growth rate. The extent of the impact will depend in
significant part on the number, timing and performance of new
facilities.
INTEREST AND OTHER INCOME: Interest and other income decreased
$700,000 to $1,690,000 for the three months ended March 31, 1997 from
$2,390,000 for the same period in 1996. Interest and other income
principally consists of interest earned on cash balances and interest
related to mortgage notes receivable. The decrease in interest income
for the three months ended March 31, 1997 compared to the same period
in 1996 is primarily due to a decrease in invested cash balances. From
mid December 1995 through late January 1996, the Company, through two
equity offerings of preferred stock, raised net proceeds of
approximately $330 million. On March 18, 1997, the Company publicly
issued 4.6 million shares of common stock raising net proceeds of
approximately $126.7 million. Due to the timing to invest these
proceeds into real estate assets, cash balances in interest bearing
accounts during the three months ended March 31, 1997 were lower than
during the same period in 1996.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization
expense has increased from $14,592,000 for the three months ended March
31, 1996 to $19,787,000 for the same period in 1997. This increase is
principally due to the acquisition of additional real estate facilities
during 1996. Amortization expense with respect to intangible assets
totaled $2,327,000 for the three months ended March 31, 1997 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative
expense was $1,619,000 for the three months ended March 31, 1997 and
$1,361,000 the same period in 1996, an increase of $258,000. The
Company has experienced and expects to continue to experience increased
general and administrative costs due to the following: (i) the growth
in the size of the Company has resulted in increased expenses, and (ii)
the Company's property acquisition activities have continued to expand,
resulting in certain additional costs incurred in connection with the
acquisition of additional real estate facilities. General and
administrative costs 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.
23
<PAGE>
MINORITY INTEREST IN INCOME: Minority interest in income
represents the income allocable to equity interests owned by others in
the partnerships which are consolidated with the Company. Minority
interest in income for the three months ended March 31, 1997 was
$2,447,000 compared to $2,339,000 for the same period in 1996,
representing an increase of $108,000. This increase is principally due
the consolidation of two additional partnerships commencing on April 1,
1996 and the resulting increase in minority interest. Accordingly,
unlike the first quarter of 1997, the first quarter of 1996 does not
reflect the minority interest from these two partnerships. In
determining income allocable to the minority interest for the three
months ended March 31, 1997 and 1996, consolidated depreciation and
amortization expense of approximately $2,357,000 and $2,901,000,
respectively, was allocated to the minority interest.
SUPPLEMENTAL PROPERTY DATA AND TRENDS
There are approximately 72 ownership entities owning in
aggregate 1,066 self-storage facilities, including the facilities which
the Company owns and/or operates. At March 31, 1997, 343 of these
facilities were owned by affiliated entities, entities in which the
Company has an ownership interest and uses the equity method for
financial statement presentation. The remaining 723 facilities are
owned by the Company and Consolidated Partnerships many of which were
acquired through business combinations with affiliates during 1996,
1995, and 1994.
In order to evaluate how the Company's overall portfolio has
performed, management analyzes the operating performance of a
consistent group of self-storage facilities representing 951 (55.8
million net rentable square feet) of the 1,066 self-storage facilities
(herein referred to as "Same Store" self-storage facilities) which have
been operated under the "Public Storage" name for at least the past
three years. The Same Store group of properties includes 613
consolidated facilities and 338 facilities owned by Unconsolidated
Entities. The following table summarizes the pre-depreciation
historical operating results of the Same Store self-storage facilities:
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------------------
1997 1996 Change
-------------- -------------- ----------
(dollar amounts in thousands, except per square foot amounts)
<S> <C> <C> <C>
Rental income...................... $113,935 $107,006 6.5%
Cost of operations (1)............. 42,043 39,296 7.0%
-------------- -------------- ----------
Net operating income............... $71,892 $67,710 6.2%
============== ============== ==========
Gross profit margin (2)............ 63.1% 63.2% (0.1)%
..................................... .................. ................. ................
Weighted Average:
-----------------
Occupancy.................... 89.7% 89.3% 0.4%
Annualized realized rent per
sq. ft. for period (3)..... $9.12 $8.64 5.6%
Annualized scheduled rent per
sq. ft. for period......... $9.84 $8.40 17.1%
Annualized scheduled rent per
sq. ft at end of period.. $9.96 $8.40 18.6%
</TABLE>
- ------------------------
24
<PAGE>
1. Assumes payment of property management fees on all facilities,
including those facilities owned by the Company for which
effective November 16, 1995 no fee is paid.
2. Gross profit margin is computed by dividing property net operating
income (before depreciation expense) by rental revenues. Cost of
operations include a 6% management fee. The gross profit margin
excluding the facility management fee was 69.1% and 69.2% in 1997
and 1996, respectively. On November 16, 1995, the Company acquired
its facility manager and no longer incurs such fees on the
properties it owns.
3. Realized rent per square foot represents the actual revenue earned
per occupied square foot. Management believes this is a more
relevant measure then the scheduled rental rates, since scheduled
rates can be discounted through the use of promotions.
As indicated above, in early 1996, the Company implemented a
national telephone reservation system designed to provide added
customer service for all the self-storage facilities under management
by the Company. The Company believes that the improved operating
results, as indicated in the above table, in large part are due to the
success of the national telephone reservation system. However, the
national telephone reservation system was not fully operational for
most of the self-storage facilities until the later part of the fourth
quarter of 1996.
Rental income for the Same Store facilities included
promotional discounts totaling $3,500,000 for the first three months in
1997 compared to $288,000 for the same period in 1996.
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 several years,
funds internally generated from ongoing operations have been in excess
of the Company's operating needs, allowing the Company to retain cash
flow, which it used to acquire additional real estate investments or
make optional principal repayments on debt.
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 $150.0 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.
25
<PAGE>
INTERNALLY GENERATED CASH FLOWS: The Company believes that
important measures of its performance as well as its liquidity are cash
provided by operations and funds from operations ("FFO") and the
ability of these measures to find 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 to $68,164,000 from $53,742,000 for the
three months ended March 31, 1997 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>
<CAPTION>
For the Three Months Ended March 31,
-------------------------------------------
1997 1996
---------------------- -------------------
<S> <C> <C>
Net Income $ 42,318,000 $ 32,341,000
Depreciation and amortization 19,787,000 14,592,000
Depreciation from unconsolidated real estate investments 3,629,000 4,494,000
Minority interest in income 2,447,000 2,339,000
Amortization of discounts on mortgage notes receivable (17,000) (24,000)
---------------------- -------------------
Net cash provided by operating activities 68,164,000 53,742,000
Distributions from operations to minority interests (funds
from operations allocable to minority interests) (4,792,000) (5,240,000)
---------------------- -------------------
Cash from operations/FFO available to the Company's shareholders 63,372,000 48,502,000
Less: preferred stock dividends (19,150,000) (15,166,000)
---------------------- -------------------
Cash from operations/FFO available to common shareholders 44,222,000 33,336,000
Capital improvements to maintain facilities:
Mini-warehouses (5,861,000) (2,322,000)
Business parks (431,000) (495,000)
Add back: minority interest share of capital improvements 398,000 496,000
---------------------- -------------------
Funds available for principal payments on debt, common
dividends and reinvestment 38,328,000 31,015,000
Cash distributions to common shareholders (19,457,000) (15,748,000)
---------------------- -------------------
Funds available for principal payments on debt and investment $ 18,871,000 $ 15,267,000
====================== ===================
</TABLE>
26
<PAGE>
See the consolidated statements of cash flows for the three
months ended March 31, 1997 and 1996 for additional information
regarding the Company's investing and financing activities.
Total FFO increased to $63,372,000 for the three months ended
March 31, 1997 compared to $48,502,000 for the same period in 1996. FFO
available to common shareholders (after deducting preferred stock
dividends) increased to $44,222,000 for the three months ended March
31, 1997 compared to $33,336,000 for the same period in 1996. 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 PSMI Merger, including property
management agreements and goodwill), and (ii) less FFO attributable to
minority interest.
FFO is a supplemental performance measure for equity REITs as
defined by the National Association of Real Estate Investment Trusts,
Inc. ("NAREIT"). The NAREIT definition does not specifically address
the treatment of minority interest in the determination of FFO or the
treatment of the amortization of property management agreements and
goodwill. In the case of the Company, FFO represents amounts
attributable to its shareholders after deducting amounts attributable
to the minority interests and before deductions for the amortization of
property management agreements and goodwill. FFO is presented because
many industry analysts consider FFO to be one measure of the
performance of the Company and it is used in establishing the terms of
the Class B Common Stock. FFO does not take into consideration capital
improvements, scheduled principal payments on debt, distributions and
other obligations of the Company. Accordingly, FFO is not a substitute
for the Company's cash flow or net income (as discussed above) as a
measure of the Company's liquidity or operating performance.
The Company accounts for its investments in the unconsolidated
affiliated entities using the equity method of accounting, and
accordingly, earnings are recognized based upon the Company's interest
in each of the partnerships and REITs. This interest is based on the
Company's share of the increase or decrease in the net assets of the
27
<PAGE>
entities from their operations. Provisions of the partnerships' and
REITs' governing documents 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, actual cash distributions paid to the
Company for a period of time will be less than the Company's interest
in the entities' FFO. During the three months ended March 31, 1997, FFO
distributed to the Company was approximately $5.4 million less than the
Company's share of FFO. 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,
1997, the aggregate future preference payments to other investors is
approximately $77.5 million and is expected to be paid over
approximately 9 years, with approximately 40% of the amount being paid
over the next 3 years.
RETENTION OF OPERATING CASH FLOWS: Operating as a REIT, the
Company's ability to retain cash flow for reinvestment is restricted.
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. 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 five 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 three
months of 1997 and 1996, the Company distributed to common shareholders
approximately 43.9% and 47.2% of its FFO available to common
shareholders, respectively, allowing it to retain approximately $18.9
million and $15.3 million (an increase of approximately 23.5%),
respectively, after satisfying its capital improvements and preferred
stock dividend requirements (see table above).
DISTRIBUTION REQUIREMENTS: During the first three months of
1997, the Company paid dividends totaling $16,091,000 to the holders of
the Company's Senior Preferred Stock, $16,471,000 to the holders of the
Convertible Preferred Stock (of which $13,412,000 represents a
prepayment of dividends due through December 31, 1998), and $19,457,000
to the holders of Common Stock.
CAPITAL IMPROVEMENT REQUIREMENTS: During 1997, the Company has
budgeted approximately $26.6 million for capital improvements ($22.4
million for its self-storage facilities and $4.2 million for its
business park facilities). The minority interests' share of the
budgeted capital improvements is approximately $3.3 million. During the
first three months of 1997, the Company incurred capital improvements
of approximately $6.3 million.
During 1995, the Company commenced a program to enhance its
visual icon and modernize the appearance of its self-storage
facilities, including modernization of signs, paint color schemes, and
rental offices. Included in the 1997 capital improvement budget is
approximately $4.8 million with respect to these expenditures.
28
<PAGE>
DEBT SERVICE REQUIREMENTS: The Company does not believe it has
any significant refinancing risks with respect to its mortgage debt,
all of which is at a fixed rate. The Company uses its $150.0 million of
bank credit facility (all of which was unused as of May 13, 1997)
primarily to fund acquisitions and provide financial flexibility and
liquidity. The credit facility currently bears interest at LIBOR plus
0.47%.
At March 31, 1997, the Company had total outstanding
borrowings of approximately $107.9 million. Approximate principal
maturities of notes payable at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
7.08% Unsecured Fixed Rate
Senior Notes Mortgage Debt Total
---------------- --------------- -----------------
<S> <C> <C> <C>
1997 (remainder of ) $ 6,500 $ 4,175 $ 10,675
1998 7,250 7,929 15,179
1999 8,000 6,467 14,467
2000 8,750 2,707 11,457
2001 9,500 2,997 12,497
Thereafter 19,750 23,884 43,634
---------------- --------------- -----------------
$ 59,750 $ 48,159 $ 107,909
================ =============== =================
</TABLE>
EXTERNAL FINANCING ABILITY: The Company believes that its size
and financial flexibility enables 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 by each of the three major credit
agencies are 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, 1997, the Company had mortgage
debt outstanding of $48.2 million and had consolidated real estate
facilities with a book value of $1.9 billion. However, the Company has
been reluctant to finance 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 method of financing 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 maintain a
low common stock dividend payout ratio and retain cash flow.
On March 18, 1997, the Company publicly issued 4.6 million
shares of common stock, raising net proceeds of approximately $126.7
million. The Company intends to use the net proceeds from this offering
to make investments in real estate, primarily self-storage, including
mortgage loans and interest in real estate partnerships, to satisfy
cash elections in connection with mergers with affiliated REITs and to
fund expenditures of PSPUD.
29
<PAGE>
MERGERS: On April 11, 1997, the shareholders of each of Public
Storage Properties XIV, Inc. and Public Storage Properties XV, Inc.
approved the mergers of the respective corporations into the Company.
In connection with the mergers, the Company issued an aggregate of 2.3
million shares of common stock and paid $18.7 million in cash.
In April 1997, Public Storage Properties XVI, Inc. ("PSP-16"),
Public Storage Properties XVII, Inc. ("PSP-17"), Public Storage
Properties XVIII, Inc. ("PSP-18") and Public Storage Properties XIX,
Inc. ("PSP-19") each agreed, subject to certain conditions, to merge
with and into the Company. PSP-16, PSP-17, PSP-18 and PSP-19 are
affiliated publicly traded equity real estate investment trusts. Each
of the mergers is conditioned on approval by the respective
shareholders of PSP-16, PSP-17, PSP-18 and PSP-19, however, the mergers
are not conditioned on approval of each other. The Company expects that
if approved by the shareholders, the mergers would be completed in June
or July 1997.
The aggregate estimated cost of these pending mergers for the
interest not owned by the Company is approximately $200 million. The
Company currently owns, on average, approximately 33% of the equity
interest in each of these affiliated REITs. The Company will acquire
the remaining interest in each of these affiliated REITs for a
combination of cash and common stock of the Company. See Note 9 to the
Company's consolidated financial statements.
DEVELOPMENT ACTIVITIES: At March 31, 1997, the Company had
eleven self-storage facilities (approximately 631,000 square feet)
under construction with an aggregate cost incurred to date of
approximately $39.4 million and total additional estimated cost to
complete of $21.4 million. The Company currently has plans to develop
an additional 15 self-storage facilities (approximately 927,000 square
feet) in various locations at an estimated cost of approximately $60.4
million (aggregate costs incurred to date of approximately $3.3
million). The Company is evaluating the feasibility of developing
additional self-storage facilities 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 to 12 months
followed by a 18 to 24 month fill-up process until the newly
constructed facility reaches a stabilized occupancy level of
approximately 90%. 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.
30
<PAGE>
In April 1997, the Company formed a joint venture partnership
with an unaffiliated partner to participate in the development of
approximately $220 million of self-storage facilities (including
selected facilities currently under development by the Company). The
venture will be funded solely with equity capital consisting of 30%
from the Company and 70% from the institutional investor. Initially,
the Company contributed 8 facilities which were under development at
March 31, 1997 to the joint venture partnership, and received a refund
from the venture for 70% of the costs incurred to date in developing
these properties.
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. 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.
31
<PAGE>
PART II. OTHER INFORMATION
Item 5 Other Information
-----------------
On April 10, 1997, PSAF Development, Inc., a subsidiary of the Company, and
an institutional investor entered into a limited partnership agreement relating
to the development of mini-warehouses. See Note 3 of the Notes to Condensed
Consolidated Financial Statements in this Form 10-Q. The limited partnership
agreement is attached hereto as Exhibit 10 and is incorporated herein by this
reference.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are included herein:
(10) Limited Partnership Agreement of PSAF Development
Partners, L.P. between PSAF Development, Inc. and the
Limited Partner dated as of April 10, 1997
(11) Statement re: Computation of Earnings per Share
(12) Statement re: Computation of Ratio of Earnings to Fixed
Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated March 12,
1997, pursuant to Item 5, which filed certain exhibits relating
to the Company's public offering of Common Stock.
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 14, 1997
PUBLIC STORAGE, INC.
BY: /s/ John Reyes
--------------
John Reyes
Senior Vice President and
Chief Financial Officer
(Principal financial officer)
32
EXHIBIT 10
LIMITED PARTNERSHIP AGREEMENT
OF
PSAF DEVELOPMENT PARTNERS, L.P.
BETWEEN
PSAF DEVELOPMENT, INC.
AND
[LIMITED PARTNER]
DATED AS OF APRIL 10, 1997
Exhibits to this Agreement will be furnished to the
Securities and Exchange Commission upon request.
<PAGE>
TABLE OF CONTENTS
Page
----
1. FORMATION; PURPOSES; TERM 1
1.1 Formation 1
1.2 Name 1
1.3 Purposes and Powers 1
1.4 Principal Executive Office 2
1.5 Term 2
1.6 Filings; Agent for Service of Process 2
1.7 Other Activities 2
1.8 Definitions 3
2. PARTNERS; CAPITAL CONTRIBUTIONS 14
2.1 Partners 14
2.2 Capital Contributions 14
2.3 Extent of Liability 18
2.4 Other Matters 18
3. ALLOCATIONS 18
3.1 Profits 18
3.2 Losses 19
3.3 Special Allocations to the General Partner 19
3.4 Gain from Sale 20
3.5 Regulatory Special Allocations 21
3.6 Other Allocations Rules 23
3.7 Tax Allocations: Code Section 704(c) 23
4. DISTRIBUTIONS 24
4.1 Operating Cash 24
4.2 Capital Proceeds 24
4.3 Amounts Withheld 26
5. MANAGEMENT 26
5.1 Managing Partner 26
5.2 Authority of Managing Partner 26
5.3 Limitations on Rights and Powers 27
5.4 Project Development 27
5.5 Compensation and Reimbursement 29
5.6 Hazardous Materials 30
6. ACTION BY PARTNERS; INVESTMENT COMMITTEE 31
6.1 Action by Partners 31
6.2 Investment Committee 31
6.3 Investment Programs 33
7. BOOKS AND RECORDS; FISCAL MATTERS 33
7.1 Books and Records 33
7.2 Reports 34
7.3 Tax Information 34
7.4 Fiscal Year 35
7.5 Tax Matters Partner 35
7.6 Tax Elections Made by Managing Partner 35
7.7 Taxation as a Partnership 35
7.8 Avoidance of Unrelated Business Taxable Income 35
i
<PAGE>
8. TRANSFER OF INTERESTS 36
8.1 Transfer of Interest of General Partner 36
8.2 Transfer of Interest of Limited Partners 36
8.3 Prohibited Transfers 37
8.4 Representations; Legend 37
8.5 Distributions and Allocations in Respect to
Transferred Interests 38
8.6 Right to Transfer 39
9. OPTIONS TO PURCHASE 39
9.1 General Partner's Option to Purchase 39
9.2 Consideration 39
9.3 Determination of Net Equity 40
9.4 Determination of Fair Market Value 40
9.5 Closing 42
9.6 Limited Partner's Option to Purchase 42
10. DISSOLUTION AND WINDING UP 43
10.1 Liquidating Events 43
10.2 Winding Up 43
10.3 Special Rights to Acquire PSA Common Shares 44
10.4 Compliance with Timing Requirements of Regulations 44
10.5 Rights of Partners 45
11. INDEMNIFICATION 45
11.1 Indemnification 45
11.2 Expenses 46
11.3 Indemnification Rights Nonexclusive 46
11.4 Errors and Omissions Insurance 46
11.5 Assets of the Partnership 46
12. DEFAULTING EVENT REMEDIES 46
12.1 Election to Purchase Defaulting Partner's Interest 46
12.2 Purchase Price of Defaulting Partner's Interest 47
12.3 Remedies Nonexclusive 47
13. REPRESENTATIONS AND WARRANTIES 48
13.1 Representations and Warranties of the General Partner 48
13.2 Representations and Warranties of the Limited Partner 51
13.3 Agreements of the General Partner 52
14. MISCELLANEOUS 53
14.1 Notices 53
14.2 Binding Effect 53
14.3 Construction 54
14.4 Time 54
14.5 Headings 54
14.6 Severability 54
14.7 Incorporation by Reference 54
14.8 Further Action 54
14.9 Variation of Pronoun 54
14.10 Governing Law 54
14.11 Waiver of Action for Partition 54
14.12 Counterparts 54
14.13 Sole and Absolute Discretion 55
14.14 Entire Agreement 55
14.15 Attorneys' Fees 55
14.16 Third Parties 55
14.17 Waiver 55
14.18 Amendment and Modification 55
14.19 Dispute Resolution 55
14.20 Confidentiality 56
ii
<PAGE>
EXHIBIT A - DESCRIPTION OF PROJECT
EXHIBIT B - SPECIFIED ACTIONS
EXHIBIT C - ACQUISITION CHECKLIST
EXHIBIT D - MANAGEMENT AGREEMENT
EXHIBIT E - MASTER LEASE AGREEMENT
EXHIBIT F - FINANCIAL PROJECTIONS AND DEVELOPMENT COSTS
EXHIBIT G - INITIAL BUSINESS PLAN
EXHIBIT H - ANNUAL BUSINESS PLAN
EXHIBIT I - CALCULATION OF "STOCK SHORTFALL"
EXHIBIT J - COST ALLOCATIONS
EXHIBIT K - FORM OF FUNDING REQUEST
EXHIBIT L - SUMMARY OF INSURANCE COVERAGE
EXHIBIT M - EXAMPLES OF REPORTS
iii
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
PSAF DEVELOPMENT PARTNERS, L.P.
This LIMITED PARTNERSHIP AGREEMENT OF PSAF DEVELOPMENT PARTNERS, L.P.
is entered into and shall be effective as of April 10, 1997 (the "Effective
Date"), by and among PSAF DEVELOPMENT, INC., a California corporation, as the
General Partner, and the [LIMITED PARTNER], as the Limited Partner, pursuant to
the provisions of the Act.
WHEREAS, the General Partner and the Limited Partner propose to form a
limited partnership to pursue the development and ownership of a number of
state-of-the-art, geographically diversified self-storage facilities for income
and capital appreciation;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Partners hereby covenant and agree among themselves as
follows:
1. FORMATION; PURPOSES; TERM
1.1 Formation. The Partners hereby form the Partnership as a
limited partnership pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement.
1.2 Name. The name of the Partnership shall be PSAF
Development Partners, L.P. and all business of the Partnership shall be
conducted in such name or in the name "Public Storage."
1.3 Purposes and Powers.
(a) The Partnership is formed for the object and
purpose of, and the nature of the business to be conducted and promoted by the
Partnership is, acquiring, owning, developing, leasing and otherwise operating
and dealing with the Projects as self-storage facilities, and conducting any and
all activities as may be necessary or incidental to the foregoing.
(b) The Partnership is empowered to do any and all
things necessary, appropriate or convenient for the furtherance and
accomplishment of its purposes, and for the protection and benefit of the
Partnership and its Property, including but not limited to the following:
(i) Entering into and performing contracts
of any kind;
(ii) Acquiring, constructing, operating,
maintaining, owning, transferring, renting, or leasing any property, real,
personal or mixed;
(iii) Applying for and obtaining
governmental authorizations and approvals; and
(iv) Bringing and defending actions at law
or in equity.
(c) Except as otherwise provided in this Agreement,
the Partnership shall not engage in any other activity or business and no
Partner shall have any authority to hold itself out as a general agent of
another Partner in any other business or activity.
1.4 Principal Executive Office. The principal executive office
of the Partnership shall be at 701 Western Avenue, Glendale, California
91201-2397. The principal executive office may be changed from time to time by
the General Partner.
1.5 Term. The term of the existence of the Partnership shall
commence on the Effective Date and shall continue until the winding up and
liquidation of the Partnership and its business is completed following a
Liquidating Event, as provided in Section 10.
<PAGE>
1.6 Filings; Agent for Service of Process.
(a) The General Partner has caused a Certificate of
Limited Partnership on Form LP-1 to be filed with the California Secretary of
State in accordance with the Act. The Partnership shall take any and all actions
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership under the laws of the State of California and under the laws
of any other states or jurisdictions in which the Partnership engages in
business.
(b) To the extent required pursuant to the Act or the
laws of any other state or jurisdiction, the name and address of the agent for
service of process shall be Hugh W. Horne, 701 Western Avenue, Glendale,
California 91201-2397, or any successor as appointed by the General Partner.
(c) Upon the dissolution of the Partnership, the
Partnership shall promptly execute and cause to be filed any necessary
certificates of dissolution and cancellation in accordance with the Act and the
laws of any other state or jurisdiction in which the Partnership has engaged in
business.
1.7 Other Activities.
(a) The Limited Partner acknowledges that the PSA
Affiliates are engaged in the business, directly and indirectly, of acquiring,
owning, developing, leasing, managing and operating self-storage facilities. The
Limited Partner understands that the PSA Affiliates may be involved, directly or
indirectly, in various other projects and businesses not included in the
Partnership. The Partners hereby agree that the creation of the Partnership and
involvement herein by each of the Partners shall not prejudice their rights (or
the rights of their Affiliates) to have such other interests and activities and
to enjoy profits or other benefits therefrom, and each Partner waives any rights
it might otherwise have to share or participate in such other interests or
activities of the other Partners or their Affiliates. Except as otherwise
provided in this Agreement, the Partners and their Affiliates may engage in or
possess any interest in any other business venture of any nature or description,
independently or with others, including without limitation, the acquisition,
ownership, development, leasing, managing and operation of self-storage
facilities or other real property, and neither the Partnership nor any Partner
shall have any right by virtue of this Agreement in and to such venture or the
income or profits derived therefrom.
(b) Notwithstanding the provisions of Section 1.7(a)
above, so long as the General Partner is required to afford the Partnership the
first right to develop and own a Qualifying Project pursuant to Section 6.2, no
PSA Affiliates shall develop a Qualifying Project without complying with the
provisions of Section 6.2.
1.8 Definitions.1.8 Definitions. Capitalized words and phrases
used in this Agreement have the meanings set forth in this Section 1.8 or
elsewhere in this Agreement:
2
<PAGE>
(a) "Act" means the California Revised Limited
Partnership Act as set forth in Title 2 (commencing with Section 15611) of the
Corporations Code of the State of California, as amended from time to time (or
any corresponding provisions of succeeding law), provided that the substantive
rights of the Partners under this Agreement shall not be adversely affected by
any such amendment.
(b) "Actual Costs" means costs of development
incurred to date, including Land Acquisition Costs, Basic Development Costs and
PSA Affiliates Operating Costs.
(c) "Adjusted Capital Account Deficit" means, with
respect to any Partner, the deficit balance, if any, in such Partner's Capital
Account as of the end of the relevant Fiscal Year, after giving effect to the
following adjustments:
(i) Credit to such Capital Account any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and
(ii) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
(d) "Adjusted Capital Contributions" means, as of any
day with respect to a Partner, such Person's Capital Contributions, adjusted as
follows:
(i) Increased by the amount of any
Partnership liabilities which, in connection with distributions to such Person
pursuant to Sections 4.1, 4.2, and 10.2(c), are assumed by such Person or are
secured by any Property distributed to such Person; and
(ii) Reduced by the amount of cash and the
Gross Asset Value of any Property distributed to such Person pursuant to
Sections 2.2(d), 4.2(b), 4.2(d) and 10.2(c) and the amount of any liabilities of
such Person assumed by the Partnership or which are secured by any Property
contributed by such Person to the Partnership.
In the event such Person Transfers all or any portion of its Interest in
accordance with the terms of this Agreement, its transferee shall succeed to its
Adjusted Capital Contribution to the extent it relates to the transferred
Interest.
(e) "Affiliate" means, with respect to any Person,
(i) any Person directly or indirectly controlling, controlled by or under common
control with such Person, (ii) any Person owning or controlling 10% or more of
the outstanding voting interests of such Person, (iii) any officer, director or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee or holder of 10% or more of the voting interests of any
Person described in clauses (i) through (iii) of this sentence.
3
<PAGE>
(f) "Agreement" means this Limited Partnership
Agreement of PSAF Development Partners, L.P. and the exhibits hereto, as amended
from time to time. Words such as "herein," "hereinafter," "hereof," "hereto" and
"hereunder" refer to this Agreement as a whole, unless the context otherwise
requires.
(g) "Appraiser" means a disinterested entity that is
experienced in valuing real estate portfolios and (a) is a M.A.I. appraiser that
is a member of the American Institute of Real Estate Appraisers, any
organization successor thereto, or other nationally recognized organization of
real estate appraisers, with at least five years' experience in the case of the
First and Second Appraisers and ten years' experience in the case of the Third
Appraiser in conducting appraisals in the commercial real estate industry, and
is qualified and experienced in appraising self-storage facilities similar to
the Property, or (b) that works in conjunction with another disinterested entity
with the qualifications described in (a) and both such entities sign the report.
"First Appraiser," "Second Appraiser" and "Third Appraiser" shall have the
meanings set forth in Section 9.4.
(h) "Appraised Value" means the amount that a third
party buyer would reasonably be expected to pay for all of the Property, on a
portfolio basis, in a cash purchase, taking into account the current condition,
use and zoning of the Property, net of a provision for all normal costs of sale,
including a real estate commission at prevailing rates.
(i) "Average Price" means the average of the PSA
Common Shares daily closing prices on the Exchange for each of the first 20 of
the 25 trading days on which PSA Common Shares are traded immediately preceding
the date of a distribution of Capital Proceeds pursuant to Section 4.2 or a
distribution pursuant to Section 10.2 or Section 10.3 or the date of any closing
pursuant to Section 9.5, as the case may be, provided that the Average Price
shall be no greater than 105% or less than 95% of the closing price of the PSA
Common Shares on the Exchange on the sixth trading day immediately preceding
such date.
(j) "Basic Development Costs" means the costs
actually incurred by the Partnership or any PSA Affiliate in conducting the
activity referred to in Section 5.4, exclusive, however, of (i) Land Acquisition
Costs, and (ii) PSA Affiliates Operating Costs, but including costs of initial
operations and leaseup until a Project has achieved three consecutive months of
Net Operating Income.
(k) "Business Day" means Monday through Friday of
each week, except that a legal holiday recognized as such by the United States
Government shall not be regarded as a Business Day.
(l) "Business Plans" means the "Initial Business
Plan" attached hereto as Exhibit G and "Annual Business Plans" in the form
attached hereto as Exhibit H.
(m) "Capital Account" means, with respect to any
Partner, the Capital Account maintained for such Person in accordance with the
following provisions:
4
<PAGE>
(i) To each Person's Capital Account there
shall be credited such Person's Capital Contributions, such Person's
distributive share of Profits and any items in the nature of income or gain
which are specially allocated pursuant to Sections 3.4 or 3.5, and the amount of
any Partnership liabilities assumed by such Person or which are secured by any
Property distributed to such Person.
(ii) To each Person's Capital Account there
shall be debited the amount of cash and the Gross Asset Value of any Property
distributed to such Person pursuant to Sections 2.2(d), 4.1, 4.2, 4.3 and 10.2,
such Person's distributive share of Losses and any items in the nature of
expenses or losses which are specially allocated pursuant to Sections 3.3 or
3.5, and the amount of any liabilities of such Person assumed by the Partnership
or which are secured by any property contributed by such Person to the
Partnership.
(iii) In the event any Interest is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred Interest.
(iv) In determining the amount of any
liabilities for purposes of Sections 1.8(d)(i), 1.8(d)(ii), 1.8(m)(i) and
1.8(m)(ii), there shall be taken into account Code Section 752(c) and any other
applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Partnership or the Partners), are computed in order to comply
with such Regulations, the General Partner may make such modification, provided
that it is not likely to have a material effect on the amounts distributable to
any Partner pursuant to Section 10 upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
(n) "Capital Contributions" means, with respect to
any Partner, the amount of money and the initial Gross Asset Value of any
property (other than money) contributed to the Partnership with respect to the
interest in the Partnership held by such Partner.
(o) "Capital Proceeds" means the gross cash proceeds
of sales and financings of the Partnership's Properties, less the portion
thereof used to pay or establish reserves for all Partnership expenses, any debt
payments, capital improvements and other costs of development, replacements and
contingencies, all as determined in accordance with the terms hereof.
(p) "Capital Reserve" means a reserve for capital
expenditures of 2.3% of annual gross revenue.
(q) "Code" means the Internal Revenue Code of 1986,
as amended from time to time (or any corresponding provisions of succeeding
law).
(r) "Completed Project" means a Project as to which a
final certificate of occupancy (or its equivalent) has been received and which
has had three consecutive months of positive monthly Net Operating Income.
(s) "Contingency Reserve" means the aggregate amount
by which the Actual Cost for all Completed Projects is less than 103% of the
aggregate Project Budgeted Costs for Completed Projects.
(t) "Defaulting Event" means (i) a Partner's
withdrawal as a Partner from the Partnership in breach of Section 2.4(a), (ii)
the Transfer by a Partner of all or any part of its Interest in the Partnership
5
<PAGE>
(or such Partner's right to receive distributions) in breach of Article 8, (iii)
a Partner's failure to make one or more capital contributions pursuant to
Section 2.2 which in the aggregate exceed $100,000, which failure continues ten
Business Days after written demand by the General Partner or any Partner; (iv)
the General Partner taking any unilateral action which requires the unanimous
consent of the Partners without first securing such consent in accordance with
the terms hereof and (v) a violation of Section 1.7(b) or 13.3 (to the extent
the circumstances giving rise to such violation are within the control of the
General Partner or a PSA Affiliate), provided, however, that in the case of (iv)
or (v) the action taken would prejudice the Limited Partner in a materially
adverse manner and such default or prejudice is not cured or eliminated or in
the process of being cured or eliminated in good faith within ten days after
giving of notice by the Limited Partner to the General Partner specifying the
nature of such default.
(u) "Defaulting Partner" means a Partner with respect
to which a Defaulting Event occurs.
(v) "Depreciation" means, for each Fiscal Year or
other period, an amount equal to the depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
other period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
(w) "Exchange" means the New York Stock Exchange,
Inc. or the national securities exchange (as defined in Section 12(b) of the
Securities Exchange Act of 1934, as amended) or automated quotation system upon
which the PSA Common Shares are then listed for trading.
(x) "Fair Market Value" shall have the meaning set
forth in Section 9.4.
(y) "Fiscal Year" shall have the meaning set forth in
Section 7.4.
(z) "Gain from Sale" shall mean any gain recognized
for federal income tax purposes from the sale or other disposition of the
Partnership's assets computed by reference to the Gross Asset Value of the
Property disposed of, notwithstanding that the adjusted tax basis of such
Property differs from its Gross Asset Value.
(aa) "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax purposes, except as
follows:
(i) The initial Gross Asset Value of any
asset contributed by a Partner to the Partnership shall be the gross fair market
value of such asset, as determined by the Partners (as described below the
Partners have agreed that the gross fair market value of Projects contributed by
the General Partner to the Partnership at the time of contribution will be based
on the cost of those Projects as set forth in Section 2.2);
(ii) The Gross Asset Values of all
Partnership assets shall be adjusted to equal their respective gross fair market
values, as determined by the Partners, as of the following times: (A) the
acquisition of an additional Interest by any new or existing Partner in exchange
for more than a de minimis Capital Contribution; (B) the distribution by the
Partnership to a Partner of more than a de minimis amount of Property as
consideration for an Interest; and (C) the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however that
the adjustments pursuant to clauses (A) and (B) above shall be made only if the
Partners reasonably determine that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any
Partnership asset distributed to any Partner shall be the gross fair market
value of such asset on the date of distribution; and
6
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(iv) The Gross Asset Values of Partnership
assets shall be increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m)
and Sections 1.8(xx) and 3.5(g); provided, however, that Gross Asset Values
shall not be adjusted pursuant to this Section 1.8(aa)(iv) to the extent the
Partners determine that an adjustment pursuant to Section 1.8(aa)(ii) is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this Section 1.8(aa)(iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1.8(aa)(i), 1.8(aa)(ii) or 1.8(aa)(iv), such Gross Asset Value shall
thereafter be adjusted by Depreciation taken into account with respect to such
asset for purposes of computing Profits and Losses.
(bb) "Hazardous Materials" means any toxic, reactive,
corrosive, ignitable or flammable chemical compound or hazardous substance,
material or waste, whether solid, liquid or gas, that is regulated by any
federal or state law or regulation.
(cc) "Hazardous Materials Claims" shall have the
meaning set forth in Section 5.6.
(dd) "Hazardous Materials Laws" means all federal,
state or local laws or regulations which regulate or relate to the use,
treatment, storage, transportation, generation, handling or disposal of, or
emission, discharge or other release or threatened release of, any Hazardous
Materials.
(ee) "Indemnitee" shall have the meaning set forth in
Section 11.1.
(ff) "Interest" means an interest, whether as a
general partner or limited partner, in the Partnership representing the rights
and obligations under the Agreement of the Partner who holds such Interest.
(gg) "Investment Committee" shall have the meaning
set forth in Section 6.2(a).
(hh) "Land Acquisition Costs" means the amount paid
by the Partnership or any PSA Affiliate to acquire land for development as a
Project and all costs of closing such acquisition (e.g., transfer tax, title
insurance and escrow charges and recording fees). Legal fees and other charges
of independent firms incurred in connection with the evaluation, negotiation and
closing of each acquisition of property which becomes a Project shall constitute
Basic Development Costs and not Land Acquisition Costs. If the property acquired
for a Project includes improvements which may be incorporated into the completed
Project, that portion of the purchase price and closing costs which is fairly
allocable to the value of the improvements to be so incorporated shall
constitute Basic Development Costs and not Land Acquisition Costs.
(ii) "Liquidating Event" shall have the meaning set
forth in Section 10.1.
(jj) "Minimum Gain" has the meaning set forth in
Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
(kk) "Net Equity" of a Partner's Interest as of the
Purchase Notice Date means the amount that would be distributed to such Partner
in liquidation of the Partnership pursuant to Sections 10.2 and 10.3 if (1) all
of the Partnership's Property were sold for its Fair Market Value, (2) the
Partnership paid its accrued, but unpaid, liabilities, and established reserves
pursuant to this Agreement for the payment of reasonably anticipated contingent
or unknown liabilities, and (3) the Partnership distributed the remaining
proceeds to the Partners in liquidation.
(ll) "Net Operating Income" means all income from
Projects less the costs of operations, including property management fees and a
Capital Reserve. Net Operating Income shall be computed on an accrual basis
consistent with PSA Affiliates' prior practice. Net Operating Income will not be
reduced by depreciation, amortization, cost recovery deductions or similar
non-cash allowances.
(mm) "Nonrecourse Deductions" shall have the meaning
set forth in Section 1.704-2(b)(1) of the Regulations.
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<PAGE>
(nn) "Nonrecourse Liability" shall have the meaning
set forth in Section 1.704-2(b)(3) of the Regulations.
(oo) "Operating Cash" means the gross cash proceeds
of the Partnership from all operating sources (not including amounts taken into
account in determining Capital Proceeds) less the portion thereof used to pay or
establish reserves for all Partnership expenses, any debt payments, capital
improvements and other costs of development, replacements and contingencies, all
as determined by the Partners. "Operating Cash" shall not be reduced by
depreciation, amortization, cost recovery deductions or similar allowances, but
shall be increased by any reductions of reserves previously established.
(pp) "Partner Nonrecourse Debt" shall have the
meaning set forth in Section 1.704-2(b)(4) of the Regulations.
(qq) "Partner Nonrecourse Debt Minimum Gain" means an
amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership
Minimum Gain that would result if such Partner Nonrecourse Debt were treated as
a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of
the Regulations.
(rr) "Partner Nonrecourse Deductions" has the meaning
set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
(ss) "Partners" means the General Partner and the
Limited Partner, collectively, and reference to a "Partner" shall be to any one
of the Partners. The "General Partner" and "Limited Partner" are as set forth in
Section 2.1.
(tt) "Partnership" means the limited partnership
formed pursuant to this Agreement.
(uu) "Person" means any individual, partnership,
corporation, trust or other entity.
(vv) "Percentage Interest" means, with respect to the
Limited Partner, 70%, and with respect to the General Partner, 30%. In the event
any Interest is transferred in accordance with the provisions of this Agreement,
the transferee of such Interest shall succeed to the Percentage Interest of its
transferor to the extent it relates to the transferred Interest.
(ww) "Priority Return" means, as to each Partner, a
cumulative return on that Partner's Adjusted Capital Contributions including
accrued and unpaid Priority Returns computed using monthly compounding at a
monthly rate of one twelfth of 9 1/2%, provided that, in the case of the General
Partner, any Capital Contribution made pursuant to Sections 2.2(a)(vi),
2.2(a)(vii) and 10.3 shall not be taken into account in computing the General
Partner's Priority Return.
(xx) "Profits" and "Losses" means, for each Fiscal
Year or other period, an amount equal to the Partnership's taxable income or
loss for such year or period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(i) Any income of the Partnership that is
exempt from federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this Section 1.8(xx) shall be added to such
taxable income or loss;
(ii) Any expenditures of the Partnership
described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not
otherwise taken into account in computing Profits or Losses pursuant to this
Section 1.8(xx) shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of
any Partnership asset is adjusted pursuant to Section 1.8(aa)(ii) or Section
1.8(aa)(iii), the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;
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(iv) Gain or loss resulting from any
disposition of Property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross Asset
Value of the Property disposed of, notwithstanding that the adjusted tax basis
of such Property differs from its Gross Asset Value;
(v) In lieu of the depreciation,
amortization and other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account Depreciation for
such Fiscal Year or other period, computed in accordance with Section 1.8(v);
(vi) To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts
as a result of a distribution other than in liquidation of a Partner's interest
in the Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the asset
and shall be taken into account for purposes of computing Profits or Losses; and
(vii) Notwithstanding any other provision of
this Section 1.8(xx), any items which are specially allocated pursuant to
Sections 3.3, 3.4 or 3.5 (including Depreciation, deductions attributable to
"guaranteed payments" and Gain from Sale) shall not be taken into account in
computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specifically allocated pursuant to Sections 3.3, 3.4 and 3.5
shall be determined by applying rules analogous to those set forth in Sections
1.8(xx)(i) through 1.8(xx)(vi) above.
(yy) "Project Budgeted Costs" has the meaning set
forth in Section 6.2(b).
(zz) "Projects" means the real properties described
in Exhibit A-1 hereto and, unless the context indicates otherwise, such other
real properties as are acquired by the Partnership pursuant to Section 5.4.
(aaa) "Property" means all real, personal and other
property or assets acquired by the Partnership, and shall include the Projects
and both tangible and intangible property.
(bbb) "PSA" means Public Storage, Inc., a California
corporation.
(ccc) "PSA Affiliate" means PSA and/or any Affiliate
of PSA (other than the Partnership) that is under the control of PSA. The
General Partner shall be responsible for all activities performed hereunder by
PSA Affiliates.
(ddd) "PSA Affiliates Operating Costs" means that
portion of (i) compensation and other personnel costs incurred by PSA Affiliates
in the employment of their employees and (ii) all other overhead and general and
administrative costs of all PSA Affiliates, which is allocable to the
performance of services referred to in Section 5.4 with respect to Qualifying
Projects, including costs attributable to properties considered for development
by the Partnership but not acquired by it.
(eee) "PSA Common Shares" means the voting class
shares of the Common Stock, $0.10 par value, of PSA.
(fff) "Purchase Notice" shall have the meaning set
forth in Section 9.1 with respect to the "General Partner Purchase Notice" and
Section 9.6 with respect to the "Limited Partner Purchase Notice."
(ggg) "Purchase Notice Date" shall have the meaning
set forth in Section 9.1.
(hhh) "Qualifying Project" means any PSA Affiliate's
real estate development project of which 50% or more of the net rentable square
footage will consist of self-storage facilities and no part of the project would
generate for the Limited Partner more than a de minimus amount of unrelated
business taxable income under Section 511 of the Code. A Qualifying Project
shall not include the renovation, expansion or replacement of a self-storage
facility currently owned by a PSA Affiliate.
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(iii) "Regulations" means the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as such Regulations
may be amended from time to time (or any corresponding provisions of succeeding
regulations).
(jjj) "Regulatory Allocations" shall have the meaning
set forth in Section 3.5(h).
(kkk) "Securities Act" means the Securities Act of
1933, as amended (or any corresponding provisions of succeeding law).
(lll) "Stock Shortfall" shall be determined upon the
liquidation of the Partnership or upon an election by the General Partner to
exercise its option pursuant to Section 9.1, by first calculating the monthly
rate of return, using monthly compounding, earned with respect to the Limited
Partner's contributions to the Partnership, taking into account all
distributions previously received, or to be received in the liquidation or sale
pursuant to the option, including amounts received as guaranteed payments,
without regard to whether a Stock Shortfall exists (that rate of return shall be
the "Realized Rate of Return"). If the Realized Rate of Return is equal to or in
excess of one twelfth of 10%, the Stock Shortfall shall be zero. If the Realized
Rate of Return is less than one twelfth of 10%, but more than or equal to one
twelfth of 7.5%, the Stock Shortfall shall be the amount that, when added to the
distribution of Capital Proceeds or to the Net Equity, would increase the
Realized Rate of Return to equal one twelfth of 10%. If the Realized Rate of
Return is less than one twelfth of 7.5%, the Stock Shortfall shall be the amount
that, when added to the distribution of Capital Proceeds or to the Net Equity,
would increase the calculated Realized Rate of Return by one twelfth of 2.5%.
The calculations set forth in Exhibit I illustrate how the Stock Shortfall is to
be calculated.
(mmm) "Transfer" means, as a noun, any voluntary or
involuntary transfer, sale, pledge, hypothecation or other disposition and, as a
verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate or
otherwise dispose of.
(nnn) "Working Capital" means the sum of the initial
contributions made under Sections 2.2(a)(i) and 2.2(b)(i), as may be replenished
from time to time, the outstanding balance of which shall at all times be
invested in instruments backed by the United States Government.
(ooo) "Yield" means the projected stabilized annual
Net Operating Income of a Project or Projects divided by its or their total cost
(including land cost), as determined in accordance with the financial
projections and development costs in the form attached as Exhibit F-1 employing
the same underwriting criteria and methodology used in generating the yields in
the Initial Business Plan.
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2. PARTNERS; CAPITAL CONTRIBUTIONS
2.1 Partners. The names and addresses of the Partners are as
follows:
General Partner:
PSAF Development, Inc.
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201
Limited Partner:
[Name and address of Limited Partner]
2.2 Capital Contributions.2.2 Capital Contributions. The
Capital Contributions of the Partners shall be as follows:
(a) The Capital Contributions of the General Partner
shall be as follows:
(i) On the Effective Date, the General
Partner shall make an initial cash Capital Contribution of $3,000,000 for
initial working capital.
(ii) On the Effective Date, the General
Partner shall contribute or cause to be contributed to the Partnership those
Projects described in Exhibit A-1 hereto. The parties agree that with respect to
such Projects, the General Partner's Capital Account shall be credited with the
amount of $30,406,462, consisting of the amount of the expenditures made with
respect to such Projects, prior to their contribution, for (A) Land Acquisition
Costs, (B) Basic Development Costs and (C) PSA Affiliates Operating Costs (but
only to the extent such PSA Affiliates Operating Costs do not exceed 4% of the
Basic Development Costs). The parties agree that this Capital Account credit
represents the agreed fair market value of those contributed assets.
(iii) From time to time as the General
Partner shall contribute or cause to be contributed to the Partnership
additional Qualifying Projects, the General Partner's Capital Account shall be
credited with the amount of the expenditures made with respect to such Projects
by PSA Affiliates (to the extent not previously reimbursed from Working Capital)
for (A) Land Acquisition Costs, (B) Basic Development Costs and (C) PSA
Affiliates Operating Costs (but only to the extent that such credit for PSA
Affiliates Operating Costs does not cause cumulative credits to the General
Partner pursuant to this Agreement for PSA Affiliates Operating Costs to exceed
4% of the cumulative sum of Basic Development Costs). The parties agree that any
such Capital Account credits represent the agreed fair market value of those
contributed assets.
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(iv) The General Partner shall make
additional Capital Contributions in cash up to 103% of 30% of all amounts
required to pay Land Acquisition Costs and Basic Development Costs (including
costs of initial operations and leaseup until a Project has achieved three
consecutive months of positive Net Operating Income), in excess of the sum of
the amounts credited to the General Partner for those costs pursuant to (ii) and
(iii) above and the amounts paid for those costs from reserves. The General
Partner also shall be deemed to have contributed, and the General Partner's
Capital Account will be credited, with the amount of that portion of any PSA
Affiliates Operating Costs not previously credited pursuant to (ii) and (iii)
above (but only to the extent that such credit of PSA Affiliates Operating Costs
does not cause cumulative credits to the General Partner pursuant to this
Agreement for PSA Affiliates Operating Costs to exceed 4% of the cumulative sum
of Basic Development Costs). In addition to the Capital Contributions required
by the first sentence of this Section 2.2(a)(iv), the General Partner shall make
additional Capital Contributions in cash up to 30% of amounts required as needed
on a Project-by-Project basis not to exceed the amount available in the
Contingency Reserve.
(v) The General Partner may, but shall not
be obligated to, make Capital Contributions from time to time in order to pay
any accrued but unpaid Priority Returns to the Limited Partner hereunder, which
amounts will be distributed to the Limited Partner pursuant to Section 2.2(e)
below.
(vi) In addition, once the Limited Partner
has funded: (A) its portion of Capital Contributions for a Project up to 103% of
70% of the Project Budgeted Costs required pursuant to Section 2.2(b) below, and
(B) its portion of Capital Contributions required under Section 2.2(b)(iv)(A)
with reference to the last sentence of Section 2.2(a)(iv), the General Partner
shall make additional cash Capital Contributions equal to any additional amounts
required in connection with the development, ownership and operation of the
Projects. The General Partner shall not use Operating Cash to pay such
additional amounts.
(vii) In the circumstances described in
Section 10.3 below, the General Partner shall make a contribution as set forth
in Section 10.3.
(b) The Capital Contributions of the Limited Partner
shall be as follows:
(i) On the Effective Date, the Limited
Partner shall make an initial cash Capital Contribution of $7,000,000 for
initial working capital.
(ii) On the Effective Date, the Limited
Partner shall make an additional Capital Contribution in cash equal to 70% of
the amount of the General Partner's Capital Contributions pursuant to Section
2.2(a)(ii) above, which amount will be distributed to the General Partner
pursuant to Section 2.2(d) below.
(iii) The Limited Partner shall make
additional Capital Contributions in cash equal to 70% of the amount of the
General Partner's Capital Contributions from time to time pursuant to Section
2.2(a)(iii) above, which amounts will be distributed to the General Partner
pursuant to Section 2.2(d) below.
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(iv) The Limited Partner shall make
additional Capital Contributions in cash equal to: (A) two and one third (2 1/3)
times the amount of the Capital Contributions made by the General Partner from
time to time pursuant to the first and last sentences of Section 2.2(a)(iv)
above, and (B) 70% of the amount of the Capital Contributions credited to the
General Partner from time to time pursuant to the second sentence of Section
2.2(a)(iv) above.
(c) Any Capital Contributions required of Partners
pursuant to Sections 2.2(a)(iv), 2.2(b)(iii) and 2.2(b)(iv) above shall be set
forth in written notices from the General Partner to the Partners in the form
attached as Exhibit K hereto. Such notices shall contain a breakdown and
supporting evidence of Land Acquisition Costs and Basic Development Costs, and a
breakdown by Project and total showing Project Budgeted Costs, Actual Costs
(with such supporting evidence as requested by the Limited Partner) and balance
of cost to complete, together with any replenishment of Working Capital. Such
notices shall be given on or about the 25th day of each month and shall estimate
the Capital Contributions required for that month based on the Project Budgeted
Costs. Notwithstanding anything herein to the contrary, the Limited Partner's
obligation to make such Capital Contributions shall be limited to 103% of 70% of
Project Budgeted Costs on a cumulative basis. Unused Working Capital reserves
shall be applied to pay the final Project Budgeted Costs of the Partnership,
which would otherwise be provided for by Capital Contributions. Such Capital
Contributions shall be paid within ten Business Days of delivery of the
applicable notice from the General Partner.
(d) Promptly following the Capital Contributions by
the Limited Partner pursuant to Sections 2.2(b)(ii) and 2.2(b)(iii) above, an
amount equal to such Capital Contributions shall be distributed by the General
Partner to the General Partner as a reduction in its Capital Contributions.
Promptly following the Capital Contributions by the Limited Partner pursuant to
Section 2.2(b)(iv)(B), an amount equal to such Capital Contributions shall be
distributed by the General Partner to the General Partner as a reduction in its
Capital Contributions. The Partners acknowledge that these amounts will be
treated as contributed to the Partnership and then distributed by the
Partnership for purposes of this Agreement, notwithstanding that for federal
income tax purposes the amounts perhaps could be recharacterized as if paid by
the Limited Partner to the General Partner for an interest in the Properties
which the Limited Partner then would be treated as contributing to the
Partnership. Such a recharacterization, in the Partnership's circumstances, is
not expected to produce materially differing consequences.
(e) Promptly following any Capital Contributions by
the General Partner pursuant to Sections 2.2(a)(v) and (vii) above, an amount
equal to such Capital Contributions shall be distributed by the General Partner
to the Limited Partner and shall be treated as deductible "guaranteed payments"
for the use of capital for income tax purposes.
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(f) All Capital Contributions required by the first
sentence of Section 2.2(a)(iv) shall be made pursuant to Project Budgeted Costs.
2.3 Extent of Liability. Except as otherwise provided by this
Agreement or applicable law:
(a) A Partner shall not be liable for the debts,
liabilities, contracts or any other obligations of the Partnership; and
(b) A Partner shall be liable only to make the
Capital Contributions provided in Section 2.2 for Qualifying Projects approved
under Section 6.2(b) and shall not be required to lend any funds to the
Partnership.
Performance of any one or more of the acts specifically authorized for
performance by the Limited Partner under this Agreement shall not in any way
constitute the Limited Partner a general partner or impose any personal
liability on the Limited Partner. The General Partner shall have no personal
liability for the repayment of any Capital Contributions of the Limited Partner.
2.4 Other Matters.
(a) Except as otherwise provided in this Agreement,
no Partner shall demand or receive a return of its Capital Contributions or
withdraw as a Partner from the Partnership without the consent of the General
Partner and the Partners. Under circumstances requiring a return of any Capital
Contributions, no Partner shall have the right to receive property other than
cash except as may be specifically provided herein.
(b) No Partner shall receive any interest, salary or
draw with respect to its Capital Contributions or its Capital Account or for
services rendered on behalf of the Partnership or otherwise in its capacity as a
Partner, except as otherwise provided in this Agreement.
3. ALLOCATIONS
3.1 Profits. After giving effect to the special allocations
set forth in Sections 3.3, 3.4 and 3.5, Profits for any Fiscal Year or other
period shall be allocated to the Partners in the following order and priority:
(a) First, to the Limited Partner until the
cumulative Profits allocated pursuant to this Section 3.1(a) and Gain from Sale
allocated pursuant to Section 3.4(a) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Priority Return accrued for the
Limited Partner from the Effective Date to the end of such Fiscal Year or other
period less the amount of any guaranteed payments made pursuant to Section
2.2(e);
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(b) Second, to the Limited Partner until the
cumulative Profits allocated pursuant to this Section 3.1(b) and Gain from Sale
allocated pursuant to Section 3.4(b) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Losses allocated to the Limited
Partner pursuant to Section 3.2 for all prior Fiscal Years or other periods;
(c) Third, to the General Partner until the
cumulative Profits allocated pursuant to this Section 3.1(c) and Gain from Sale
allocated pursuant to Section 3.4(c) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Losses allocated to the General
Partner pursuant to Section 3.2 for all prior Fiscal Years or other periods;
(d) Fourth, to the General Partner until the
cumulative Profits allocated pursuant to this Section 3.1(d) for the current and
all prior Fiscal Years or other periods are equal to the cumulative
distributions received by the General Partner pursuant to Section 4.1(b) from
the Effective Date to the end of such Fiscal Year or other period; and
(e) Fifth, the remaining balance, if any, shall be
allocated among the Partners in proportion to their Percentage Interests.
3.2 Losses. After giving effect to the special allocations set
forth in Sections 3.3, 3.4 and 3.5, Losses for any Fiscal Year or other period
shall be allocated in the following order and priority:
(a) First, to the General Partner until any
additional allocation would cause the General Partner to have an Adjusted
Capital Account Deficit at the end of any Fiscal Year;
(b) Second, to the Limited Partner until any
additional allocation would cause the Limited Partner to have an Adjusted
Capital Account Deficit at the end of any Fiscal Year; and
(c) Third, any remaining Losses to the General
Partner.
3.3 Special Allocations to the General Partner. The following
special allocations shall be made:
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(a) Items of gross loss or expense shall be allocated
to the General Partner until the cumulative allocations pursuant to this Section
3.3(a) equal the aggregate Capital Contributions made by the General Partner
pursuant to Section 2.2(a)(vi).
(b) All Depreciation shall be specially allocated to
the General Partner.
(c) All deductions for any guaranteed payments made
to the Limited Partner pursuant to Section 2.2(e) shall be specially allocated
to the General Partner.
3.4 Gain from Sale. All Gain from Sale shall be allocated in
the following order:
(a) First, to the Limited Partner until the
cumulative Gain from Sale allocated pursuant to this Section 3.4(a) and Profits
allocated pursuant to Section 3.1(a) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Priority Return accrued for the
Limited Partner from the Effective Date to the end of such Fiscal Year or other
period less the amount of any guaranteed payments made pursuant to Section
2.2(e);
(b) Second, to the Limited Partner until the
cumulative Gain from Sale allocated pursuant to this Section 3.4(b) and Profits
allocated pursuant to Section 3.1(b) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Losses allocated to the Limited
Partner pursuant to Section 3.2 for all prior Fiscal Years or other periods
(c) Third, to the General Partner until the
cumulative Gain from Sale allocated pursuant to this Section 3.4(c) and Profits
allocated pursuant to Section 3.1(c) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Losses allocated to the General
Partner pursuant to Section 3.2 for all prior Fiscal Years or other periods;
(d) Fourth, to the General Partner until the
cumulative Gain from Sale allocated pursuant to this Section 3.4(d) is equal to
the cumulative allocations of Depreciation and deductions for guaranteed
payments made pursuant to Section 3.3(b) and (c), excluding any guaranteed
payments deductions attributable to Capital Contributions made pursuant to
Section 2.2(a)(vii).
(e) Fifth, to the General Partner until the
cumulative Gain from Sale allocated pursuant to this Section 3.4(e) and Profits
allocated pursuant to Section 3.1(e) for the current and all prior Fiscal Years
or other periods are equal to the cumulative Priority Return accrued for the
General Partner from the Effective Date to the end of such Fiscal Year or other
period;
(f) Sixth, 70% to the Limited Partner and 30% to the
General Partner until the cumulative Gain from Sale allocated to the Limited
Partner pursuant to this Section 3.4(f) for the current and all prior Fiscal
Years or other periods is equal to the cumulative distributions made (or
expected by the Partners to be made) to the Limited Partner pursuant to Section
4.2(e);
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(g) Seventh, 50% to the Limited Partner and 50% to
the General Partner until the cumulative Gain from Sale allocated to the Limited
Partner pursuant to this Section 3.4(g) for the current and all prior Fiscal
Years or other periods is equal to the cumulative distributions made (or
expected by the Partners to be made) to the Limited Partner pursuant to Section
4.2(f);
(h) Eighth, 10% to the Limited Partner and 90% to the
General Partner until the cumulative Gain from Sale allocated to the Limited
Partner pursuant to this Section 3.4(h) for the current and all prior Fiscal
Years or other periods is equal to the cumulative distributions made (or
expected by the Partners to be made) to the Limited Partner pursuant to Section
4.2(g); and
(i) Finally, 100% to the General Partner.
Sections 3.4(f) - (h) shall be applied based on the assumption that all Capital
Proceeds will be distributed pursuant to Section 4.2, rather than Section
10.2(c).
3.5 Regulatory Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Section 3, if there is a net decrease in Minimum Gain during any Fiscal
Year, each Partner shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
the portion of such Partner's share of the net decrease in Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Sections 1.704-2(f)(6)
and 1.704-2(j)(2) of the Regulations. This Section 3.5(a) is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(b) Partner Nonrecourse Debt Minimum Gain Chargeback.
Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations,
notwithstanding any other provision of this Section 3 except Section 3.5(a), if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
a Partner Nonrecourse Debt during any Fiscal Year, each Partner who has a share
of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the
Regulations. This Section 3.5(b) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.
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(c) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of
Partnership income and gain shall be specially allocated to each such Partner in
an amount and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as
possible, provided that an allocation pursuant to this Section 3.5(c) shall be
made only if and to the extent that such Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Section 3 have
been tentatively made as if this Section 3.5(c) were not in this Agreement.
(d) Gross Income Allocation. In the event any Partner
has a deficit Capital Account at the end of any Partnership Fiscal Year which is
in excess of the sum of (i) the amount such Partner is obligated to restore
pursuant to any provision of this Agreement, and (ii) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 3.5(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 3 have been tentatively made as if Section 3.5(c)
and this Section 3.5(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions
for any Fiscal Year or other period shall be specially allocated to the General
Partner.
(f) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year or other period shall be specially
allocated to the Partner who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i)(1).
(g) Section 754 Adjustment. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4),
to be taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of its interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests in the
Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Partners to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
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(h) Curative Allocations. The allocations set forth
in Sections 3.5(a) through (g) (the "Regulatory Allocations") are intended to
comply with certain requirements of the Regulations. It is the intent of the
Partners that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Partnership income, gain, loss or deduction pursuant to this
Section 3.5(h). Therefore, notwithstanding any other provision of this Section 3
(other than the Regulatory Allocations), the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss or deduction in
whatever manner the Partners determine appropriate so that, after such
offsetting allocations are made, each Partner's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Partner would
have had if the Regulatory Allocations were not part of the Agreement. In
exercising its discretion under this Section 3.5(h), the Partners shall take
into account future Regulatory Allocations under Sections 3.5(a) and 3.5(b)
that, although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 3.5(e) and 3.5(f).
3.6 Other Allocations Rules.
(a) Except as otherwise provided, all Profits and
Losses allocated to the Partners shall be allocated among them in proportion to
their Percentage Interests.
(b) For purposes of determining the Profits, Losses
or any other items allocable to any period, Profits, Losses and any such other
items shall be determined on a daily, monthly, or other basis, as determined by
the General Partner using any permissible method under Code Section 706 and the
Regulations thereunder.
(c) Except as otherwise provided in this Agreement,
all items of Partnership income, gain, loss, deduction, credit and any other
allocations not otherwise provided for shall be divided among the Partners in
the same proportions as they share Profits or Losses, as the case may be, for
the year.
(d) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Regulations Section 1.752-3(a)(3), any such liabilities
shall be allocated solely to the General Partner, consistent with the General
Partner's share of profits pursuant to Section 3.4(i).
(e) To the extent permitted by Section 1.704-2(h)(3)
of the Regulations, the General Partner shall endeavor to treat distributions of
Operating Cash as having been made from the proceeds of a Nonrecourse Liability
or a Partner Nonrecourse Debt only to the extent that such distributions would
cause or increase an Adjusted Capital Account Deficit for any Partner.
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3.7 Tax Allocations: Code Section 704(c).3.7 Tax Allocations:
Code Section 704(c). In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for federal income tax
purposes and its initial Gross Asset Value (computed in accordance with Section
1.8(aa)(i)).
In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to Section 1.8(aa)(ii), subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations
shall be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
3.7 are solely for purposes of federal, state and local taxes and shall not
affect, or in any way be taken into account in computing, any Partner's Capital
Account or share of Profits, Losses other items or distributions pursuant to any
provision of this Agreement.
4. DISTRIBUTIONS
4.1 Operating Cash. Except as otherwise provided in Section
10, Operating Cash, if any, shall be distributed to the Partners monthly, on the
15th day of each month or next Business Day if the 15th day is not a Business
Day, for the preceding month, or at such other times as the Partners may
determine in the following order and priority:
(a) First, to the Limited Partner in an amount equal
to the excess of (i) the aggregate Priority Return of the Limited Partner
accrued from the Effective Date to the end of the calendar month immediately
preceding the date of distribution pursuant to this Section 4.1(a), over (ii)
the sum of all prior distributions to the Limited Partner pursuant to this
Section 4.1(a), Section 4.2(a) and Section 2.2(e);
(b) Second, to the General Partner in an amount equal
to the Priority Return of the General Partner accrued for the calendar month
immediately preceding the date of distribution pursuant to this Section 4.1(b);
and
(c) Third, the balance, if any, to the Partners in
proportion to their Percentage Interests.
4.2 Capital Proceeds. Capital Proceeds, if any, shall be
distributed to the Partners on the third Business Day after a sale or financing
or at such other times as the Partners may determine in the following order and
priority:
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(a) First, to the Limited Partner in an amount equal
to the excess of (i) the aggregate Priority Return of the Limited Partner
accrued from the Effective Date to the end of the calendar month immediately
preceding the date of distribution pursuant to this Section 4.2(a), over (ii)
the sum of all prior distributions to the Limited Partner pursuant to Sections
4.1(a), 4.1(c), 4.2(a) and 2.2(e) (including analogous distributions made
pursuant to Sections 10.2 and 10.3);
(b) Second, to the Limited Partner in an amount equal
to the excess of (i) the Limited Partner's Capital Contribution over (ii) the
sum of all prior distributions to the Limited Partner pursuant to this Section
4.2(b) (including analogous distributions made pursuant to Sections 10.2 and
10.3);
(c) Third, to the General Partner in an amount equal
to the excess of (i) the aggregate Priority Return of the General Partner
accrued from the Effective Date to the end of the calendar month immediately
preceding the date of distribution pursuant to this Section 4.2(c), over (ii)
the sum of all prior distributions to the General Partner pursuant to Sections
4.1(b), 4.1(c) and 4.2(c) (including analogous distributions made pursuant to
Section 10.2);
(d) Fourth, to the General Partner in an amount equal
to the excess of (i) the General Partner's Capital Contributions, other than
pursuant to Sections 2.2(a)(vi) and (vii), over (ii) the sum of all prior
distributions to the General Partner pursuant to Sections 4.2(d) and 2.2(d)
(including analogous distributions made pursuant to Section 10.2);
(e) Fifth, 70% to the Limited Partner and 30% to the
General Partner until all amounts distributed to the Limited Partner pursuant to
this Agreement (including any guaranteed payments made pursuant to Section
2.2(e)) equal the sum of the Limited Partner's Capital Contributions and the
aggregate Priority Return of the Limited Partner accrued from the Effective Date
to the end of the calendar month immediately preceding the date of distribution
pursuant to this Section 4.2(c), with the Priority Return for purposes of this
Section 4.2(e) computed using monthly compounding at the monthly rate of one
twelfth of 10 1/2%;
(f) Sixth, 50% to the Limited Partner and 50% to the
General Partner until all amounts distributed to the Limited Partner pursuant to
this Agreement (including any guaranteed payments made pursuant to Section
2.2(e)) equal the sum of the Limited Partner's Capital Contributions and the
aggregate Priority Return of the Limited Partner accrued from the Effective Date
to the end of the calendar month immediately preceding the date of distribution
pursuant to this Section 4.2(f), with the Priority Return for purposes of this
Section 4.2(f) computed using monthly compounding at the monthly rate of one
twelfth of 11%;
(g) Seventh, 10% to the Limited Partner and 90% to
the General Partner until all amounts distributed to the Limited Partner
pursuant to this Agreement (including any guaranteed payments made pursuant to
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Section 2.2(e)) equal the sum of the Limited Partner's Capital Contributions and
the aggregate Priority Return of the Limited Partner accrued from the Effective
Date to the end of the calendar month immediately preceding the date of
distribution pursuant to this Section 4.2(g), with the Priority Return for
purposes of this Section 4.2(g) computed using monthly compounding at the
monthly rate of one twelfth of 11 1/2%; and
(h) Finally, 100% to the General Partner.
4.3 Amounts Withheld. If required by applicable law, the
General Partner shall cause the Partnership to withhold such amounts as may be
required from any payment or distribution from the Partnership to a Partner, and
the General Partner shall remit such amounts on a timely basis to the tax
authority or other entity entitled to them. Any (a) amounts so withheld or (b)
estimated or other payments to tax authorities with respect to any Profits or
other items allocable to the Partners, shall be treated as amounts distributed
to the Partners pursuant to this Section 4 for all purposes. The General Partner
shall allocate any such amounts among the Partners in accordance with applicable
law.
5. MANAGEMENT
5.1 Managing Partner.5.1 Managing Partner. The Partnership
shall be managed by the General Partner. The Limited Partner shall not
participate in the management of the Partnership's business, and shall have no
power to bind or act on behalf of the Partnership.
5.2 Authority of Managing Partner5.2 Authority of Managing
Partner. The General Partner shall have, subject to the control of the Partners
to the extent (and only the extent) provided herein, supervision, direction and
control of the business of the Partnership. Subject to the limitations and
restrictions set forth in this Agreement, the General Partner shall act on
behalf of the Partnership in all matters affecting the management and
supervision of the Partnership and its business affairs, and shall have all
rights and powers generally conferred by law or otherwise necessary, advisable
or consistent therewith. Without limiting the scope of the foregoing, the
Partners agree and acknowledge that it is their intention and desire to confer
upon the General Partner, to the fullest extent permissible under the Act and
other provisions of applicable law, and subject only to the express limitations
set forth in Section 5.3, full power and authority relative to any and all
matters relating to or affecting the Partnership and its affairs.
Notwithstanding any provision of this Agreement,
including without limitation Section 5.3, any Person dealing with the
Partnership may rely (without duty of further inquiry) upon a certificate signed
by the General Partner as to:
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(a) The identity of the General Partner or any
Partner;
(b) The existence or nonexistence of any fact or
facts which constitute a condition precedent to acts by the General Partner or
which are in any other manner germane to the affairs of the Partnership;
(c) The Persons who are authorized to execute and
deliver any instrument or document of the Partnership; or
(d) Any act or failure to act by the Partnership or
any other matter whatsoever involving the Partnership or any Partner.
5.3 Limitations on Rights and Powers5.3Limitations on Rights
and Powers. Except by the unanimous consent of the Partners, the General Partner
shall not have authority to:
(a) Require additional Capital Contributions to be
made to the Partnership in addition to the Capital Contributions required to be
made pursuant to Section 2.2;
(b) Enter into or commit to any agreement, contract,
commitment or obligation on behalf of the Partnership obligating the Limited
Partner to contribute additional capital, to make or guarantee a loan or to
increase the Partner's liability either to the Partnership or to third parties;
(c) Receive or permit any Partner or Affiliate of a
Partner to receive any fee or rebate except as set forth in Section 5.5, or to
participate in any reciprocal business arrangements that would have the effect
of circumventing any of the provisions of this Agreement;
(d) Materially alter the business of the Partnership;
(e) Do any act in contravention of this Agreement;
(f) Possess Property, or assign rights in specific
Property, for other than a Partnership purpose; or
(g) Admit any Person as a Partner.
Except as otherwise contemplated by this Agreement or provided for in the
Initial Business Plans, no action specified on the attached Exhibit B shall be
taken by the General Partner without approval of the Partners.
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5.4 Project Development. All phases of site selection,
development and construction of Projects shall be carried out by employees of
PSA Affiliates and independent contractors engaged by the General Partner for
and on behalf of the Partnership. In order for any Qualifying Project to be
contributed to or acquired by the Partnership, and before the Limited Partner
shall have to make any Capital Contribution for such a Qualifying Project under
Section 2.2(b), the General Partner shall complete all the items listed on the
acquisition checklist attached as Exhibit C to the satisfaction of the
Investment Committee. For any Project other than those listed on Exhibits A-1
and A-2, plans and specifications shall be reviewed by a third-party consultant
acceptable to the Limited Partner and shall be paid for by the Partnership not
to exceed $1,500 per Project, with any excess being paid for by the Limited
Partner. Copies of the final title policy in the amount of the Project Budgeted
Costs, deed into the Partnership and closing statement for the acquisition shall
be furnished to the Limited Partner's advisor and attorneys within 30 days after
payment of the initial Capital Contribution for a Project. A copy of an as built
survey shall be furnished to such advisor and attorneys on or before the date a
Project becomes a Completed Project. The General Partner and the Limited Partner
shall attempt, to the extent feasible, to develop an approved list of architects
and environmental consultants for the Projects. PSA Affiliates shall be
responsible for arranging, supervising and coordinating all activities,
purchases and services associated with the development of each Qualifying
Project which is or is to become a Project including, without limitation, the
following:
(a) Review and analysis of the suitability for the
Partnership of each Qualifying Project;
(b) Negotiation and documentation of the terms of
each acquisition of property for development;
(c) Conduct of such "due diligence" and obtaining of
such studies, reports and approvals as are required in connection with the
prospective acquisition of each property, including a review and studies,
reports and approvals, as required, as to soils, environmental issues, title and
survey matters, zoning and other land use issues and economic feasibility;
(d) Obtaining of necessary building permits and other
approvals required for development;
(e) Negotiation and closing of the acquisition of
each Qualifying Project;
(f) Coordination with planners and engineers on
matters relating to the design of each Qualifying Project and any modifications
thereof;
(g) Coordination with contractors regarding costs and
performance of construction and other development activity;
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(h) Negotiation and preparation for execution by the
Partnership, or for the account of the Partnership, by PSA Affiliates of
construction contracts and other contracts for the supply of services and/or
material necessary to perform and complete the development of each Project;
(i) Negotiation, preparation and execution of all
change orders;
(j) Review and approval of applications for payment
submitted by contractors in connection with the development of each Project and
maintenance of accurate and complete books of account and other records relating
thereto;
(k) Negotiation with suppliers of major building
components, if any, where such items are not covered by a general construction
contract, and purchase of such components;
(l) Performance of normal business functions of an
owner of property in administering all aspects of the development of each
Project (including property acquisition);
(m) If necessary, and not performed under a general
contract, submission of applications to utility companies and municipal and
governmental authorities for, and obtaining of, agreements relating to utility
and sewer easements and the provision of adequate utility and sewer service to
each Project; and
(n) The engagement of such independent contractors
and professional firms including, but not limited to, construction firms,
architects, environmental consultants, engineers, architects and attorneys, as
may be required or appropriate in connection with the foregoing, it being
understood and agreed that virtually all of the activity described above in this
Section 5.4 will be undertaken by independent contractors and firms whose
charges will be borne by PSA Affiliates or by the Partnership as herein
provided.
5.5 Compensation and Reimbursement. Subject to the limitations
provided herein, PSA Affiliates shall be entitled to receive the following
compensation and reimbursement from the Partnership:
(a) The Partnership shall enter into the Management
Agreement in the form attached as Exhibit D (provided that in the event of any
conflict between the Management Agreement and this Agreement, this Agreement
shall prevail) relative to the operation and management of each Project,
pursuant to which PSA Affiliates shall be entitled to receive a management fee
equal to 6% of gross operating revenues from each Project (not including revenue
earned pursuant to the Master Lease Agreement referred to in Section 5.5(e)
below or any revenue earned with respect to truck rental operations undertaken
at the Projects);
(b) In connection with the development of each
Project, PSA Affiliates shall be entitled to reimbursement for Land Acquisition
Costs, Basic Development Costs and PSA Affiliates Operating Costs as and to the
extent provided in Section 2.2;
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(c) PSA Affiliates shall be entitled to
reimbursement, on submission of an itemized account, of all sums paid to
unaffiliated Persons for goods and materials for the direct benefit of the
Partnership;
(d) PSA Affiliates shall be entitled to reimbursement
for the direct personnel cost (without overhead) for tax preparation and other
services provided for the conduct of the Partnership's affairs, including
preparation of reports to the Limited Partner, as distinguished from
acquisition, development, operation and management of the Projects, provided
such cost does not exceed the amount the Partnership would be required to pay
other Persons not affiliated with the General Partner for comparable services;
and
(e) The Partnership shall enter into the Master Lease
Agreement in the form attached as Exhibit E relative to the lease of space to
the General Partner or its Affiliate in the Projects for retail storage related
uses involving the general public and self-storage tenants.
Except as expressly provided for in this Section 5.5 or otherwise approved by
the Partners, no payment shall be made by the Partnership to a PSA Affiliate for
services of such PSA Affiliate or any officer or employee thereof.
5.6 Hazardous Materials.
(a) The General Partner shall use its best efforts to
keep and maintain the Property in compliance with, and to not cause, and shall
use its reasonable efforts to not permit, the Property to be in violation of,
any Hazardous Materials Laws. The General Partner shall not use, generate,
manufacture, store or dispose of on, under or about the Property or transport to
or from the Property (and shall use its reasonable efforts not to permit anyone
else to do any of the foregoing) in violation of any Hazardous Material Laws.
(b) The General Partner shall immediately advise the
Partners in writing of (i) any and all enforcement, cleanup, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any Hazardous Materials Laws of which actions the General Partner has actual
knowledge; (ii) all claims made or threatened by any third party against the
Partnership or any Partner or the Property relating to damage, loss or injury
resulting from, or contribution, cost recovery or compensation for, any
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Hazardous Materials, of which claims the General Partner has actual knowledge
(the matters set forth in clauses (i) and (ii) above are collectively referred
to in this Agreement as "Hazardous Materials Claims"); and (iii) the General
Partner's actual knowledge of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that the General Partner knows
could cause the Property or any part thereof to be subject to any restrictions
on the ownership, occupancy, transferability or use of the Property under any
Hazardous Materials Laws.
(c) Without the prior written approval of all
Partners, the General Partner shall not take any remedial action in response to
the presence of any Hazardous Materials on, under or about the Property, nor
enter into any settlement agreement, consent decree other compromise in respect
to any Hazardous Materials Claims; provided, however, that the prior approval of
all Partners shall not be necessary in the event that the presence of Hazardous
Materials on, under or about the Property, in the reasonable belief of the
General Partner, either poses an immediate threat to the health, safety or
welfare of any individual or is of such a nature that an immediate remedial
response is necessary and it is not possible to obtain such Partners' approval
before taking such action, provided that in such event the General Partner shall
notify all Partners as soon as practicable of any action so taken. All Partners
agree not to withhold their approval, where approval is required under this
Agreement, if either (i) a particular remedial action is ordered by a court of
competent jurisdiction, or (ii) the General Partner establishes to the
satisfaction of the Partners that there is no reasonable alternative to such
remedial action which would result in less impairment of the value of the
Property.
6. ACTION BY PARTNERS; INVESTMENT COMMITTEE
6.1 Action by Partners. No annual or regular meetings of the
Partners are required to be held. However, meetings of the Partners may be held
if called by the General Partner or any Partner upon at least four Business
Days' prior written notice. Any consents required of the Partners hereunder
shall be in writing and shall be filed by the General Partner with the books and
records of the Partnership.
6.2 Investment Committee.6.2 Investment Committee.
(a) The Partnership shall have an investment
committee (the "Investment Committee") which shall consist of three members, two
of whom shall be appointed by the Limited Partner as its representatives and one
of whom shall be appointed by the General Partner as its representative.
Initially, the Limited Partner appoints [two representives of Limited Partner]
and the General Partner appoints Hugh W. Horne, as the members of the Investment
Committee. In the event of the death or resignation of any member of the
Investment Committee or the removal of any member of the Investment Committee by
the Partner who appointed the same, the Partner originally appointing such
member of the Investment Committee shall have the right to appoint his or her
successor as its representative.
Meetings of the members of the Investment Committee
shall be held by conference telephone or at the principal executive office of
the Partnership or another appropriate and convenient location designated by the
General Partner. Meetings may be called at any time by the General Partner or by
any member of the Investment Committee upon at least seven Business Days' prior
written notice. Alternatively, any action requiring approval or consent of the
Investment Committee may be taken in writing, executed by any two of the three
members of the Investment Committee, provided one of the two members is the
General Partner's representative. Any action requiring approval or consent of
the Investment Committee will be deemed to mean approval or consent by a
majority of the Investment Committee members.
(b) Subject to Section 6.2(c), in the event that any
PSA Affiliate desires to develop a Qualifying Project before the earlier of (i)
the third anniversary of the Effective Date or (ii) the date the Partnership has
undertaken Projects that require or would require total Capital Contributions at
completion from Partners in excess of $220,000,000 (plus 3% of such amount, to
the extent expended in funding cost overruns), then the General Partner shall
afford the Partnership the first right and opportunity to develop and own the
proposed Qualifying Project on the terms and conditions set forth in this
Agreement.
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(i) In such case, the General Partner shall
provide to the members of the Investment Committee a detailed description of the
Qualifying Project, including any costs for which the General Partner's Capital
Account is to be credited under Section 2.2(a)(iii), preliminary financial
projections and development costs in the form attached as Exhibit F-1 and such
other pertinent information as the Investment Committee shall reasonably
request. Upon receipt thereof, the Investment Committee shall have the option,
to be exercised within 30 days, to give approval for the Qualifying Project to
be undertaken by the Partnership as a Project. The Qualifying Projects described
on Exhibit A-2 hereto shall be deemed to have been approved by the Investment
Committee, subject to Section 6.2(b)(iii).
(ii) In the event the Investment Committee
shall not timely elect to, or elects not to, have the Qualifying Project
included as a Project subject to the terms of this Agreement, PSA Affiliates
shall be free to develop such Qualifying Project outside of the Partnership, in
which event the Partnership and the Limited Partner shall have no further rights
or interests therein. In the event there shall be a 10% or greater change in the
aggregate costs or in the net rentable square footage of such Qualifying Project
(as compared to the information submitted under Section 6.2(b)(i)), then the
Qualifying Project shall be resubmitted to the Investment Committee pursuant to
this Section 6.2(b).
(iii) If a Qualifying Project is approved
based on the information submitted under Section 6.2(b)(i), the General Partner
shall thereafter provide to the members of the Investment Committee finalized
estimates of development costs and costs of funding any deficiency in Net
Operating Income until the Project experiences three consecutive months of
positive monthly Net Operating Income (such final estimates for a Project being
referred to as "Project Budgeted Costs") and stabilized yield-on-cost
projections in the form attached as Exhibit F-2. In the event those finalized
estimates reflect a 10% or greater change in the Project Budgeted Costs or net
rentable square footage, or a reduction of over 25 basis points in Yield, of any
Project as compared to the information submitted under Section 6.2(b)(i) (or a
10% or greater change in the Project Budgeted Costs or reduction of over 12 1/2
basis points in Yield for those Projects described on Exhibit A-2), then such
change must be approved by the Investment Committee for such Qualifying Project
to be included as one of the Projects subject to the terms of this Agreement.
(c) The Partnership's first right to develop Projects
under Sections 1.7(b) and 6.2(b) shall terminate if the General Partner shall
have presented eight consecutive Qualifying Projects to the Investment Committee
that each have a Yield of 11% per year or more, and the Investment Committee
shall not have caused any of such Qualifying Projects to be included as a
Project pursuant to this Agreement.
(d) The General Partner shall prepare and submit a
Business Plan to the Investment Committee on or before November 15 of each
Fiscal Year that shall apply to the twelve-month period beginning on January 1
of the subsequent Fiscal Year. The Annual Business Plan shall include an
estimated budget for each Completed Project for the subsequent Fiscal Year and a
report aggregating all such information for all Completed Projects.
(e) The General Partner shall provide to the
Investment Committee any report that any member might reasonably request, if
available without significant cost or effort, including, but not limited to,
analyses of the Properties and the market, market rent surveys, tenant traffic
reports, tenant turnover statistics, tenant demographic profiles, projected
market values, projected income and expense statements, projected cost
breakdowns and cash flow analyses, summaries of the overall plan of operations
and contemplated transactions, insurance coverages and the like applicable to
the Properties.
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6.3 Investment Programs. In the event that during the first 12
months after the PSA Affiliates are no longer required to afford to the
Partnership the first right to develop and own Qualifying Projects, any PSA
Affiliate develops a program for institutional investors to develop and own
self-storage facilities, such PSA Affiliate will provide the Limited Partner
with information concerning such program and will first negotiate in good faith
with the Limited Partner concerning its participation in such program before
approaching other institutional investors.
7. BOOKS AND RECORDS; FISCAL MATTERS
7.1 Books and Records. The Partnership shall keep adequate
financial books and records in accordance with generally accepted accounting
principles. The books and records shall be kept at the principal executive
office of the Partnership and shall set forth a true and accurate account of all
business transactions arising out of and in connection with the conduct of the
Partnership. Any Partner or its designated representative shall have the right,
at any reasonable time during ordinary business hours, to have access to and
inspect and copy the contents of any of the Partnership's books and records
(financial or otherwise) and records of any PSA Affiliates relating to the
Projects. The Partnership shall not, without the consent of the Partners, which
shall not be unreasonably withheld or delayed, vary the Partnership's accounting
methods, change its Fiscal Year or make other major decisions with respect to
treatment of various transactions for bookkeeping or accounting purposes.
7.2 Reports. The General Partner shall furnish to each
Partner, at the expense of the Partnership, such statements and reports of the
Partnership as the Partners may determine or which may be required under the
Act, including the following:
(a) within 25 days of the end of each month,
operating statements for each of the Projects for such month, including
occupancy reports, a consolidated operating statement of the Projects for that
month and a statement detailing Partnership investment of funds;
(b) within 40 days of the end of each of the fiscal
quarters of each Fiscal Year, a balance sheet, a profit and loss statement, a
statement of cash flows and a statement of changes in partner's capital
accounts, which statements need not be audited but shall be prepared in
accordance with generally accepted accounting principles (except that quarterly
statements need not include footnotes), and shall be certified as fairly
presenting the financial results by the chief financial officer of the General
Partner;
(c) within 40 days of the end of each of the fiscal
quarters of each Fiscal Year, a report setting forth the variance between the
Project operating budget and actual results on a Project and consolidated basis;
and
(d) within 90 days of the end of each Fiscal Year,
audited financial statements of the Partnership for such Fiscal Year certified
by Ernst & Young LLP or such other so-called "Big Six" firm of independent
public accountants as may be approved by the Investment Committee.
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Examples of the reports required by Section 7.2(a), (b) and
(c) are attached hereto as Exhibit M.
7.3 Tax Information. The General Partner shall cause the
Partnership accountants to prepare and file on a timely basis all income and
other tax returns of the Partnership. The General Partner shall have the
accounting firm that audits the Partnership's financial statements or another
accounting firm approved by the Investment Committee review and sign as preparer
the Partnership's Federal and state income tax returns. The General Partner
shall submit such Federal income tax returns to the Limited Partner for the
Limited Partner's review at least ten Business Days before filing such returns.
The General Partner shall furnish to the Limited Partner a copy of such return,
together with any schedules or other information which each Partner may
reasonably require in connection with such Partner's own tax affairs within 90
days of the end of each Fiscal Year.
7.4 Fiscal Year. The Fiscal Year of the Partnership shall be
the calendar year.
7.5 Tax Matters Partner. The General Partner is hereby
designated by the Partners as, and shall be specifically authorized to act as,
the "Tax Matters Partner" under the Code and in any similar capacity under state
or local law, and to expend Partnership funds for professional services and
costs associated therewith.
7.6 Tax Elections Made by Managing Partner.2 The General
Partner on behalf of the Partnership may make any and all elections for tax
purposes with respect to the Partnership, with the consent of the Limited
Partner, which consent will not be unreasonably withheld or delayed. At the
request of any Partner, the Partnership will make an election under Code Section
754
7.7 Taxation as a Partnership. The Partners will use their
best efforts to cause the Partnership to be treated as a partnership for income
tax purposes.
7.8 Avoidance of Unrelated Business Taxable Income.The General
Partner acknowledges that the Limited Partner generally expects to be exempt
from federal income taxes, and wishes to avoid receipt of income that otherwise
would be considered unrelated business taxable income. Accordingly, the General
Partner shall use its best efforts to conduct the Partnership's operations at
all times in a manner that will avoid subjecting the Limited Partner or any
Affiliate to regular corporate income tax or to tax on "unrelated business
taxable income" under Section 511 of the Code. In furtherance of the foregoing
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(and not in limitation thereof), notwithstanding any other provision herein to
the contrary, absent specific written approval of the Limited Partner, the
Partnership shall conduct its operations in accordance with the following
provisions at all times:
(a) The Partnership's business shall be limited to
owning, operating, and disposing of the Projects. The Partnership shall not
engage in any other business activities.
(b) The Partnership shall not incur or continue any
"acquisition indebtedness" as defined in Section 514 of the Code.
(c) The Partnership shall be a lessor of personal
property only if the rents attributable to such personal property are an
incidental amount of the total rents received or accrued under a lease of real
property within the meaning of Section 512(b)(3)(A)(ii) of the Code.
(d) The Partnership's lease agreements shall not
provide for rents that depend in whole or in part on the income or profits
derived by any Person from the leased property.
(e) The Partnership shall not provide services to
lessees of the Property, other than services that are usually or customarily
rendered in connection with the rental of space for occupancy only.
(f) The Partnership shall not hold property primarily
for sale to customers in the ordinary course of business or hold stock in trade
or property of a kind which would be included in inventory if on hand at the
close of its taxable year.
8. TRANSFER OF INTERESTS
8.1 Transfer of Interest of General Partner8.1 Transfer of
Interest of General Partner. The General Partner shall not Transfer all or any
portion of its Interest in the Partnership except in connection with the merger
or reorganization of the General Partner into another entity or the transfer of
all or substantially all the assets of, or ownership in, the General Partner or
the assumption of the rights and obligations of the General Partner by another
entity in connection with any such transaction.
8.2 Transfer of Interest of Limited Partner 8.2 Transfer of
Interest of Limited Partner. The Limited Partner shall not Transfer all or any
portion of its Interest unless all of the following conditions are satisfied, in
which event the transferee of such Interest shall be admitted as a Limited
Partner:
(a) Such transfer is approved by the General Partner
and each Partner.
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(b) The transferor and transferee shall execute and
deliver to the Partnership such documents and instruments of transfer as may be
necessary or appropriate in the opinion of counsel to the Partnership to effect
such Transfer and to confirm the agreement of the transferee to be bound by the
provisions of this Agreement as a Partner. In all cases, the Partnership shall
be reimbursed by the transferor and/or transferee for all costs and expenses
that it reasonably incurs in connection with such Transfer.
(c) The transferor shall furnish to the Partnership
an opinion of counsel, which counsel and opinion shall be satisfactory to the
Partnership, that the Transfer will not cause the Partnership to terminate for
federal income tax purposes or that such a termination will not have a
significant adverse effect on the Partnership or its Partners.
(d) The transferor and transferee shall furnish the
Partnership with the transferee's taxpayer identification number, sufficient
information to determine the transferee's initial tax basis in the Interest
transferred, and any other information reasonably necessary to permit the
Partnership to file all required federal and state tax returns and other legally
required information statements or returns. Without limiting the generality of
the foregoing, the Partnership shall not be required to make any distribution
otherwise provided for in this Agreement with respect to any transferred
Interest until it has received such information.
(e) Either (i) such Transfer shall be registered
under the Securities Act of 1933, as amended, and any applicable state
securities laws, or (ii) the transferor shall provide an opinion of counsel,
which opinion and counsel shall be satisfactory to the Partnership, to the
effect that such Transfer is exempt from all applicable registration and
qualification requirements and that such Transfer will not violate any
applicable laws regulating the sale of securities.
8.3 Prohibited Transfers. Any purported Transfer of an
Interest not satisfying the requirements of Section 8.2 shall be null and void
and of no effect whatever; provided that, if the Partnership is required by
proper authority to recognize a Transfer not satisfying the requirements of
Section 8.2, the Interest transferred shall be strictly limited to the
transferor's rights to allocations and distributions as provided by this
Agreement with respect to the transferred Interest, which allocations and
distributions may be applied (without limiting any other legal or equitable
rights of the Partnership) to satisfy any debts, obligations or liabilities for
damages that the transferor or transferee of such Interest may have to the
Partnership. Except as otherwise required under the Act, such transferee shall
have no right to any information or accounting of the affairs of the
Partnership, shall not be entitled to inspect the books or records of the
Partnership, and shall not have any of the rights of a Partner under the Act or
this Agreement until such time, if at all, that it is admitted as a Partner. In
the case of a Transfer or attempted Transfer of an Interest that is not a
permitted Transfer, the parties engaging or attempting to engage in such
Transfer shall indemnify and hold harmless the Partnership and all Partners from
all cost, liability and damage that any of such indemnified Persons may incur
(including, without limitation, incremental tax liability and attorneys' fees
and expenses) as a result of such Transfer or attempted Transfer and efforts to
enforce the indemnity granted hereby.
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8.4 Representations; Legend. Each Partner hereby represents
and warrants to the Partnership and the Partners that such Partner's acquisition
of an Interest hereunder is made as principal for such Partner's own account and
not for resale or distribution of such Interest. Each Partner further hereby
agrees that the following legend may be placed upon any counterpart of this
Agreement, or any other document or instrument evidencing ownership of
Interests:
The Interest represented by this document has not been
registered under any securities laws and the transferability of such Interest is
restricted. Such Interest may not be sold, assigned or transferred, nor will any
assignee, vendee, transferee or endorsee thereof be recognized as having
acquired any such Interest by the issuer for any purposes, unless (i) a
registration statement under the Securities Act of 1933, as amended, with
respect to the transfer of such Interest shall then be in effect and such
transfer has been qualified under all applicable state securities laws, or (ii)
the availability of an exemption from such registration and qualification shall
be established to the satisfaction of counsel to the Partnership.
The Interest represented by this document is subject to
restriction as to its sale, transfer, hypothecation or assignment as set forth
in the Limited Partnership Agreement of PSAF Development Partners, L.P. and
agreed to by each Partner. Said provision restricts, among other things, the
right of any transferee to become a Partner. Said Agreement further provides for
an option to purchase the Interest represented by this document under certain
circumstances described therein.
8.5 Distributions and Allocations in Respect to Transferred
Interests. If any Interest is sold, assigned or transferred during any
accounting period in compliance with the provisions of this Section 8, Profits,
Losses, each item thereof and all other items attributable to the transferred
Interest for such period shall be divided and allocated between the transferor
and the transferee by taking into account their varying interests during the
period in accordance with Code Section 706(d), using any conventions permitted
by law and selected by the transferring Partners. All distributions on or before
the date of such transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Partnership shall recognize such transfer not
later than the end of the calendar month during which it is given notice of such
transfer, provided that if the Partnership does not receive a notice stating the
date such Interest was transferred and such other information as the General
Partner may reasonably require within 30 days after the end of the accounting
period during which the transfer occurs, then all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Partnership, on the last day of the accounting
period during which the transfer occurs, was the owner of the Interest. Neither
the Partnership, the General Partner nor the Partners shall incur any liability
for making allocations and distributions in accordance with the provisions of
this Section 8.5, whether or not the Partnership, the General Partner or the
Partners have knowledge of any transfer of ownership of any Interest.
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8.6 Right to Transfer. Notwithstanding anything herein to the
contrary, both the General Partner and Limited Partner shall have the right to
Transfer their Interests to an Affiliate, provided that such Transfer shall not
relieve such Partner of its obligations under this Agreement.
9. OPTIONS TO PURCHASE
9.1 General Partner's Option to Purchase. The General Partner
shall have the right and option (but not the obligation) to purchase all of the
Interest of the Limited Partner on the terms and conditions set forth in this
Section 9. The option granted pursuant to this Section may be exercised by the
General Partner by delivery of a notice (the "General Partner Purchase Notice")
to the Limited Partner at any time within the two year period commencing the
later of: (i) three years from the date final certificates of occupancy (or
their equivalents) have been received for 90% (calculated on the basis of
relative net rentable square footage) of the Projects, or (ii) April 10, 2002
(the date the General Partner Purchase Notice is delivered will be the "Purchase
Notice Date"). As a condition to exercise of the option granted pursuant to this
Section 9.1, the General Partner agrees that any PSA Common Shares to be issued
to the Limited Partner hereunder (i) will be registered under the Securities Act
on Form S-3, Form S-4 or otherwise either at the time of issuance or no later
than 30 days after such issuance, and (ii) will be approved for listing on the
Exchange upon official notice of issuance. If the General Partner exercises its
option and the General Partner determines that it does not wish to continue to
hold an ownership interest in certain of the Projects, the Partners agree to
cooperate to have the Partnership dispose of those Projects.
9.2 Consideration.
(a) The purchase consideration payable by the General
Partner to the Limited Partner shall be the Net Equity of the Limited Partner's
Interest determined as follows. As to the amount of the Net Equity represented
by the Interest to be purchased, the Limited Partner may elect to receive cash
or PSA Common Shares, in such proportions as the Limited Partner may elect, by
written notice to the General Partner within 30 days of the Purchase Notice
Date. Failure of the Limited Partner to timely designate its election to receive
any portion in PSA Common Shares shall constitute the Limited Partner's
irrevocable election to receive cash for all of its Interest. In any case, if
the Limited Partner's Net Equity with respect to the Interest purchased,
combined with all prior distributions received by the Limited Partner, produces
a Stock Shortfall, an amount equal to the Stock Shortfall shall be paid in PSA
Common Shares. The Limited Partner shall also have the option to purchase for
cash additional PSA Common Shares in an amount equal to the amount of any prior
distributions to the Limited Partner pursuant to Sections 4.2 or 10.2 (this
option must be exercised at the same time as the Limited Partner makes its
election with respect to the Net Equity). The number of PSA Common Shares to be
issued shall be determined by combining the amount of the Stock Shortfall, if
any, the portion of the Net Equity the Limited Partner elects to receive in PSA
Common Shares, and any optional cash purchase relating to prior distributions
under Sections 4.2 and 10.2, and dividing that sum by 98.5% of the Average
Price.
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(b) The Limited Partner will not be permitted to
elect to receive any portion of the consideration for its Interest in PSA Common
Shares if the Limited Partner has sold (to the extent it directly controls such
sale) any PSA Common Shares at any time between the Purchase Notice Date and the
closing contemplated by Section 9.5. The General Partner agrees that there will
be no purchases of PSA Common Shares by PSA Affiliates at any time between
notice from the Limited Partner that it elects to receive PSA Common Shares and
the closing contemplated by Section 9.5. No Affiliate of the General Partner
under the actual control of the General Partner shall purchase PSA Common Shares
during the period described above for consideration having an aggregate value of
more than $500,000, and the General Partner shall use reasonable efforts to
preclude any other Affiliate of the General Partner from affecting purchases of
PSA Common Shares during such period for consideration having an aggregate value
of more than $500,000. The foregoing shall not preclude or limit purchases at
any time by the General Partner or any of its Affiliates of PSA Common Shares as
part of an ongoing purchase program in transactions satisfying the conditions
contained in paragraph (b) of Rule 10b-18 under the Securities Exchange Act of
1934, as amended.
9.3 Determination of Net Equity. The Net Equity of the Limited
Partner's Interest to be purchased shall be determined, without audit or
certification, from the books and records of the Partnership by the firm of
independent public accountants regularly employed by the Partnership. The Net
Equity of the Limited Partner's Interest to be purchased shall be determined
within 15 days after such accountants are apprised in writing of the Fair Market
Value of the Property, and the amount of such Net Equity shall be disclosed to
the Partners by written notice. The Net Equity determination of such accountants
shall be final and binding in the absence of manifest error.
9.4 Determination of Fair Market Value. The Fair Market Value
of the Property shall be determined as follows:
(a) The General Partner shall provide the Limited
Partner its estimate of the value of the Property with the General Partner
Purchase Notice. If the Limited Partner does not provide the General Partner
with an approval of the estimate of value within 45 days of receiving the
General Partner's estimate of value of the Property, then such value shall be
deemed to be rejected as its Fair Market Value.
(b) If the Limited Partner rejects the General
Partner's estimate of value, then the General Partner shall engage an Appraiser
(the "First Appraiser"). The First Appraiser's engagement shall require the
Appraiser to determine the Appraised Value of the Property, and to submit such
appraisal and determination to each of the General Partner and the Limited
Partner within 60 days of engagement.
(c) Within 20 days after receipt of such appraisal
and determination, the Limited Partner shall notify the General Partner and the
First Appraiser as to whether it accepts or rejects the Appraised Value of the
Property. If the Limited Partner rejects the Appraised Value of the First
Appraiser, it shall engage another Appraiser (the "Second Appraiser") and
include its name in the notice of rejection. In the absence of acceptance of the
Appraised Value prepared by the First Appraiser, the Limited Partner shall be
deemed to have rejected the Appraised Value as determined by the First
Appraiser. If the Limited Partner accepts the Appraised Value of the First
Appraiser, then such value shall be deemed the Fair Market Value.
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(d) The Second Appraiser's engagement shall require
the Appraiser to determine the Appraised Value of the Property, and to submit
such appraisal and determination to each of the General Partner and the Limited
Partner within 60 days of engagement.
(e) If the lower of the Appraised Values determined
by the First and Second Appraisers is at least 90% of the higher of those two
Appraised Values, then the Fair Market Value shall be the average of those two
Appraised Values. If the difference between the Appraised Values is greater than
10%, then the First Appraiser and the Second Appraiser shall engage another
Appraiser (the "Third Appraiser") to determine the Appraised Value of the
Property, and to submit such appraisal and determination to each of the General
Partner and the Limited Partner within 60 days of engagement.
(f) If a Third Appraiser is so engaged, the average
of the highest Appraised Value and the lowest Appraised Value shall be
determined. If the remaining Appraised Value (the Appraised Value that is in
between the highest and the lowest) is no more than 5% greater than, and no more
than 5% less than, the average of the highest and the lowest, the Fair Market
Value shall be the average of the highest and lowest Appraised Values. If the
middle Appraised Value is outside of that range, the Fair Market Value shall be
the average of the two Appraised Values that are closest to each other.
(g) All costs of any appraisal process shall be borne
50% by the General Partner and 50% by the Limited Partner.
(h) Notwithstanding anything in this Section 9.4 to
the contrary, the Fair Market Value of the Property shall be deemed to be the
General Partner's estimate of the value of the Property in the General Partner
Purchase Notice, provided (i) such estimate of value will result in amounts
distributed to the Limited Partner under this Agreement (including any
guaranteed payments made under Section 2.2(e)) equal to the sum of the Limited
Partner's Capital Contributions and the aggregate Priority Return of the Limited
Partner accrued from the Effective Date to a date 20 days after the General
Partner Purchase Notice with the Priority Return for purposes of this Section
9.4(h) and Section 12.1 computed using monthly compounding at the monthly rate
of one twelfth of 11 1/2% (the "Maximum Return") and (ii) the Limited Partner
agrees that the General Partner's estimate of value will result in the Limited
Partner receiving the Maximum Return, which agreement will not be unreasonably
denied or delayed. If the parties are unable to reach such agreement, the matter
will be arbitrated in accordance with Section 14.19.
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9.5 Closing. The closing of the purchase and sale of the
Limited Partner's Interest shall occur at the principal executive office of the
Partnership on a date and time mutually agreeable to the General Partner and the
Limited Partner, which shall not be later than 20 days following the
determination of the Fair Market Value. At the closing, the Limited Partner will
deliver or cause to be delivered to the General Partner (i) appropriate
assignments or other documents sufficient to transfer good and valid title to
the Interest to be purchased, free and clear of all liens and encumbrances; and
(ii) such other documents as the General Partner or its counsel may reasonable
request. At the closing, the General Partner will deliver or cause to be
delivered to the Limited Partner (i) to the extent the Limited Partner elects to
receive cash, a wire transfer or bank cashier's check in the amount to which it
is entitled hereunder, and (ii) to the extent the Limited Partner elects to
receive PSA Common Shares, certificates representing the number of PSA Common
Shares to which it is entitled hereunder.
9.6 Limited Partner's Option to Purchase. In the event the
General Partner shall fail to timely exercise the option to purchase set forth
in Section 9.1 above, the Limited Partner shall have the option to purchase from
the Partnership any or all of the Properties on the terms and conditions set
forth herein. The option granted pursuant to this Section may be exercised by
the Limited Partner by delivery of a notice (the "Limited Partner Purchase
Notice") to the General Partner at any time within the 180 day period commencing
on the earlier to occur of (i) the day immediately following the expiration of
the period during which the General Partner was entitled to exercise the option
set forth in Section 9.1 or (ii) the day immediately following delivery of
written notice from the General Partner to the Limited Partner waiving the
General Partner's option. Such Limited Partner Purchase Notice shall specify
those Properties which the Limited Partner elects to purchase. The Limited
Partner shall not be entitled to deliver more than one Limited Partner Purchase
Notice. In the event the Limited Partner Purchase Notice is delivered, the
Properties designated therein shall be purchased by the Limited Partner on the
terms and conditions of this Section 9, modified and supplemented as follows:
(a) The purchase price of the designated Properties
shall be their Fair Market Values;
(b) The purchase price for the designated Properties
shall be paid in cash, by wire transfer or bank cashier's check, at the closing;
and
(c) Closing costs and expenses shall be allocated 50%
to the Limited Partner and 50% to the General Partner and items of income and
expense shall be appropriately prorated as of the date of closing.
10. DISSOLUTION AND WINDING UP
10.1 Liquidating Events. The Partnership shall dissolve and
commence winding up and liquidating upon the first to occur of any of the
following (a "Liquidating Event"):
(a) The sale of all or substantially all of the
Property;
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(b) The vote by the General Partner and 100% in
Percentage Interest of the Partners to dissolve, wind up and liquidate the
Partnership;
(c) The failure of the General Partner to exercise
the option to purchase provided in Section 9.1 by the end of the two-year period
specified therein and the failure of the Limited Partner to exercise its option
provided in Section 9.6 as to all the Properties by the end of the 180-day
period specified therein;
(d) The occurrence of any of the events specified in
Section 15681 of the Act; or
(e) 5:00 p.m., Pacific time, December 31, 2012.
The Partners hereby agree that, notwithstanding any provision
of applicable law, the Partnership shall not dissolve prior to the occurrence of
a Liquidating Event.
10.2 Winding Up. Upon the occurrence of a Liquidating Event,
the Partnership shall continue solely for the purposes of winding up its affairs
in an orderly manner, liquidating its assets and satisfying the claims of its
creditors and Partners. In such event, no Partner shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no General Partner, any Person elected by a majority in Percentage Interest
of the Partners) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and Property and the Property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed in the
following order:
(a) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the Partners;
(b) Second, to the payment and discharge of all of
the Partnership's debts and liabilities to the Partners; and
(c) The balance, if any, to the Partners in
accordance with their Capital Accounts, after giving effect to all
contributions, distributions and allocations for all periods (other than
distributions and contributions made pursuant to this Section 10.2(c) and
deductions attributable thereto); provided, however, that if, prior to making
distributions pursuant to this Section 10.2(c), the General Partner has a
positive Capital Account and if the cumulative allocations to the Limited
Partner, pursuant to Sections 3.1(a), 3.1(b), 3.4(a), and 3.4(b), were less than
the sum of (A) the cumulative Priority Return accrued for the Limited Partner
from the Effective Date to the date of liquidation less the amount of any
guaranteed payments made pursuant to Section 2.2(e), and (B) the cumulative
Losses allocated to the Limited Partner pursuant to Section 3.2, an amount
otherwise distributable to the General Partner pursuant to this Section 10.2(c)
equal to the amount of such shortfall shall be deemed recontributed by the
General Partner to the Partnership and shall be distributed to the Limited
Partner as a guaranteed payment pursuant to Section 2.2(e).
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10.3 Special Rights to Acquire PSA Common Shares. The General
Partner shall notify the Limited Partner at least 60 days prior to the final
contemplated distribution pursuant to Section 10.2. The Limited Partner shall
have the option, to be exercised within ten Business Days of such notice, to
apply all or any portion of that distribution (plus an amount in cash equal to
any prior distributions to the Limited Partner pursuant to Sections 4.2 or 10.2)
to purchase as of the date of such distribution PSA Common Shares. In addition,
if the distribution would cause a Stock Shortfall, the General Partner shall
contribute cash equal to the amount of the Stock Shortfall to the Partnership,
the Partnership shall distribute that amount to the Limited Partner as a
guaranteed payment, and the Limited Partner shall concurrently use that added
distribution to purchase PSA Common Shares. The number of shares to be issued
shall be determined by dividing the total amount to be used to purchase shares
by 98.5% of the Average Price. Any such purchase and sale shall otherwise comply
with the applicable provisions of this Agreement.
10.4 Compliance with Timing Requirements of Regulations. In
the event the Partnership is "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this
Section 10 to the Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b) if a Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Person shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or any other
Person for any purpose whatsoever. In the discretion of the General Partner, a
pro rata portion of the distributions that would otherwise be made to the
Partners pursuant to this Section 10 may be:
(a) Distributed to a trust established for the
benefit of the Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the Partners
arising out of or in connection with the Partnership. The assets of any such
trust shall be distributed to the Partners from time to time, in the reasonable
discretion of the General Partner, in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the Partners pursuant to this Agreement; or
(b) Withheld to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld amounts shall be distributed to the Partners as soon as
practicable.
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10.5 Rights of Partners. Except as otherwise provided in this
Agreement each Partner shall look solely to the assets of the Partnership for
the return of its Capital Contribution and shall have no right or power to
demand or receive property other than cash from the Partnership.
11. INDEMNIFICATION
11.1 Indemnification. The Partnership shall indemnify and hold
harmless the Partners, their Affiliates, the Limited Partner's advisor, and
their respective officers, directors, employees, agents and principals
(individually, an "Indemnitee") from and against any and all losses, claims,
demands, costs, damages, liabilities, joint and several, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which the Indemnitee was involved or may be involved, or threatened to be
involved, as a party or otherwise, arising out of or incidental to the business
of the Partnership, excluding liabilities to any Partner, regardless of whether
the Indemnitee continues to be a Partner, an Affiliate, or an officer, director,
employee, agent or principal of the Partner at the time any such liability or
expense is paid or incurred, to the fullest extent permitted by the Act and all
other applicable laws; provided that such indemnity shall not extend to actions
not taken in good faith by any such Indemnitee and shall not extend to actions
taken by the property manager (which is indemnified under the Management
Agreement) in its capacity as such pursuant to the Management Agreement.
11.2 Expenses. Expenses incurred by an Indemnitee in defending
any claim, demand, action, suit or proceeding subject to Section 11.1 shall,
from time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of an undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that such Person is not entitled to be
indemnified as authorized in Section 11.1.
11.3 Indemnification Rights Nonexclusive. The indemnification
provided by Section 11.1 shall be in addition to any other rights to which those
indemnified may be entitled under any agreement, vote of the Partners, as a
matter of law or equity or otherwise, both as to action in the Indemnitee's
capacity as a Partner, the General Partner, an Affiliate or an officer,
director, employee, agent or principal of a Partner and as to any action in
another capacity, and shall continue as to an Indemnitee who has ceased to serve
in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee.
11.4 Errors and Omissions Insurance. The Partnership may
purchase and maintain insurance, at the Partnership's expense, on behalf of the
General Partner, the Partners and such other Persons as the General Partner
shall determine, against any liability that may be asserted against, or any
expense that may be incurred by, such Person in connection with the activities
of the Partnership and/or the General Partner's or the Partners' acts or
omissions as the General Partner and Partners of the Partnership regardless of
whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
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11.5 Assets of the Partnership. Any indemnification under
Section 11.1 shall be satisfied solely out of the assets of the Partnership. No
Partner shall be subject to personal liability or required to fund or to cause
to be funded any obligation by reason of these indemnification provisions.
12. DEFAULTING EVENT REMEDIES
12.1 Election to Purchase Defaulting Partner's Interest. In
the event that a Partner becomes a Defaulting Partner, the nondefaulting Partner
shall have the option to purchase the Interest of the Defaulting Partner in the
Partnership, with any such election to be made by the nondefaulting Partner
giving notice of such election to the Defaulting Partner within 30 days after
the nondefaulting Partner first discovers that the other Partner has become a
Defaulting Partner (and so notifies the Defaulting Partner in writing). In the
event that the General Partner is the Defaulting Partner and shall at that time
be able to exercise the option to purchase the Interest of the Limited Partner
under Section 9.1, then the General Partner can exercise its Section 9.1 option
within 30 days after such notice, provided that (i) the consideration for the
Limited Partner's Interest shall be an amount that, when taken into account with
all prior distributions to the Limited Partner (including guaranteed payments),
will cause the Limited Partner to have received the return of its Capital
Contributions and an aggregate return accrued from the Effective Date to the
date of payment computed at the Maximum Return (as defined in Section 9.4(h)),
and (ii) the closing under Section 9.5 shall take place within 20 days following
the date of exercise of such option.
12.2 Purchase Price of Defaulting Partner's Interest. If
either Partner becomes a Defaulting Partner, in the event that the nondefaulting
Partner elects under Section 12.1 to purchase the Defaulting Partner's Interest,
the purchase price of such Interest shall be 60% of the Adjusted Capital
Contribution of the Defaulting Partner; provided, however, that the
nondefaulting Partner shall receive a credit against such purchase price in the
amount of any delinquent capital contributions due from the Defaulting Partner
and any expenses of closing such purchase. This option to purchase the interest
of the Defaulting Partner at a discount is deemed reasonable by the Partners and
is intended to serve as agreed upon liquidated damages and not as a penalty, the
amount of the actual damages suffered by the nondefaulting partner being
difficult if not impossible to ascertain. In the event that the nondefaulting
Partner elects under Section 12.1 to purchase the Defaulting Partner's Interest,
then the Partnership shall not make any distributions on or before the closing
of the purchase of such Interest, and any such distributions which would have
been made to the Defaulting Partner shall be distributed to the nondefaulting
Partner on or after the closing. At such time as the purchase price of the
Defaulting Partner's Interest has been determined, the nondefaulting Partner
shall give notice of the amount thereof to the Defaulting Partner and the
closing shall be held on a date selected by the nondefaulting Partner within ten
Business Days thereafter.
12.3 Remedies Nonexclusive. The option of the nondefaulting
Partner to purchase the Interest of the Defaulting Partner under Section 12.1 is
not the exclusive remedy of the nondefaulting Partner, but it is merely
cumulative of, and in addition to, any rights or remedies which the
nondefaulting Partner or the Partnership may have at law or in equity against or
with respect to such Defaulting Partner, provided that any recovery under this
Agreement against a Defaulting Partner shall be limited to the Defaulting
Partner's interest in the Partnership. Without limiting its right to seek and
recover damages for the Defaulting Event, a nondefaulting Partner may at its
option: (i) replace the Defaulting Partner's representative(s) on the Investment
Committee with its own representative(s), provided that no purchase, sale or
financing of Property, other than pursuant to Section 12.2, shall be taken
except with the consent of the Partners, (ii) remove the General Partner, (iii)
terminate the Management Agreement (Exhibit D) or (iv) apply to any Capital
Contribution with respect to which the General Partner is in default the
management fees otherwise payable to PSA Affiliates under the Management
Agreement for a period of up to 120 days, during which the PSA Affiliates shall
not terminate the Management Agreement for nonpayment of such management fees.
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13. REPRESENTATIONS AND WARRANTIES
13.1 Representations and Warranties of the General Partner.
The General Partner hereby represents and warrants to the Limited Partner and
the Partnership that:
(a) The General Partner is a duly organized and
validly existing corporation in good standing under the laws of the State of
California, duly qualified to do business in all states in which the General
Partner is required to so qualify in order to legally perform its obligations
hereunder, and has the requisite power and authority to enter into and carry out
the terms of this Agreement;
(b) All action required to be taken by the General
Partner to consummate this Agreement has been taken by the General Partner and
no further approval of any board, court or other body is necessary in order to
permit the General Partner to consummate this Agreement;
(c) Neither the execution and delivery of, nor the
performance of, nor the compliance with, this Agreement has resulted (or will
result) in any violation of, be in conflict with, invalidate, cancel or make
inoperative interfere with, or constitute a default under, or result in the
creation of any lien, encumbrance or any other charge upon the Project (each
reference in this Section 13.1 to a Project refers to each of the Projects
described on Exhibit A and shall be deemed reconfirmed by the General Partner as
to each additional Project as same is acquired by the Partnership) pursuant to
any charter, bylaw, venture agreement, partnership agreement, trust agreement,
mortgage, deed of trust, indenture, contract, agreement, permit, judgment,
decree or order to which the General Partner is a party or by which the Project
or any portion thereof is bound, and there is no default and no event or
omission has occurred which, but for the passing of time or the giving of
notice, or both, would constitute a default on the part of the General Partner
under this Agreement;
(d) There is no action, proceeding or investigation
pending or, to the General Partner's actual knowledge, threatened (nor any basis
therefor) which questions, directly or indirectly, the validity or
enforceability of this Agreement as to the General Partner or which would
materially and adversely affect the Project, and no lien against the Project has
arisen or exists under Federal or state tax or other laws, other than liens for
current real property taxes and assessments not yet due and payable;
(e) The General Partner has no actual knowledge of
any title defect, lien, encumbrance, adverse claim or other matter relating to
the title to the Project or to the title insurance coverage for the Project
which it has not disclosed in writing to the Partnership's title company or
which is not shown by the public records;
41
<PAGE>
(f) No representation, warranty or covenant of the
General Partner in this Agreement, or in any document or certificate furnished
or to be furnished to the Limited Partner pursuant thereto, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary to make the statements or facts contained therein
not misleading, and all such representations, warranties or statements of the
General Partner are based, to the General Partner's actual knowledge, upon
current, accurate and complete information as of the time of their making, and
there have been, to the General Partner's actual knowledge, no changes in such
information subsequent thereto;
(g) The General Partner has disclosed to the Limited
Partner all material matters known to the General Partner in connection with the
Project and all related projections, studies and budgets;
(h) This Agreement has been duly executed by the
General Partner and is and will remain and valid and binding agreement,
enforceable in accordance with its terms;
(i) There are no judgments or decrees of any kind
against the General Partner unpaid or unsatisfied of record in any court of any
city, county, state or of the United States; the General Partner is not in the
hands of a receiver and has not committed an act of bankruptcy and an order for
relief has not been entered with respect to the General Partner; there are no
due and unpaid business license taxes of the General Partner, and there are no
due and unpaid income, property or sales taxes of the General Partner which
constitute a lien against the Project or could, with the passage of time,
constitute such a lien, except the lien of any such taxes which are not yet due
and payable, except, in each case, where the existence of such condition or
conditions would not, individually or in the aggregate, have a material adverse
effect on the business operations, assets or financial condition of the General
Partner; the General Partner has received no notice of any alleged violation of,
and, to the General Partner's actual knowledge, there is no violation by the
General Partner or the Project of, any Federal, state or local law, rule or
regulation affecting the Project, other than violations that, individually or in
the aggregate, would have no material adverse effect on the Project;
(j) To the General Partner's actual knowledge, no
person or entity has any oral or written right, agreement or option to acquire
all or any portion of the Project or any interest or estate therein, other than
as reflected in the public records or as provided in writing to the title
company insuring title to a Project;
(k) To the General Partner's actual knowledge, the
Project is not subject to or affected by any special assessment for public
improvements or otherwise, whether or not presently a lien on the land; the
General Partner has not made any commitment to any governmental authority,
utility company, school board, church or other religious body, homeowner or
homeowner's association or any other organization, group or individual relating
to the Project which would impose an obligation upon the Partnership or its
successors or assigns to make any contributions or dedications of money or land
(other that water and sewer), or to construct, install or maintain any
improvements of a public or private nature as part of the Project or upon
separate lands; other than as estimated in the Business Plans, no governmental
authority has imposed any requirement that the General Partner pay directly or
indirectly any special fees or contributions or incur any expenses or
obligations in connection with the development of the Project or any portion
thereof, other than any regular and nondiscriminatory local real estate or
school taxes assessed against the Project; and the Project is separately
assessed for real property tax assessment purposes and is not combined with any
other real property for tax assessment purposes;
42
<PAGE>
(l) To the General Partner's actual knowledge, the
Project has not been used at any time for the disposal, release, handling,
transportation, treatment, processing or storage of any Hazardous Materials in
such amounts that would reasonably necessitate any response or corrective
action, including any such action under any Hazardous Materials Laws; the
General Partner has not received any written or oral notice or other
communication of pending or threatened claims, actions, suits, proceedings or
investigations against the General Partner with respect to the Project or any
property adjacent to the Project and related to (i) the disposal or release of
solid, liquid or gaseous waste into the environment, (ii) the disposal, release,
handling, transportation, treatment, processing or storage of any Hazardous
Materials, (iii) the placement of structures or Hazardous Materials into waters
of the United States, (iv) the presence of any Hazardous Materials in any
building or structure or otherwise located on the Project or such adjacent
property, or (v) any alleged violation of any Hazardous Materials Law; to the
General Partner's actual knowledge, no soil or water in, under or adjacent to
the Project is contaminated by any Hazardous Materials; to the General Partner's
actual knowledge, there are no underground tanks or any other underground
storage facilities located on the Project; to the General Partner's actual
knowledge, neither the Project nor any property adjacent to the Project is
included on the National Priority List or any other Federal or state "superfund"
or "superlien" list, nor is there any current action or investigation pending
which could result in any such inclusion;
(m) The General Partner has not received any notice
of any pending or threatened condemnation, expropriation, eminent domain, change
in grade of public street or similar proceeding affecting all or any portion of
the Project, and the General Partner has no knowledge that any such proceeding
is contemplated;
(n) To the General Partner's actual knowledge, except
as otherwise indicated on any Project survey approved by the Investment
Committee, the Project has not been mapped by the Federal Emergency Management
Agency as being in an area designated as a "flood hazard area" in accordance
with the document entitled "Department of Housing and Urban Development, Federal
Insurance Administration - Special Flood Hazard Area Maps" or mapped as being
within the 100-year flood plain as depicted on the U.S. Army Corps of Engineers
Geodetic Maps of such flood plain areas, and the Project is not located within
an area identified by any governmental agency as being within an Alquist-Priolo
Zone or having special earthquake hazards;
(o) All public utilities (including, without
limitation, water, sanitary sewer, storm sewer, electricity, telephone, drainage
and other utility facilities) necessary for the normal operation of the Project
are or will be available to the Project; all of the utilities either enter the
Project through adjoining public streets or, if they pass or will pass through
adjoining private land, do so or will do so in accordance with valid and
recorded public easements or private easements which will inure to the benefit
of the Partnership; and the General Partner has not received any complaint or
claim with respect to storm water flow from any owner of adjacent property or
otherwise, and the General Partner is not aware of any reason for any such
complaint;
43
<PAGE>
(p) The Project has vehicular and pedestrian ingress
and egress to paved and dedicated streets abutting or adjoining the Project with
curb cut or driveway permits from all requisite governmental authorities;
(q) The Project is zoned under the applicable zoning
ordinance to permit the development of the Project for the intended uses;
(r) The General Partner has not received notice of
any default or breach under any covenant, condition, restriction, right-of-way
or easement which may affect the Project or any portion or portions thereof
which are to be performed or complied with by the owner or occupant of the
Project, and no notice of any condition or circumstance which, with the giving
of notice or passage of time, or both, would constitute a default or breach
under any of such covenants, conditions, restrictions, rights-of-way or
easements; and
(s) To the General Partner's actual knowledge, the
plans and specifications provided to the Limited Partner by the General Partner
comply with all laws, rules and regulations applicable to the Project.
13.2 Representations and Warranties of the Limited Partner.
The Limited Partner hereby represents and warrants to the General Partner and
the Partnership that the Limited Partner is duly formed, validly existing and in
good standing under the laws of the [state of incorporation of Limited Partner];
that it is not subject to any involuntary proceeding for the dissolution or
liquidation thereof; that it has all requisite authorizations to enter into this
Agreement with the General Partner and to consummate the transactions
contemplated hereby; and that the parties executing this Agreement on behalf of
the Limited Partner are duly authorized to so do.
13.3 Agreements of the General Partner.
(a) During the term of the Partnership, the Projects
shall be operated and managed as an integral part of the Public Storage network
of self-storage facilities, subject to the terms of the Management Agreement.
Without limiting the foregoing, the General Partner covenants and agrees that
the Projects will be managed in a reasonable commercial manner consistent with
the management of other self-storage projects owned by PSA Affiliates; this will
include (i) causing all rents and other charges with respect to the Projects to
be at competitive rates within the local market, taking into account occupancy,
location, the quality of the Project and all other relevant factors; (ii)
operating the Projects in a manner so as to minimize expenses applicable thereto
to the extent appropriate in the operation and promotion of first class
self-storage projects and maximizing the long term net profits therefrom and the
value thereof; and (iii) operating the Projects in a prudent and first class
manner, with all appropriate action being taken to protect and preserve them
(including appropriate repairs, maintenance, insurance coverage and the like).
44
<PAGE>
(b) The General Partner will insure and keep insured
at all times all of the Projects (including the Partnership as a named insured)
against loss or damage by fire and from other causes customarily insured against
by companies engaged in similar businesses in such amounts as are usually
insured against by such companies, and in any case as are adequate to provide
reasonable protection against such loss or damage to the Projects. The General
Partner also will maintain at all times (including the Partnership as a named
insured) with financially sound and reputable insurers adequate insurance
against loss or damage from such hazards and risks to the person and property of
others as are usually insured against by companies operating businesses similar
to the businesses of the Partnership. All such insurance shall be carried with
financially sound and reputable insurers accorded a rating of "A-VI" or better
by A.M. Best Company, Inc. (or a comparable rating by any comparable rating
agency), provided that at least 75% of all coverage and the insurer with the
risk of first loss in each category shall have a rating of "A-IX" or better. If
the Partnership cannot obtain sufficient insurance which meets the above
criteria, the General Partner will provide the Limited Partner with notice and
will demonstrate that insurance cannot be obtained in accordance with the above
criteria, in which case the requirement shall be reduced to "A-V" and "A-VIII,"
respectively. The sum of the deductible limit of all insurance coverage plus any
amounts of self-insurance will not exceed $1,500,000 per occurrence. A summary
of insurance presently in force has been provided to the Limited Partner and is
attached hereto as Exhibit L.
(c) Expenses incurred in operating the Projects shall
be allocated among the Projects on the same basis on which such expenses are
allocated among all other projects owned by PSA Affiliates and in a manner
generally consistent with prior practice as reflected in Exhibit J.
(d) The General Partner shall allocate to the
Partnership only such amount of the compensation of each project manager of a
Project as is comparable to the compensation of project managers of similar
sized self storage facilities in the same or similar market areas that do not
include retail stores.
14. MISCELLANEOUS
14.1 Notices. Any notice, payment, demand, or communication
required or permitted to be given by any provision of this Agreement shall be in
writing and shall be delivered personally to the Person or to an officer of the
Person to whom the same is directed, or sent by facsimile transmission, by
nationally recognized courier service or by first class mail, registered or
certified, addressed as follows, or to such other address as such Person may
from time to time specify by notice to the Partners:
(a) If to the Partnership, to the Partnership's
principal executive office set forth in Section 1.4;
(b) If to the Limited Partner, to:
[addresses for notices to Limited Partner and
representatives]
45
<PAGE>
(c) If to the General Partner, to:
PSAF Development, Inc.
c/o Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201
Attn: Mr. Hugh Horne
Fax: (818) 548-9288
Any such notice shall be deemed to be delivered, given and
received for all purposes as of (i) the first Business Day after it is so
delivered or sent, if delivered personally or sent by facsimile transmission
(with transmission confirmed), (ii) the first Business Day after delivered to a
nationally recognized courier service, if sent by overnight delivery through
such a courier service, or (ii) three Business Days after being deposited in the
United States mail, if sent by registered or certified mail, postage and charges
prepaid. Any Person may from time to time specify a different address by notice
to the Partnership and the Partners.
14.2 Binding Effect. Except as otherwise provided in this
Agreement, every covenant, term and provision of this Agreement shall be binding
upon and inure to the benefit of the Partners and their respective successors
and permitted transferees and assigns.
14.3 Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner. References in this Agreement to Sections
are to Sections of this Agreement unless expressly indicated otherwise.
"Including" means "including without limitation." "Or" is inclusive and includes
"and."
14.4 Time. Time is of the essence with respect to this
Agreement.
14.5 Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.
14.6 Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is illegal or invalid
for any reason whatsoever, such illegality or invalidity shall not affect the
validity or legality of the remainder of this Agreement.
14.7 Incorporation by Reference. Every exhibit attached to
this Agreement and referred to herein is hereby incorporated in this Agreement
by reference.
14.8 Further Action. Each Partner, upon the request of the
General Partner, agrees to perform all further acts and execute, acknowledge and
deliver any documents which may be reasonably necessary, appropriate or
desirable to carry out the provisions of this Agreement.
14.9 Variation of Pronouns. All pronouns and any variations
thereof shall be deemed to refer to masculine, feminine or neuter, singular or
plural, as the identity of the Person or Persons may require.
46
<PAGE>
14.10 Governing Law. The laws of the State of California shall
govern the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the Partners.
14.11 Waiver of Action for Partition. Each Partner irrevocably
waives any right that it may have to maintain any action for partition with
respect to any of the Property.
14.12 Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if all of the Partners had signed
the same document. All counterparts shall be construed together and shall
constitute one agreement.
14.13 Sole and Absolute Discretion. Except as otherwise
provided in this Agreement, all actions which the Partners may take and all
determinations which the Partners may make pursuant to this Agreement may be
taken and made in their sole and absolute discretion.
14.14 Entire Agreement. This Agreement and the exhibits
hereto, which are incorporated herein by reference, constitute the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written.
14.15 Attorneys' Fees. Should any litigation, arbitration or
other action or proceeding be commenced among the parties hereto, the party or
parties prevailing in such litigation, arbitration or other action or proceeding
shall be entitled, in addition to such other relief as may be granted, to a
reasonable sum as and for its or their attorneys' fees and costs in such
litigation, arbitration or other action or proceeding which shall be determined
by the court or arbitral tribunal therein or in a separate action brought for
that purpose.
14.16 Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any Person other than the parties hereto any
rights or remedies under or by reason of this Agreement.
14.17 Waiver. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or any other covenant, duty,
agreement or condition.
14.18 Amendment and Modification. This Agreement may be
amended or modified by unanimous consent of the Partners.
14.19 Dispute Resolution. If any dispute or controversy among
the parties hereto arises out of or relating to this Agreement or the
enforcement, interpretation, performance or breach of this Agreement or as to
any matters related to but not covered by this Agreement, the parties shall
first consult together, at both the working and senior management levels, in
good faith to find an amicable resolution of the dispute or controversy. If the
parties cannot resolve the dispute or controversy by such consultation, it shall
be finally resolved by binding arbitration to be held in the County of Los
Angeles, State of California, under auspices of, and in accordance with, the
47
<PAGE>
Commercial Arbitration Rules (the "Rules") of the American Arbitration
Association. There shall be an arbitral tribunal consisting of three neutral
arbitrators selected according to the procedures set forth in the Rules. The
arbitrators may issue decisions for interim, interlocutory, provisional or
partial relief (e.g., temporary restraining orders, preliminary injunctions,
orders to compel discovery, orders of attachment or protective orders) during
the arbitration proceedings which may be enforced in any court of competent
jurisdiction. The arbitrators may also grant appropriate relief at law or in
equity, including removing the General Partner, in the event the General Partner
(with the participation or acquiescence of its senior management) has been
guilty of fraud, gross negligence, abuse of authority or misappropriation or
waste of Partnership assets. The decision of a majority of the arbitrators shall
constitute an arbitral award which is final, conclusive and binding on each
party, and may be entered and shall be enforceable in any court of competent
jurisdiction.
14.20 Confidentiality. The Partners agree that the terms of
this Agreement, any other agreements entered into in connection with the
transactions contemplated hereby and the identities of the parties hereto and
their parent companies are confidential and shall not be disclosed to any third
party without the other party's prior written consent; provided, however, that
any party may disclose the existence and/or terms and conditions hereof if so
required by law or to such party's attorneys, accountants and other
professionals subject to the professional duty not to disclose such existence
and/or terms and conditions unless permitted by law, so long as such party first
provides a copy of any such written request to the other party.
48
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date first above set forth.
GENERAL PARTNER:
PSAF DEVELOPMENT, INC.
By /s/ Hugh W. Horne
------------------
Its Chief Operating Officer
-----------------------
LIMITED PARTNER:
[signature of Limited Partner]
49
<TABLE>
PUBLIC STORAGE, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------------
Primary Earnings Per Share: 1997 1996
- ------------------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
Net income $ 42,318,000 $ 32,341,000
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A (1,140,000) (1,140,000)
9.20% Cumulative Preferred Stock, Series B (1,372,000) (1,372,000)
Adjustable Rate Preferred Stock, Series C (545,000) (505,000)
9.50% Cumulative Preferred Stock, Series D (713,000) (713,000)
10.0% Cumulative Preferred Stock, Series E (1,372,000) (1,372,000)
9.75% Cumulative Preferred Stock, Series F (1,401,000) (1,401,000)
8.875% Cumulative Preferred Stock, Series G (3,828,000) (3,997,000)
8.45% Cumulative Preferred Stock, Series H (3,565,000) (2,654,000)
8.625% Cumulative Preferred Stock, Series I (2,156,000) -
8.25% Convertible Preferred Stock (1,142,000) (1,186,000)
Mandatory Convertible Participating Preferred Stock - (826,000)
Mandatory Convertible Preferred Stock, Series CC (1,916,000) -
------------------- -------------------
Net income allocable to common shareholders $ 23,168,000 $ 17,175,000
=================== ===================
Weighted Average common and common equivalent shares outstanding:
Weighted average common shares outstanding 89,086,000 71,574,000
Net effect of dilutive stock options - based on treasury stock method using
average market price 390,000 92,000
------------------- -------------------
Total 89,476,000 71,666,000
=================== ===================
Primary earnings per common and common equivalent share $ 0.26 $ 0.24
=================== ===================
</TABLE>
Exhibit 11
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------------
Fully-diluted Earnings per Common and Common Equivalent Share: 1997 1996
- -------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Net income allocable to common shareholders per Primary calculation above $ 23,168,000 $ 17,175,000
Add dividends paid to holders of Convertible Preferred Stocks:
8.25% Convertible Preferred Stock 1,143,000 1,186,000
Mandatory Convertible Participating Preferred Stock - 826,000
Series CC Preferred Stock 1,916,000 -
-------------------- -----------------
Net income allocable to common shareholders for purposes of determining
Fully-diluted Earnings per Common and Common Equivalent Share $ 26,227,000 $ 19,187,000
==================== =================
Weighted average common and common equivalent shares outstanding 89,476,000 71,666,000
Pro forma weighted average common shares assuming conversion of
Convertible Preferred Stock:
8.25% Convertible Preferred Stock 3,769,000 3,872,000
Mandatory Convertible Participating Preferred Stock - 1,524,000
Series CC Preferred Stock 2,064,000 -
-------------------- -----------------
Weighted average common and common equivalent shares for purposes of computation
of Fully-diluted Earnings per Common and Common Equivalent
Share 95,309,000 77,062,000
==================== =================
Fully-diluted Earnings per Common and Common Share (1) $ 0.28 $ 0.25
==================== =================
</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.
Exhibit 11
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
Net income $ 42,318 $ 32,341
Add: Minority interest in income 2,447 2,339
Less: Gain on disposition of real estate - -
Less: Minority interests in income which
do not have fixed charges (2,132) (1,536)
------------ -------------
Income from continuing operations 42,633 33,144
Interest expense 1,597 2,581
------------ -------------
Total Earnings Available to Cover Fixed Charges $ 44,230 $ 35,725
============ =============
Total Fixed Charges - Interest expense $ 2,333 $ 2,775
============ =============
Total Preferred Stock dividends $19,150 $ 15,166
============ =============
Total Combined Fixed Charges and Preferred
Stock dividends $ 21,483 $ 17,941
============ =============
Ratio of Earnings to Fixed Charges 18.96 12.87
============ =============
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock dividends 2.06 2.00
============ =============
</TABLE>
Exhibit 12
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- -------------- -------------- ------------
(Amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Net income $ 153,549 $ 70,386 $ 42,118 $ 28,036 $ 15,123
Add: Minority interest in income 9,363 7,137 9,481 7,291 6,895
Less: Gain on disposition of real estate - - - - (398)
Less: Minority interests in income which
do not have fixed charges (8,273) (4,700) (5,906) (737) (694)
------------- ------------- -------------- -------------- ------------
Income from continuing operations 154,639 72,823 45,693 34,590 20,926
Interest expense 8,482 8,508 6,893 6,079 9,834
------------- ------------- -------------- -------------- ------------
Total Earnings Available to Cover Fixed Charges $ 163,121 $ 81,331 $ 52,586 $ 40,669 $ 30,760
============= ============= ============== ============== ============
Total Fixed Charges - Interest expense $ 10,343 $ 8,815 $ 6,893 $ 6,079 $ 9,834
============= ============= ============== ============== ============
Total Preferred Stock dividends $ 68,599 $ 31,124 $ 16,846 $ 10,889 $ 812
============= ============= ============== ============== ============
Total Combined Fixed Charges and Preferred
Stock dividends $ 78,942 $ 39,939 $ 23,739 $ 16,968 $ 10,646
============= ============= ============== ============== ============
Ratio of Earnings to Fixed Charges 15.77 9.23 7.63 6.69 3.13
============= ============= ============== ============== ============
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock dividends 2.07 2.04 2.22 2.40 2.89
============= ============= ============== ============== ============
</TABLE>
Exhibit 12
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
Supplemental disclosure of Ratio of Funds from Operations ("FFO") to fixed charges:
- -----------------------------------------------------------------------------------------
Three Months Ended
March 31, For the Year Ended December 31,
--------------------------- -------------------------------
1997 1996 1996 1995
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
FFO $ 63,372 $ 48,502 $ 224,384 $ 105,086
Interest expense 1,597 2,581 8,482 8,508
------------ ------------- ------------- -----------
Adjusted FFO available to cover fixed charges $ 64,969 $ 51,083 $ 232,866 $ 113,594
============ ============= ============= ===========
Total Fixed Charges - Interest expense $ 2,333 $ 2,775 $ 10,343 $ 8,815
============ ============= ============= ===========
Total Preferred Stock dividends $ 19,150 $ 15,166 $ 68,599 $ 31,124
============ ============= ============= ===========
Total Combined Fixed Charges and Preferred Stock dividends $ 21,483 $ 17,941 $ 78,942 $ 39,939
============ ============= ============= ===========
Ratio of FFO to Fixed Charges 27.85 18.41 22.51 12.88
============ ============= ============= ===========
Ratio of FFO to Combined Fixed Charges and Preferred Stock dividends 3.02 2.85 2.95 2.84
============ ============= ============= ===========
</TABLE>
<PAGE>
<TABLE>
PUBLIC STORAGE, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
Supplemental disclosure of Ratio of Funds from Operations ("FFO") to fixed charges:
- -----------------------------------------------------------------------------------------
For the Year Ended December 31,
--------------------------------------------
1994 1993 1992
------------- ------------ -------------
<S> <C> <C> <C>
FFO $ 56,143 $ 35,830 $ 21,133
Interest expense 6,893 6,079 9,834
------------- ------------ -------------
Adjusted FFO available to cover fixed charges $ 63,036 $ 41,909 $ 30,967
============= ============ =============
Total Fixed Charges - Interest expense $ 6,893 $ 6,079 $ 9,834
============= ============ =============
Total Preferred Stock dividends $ 16,846 $ 10,889 $ 812
============= ============ =============
Total Combined Fixed Charges and Preferred Stock dividends $ 23,739 $ 16,968 $ 10,646
============= ============ =============
Ratio of FFO to Fixed Charges 9.15 6.89 3.15
============= ============ =============
Ratio of FFO to Combined Fixed Charges and Preferred Stock dividends 2.66 2.47 2.91
============= ============ =============
</TABLE>
Exhibit 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000318380
<NAME> PUBLIC STORAGE, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 125,436,000
<SECURITIES> 0
<RECEIVABLES> 24,745,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 150,181,000
<PP&E> 2,247,344,000
<DEPRECIATION> (315,153,000)
<TOTAL-ASSETS> 2,681,307
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0
833,209,000
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<EPS-PRIMARY> .26
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</TABLE>
