UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
----------- -----------
Commission File Number 0-11981
-------
PS PARTNERS II, LTD.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3878680
- ---------------------------------------- ---------------------
(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.
Yes X No
-- --
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Condensed consolidated balance sheets at June 30, 1996
and December 31, 1995 2
Condensed consolidated statements of income for the three and six
months ended June 30, 1996 and 1995 3
Condensed consolidated statements of cash flows for the six
months ended June 30, 1996 and 1995 4
Notes to condensed consolidated financial statements 5
Management's discussion and analysis of financial condition
and results of operations 6-8
PART II. OTHER INFORMATION
(Items 1 through 5 are not applicable)
Item 6 - Exhibits and Reports on Form 8-K 9
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1996 1995
----------------------- ---------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,016,000 $ 904,000
Rent and other receivables 19,000 85,000
Real estate facilities, at cost:
Land 17,414,000 17,414,000
Buildings and equipment 72,330,000 71,986,000
----------------------- ---------------------
89,744,000 89,400,000
Less accumulated depreciation (35,897,000) (34,181,000)
----------------------- ---------------------
53,847,000 55,219,000
Other assets 200,000 163,000
----------------------- ---------------------
$ 55,082,000 $ 56,371,000
======================= =====================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 621,000 $ 648,000
Advance payments from renters 485,000 433,000
Mortgage notes payable - 2,260,000
Minority interest in general partnerships 15,143,000 13,797,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 38,366,000 38,760,000
General partners' equity 467,000 473,000
----------------------- ---------------------
Total partners' equity 38,833,000 39,233,000
----------------------- ---------------------
$ 55,082,000 $ 56,371,000
======================= =====================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ------------------------------------
1996 1995 1996 1995
-------------------- ----------------- ------------------ -----------------
REVENUE:
<S> <C> <C> <C> <C>
Rental income $ 3,820,000 $ 3,738,000 $ 7,583,000 $ 7,327,000
Interest income 11,000 58,000 23,000 113,000
-------------------- ----------------- ------------------ -----------------
3,831,000 3,796,000 7,606,000 7,440,000
-------------------- ----------------- ------------------ -----------------
COSTS AND EXPENSES:
Cost of operations 1,248,000 1,190,000 2,560,000 2,367,000
Management fees 223,000 218,000 443,000 428,000
Depreciation and amortization 861,000 792,000 1,716,000 1,602,000
Interest expense - 44,000 14,000 89,000
Administrative 69,000 89,000 86,000 145,000
-------------------- ----------------- ------------------ -----------------
2,401,000 2,333,000 4,819,000
4,631,000
-------------------- ----------------- ------------------ -----------------
Income before minority interest 1,430,000 1,463,000 2,787,000 2,809,000
Minority interest in income (419,000) (380,000) (784,000) (754,000)
-------------------- ----------------- ------------------ -----------------
NET INCOME $ 1,011,000 $ 1,083,000 $ 2,003,000 $ 2,055,000
==================== ================= ================== =================
Limited partners' share of net income
($13.63 per unit in 1996 and $12.80
per unit in 1995) $ 1,745,000 $ 1,638,000
General partners' share of net income 258,000 417,000
------------------ -----------------
$ 2,003,000 $ 2,055,000
================== =================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
--------------------------------------------
1996 1995
---------------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,003,000 $ 2,055,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,716,000 1,602,000
Decrease (increase) in rent and other receivables 66,000 (11,000)
Increase in other assets (37,000) (2,000)
(Decrease) increase in accounts payable (27,000) 8,000
Increase in advance payments from renters 52,000 44,000
Minority interest in income 784,000 754,000
---------------------- -------------------
Total adjustments 2,554,000 2,395,000
---------------------- -------------------
Net cash provided by operating activities 4,557,000 4,450,000
---------------------- -------------------
Cash flows used in investing activities:
Additions to real estate facilities (344,000) (206,000)
---------------------- -------------------
Net cash used in investing activities (344,000) (206,000)
---------------------- -------------------
Cash flows used in financing activities:
Principal payments on mortgage notes payable (2,260,000) (27,000)
Distributions to holder of minority interest (876,000) (862,000)
Contribution from holder of minority interest 1,438,000 -
Distributions to partners (2,403,000) (4,000,000)
---------------------- -------------------
Net cash used in financing activities (4,101,000) (4,889,000)
---------------------- -------------------
Net increase (decrease) in cash and cash equivalents 112,000 (645,000)
Cash and cash equivalents at the beginning of the period 904,000 3,258,000
---------------------- -------------------
Cash and cash equivalents at the end of the period $ 1,016,000 $ 2,613,000
====================== ===================
</TABLE>
See accompanying notes.
4
<PAGE>
PS PARTNERS II, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed consolidated financial statements
should be read in conjunction with the financial statements and related
notes appearing in the Partnership's Form 10-K for the year ended December
31, 1995.
2. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
only normal accruals, necessary to present fairly the Partnership's
financial position at June 30, 1996, the results of operations for the
three and six months ended June 30, 1996 and 1995 and cash flows for the
six months then ended.
3. The results of operations for the three and six months ended June 30, 1996
are not necessarily indicative of the results to be expected for the full
year.
5
<PAGE>
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
- ----------------------
Three months ended June 30, 1996 compared to three ended June 30, 1995:
The Partnership's net income was $1,011,000 and $1,083,000 for the three
months ended June 30, 1996 and 1995, respectively, representing a decrease of
$72,000, or 7%. This decrease was due to increases in depreciation expense and
minority interest in income and decreases in interest income, partially offset
by improved property operating results at the Partnership's mini-warehouse
facilities and reductions in interest and general and administrative expenses.
Net property income at the Partnership's mini-warehouse and business park
facilities (rental income less cost of operations and management fees and
excluding depreciation) for the three months ended June 30, 1996 increased
$19,000 or 1%, as rental income increased $82,000 or 2%, and costs of operations
(including management fees and excluding depreciation expense) increased $63,000
or 5% compared to the same period in 1995. The slight improvement in property
net operating income was due to improved operations at the Partnership's
mini-warehouse facilities where net operating income improved 6%, partially
offset by a decrease in the operating results at the business park facilities
where net operating income decreased 31%.
Rental income for the Partnership's mini-warehouse operations was
$3,264,000 compared to $3,133,000 for the three months ended June 30, 1996 and
1995, respectively, representing an increase of $131,000, or 4%. This increase
was primarily attributable to increased rental rates and weighted average
occupancy levels. The monthly average realized rent per square foot for the
mini-warehouse facilities was $.60 compared to $.58 for the three months ended
June 30, 1996 and 1995, respectively. The weighted average occupancy levels at
the mini-warehouse facilities was 92% compared to 91% for the three months ended
June 30, 1996 and 1995, respectively. Cost of operations (including management
fees) for the mini-warehouses increased $18,000 or 2%, to $1,127,000 from
$1,109,000 for the three months ended June 30, 1996 and 1995, respectively. This
increase is primarily due to increases in repairs and maintenance, advertising
and property tax expenses. Accordingly, for the Partnership's mini-warehouse
operations, property net operating income increased $113,000 or 6% from
$2,024,000 to $2,137,000 for the three months ended June 30, 1995 and 1996,
respectively.
Rental income for the Partnership's business park operations decreased
$49,000, or 8% to $556,000 from $605,000 for the three months ended June 30,
1996 and 1995, respectively. The decrease in rental income is primarily
attributable to a decrease in the occupancy level at the Lakewood, California
business park. During the first quarter of 1996, a major tenant vacated the
facility following the termination of their lease. The Partnership is actively
marketing the facility, and expects the occupancy level to improve during 1996.
The weighted average occupancy levels at the business park facilities was 95%
compared to 96% for the three months ended June 30, 1996 and 1995, respectively.
The monthly average realized rent per square foot for the business park
facilities was $.77 compared to $.83 for the three months ended June 30, 1996
and 1995, respectively. Cost of operations (including management fees) for the
business parks increased $45,000 or 15%, to $344,000 from $299,000 for the three
months ended June 30, 1996 and 1995, respectively. This increase is primarily
due to increases in payroll, utilities, repairs and maintenance expenses and
property taxes. Accordingly, for the Partnership's business park facilities,
property net operating income decreased by $94,000 or 31%, from $306,000 to
$212,000 for the six months ended June 30, 1995 and 1996, respectively.
As a result of the early retirement of mortgage debt during the first
quarter of 1996, the Partnership did not incur interest expense during the
second quarter of 1996 compared to $44,000 for the three months ended June 30,
1995.
6
<PAGE>
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Administrative expenses decreased $20,000 from $89,000 for the three
months ended June 30, 1995 to $69,000 for the same period in 1996. This decrease
is principally a result of a non-recurring expense in 1995, totaling $43,000,
incurred in connection with environmental assessments of the Partnership's
facilities, partially offset by increases in accounting fees and refinancing
costs.
Minority interest in income increased $39,000 from $380,000 to $419,000 for
the three months ended June 30, 1995 and 1996, respectively. This increase is
primarily attributable to an increase in operations at the Partnership's real
estate facilities owned jointly with Public Storage, Inc. ("PSI"), partially
offset by the allocation of depreciation and amortization expense (pursuant to
the partnership agreement with respect to those real estate facilities which are
jointly owned with PSI) to PSI of $90,000 for the three months ended June 30,
1996 compared to $83,000 for the same period in 1995.
Six months ended June 30, 1996 compared to six ended June 30, 1995:
The Partnership's net income was $2,003,000 and $2,055,000 for the six
months ended June 30, 1996 and 1995, respectively, representing a decrease of
$52,000, or 3%. This decrease was due to increases in depreciation expense and
minority interest in income and decreases in interest income, partially offset
by improved property operating results at the Partnership's mini-warehouse
facilities and reductions in interest and general and administrative expenses.
Property net property income (rental income less cost of operations and
management fees and excluding depreciation) for the six months ended June 30,
1996 increased $48,000 or 1%, as rental income increased $256,000 or 4%, and
costs of operations (including management fees and excluding depreciation
expense) increased $208,000 or 7% compared to the same period in 1995. The
slight improvement in property net operating income was due to improved
operations at the Partnership's mini-warehouse facilities where net operating
income improved 3%, partially offset by a decrease in the operating results at
the business park facilities where net operating income decreased 11%.
Rental income for the Partnership's mini-warehouse operations was
$6,413,000 compared to $6,170,000 for the six months ended June 30, 1996 and
1995, respectively, representing an increase of $243,000, or 4%. This increase
was primarily attributable to increased rental rates. The weighted average
occupancy levels at the mini-warehouse facilities was 90% for both the six
months ended June 30, 1996 and 1995. The monthly average realized rent per
square foot for the mini-warehouse facilities was $.60 compared to $.58 for the
six months ended June 30, 1996 and 1995, respectively. Costs of operations
(including management fees) for the mini-warehouses increased $133,000 or 6%, to
$2,333,000 from $2,200,000 for the six months ended June 30, 1996 and 1995,
respectively. This increase is primarily due to increases in repairs and
maintenance, advertising and property tax expenses. Accordingly, for the
Partnership's mini-warehouse operations, property net operating income increased
$110,000 or 3% from $3,970,000 to $4,080,000 for the six months ended June 30,
1995 and 1996, respectively.
Rental income for the Partnership's business park operations increased
$13,000, or 1% to $1,170,000 from $1,157,000 for the six months ended June 30,
1996 and 1995, respectively. This increase is principally due to increased
rental rates offset by a decrease in the weighted average occupancy levels. The
monthly average realized rent per square foot for the business park facilities
was $.81 compared to $.80 for the six months ended June 30, 1996 and 1995,
respectively. The weighted average occupancy levels at the business park
facilities was 95% compared to 96% for the six months ended June 30, 1996 and
1995, respectively. Cost of operations (including management fees) for the
business parks increased $75,000 or 13%, to $670,000 from $595,000 for the six
months ended June 30, 1996 and 1995, respectively. This increase is primarily
due to increases in payroll, utilities, repairs and maintenance expenses and
property taxes. Accordingly, for the Partnership's business park facilities,
property net operating income decreased by $62,000 or 11%, from $562,000 to
$500,000 for the six months ended June 30, 1995 and 1996, respectively.
7
<PAGE>
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense decreased approximately $75,000 from $89,000 to $14,000
for the six months ended June 30, 1995 and 1996, respectively, as a result of
the payoff of the Partnership's mortgage note payable in the first quarter of
1996.
Administrative expenses decreased $59,000 from $145,000 in 1995 to $86,000
in 1996. This increase is principally a result of non-recurring expenses in
1995, totaling $43,000, incurred in connection with environmental assessments of
the Partnership's facilities.
Minority interest in income increased $30,000 from $754,000 to $784,000 for
the six months ended June 30, 1995 and 1996, respectively. This increase is
primarily attributable to an increase in operations at the Partnership's real
estate facilities owned jointly with PSI, partially offset by the allocation of
depreciation and amortization expense (pursuant to the partnership agreement
with respect to those real estate facilities which are jointly owned with PSI)
to PSI of $180,000 for the six months ended June 30, 1996 compared to $148,000
for the same period in 1995.
Liquidity and Capital Resources
- -------------------------------
The Partnership has adequate sources of cash to finance its operations,
both on a short-term and long-term basis, primarily from internally generated
cash from property operations and cash reserves. Cash generated from operations
($4,557,000 for the six months ended June 30, 1996) has been sufficient to meet
all current obligations of the Partnership.
In March, 1996, the Partnership repaid early it's mortgage note payable,
utilizing cash reserves and funds contributed from the holder of the minority
interest.
During 1996, the Partnership anticipates approximately $1,303,000 of
capital improvements (of which $221,000 represents PSI's joint venture share).
The anticipated increase in capital improvements in 1996 is mainly due to
$351,000 of budgeted improvements at the Partnership's business parks;
specifically, remodeling of common areas, resurfacing of a parking lot and
tenant improvements to vacated spaces on terminated leases. During 1995, the
Partnership's property manager commenced a program to enhance the visual
appearance of the mini-warehouse facilities managed by it. Such enhancements
will include new signs, exterior color schemes, and improvements to the rental
offices. Included in the 1996 capital improvement budget are estimated costs of
$223,000 for such enhancements. Total capital improvements were $344,000 for the
six months ended June 30, 1996 of which $304,000 represents the Partnership's
share (the remaining balance was paid by the minority interest).
The Partnership paid distributions to the limited and general partners
totaling $2,139,000 ($16.72 per unit) and $264,000, respectively, during the
first six months of 1996. Future distribution rates may be adjusted to levels
which are supported by operating cash flow after capital improvements and any
other necessary obligations.
8
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 through 5 are not applicable.
Item 6 Exhibits and Reports on Form 8-K
(a)The following Exhibits are included herein:
(27) Financial Data Schedule
(b) Form 8-K
none
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: August 13, 1996
PS PARTNERS II, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.
Senior Vice President and Chief Financial
Officer of Public Storage, Inc.
(Principal financial officer)
BY: /s/ John Reyes
-------------------------
John Reyes
Vice President and Controller
of Public Storage, Inc.
(Principal accounting officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727069
<NAME> PS PARTNERS II, LTD.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,016,000
<SECURITIES> 0
<RECEIVABLES> 19,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,035,000
<PP&E> 89,744,000
<DEPRECIATION> (35,897,000)
<TOTAL-ASSETS> 55,082,000
<CURRENT-LIABILITIES> 1,106,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 38,833,000
<TOTAL-LIABILITY-AND-EQUITY> 55,082,000
<SALES> 0
<TOTAL-REVENUES> 7,606,000
<CGS> 0
<TOTAL-COSTS> 3,003,000
<OTHER-EXPENSES> 1,802,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000
<INCOME-PRETAX> 2,003,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,003,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,003,000
<EPS-PRIMARY> 13.63
<EPS-DILUTED> 13.63
</TABLE>
