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, 1998
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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
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Commission File Number 0-13479
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PS PARTNERS III, LTD.
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(Exact name of registrant as specified in its charter)
California 95-3920904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2394
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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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
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(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. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. BUSINESS.
Forward Looking Statements
- --------------------------
When used within this document, the words "expects," "believes,"
"anticipates," "should," "estimates," and similar expressions are intended to
identify "forward-looking statements" within the meaning of that term in Section
27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of
the Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors, which may
cause the actual results and performance of the Partnership to be materially
different from those expressed or implied in the forward looking statements.
Such factors include the impact of competition from new and existing real estate
facilities which could impact rents and occupancy levels at the real estate
facilities that the Partnership has an interest in; the Partnership's ability to
effectively compete in the markets that it does business in; the impact of the
regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Partnerships; and the
impact of general economic conditions upon rental rates and occupancy levels at
the real estate facilities that the Partnership has an interest in.
General
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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 real estate investments consist of wholly-owned facilities and an
investment in a general partnership (SEI/PSP III Joint Ventures, the "Joint
Venture") with Public Storage, Inc. ("PSI") (formerly known as "Storage
Equities, Inc."), a real estate investment trust ("REIT") organized as a
corporation under the laws of California.
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 mini warehouse of the Partnership and the Joint
Venture.
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. PSI believes that it is the largest operator of mini-warehouse
facilities in the United States.
Through 1996, the business park of the Joint Venture was managed by
Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a
Management Agreement. In January 1997, the Joint Venture 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
business park of the Joint Venture 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
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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
properties 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 January 1, 1999, PSI owned approximately 60.77% of
the Partnership's limited partnership units, and (iv) PSI is the operator of the
41 properties in which the Partnership has an interest (these 41 properties are
referred to collectively hereinafter as the "Mini-Warehouse Properties").
Investments in Facilities
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The Partnership owns interests in 41 properties (excluding the property
transferred to PSBPLP in January 1997); 34 of such properties are owned by the
Joint Venture. 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 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
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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.
The Mini-Warehouse Properties 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 Mini-Warehouse Properties experience 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 Mini-Warehouse Properties 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.
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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 and
the Joint Venture do not intend to convert the Mini-Warehouse Properties to
other uses.
Business Park
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Through 1996, the Joint Venture owned and operated a single commercial
property; a business park located in Sacramento, California. This business park
was transferred to PSBPLP in January 1997 in exchange for a partnership interest
in PSBPLP.
Investment Objectives and Policies
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The Partnership's objectives are to (i) preserve and protect invested
capital, (ii) maximize the potential for appreciation in value of its
investments, (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 properties owned by the
Joint Venture (see Item 12(c)).
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 properties owned by the Partnership
and the Joint Venture. 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 Mini-Warehouse Properties (consisting not only of the
Partnership's interest but also including PSI's interest), as of January 31,
1996, was $86,900,000. 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 34 of the
Mini-Warehouse 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 Mini-Warehouse Properties (an
aggregate of $8,510,000). 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, 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.
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.
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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.
Operating Strategies
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The Mini-Warehouse Properties 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, 1998, the telephone reservation system was supporting
rental activity at all of the Partnership's properties. PSI's toll-free
telephone referral system services approximately 175,000 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 Properties were 89% in 1998 compared to 90% in 1997. The
average monthly realized rent per occupied square foot for the
Mini-Warehouse Properties was $.61 in 1998 compared to $.58 in 1997.
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 170
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 120 district managers, 33 regional
managers and 11 divisional managers who report to the president of the
mini-warehouse property operator (who has 15 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."
5
<PAGE>
Mini-warehouse Property Operator
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The Mini-Warehouse Properties are managed by PSI pursuant to a
Management Agreement.
Under the supervision of the Partnership and the Joint Venture, 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 property owners, employees for the
operation of the owners' 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.
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 Mini-Warehouse Properties are typically advertised via signage,
yellow pages, flyers and broadcast media advertising (television and radio) in
geographic areas in which many of the facilities are located. Broadcast media
and other advertising costs are charged to the 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 and the Joint Venture 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 and the Joint Venture 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 with PSI provides that the Management
Agreement may be terminated without cause upon 60 days written notice by either
party.
Business Park Operator
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Through 1996, the business park of the Joint Venture was managed by
PSCPG, now known as PS Business Parks, Inc., pursuant to a Management Agreement.
In January 1997, this property was transferred to PSBPLP in exchange for a
partnership interest.
Competition
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Competition in the market areas in which the Mini-Warehouse Properties
operate is significant and affects the occupancy levels, rental rates and
operating expenses of certain of the 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
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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
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A corporation owned by the Hughes Family reinsures policies against
losses to goods stored by tenants in the Mini-Warehouse Properties. The
Partnership believes that the availability of insurance reduces the potential
liability of the Partnership and the Joint Venture 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
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There are 138 persons who render services on behalf of the Partnership
and the Joint Venture. These persons include resident managers, assistant
managers, relief managers, district managers, and administrative personnel. Some
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 or PSBPLP.
7
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth information as of December 31, 1998
about the Mini-Warehouse Properties:
<TABLE>
<CAPTION>
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- -------- ----------- ------ ----------- ----------
<S> <C> <C> <C> <C>
CALIFORNIA
Laguna Hills 72,900 676 04/10/85 50.0%
E. Pacifico
Simi Valley 50,700 521 02/01/85 50.9
First St.
FLORIDA
Fern Park 37,400 405 03/19/85 50.0
U.S. Highway
Hialeah 62,400 730 11/29/84 50.0
Red Road - W 4th Ave.
Longwood 62,800 600 05/03/85 50.3
U.S. Highway
Medley 48,800 518 08/31/84 100.0
N.W. S. River
Orlando 34,500 357 06/22/84 74.6
45th - Orange Blossom
Pompano Beach 43,700 338 12/19/84 100.0
S.W. 2nd St.
GEORGIA
Lilburn 35,600 297 07/10/85 50.0
Indian Trail Rd.
KENTUCKY
Florence 39,900 314 06/27/84 100.0
Industrial Hwy
LOUISIANA
Bossier City 77,900 751 01/07/85 50.0
Gould Dr.
NEBRASKA
Omaha 46,300 392 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 63,100 594 06/20/84 71.2
Route 130
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- -------- ----------- ------ ----------- ----------
<S> <C> <C> <C> <C>
OHIO
Arlington 62,900 463 05/31/85 55.0%
Arlington Center
Cincinnati 70,300 645 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 63,900 539 07/11/85 55.0
Morse
Dayton 65,700 568 07/11/85 55.0
Executive Blvd.
Dayton 61,100 403 07/11/85 55.0
Needmore Road
Fairfield 52,000 380 03/14/85 50.0
Dixie Highway II
Grove City 52,000 509 06/07/85 55.0
Marlane Drive
Reynoldsburg 65,500 573 06/07/85 55.0
Gender
Springfield 40,400 350 07/11/85 55.0
W. Leffel
Westerville 64,200 578 07/11/85 55.0
Westerville Road
Worthington 74,400 557 05/31/85 55.0
Billingsley
OKLAHOMA
Oklahoma 83,500 576 08/31/84 100.0
West Reno II
OREGON
Portland 44,300 495 03/01/85 75.0
N.E. 92nd St.
PENNSYLVANIA
Montgomeryville 63,400 532 12/13/84 50.0
Route 309
TENNESSEE
Chattanooga 82,100 507 03/06/85 70.3
Pryor Drive
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- -------- ----------- ------ ----------- ----------
<S> <C> <C> <C> <C>
TEXAS
Austin 33,300 232 12/11/84 75.0%
E. Ben White Blvd.
Austin 56,200 529 12/11/84 75.0
N. Lamar Blvd.
Dallas (1) 63,900 513 09/28/84 50.5
Cockrell Hill Rd.
Dallas 114,900 1,047 08/31/84 100.0
Walnut Hill Lane
Fort Worth 42,000 338 12/12/84 50.0
Hemphill St.
Garland 37,400 365 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 79,600 663 08/17/84 88.5
</TABLE>
- -----------------------------
(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 Properties
was 89% in 1998 compared to 90% in 1997. The monthly average realized rent per
square foot for the Mini-Warehouse Properties was $.61 in 1998 compared to $.58
in 1997.
Substantially all of the 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 Mini-Warehouse Properties to evaluate the environmental condition of, and
potential environmental liabilities of such properties. Although there can be no
assurance, the Partnership is not aware of any 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 or the
Joint Venture.
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 1998.
10
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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, 1998, there were approximately 2,369 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.
11
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(In thousands, except per Unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues $6,471 $5,374 $4,648 $4,500 $4,401
Depreciation and amortization 680 655 595 563 529
Net income 4,447 3,423 2,809 2,749 2,788
Limited partners' share 4,006 2,993 2,286 2,029 2,325
General partners' share 441 430 523 720 463
Limited partners' per unit data (a)
Net income $31.30 $23.38 $17.86 $15.85 $18.16
Cash distributions (b) $27.84 $27.84 $34.80 $48.72 $30.60
As of December 31,
- ------------------
Cash and cash equivalents $3,122 $1,222 $289 $162 $1,757
Total assets $26,337 $25,857 $26,379 $28,601 $32,819
</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.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LOOKING FORWARD STATEMENTS
- --------------------------
When used within this document, the words "expects," "believes,"
"anticipates," "should," "estimates," and similar expressions are intended to
identify "forward-looking statements" within the meaning of that term in Section
27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of
the Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors, which may
cause the actual results and performance of the Partnership to be materially
different from those expressed or implied in the forward looking statements.
Such factors include the impact of competition from new and existing real estate
facilities which could impact rents and occupancy levels at the real estate
facilities that the Partnership's has an interest in; the Partnership's ability
to effectively compete in the markets that it does business in; the impact of
the regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Partnerships; and the
impact of general economic conditions upon rental rates and occupancy levels at
the real estate facilities that the Partnership has an interest in.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997:
The Partnership's net income was $4,447,000 in 1998 compared to
$3,423,000 in 1997, representing an increase of $1,024,000, or 29.9%. The
increase is due primarily to the Partnership's share of an improvement in
operations of the mini-warehouses in which the Partnership has an interest (the
"Mini-Warehouse Properties") and a decrease in depreciation allocated to the
Partnership with respect to the Joint Venture.
PROPERTY OPERATIONS: Rental income for the Partnership's wholly-owned
mini-warehouse properties was $2,764,000 in 1998 compared to $2,636,000 during
1997, representing an increase of $128,000, or 4.9%. Cost of operations
(including management fees) increased $38,000, or 3.3%, to $1,188,000 in 1998
from $1,150,000 in 1997. Accordingly, for the Partnership's wholly-owned
mini-warehouse properties, net operating income increased by $90,000, or 6.1%,
from $1,486,000 in 1997 to $1,576,000 during 1998.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real
estate entities was $3,574,000 in 1998 as compared to $2,691,000 during 1997,
representing an increase of $883,000, or 32.8%. This increase was due primarily
to the Partnership's share of improved operating results at the Joint Venture's
mini-warehouse properties, as well as a decrease in depreciation expense
allocated to the Partnership with respect to the Joint Venture.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization for the
Partnership's wholly-owned properties increased $25,000, or 3.8% from $655,000
in 1997 to $680,000 in 1998. This increase was primarily attributable to the
depreciation of capital expenditures made during 1997 and 1998.
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 21.9%. The increase
is due primarily to the Partnership share of an improvement in operations of the
mini-warehouses in which the Partnership has an interest and a decrease in
depreciation allocated to the Partnership with respect to the Joint Venture.
PROPERTY OPERATIONS: Rental income for the Partnership's wholly-owned
mini-warehouse properties was $2,636,000 in 1997 compared to $2,496,000 during
1996, representing an increase of $140,000, or 5.6%. Cost of operations
(including management fees) increased $45,000, or 4.1%, to $1,150,000 in 1997
from $1,105,000 in 1996. Accordingly, for the Partnership's wholly-owned
mini-warehouse properties, net operating income increased by $95,000, or 6.8%,
from $1,391,000 in 1996 to $1,486,000 during 1997.
13
<PAGE>
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real
estate entities was $2,691,000 in 1997 as compared to $2,129,000 during 1996,
representing an increase of $562,000, or 26.4%. This increase was due primarily
to the Partnership's share of improved operating results at the Joint Venture's
mini-warehouse properties, as well as a decrease in depreciation expense
allocated to the Partnership with respect to the Joint Venture.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization for the
Partnership's wholly-owned properties increased $60,000, or 10.1% from $595,000
in 1996 to $655,000 in 1997. This increase was primarily attributable to the
depreciation of capital expenditures made during 1996 and 1997.
SUPPLEMENTAL PROPERTY DATA
- --------------------------
During 1998 and 1997, a majority of the Partnership's net income was
from the Partnership's share of the operating results of the Mini-Warehouse
Properties. Therefore, in order to evaluate the Partnership's operating results,
the General Partners analyze the operating performance of the Mini-Warehouse
Properties.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31,
1997: Rental income for the Mini-Warehouse Properties was $15,813,000 in 1998
compared to $15,333,000 during 1997, representing an increase of $480,000, or
3.1%. 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 was $.61 in 1998 compared to $.58
in 1997. The weighted average occupancy levels decreased from 90% in 1997 to 89%
in 1998. Cost of operations (including management fees) increased $237,000, or
3.9%, to $6,263,000 during 1998 from $6,026,000 in 1997. This increase was
primarily attributable to increases in advertising and property tax expenses.
Accordingly, for the Mini-Warehouse Properties, property net operating income
increased by $243,000, or 2.6%, from $9,307,000 in 1997 to $9,550,000 during
1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31,
1996: Rental income for the Mini-Warehouse Properties was $15,333,000 in 1997
compared to $14,855,000 during 1996, representing an increase of $478,000, or
3.2%. 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 was $.58 in 1997 compared to $.56
in 1996. The weighted average occupancy levels decreased from 91% in 1996 to 90%
in 1997. Cost of operations (including management fees) increased $227,000, or
4.0%, to $6,026,000 during 1997 from $5,799,000 in 1996. This increase was
primarily attributable to increases in advertising, property tax, and management
expenses. Accordingly, for the Mini-Warehouse Properties, property net operating
income increased by $251,000, or 2.8%, from $9,056,000 in 1996 to $9,307,000
during 1997.
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 and distributions from Real Estate Entities, combined
with cash on hand at December 31, 1998 of $3,122,000.
Cash flows from operating activities and distributions from Real Estate
Entities ($6,192,000 for the year ended December 31, 1998) have been sufficient
to meet all current obligations of the Partnership. Total capital improvements
for the Partnership's wholly-owned properties were $292,000, $305,000 and
$261,000 in 1998, 1997 and 1996, respectively. During 1999, the Partnership
anticipates approximately $194,000 of capital improvements to the Partnership's
wholly-owned properties.
14
<PAGE>
Total distributions paid to the General Partners and the limited
partners (including the per Unit amounts) for 1998 and prior years were as
follows:
Total Per Unit
---------- ----------
1998 $4,000,000 $27.84
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
and distributions from Real Estate Entities less capital improvements and
necessary cash reserves).
IMPACT OF YEAR 2000
- -------------------
The Partnership utilizes PSI's information systems in connection with a
cost sharing and administrative services agreement. PSI has completed an
assessment of all of its hardware and software applications to identify
susceptibility to what is commonly referred to as the "Y2K Issue" whereby
certain computer programs have been written using two digits rather than four to
define the applicable year. Any of PSI's computer programs or hardware with the
Y2K Issue that have date-sensitive applications or embedded chips may recognize
a date using "00" as the year 1900 rather than the year 2000, resulting in
miscalculations or system failure causing disruptions of operations.
PSI has two phases in its process with respect to each of its systems;
i) assessment, whereby PSI evaluates whether the system is Y2K compliant and
identifies the plan of action with respect to remediating any Y2K issues
identified and ii) implementation, whereby PSI completes the plan of action
prepared in the assessment phase and verifies that Y2K compliance has been
achieved.
Many of PSI's critical applications, relative to the direct management
of properties, have recently been replaced and PSI believes they are already
Year 2000 compliant. PSI has an implementation in process on the remaining
critical applications, including its general ledger and related systems, that
are believed to have Y2K issues. PSI expects the implementation to be complete
by June 1999. Contingency plans have been developed for use in case PSI's
implementations are not completed on a timely basis. While PSI presently
believes that the impact of the Y2K Issue on its systems can be mitigated, if
PSI's plan for ensuring Year 2000 Compliance and the related contingency plans
were to fail, be insufficient, or not be implemented on a timely basis,
Partnership operations could be materially impacted.
Certain of PSI's other non-computer related systems that may be
impacted by the Y2K Issue, such as security systems, are currently being
evaluated, and PSI expects the evaluation to be complete by June 1999. PSI
expects the implementation of any required solutions to be complete in advance
of December 31, 1999. PSI has not fully evaluated the impact of lack of Year
2000 compliance on these systems, but has no reason to believe that lack of
compliance would materially impact the Partnership's operations.
The Partnership exchanges electronic data with certain outside vendors
in the banking and payroll processing areas. The Partnership has been advised by
15
<PAGE>
these vendors that their systems are or will be Year 2000 compliant, but has
requested a Year 2000 compliance certification from these entities. The
Partnership is not aware of any other vendors, suppliers, or other external
agents with a Y2K Issue that would materially impact the Partnership's results
of operations, liquidity, or capital resources. However, the Partnership has no
means of ensuring that external agents will be Year 2000 compliant, and there
can be no assurance that the Partnership has identified all such external
agents. The inability of external agents to complete their Year 2000 compliance
process in a timely fashion could materially impact the Partnership. The effect
of non-compliance by external agents is not determinable.
The cost of the PSI's year 2000 compliance activities (which primarily
consists of the costs of new systems) to be allocated to the Partnership and the
Joint Venture is estimated at approximately $184,000. These costs are
capitalized. PSI's year 2000 compliance efforts have not resulted in any
significant deferrals in other information system projects.
The costs of the projects and the date on which PSI and the Partnership
expect to achieve Year 2000 Compliance are based upon management's best
estimates, and were derived utilizing numerous assumptions of future events.
There can be no assurance that these estimates will be achieved, and actual
results could differ materially from those anticipated. There can be no
assurance that the Partnership or PSI has identified all potential Y2K Issues
either within the Partnership, at PSI, or at external agents. In addition, the
impact of the Y2K issue on governmental entities and utility providers and the
resultant impact on the Partnership, as well as disruptions in the general
economy, may be material but cannot be reasonably determined or quantified.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Financial Statements and Financial Statement
Schedules in Item 14(a).
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
16
<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 Mini-Warehouse Properties are
managed by PSI pursuant to a Management Agreement. Through 1996, the business
park owned by the Joint Venture was managed by a predecessor of PSBPLP, pursuant
to a Management Agreement. In January 1997, the Joint Venture 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
Daniel C. Staton Director
B. Wayne Hughes, age 65, 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 62, has been employed by PSI for 21 years and became
President and a director of PSI in November 1991. Mr. Lenkin has been a director
of PS Business Parks, Inc. ("PSBP"), an affiliated REIT, since March 16, 1998
and was President of PSBP (formerly Public Storage Properties XI, Inc.) from
1990 until March 16, 1998. He is a member of the Board of Governors of the
National Association of Real Estate Investment Trusts (NAREIT).
B. Wayne Hughes, Jr., age 39 became director of PSI in January 1998. He
has been a Vice President - Acquisitions of PSI since 1992. He is the son of B.
Wayne Hughes.
John Reyes, age 38, 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
17
<PAGE>
Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.
Carl B. Phelps, age 60, 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
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 60, 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 56, 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 49, 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 47, 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. Singleyn, age 37, 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 43, 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 59, 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 trustees of John Hopkins University and a director of Marathon National
Bank. Mr. Abernethy is a former member of the board of directors of the Los
Angeles County Metropolitan Transportation Authority and the Metropolitan Water
District of Southern California and a former Planning Commissioner and
Telecommunications Commissioner and former Vice-Chairman of the Economic
Development Commission of the City of Los Angeles.
Dann V. Angeloff, age 63, 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 Balboa Capital Corporation,
Compensation Resource Group, Nicholas/Applegate Growth Equity Fund,
Nicholas/Applegate Mutual Funds, ReadyPac Produce, Inc., Royce Medical Company,
SupraLife International and WorldxChange Communications, Inc. He was a director
of SPI from 1989 until June 1996.
18
<PAGE>
William C. Baker, age 65, became a director of PSI in November 1991.
Since January 1999, Mr. Baker has been President and Chief Executive Officer of
Los Angeles Turf Club, Incorporated, which operates the Santa Anita Racetrack
and is wholly-owned subsidiary of Magna International Inc. Since August 1998, he
has been President of Meditrust Operating Company, a paired share real estate
investment trust. From November 1997 until December 1998, he was Chairman of the
Board and Chief Executive Officer of The Santa Anita Companies, Inc., a
wholly-owned subsidiary of Meditrust Operating Company which then operated the
Santa Anita Racetrack. 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 Santa Anita Realty Enterprises, Inc., the companies
which were merged with Meditrust in November 1997. 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 .
Thomas J. Barrack, Jr., age 51, 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 a 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.,
Harvey's Acquisition Corp. and Kennedy-Wilson, Inc.
Uri P. Harkham, age 50, 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.
Daniel C. Staton, age 46, became a director of PSI on March 12, 1999 in
connection with the merger of Storage Trust Realty, a real estate investment
trust, with PSI. Mr. Staton was Chairman of the Board of Trustees of Storage
Trust Realty from February 1998 until March 12, 1999 and a Trustee of Storage
Trust Realty from November 1994 until March 12, 1999. He is President of Walnut
Capital Partners, an investment and venture capital company. Mr. Staton was the
Chief Operating Officer and Executive Vice President of Duke Realty Investments,
Inc. from 1993 to 1997. He has been a director of Duke Realty Investments, Inc.
since 1993. From 1981 to 1993, Mr. Staton was a principal owner of Duke
Associates, the predecessor of Duke Realty Investments, Inc. Prior to joining
Duke Associates in 1981, he was a partner and general manager of his own moving
company, Gateway Van & Storage, Inc. in St. Louis, Missouri. From 1986 to 1988,
Mr. Staton served as president of the Greater Cincinnati Chapter of the National
Association of Industrial and Office Parks.
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.
19
<PAGE>
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.
Section 16 (a) Beneficial Ownership Reporting Compliance
- --------------------------------------------------------
Based on a review of the reports filed under Section 16 (a) of the
Securities Exchange Act of 1934 with respect to the Units that were submitted to
the Partnership, the Partnership believes that with respect to the fiscal year
ended December 31, 1998, B. Wayne Hughes, Jr. and Thomas J. Barrack, Jr., each
of whom is a director of PSI, a General Partner of the Partnership, each filed
his Initial Statement of Beneficial Ownership of Securities on Form 3 after its
due date.
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 January 1, 1999, 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. 77,780 Units (1) 60.77%
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.
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
20
<PAGE>
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, 1998, PSI has the
right to require the Partnership to sell all of the Joint Venture's
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 1998, 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 and the Joint Venture have a Management Agreement with
PSI pursuant to which the Partnership and the Joint Venture pay PSI a fee of 6%
of the gross revenues of the mini-warehouse spaces operated for the Partnership
and the Joint Venture. During 1998, the Partnership and the Joint Venture paid
fees of $949,000 to PSI pursuant to the Management Agreement.
Through 1996, the Joint Venture's business park was managed by a
predecessor of PSBPLP pursuant to a Management Agreement which provides for the
payment of a fee by the Joint Venture of 5% of the gross revenues of the
commercial space operated for the Joint Venture. In January 1997, the Joint
Venture, 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 Joint Venture'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.
21
<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 Financial Statements and
Financial Statement Schedules.
2. Financial Statement Schedules: See Index to 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.
22
<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.
23
<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, 1999 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, 1999
- ---------------------------- Executive Officer of Public Storage, Inc. and
B. Wayne Hughes General Partner (principal executive officer)
/s/ Harvey Lenkin President and Director March 26, 1999
- ---------------------------- of Public Storage, Inc.
Harvey Lenkin
/s/ B. Wayne Hughes, Jr. Vice President and Director March 26, 1999
- ---------------------------- of Public Storage, Inc.
B. Wayne Hughes, Jr.
/s/ John Reyes Senior Vice President and Chief Financial Officer March 26, 1999
- ---------------------------- of Public Storage, Inc. (principal financial
John Reyes officer and principal accounting officer)
/s/ Robert J. Abernethy Director of Public Storage, Inc. March 26, 1999
- ----------------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director of Public Storage, Inc. March 26, 1999
- ----------------------------
Dann V. Angeloff
/s/ William C. Baker Director of Public Storage, Inc. March 26, 1999
- ----------------------------
William C. Baker
Director of Public Storage, Inc.
- ----------------------------
Thomas J. Barrack, Jr.
/s/ Uri P. Harkham Director of Public Storage, Inc. March 26, 1999
- ----------------------------
Uri P. Harkham
Director of Public Storage, Inc.
- ----------------------------
Daniel C. Staton
</TABLE>
24
<PAGE>
PS PARTNERS III, LTD.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
References
----------
PS PARTNERS III, LTD.
Report of Independent Auditors F-1
Financial Statements and Schedules:
Balance Sheets as of December 31, 1998 and 1997 F-2
For the years ended December 31, 1998, 1997 and 1996:
Statements of Income F-3
Statements of Partners' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-10
Schedule
Schedule III - Real Estate and Accumulated Depreciation F-11 - F-12
Financial Statements of 50 percent or less owned persons required pursuant to
Rule 3-09:
PS BUSINESS PARKS, INC. - PS Business Parks, Inc. is a registrant with the
Securities and Exchange Commission and its filings can be accessed through
the Securities and Exchange Commission.
SEI/PSP III JOINT VENTURE
Report of Independent Auditors F-13
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 F-14
For the years ended December 31, 1998, 1997 and 1996:
Statements of Income F-15
Statements of Partners' Equity F-16
Statements of Cash Flows F-17 - F-18
Notes to Financial Statements F-19 - F-22
Schedule
Schedule III - Real Estate and Accumulated Depreciation F-23 - F-25
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 financial
statements or the notes thereto.
25
<PAGE>
Report of Independent Auditors
The Partners
PS Partners III, Ltd.
We have audited the balance sheets of PS Partners III, Ltd. as of December 31,
1998 and 1997 and the related statements of income, partners' equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of PS Partners III, Ltd. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, 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 10, 1999
Los Angeles, CA
F-1
<PAGE>
PS PARTNERS III, LTD.
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,122,000 $ 1,222,000
Rent and other receivables 16,000 133,000
Real estate facilities, at cost:
Land 3,558,000 3,558,000
Buildings and equipment 13,062,000 12,770,000
-------------------------------------------
16,620,000 16,328,000
Less accumulated depreciation (7,339,000) (6,659,000)
-------------------------------------------
9,281,000 9,669,000
Investment in real estate entities 13,897,000 14,813,000
Other assets 21,000 20,000
-------------------------------------------
$ 26,337,000 $ 25,857,000
===========================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 228,000 $ 200,000
Advance payments from renters 82,000 77,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 25,683,000 25,240,000
General partner's equity 344,000 340,000
-------------------------------------------
Total partners' equity 26,027,000 25,580,000
-------------------------------------------
$ 26,337,000 $ 25,857,000
===========================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
PS PARTNERS III, LTD.
STATEMENTS OF INCOME
For the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
REVENUE:
<S> <C> <C> <C>
Rental income $ 2,764,000 $ 2,636,000 $ 2,496,000
Equity in earnings of real estate entities 3,574,000 2,691,000 2,129,000
Interest income 133,000 47,000 23,000
----------------------------------------------------------
6,471,000 5,374,000 4,648,000
----------------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 1,022,000 992,000 956,000
Management fees 166,000 158,000 149,000
Depreciation and amortization 680,000 655,000 595,000
Administrative 156,000 146,000 139,000
----------------------------------------------------------
2,024,000 1,951,000 1,839,000
----------------------------------------------------------
NET INCOME $ 4,447,000 $ 3,423,000 $ 2,809,000
==========================================================
Limited partners' share of net income
($31.30, $23.38, and $17.86 per unit in
1997, 1996, and 1995, respectively) $ 4,006,000 $ 2,993,000 $ 2,286,000
General partner's share of net income 441,000 430,000 523,000
----------------------------------------------------------
$ 4,447,000 $ 3,423,000 $ 2,809,000
=========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
PS PARTNERS III, LTD.
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
----------------------------------------------------------
<S> <C> <C> <C>
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
Net income 4,006,000 441,000 4,447,000
Distributions (3,563,000) (437,000) (4,000,000)
----------------------------------------------------------
Balances at December 31, 1998 $ 25,683,000 $ 344,000 $ 26,027,000
==========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
PS PARTNERS III, LTD.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 4,447,000 $ 3,423,000 $ 2,809,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 680,000 655,000 595,000
Decrease (increase) in rent and other receivables 117,000 (105,000) 10,000
(Increase) decrease in other assets (1,000) 31,000 (18,000)
Increase (decrease) in accounts payable 28,000 56,000 (29,000)
Increase (decrease) in advance payments from renters 5,000 (1,000) (3,000)
Equity in earnings of real estate entities (3,574,000) (2,691,000) (2,129,000)
----------------------------------------------------------
Total adjustments (2,745,000) (2,055,000) (1,574,000)
----------------------------------------------------------
Net cash provided by operating activities 1,702,000 1,368,000 1,235,000
----------------------------------------------------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Distributions from real estate entities 4,490,000 3,870,000 4,152,000
Additions to real estate facilities (292,000) (305,000) (261,000)
----------------------------------------------------------
Net cash provided by investing activities 4,198,000 3,565,000 3,891,000
----------------------------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Distributions to partners (4,000,000) (4,000,000) (4,999,000)
----------------------------------------------------------
Net cash used in financing activities (4,000,000) (4,000,000) (4,999,000)
----------------------------------------------------------
Net increase in cash and cash equivalents 1,900,000 933,000 127,000
Cash and cash equivalents at the beginning of the period 1,222,000 289,000 162,000
----------------------------------------------------------
Cash and cash equivalents at the end of the period $ 3,122,000 $ 1,222,000 $ 289,000
==========================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
PS PARTNERS III, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 mini-warehouse properties in which the Partnership has an interest.
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 (collectively referred to as the "Mini-Warehouse Properties"),
which exclude a property transferred to PS Business Parks, L.P.
("PSBPLP") in January 1997. 34 of the properties are owned by SEI/PSP
III Joint Ventures (the "Joint Venture"), a general partnership between
the Partnership and PSI. The Partnership is the managing general
partner of the Joint Venture, with ownership interests in the
individual properties of the Joint Venture ranging from 49% to 89%.
As used hereinafter, the Joint Venture and PSBPLP are referred
to as the "Real Estate Entities."
Basis of Presentation
---------------------
The financial statements include the accounts of the
Partnership. The accounts of the Joint Venture, which the Partnership
does not control, are not consolidated with the Partnership and the
Partnership's interest in the Joint Venture is accounted for on the
equity method.
The Partnership does not control the Joint Venture because PSI
has significant control rights with respect to the management of the
properties, including the right to compel the sale of each property in
the Joint Venture and the right to require the Partnership to submit
operating budgets.
Under the terms of the general partnership agreement of the
Joint Venture all depreciation and amortization with respect to each
property 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.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PARTNERSHIP MATTERS
(CONTINUED)
Under the terms of the general partnership agreement of the
Joint Venture, 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.
Depreciation and amortization
-----------------------------
The Partnership and the Joint Venture depreciate the 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.
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 4) 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, $27.84, and $34.80 for 1998, 1997, and 1996, 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-7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PARTNERSHIP MATTERS
(CONTINUED)
Environmental Cost
------------------
Substantially all of the real estate facilities in which the
Partnership has an interest 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 properties of the Partnership and the
Joint Venture to evaluate the environmental condition of, and potential
environmental liabilities of such properties. Although there can be no
assurance, the Partnership is not aware of any environmental
contamination of the Mini-Warehouse Properties which individually or in
the aggregate would be material to the Partnership's overall business,
financial condition, or results of operations.
Segment Reporting
-----------------
Effective January 1, 1998, the Partnership adopted SFAS No.
131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 131 established standards for the way public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Partnership only has one reportable segment as defined
within SFAS No. 131, therefore the adoption of SFAS No. 131 had no
effect on the Partnership's disclosures.
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. REAL ESTATE FACILITIES
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.
3. INVESTMENT IN REAL ESTATE ENTITIES
During 1998, 1997, and 1996, the Partnership recognized
earnings from the Real Estate Entities of $3,574,000, $2,691,000 and
$2,129,000, respectively, and received cash distributions totaling
$4,490,000, $3,870,000, and $4,152,000, respectively from the Real
Estate Entities.
F-8
<PAGE>
3. INVESTMENT IN REAL ESTATE ENTITIES (CONTINUED)
The accounting policies of the Real Estate Entities are similar
to that of the Partnership. Summarized combined financial data with
respect to the Real Estate Entities are as follows:
1998 1997
------------- ------------
For the year ended December 31,
Total revenues $ 103,798,000 $ 44,619,000
Minority interest in income 11,208,000 8,566,000
Net income 35,036,000 9,318,000
At December 31,
Total assets, net of accumulated depreciation $751,932,000 $367,590,000
Total liabilities 67,609,000 12,962,000
Total minority interest 153,015,000 168,665,000
Total equity 531,308,000 185,963,000
The increase in the size of the combined financial position and
operating results, respectively, of the Real Estate Entities for the
year ended December 31, 1998 and at December 31, 1998, respectively, as
compared to prior periods, is the result of additional properties
acquired by PSBLP during 1997 and 1998. PSI has a significant interest
in PSBPLP.
Financial statements of the Joint Venture are filed with the
Partnership's Form 10-K for 1998, in Item 14. PS Business Parks, Inc.
is a registrant with the Securities and Exchange Commission, and its
filings can be accessed through the Securities and Exchange Commission.
4. 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.
5. RELATED PARTY TRANSACTIONS
The Partnership has a management agreement with PSI whereby
PSI operates the Mini-Warehouse Properties for a fee equal to 6% of the
facilities' monthly gross revenue (as defined).
In January 1997, the Joint Venture transferred its business
park facility to PSBPLP in exchange for a partnership interest in
PSBPLP.
PSI has a significant economic interest in PSBPLP.
F-9
<PAGE>
6. 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.
7. TAXES BASED ON INCOME
Taxes based on income are the responsibility of the individual
partners and, accordingly, the Partnership's financial statements do
not reflect a provision for such taxes.
Unaudited taxable net income was $5,447,000, $6,537,000 and
$2,358,000 for the years ended December 31, 1998, 1997 and 1996,
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
Initial Cost subsequent
--------------------------------- to acquisition
Date Buildings & Buildings &
Acquired Description Encumbrances Land Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/84 Safe Place (Cincinnati) $- $402,000 $1,573,000 $451,000
6/84 Safe Place (Florence) - 185,000 740,000 350,000
8/84 Medley - 584,000 1,016,000 316,000
8/84 Oklahoma City - 340,000 1,310,000 452,000
8/84 Kaplan (Irving) - 677,000 1,592,000 366,000
8/84 Kaplan (Walnut Hill) - 971,000 2,359,000 635,000
12/84 Pompano - 399,000 1,386,000 516,000
----------------------------------------------------------------
$- $3,558,000 $9,976,000 $3,086,000
================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Carrying Amount
At December 31, 1998
-------------------------------------------------------------------
Date Buildings & Accumulated
Acquired Description Land Improvements Total Depreciation
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/84 Safe Place (Cincinnati) $402,000 $2,024,000 $2,426,000 $1,154,000
6/84 Safe Place (Florence) 185,000 1,090,000 1,275,000 616,000
8/84 Medley 584,000 1,332,000 1,916,000 769,000
8/84 Oklahoma City 340,000 1,762,000 2,102,000 976,000
8/84 Kaplan (Irving) 677,000 1,958,000 2,635,000 1,103,000
8/84 Kaplan (Walnut Hill) 971,000 2,994,000 3,965,000 1,679,000
12/84 Pompano 399,000 1,902,000 2,301,000 1,042,000
-------------------------------------------------------------------
$3,558,000 $13,062,000 $16,620,000 $7,339,000
===================================================================
</TABLE>
F-11
<PAGE>
PS PARTNERS III, LTD.
A CALIFORNIA LIMITED PARTNERSHIP
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)
(A) The following is a reconciliation of cost and related accumulated
depreciation.
Gross Carrying Cost Reconciliation
Years Ended December 31,
-------------------------------------
1998 1997 1996
-------------------------------------
Balance at beginning of the period $16,328,000 $16,023,000 $15,762,000
Additions during the period:
Improvements, etc. 292,000 305,000 261,000
-------------------------------------
Balance at the close of the period $16,620,000 $16,328,000 $16,023,000
=====================================
Accumulated Depreciation Reconciliation
Years Ended December 31,
-------------------------------------
1998 1997 1996
-------------------------------------
Balance at beginning of the period $6,659,000 $6,004,000 $5,409,000
Additions during the period:
Depreciation 680,000 655,000 595,000
-------------------------------------
Balance at the close of the period $7,339,000 $6,659,000 $6,004,000
=====================================
(B) The aggregate cost of real estate for Federal income tax purposes is
$16,657,000.
F-12
<PAGE>
Report of Independent Auditors
The Partners
SEI/PSP III Joint Ventures
We have audited the balance sheets of the SEI/PSP III Joint Ventures as of
December 31, 1998 and 1997 and the related statements of income, partners'
equity and cash flows for each of the three years in the period ended December
31, 1998. 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 Joint Ventures' 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 financial statements referred to above present fairly, in
all material respects, the financial position of the SEI/PSP III Joint Ventures
at December 31, 1998 and 1997, and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1998, 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 10, 1999
Los Angeles, CA
F-13
<PAGE>
SEI/PSP III JOINT VENTURES
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $303,000 $233,000
Rent and other receivables 96,000 111,000
Real estate facilities, at cost:
Land 10,298,000 10,298,000
Buildings and equipment 57,195,000 56,161,000
--------------------------------------
67,493,000 66,459,000
Less accumulated depreciation (31,226,000) (28,399,000)
--------------------------------------
36,267,000 38,060,000
Investment in real estate entity 5,723,000 5,608,000
Other assets 129,000 124,000
--------------------------------------
$42,518,000 $44,136,000
======================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $706,000 $732,000
Advance payments from renters 409,000 399,000
Partners' equity:
PS Partners III, Ltd. 13,897,000 14,813,000
Public Storage, Inc. 27,506,000 28,192,000
--------------------------------------
Total partners' equity 41,403,000 43,005,000
--------------------------------------
$42,518,000 $44,136,000
======================================
</TABLE>
See accompanying notes.
F-14
<PAGE>
SEI/PSP III JOINT VENTURES
STATEMENTS OF INCOME
For the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------
REVENUE:
<S> <C> <C> <C>
Rental income $13,049,000 $12,697,000 $13,345,000
Equity in earnings of real estate entity 489,000 344,000 -
-----------------------------------------------------
13,538,000 13,041,000 13,345,000
-----------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 4,292,000 4,114,000 4,372,000
Management fees 783,000 762,000 792,000
Depreciation and amortization 2,827,000 2,683,000 2,946,000
-----------------------------------------------------
7,902,000 7,559,000 8,110,000
-----------------------------------------------------
NET INCOME $5,636,000 $5,482,000 $5,235,000
=====================================================
Partners' share of net income:
PS Partners III, Ltd.'s share $3,574,000 $2,691,000 $2,129,000
Public Storage Inc.'s share 2,062,000 2,791,000 3,106,000
-----------------------------------------------------
$5,636,000 $5,482,000 $5,235,000
=====================================================
</TABLE>
See accompanying notes.
F-15
<PAGE>
SEI/PSP III JOINT VENTURES
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
PS Partners Public Storage
III, Ltd. Inc. Total
-----------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1995 $18,015,000 $28,183,000 $46,198,000
Net income 2,129,000 3,106,000 5,235,000
Distributions (4,152,000) (2,992,000) (7,144,000)
-----------------------------------------------------------
Balances at December 31, 1996 15,992,000 28,297,000 44,289,000
Net income 2,691,000 2,791,000 5,482,000
Distributions (3,870,000) (2,896,000) (6,766,000)
-----------------------------------------------------------
Balances at December 31, 1997 14,813,000 28,192,000 43,005,000
Net income 3,574,000 2,062,000 5,636,000
Distributions (4,490,000) (2,748,000) (7,238,000)
-----------------------------------------------------------
Balances at December 31, 1998 $13,897,000 $27,506,000 $41,403,000
===========================================================
</TABLE>
See accompanying notes.
F-16
<PAGE>
SEI/PSP III JOINT VENTURES
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $5,636,000 $5,482,000 $5,235,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,827,000 2,683,000 2,946,000
Decrease (increase) in rent and other receivables 15,000 (16,000) (34,000)
(Increase) decrease in other assets (5,000) 100,000 (78,000)
Decrease in accounts payable (26,000) (18,000) (10,000)
Increase (decrease) in advance payments from renters 10,000 (34,000) (1,000)
Equity in earnings of real estate entity (489,000) (344,000) -
-------------------------------------------------
Total adjustments 2,332,000 2,371,000 2,823,000
-------------------------------------------------
Net cash provided by operating activities 7,968,000 7,853,000 8,058,000
-------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Distributions from real estate entity 374,000 135,000 -
Additions to real estate facilities (1,034,000) (1,229,000) (967,000)
-------------------------------------------------
Net cash used in investing activities (660,000) (1,094,000) (967,000)
-------------------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Distributions to partners (7,238,000) (6,766,000) (7,144,000)
-------------------------------------------------
Net cash used in financing activities (7,238,000) (6,766,000) (7,144,000)
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents 70,000 (7,000) (53,000)
Cash and cash equivalents at the beginning of the period 233,000 240,000 293,000
-------------------------------------------------
Cash and cash equivalents at the end of the period $303,000 $233,000 $240,000
=================================================
</TABLE>
See accompanying notes.
F-17
<PAGE>
SEI/PSP III JOINT VENTURES
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997, and 1996
(Continued)
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C> <C>
Investment in real estate entity $- $(5,399,000) $-
Transfer of real estate facility for interest in real estate entity,
net - 5,399,000 -
</TABLE>
See accompanying notes.
F-18
<PAGE>
SEI/PSP III JOINT VENTURES
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. DESCRIPTION OF PARTNERSHIP
SEI/PSP III Joint Ventures (the "Joint Venture") was formed on
December 31, 1990 in connection with the consolidation of 23 separate
general partnerships between Public Storage Inc. ("PSI") and PS
Partners III, Ltd. ("PSP III"). The Joint Venture, through its
predecessor general partnerships, invested in existing mini-warehouse
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 existing business park facilities which offer industrial and
office space for lease.
The Joint Venture owns 34 properties (referred to hereinafter
as the "Mini-Warehouses"), which excludes one property which was
transferred to PS Business Parks, L.P. ("PSBPLP") in January 1997. PSP
III is the managing general partner of the Joint Venture, with its
ownership interests in the properties of the Joint Venture ranging from
49% to 89%.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PARTNERSHIP MATTERS
Basis of Presentation
---------------------
The financial statements include the accounts of the Joint
Venture.
Under the terms of the general partnership agreement of the
Joint Venture, for property acquisitions in which PSI issued
convertible securities to the sellers for its interest, PSI's right to
receive cash flow distributions for any year after the first year of
operation are subordinated to cash distributions to PSP III equal to a
cumulative annual 7% of its cash investment (not compounded). In
addition, 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 PSP III of the amount of its cash
investment and the 7% distribution described above.
Depreciation and amortization
-----------------------------
The Joint Venture depreciates the 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.
Revenue Recognition
-------------------
Property rents are recognized as earned.
Allocation of Net Income to PSP III and PSI
-------------------------------------------
Net income prior to depreciation is allocated to PSP III and
PSI based upon their relative ownership interest in each property and
the results of each property.
Under the terms of the general partnership agreement of the
Joint Venture all depreciation and amortization with respect to each
Joint Venture is allocated solely to PSP III until it recovers its
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 PSP III and PSI in proportion to their ownership
percentages.
F-19
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PARTNERSHIP MATTERS
(CONTINUED)
Cash Distributions
------------------
The general partnership agreement of the Joint Venture
provides for regular distributions of cash flow from operations (as
defined).
Cash and Cash Equivalents
-------------------------
For financial statement purposes, the Joint Venture considers
all highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
Environmental Cost
------------------
Substantially all of the real estate facilities in which the
Joint Venture has an interest 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 Joint Venture's properties to evaluate
the environmental condition of, and potential environmental liabilities
of such properties. Although there can be no assurance, the Joint
Venture is not aware of any environmental contamination of the
Mini-Warehouses which individually or in the aggregate would be
material to the Joint Venture'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.
Segment Reporting
-----------------
Effective January 1, 1998, the Joint Venture adopted SFAS No.
131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 131 established standards for the way public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Joint Venture only has one reportable segment as defined
within SFAS No. 131, therefore the adoption of SFAS No. 131 had no
effect on the Joint Venture's disclosures.
3. REAL ESTATE FACILITIES
The State of Texas, Department of Transportation and the Joint
Venture reached agreement on the terms of a conveyance in lieu of an
exercise of the State's right of eminent domain of a parcel of land at
the Joint Venture's East Ben White, Austin, Texas property. In January
1999, the Joint Venture received net settlement proceeds of
approximately $771,000. The Joint Venture does not anticipate the
recognition of a loss in 1999 as a result of the settlement.
F-20
<PAGE>
3. REAL ESTATE FACILITIES (CONTINUED)
The City of Manchester, Airport Authority ("Airport
Authority") intends to acquire the Joint Venture's Manchester, New
Hampshire property either through the exercise of its right of eminent
domain or pursuant to a conveyance in lieu of an exercise of such
power. The Airport Authority intends to construct an extension of its
runways, and relocate an adjoining road. The Joint Venture is currently
negotiating with the Airport Authority to determine an equitable
reparation settlement. The Joint Venture does not anticipate the
recognition of a loss as a result of the taking.
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 Joint Venture adopted
Statement 121 in 1996 and the adoption had no effect.
In January 1997, the Joint Venture, PSI and other affiliated
partnerships of PSI 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 Joint Venture's business park in exchange for a
partnership interest in PSBPLP. The general partner of PSBPLP is PS
Business Parks, Inc. ("PSBP").
4. INVESTMENT IN REAL ESTATE ENTITY
In 1998 and 1997, the Joint Venture recognized $489,000 and
$344,000, respectively, in equity in earnings of real estate entity
with respect to the investment in PSBPLP, described in Note 3 above.
The accounting policies of PSBPLP are similar to that of the
Joint Venture. Summarized combined financial data with respect to
PSBPLP is as follows:
1998 1997
----------- -----------
For the year ended December 31,
Total revenues $90,260,000 $31,578,000
Minority interest in income 11,208,000 8,566,000
Net income 29,400,000 3,836,000
At December 31,
Total assets, net of accumulated depreciation $709,414,000 $323,454,000
Total liabilities 66,494,000 11,831,000
Total minority interest 153,015,000 168,665,000
Total equity 489,905,000 142,958,000
The increase in the size of the combined financial position
and operating results, respectively, of the Real Estate Entity for the
year ended December 31, 1998 and at December 31, 1998, respectively, as
compared to prior periods, is the result of additional properties
acquired by PSBLP during 1997 and 1998. PSI has a significant interest
in PSBPLP.
F-21
<PAGE>
4. INVESTMENT IN REAL ESTATE ENTITY (CONTINUED)
PS Business Parks, Inc., which owns PSBPLP, is a registrant
with the Securities and Exchange Commission, and its filings can be
accessed through the Securities and Exchange Commission.
5. RELATED PARTY TRANSACTIONS
The Joint Venture has a management agreement with PSI whereby
PSI operates the Mini-Warehouses for a fee equal to 6% of the
facilities' monthly gross revenue (as defined).
In January 1997, the Joint Venture 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.
6. LEASES
The Joint Venture 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.
7. TAXES BASED ON INCOME
Taxes based on income are the responsibility of PSP III and
PSI and, accordingly, the Joint Venture's financial statements do not
reflect a provision for such taxes.
Unaudited taxable net income was $5,640,000, $5,735,000 and
$1,407,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. The difference between taxable income and book income is
primarily related to timing differences in depreciation expense.
F-22
<PAGE>
SEI/PSP III JOINT VENTURES
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs
Initial Cost subsequent
--------------------------------- to acquisition
Date Buildings & Buildings &
Acquired Description Encumbrances Land Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/84 Delran $- $279,000 $1,472,000 $253,000
5/84 Garland - 356,000 844,000 198,000
6/84 Orange Blossom - 226,000 924,000 213,000
8/84 Newport News - 356,000 2,395,000 584,000
9/84 Cockrell Hill - 380,000 913,000 1,028,000
11/84 Omaha - 109,000 806,000 426,000
11/84 Manchester - 164,000 1,643,000 225,000
12/84 Austin (Ben White) - 325,000 474,000 190,000
12/84 Austin (Lamar) - 643,000 947,000 360,000
12/84 Fort Worth - 122,000 928,000 4,000
11/84 Hialeah - 886,000 1,784,000 259,000
12/84 Montgomeryville - 215,000 2,085,000 288,000
1/85 Bossier City - 184,000 1,542,000 323,000
2/85 Simi Valley - 737,000 1,389,000 257,000
3/85 Chattanooga - 202,000 1,573,000 348,000
2/85 Hurst - 231,000 1,220,000 204,000
3/85 Portland - 285,000 941,000 220,000
5/85 Longwood - 355,000 1,645,000 263,000
3/85 Fern Park - 144,000 1,107,000 209,000
3/85 Fairfield - 338,000 1,187,000 364,000
4/85 Laguna Hills - 1,224,000 3,303,000 397,000
7/85 Columbus (Morse Rd.) - 195,000 1,510,000 244,000
7/85 Columbus (Kenney Rd.) - 199,000 1,531,000 267,000
5/85 Columbus (Busch Blvd.) - 202,000 1,559,000 265,000
5/85 Columbus (Kinnear Rd.) - 241,000 1,865,000 260,000
6/85 Grove City/ Marlane Drive - 150,000 1,157,000 265,000
6/85 Reynoldsburg - 204,000 1,568,000 255,000
</TABLE>
<TABLE>
<CAPTION>
Gross Carrying Amount
At December 31, 1998
------------------------------------------------------------------
Date Buildings & Accumulated
Acquired Description Land Improvements Total Depreciation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/84 Delran $279,000 $1,725,000 $2,004,000 $992,000
5/84 Garland 356,000 1,042,000 1,398,000 583,000
6/84 Orange Blossom 226,000 1,137,000 1,363,000 644,000
8/84 Newport News 356,000 2,979,000 3,335,000 1,670,000
9/84 Cockrell Hill 380,000 1,941,000 2,321,000 1,120,000
11/84 Omaha 109,000 1,232,000 1,341,000 719,000
11/84 Manchester 164,000 1,868,000 2,032,000 1,044,000
12/84 Austin (Ben White) 325,000 664,000 989,000 379,000
12/84 Austin (Lamar) 643,000 1,307,000 1,950,000 716,000
12/84 Fort Worth 122,000 932,000 1,054,000 526,000
11/84 Hialeah 886,000 2,043,000 2,929,000 1,157,000
12/84 Montgomeryville 215,000 2,373,000 2,588,000 1,313,000
1/85 Bossier City 184,000 1,865,000 2,049,000 1,026,000
2/85 Simi Valley 737,000 1,646,000 2,383,000 918,000
3/85 Chattanooga 202,000 1,921,000 2,123,000 1,035,000
2/85 Hurst 231,000 1,424,000 1,655,000 778,000
3/85 Portland 285,000 1,161,000 1,446,000 642,000
5/85 Longwood 355,000 1,908,000 2,263,000 1,033,000
3/85 Fern Park 144,000 1,316,000 1,460,000 714,000
3/85 Fairfield 338,000 1,551,000 1,889,000 832,000
4/85 Laguna Hills 1,224,000 3,700,000 4,924,000 2,031,000
7/85 Columbus (Morse Rd.) 195,000 1,754,000 1,949,000 924,000
7/85 Columbus (Kenney Rd.) 199,000 1,798,000 1,997,000 949,000
5/85 Columbus (Busch Blvd.) 202,000 1,824,000 2,026,000 969,000
5/85 Columbus (Kinnear Rd.) 241,000 2,125,000 2,366,000 1,126,000
6/85 Grove City/ Marlane Drive 150,000 1,422,000 1,572,000 742,000
6/85 Reynoldsburg 204,000 1,823,000 2,027,000 973,000
</TABLE>
F-23
<PAGE>
SEI/PSP III JOINT VENTURES
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs
Initial Cost subsequent
--------------------------------- to acquisition
Date Buildings & Buildings &
Acquired Description Encumbrances Land Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/85 Worthington $- $221,000 $1,824,000 $241,000
7/85 Westerville - 199,000 1,517,000 300,000
5/85 Arlington - 201,000 1,497,000 307,000
7/85 Springfield - 90,000 699,000 208,000
7/85 Dayton (Needmore Road) - 144,000 1,108,000 300,000
7/85 Dayton (Executive Blvd.) - 160,000 1,207,000 356,000
7/85 Lilburn - 331,000 969,000 181,000
----------------------------------------------------------------
$- $10,298,000 $47,133,000 $10,062,000
================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Carrying Amount
At December 31, 1998
------------------------------------------------------------------
Date Buildings & Accumulated
Acquired Description Land Improvements Total Depreciation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/85 Worthington $221,000 $2,065,000 $2,286,000 $1,103,000
7/85 Westerville 199,000 1,817,000 2,016,000 967,000
5/85 Arlington 201,000 1,804,000 2,005,000 944,000
7/85 Springfield 90,000 907,000 997,000 475,000
7/85 Dayton (Needmore Road) 144,000 1,408,000 1,552,000 756,000
7/85 Dayton (Executive Blvd.) 160,000 1,563,000 1,723,000 823,000
7/85 Lilburn 331,000 1,150,000 1,481,000 603,000
--------------------------------------------------------------------
$10,298,000 $57,195,000 $67,493,000 $31,226,000
====================================================================
</TABLE>
F-24
<PAGE>
SEI/PSP III JOINT VENTURES
A CALIFORNIA LIMITED PARTNERSHIP
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)
(A) The following is a reconciliation of cost and related accumulated
depreciation.
Gross Carrying Cost Reconciliation
Years Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Balance at beginning of the period $66,459,000 $74,692,000 $73,725,000
Additions during the period:
Improvements, etc. 1,034,000 1,229,000 967,000
Deductions during the period:
Disposition of real estate - (9,462,000) -
----------------------------------------
Balance at the close of the period $67,493,000 $66,459,000 $74,692,000
========================================
Accumulated Depreciation Reconciliation
Years Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Balance at beginning of the period $28,399,000 $29,779,000 $26,833,000
Additions during the period:
Depreciation 2,827,000 2,683,000 2,946,000
Deductions during the period:
Disposition of real estate - (4,063,000) -
----------------------------------------
Balance at the close of the period $31,226,000 $28,399,000 $29,779,000
========================================
(B) The aggregate cost of real estate for Federal income tax purposes is
$67,294,000.
F-25
<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-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,122,000
<SECURITIES> 0
<RECEIVABLES> 16,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,138,000
<PP&E> 16,620,000
<DEPRECIATION> (7,339,000)
<TOTAL-ASSETS> 26,337,000
<CURRENT-LIABILITIES> 310,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,027,000
<TOTAL-LIABILITY-AND-EQUITY> 26,337,000
<SALES> 0
<TOTAL-REVENUES> 6,471,000
<CGS> 0
<TOTAL-COSTS> 1,188,000
<OTHER-EXPENSES> 836,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,447,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,447,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,447,000
<EPS-PRIMARY> 31.30
<EPS-DILUTED> 31.30
</TABLE>
