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 September 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 September 30, 1996
and December 31, 1995 2
Condensed consolidated statements of income for the three and nine
months ended September 30, 1996 and 1995 3
Condensed consolidated statements of cash flows for the nine
months ended September 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 4 are not applicable)
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1996 1995
-------------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,388,000 $ 904,000
Rent and other receivables 57,000 85,000
Real estate facilities, at cost:
Land 17,414,000 17,414,000
Buildings and equipment 72,651,000 71,986,000
-------------------- ------------------
90,065,000 89,400,000
Less accumulated depreciation (36,782,000) (34,181,000)
-------------------- ------------------
53,283,000 55,219,000
Other assets 223,000 163,000
-------------------- ------------------
$ 54,951,000 $ 56,371,000
==================== ==================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 736,000 $ 648,000
Advance payments from renters 439,000 433,000
Mortgage notes payable - 2,260,000
Minority interest in general partnerships 15,075,000 13,797,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 38,232,000 38,760,000
General partner's equity 469,000 473,000
-------------------- ------------------
Total partners' equity 38,701,000 39,233,000
-------------------- ------------------
$ 54,951,000 $ 56,371,000
==================== ==================
</TABLE>
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
1996 1995 1996 1995
----------------- --------------- ----------------- -----------------
REVENUE:
<S> <C> <C> <C> <C>
Rental income $ 3,928,000 $ 3,818,000 $ 11,511,000 $ 11,145,000
Interest income 16,000 36,000 39,000 149,000
----------------- --------------- ----------------- -----------------
3,944,000 3,854,000 11,550,000 11,294,000
----------------- --------------- ----------------- -----------------
COSTS AND EXPENSES:
Cost of operations 1,284,000 1,223,000 3,844,000 3,590,000
Management fees 230,000 223,000 673,000 651,000
Depreciation and amortization 885,000 850,000 2,601,000 2,452,000
Interest expense - 45,000 14,000 134,000
Administrative 37,000 29,000 123,000 174,000
----------------- --------------- ----------------- -----------------
2,436,000 2,370,000 7,255,000 7,001,000
----------------- --------------- ----------------- -----------------
Income before minority interest 1,508,000 1,484,000 4,295,000 4,293,000
Minority interest in income (440,000) (377,000) (1,224,000) (1,131,000)
----------------- --------------- ----------------- -----------------
NET INCOME $ 1,068,000 $ 1,107,000 $ 3,071,000 $ 3,162,000
================= =============== ================= =================
Limited partners' share of net income
($20.97 per unit in 1996 and $18.50
per unit in 1995) $ 2,684,000 $ 2,368,000
General partner's share of net income 387,000 794,000
----------------- -----------------
$ 3,071,000 $ 3,162,000
================= =================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------
1996 1995
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,071,000 $ 3,162,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,601,000 2,452,000
Decrease (increase) in rent and other receivables 28,000 (28,000)
Increase in other assets (60,000) (14,000)
Increase in accounts payable 88,000 154,000
Increase in advance payments from renters 6,000 11,000
Minority interest in income 1,224,000 1,131,000
------------------- ------------------
Total adjustments 3,887,000 3,706,000
------------------- ------------------
Net cash provided by operating activities 6,958,000 6,868,000
------------------- ------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to real estate facilities (665,000) (508,000)
------------------- ------------------
Net cash used in investing activities (665,000) (508,000)
------------------- ------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (2,260,000) (40,000)
Distributions to holder of minority interest (1,384,000) (1,315,000)
Contribution from holder of minority interest 1,438,000 -
Distributions to partners (3,603,000) (7,700,000)
------------------- ------------------
Net cash used in financing activities (5,809,000) (9,055,000)
------------------- ------------------
Net increase (decrease) in cash and cash equivalents 484,000 (2,695,000)
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 $ 1,388,000 $ 563,000
=================== ==================
</TABLE>
See accompanying notes.
4
<PAGE>
PS PARTNERS II, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1996, the results of operations for the
three and nine months ended September 30, 1996 and 1995 and cash flows for
the nine months then ended.
3. The results of operations for the three and nine months ended September
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 SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995:
The Partnership's net income was $1,068,000 and $1,107,000 for the three
months ended September 30, 1996 and 1995, respectively, representing a decrease
of $39,000, or 4%. This decrease was due to increases in depreciation expense
and minority interest in income, combined with a decrease in interest income,
partially offset by improved property operating results at the Partnership's
mini-warehouse facilities and reductions in interest expense.
Interest income decreased for the three months ended September 30, 1996
over the same period in 1995 as a result of a decrease in average invested cash
balances.
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 September 30, 1996 increased
$42,000 or 2%, as rental income increased $110,000 or 3%, and costs of
operations (including management fees and excluding depreciation expense)
increased $68,000 or 5% compared to the same period in 1995. The 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 10%.
Rental income for the Partnership's mini-warehouse operations was
$3,349,000 compared to $3,214,000 for the three months ended September 30, 1996
and 1995, respectively, representing an increase of $135,000, 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 $.61 compared to $.59 for the three months
ended September 30, 1996 and 1995, respectively. The weighted average occupancy
levels at the mini-warehouse facilities was 93% compared to 92% for the three
months ended September 30, 1996 and 1995, respectively. Cost of operations
(including management fees) for the mini-warehouses increased $68,000, or 6%, to
$1,174,000 from $1,106,000 for the three months ended September 30, 1996 and
1995, respectively. This increase is primarily due to increases in property tax,
repairs and maintenance, and office expenses. Accordingly, for the Partnership's
mini-warehouse operations, property net operating income increased $67,000, or
3%, from $2,108,000 to $2,175,000 for the three months ended September 30, 1995
and 1996, respectively.
Rental income for the Partnership's business park operations decreased
$25,000, or 4%, to $579,000 from $604,000 for the three months ended September
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 its 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 93%
compared to 94% for the three months ended September 30, 1996 and 1995,
respectively. The monthly average realized rent per square foot for the business
park facilities was $.63 compared to $.66 for the three months ended September
30, 1996 and 1995, respectively. Cost of operations (including management fees)
for the business parks remained stable at $340,000 for the three months ended
September 30, 1996 and 1995. Accordingly, for the Partnership's business park
facilities, property net operating income decreased by $25,000, or 10%, from
$264,000 to $239,000 for the three months ended September 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 third
quarter of 1996 compared to $45,000 for the three months ended September 30,
1995.
6
<PAGE>
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Administrative expenses increased $8,000 from $29,000 for the three months
ended September 30, 1995 to $37,000 for the same period in 1996. This increase
is partially attributable to an increase in accounting expenses.
Minority interest in income increased $63,000 from $377,000 to $440,000
for the three months ended September 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 $75,000 for the three
months ended September 30, 1996 compared to $93,000 for the same period in 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995:
The Partnership's net income was $3,071,000 and $3,162,000 for the nine
months ended September 30, 1996 and 1995, respectively, representing a decrease
of $91,000, or 3%. This decrease was due to increases in depreciation expense
and minority interest in income and a decrease in interest income, partially
offset by improved property operating results at the Partnership's
mini-warehouse facilities and a reduction in interest expense.
Interest income decreased for the nine months ended September 30, 1996 over
the same period in 1995 as a result of a decrease in average invested cash
balances.
Property net property income (rental income less cost of operations and
management fees and excluding depreciation) for the nine months ended September
30, 1996 increased $90,000 or 1%, as rental income increased $366,000 or 3%, and
costs of operations (including management fees and excluding depreciation
expense) increased $276,000 or 7% compared to the same period in 1995. The
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
$9,761,000 compared to $9,384,000 for the nine months ended September 30, 1996
and 1995, respectively, representing an increase of $377,000, or 4%. This
increase was primarily attributable to increased rental rates. The monthly
average realized rent per square foot for the mini-warehouse facilities was $.60
compared to $.58 for the nine months ended September 30, 1996 and 1995,
respectively. The weighted average occupancy levels at the mini-warehouse
facilities remained stable at 90% for the nine months ended September 30, 1996
and 1995. Costs of operations (including management fees) for the
mini-warehouses increased $201,000, or 6%, to $3,508,000 from $3,307,000 for the
nine months ended September 30, 1996 and 1995, respectively. This increase is
primarily due to increases in property tax, repairs and maintenance, and
advertising expenses. Accordingly, for the Partnership's mini-warehouse
operations, property net operating income increased $176,000, or 3%, from
$6,077,000 to $6,253,000 for the nine months ended September 30, 1995 and 1996,
respectively.
Rental income for the Partnership's business park operations decreased
$11,000, or 1%, to $1,750,000 from $1,761,000 for the nine months ended
September 30, 1996 and 1995, respectively. This decrease 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 nine months ended September 30,
1996 and 1995, respectively. The weighted average occupancy levels at the
business park facilities was 95% compared to 97% for the nine months ended
September 30, 1996 and 1995, respectively. Cost of operations (including
management fees) for the business parks increased $75,000, or 8%, to $1,009,000
from $934,000 for the nine months ended September 30, 1996 and 1995,
respectively. This increase is primarily due to increases in property tax, lease
commissions, repairs and maintenance, and utilities expenses. Accordingly, for
7
<PAGE>
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the Partnership's business park facilities, property net operating income
decreased by $86,000, or 11%, from $827,000 to $741,000 for the nine months
ended September 30, 1995 and 1996, respectively.
Interest expense decreased approximately $120,000 from $134,000 to $14,000
for the nine months ended September 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 $51,000 from $174,000 in 1995 to $123,000
in 1996. This decrease 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 $93,000 from $1,131,000 to $1,224,000
for the nine months ended September 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 $256,000 for the nine months ended September
30, 1996 compared to $244,000 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
($6,958,000 for the nine months ended September 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 $665,000 for the
nine months ended September 30, 1996 of which $579,000 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 $3,210,000 ($25.08 per unit) and $393,000, respectively, during the
first nine 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 4 are not applicable.
Item 5 Other Information
-----------------
In October 1996, PSI completed a cash tender offer, which had commenced in
August 1996, pursuant to which PSI acquired a total of 9,013 limited partnership
units at $520 per unit.
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: November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,388,000
<SECURITIES> 0
<RECEIVABLES> 57,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,445,000
<PP&E> 90,065,000
<DEPRECIATION> (36,782,000)
<TOTAL-ASSETS> 54,951,000
<CURRENT-LIABILITIES> 1,175,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 38,701,000
<TOTAL-LIABILITY-AND-EQUITY> 54,951,000
<SALES> 0
<TOTAL-REVENUES> 11,550,000
<CGS> 0
<TOTAL-COSTS> 4,517,000
<OTHER-EXPENSES> 2,724,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000
<INCOME-PRETAX> 3,071,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,071,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,071,000
<EPS-PRIMARY> 20.97
<EPS-DILUTED> 20.97
</TABLE>
