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 March 31, 1997
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 March 31, 1997
and December 31, 1996 2
Condensed consolidated statements of income for the three
months ended March 31, 1997 and 1996 3
Condensed consolidated statements of cash flows for the three
months ended March 31, 1997 and 1996 4-5
Notes to condensed consolidated financial statements 6
Management's discussion and analysis of financial condition
and results of operations 7-8
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>
March 31, December 31,
1997 1996
---------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 577,000 $ 1,239,000
Rent and other receivables 121,000 123,000
Real estate facilities, at cost:
Land 10,580,000 17,414,000
Buildings and equipment 58,335,000 73,222,000
---------------------------------------
68,915,000 90,636,000
Less accumulated depreciation (29,971,000) (37,683,000)
---------------------------------------
38,944,000 52,953,000
Investment in real estate entity 13,725,000 -
Other assets 150,000 243,000
---------------------------------------
$ 53,517,000 $ 54,558,000
=======================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 322,000 $ 519,000
Advance payments from renters 462,000 427,000
Mortgage notes payable - -
Minority interest in general partnerships 15,048,000 15,069,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 37,226,000 38,077,000
General partner's equity 459,000 466,000
---------------------------------------
Total partners' equity 37,685,000 38,543,000
---------------------------------------
$ 53,517,000 $ 54,558,000
=======================================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1997 1996
-------------------------------------
REVENUE:
<S> <C> <C>
Rental income $3,253,000 $3,763,000
Equity in income of real estate entity 148,000 -
Interest income 15,000 12,000
-------------------------------------
3,416,000 3,775,000
-------------------------------------
COSTS AND EXPENSES:
Cost of operations 1,061,000 1,312,000
Management fees 195,000 220,000
Depreciation and amortization 709,000 855,000
Interest expense - 14,000
Administrative 20,000 17,000
-------------------------------------
1,985,000 2,418,000
-------------------------------------
Income before minority interest 1,431,000 1,357,000
Minority interest in income (384,000) (365,000)
-------------------------------------
NET INCOME $1,047,000 $ 992,000
=====================================
Limited partners' share of net income
($6.63 per unit in 1997 and $6.74
per unit in 1996) $ 848,000 $ 863,000
General partner's share of net income 199,000 129,000
=====================================
$1,047,000 $ 992,000
=====================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1997 1996
-------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,047,000 $ 992,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 709,000 855,000
Decrease in rent and other receivables 2,000 70,000
Decrease (increase) in other assets 93,000 (4,000)
Increase in accounts payable (197,000) (134,000)
Increase in advance payments from renters 35,000 47,000
Equity in income of real estate entity (148,000) -
Minority interest in income 384,000 365,000
-------------------------------------------
Total adjustments 878,000 1,199,000
-------------------------------------------
Net cash provided by operating activities 1,925,000 2,191,000
-------------------------------------------
Cash flows used in investing activities:
Investment in real estate entity (3,000) -
Additions to real estate facilities (274,000) (119,000)
-------------------------------------------
Net cash used in investing activities (277,000) (119,000)
-------------------------------------------
Cash flows used in financing activities:
Principal payments on mortgage notes payable - (2,260,000)
Distributions to holder of minority interest (405,000) (405,000)
Contribution from holder of minority interest - 1,438,000
Distributions to partners (1,905,000) (1,201,000)
-------------------------------------------
Net cash used in financing activities (2,310,000) (2,428,000)
-------------------------------------------
Net decrease in cash and cash equivalents (662,000) (356,000)
Cash and cash equivalents at the beginning of the period 1,239,000 904,000
-------------------------------------------
Cash and cash equivalents at the end of the period $ 577,000 $ 548,000
===========================================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
PS PARTNERS II, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1997 1996
-------------------- ---------------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C>
Investment in real estate entity $ (13,574,000) $ -
Transfer of real estate facilities for interest in real estate entity 13,574,000 -
</TABLE>
See accompanying notes.
5
<PAGE>
PS PARTNERS II, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1996.
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 March 31, 1997, the results of operations for the
three months ended March 31, 1997 and 1996 and cash flows for the three
months then ended.
3. The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
4. Effective January 2, 1997, Public Storage, Inc.(PSI), the Partnership's
general partner, formed a new private real estate investment trust named
American Office Park Properties, Inc. ("AOPP") which will focus its
investment efforts on the ownership and management of commerical properties
(also referred to as business park facilities). In connection with the
formation of AOPP, PSI and affiliated partnerships transferred commercial
properties to a newly created partnership underlying AOPP in exchange for
limited partnership interests (AOPP and the underlying partnership
collectivley referred to as the "New REIT"). The Partnership participated
in the initial transaction by exchanging its two commercial properties, one
of which was owned jointly by the Partnership and PSI, for 576,250 limited
partnership units, which represented approximately 8.6% of the initial
capitalization of the partnership underlying AOPP.
The number of limited partnership units received by the Partnership was
based on the relative fair market value of the Partnership's commercial
properties exchanged compared to the aggregate of all other real estate
assets exchanged for limited partnership units in the underlying
partnership. The Partnership's limited partnership units, pursuant to the
terms and conditions of the governing documents, are convertible into
shares of common stock of AOPP.
The general partners believe that the concentration of PSI's, the
Partnership's and affiliate entities' commercial properties into a single
entity will create a vehicle which should facilitate future growth in this
segment of the real estate industry. PSI, the Partnership and the
affiliates transferring real estate assets to the New REIT will participate
in the growth through their ownership interests in the New REIT.
The Partnership accounts for its investment in the New REIT using the
equity method of accounting; accordingly, equity in earnings of real estate
entity, as reflected on the Partnership's statement of income for the three
months ended March 31, 1997, reflects the Partnership's pro rata share of
the earnings of the New REIT. The investment was initially recorded at the
Partnership's net book value of its properties exchanged for limited
partnership units. The investment is subsequently adjusted for the
Partnership's pro rata share of income and distributions from the
underlying partnership of the New REIT.
6
<PAGE>
PS PARTNERS II, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
- ----------------------
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996:
The Partnership's net income for the three months ended March 31, 1997 was
$1,047,000 compared to $992,000 for the three months ended March 31, 1996,
representing an increase of $55,000, or 6%. Excluding the 1996 operations for
the Partnership's business park facilities, the increase is due to an increase
in the Partnership's mini-warehouse operations.
Rental income for the Partnership's mini-warehouse operations was
$3,253,000 compared to $3,149,000 for the three months ended March 31, 1997 and
1996, respectively, representing an increase of $104,000, or 3%. The increase in
rental income was primarily attributable to increased rental rates at the
Partnership's mini-warehouse facilities. The monthly average realized rent per
square foot for the mini-warehouse facilities was $.62 compared to $.60 for the
three months ended March 31, 1997 and 1996, respectively. The weighted average
occupancy levels at the mini-warehouse facilities decreased from 89% to 88% for
the three months ended March 31, 1996 and 1997, respectively. Cost of operations
(including management fees) increased $50,000, or 4%, to $1,256,000 from
$1,206,000 for the three months ended March 31, 1997 and 1996, respectively.
This increase was primarily attributable to an increase in advertising expenses.
Accordingly, for the Partnership's mini-warehouse operations, property net
operating income increased by $54,000, or 3%, from $1,943,000 to $1,997,000 for
the three months ended March 31, 1996 and 1997, respectively.
Effective January 2, 1997, Public Storage, Inc. ("PSI"), the Partnership's
general partner, formed a new private real estate investment trust named
American Office Park Properties, Inc. ("AOPP") which will focus its investment
efforts on the ownership and management of commercial properties. In connection
with the formation of AOPP, PSI and affiliated partnerships transferred
commercial properties to a newly created partnership underlying AOPP in exchange
for limited partnership interests (AOPP and the underlying partnership
collectivley referred to as the "New REIT"). The Partnership participated in the
initial transaction by exchanging its two commercial properties, one of which
was owned jointly by the Partnership and PSI, for 576,250 limited partnership
units, which represented approximately 8.6% of the initial capitalization of the
partnership underlying AOPP.
The Partnership accounts for its investment in the New REIT using the
equity method of accounting. The following table summarizes the Partnership's
equity in earnings from its investment in the New REIT for the three months
ended March 31, 1997 compared to the operation of the exchanged business park
facilities for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Equity in earnings of real estate entity $148,000 $
Rental income - 614,000
Cost of operations - 326,000
--------- ----------
Net operating income 148,000 288,000
Depreciation - 181,000
--------- ----------
$148,000 $107,000
========= ==========
</TABLE>
7
<PAGE>
Depreciation and amortization attributable to the Partnership's
mini-warehouses increased $35,000 from $674,000 to $709,000 for the three months
ended March 31, 1996 and 1997, respectively. This increase was primarily
attributable to the depreciation of capital expenditures made during 1995 and
1996.
Minority interest in income was $384,000 in 1997 compared to $365,000 in
1996, representing an increase of $19,000, or 5%. This increase was primarily
attributable to an increase in operations at the Partnership's real estate
facilities owned jointly with PSI.
Interest expense in 1996 represents interest on the Partnership's mortgage
not payable that was repaid prior to maturity in March 1996.
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
($1,925,000 for the three months ended March 31, 1997) has been sufficient to
meet all current obligations of the Partnership.
During 1997, the Partnership anticipates approximately $1,252,000 of
capital improvements (of which $257,000 represents PSI's joint venture share).
During 1995, the Partnership's property manager commenced a program to enhance
the visual appearance of the mini-warehouse facilities. Such enhancements
include new signs, exterior color schemes, and improvements to the rental
offices. Total capital improvements were $274,000 for the three months ended
March 31, 1997 of which $228,000 represents the Partnership's share.
The Partnership paid distributions to the limited and general partners
totaling $1,697,000 ($13.26 per unit) and $208,000, respectively, during the
first three months of 1997. 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: May 13, 1997
PS PARTNERS II, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
---------------------------------------------
Senior Vice President and Chief Financial
Officer of Public Storage, Inc.
(principal financial and accounting officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727069
<NAME> PS PARTNERS II, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 577,000
<SECURITIES> 0
<RECEIVABLES> 121,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 698,000
<PP&E> 68,915,000
<DEPRECIATION> (29,971,000)
<TOTAL-ASSETS> 53,517,000
<CURRENT-LIABILITIES> 784,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 37,685,000
<TOTAL-LIABILITY-AND-EQUITY> 53,517,000
<SALES> 0
<TOTAL-REVENUES> 3,416,000
<CGS> 0
<TOTAL-COSTS> 1,256,000
<OTHER-EXPENSES> 729,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,047,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,047,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,047,000
<EPS-PRIMARY> 6.63
<EPS-DILUTED> 6.63
</TABLE>
