UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 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 0-13479
-------
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
--------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
Form 10-K. [X]
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. Business.
---------
General
- -------
PS Partners III, LTD. (the "Partnership") is a publicly held limited
partnership formed under the California Uniform Limited Partnership Act in
February 1984. Commencing in May 1984, 128,000 units of limited partnership
interest (the "Units") were offered to the public in an interstate offering. The
offering was completed in January 1985.
The Partnership was formed to invest in and operate existing
self-service facilities offering storage space for personal and business use
(the "mini-warehouses") and to invest up to 40% of the net proceeds of the
offering in and operate existing office and industrial properties. The
Partnership's investments were made through general partnerships with Storage
Equities, Inc., now known as Public Storage, Inc. ("PSI"), a real estate
investment trust ("REIT") organized as a corporation under the laws of
California. For tax administrative efficiency, the original general partnerships
with PSI were consolidated into a single general partnership effective December
31, 1990.
In 1995, there was a series of mergers among Public Storage Management,
Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc.
and their affiliates (collectively, "PSMI"), culminating in the November 16,
1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI
Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired
substantially all of PSMI's United States real estate operations and became the
operator of the Partnership's mini-warehouse properties.
The Partnership's general partners (the "General Partners") are PSI and
B. Wayne Hughes ("Hughes"). PSI became a co-general partner in September 1993,
when PSI acquired the interest of PSI Associates, Inc. ("PSA"), an affiliate of
PSMI, relating to PSA's general partner capital contribution in the Partnership.
Hughes has been a general partner of the Partnership since its inception. Hughes
is the chairman of the board and chief executive officer of PSI, and Hughes and
members of his family (the "Hughes Family") are the major shareholders of PSI.
The Partnership is managed, and its investment decisions are made by Hughes and
the executive officers and directors of PSI. The limited partners of the
Partnership have no right to participate in the management or conduct of its
business affairs.
The Partnership's mini-warehouse properties are managed by PSI pursuant
to a Management Agreement. PSI believes that it is the largest operator of
mini-warehouse facilities in the United States.
Through 1996, the Partnership's commercial property was managed by
Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a
Management Agreement. In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to PS Business Parks, L.P.
("PSBPLP"), formerly known as American Office Park Properties, L.P., an
operating partnership formed to own and operate business parks in which PSI has
a significant interest. Included among the properties transferred was the
Partnership's business park in exchange for a partnership interest in PSBPLP.
Until March 17, 1998, the general partner of PSBPLP was American Office Park
Properties, Inc., an affiliate of PSI. On March 17, 1998, American Office Park
Properties, Inc. was merged into Public Storage Properties XI, Inc., which
changed its name to PS Business Parks, Inc. ("PSBP"). PSBP is a REIT affiliated
with PSI, and is publicly traded on the American Stock Exchange. As a result of
the merger, PSBP became the general partner of PSBPLP (which changed its name
from American Office Park Properties, L.P. to PS Business Parks, L.P.). See Item
13.
PSI's current relationship with the Partnership includes (i) the joint
ownership of 34 of the Partnership's 41 properties (which excludes the property
transferred to PSBPLP in January 1997), (ii) PSI is a co-general partner along
with Hughes, who is chairman of the board and chief executive officer of PSI,
(iii) as of December 31, 1997, PSI owned approximately 60.36% of the
Partnership's limited partnership units, and (iv) PSI is the operator of the
Partnership's mini-warehouse facilities.
Investments in Facilities
- -------------------------
The Partnership owns interests in 41 properties (excluding the property
transferred to PSBPLP in January 1997); 34 of such properties are held in a
general partnership comprised of the Partnership and PSI. The Partnership
originally acquired interests in 43 properties. One of those properties which
secured a mortgage note was foreclosed upon by the lender during 1993. The
2
<PAGE>
Partnership purchased its last property in July, 1985. Reference is made to the
table in Item 2 for a summary of information about the Partnership's properties.
The Partnership believes that its operating results have benefited from
favorable industry trends and conditions. Notably, the level of new
mini-warehouse construction has decreased since 1988 while consumer demand has
increased. In addition, in recent years consolidation has occurred in the
fragmented mini-warehouse industry.
Mini-warehouses
- ---------------
Mini-warehouses, which comprise the majority of the Partnership's
investments, are designed to offer accessible storage space for personal and
business use at a relatively low cost. A user rents a fully enclosed space which
is for the user's exclusive use and to which only the user has access on an
unrestricted basis during business hours. On-site operation is the
responsibility of resident managers who are supervised by area managers. Some
mini-warehouses also include rentable uncovered parking areas for vehicle
storage. Leases for mini-warehouse space may be on a long-term or short-term
basis, although typically spaces are rented on a month-to-month basis. Rental
rates vary according to the location of the property and the size of the storage
space.
Users of space in mini-warehouses include both individuals and large
and small businesses. Individuals usually employ this space for storage of,
among other things, furniture, household appliances, personal belongings, motor
vehicles, boats, campers, motorcycles and other household goods. Businesses
normally employ this space for storage of excess inventory, business records,
seasonal goods, equipment and fixtures.
Mini-warehouses in which the Partnership has invested generally consist
of three to seven buildings containing an aggregate of between 231 to 1,099
storage spaces, most of which have between 25 and 400 square feet and an
interior height of approximately 8 to 12 feet.
The Partnership experiences minor seasonal fluctuations in the
occupancy levels of mini-warehouses with occupancies higher in the summer months
than in the winter months. The Partnership believes that these fluctuations
result in part from increased moving activity during the summer.
The Partnership's mini-warehouses are geographically diversified and
are generally located in heavily populated areas and close to concentrations of
apartment complexes, single family residences and commercial developments.
However, there may be circumstances in which it may be appropriate to own a
property in a less populated area, for example, in an area that is highly
visible from a major thoroughfare and close to, although not in, a heavily
populated area. Moreover, in certain population centers, land costs and zoning
restrictions may create a demand for space in nearby less populated areas.
As with most other types of real estate, the conversion of
mini-warehouses to alternative uses in connection with a sale or otherwise would
generally require substantial capital expenditures. However, the Partnership
does not intend to convert its mini-warehouses to other uses.
Commercial Properties
- ---------------------
Through 1996, the Partnership owned and operated a single commercial
property; a business park located in Sacramento, California which was
transferred to PSBPLP in January 1997 in exchange for a partnership interest in
PSBPLP.
Investment Objectives and Polices; Sale or Financing of Investments
- -------------------------------------------------------------------
The Partnership's objectives are to (i) preserve and protect invested
capital, (ii) maximize the potential for appreciation in value of its
properties, (iii) provide Federal income tax deductions so that during the early
years of property operations a portion of cash distributions may be treated as a
return of capital for tax purposes, and therefore, may not represent taxable
income to the limited partners and (iv) provide for cash distributions from
operations.
The Partnership will terminate on December 31, 2020 unless dissolved
earlier. Under the terms of the general partnership agreement with PSI, PSI has
the right to require the Partnership to sell all of the joint venture properties
(see Item 12(c)). The General Partners have no present intention to seek the
3
<PAGE>
liquidation of the Partnership because they believe that it is not an opportune
time to sell mini-warehouses. Although the General Partners originally
anticipated a liquidation of the Partnership in 1988-1991, since the completion
of the Partnership's offering in January 1985, significant changes have taken
place in the financial and real estate markets that must be taken into account
in considering the timing of any proposed sale or financing, including: (i) the
increased construction of mini-warehouses from 1984 to 1988, which has increased
competition, (ii) the general deterioration of the real estate market (resulting
from a variety of factors, including changes in tax laws), which has
significantly affected property values and decreased sales activities and (iii)
the reduced sources of real estate financing.
The Partnership engaged Lawrence R. Nicholson, MAI, a principal with
the firm of Nicholson-Douglas Realty Consultants, Inc. ("NDRC") to perform a
limited investigation and appraisal of the Partnership's property portfolio. In
a letter appraisal report dated May 13, 1996, NDRC indicated that, based on the
assumptions contained in the report, the aggregate market value of the
Partnership's 42 properties (consisting not only of the Partnership's interest
but also including PSI's interest), as of January 31, 1996, was $92,200,000
($86,900,000 for the 41 mini-warehouses and $5,300,000 for the business park).
(In January 1997, after the date of the appraisal, the Partnership transferred
its business park to AOPPLP in exchange for a 4.3% interest in AOPPLP.) NDRC's
report is limited in that NDRC did not inspect the properties and relied
primarily upon the income capitalization approach in arriving at its opinion.
NDRC's aggregate value conclusion represents the 100% property interests, and
although not valued separately, includes both the interest of the Partnership in
the properties, as well as the interest of PSI, which owns a joint venture
interest (ranging from about 12% to 51%) in 35 of the 42 properties. The
analytical process that was undertaken in the appraisal included a review of the
properties' unit mix, rental rates and historical financial statements.
Following these reviews, a stabilized level of net operating income was
projected for the properties (an aggregate of $8,510,000 for the 41
mini-warehouses and $530,000 for the business park). In the case of the
mini-warehouses, value estimates were then made using both a direct
capitalization analysis ($85,200,000) and a discounted cash flow analysis
($86,000,000). In applying the discounted cash flow analysis to the
mini-warehouses, projections of cash flow from each property were developed for
an 11-year period ending in the year 2007. Growth rates for income and expenses
were assumed to be 3.5% per year. NDRC then used a terminal capitalization rate
of 10.5% to capitalize each property's 11th year net operating income into a
residual value at the end of the holding period. The ten yearly cash flows plus
the residual or reversionary proceeds net of sales costs were then discounted to
present worth using a discount rate of 13.25%. In the direct capitalization
analysis, NDRC applied a 10.0% capitalization rate to the mini-warehouses'
stabilized net operating income. These value estimates were then compared to an
estimated value ($86,000,000) using a regression analysis applied to
approximately 300 sales of mini-warehouses to evaluate the reasonableness of the
estimates using the direct capitalization and discounted cash flow analysis.
The business park was valued using a direct capitalization analysis by
applying a 10.0% capitalization rate to the business park's stabilized net
operating income. NDRC has prepared other appraisals for the General Partners
and their affiliates and is expected to continue to prepare appraisals for the
General Partners and their affiliates. No environmental investigations were
conducted with respect to the limited investigation of the Partnership's
properties. Accordingly, NDRC's appraisal did not take into account any
environmental cleanup or other costs that might be incurred in connection with a
disposition of the properties. Although there can be no assurance, based on
recently completed environmental investigations (see Item 2), the Partnership is
not aware of any environmental contamination of its facilities material to its
overall business or financial condition. In addition to assuming compliance with
applicable environmental laws, the appraisal also assumed, among other things,
compliance with applicable zoning and use regulations and the existence of
required licenses.
Limited Partners should recognize that appraisals are opinions as of
the date specified, are subject to certain assumptions and the appraised value
of the Partnership's properties may not represent their true worth or realizable
value. There can be no assurance that, if these properties were sold, they would
be sold at the appraised values; the sales price might be higher or lower than
the appraised values.
In January 1997, PSI completed a cash tender offer, which had commenced
in December 1996, pursuant to which PSI acquired a total of 12,881 additional
limited partnership units at $425 per Unit.
4
<PAGE>
Operating Strategies
- --------------------
The Partnership's mini-warehouses are operated by PSI under the "Public
Storage" name, which the Partnership believes is the most recognized name in the
mini-warehouse industry. The major elements of the Partnership's operating
strategies are as follows:
* Capitalize on Public Storage's name recognition. PSI, together
with its predecessor, has more than 20 years of operating
experience in the mini-warehouse business. PSI has informed the
Partnership that it is the largest mini-warehouse facility
operator in the United States in terms of both number of
facilities and rentable space operated. PSI believes that its
marketing and advertising programs improve its competitive
position in the market. PSI's in-house Yellow Pages staff designs
and places advertisements in approximately 700 directories.
Commencing in early 1996, PSI began to experiment with a telephone
reservation system designed to provide added customer service.
Customers calling either PSI's toll-free referral system, (800)
44-STORE, or a mini-warehouse facility are directed to PSI's
reservation system where a trained representative discusses with
the customer space requirements, price and location preferences
and also informs the customer of other products and services
provided by PSI. As of December 31, 1997, the telephone
reservation system was supporting rental activity at all of the
Partnership's properties. PSI's toll-free telephone referral
system services approximately 160,000 calls per month from
potential customers inquiring as to the nearest Public Storage
mini-warehouse.
* Maintain high occupancy levels and increase realized rents.
Subject to market conditions, the Partnership generally seeks to
achieve average occupancy levels in excess of 90% and to eliminate
promotions prior to increasing rental rates. Weighted average
occupancy levels at the mini-warehouse facilities were 90% in 1997
compared to 91% in 1996. The average monthly realized rent per
occupied square foot for the mini-warehouse was $.58 in 1997
compared to $.56 in 1996. The Partnership has increased rental
rates in many markets where it has achieved high occupancy levels
and eliminated or minimized promotions.
* Systems and controls. PSI has an organizational structure and a
property operation system, "CHAMP" (Computerized Help and
Management Program), which links its corporate office with each
mini-warehouse. This enables PSI to obtain daily information from
each mini-warehouse and to achieve efficiencies in operations and
maintain control over its space inventory, rental rates,
promotional discounts and delinquencies. Expense management is
achieved through centralized payroll and accounts payable systems
and a comprehensive property tax appeals department, and PSI has
an extensive internal audit program designed to ensure proper
handling of cash collections.
* Professional property operation. In addition to the
approximately 150 support personnel at the Public Storage
corporate offices, there are approximately 2,700 on-site personnel
who manage the day-to-day operations of the mini-warehouses in the
Public Storage system. These on-site personnel are supervised by
110 district managers, 15 regional managers and 3 divisional
managers (with an average of 13 years experience in the
mini-warehouse industry) who report to the president of the
mini-warehouse property operator (who has 14 years of experience
with the Public Storage organization). PSI carefully selects and
extensively trains the operational and support personnel and
offers them a progressive career path. See "Mini-warehouse
Property Operator."
Mini-warehouse Property Operator
- --------------------------------
The Partnership's mini-warehouse properties are managed by PSI pursuant
to a Management Agreement.
Under the supervision of the Partnership, PSI coordinates the operation
of the facilities, establishes rental policies and rates, directs marketing
activity and directs the purchase of equipment and supplies, maintenance
activity, and the selection and engagement of all vendors, supplies and
independent contractors.
PSI engages, at the expense of the Partnership, employees for the
operation of the Partnership's facilities, including resident managers,
assistant managers, relief managers, and billing and maintenance personnel. Some
or all of these employees may be employed on a part-time basis and may also be
employed by other persons, partnerships, REITs or other entities owning
facilities operated by PSI.
5
<PAGE>
In the purchasing of services such as advertising (including broadcast
media advertising) and insurance, PSI attempts to achieve economies by combining
the resources of the various facilities that it operates. Facilities operated by
PSI have historically carried comprehensive insurance, including fire,
earthquake, liability and extended coverage.
PSI has developed systems for space inventory, accounting and handling
delinquent accounts, including a computerized network linking PSI operated
facilities. Each project manager is furnished with detailed operating procedures
and typically receives facilities management training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions taken by the project managers when delinquencies occur is
maintained.
The Partnership's facilities are typically advertised via signage,
yellow pages, flyers and broadcast media advertising (television and radio) in
geographic areas in which many of the Partnership's facilities are located.
Broadcast media and other advertising costs are charged to the Partnership's
facilities located in geographic areas affected by the advertising. From time to
time, PSI adopts promotional programs, such as temporary rent reductions, in
selected areas or for individual facilities.
For as long as the Management Agreement is in effect, PSI has granted
the Partnership a non-exclusive license to use two PSI service marks and related
designs, including the "Public Storage" name, in conjunction with rental and
operation of facilities managed pursuant to the Management Agreement. Upon
termination of the Management Agreement, the Partnership would no longer have
the right to use the service marks and related designs. The General Partners
believe that the loss of the right to use the service marks and related designs
could have a material adverse effect on the Partnership's business.
The Management Agreement between the Partnership and PSI provides that
the Management Agreement may be terminated without cause upon 60 days written
notice by either party.
Commercial Property Operator
- ----------------------------
Through 1996, the Partnership's commercial property was managed by
PSCPG, now known as PS Business Parks, Inc., pursuant to a Management Agreement.
In January 1997, the Partnership transferred its commercial property to PSBPLP
in exchange for a partnership interest.
Competition
- -----------
Competition in the market areas in which the Partnership operates is
significant and affects the occupancy levels, rental rates and operating
expenses of certain of the Partnership facilities. Competition may be
accelerated by any increase in availability of funds for investment in real
estate. Recent increases in plans for development of mini-warehouses are
expected to further intensify competition among mini-warehouse operators in
certain market areas. In addition to competition from mini-warehouses operated
by PSI, there are three other national firms and numerous regional and local
operators. The Partnership believes that the significant operating and financial
experience of PSI's executive officers and directors and the "Public Storage"
name, should enable the Partnership to continue to compete effectively with
other entities.
Other Business Activities
- -------------------------
A corporation owned by the Hughes Family reinsures policies against
losses to goods stored by tenants in the Partnership's mini-warehouses. The
Partnership believes that the availability of insurance reduces the potential
liability of the Partnership to tenants for losses to their goods from theft or
destruction. This corporation receives the premiums and bears the risks
associated with the insurance.
A corporation, in which PSI had a 95% economic interest and the Hughes
Family has a 5% economic interest, sells locks, boxes and tape to tenants to be
used in securing their spaces and moving their goods. PSI believes that the
availability of locks, boxes and tape for sale promotes the rental of spaces.
Employees
- ---------
There are 138 persons who render services on behalf of the Partnership.
These persons include resident managers, assistant managers, relief managers,
district managers, and administrative personnel. Some of these employees may be
6
<PAGE>
employed on a part-time basis and may also be employed by other persons,
partnerships, REITs or other entities owning facilities operated by PSI or
PSBPLP.
Impact of Year 2000
- -------------------
PSI has completed an initial assessment of its computer systems. The
majority of the computer programs were installed or upgraded over the past few
years and are Year 2000 compliant. Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.
The cost of the Year 2000 project will be allocated to all entities
that use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Partnership is approximately $123,000. The cost
of new software will be capitalized and the cost of maintenance to existing
systems will be expensed as incurred.
The project is expected to be completed by March 31, 1999 which is
prior to any anticipated impact on operating systems. PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the
Partnership.
The costs of the project and the date on which PSI believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
ITEM 2. Properties.
-----------
The following table sets forth information as of December 31, 1997
about properties owned by the Partnership. All but 7 of these properties were
acquired jointly with PSI and were contributed to general partnerships comprised
of the Partnership and PSI.
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- ---------------- ------------ -------- ----------- ----------
CALIFORNIA
Laguna Hills 73,200 674 04/10/85 50.0%
E. Pacifico
Simi Valley 49,500 522 02/01/85 50.9
First St.
FLORIDA
Fern Park 37,400 405 03/19/85 50.0
U.S. Highway
Hialeah 62,400 750 11/29/84 50.0
Red Road - W 4th Ave.
Longwood 62,800 600 05/03/85 50.3
U.S. Highway
Medley 47,600 538 08/31/84 100.0
N.W. S. River
Orlando 34,500 357 06/22/84 74.6
45th - Orange Blossom
Pompano Beach 44,400 314 12/19/84 100.0
S.W. 2nd St.
GEORGIA
Lilburn 35,600 306 07/10/85 50.0
Indian Trail Rd.
7
<PAGE>
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- ---------------- ------------ -------- ----------- ----------
KENTUCKY
Florence 39,800 324 06/27/84 100.0%
Industrial Hwy
LOUISIANA
Bossier City 77,900 751 01/07/85 50.0
Gould Dr.
NEBRASKA
Omaha 46,200 410 11/19/84 69.5
South 86th St.
NEW HAMPSHIRE
Manchester 61,100 507 11/30/84 49.2
South Willow St.
NEW JERSEY
Delran 63,300 594 06/20/84 71.2
Route 130
OHIO
Arlington 62,900 463 05/31/85 55.0
Arlington Center
Cincinnati 71,900 649 06/27/84 100.0
Mt. Carmel
Columbus 63,600 547 05/31/85 55.0
Busch Blvd.
Columbus 61,300 591 07/11/85 55.0
Kenny Road
Columbus 80,800 612 05/31/85 55.0
Kinnear Road
Columbus 63,900 551 07/11/85 55.0
Morse
Dayton 66,000 610 07/11/85 55.0
Executive Blvd.
Dayton 61,300 411 07/11/85 55.0
Needmore Road
Fairfield 52,300 407 03/14/85 50.0
Dixie Highway II
Grove City 52,000 525 06/07/85 55.0
Marlane Drive
Reynoldsburg 65,500 573 06/07/85 55.0
Gender
Springfield 40,400 352 07/11/85 55.0
W. Leffel
Westerville 64,200 576 07/11/85 55.0
Westerville Road
Worthington 74,400 557 05/31/85 55.0
Billingsley
8
<PAGE>
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- ---------------- ------------ -------- ----------- ----------
OKLAHOMA
Oklahoma 83,200 631 08/31/84 100.0%
West Reno II
OREGON
Portland 44,300 495 03/01/85 75.0
N.E. 92nd St.
PENNSYLVANIA
Montgomeryville 63,400 533 12/13/84 50.0
Route 309
TENNESSEE
Chattanooga 82,100 507 03/06/85 70.3
Pryor Drive
TEXAS
Austin 33,000 231 12/11/84 75.0
E. Ben White Blvd.
Austin 56,200 529 12/11/84 75.0
N. Lamar Blvd.
Dallas (1) 41,800 421 09/28/84 50.5
Cockrell Hill Rd.
Dallas 110,100 1,099 08/31/84 100.0
Walnut Hill Lane
Fort Worth 42,000 338 12/12/84 50.0
Hemphill St.
Garland 37,600 372 05/16/84 86.3
W. Kingsley II
Hurst 49,500 390 02/05/85 50.0
Hurst Blvd.
Irving 69,900 553 08/31/84 100.0
E. Airport Fwy.
VIRGINIA
Newport News Jefferson Dr 79,300 740 08/17/84 88.5
- -----------------
(1) Includes Dallas/Cockrell Hill II located in Brassway, Texas which was
purchased on 12/5/85 and is 50% owned by the Partnership.
The weighted average occupancy level for the mini-warehouse facilities
was 90% in 1997 compared to 91% in 1996. The monthly average realized rent per
square foot for the mini-warehouse facilities was $.58 in 1997 compared to $.56
in 1996.
Substantially all of the Partnership's facilities were acquired prior
to the time that it was customary to conduct extensive environmental
investigations in connection with the property acquisitions. During the fourth
quarter of 1995, an independent environmental consulting firm completed
environmental assessments on the Partnership's properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. Based on the assessments, the Partnership believes that it is
probable that it will incur costs totaling $40,000 after December 31, 1997 for
known environmental remediation requirements. Although there can be no
9
<PAGE>
assurance, the Partnership is not aware of any unaccrued environmental
contamination of its facilities which individually or in the aggregate would be
material to the Partnership's overall business, financial condition, or results
of operations.
ITEM 3. Legal Proceedings.
------------------
No material legal proceeding is pending against the Partnership.
ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
PART II
ITEM 5. Market for the Partnership's Common Equity and Related
------------------------------------------------------
Stockholder Matters.
--------------------
The Partnership has no common stock.
The Units are not listed on any national securities exchange or quoted
on the NASDAQ System, and there is no established public trading market for the
Units. Secondary sales activity for the Units has been limited and sporadic. The
General Partners monitor transfers of the Units (a) because the admission of the
transferee as a substitute limited partner requires the consent of the General
Partners under the Partnership's Amended and Restated Agreement of Limited
Partnership, (b) in order to ensure compliance with safe harbor provisions to
avoid treatment as a "publicly traded partnership" for tax purposes and (c)
because PSI has purchased Units. However, the General Partners do not have
information regarding the prices at which all secondary sale transactions in the
Units have been effectuated. Various organizations offer to purchase and sell
limited partnership interests (including securities of the type such as the
Units) in secondary sales transactions. Various publications such as The Stanger
Report summarize and report information (on a monthly, bimonthly or less
frequent basis) regarding secondary sales transactions in limited partnership
interests (including the Units), including the prices at which such secondary
sales transactions are effectuated.
Exclusive of the General Partners' interest in the Partnership, as of
December 31, 1997, there were approximately 2,381 record holders of Units.
In January 1997, PSI completed a cash tender offer, which had commenced
in December 1996, pursuant to which PSI acquired a total of 12,881 additional
limited partnership units at $425 per Unit.
The Partnership makes quarterly distributions of all "Cash Available
for Distribution" and will make distributions of "Cash from Sales or
Refinancings". Cash Available for Distribution is cash flow from all sources
less cash necessary for any obligations or capital improvements or reserves.
Reference is made to Items 6 and 7 hereof for information on the amount
of such distributions.
10
<PAGE>
ITEM 6. Selected Financial Data.
------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------- -------------- -------------- --------------
(In thousands, except per Unit data)
<S> <C> <C> <C> <C> <C>
Revenues $ 15,724 $ 15,864 $ 15,363 $ 14,908 $ 13,948
Depreciation and amortization 3,338 3,541 3,358 3,181 3,154
Interest expense - - - - 38
Net income 3,423 2,809 2,749 2,788 2,176
Limited partners' share 2,993 2,286 2,029 2,325 1,794
General partners' share 430 523 720 463 382
Limited partners' per unit data (a)
Net income $ 23.38 $ 17.86 $ 15.85 $ 18.16 $ 14.02
Cash distributions (b) $ 27.84 $ 34.80 $ 48.72 $ 30.60 $ 25.30
As of December 31,
- ------------------
Cash and cash equivalents $ 1,455 $ 529 $ 455 $ 2,131 $ 1,166
Total assets $ 55,180 $ 55,859 $ 57,978 $ 62,016 $ 63,581
</TABLE>
(a) Limited Partners' per unit data is based on the weighted average number of
units (128,000) outstanding during the year.
(b) The General Partners distributed, concurrent with the distributions for the
third quarter of 1995, a portion of the operating cash reserve of the
Partnership estimated to be $6.96 per Unit.
11
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations.
--------------------------
Results of Operations
- ---------------------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
The Partnership's net income was $3,423,000 in 1997 compared to
$2,809,000 in 1996, representing an increase of $614,000, or 22%. Excluding the
1996 operations for the Partnership's business park facilities as compared to
the 1997 equity in income of real estate partnership, the increase is primarily
due to a decrease in minority interest in income for those properties held in
joint venture with PSI, combined with an increase in the Partnership's
mini-warehouse operations.
Rental income for the Partnership's mini-warehouse operations was
$15,333,000 in 1997 compared to $14,855,000 during 1996, representing an
increase of $478,000, 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 in 1997 compared to $.56 in 1996. The
weighted average occupancy levels at the mini-warehouse facilities decreased
from 91% in 1996 to 90% during 1997. Cost of operations (including management
fees) increased $227,000, or 4%, to $6,026,000 in 1997 from $5,799,000 in 1996.
The increase was primarily attributable to increases in advertising, property
tax, and management fee expenses. Accordingly, for the Partnership's
mini-warehouse operations, property net operating income increased by $251,000,
or 3%, from $9,056,000 in 1996 to $9,307,000 during 1997.
The following table summarizes the Partnership's operating income, net
of depreciation, from its investment in PSBPLP in 1997 compared to that of the
exchanged business park facility in 1996:
1997 1996
------------ ------------
Equity in earnings of real estate partnership $ 344,000 $ -
Rental income - 986,000
Cost of operations - 470,000
------------ ------------
Net operating income 344,000 516,000
Depreciation - 409,000
------------ ------------
Operating income, net of depreciation $ 344,000 $ 107,000
============ ============
The difference in operating income, net of depreciation, in 1997 and
1996 is primarily due to the effect of depreciation and an improvement in
property operations.
Depreciation and amortization attributable to the Partnership's
mini-warehouse facilities increased $206,000 from $3,132,000 in 1996 to
$3,338,000 during 1997. This increase was primarily attributable to the
depreciation of capital expenditures made during 1996 and 1997.
Minority interest in income was $2,791,000 in 1997 compared to
$3,106,000 in 1996, representing a decrease of $315,000, or 10%. 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 $582,000 during 1997
compared to $249,000 in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income was $2,809,000 in 1996 compared to
$2,749,000 in 1995, representing an increase of $60,000, or 2%. This increase
was principally due to improved property operations and a decrease in
environmental costs, partially offset by an increase in depreciation expense and
a decrease in interest income.
12
<PAGE>
Property net operating income (rental income less cost of operations
and management fees and excluding depreciation expense) increased approximately
$221,000, or 2%, in 1996 compared to 1995, as rental income increased by
$573,000, or 4%, and cost of operations (including management fees) increased
$352,000, or 6%.
Rental income for the Partnership's mini-warehouse operations was
$14,855,000 in 1996 compared to $14,322,000 in 1995, representing an increase of
$533,000, or 4%. This increase was primarily attributable to increased realized
rental rates at the mini-warehouse facilities, combined with an increase in
occupancy levels. The average monthly realized rent per square foot for the
mini-warehouse was $.56 in 1996 compared to $.54 in 1995. Weighted average
occupancy levels at the mini-warehouse facilities were 91% in 1996 compared to
90% in 1995. Cost of operations (including management fees) for the
mini-warehouses increased $329,000, or 6%, to $5,799,000 in 1996 from $5,470,000
in 1995. The increase was primarily a result of increases in repairs and
maintenance, advertising, property tax, and office expenses. Accordingly, for
the mini-warehouse operations, property net operating income increased by
$204,000, or 2%, to $9,056,000 in 1996 from $8,852,000 in 1995.
Rental income for the Partnership's business park operations was
$986,000 in 1996 compared to $946,000 in 1995, representing a decrease of
$40,000, or 4%. This increase was primarily attributable to increased realized
rental rates at the Partnership's business park facility, partially offset by a
decrease in occupancy levels. The average monthly realized rent per square foot
for the business park was $.55 in 1996 compared to $.53 in 1995. Weighted
average occupancy levels at the business park facility were 97% and 98% for 1996
and 1995, respectively. Cost of operations (including management fees) for the
business parks increased $23,000 to $470,000 in 1996 from $447,000 in 1995. The
increase was primarily a result of increases in repairs and maintenance and
payroll expenses. Accordingly, for the business park operations, property net
operating income increased by $17,000, or 3%, to $516,000 in 1996 from $499,000
in 1995.
Interest income decreased in 1996 over 1995 as a result of a decrease
in average invested cash balances.
Depreciation and amortization increased $183,000 to $3,541,000 in 1996
from $3,358,000 in 1995. This increase is principally attributable to
depreciation of capital expenditures made during 1995 and 1996.
Minority interest in income decreased by $4,000 in 1996 compared to
1995. 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
$249,000 compared to $160,000 for 1996 and 1995, respectively, partially offset
by an increase in operations at the Partnership's real estate facilities owned
jointly with PSI.
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 by internally generated cash
from property operations. At December 31, 1997, the Partnership had cash and
cash equivalents totaling $1,455,000.
Cash flows from operating activities ($9,221,000 for the year ended
December 31, 1997) have been sufficient to meet all current obligations of the
Partnership. Total capital improvements were $1,534,000, $1,228,000 and $948,000
in 1997, 1996 and 1995, respectively. 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 include new signs,
exterior color schemes, and improvements to the rental offices. The increase in
1996 capital improvements is primarily attributable to these budgeted
improvements. The increase in 1997 is primarily attributable to roofing,
signage, and building capital improvements and capitalized computer equipment
and software at the Partnership's mini-warehouse facilities. During 1998, the
Partnership anticipates approximately $1,227,000 of capital improvements
(including PSI's joint venture share of $379,000).
13
<PAGE>
The Partnership expects to continue making quarterly distributions.
Total distributions paid to the General Partners and the limited partners
(including the per Unit amounts) for 1997 and prior years were as follows:
Total Per Unit
---------- ----------
1997 $4,000,000 $27.84
1996 4,999,000 34.80
1995 6,999,000 48.72
1994 4,396,000 30.60
1993 3,634,000 25.30
1992 2,875,000 20.00
1991 3,344,000 23.28
1990 2,874,000 20.00
1989 1,706,000 11.88
1988 2,784,000 19.38
1987 5,028,000 35.00
The General Partners distributed, concurrent with the distributions
for the third quarter of 1995, a portion of the operating reserve of the
Partnership's estimated to be $6.26 per Unit. Future distribution levels will be
based upon cash flows available for distributions (cash flows from operations
less capital improvements, distributions to minority interest and necessary cash
reserves).
Impact of Year 2000
- -------------------
PSI has completed an initial assessment of its computer systems. The
majority of the computer programs were installed or upgraded over the past few
years and are Year 2000 compliant. Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.
The cost of the Year 2000 project will be allocated to all entities
that use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Partnership is approximately $123,000. The cost
of new software will be capitalized and the cost of maintenance to existing
systems will be expensed as incurred.
The project is expected to be completed by March 31, 1999 which is
prior to any anticipated impact on operating systems. PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the
Partnership.
The costs of the project and the date on which PSI believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
ITEM 8. Financial Statements and Supplementary Data.
--------------------------------------------
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Consolidated Financial Statements and
Financial Statement Schedules in Item 14(a).
ITEM 9. Disagreements on Accounting and Financial Disclosure.
-----------------------------------------------------
None.
14
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Partnership.
----------------------------------------------------
The Partnership has no directors or executive officers.
The Partnership's General Partners are PSI and B. Wayne Hughes. PSI,
acting through its directors and executive officers, and Mr. Hughes manage and
make investment decisions for the Partnership. The Partnership's mini-warehouse
properties are managed by PSI pursuant to a Management Agreement. Through 1996,
the Partnership's commercial property was managed by PSCPG, now known as PS
Business Parks, Inc., pursuant to a Management Agreement. In January 1997, the
Partnership transferred its business park to PSBPLP in exchange for a
partnership interest in PSBPLP.
The names of all directors and executive officers of PSI, the offices
held by each of them with PSI, and their ages and business experience during the
past five years are as follows:
Name Positions with PSI
- ---------------------- -------------------------------------------------
B. Wayne Hughes Chairman of the Board and Chief Executive Officer
Harvey Lenkin President and Director
B. Wayne Hughes, Jr. Vice President and Director
John Reyes Senior Vice President and Chief Financial Officer
Carl B. Phelps Senior Vice President
Obren B. Gerich Senior Vice President
Marvin M. Lotz Senior Vice President
David Goldberg Senior Vice President and General Counsel
A. Timothy Scott Senior Vice President and Tax Counsel
David P. Singelyn Vice President and Treasurer
Sarah Hass Vice President and Secretary
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
Thomas J. Barrack, Jr. Director
Uri P. Harkham Director
B. Wayne Hughes, age 64, a general partner of the Partnership, has been
a director of PSI since its organization in 1980 and was President and Co-Chief
Executive Officer from 1980 until November 1991 when he became Chairman of the
Board and sole Chief Executive Officer. Mr. Hughes has been active in the real
estate investment field for over 25 years. He is the father of B. Wayne Hughes,
Jr.
Harvey Lenkin, age 61, has been employed by PSI for 20 years and became
President and a director of PSI in November 1991. Mr. Lenkin is a director of
the National Association of Real Estate Investment Trusts (NAREIT).
B. Wayne Hughes, Jr., age 38, became a director of PSI in January 1998.
He has been Vice President - Acquisitions of the Company since 1992. He is the
son of B. Wayne Hughes.
John Reyes, age 37, a certified public accountant, joined PSI in 1990
and was controller of PSI from 1992 until December 1996 when he became Chief
Financial Officer. He became a Vice President of PSI in November 1995 and a
Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.
Carl B. Phelps, age 58, became a Senior Vice President of PSI in
January 1998 with overall responsibility for property acquisition and
development. From June 1991 until joining PSI, he was a partner in the law firm
of Andrews & Kurth, L.L.P., which performed legal services for PSI. From
15
<PAGE>
December 1982 through May 1991, his professional corporation was a partner in
the law firm of Sachs & Phelps, then counsel to PSI.
Obren B. Gerich, age 59, a certified public accountant, has been a Vice
President of PSI since 1980 and became Senior Vice President of PSI in November
1995. He was Chief Financial Officer of PSI until November 1991.
Marvin M. Lotz, age 55, has had overall responsibility for Public
Storage's mini-warehouse operations since 1988. He became a Senior Vice
President of PSI in November 1995. Mr. Lotz was an officer of PSI with
responsibility for property acquisitions from 1983 until 1988.
David Goldberg, age 48, joined PSI's legal staff in June 1991. He
became Senior Vice President and General Counsel of PSI in November 1995. From
December 1982 until May 1991, he was a partner in the law firm of Sachs &
Phelps, then counsel to PSI.
A. Timothy Scott, age 46, became a Senior Vice President and Tax
Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in
November 1996. From June 1991 until joining PSI, Mr. Scott practiced tax law as
a shareholder of the law firm of Heller, Ehrman, White & McAuliffe, counsel to
PSI. Prior to June 1991, his professional corporation was a partner in the law
firm of Sachs & Phelps, then counsel to PSI.
David P. Singelyn, age 36, a certified public accountant, has been
employed by PSI since 1989 and became Vice President and Treasurer of PSI in
November 1995. From 1987 to 1989, Mr. Singelyn was Controller of Winchell's
Donut Houses, L.P.
Sarah Hass, age 42, became Secretary of PSI in February 1992. She
became a Vice President of PSI in November 1995. She joined PSI's legal
department in June 1991, rendering services on behalf of PSI. From 1987 until
May 1991, her professional corporation was a partner in the law firm of Sachs &
Phelps, then counsel to PSI, and from April 1986 until June 1987, she was
associated with that firm, practicing in the area of securities law. From
September 1979 until September 1985, Ms. Hass was associated with the law firm
of Rifkind & Sterling, Incorporated.
Robert J. Abernethy, age 58, has been President of American Standard
Development Company and of Self-Storage Management Company, which develop and
operate mini-warehouses, since 1976 and 1977, respectively. Mr. Abernethy has
been a director of PSI since its organization in 1980. He is a member of the
board of directors of Johns Hopkins University and of the Los Angeles County
Metropolitan Transportation Authority and a former member of the board of
directors of the Metropolitan Water District of Southern California.
Dann V. Angeloff, age 62, has been President of the Angeloff Company, a
corporate financial advisory firm, since 1976. The Angeloff Company has
rendered, and is expected to continue to render, financial advisory and
securities brokerage services for PSI. Mr. Angeloff is the general partner of a
limited partnership that owns a mini-warehouse operated by PSI and which secures
a note owned by PSI. Mr. Angeloff has been a director of PSI since its
organization in 1980. He is a director of Compensation Resource Group, Eagle
Lifestyle Nutrition, Inc., Nicholas/Applegate Growth Equity Fund,
Nicholas/Applegate Investment Trust, ReadyPac Produce, Inc. and Royce Medical
Company.
William C. Baker, age 64, became a director of PSI in November 1991.
Since November 1997, Mr. Baker has been Chairman of the Board and Chief
Executive Officer of The Santa Anita Companies, Inc., which operates the Santa
Anita Racetrack and is a wholly-owned subsidiary of Meditrust Operating Company.
From August 1996 until November 1997, he was Chairman of the Board and Chief
Executive Officer of Santa Anita Operating Company and Chairman of the Board of
the Board of Santa Anita Realty Enterprises, Inc., the companies which were
merged with Meditrust in November 1992. From April 1993 through May 1995, Mr.
Baker was President of Red Robin International, Inc., an operator and franchiser
of casual dining restaurants in the United States and Canada. From January 1992
through December 1995, he was Chairman and Chief Executive Officer of Carolina
Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc.
Since 1991, he has been Chairman of the Board of Coast Newport Properties, a
real estate brokerage company. From 1976 to 1988, he was a principal shareholder
and Chairman and Chief Executive Officer of Del Taco, Inc., an operator and
franchiser of fast food restaurants in California. Mr. Baker is a director of
Callaway Golf Company and Meditrust Operating Company.
16
<PAGE>
Thomas J. Barrack, Jr., age 50, became a director of PSI in February
1998. Mr. Barrack has been the Chairman and Chief Executive Officer of Colony
Capital, Inc. since September 1991. Colony Capital, Inc. is one of the largest
real estate investors in America, having acquired properties in the U.S., Europe
and Asia. Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack
was a principal with the Robert M. Bass Group, Inc., the principal investment
vehicle for Robert M. Bass of Fort Worth, Texas. From 1985 to 1987, Mr. Barrack
was President of Oxford Ventures, Inc., a Canadian-based real estate development
company. From 1984 to 1985, he was Senior Vice President at E.F. Hutton
Corporate Finance in New York. Mr. Barrack was appointed by President Ronald
Reagan as Deputy Under Secretary at the U.S. Department of the Interior from
1982 to 1983. Mr. Barrack currently is a director of Continental Airlines, Inc.
and Virgin Entertainment Group, Ltd.
Uri P. Harkham, age 49, became a director of PSI in March 1993. Mr.
Harkham has been the President and Chief Executive Officer of the Jonathan
Martin Fashion Group, which specializes in designing, manufacturing and
marketing women's clothing, since its organization in 1976. Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties, a real estate
firm specializing in buying and managing fashion warehouses in Los Angeles and
Australia.
Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate
and Agreement of Limited Partnership (the "Partnership Agreement"), a copy of
which is included in the Partnership's prospectus included in the Partnership's
Registration Statement, File No. 2-89770, each of the General Partners continues
to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of the other general partner and a majority vote of
the limited partners, or (iii) removal by a majority vote of the limited
partners.
Each director of PSI serves until he resigns or is removed from office
by PSI, and may resign or be removed from office at any time with or without
cause. Each officer of PSI serves until he resigns or is removed by the board of
directors of PSI. Any such officer may resign or be removed from office at any
time with or without cause.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability of any director or executive officer of PSI during the past five years.
ITEM 11. Executive Compensation.
-----------------------
The Partnership has no subsidiaries, directors or officers. See Item 13
for a description of certain transactions between the Partnership and the
General Partners and their affiliates.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
(a) At December 31, 1997, PSI beneficially owned more than 5% of the
Units of the Partnership:
<TABLE>
<CAPTION>
Title Name and Address Amount of Beneficial Percent
of Class of Beneficial Owner Ownership of Class
- --------------------- ---------------------------- -------------------- --------
<S> <C> <C> <C>
Units of Limited Public Storage, Inc. 77,260 Units (1) 60.36%
Partnership Interest 701 Western Avenue
Glendale, CA 91201-2394 (1)
- -------------------------
</TABLE>
(1) These Units are held of record by SEI Arlington Acquisition Corporation, a
wholly-owned subsidiary of PSI.
The Partnership is not aware of any other beneficial owners of
more than 5% of the Units.
In January 1997, PSI completed a cash tender offer, which had
commenced in December 1996, pursuant to which PSI acquired a total of
12,881 additional limited partnership units at $425 per Unit.
(b) The Partnership has no officers and directors.
17
<PAGE>
The General Partners (or their predecessor-in-interest) have
contributed $646,000 to the capital of the Partnership representing 1%
of the aggregate capital contributions and as a result participate in
the distributions to the limited partners and in the Partnership's
profits and losses in the same proportion that the general partners'
capital contribution bears to the total capital contribution.
Information regarding ownership of the Units by PSI, a General Partner,
is set forth under section (a) above. The directors and executive
officers, as a group, do not own any Units.
(c) The Partnership knows of no contractual arrangements, the operation
of the terms of which may at a subsequent date result in a change in
control of the Partnership, except for articles 16, 17 and 21.1 of the
Partnership's Amended Certificate and Agreement of Limited Partnership,
a copy of which is included in the Partnership's prospectus included in
the Partnership's Registration Statement File No. 2-89770. Those
articles provide, in substance, that the limited partners shall have
the right, by majority vote, to remove a general partner and that a
general partner may designate a successor with the consent of the other
general partner and a majority of the limited partners.
The Partnership owns interests in 41 properties (which exclude
the property transferred to PSBPLP in January 1997); 34 of such
properties are held in a general partnership comprised of the
Partnership and PSI. Under the terms of the partnership agreement
relating to the ownership of the properties, PSI has the right to
compel a sale of each property at any time after seven years from the
date of acquisition at not less than its independently determined fair
market value provided the Partnership receives its share of the net
sales proceeds solely in cash. As of December 31, 1997, PSI has the
right to require the Partnership to sell all of the joint venture
properties on these terms.
ITEM 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The Partnership Agreement provides that the General Partners and their
affiliates are entitled to the following compensation:
1. Incentive distributions equal to 10% of Cash Flow from Operations.
2. Provided the limited partners have received distributions equal to 100%
of their investment plus a cumulative 8% per year (not compounded) on
their investment (reduced by distributions other than from Cash Flow
from Operations), subordinated incentive distributions equal to 15% of
remaining Cash from Sales or Refinancings.
3. Provided the limited partners have received distributions equal to 100%
of their capital contributions plus a cumulative 6% per year (not
compounded) on their investment (reduced by distributions other than
distributions from Cash Flow from Operations), brokerage commissions at
the lesser of 3% of the sales price of a property or 50% of a
competitive commission.
During 1997, approximately $400,000 was paid to PSI with respect to
items 1, 2, and 3 above. The Partnership owns interests in 41 properties (which
exclude the property transferred to PSBPLP in January 1997); 34 of such
properties are held in a general partnership comprised of the Partnership and
PSI.
The Partnership has a Management Agreement with PSI pursuant to which
the Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse
spaces operated for the Partnership. During 1997, the Partnership paid fees of
$920,000 to PSI pursuant to the Management Agreement.
Through 1996, the Partnership's commercial property was managed by
PSCPG pursuant to a Management Agreement which provides for the payment of a fee
by the Partnership of 5% of the gross revenues of the commercial space operated
for the Partnership. In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to PSBPLP, an operating
partnership formed to own and operate business parks in which PSI has a
significant interest. Included among the properties transferred was the
Partnership's business park in exchange for a partnership interest in PSBPLP.
The general partner of PSBPLP is PS Business Parks, Inc., a REIT traded on the
American Stock Exchange.
18
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements: See Index to Consolidated Financial
Statements and Financial Statement Schedules.
2. Financial Statement Schedules: See Index to Consolidated
Financial Statements and Financial Statement Schedules.
3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K: None
(c) Exhibits: See Exhibit Index contained herein.
19
<PAGE>
PS PARTNERS III, LTD.
INDEX TO EXHIBITS
3.1 Amended Certificate and Agreement of Limited Partnership. Previously
filed with the Securities and Exchange Commission as Exhibit A to the
Partnership's Prospectus included in Registration Statement No. 2-89770
and incorporated herein by reference.
10.1 Second Amended and Restated Management Agreement dated November 16,
1995, between the Partnership and Public Storage Management, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to PS Partners, Ltd.'s Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
10.2 Amended Management Agreement dated February 21, 1995 between Storage
Equities, Inc. and Public Storage Commercial Properties Group, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
10.3 Participation Agreement dated as of May 11, 1984, among Storage
Equities, Inc., the Partnership, Public Storage, Inc., B. Wayne Hughes
and Kenneth Q. Volk, Jr. Previously filed with the Securities and
Exchange Commission as an exhibit to Storage Equities, Inc. Annual
Report on Form 10-K for the year ended December 31, 1984 and
incorporated herein by reference.
27 Financial data schedule. Filed herewith.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PS PARTNERS III, LTD.
Dated: March 26, 1998 By: Public Storage, Inc., General Partner
By: /s/ B. Wayne Hughes
--------------------------------------
B. Wayne Hughes, Chairman of the Board
By: /s/ B. Wayne Hughes
--------------------------------------
B. Wayne Hughes, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Partnership in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- ------------------------------------ --------------------------------------------- ---------------
<S> <C> <C>
/s/ B. Wayne Hughes Chairman of the Board and Chief March 26, 1998
- ------------------------------------ Executive Officer of Public Storage, Inc. and
B. Wayne Hughes General Partner (principal executive officer)
/s/ Harvey Lenkin President and Director March 26, 1998
- ------------------------------------ of Public Storage, Inc.
Harvey Lenkin
/s/ B. Wayne Hughes, Jr. Vice President and Director March 26, 1998
- ------------------------------------ of Public Storage, Inc.
B. Wayne Hughes, Jr.
/s/ John Reyes Senior Vice President and Chief Financial Officer March 26, 1998
- ------------------------------------ of Public Storage, Inc. (principal financial
John Reyes officer and principal accounting officer)
/s/ Robert J. Abernethy Director of Public Storage, Inc. March 26, 1998
- ------------------------------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director of Public Storage, Inc. March 26, 1998
- ------------------------------------------
Dann V. Angeloff
/s/ William C. Baker Director of Public Storage, Inc. March 26, 1998
- ------------------------------------------
William C. Baker
/s/ Uri P. Harkham Director of Public Storage, Inc. March 26, 1998
- ------------------------------------------
Uri P. Harkham
</TABLE>
21
<PAGE>
PS PARTNERS III, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
References
Report of Independent Auditors F-1
Consolidated Financial Statements and Schedules:
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2
For the years ended December 31, 1997, 1996 and 1995:
Consolidated Statements of Operations F-3
Consolidated Statements of Partners' Equity F-4
Consolidated Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-10
Schedule
III - Real Estate and Accumulated Depreciation F-11 - F-13
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
22
<PAGE>
Report of Independent Auditors
The Partners
PS Partners III, Ltd.
We have audited the consolidated balance sheets of PS Partners III, Ltd. as of
December 31, 1997 and 1996 and the related consolidated statements of income,
partners' equity, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PS
Partners III, Ltd. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
February 23, 1998
Los Angeles, CA
F-1
<PAGE>
PS PARTNERS III, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,455,000 $ 529,000
Rent and other receivables 244,000 123,000
Real estate facilities, at cost:
Land 13,856,000 15,392,000
Buildings and equipment 68,931,000 75,323,000
------------------------------------------
82,787,000 90,715,000
Less accumulated depreciation (35,058,000) (35,783,000)
------------------------------------------
47,729,000 54,932,000
Investment in real estate partnership 5,608,000 -
Other assets 144,000 275,000
------------------------------------------
$ 55,180,000 $ 55,859,000
==========================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 932,000 $ 894,000
Advance payments from renters 476,000 511,000
Minority interest in general partnerships 28,192,000 28,297,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 25,240,000 25,812,000
General partner's equity 340,000 345,000
------------------------------------------
Total partners' equity 25,580,000 26,157,000
------------------------------------------
$ 55,180,000 $ 55,859,000
==========================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
PS PARTNERS III, LTD.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
REVENUE:
<S> <C> <C> <C>
Rental income $ 15,333,000 $ 15,841,000 $ 15,268,000
Equity in income of real estate partnership 344,000 - -
Interest income 47,000 23,000 95,000
----------------------------------------------------------
15,724,000 15,864,000 15,363,000
----------------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 5,106,000 5,328,000 5,010,000
Management fees 920,000 941,000 907,000
Depreciation and amortization 3,338,000 3,541,000 3,358,000
Administrative 146,000 139,000 139,000
Environmental costs - - 90,000
----------------------------------------------------------
9,510,000 9,949,000 9,504,000
----------------------------------------------------------
Income before minority interest 6,214,000 5,915,000 5,859,000
Minority interest in income (2,791,000) (3,106,000) (3,110,000)
----------------------------------------------------------
NET INCOME $ 3,423,000 $ 2,809,000 $ 2,749,000
==========================================================
Limited partners' share of net income
($23.38, $17.86, and $15.85 per unit in
1997, 1996, and 1995, respectively) $ 2,993,000 $ 2,286,000 $ 2,029,000
General partner's share of net income 430,000 523,000 720,000
==========================================================
$ 3,423,000 $ 2,809,000 $ 2,749,000
==========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
PS PARTNERS III, LTD.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
----------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1994 $ 32,187,000 $ 410,000 $ 32,597,000
Net income 2,029,000 720,000 2,749,000
Distributions (6,236,000) (763,000) (6,999,000)
----------------------------------------------------------
Balances at December 31, 1995 27,980,000 367,000 28,347,000
Net income 2,286,000 523,000 2,809,000
Distributions (4,454,000) (545,000) (4,999,000)
----------------------------------------------------------
Balances at December 31, 1996 25,812,000 345,000 26,157,000
Net income 2,993,000 430,000 3,423,000
Distributions (3,565,000) (435,000) (4,000,000)
----------------------------------------------------------
Balances at December 31, 1997 $ 25,240,000 $ 340,000 $ 25,580,000
==========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
PS PARTNERS III, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 3,423,000 $ 2,809,000 $ 2,749,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 3,338,000 3,541,000 3,358,000
Increase in rent and other receivables (121,000) (24,000) (40,000)
Decrease (increase) in other assets 131,000 (96,000) (8,000)
Increase (decrease) in accounts payable 38,000 (39,000) 171,000
Decrease in advance payments from renters (35,000) (4,000) (52,000)
Equity income in real estate partnership (344,000) - -
Minority interest in income 2,791,000 3,106,000 3,110,000
----------------------------------------------------------
Total adjustments 5,798,000 6,484,000 6,539,000
----------------------------------------------------------
Net cash provided by operating activities 9,221,000 9,293,000 9,288,000
----------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Distributions from real estate partnership 146,000 - -
Investment in real estate partnership (11,000) - -
Additions to real estate facilities (1,534,000) (1,228,000) (948,000)
----------------------------------------------------------
Net cash used in investing activities (1,399,000) (1,228,000) (948,000)
----------------------------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Distributions to holder of minority interest (2,896,000) (2,992,000) (3,017,000)
Distributions to partners (4,000,000) (4,999,000) (6,999,000)
----------------------------------------------------------
Net cash used in financing activities (6,896,000) (7,991,000) (10,016,000)
----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 926,000 74,000 (1,676,000)
Cash and cash equivalents at the beginning of the period 529,000 455,000 2,131,000
----------------------------------------------------------
Cash and cash equivalents at the end of the period $ 1,455,000 $ 529,000 $ 455,000
==========================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
PS PARTNERS III, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C> <C>
Investment in real estate partnership $ (5,399,000) $ - $ -
Transfer of real estate facilities for interest in real estate
partnership, net 5,399,000 - -
</TABLE>
See accompanying notes.
F-6
<PAGE>
PS PARTNERS III, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
Description of Partnership
--------------------------
PS Partners III, Ltd. (the "Partnership") was formed with the
proceeds of an interstate public offering. PSI Associates II, Inc.
("PSA"), an affiliate of Public Storage Management, Inc., organized the
Partnership along with B. Wayne Hughes ("Hughes"). In September 1993,
Storage Equities, Inc., now known as Public Storage, Inc. ("PSI")
acquired the interest of PSA relating to its general partner capital
contribution in the Partnership and was substituted as a co-general
partner in place of PSA.
In 1995, there was a series of mergers among Public Storage
Management, Inc. (which was the Partnership's mini-warehouse operator),
Public Storage, Inc. and their affiliates (collectively, "PSMI"),
culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI
into Storage Equities, Inc. In the PSMI Merger, Storage Equities, Inc.
was renamed Public Storage, Inc. and it acquired substantially all of
PSMI's United States real estate operations and became the operator of
the Partnership's mini-warehouse properties.
The Partnership has invested in existing mini-warehouse
storage facilities which offer self-service storage spaces for lease,
usually on a month-to-month basis, to the general public and, to a
lesser extent, in an existing business park facility which offers
industrial and office space for lease.
The Partnership has ownership interests in 41 properties in 15
states, which exclude a property transferred to PS Business Parks, L.P.
("PSBPLP") in January 1997. 34 of the properties are owned jointly
through 23 general partnerships (the "Joint Ventures") with PSI. For
tax administrative efficiency the Joint Ventures were subsequently
consolidated into a single general partnership. The Partnership is the
managing general partner of the Joint Ventures, with ownership
interests in the Joint Ventures ranging from 49% to 89%.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
the Partnership and the Joint Ventures. PSI's ownership interest in the
Joint Ventures is shown as minority interest in general partnerships in
the accompanying consolidated balance sheets. All significant
intercompany balances and transactions have been eliminated.
Minority interest in income represents PSI's share of net
income with respect to the Joint Ventures. Under the terms of the
partnership agreements all depreciation and amortization with respect
to each Joint Venture is allocated solely to the Partnership until the
limited partners recover their initial capital contribution.
Thereafter, all depreciation and amortization is allocated solely to
PSI until it recovers its initial capital contribution. All remaining
depreciation and amortization is allocated to the Partnership and PSI
in proportion to their ownership percentages.
Depreciation and amortization allocated to PSI were $582,000,
$249,000, and $160,000 in 1997, 1996, and 1995, respectively. The
allocation of depreciation and amortization to PSI has the effect of
reducing minority interest in income and has no effect on the reported
depreciation and amortization expense.
Under the terms of the partnership agreements, for property
acquisitions in which PSI issued convertible securities to the sellers
for its interest, PSI's rights to receive cash flow distributions from
the partnerships for any year after the first year of operation are
subordinated to cash distributions to the Partnership equal to a
cumulative annual 7% of its cash investment (not compounded). These
agreements also specify that upon sale or refinancing of a property for
more than its original purchase price, distribution of proceeds to PSI
is subordinated to the return to the Partnership of the amount of its
cash investment and the 7% distribution described above.
F-7
<PAGE>
PS PARTNERS III, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
(continued)
-----------
Basis of Presentation (continued)
---------------------------------
In addition to the above provisions, PSI has the right to
compel the sale of each property in the general partnerships at any
time after seven years from the date of acquisition at not less than
its independently determined fair market value provided the Partnership
receives its share of the net sales proceeds solely in cash. PSI's
right to require the Partnership to sell all of the jointly owned
properties became exercisable in 1991.
Real Estate Facilities
----------------------
The Partnership depreciates buildings and equipment on a
straight-line method over estimated useful lives of 25 and 5 years,
respectively. Leasing commissions relating to business park properties
are expensed when incurred.
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("Statement 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Statement 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the method of accounting for long-lived
assets that are expected to be disposed. The Partnership adopted
Statement 121 in 1996 and the adoption had no effect.
In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to PSBPLP, an
operating partnership formed to own and operate business parks in which
PSI has a significant interest. Included among the properties
transferred was the Partnership's business park in exchange for a
partnership interest in PSBPLP. The general partner of PSBPLP is PS
Business Parks, Inc.
Revenue Recognition
-------------------
Property rents are recognized as earned.
Allocation of Net Income
------------------------
The General Partners' share of net income consists of an
amount attributable to their 1% capital contribution and an additional
percentage of cash flow (as defined, see Note 2) which relates to the
General Partners' share of cash distributions as set forth in the
Partnership Agreement. All remaining net income is allocated to the
limited partners.
Per Unit Data
-------------
Per unit data is based on the number of limited partnership
units (128,000) outstanding during the year.
Cash Distributions
------------------
The Partnership Agreement provides for quarterly distributions
of cash flow from operations (as defined). Cash distributions per unit
were $27.84, $34.80, and $48.72 for 1997, 1996, and 1995, respectively.
Cash and Cash Equivalents
-------------------------
For financial statement purposes, the Partnership considers
all highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
F-8
<PAGE>
PS PARTNERS III, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
(continued)
-----------
Environmental Cost
------------------
Substantially all of the Partnership's facilities were
acquired prior to the time that it was customary to conduct extensive
environmental investigations in connection with the property
acquisitions. During the fourth quarter of 1995, an independent
environmental consulting firm completed environmental assessments on
the Partnership's properties to evaluate the environmental condition
of, and potential environmental liabilities of such properties. Based
on the assessments, the Partnership believes that it is probable that
it will incur costs totaling $40,000 after December 31, 1997 for known
environmental remediation requirements. During 1997, 1996, and 1995,
the Partnership paid $1,000, $2,000, and $47,000, respectively, in
connection with the environmental remediations. Although there can be
no assurance, the Partnership is not aware of any unaccrued
environmental contamination of its facilities which individually or in
the aggregate would be material to the Partnership's overall business,
financial condition, or results of operations.
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
2. General Partners' Equity
------------------------
The General Partners have a 1% interest in the Partnership. In
addition, the General Partners have a 10% interest in cash
distributions attributable to operations, exclusive of distributions
attributable to sales and refinancing proceeds.
Proceeds from sales and refinancings will be distributed
entirely to the limited partners until the limited partners recover
their investment plus a cumulative 8% annual return (not compounded);
thereafter, the General Partners have a 15% interest in remaining
proceeds.
3. Related Party Transactions
--------------------------
The Partnership has a management agreement with PSI whereby
PSI operates the Partnership's mini-warehouse facilities for a fee
equal to 6% of the facilities' monthly gross revenue (as defined).
In January 1997, the Partnership transferred its business park
facility to PSBPLP in exchange for a partnership interest in PSBPLP.
PSI has a significant economic interest in PSBPLP and PSBP.
4. Leases
------
The Partnership has invested primarily in existing
mini-warehouse storage facilities which offer self-service storage
spaces for lease to the general public. Leases for such space are
usually on a month-to-month basis.
F-9
<PAGE>
PS PARTNERS III, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
5. Taxes Based on Income
---------------------
Taxes based on income are the responsibility of the individual
partners and, accordingly, the Partnership's consolidated financial
statements do not reflect a provision for such taxes.
Taxable net income was $6,537,000, $2,358,000 and $3,149,000
for the years ended December 31, 1997, 1996 and 1995, respectively. The
difference between taxable income and book income is primarily related
to timing differences in depreciation expense.
F-10
<PAGE>
PS PARTNERS III, LTD.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs Gross Carrying Amount
Initial Cost subsequent At December 31, 1997
-------------------------------- to acquisition -------------------------------------------------
Date Building & Building & Building & Accumulated
Acquired Description Encumbrances Land Improvement Improvements Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
Mini-warehouse
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/84 Delran $ - $ 279,000 $ 1,472,000 $ 237,000 $ 279,000 $ 1,709,000 $ 1,988,000 $ 915,000
5/84 Garland - 356,000 844,000 185,000 356,000 1,029,000 1,385,000 530,000
6/84 Orange Blossom - 226,000 924,000 179,000 226,000 1,103,000 1,329,000 593,000
6/84 Safe Place (Cincinnati) - 402,000 1,573,000 444,000 402,000 2,017,000 2,419,000 1,045,000
6/84 Safe Place (Florence) - 185,000 740,000 319,000 185,000 1,059,000 1,244,000 552,000
8/84 Medley - 584,000 1,016,000 298,000 584,000 1,314,000 1,898,000 698,000
8/84 Oklahoma City - 340,000 1,310,000 357,000 340,000 1,667,000 2,007,000 886,000
8/84 Newport News - 356,000 2,395,000 528,000 356,000 2,923,000 3,279,000 1,512,000
8/84 Kaplan (Irving) - 677,000 1,592,000 320,000 677,000 1,912,000 2,589,000 1,012,000
8/84 Kaplan (Walnut Hill) - 971,000 2,359,000 602,000 971,000 2,961,000 3,932,000 1,525,000
9/84 Cockrell Hill - 380,000 913,000 994,000 380,000 1,907,000 2,287,000 997,000
11/84 Omaha - 109,000 806,000 402,000 109,000 1,208,000 1,317,000 647,000
11/84 Manchester - 164,000 1,643,000 211,000 164,000 1,854,000 2,018,000 959,000
12/84 Austin (Ben White) - 325,000 474,000 184,000 325,000 658,000 983,000 345,000
12/84 Austin (Lamar) - 643,000 947,000 334,000 643,000 1,281,000 1,924,000 650,000
12/84 Pompano - 399,000 1,386,000 454,000 399,000 1,840,000 2,239,000 941,000
12/84 Fort Worth - 122,000 928,000 (3,000) 122,000 925,000 1,047,000 476,000
11/84 Hialeah - 886,000 1,784,000 234,000 886,000 2,018,000 2,904,000 1,051,000
12/84 Montgomeryville - 215,000 2,085,000 252,000 215,000 2,337,000 2,552,000 1,206,000
1/85 Bossier City - 184,000 1,542,000 267,000 184,000 1,809,000 1,993,000 940,000
2/85 Simi Valley - 737,000 1,389,000 248,000 737,000 1,637,000 2,374,000 836,000
3/85 Chattanooga - 202,000 1,573,000 303,000 202,000 1,876,000 2,078,000 939,000
2/85 Hurst - 231,000 1,220,000 183,000 231,000 1,403,000 1,634,000 710,000
3/85 Portland - 285,000 941,000 184,000 285,000 1,125,000 1,410,000 591,000
5/85 Longwood - 355,000 1,645,000 217,000 355,000 1,862,000 2,217,000 943,000
3/85 Fern Park - 144,000 1,107,000 179,000 144,000 1,286,000 1,430,000 650,000
3/85 Fairfield - 338,000 1,187,000 336,000 338,000 1,523,000 1,861,000 760,000
</TABLE>
F-11
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs Gross Carrying Amount
Initial Cost subsequent At December 31, 1997
-------------------------------- to acquisition -------------------------------------------------
Date Building & Building & Building & Accumulated
Acquired Description Encumbrances Land Improvement Improvements Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
Mini-warehouse
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/85 Laguna Hills $ - $ 1,224,000 $ 3,303,000 $ 346,000 $ 1,224,000 $ 3,649,000 $ 4,873,000 $ 1,856,000
7/85 Columbus (Morse Rd.) - 195,000 1,510,000 211,000 195,000 1,721,000 1,916,000 840,000
7/85 Columbus (Kenney Rd.) - 199,000 1,531,000 257,000 199,000 1,788,000 1,987,000 856,000
5/85 Columbus (Busch Blvd.) - 202,000 1,559,000 238,000 202,000 1,797,000 1,999,000 884,000
5/85 Columbus (Kinnear Rd.) - 241,000 1,865,000 220,000 241,000 2,085,000 2,326,000 1,027,000
6/85 Grove City/ Marlane Drive - 150,000 1,157,000 231,000 150,000 1,388,000 1,538,000 667,000
6/85 Reynoldsburg - 204,000 1,568,000 222,000 204,000 1,790,000 1,994,000 888,000
5/85 Worthington - 221,000 1,824,000 217,000 221,000 2,041,000 2,262,000 1,008,000
7/85 Westerville - 199,000 1,517,000 281,000 199,000 1,798,000 1,997,000 871,000
5/85 Arlington - 201,000 1,497,000 262,000 201,000 1,759,000 1,960,000 853,000
7/85 Springfield - 90,000 699,000 169,000 90,000 868,000 958,000 425,000
7/85 Dayton (Needmore Road) - 144,000 1,108,000 275,000 144,000 1,383,000 1,527,000 688,000
7/85 Dayton (Executive Blvd.) - 160,000 1,207,000 295,000 160,000 1,502,000 1,662,000 737,000
7/85 Lilburn - 331,000 969,000 150,000 331,000 1,119,000 1,450,000 549,000
----------------------------------------------------------------------------------------------------
$ - $ 13,856,000 $ 57,109,000 $ 11,822,000 $ 13,856,000 $ 68,931,000 $ 82,787,000 $ 35,058,000
====================================================================================================
</TABLE>
F-12
<PAGE>
PS PARTNERS III, LTD.
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)
(A) The following is a reconciliation of cost and related accumulated
depreciation.
GROSS CARRYING COST RECONCILIATION
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of the period $ 90,715,000 $ 89,487,000 $ 88,539,000
Additions during the period:
Improvements, etc. 1,534,000 1,228,000 948,000
Deductions during the period:
Disposition of real estate (9,462,000) - -
------------------------------------------------
Balance at the close of the period $ 82,787,000 $ 90,715,000 $ 89,487,000
================================================
</TABLE>
ACCUMULATED DEPRECIATION RECONCILIATION
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of the period $ 35,783,000 $ 32,242,000 $ 28,884,000
Additions during the period:
Depreciation 3,338,000 3,541,000 3,358,000
Deductions during the period:
Disposition of real estate (4,063,000) - -
------------------------------------------------
Balance at the close of the period $ 35,058,000 $ 35,783,000 $ 32,242,000
================================================
</TABLE>
(B) The aggregate cost of real estate for Federal income tax purposes is
$82,746,000.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000741513
<NAME> PS PARTNERS III, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,455,000
<SECURITIES> 0
<RECEIVABLES> 244,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,699,000
<PP&E> 82,787,000
<DEPRECIATION> (35,058,000)
<TOTAL-ASSETS> 55,180,000
<CURRENT-LIABILITIES> 1,408,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,580,000
<TOTAL-LIABILITY-AND-EQUITY> 55,180,000
<SALES> 0
<TOTAL-REVENUES> 15,724,000
<CGS> 0
<TOTAL-COSTS> 6,026,000
<OTHER-EXPENSES> 3,484,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,423,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,423,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,423,000
<EPS-PRIMARY> 23.38
<EPS-DILUTED> 23.38
</TABLE>
