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, 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 0-13479
-------
PS PARTNERS III, LTD.
---------------------------
(Exact name of registrant as specified in its charter)
California 95-3920904
- -------------------------------------------- -----------------------
(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, 1997
and December 31, 1996 2
Condensed consolidated statements of income for the three
and six months ended June 30, 1997 and 1996 3
Condensed consolidated statements of cash flows for the
six months ended June 30, 1997 and 1996 4-5
Notes to condensed consolidated financial statements 6-7
Management's discussion and analysis of financial condition
and results of operations 8-11
PART II. OTHER INFORMATION
(Items 1 through 5 are not applicable)
Item 6 - Exhibits and Reports on Form 8-K 12
<PAGE>
PS PARTNERS III, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 811,000 $ 529,000
Rent and other receivables 124,000 123,000
Real estate facilities, at cost:
Land 13,857,000 15,392,000
Buildings and equipment 68,035,000 75,323,000
------------------------------------
81,892,000 90,715,000
Less accumulated depreciation (33,363,000) (35,783,000)
------------------------------------
48,529,000 54,932,000
Investment in real estate entity 5,587,000 -
Other assets 145,000 275,000
------------------------------------
$ 55,196,000 $ 55,859,000
====================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 545,000 $ 894,000
Advance payments from renters 504,000 511,000
Minority interest in general partnerships 28,342,000 28,297,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 25,463,000 25,812,000
General partner's equity 342,000 345,000
------------------------------------
Total partners' equity 25,805,000 26,157,000
------------------------------------
$ 55,196,000 $ 55,859,000
====================================
</TABLE>
See accompanying notes.
2
<PAGE>
PS PARTNERS III, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------
1997 1996 1997 1996
---------------------------------------------------------------------
REVENUE:
<S> <C> <C> <C> <C>
Rental income $ 3,831,000 $ 3,961,000 $ 7,537,000 $ 7,848,000
Equity in income of real estate entity 104,000 - 177,000 -
Interest income 9,000 5,000 15,000 10,000
---------------------------------------------------------------------
3,944,000 3,966,000 7,729,000 7,858,000
---------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 1,231,000 1,244,000 2,538,000 2,554,000
Management fees 230,000 235,000 452,000 466,000
Depreciation and amortization 829,000 877,000 1,643,000 1,749,000
Administrative 57,000 60,000 78,000 79,000
---------------------------------------------------------------------
2,347,000 2,416,000 4,711,000 4,848,000
---------------------------------------------------------------------
Income before minority interest 1,597,000 1,550,000 3,018,000 3,010,000
Minority interest in income (711,000) (823,000) (1,369,000) (1,594,000)
---------------------------------------------------------------------
NET INCOME $ 886,000 $ 727,000 $ 1,649,000 $ 1,416,000
=====================================================================
Limited partners' share of net income
($11.21 per unit in 1997 and $8.63
per unit in 1996) $ 1,435,000 $ 1,105,000
General partner's share of net income 214,000 311,000
-----------------------------------
$ 1,649,000 $ 1,416,000
===================================
</TABLE>
See accompanying notes.
3
<PAGE>
PS PARTNERS III, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------
1997 1996
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,649,000 $ 1,416,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,643,000 1,749,000
Increase in rent and other receivables (1,000) (39,000)
Decrease (increase) in other assets 130,000 (33,000)
Decrease in accounts payable (349,000) (143,000)
(Decrease) increase in advance payments from renters (7,000) 24,000
Equity income in real estate entity (177,000) -
Minority interest in income 1,369,000 1,594,000
---------------------------------------
Total adjustments 2,608,000 3,152,000
---------------------------------------
Net cash provided by operating activities 4,257,000 4,568,000
---------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in real estate entity (11,000) -
Additions to real estate facilities (639,000) (234,000)
---------------------------------------
Net cash used in investing activities (650,000) (234,000)
---------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Distributions to holder of minority interest (1,324,000) (1,469,000)
Distributions to partners (2,001,000) (2,999,000)
---------------------------------------
Net cash used in financing activities (3,325,000) (4,468,000)
---------------------------------------
Net increase (decrease) in cash and cash equivalents 282,000 (134,000)
Cash and cash equivalents at the beginning of the period 529,000 455,000
---------------------------------------
Cash and cash equivalents at the end of the period $ 811,000 $ 321,000
=======================================
</TABLE>
See accompanying notes.
4
<PAGE>
PS PARTNERS III, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1997 1996
------------------------------------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C>
Investment in real estate entity $ (5,399,000) $ -
Transfer of real estate facilities for interest in real estate entity 5,399,000 -
</TABLE>
See accompanying notes.
5
<PAGE>
PS PARTNERS III, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1997, the results of operations for the
three and six months ended June 30, 1997 and 1996 and cash flows for the
six months then ended.
3. The results of operations for the three and six months ended June 30, 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 commercial 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
collectively referred to as the "New REIT"). The Partnership participated
in the initial transaction by exchanging its commercial property, which was
owned jointly by the Partnership and PSI, for 285,000 limited partnership
units, which represented approximately 4.3% 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
property 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.
6
<PAGE>
4. (Continued)
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 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
and six months ended June 30, 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 property 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.
7
<PAGE>
PS PARTNERS III, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
- ---------------------
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996:
The Partnership's net income for the three months ended June 30, 1997 was
$886,000 compared to $727,000 for the three months ended June 30, 1996,
representing an increase of $159,000, or 22%. Excluding the 1996 operations for
the Partnership's business park facilities as compared to the 1997 equity in
income of real estate entity, the increase is primarily due to a decrease in
minority interest in income for those properties held in joint venture with PSI.
Rental income for the Partnership's mini-warehouse operations was
$3,831,000 compared to $3,716,000 for the three months ended June 30, 1997 and
1996, respectively, representing an increase of $115,000, or 3%. The increase in
rental income was primarily attributable to increased rental rates, offset
partially by decreased average occupancy levels. The monthly average realized
rent per square foot for the mini-warehouse facilities was $.58 compared to $.55
for the three months ended June 30, 1997 and 1996, respectively. The weighted
average occupancy levels at the mini-warehouse facilities decreased from 92% to
90% for the three months ended June 30, 1996 and 1997, respectively. Cost of
operations (including management fees) increased $92,000, or 7%, to $1,461,000
from $1,369,000 for the three months ended June 30, 1997 and 1996, respectively.
The increase was primarily attributable to increases in advertising, payroll,
repairs and maintenance, and property tax expenses. Accordingly, for the
Partnership's mini-warehouse operations, property net operating income increased
by $23,000 from $2,347,000 to $2,370,000 for the three months ended June 30,
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
collectively referred to as the "New REIT"). The Partnership participated in the
initial transaction by exchanging its commercial property, which was owned
jointly by the Partnership and PSI, for 285,000 limited partnership units, which
represented approximately 4.3% of the initial capitalization of the partnership
underlying AOPP.
The Partnership accounts for its investment in 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 June 30,
8
<PAGE>
1997 compared to the operation of the exchanged business park facility for the
three months ended June 30, 1996:
Three Months Ended June 30,
-------------------------------
1997 1996
--------------- --------------
Equity in earnings of real estate entity $ 104,000 $ -
Rental income - 245,000
Cost of operations - 110,000
--------------- ---------------
Net operating income 104,000 135,000
Depreciation - 101,000
--------------- ---------------
$ 104,000 $ 34,000
=============== ===============
Depreciation and amortization attributable to the Partnership's
mini-warehouse facilities increased $53,000 from $776,000 to $829,000 for the
three months ended June 30, 1996 and 1997, respectively. This increase was
primarily attributable to the depreciation of capital expenditures made during
1996 and 1997.
Minority interest in income decreased $112,000, or 14%, to $711,000 from
$823,000 for the three months ended June 30, 1997 and 1996, respectively. This
decrease was primarily attributable to 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
$138,000 for the three months ended June 30, 1997 compared to $43,000 for the
same period in 1996, combined with a decrease in net income (net of
depreciation) for the Partnership's real estate facilities owned jointly with
PSI.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996:
The Partnership's net income for the six months ended June 30, 1997 was
$1,649,000 compared to $1,416,000 for the six months ended June 30, 1996,
representing an increase of $233,000, or 16%. Excluding the 1996 operations for
the Partnership's business park facilities as compared to the 1997 equity in
income of real estate entity, the increase is primarily due to a decrease in
minority interest in income for those properties held in joint venture with PSI.
Rental income for the Partnership's mini-warehouse operations was
$7,537,000 compared to $7,342,000 for the six months ended June 30, 1997 and
1996, respectively, representing an increase of $195,000, or 3%. The increase in
rental income was primarily attributable to increased rental rates, partially
offset by decreased average occupancy levels. The monthly average realized rent
per square foot for the mini-warehouse facilities was $.58 compared to $.55 for
9
<PAGE>
the six months ended June 30, 1997 and 1996, respectively. The weighted average
occupancy levels at the mini-warehouse facilities decreased from 91% to 89% for
the six months ended June 30, 1996 and 1997, respectively. Cost of operations
(including management fees) increased $176,000, or 6%, to $2,990,000 from
$2,814,000 for the six months ended June 30, 1997 and 1996, respectively. The
increase was primarily attributable to increases in advertising, repairs and
maintenance, property tax, and payroll expenses. Accordingly, for the
Partnership's mini-warehouse operations, property net operating income increased
by $19,000 from $4,528,000 to $4,547,000 for the six months ended June 30, 1996
and 1997, respectively.
The following table summarizes the Partnership's equity in earnings from
its investment in the New REIT for the six months ended June 30, 1997 compared
to the operation of the exchanged business park facility for the six months
ended June 30, 1996:
Six Months Ended June 30,
-----------------------------
1997 1996
------------- -------------
Equity in earnings of real estate entity $ 177,000 $ -
Rental income - 506,000
Cost of operations - 206,000
------------- -------------
Net operating income 177,000 300,000
Depreciation - 204,000
------------- -------------
$ 177,000 $ 96,000
============= =============
Depreciation and amortization attributable to the Partnership's
mini-warehouse facilities increased $98,000 from $1,545,000 to $1,643,000 for
the six months ended June 30, 1996 and 1997, respectively. This increase was
primarily attributable to the depreciation of capital expenditures made during
1996 and 1997.
Minority interest in income was $1,369,000 in 1997 compared to $1,594,000
in 1996, representing a decrease of $225,000, or 14%. This decrease was
primarily attributable to 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 $260,000 for the six
months ended June 30, 1997 compared to $85,000 for the same period in 1996,
combined with a decrease in net income (net of depreciation) for the
Partnership's real estate facilities owned jointly with PSI.
10
<PAGE>
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
($4,257,000 for the six months ended June 30, 1997) has been sufficient to meet
all current obligations of the Partnership.
During 1997, the Partnership anticipates approximately $1,599,000 of
capital improvements (of which $559,000 represents PSI's joint venture share).
The anticipated increase in capital improvements in 1996 is mainly due to a
program, which the Partnership's property manager commenced during 1995, to
enhance the visual appearance of the mini-warehouse facilities. Such
enhancements include new signs, exterior color schemes, and improvements to the
rental offices. This program continued in 1997. Total capital improvements were
$639,000 for the six months ended June 30, 1997 of which $482,000 represents the
Partnership's share.
The Partnership paid distributions to the limited and general partners
totaling $1,783,000 ($13.92 per unit) and $218,000, respectively, during the
first six 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.
11
<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) Reports on 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, 1997
PS PARTNERS III, 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)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000741513
<NAME> PS PARTNERS III, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 811,000
<SECURITIES> 0
<RECEIVABLES> 124,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 935,000
<PP&E> 81,892,000
<DEPRECIATION> (33,363,000)
<TOTAL-ASSETS> 55,196,000
<CURRENT-LIABILITIES> 1,049,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,805,000
<TOTAL-LIABILITY-AND-EQUITY> 55,196,000
<SALES> 0
<TOTAL-REVENUES> 7,729,000
<CGS> 0
<TOTAL-COSTS> 2,990,000
<OTHER-EXPENSES> 1,721,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,649,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,649,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,649,000
<EPS-PRIMARY> 11.21
<EPS-DILUTED> 11.21
</TABLE>
