UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1997
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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 0-14475
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PS PARTNERS IV, LTD
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(Exact name of registrant as specified in its charter)
California 95-3931619
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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
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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 this Form 10-K or any amendment to the
Form 10-K. [X]
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS.
General
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PS Partners IV, Ltd. (the "Partnership") is a publicly held limited
partnership formed under the California Uniform Limited Partnership Act.
Commencing in December 1984, 128,000 units of limited partnership interest (the
"Units") were offered to the public in an interstate offering. The offering was
completed in July 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 IV 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 warehouses 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 parks of the Joint Venture were 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 were the
business parks 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
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 32 of the Partnership's 33 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 December 31, 1997, PSI owned approximately 54.93% of
the Partnership's limited partnership units, and (iv) PSI is the operator of the
33 properties in which the Partnership has an interest (these 33 properties are
referred to collectively hereinafter as the "Mini-Warehouse Properties").
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Investments in Facilities
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The Partnership owns interests in 33 properties (excluding the
properties transferred to PSBPLP in January 1997); 32 of such properties are
owned by the Joint Venture. The Partnership originally acquired interests in 40
properties. Three of those properties were sold to the original seller during
1987 and another property was purchased during 1988. In addition, two
properties, with secured mortgage notes, were foreclosed upon in January 1991 by
the lender. 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 326 to 5,231 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.
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 Parks
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Through 1996, the Joint Venture owned and operated three office
buildings, two of which are located in San Antonio, Texas and the other in
Houston, Texas. These business parks were transferred to PSBPLP in January 1997
in exchange for a partnership interest in PSBPLP.
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Investment Objectives and Polices; Sale or Financing of Investments
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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, 2038, 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 General Partners have no present intention
to seek the liquidation of the Partnership because they believe that it is not
an opportune time to sell mini-warehouses. Although the General Partners
originally anticipated a liquidation of the Partnership in 1990-1993, since the
completion of the Partnership's offering in 1985, significant changes have taken
place in the financial and real estate markets that must be taken into account
in considering the timing of any proposed sale or financing, including: (i) the
increased construction of mini-warehouses from 1984 to 1988, which has increased
competition, (ii) the general deterioration of the real estate market (resulting
from a variety of factors, including changes in tax laws), which has
significantly affected property values and decreased sales activities and (iii)
the reduced sources of real estate financing.
The Partnership engaged Lawrence R. Nicholson, MAI, a principal with
the firm of Nicholson-Douglas Realty Consultants, Inc. ("NDRC") to perform a
limited investigation and appraisal of the 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 Partnership and the Joint Venture's 36 properties
(consisting not only of the Partnership's interest but also including PSI's
interest), as of January 31, 1996, was $77,500,000: $67,500,000 for the 33
mini-warehouses and $10,000,000 for the three low-rise office buildings). (In
January 1997, after the date of the appraisal, the Joint Venture transferred its
business parks to AOPPLP in exchange for a 7.5% interest in AOPPLP.) NDRC's
report is limited in that NDRC did not inspect the properties and relied
primarily upon the income capitalization approach in arriving at its opinion.
NDRC's aggregate value conclusion represents the 100% property interests, and
although not valued separately, includes both the interest of the Partnership in
the properties, as well as the interest of PSI, which owns a joint venture
interest (ranging from about 33% to 50%) in 35 of the 36 properties. The
analytical process that was undertaken in the appraisal included a review of the
properties' unit mix, rental rates and historical financial statements.
Following these reviews, a stabilized level of net operating income was
projected for the properties (an aggregate of $6,968,000 for the 33
mini-warehouses and $1,109,000 for the office buildings). In the case of the
mini-warehouses, value estimates were then made using both a direct
capitalization analysis ($69,900,000) and a discounted cash flow analysis
($66,600,000). In applying the discounted cash flow analysis to the
mini-warehouses, projections of cash flow from each property were developed for
an 11-year period ending in the year 2007. Growth rates for income and expenses
were assumed to be 3.5% per year. NDRC then used a terminal capitalization rate
of 10.5% to capitalize each property's 11th year net operating income into a
residual value at the end of the holding period. The ten yearly cash flows plus
the residual or reversionary proceeds net of sales costs were then discounted to
present worth using a discount rate of 13.25%. In the direct capitalization
analysis, NDRC applied a 10.0% capitalization rate to the mini-warehouses'
stabilized net operating income. These value estimates were then compared to an
estimated value ($66,200,000) using a regression analysis applied to
approximately 300 sales of mini-warehouses to evaluate the reasonableness of the
estimates using the direct capitalization and discounted cash flow analysis.
The business parks were valued using a direct capitalization analysis
by applying a 10.0% capitalization rate to the business park's stabilized net
operating income. NDRC has prepared other appraisals for the General Partners
and their affiliates and is expected to continue to prepare appraisals for the
General Partners and their affiliates. No environmental investigations were
conducted with respect to the limited investigation of the Partnership's
properties. Accordingly, NDRC's appraisal did not take into account any
environmental cleanup or other costs that might be incurred in connection with a
disposition of the properties. Although there can be no assurance, based on
recently completed environmental investigations (see Item 2), the Partnership is
not aware of any environmental contamination of its facilities material to its
overall business or financial condition. In addition to assuming compliance with
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applicable environmental laws, the appraisal also assumed, among other things,
compliance with applicable zoning and use regulations and the existence of
required licenses.
Limited Partners should recognize that appraisals are opinions as of
the date specified, are subject to certain assumptions and the appraised value
of the Partnership's properties may not represent their true worth or realizable
value. There can be no assurance that, if these properties were sold, they would
be sold at the appraised values; the sales price might be higher or lower than
the appraised values.
In February 1997, PSI completed a cash tender offer, which had
commenced in December 1996, pursuant to which PSI acquired a total of 14,787
additional limited partnership units at $300 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, 1997, the telephone
reservation system was supporting rental activity at all of the
Partnership's properties. PSI's toll-free telephone referral
system services approximately 160,000 calls per month from
potential customers inquiring as to the nearest Public Storage
mini-warehouse.
* Maintain high occupancy levels and increase realized rents.
Subject to market conditions, the Partnership generally seeks to
achieve average occupancy levels in excess of 90% and to eliminate
promotions prior to increasing rental rates. Average occupancy for
the Mini-Warehouse Properties has decreased from 90% in 1996 to
89% in 1997. Realized monthly rents per occupied square foot
increased from $.59 in 1996 to $.62 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
150 support personnel at the Public Storage corporate offices,
there are approximately 2,700 on-site personnel who manage the
day-to-day operations of the mini-warehouses in the Public Storage
system. These on-site personnel are supervised by 110 district
managers, 15 regional managers and 3 divisional managers (with an
average of 13 years experience in the mini-warehouse industry) who
report to the president of the mini-warehouse property operator
(who has 14 years of experience with the Public Storage
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organization). PSI carefully selects and extensively trains the
operational and support personnel and offers them a progressive
career path. See "Mini-warehouse Property Operator."
Mini-warehouse Property Operator
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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 owner, employees for the
operation of the owner's facilities, including resident managers, assistant
managers, relief managers, and billing and maintenance personnel. Some or all of
these employees may be employed on a part-time basis and may also be employed by
other persons, partnerships, REITs or other entities owning facilities operated
by PSI.
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 parks of the Joint Venture were managed by
PSCPG, now known as PS Business Parks, Inc., pursuant to a Management Agreement.
In January 1997, these properties were 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
operates is significant and affects the occupancy levels, rental rates and
operating expenses of certain of the facilities. Competition may be accelerated
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by any increase in availability of funds for investment in real estate. Recent
increases in plans for development of mini-warehouses are expected to further
intensify competition among mini-warehouse operators in certain market areas. In
addition to competition from mini-warehouses operated by PSI, there are three
other national firms and numerous regional and local operators. The Partnership
believes that the significant operating and financial experience of PSI's
executive officers and directors and the "Public Storage" name, should enable
the Partnership to continue to compete effectively with other entities.
Other Business Activities
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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 120 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.
Impact of Year 2000
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PSI has completed an initial assessment of its computer systems. The
majority of the computer programs were installed or upgraded over the past few
years and are Year 2000 compliant. Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.
The cost of the Year 2000 project will be allocated to all entities
that use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Partnership and the Joint Venture is
approximately $99,000. The cost of new software will be capitalized and the cost
of maintenance to existing systems will be expensed as incurred
The project is expected to be completed by March 31, 1999 which is
prior to any anticipated impact on operating systems. PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the
Partnership.
The costs of the project and the date on which PSI believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
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ITEM 2. PROPERTIES.
The following table sets forth information as of December 31, 1997,
about the Mini-Warehouse Properties.
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
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ARIZONA
Scottsdale 44,300 555 07/12/85 50.9%
70th St.
CALIFORNIA
Milpitas 54,700 701 12/24/85 50.0
Pecten Ct.
N. Hollywood 28,900 500 06/07/85 50.0
Raymer St.
N. Hollywood 50,000 829 10/04/85 50.0
Whitsett Ave.
Pleasanton 71,800 583 12/17/85 50.0
Santa Rita Rd.
San Diego 50,800 640 07/11/85 50.0
Kearny Mesa Rd.
CONNECTICUT
Hartford 47,000 430 10/17/85 50.0
Roberts St.
INDIANA
Ft. Wayne 58,900 431 07/06/88 100.0
Illinois Rd.
Indianapolis 59,200 5,231 10/31/85 50.0
Elmwood
Indianapolis 59,200 539 10/31/85 50.0
Pike Plaza Rd.
KANSAS
Wichita 44,200 348 10/09/85 49.9
Carey Lane
Wichita 64,200 426 10/09/85 49.9
E. Harry
Wichita 40,800 326 10/09/85 49.9
E. Kellogg
Wichita 47,100 377 10/09/85 49.9
E. MacArthur
Wichita 107,600 814 10/09/85 49.9
S. Rock Road
Wichita 63,300 566 10/09/85 49.9
S. Tyler Rd.
Wichita 55,700 412 10/09/85 49.9
S. Woodlawn
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Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
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KANSAS
Wichita 53,200 451 10/09/85 49.9%
W. Maple
KENTUCKY
Florence 53,800 449 04/30/85 50.0
Tanner Lane
MISSOURI
Joplin 56,200 452 10/09/85 49.9
S. Range Line
NEW HAMPSHIRE
Manchester 61,600 536 05/20/85 50.0
S. Willow II
NORTH CAROLINA
Concord 41,000 454 07/26/85 50.0
Highway 29
OHIO
Cincinnati 53,100 502 04/30/85 50.0
Colerain Ave.
Cincinnati 50,100 464 04/30/85 50.0
E. Kemper
Columbus 62,800 526 10/04/85 50.0
Ambleside Dr.
Columbus 56,900 456 09/25/85 50.0
Sinclair Rd.
Perrysburg 62,800 518 10/29/85 50.0
Helen Drive
OREGON
Milwaukie 50,600 494 05/17/85 49.8
McLoughlin II
Portland 35,100 451 10/02/85 50.0
SE 82nd St.
PENNSYLVANIA
Philadelphia 50,500 442 09/12/85 50.0
Tacony St.
TEXAS
Austin 66,700 852 04/18/85 50.0
S. First St.
WASHINGTON
Tacoma 47,300 524 05/23/85 50.0
Phillips Rd. S.W.
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Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- ------------------- ----------- -------- ----------- ----------
WISCONSIN
Madison 71,700 413 09/18/85 50.0%
Copps Avenue
The weighted average occupancy level for the Mini-Warehouse Properties
was 89% in 1997 compared to 90% in 1996. The monthly average realized rent per
square foot for the Mini-Warehouse Properties was $.62 in 1997 compared to $.59
in 1996.
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. Based on the
assessments, the Partnership believes that there are no known environmental
remediation requirements for the Mini-Warehouse 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 1997.
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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, 1997, there were approximately 2,528 record holders of Units.
In February 1997, PSI completed a cash tender offer, which had
commenced in December 1996, pursuant to which PSI acquired a total of 14,787
limited partnership units at $300 per Unit.
The Partnership makes quarterly distributions of all "Cash Available
for Distribution" and will make distributions of "Cash from Sales or
Refinancing". 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.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(In thousands, except per Unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues (a) $ 2,256 $ 1,262 $ 1,348 $ 1,167 $ 606
Depreciation and amortization (a) 62 61 60 61 60
Net income (loss) 1,924 932 992 874 303
Limited partners' share 1,707 626 497 587 58
General partners' share 217 306 495 287 245
Limited partners'
per unit data (b)
Net income (loss) $ 13.34 $ 4.89 $ 3.88 $ 4.59 $.45
Cash distributions (c) $ 13.92 $ 20.88 $ 34.10 $ 19.60 $ 17.00
As of December 31,
Cash and cash equivalents (a) $ 1,293 $ 227 $ 212 $ 1,460 $ 835
Total assets (a) $ 19,853 $ 19,831 $ 21,915 $ 25,799 $ 27,753
</TABLE>
(a) Restated - See Note 1 to December 31, 1997 financial statements.
(b) Limited partners' per unit data is based on the weighted average number of
units outstanding during the year (128,000 units).
(c) The General Partners distributed, concurrent with the distributions for the
third quarter of 1995, a portion of the Partnership's operating reserve
estimated to be $6.26 per Unit.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
The Partnership's net income was $1,924,000 in 1997 compared to
$932,000 in 1996, representing an increase of $992,000, or 106.4%. 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 property was $267,000 in 1997 compared to $261,000 in 1996,
representing an increase of $6,000, or 2.3%. Cost of operations (including
management fees) decreased $3,000, or 2.3%, to $127,000 during 1997 from
$130,000 in 1996. Accordingly, for the Partnership's wholly-owned mini-warehouse
property, property net operating income increased by $9,000, or 6.9%, from
$131,000 in 1996 to $140,000 in 1997.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real
estate entities was $1,950,000 in 1997 as compared to $979,000 during 1996,
representing an increase of $971,000, or 99.2%. 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 increased
$1,000, or 1.6% from $61,000 in 1996 to $62,000 during 1997. This increase was
primarily attributable to the depreciation of capital expenditures made during
1996 and 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income in 1996 was $932,000 compared to $992,000
in 1995, representing a decrease of $60,000, or 6.0%. The decrease was primarily
due to an increase in depreciation expense and a decrease in interest income,
partially offset by the Partnership's share of improved property operations at
the Mini-Warehouse Properties combined with a reduction in administrative costs.
PROPERTY OPERATIONS: Rental income for the Partnership's wholly-owned
mini-warehouse property was $261,000 in 1996 compared to $245,000 in 1995,
representing an increase of $16,000, or 6.5%. Costs of operations (including
management fees) increased $9,000, or 7.4%, to $130,000 in 1996 from $121,000 in
1995. Accordingly, for the Partnership's wholly-owned mini-warehouse property,
property net operating income increased by $7,000, or 5.6% to $131,000 in 1996
from $124,000 in 1995.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real
estate entities was $979,000 in 1996 as compared to $1,027,000 during 1995,
representing a decrease of $48,000, or 4.7%. This decrease was due primarily to
a reduction in operating income at the Joint Venture's business parks, partial
offset by the Partnership's share of improved operating results at the Joint
Venture's mini-warehouse properties.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization
attributable to the Partnership's property increased $1,000, or 1.7%, from
$60,000 in 1995 to $61,000 in 1996. This increase was primarily attributable to
the depreciation of capital expenditures made during 1995 and 1996.
Supplemental Property Data
- --------------------------
In 1997, most of the Partnership's net income is 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.
13
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31,
1996: Rental income for the Mini-Warehouse Properties was $12,160,000 in 1997
compared to $11,606,000 during 1996, representing an increase of $554,000, or
4.8%. 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 $.62 in 1997 compared to $.59
in 1996. The weighted average occupancy levels decreased from 90% in 1996 to 89%
in 1997. Cost of operations (including management fees) increased $156,000, or
3.4%, to $4,720,000 during 1997 from $4,564,000 in 1996, respectively. 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 $398,000, or 5.7%, from $7,042,000 in
1996 to $7,440,000 during 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995:
Rental income for the Mini-Warehouse Properties was $11,606,000 in 1996 compared
to $11,159,000 in 1995, representing an increase of $447,000, or 4.0%. The
increase in rental income was primarily attributable to increased average
realized rental rates combined with increased average occupancy levels. The
monthly average realized rent per square foot was $.59 in 1996 compared to $.57
in 1995. The weighted average occupancy levels were 90% in 1996 compared to 89%
in 1995. Costs of operations (including management fees) increased $374,000, or
8.9%, to $4,564,000 in 1996 from $4,190,000 in 1995. This increase was primarily
attributable to increases in property tax, advertising, and repairs and
maintenance. Accordingly, for the Mini-Warehouse Properties, property net
operating income increased by $73,000, to $7,042,000 in 1996 from $6,969,000 in
1995.
Liquidity and Capital Resources
- -------------------------------
The Partnership has adequate sources of cash to finance its operations,
both on a short-term and a 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, 1997 totaling $1,293,000.
Cash flows from operating activities and distributions from Real Estate
Entities ($3,081,000 for the year ended December 31, 1997) have been sufficient
to meet all current obligations of the Partnership. Total capital improvements
for the Partnership's wholly-owned property were $15,000, $5,000, and $0 in
1997, 1996, and 1995, respectively. During 1998, the Partnership anticipates
incurring approximately $11,000 of capital improvements to the Partnership's
wholly-owned properties.
Total distributions paid to the General Partners and the limited
partners (including per Unit amounts) for 1997 and prior years were as follows:
Total Per Unit
------------ ------------
1997 $2,000,000 $13.92
1996 2,999,000 20.88
1995 4,899,000 34.10
1994 2,816,000 19.60
1993 2,442,000 17.00
1992 2,968,000 20.66
1991 3,607,000 25.11
1990 3,144,000 21.89
1989 3,097,000 21.56
1988 3,769,000 26.23
1987 3,770,000 26.23
1986 3,593,000 25.00
During the fourth quarter of 1990, the Partnership made a special
distribution totaling $1,077,000 ($7.50 per Unit), representing cash reserves
held. The General Partners distributed, concurrently with the distributions for
the fourth quarter of 1991, a portion of the operating reserve estimated at
$9.00 per Unit. The General Partners also distributed, concurrently with the
distributions for the third quarter of 1995, a portion of the operating reserve
14
<PAGE>
estimated at $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
- -------------------
PSI has completed an initial assessment of its computer systems. The
majority of the computer programs were installed or upgraded over the past few
years and are Year 2000 compliant. Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.
The cost of the Year 2000 project will be allocated to all entities
that use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Partnership and the Joint Venture is
approximately $99,000. The cost of new software will be capitalized and the cost
of maintenance to existing systems will be expensed as incurred
The project is expected to be completed by March 31, 1999 which is
prior to any anticipated impact on operating systems. PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the
Partnership.
The costs of the project and the date on which PSI believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Financial Statements and Financial Statement
Schedules in Item 14(a).
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
15
<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
parks owned by the Joint Venture were managed by a predecessor of PSBPLP,
pursuant to a Management Agreement. In January 1997, the Joint Venture
transferred its business parks to PSBPLP in exchange for a partnership interest
in PSBPLP.
The names of all directors and executive officers of PSI, the offices
held by each of them with PSI, and their ages and business experience during the
past five years are as follows:
Name Positions with PSI
- ------------------------ -------------------------------------------------
B. Wayne Hughes Chairman of the Board and Chief Executive Officer
Harvey Lenkin President and Director
B. Wayne Hughes, Jr. Vice President and Director
John Reyes Senior Vice President and Chief Financial Officer
Carl B. Phelps Senior Vice President
Obren B. Gerich Senior Vice President
Marvin M. Lotz Senior Vice President
David Goldberg Senior Vice President and General Counsel
A. Timothy Scott Senior Vice President and Tax Counsel
David P. Singelyn Vice President and Treasurer
Sarah Hass Vice President and Secretary
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
Thomas J. Barrack, Jr. Director
Uri P. Harkham Director
B. Wayne Hughes, age 64, a general partner of the Partnership, has been
a director of PSI since its organization in 1980 and was President and Co-Chief
Executive Officer from 1980 until November 1991 when he became Chairman of the
Board and sole Chief Executive Officer. Mr. Hughes has been active in the real
estate investment field for over 25 years. He is the father of B. Wayne Hughes,
Jr.
Harvey Lenkin, age 61, has been employed by PSI for 20 years and became
President and a director of PSI in November 1991. Mr. Lenkin is a director of
the National Association of Real Estate Investment Trusts (NAREIT).
B. Wayne Hughes, Jr., age 38, became a director of PSI in January 1998.
He has been Vice President Acquisitions of the Company since 1992. He is the son
of B. Wayne Hughes.
John Reyes, age 37, a certified public accountant, joined PSI in 1990
and was controller of PSI from 1992 until December 1996 when he became Chief
Financial Officer. He became a Vice President of PSI in November 1995 and a
Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.
16
<PAGE>
Carl B. Phelps, age 58, became a Senior Vice President of PSI in
January 1998 with overall responsibility for property acquisition and
development. From June 1991 until joining PSI, he was a partner in the law firm
of Andrews & Kurth, L.L.P., which performed legal services for PSI. From
December 1982 through May 1991, his professional corporation was a partner in
the law firm of Sachs & Phelps, then counsel to PSI.
Obren B. Gerich, age 59, a certified public accountant, has been a Vice
President of PSI since 1980 and became Senior Vice President of PSI in November
1995. He was Chief Financial Officer of PSI until November 1991.
Marvin M. Lotz, age 55, has had overall responsibility for Public
Storage's mini-warehouse operations since 1988. He became a Senior Vice
President of PSI in November 1995. Mr. Lotz was an officer of PSI with
responsibility for property acquisitions from 1983 until 1988.
David Goldberg, age 48, joined PSI's legal staff in June 1991. He
became Senior Vice President and General Counsel of PSI in November 1995. From
December 1982 until May 1991, he was a partner in the law firm of Sachs &
Phelps, then counsel to PSI.
A. Timothy Scott, age 46, became a Senior Vice President and Tax
Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in
November 1996. From June 1991 until joining PSI, Mr. Scott practiced tax law as
a shareholder of the law firm of Heller, Ehrman, White & McAuliffe, counsel to
PSI. Prior to June 1991, his professional corporation was a partner in the law
firm of Sachs & Phelps, then counsel to PSI.
David P. Singelyn, age 36, a certified public accountant, has been
employed by PSI since 1989 and became Vice President and Treasurer of PSI in
November 1995. From 1987 to 1989, Mr. Singelyn was Controller of Winchell's
Donut Houses, L.P.
Sarah Hass, age 42, became Secretary of PSI in February 1992. She
became a Vice President of PSI in November 1995. She joined PSI's legal
department in June 1991, rendering services on behalf of PSI. From 1987 until
May 1991, her professional corporation was a partner in the law firm of Sachs &
Phelps, then counsel to PSI, and from April 1986 until June 1987, she was
associated with that firm, practicing in the area of securities law. From
September 1979 until September 1985, Ms. Hass was associated with the law firm
of Rifkind & Sterling, Incorporated.
Robert J. Abernethy, age 58, has been President of American Standard
Development Company and of Self-Storage Management Company, which develop and
operate mini-warehouses, since 1976 and 1977, respectively. Mr. Abernethy has
been a director of PSI since its organization in 1980. He is a member of the
board of directors of Johns Hopkins University and of the Los Angeles County
Metropolitan Transportation Authority and a former member of the board of
directors of the Metropolitan Water District of Southern California.
Dann V. Angeloff, age 62, has been President of the Angeloff Company, a
corporate financial advisory firm, since 1976. The Angeloff Company has
rendered, and is expected to continue to render, financial advisory and
securities brokerage services for PSI. Mr. Angeloff is the general partner of a
limited partnership that owns a mini-warehouse operated by PSI and which secures
a note owned by PSI. Mr. Angeloff has been a director of PSI since its
organization in 1980. He is a director of Compensation Resource Group, Eagle
Lifestyle Nutrition, Inc., Nicholas/Applegate Growth Equity Fund,
Nicholas/Applegate Investment Trust, ReadyPac Produce, Inc. and Royce Medical
Company.
William C. Baker, age 64, became a director of PSI in November 1991.
Since November 1997, Mr. Baker has been Chairman of the Board and Chief
Executive Officer of The Santa Anita Companies, Inc., which operates the Santa
Anita Racetrack and is a wholly-owned subsidiary of Meditrust Operating Company.
From August 1996 until November 1997, he was Chairman of the Board and Chief
Executive Officer of Santa Anita Operating Company and Chairman of the Board of
the Board of Santa Anita Realty Enterprises, Inc., the companies which were
merged with Meditrust in November 1992. From April 1993 through May 1995, Mr.
Baker was President of Red Robin International, Inc., an operator and franchiser
of casual dining restaurants in the United States and Canada. From January 1992
17
<PAGE>
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 50, became a director of PSI in February
1998. Mr. Barrack has been the Chairman and Chief Executive Officer of Colony
Capital, Inc. since September 1991. Colony Capital, Inc. is one of the largest
real estate investors in America, having acquired properties in the U.S., Europe
and Asia. Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack
was a principal with the Robert M. Bass Group, Inc., the principal investment
vehicle for Robert M. Bass of Fort Worth, Texas. From 1985 to 1987, Mr. Barrack
was President of Oxford Venture, Inc., a Canadian-based real estate development
company. From 1984 to 1985, he was Senior Vice President at E.F. Hutton
Corporate Finance in New York. Mr. Barrack was appointed by President Ronald
Reagan as Deputy Under Secretary at the U.S. Department of the Interior from
1982 to 1983. Mr. Barrack currently is a director of Continental Airlines, Inc.
and Virgin Entertainment Group, Ltd.
Uri P. Harkham, age 49, became a director of PSI in March 1993. Mr.
Harkham has been the President and Chief Executive Officer of the Jonathan
Martin Fashion Group, which specializes in designing, manufacturing and
marketing women's clothing, since its organization in 1976. Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties, a real estate
firm specializing in buying and managing fashion warehouses in Los Angeles and
Australia.
Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate
and Agreement of Limited Partnership (the "Partnership Agreement"), a copy of
which is included in the Partnership's prospectus included in the Partnership's
Registration Statement, File No. 2-92009, each of the General Partners continues
to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of the other general partner and a majority vote of
the limited partners, or (iii) removal by a majority vote of the limited
partners.
Each director of PSI serves until he resigns or is removed from office
by PSI, and may resign or be removed from office at any time with or without
cause. Each officer of PSI serves until he resigns or is removed by the board of
directors of PSI. Any such officer may resign or be removed from office at any
time with or without cause.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability of any director or executive officer of PSI during the past five years.
ITEM 11. EXECUTIVE COMPENSATION.
The Partnership has no subsidiaries, directors or officers. See Item 13
for a description of certain transactions between the Partnership and the
General Partners and their affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) At December 31, 1997, PSI beneficially owned more than 5% of the
Units of the Partnership:
18
<PAGE>
Title Amount of Percent
of Name and Address of Beneficial of
Class Beneficial Owner Ownership Class
- ---------------- ------------------------ ---------------- -------
Units of Limited Public Storage, Inc.
Partnership 701 Western Avenue
Interest Glendale, CA 91201-2394 70,308 Units (1) 54.93%
(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 February 1997, PSI completed a cash tender offer, which had
commenced in December 1996, pursuant to which PSI acquired a total of 14,787
limited partnership units at $300 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 of PSI, 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. 2-92009. 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 33 properties (which exclude the
properties transferred to PSBPLP in January 1997); 32 of such properties are
held in a general partnership comprised of the Partnership and PSI. Under the
terms of the partnership agreement relating to the ownership of the properties,
PSI has the right to compel a sale of each property at any time after seven
years from the date of acquisition at not less than its independently determined
fair market value provided the Partnership receives its share of the net sales
proceeds solely in cash. As of December 31, 1997, PSI has the right to require
the Partnership to sell all of the Joint Venture'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.
19
<PAGE>
3. Provided the limited partners have received distributions equal to 100%
of their capital contributions plus a cumulative 6% per year (not
compounded) on their investment (reduced by distributions other than
distributions from Cash Flow from Operations), brokerage commissions at
the lesser of 3% of the sales price of a property or 50% of a
competitive commission.
During 1997, approximately $200,000 was paid to PSI with respect to
items 1, 2, and 3 above. The Partnership owns interests in 33 properties (which
exclude the properties transferred to PSBPLP in January 1997); 32 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 1997, the Partnership and the Joint Venture paid
fees of $731,000 to PSI pursuant to the Management Agreement.
Through 1996, the Joint Venture business parks were 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 and PSI and other related partnerships transferred a total of 35
business parks to PSBPLP, an operating partnership formed to own and operate
business parks in which PSI has a significant interest. Included among the
properties transferred were the Joint Venture's business parks 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.
20
<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.
21
<PAGE>
PS PARTNERS IV, 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.
2-92009 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 December 26, 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.
22
<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 IV, LTD.
Dated: March 17, 1999 By: Public Storage, Inc., General Partner
By: /s/John Reyes
--------------------------------------------
John Reyes
Senior Vice President and Chief Financial
Officer of Public Storage, Inc.
(principal financial and accounting officer)
23
<PAGE>
PS PARTNERS IV, LTD.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
References
----------
PS Partners IV, Ltd.
Report of Independent Auditors F-1
Financial Statements and Schedules:
Balance Sheets as of December 31, 1997 and 1996 F-2
For the years ended December 31, 1997, 1996 and 1995:
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 IV Joint Ventures
Report of Independent Auditors F-13
Financial Statements:
Balance Sheets as of December 31, 1997 and 1996 F-14
For the years ended December 31, 1997, 1996 and 1995:
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-21
Schedule
Schedule III - Real Estate and Accumulated Depreciation F-22 - F-24
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.
24
<PAGE>
Report of Independent Auditors
The Partners
PS Partners IV, Ltd.
We have audited the balance sheets of PS Partners IV, Ltd. as of December 31,
1997 and 1996 and the related statements of income, partners' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PS Partners IV, Ltd. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1, the financial statements have been restated to account
for certain joint ventures previously consolidated by the Partnership on the
equity method.
ERNST & YOUNG LLP
February 23, 1998
Los Angeles, CA
F-1
<PAGE>
PS PARTNERS IV, LTD.
BALANCE SHEETS
(Restated - See Note 1)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
---------------------------------------
1997 1996
---------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,293,000 $ 227,000
Rent and other receivables 2,000 15,000
Real estate facilities, at cost:
Land 101,000 101,000
Buildings and equipment 1,520,000 1,505,000
---------------------------------------
1,621,000 1,606,000
Less accumulated depreciation (581,000) (519,000)
---------------------------------------
1,040,000 1,087,000
Investment in real estate entities 17,513,000 18,487,000
Other assets 5,000 15,000
---------------------------------------
$ 19,853,000 $ 19,831,000
=======================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 147,000 $ 48,000
Advance payments from renters 12,000 13,000
Partners' equity:
Limited partners' equity, $500 per unit, 128,000
units authorized, issued and outstanding 19,414,000 19,490,000
General partner's equity 280,000 280,000
---------------------------------------
Total partners' equity 19,694,000 19,770,000
---------------------------------------
$ 19,853,000 $ 19,831,000
=======================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
PS PARTNERS IV, LTD.
STATEMENTS OF INCOME
(Restated - See Note 1)
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------
REVENUE:
<S> <C> <C> <C>
Rental income $ 267,000 $ 261,000 $ 245,000
Equity in earnings of real estate entities 1,950,000 979,000 1,027,000
Interest income 39,000 22,000 76,000
------------------------------------------------------------
2,256,000 1,262,000 1,348,000
------------------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 111,000 114,000 104,000
Management fees 16,000 16,000 17,000
Depreciation and amortization 62,000 61,000 60,000
Administrative 143,000 139,000 175,000
------------------------------------------------------------
332,000 330,000 356,000
------------------------------------------------------------
NET INCOME $ 1,924,000 $ 932,000 $ 992,000
============================================================
Limited partners' share of net income
($13.34, $4.89, and $3.88 per unit in
1997, 1996, and 1995, respectively) $ 1,707,000 $ 626,000 $ 497,000
General partners' share of net income 217,000 306,000 495,000
-------------------------------------------------------------
$ 1,924,000 $ 932,000 $ 992,000
=============================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
PS PARTNERS IV, LTD.
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1994 $ 25,404,000 $ 340,000 $ 25,744,000
Net income 497,000 495,000 992,000
Distributions (4,365,000) (534,000) (4,899,000)
------------------------------------------------------------
Balances at December 31, 1995 21,536,000 301,000 21,837,000
Net income 626,000 306,000 932,000
Distributions (2,672,000) (327,000) (2,999,000)
------------------------------------------------------------
Balances at December 31, 1996 19,490,000 280,000 19,770,000
Net income 1,707,000 217,000 1,924,000
Distributions (1,783,000) (217,000) (2,000,000)
------------------------------------------------------------
Balances at December 31, 1997 $ 19,414,000 $ 280,000 $ 19,694,000
============================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
PS PARTNERS IV, LTD.
STATEMENTS OF CASH FLOWS
(Restated - See Note 1)
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,924,000 $ 932,000 $ 992,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 62,000 61,000 60,000
Decrease (increase) in rent and other receivables 13,000 (13,000) -
Decrease (increase) in other assets 10,000 (10,000) -
Increase (decrease) in accounts payable 99,000 (19,000) 24,000
(Decrease) increase in advance payments from renters (1,000) 2,000 (1,000)
Equity in earnings of real estate entities (1,950,000) (979,000) (1,027,000)
---------------------------------------------------------
Total adjustments (1,767,000) (958,000) (944,000)
---------------------------------------------------------
Net cash provided by (used in) operating 157,000 (26,000) 48,000
activities
---------------------------------------------------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Distributions from real estate entities 2,924,000 3,045,000 3,603,000
Additions to real estate facilities (15,000) (5,000) -
---------------------------------------------------------
Net cash provided by investing activities 2,909,000 3,040,000 3,603,000
---------------------------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Distributions to partners (2,000,000) (2,999,000) (4,899,000)
---------------------------------------------------------
Net cash used in financing activities (2,000,000) (2,999,000) (4,899,000)
---------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,066,000 15,000 (1,248,000)
Cash and cash equivalents at the beginning of the period 227,000 212,000 1,460,000
---------------------------------------------------------
Cash and cash equivalents at the end of the period $ 1,293,000 $ 227,000 $ 212,000
==========================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
PS PARTNERS IV, LTD
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Summary of Significant Accounting Policies and Partnership Matters
Description of Partnership
--------------------------
PS Partners IV, 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 that the Partnership has an interest in.
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 existing business park facilities which offer
industrial and office space for lease.
The Partnership has ownership interests in 33 properties in 15
states (collectively referred to as the "Mini-Warehouse Properties"),
which excludes three properties transferred to PS Business Parks, L.P.
("PSBPLP") in January 1997. 32 of the properties are owned by SEI/PSP
IV 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 49.8% to 50.9%.
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.
Previously, the Partnership consolidated the Joint Venture in
its financial statements. The accompanying financial statements for
1997, 1996, and 1995 have been restated to de-consolidate the Joint
Venture. This restatement had no impact upon net income or Partner's
Equity. The primary impact of this change was to reduce total assets by
$40,121,000 and $40,001,000 in 1997 and 1996, respectively; the total
of minority interest and liabilities was reduced by the corresponding
same amount in each period. Total revenues decreased by $10,545,000,
$13,758,000, and $13,215,000, respectively, in the years ended December
31, 1997, 1996, and 1995, respectively; the total of minority interest
in income and expenses were reduced by the corresponding same amount in
each period.
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 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.
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 or Loss
--------------------------------
The General Partners' share of net income or loss consists of
an amount attributable to their 1% capital contribution and an
additional percentage of cash flow (as defined, see Note 3) which
relates to the General Partners' share of cash distributions as set
forth in the Partnership Agreement. All remaining net income or loss 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 $13.92, $20.88, and $34.10 for 1997, 1996, and 1995, respectively.
F-7
<PAGE>
1. Summary of Significant Accounting Policies and Partnership Matters
(Continued)
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.
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 all the properties in which the
Partnership has an interest to evaluate the environmental condition of,
and potential environmental liabilities of such properties. Based on
the assessments, the Partnership believes there are no environmental
remediation requirements at this time. Although there can be no
assurance, the Partnership is not aware of any unaccrued 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.
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 1997, 1996, and 1995, the Partnership recognized
earnings from the Real Estate Entities of $1,950,000, $979,000 and
$1,027,000, respectively, and received cash distributions totaling
$2,924,000, $3,045,000, and $3,603,000, respectively from the Real
Estate Entities.
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:
F-8
<PAGE>
3. Investment in Real Estate Entities (Continued)
1997 1996
------------ ------------
For the year ended December 31,
Total revenues $44,073,000 $14,737,000
Minority interest in income $8,566,000 $0
Net income $9,568,000 $4,817,000
At December 31,
Total assets, net of accumulated depreciation $381,088,000 $58,488,000
Total liabilities $12,763,000 $1,390,000
Total minority interest $168,665,000 $0
Total equity $199,660,000 $57,098,000
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, 1997 and at December 31, 1997, respectively, as
compared to prior periods, is the result of the January 1997 transfer
of business parks owned by the Joint Venture to PSBPLP, which was
formed to own and operate business parks. PSI has a significant
interest in PSBPLP.
Financial statements of the Joint Venture are filed with the
Partnership's Form 10-K/A for 1997, 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 financing 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 facilities to PSBPLP in exchange for a partnership interest in
PSBPLP.
PSI has a significant economic interest in PSBPLP and PSBP.
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 (loss) was $4,980,000,
$(950,000), and $585,000 for the years ended December 31, 1997, 1996,
and 1995, respectively. The difference between taxable income and book
income is primarily related to timing differences in depreciation
expense.
F-10
<PAGE>
PS PARTNERS IV, LTD.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Initial Cost
---------------------------------
Date Building &
Acquired Description Encumbrances Land Improvement
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7/88 Fort Wayne $- $101,000 $1,524,000
</TABLE>
<TABLE>
<CAPTION>
Costs Gross Carrying Amount
subsequent At December 31, 1997
to acquisition----------------------------------------------------------------
Date Building & Building & Accumulated
Acquired Description Improvements Land Improvements Total Depreciation
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7/88 Fort Wayne $(4,000) $101,000 $1,520,000 $1,621,000 $581,000
</TABLE>
F-11
<PAGE>
PS PARTNERS IV, LTD.
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,
---------------------------------------
1997 1996 1995
---------------------------------------
Balance at beginning of the period $1,606,000 $1,601,000 $1,601,000
Additions during the period:
Improvements, etc. 15,000 5,000 -
---------------------------------------
Balance at the close of the period $1,621,000 $1,606,000 $1,601,000
=======================================
Accumulated Depreciation Reconciliation
Years Ended December 31,
---------------------------------------
1997 1996 1995
---------------------------------------
Balance at beginning of the period $519,000 $458,000 $398,000
Additions during the period:
Depreciation 62,000 61,000 60,000
---------------------------------------
Balance at the close of the period $581,000 $519,000 $458,000
=======================================
(B) The aggregate cost of real estate for Federal income tax purposes is
$1,164,000.
F-12
<PAGE>
Report of Independent Auditors
The Partners
SEI/PSP IV Joint Ventures
We have audited the balance sheets of the SEI/PSP IV Joint Ventures as of
December 31, 1997 and 1996 and the related statements of income, partners'
equity and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the financial statement schedule listed in
the Index at Item 14 (a). These financial statements and schedule are the
responsibility of the Joint Ventures' management. Our responsibility is to
express an opinion on these financial statements 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 IV Joint Ventures
at December 31, 1997 and 1996, and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
February 23, 1998
Los Angeles, CA
F-13
<PAGE>
SEI/PSP IV JOINT VENTURES
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 230,000 $ 186,000
Rent and other receivables 79,000 121,000
Real estate facilities, at cost:
Land 14,327,000 19,856,000
Buildings and equipment 44,759,000 71,733,000
--------------------------------------
59,086,000 91,589,000
Less accumulated depreciation (21,863,000) (33,625,000)
--------------------------------------
37,223,000 57,964,000
Investment in real estate entity 20,001,000 -
Other assets 101,000 217,000
--------------------------------------
$ 57,634,000 $ 58,488,000
======================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 555,000 $ 1,001,000
Advance payments from renters 377,000 389,000
Partners' equity:
PS Partners IV, Ltd. 17,513,000 18,487,000
Public Storage, Inc. 39,189,000 38,611,000
--------------------------------------
Total partners' equity 56,702,000 57,098,000
--------------------------------------
$ 57,634,000 $ 58,488,000
======================================
</TABLE>
See accompanying notes.
F-14
<PAGE>
SEI/PSP IV JOINT VENTURES
STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------
REVENUE:
<S> <C> <C> <C>
Rental income $11,893,000 $14,737,000 $14,242,000
Equity in earnings of real estate entity 602,000 - -
-----------------------------------------------------
12,495,000 14,737,000 14,242,000
-----------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 3,878,000 5,678,000 5,420,000
Management fees 715,000 851,000 822,000
Depreciation and amortization 2,170,000 3,391,000 3,169,000
-----------------------------------------------------
6,763,000 9,920,000 9,411,000
-----------------------------------------------------
NET INCOME $5,732,000 $4,817,000 $4,831,000
=====================================================
Partners' share of net income:
PS Partners IV, Ltd.'s share $1,950,000 $979,000 $1,027,000
Public Storage Inc.'s share 3,782,000 3,838,000 3,804,000
-----------------------------------------------------
$5,732,000 $4,817,000 $4,831,000
=====================================================
</TABLE>
See accompanying notes.
F-15
<PAGE>
SEI/PSP IV JOINT VENTURES
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
PS Partners Public Storage
IV., Ltd. Inc. Total
-------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1994 $23,129,000 $37,511,000 $60,640,000
Net income 1,027,000 3,804,000 4,831,000
Distributions (3,603,000) (3,428,000) (7,031,000)
-------------------------------------------------------------
Balances at December 31, 1995 20,553,000 37,887,000 58,440,000
Net income 979,000 3,838,000 4,817,000
Distributions (3,045,000) (3,114,000) (6,159,000)
-------------------------------------------------------------
Balances at December 31, 1996 18,487,000 38,611,000 57,098,000
Net income 1,950,000 3,782,000 5,732,000
Distributions (2,924,000) (3,204,000) (6,128,000)
-------------------------------------------------------------
Balances at December 31, 1997 $17,513,000 $39,189,000 $56,702,000
=============================================================
</TABLE>
See accompanying notes.
F-16
<PAGE>
SEI/PSP IV JOINT VENTURES
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $5,732,000 $4,817,000 $4,831,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,170,000 3,391,000 3,169,000
Decrease (increase) in rent and other receivables 42,000 (68,000) (9,000)
Decrease (increase) in other assets 116,000 (64,000) (7,000)
(Decrease) increase in accounts payable (446,000) (60,000) 85,000
Decrease in advance payments from renters (12,000) (18,000) (40,000)
Equity in earnings of real estate entity (602,000) - -
-------------------------------------------------
Total adjustments 1,268,000 3,181,000 3,198,000
-------------------------------------------------
Net cash provided by operating activities 7,000,000 7,998,000 8,029,000
-------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Distributions from real estate entity 251,000 - -
Additions to real estate facilities (1,079,000) (1,905,000) (998,000)
-------------------------------------------------
Net cash used in investing activities (828,000) (1,905,000) (998,000)
-------------------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Distributions to partners (6,128,000) (6,159,000) (7,031,000)
-------------------------------------------------
Net cash used in financing activities (6,128,000) (6,159,000) (7,031,000)
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents 44,000 (66,000) -
Cash and cash equivalents at the beginning of the period 186,000 252,000 252,000
-------------------------------------------------
Cash and cash equivalents at the end of the period $230,000 $186,000 $252,000
=================================================
</TABLE>
See accompanying notes.
F-17
<PAGE>
SEI/PSP IV JOINT VENTURES
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C> <C>
Investment in real estate entity $(19,650,000) $- $-
Transfer of real estate facilities for interest in real estate entity,
net 19,650,000 - -
</TABLE>
See accompanying notes.
F-18
<PAGE>
SEI/PSP IV JOINT VENTURES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Description of Partnership
SEI/PSP IV 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 IV, Ltd. ("PSP IV"). 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 32 properties (referred to hereinafter
as the "Mini-Warehouses"), which excludes three properties which was
transferred to PS Business Parks, L.P. ("PSBPLP") in January 1997. PSP
IV is the managing general partner of the Joint Venture, with its
ownership interests in the properties of the Joint Venture ranging from
49.8% to 50.9%.
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 IV 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 IV 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 IV and PSI
------------------------------------------
Net income prior to depreciation is allocated to PSP IV 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 IV 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 IV 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. Based upon these evaluations, the Joint Venture did
not accrue any environmental expense in 1995. Although there can be no
assurance, the Joint Venture is not aware of any unaccrued
environmental contamination of the Mini-Warehouses.
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.
3. 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 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 parks in exchange for a
partnership interest in PSBPLP. The general partner of PSBPLP is PS
Business Parks, Inc.
4. Investment in real estate entity
In 1997, the Joint Venture recognized $602,000 in equity in
earnings of real estate entities with respect to the investment in
PSBPLP described in Note 3 above.
F-20
<PAGE>
4. Investment in real estate entity (Continued)
The accounting policies of PSBPLP are similar to that of the
Joint Venture. Summarized combined financial data with respect to
PSBPLP is as follows:
1997
-----------------
For the year ended December 31,
Total revenues $31,578,000
Minority interest in income 8,566,000
Net income 3,836,000
At December 31,
Total assets, net of accumulated depreciation $323,454,000
Total liabilities 11,831,000
Total minority interest 168,665,000
Total equity 142,958,000
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 facilities 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 IV and PSI
and, accordingly, the Joint Venture's financial statements do not
reflect a provision for such taxes.
Unaudited taxable net income was $4,979,000, $457,000 and
$4,221,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The difference between taxable income and book income is
primarily related to timing differences in depreciation expense.
F-21
<PAGE>
SEI/PSP IV JOINT VENTURES
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs
Initial Cost subsequent
--------------------------------- to acquisition
Date Building & Building &
Acquired Description Encumbrances Land Improvement Improvements
- ------------------------------------------------------------------------------------------------------------------
Mini-Warehouses
<S> <C> <C> <C> <C> <C>
4/85 Austin/ S. First $- $778,000 $1,282,000 $221,000
4/85 Cincinnati/ E. Kemper - 232,000 1,573,000 232,000
4/85 Cincinnati/ Colerain - 253,000 1,717,000 260,000
4/85 Florence/ Tanner Lane - 218,000 1,477,000 281,000
5/85 Tacoma/ Phillips Rd. - 396,000 1,204,000 182,000
5/85 Milwaukie/ Mcloughlin II - 458,000 742,000 275,000
7/85 San Diego/ Kearny Mesa Rd - 783,000 1,750,000 308,000
5/85 Manchester/ S. Willow II - 371,000 2,129,000 (229,000)
6/85 N. Hollywood/ Raymer - 967,000 848,000 243,000
7/85 Scottsdale/ 70th St - 632,000 1,368,000 194,000
7/85 Concord/ Hwy 29 - 150,000 750,000 226,000
10/85 N. Hollywood/ Whitsett - 1,524,000 2,576,000 275,000
10/85 Portland/ SE 82nd St - 354,000 496,000 244,000
9/85 Madison/ Copps Ave. - 450,000 1,150,000 331,000
9/85 Columbus/ Sinclair - 307,000 893,000 168,000
9/85 Philadelphia/ Tacony St - 118,000 1,782,000 158,000
10/85 Perrysburg/ Helen Dr. - 110,000 1,590,000 (137,000)
10/85 Columbus/ Ambleside - 124,000 1,526,000 (179,000)
10/85 Indianapolis/ Pike Place - 229,000 1,531,000 204,000
10/85 Indianapolis/ Beach Grove - 198,000 1,342,000 191,000
10/85 Hartford/ Roberts - 219,000 1,481,000 356,000
10/85 Wichita/ S. Rock Rd. - 501,000 1,478,000 (19,000)
10/85 Wichita/ E. Harry - 313,000 1,050,000 (42,000)
10/85 Wichita/ S. Woodlawn - 263,000 905,000 (56,000)
10/85 Wichita/ E. Kellogg - 185,000 658,000 (98,000)
10/85 Wichita/ S. Tyler - 294,000 1,004,000 47,000
10/85 Wichita/ W. Maple - 234,000 805,000 (141,000)
</TABLE>
<TABLE>
<CAPTION>
Gross Carrying Amount
At December 31, 1997
---------------------------------------------------------------
Date Building & Accumulated
Acquired Description Land Improvements Total Depreciation
- -------------------------------------------------------------------------------------------------------------------
Mini-Warehouses
<S> <C> <C> <C> <C> <C>
4/85 Austin/ S. First $778,000 $1,503,000 $2,281,000 $750,000
4/85 Cincinnati/ E. Kemper 232,000 1,805,000 2,037,000 900,000
4/85 Cincinnati/ Colerain 253,000 1,977,000 2,230,000 993,000
4/85 Florence/ Tanner Lane 218,000 1,758,000 1,976,000 860,000
5/85 Tacoma/ Phillips Rd. 396,000 1,386,000 1,782,000 686,000
5/85 Milwaukie/ Mcloughlin II 458,000 1,017,000 1,475,000 509,000
7/85 San Diego/ Kearny Mesa Rd 783,000 2,058,000 2,841,000 1,046,000
5/85 Manchester/ S. Willow II 371,000 1,900,000 2,271,000 962,000
6/85 N. Hollywood/ Raymer 967,000 1,091,000 2,058,000 556,000
7/85 Scottsdale/ 70th St 632,000 1,562,000 2,194,000 773,000
7/85 Concord/ Hwy 29 150,000 976,000 1,126,000 479,000
10/85 N. Hollywood/ Whitsett 1,524,000 2,851,000 4,375,000 1,380,000
10/85 Portland/ SE 82nd St 354,000 740,000 1,094,000 382,000
9/85 Madison/ Copps Ave. 450,000 1,481,000 1,931,000 728,000
9/85 Columbus/ Sinclair 307,000 1,061,000 1,368,000 504,000
9/85 Philadelphia/ Tacony St 118,000 1,940,000 2,058,000 951,000
10/85 Perrysburg/ Helen Dr. 110,000 1,453,000 1,563,000 699,000
10/85 Columbus/ Ambleside 124,000 1,347,000 1,471,000 656,000
10/85 Indianapolis/ Pike Place 229,000 1,735,000 1,964,000 834,000
10/85 Indianapolis/ Beach Grove 198,000 1,533,000 1,731,000 720,000
10/85 Hartford/ Roberts 219,000 1,837,000 2,056,000 849,000
10/85 Wichita/ S. Rock Rd. 642,000 1,318,000 1,960,000 639,000
10/85 Wichita/ E. Harry 313,000 1,008,000 1,321,000 498,000
10/85 Wichita/ S. Woodlawn 263,000 849,000 1,112,000 403,000
10/85 Wichita/ E. Kellogg 185,000 560,000 745,000 266,000
10/85 Wichita/ S. Tyler 294,000 1,051,000 1,345,000 527,000
10/85 Wichita/ W. Maple 234,000 664,000 898,000 307,000
</TABLE>
F-22
<PAGE>
SEI/PSP IV JOINT VENTURES
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs
Initial Cost subsequent
---------------------------------to acquisition-
Date Building & Building &
Acquired Description Encumbrances Land Improvement Improvements
- -----------------------------------------------------------------------------------------------------------------
Mini-warehouse
<S> <C> <C> <C> <C> <C>
10/85 Wichita/ Carey Lane $- $192,000 $674,000 $(90,000)
10/85 Wichita/ E. Macarthur - 220,000 775,000 (155,000)
10/85 Joplin/ S. Range Line - 264,000 904,000 (66,000)
12/85 Milpitas - 1,623,000 1,577,000 288,000
12/85 Pleasanton/ Santa Rita - 1,226,000 2,078,000 313,000
---------------------------------------------------------------
TOTAL $- $14,186,000 $41,115,000 $3,785,000
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Carrying Amount
At December 31, 1997
-----------------------------------------------------------------
Date Building & Accumulated
Acquired Description Land Improvements Total Depreciation
- -------------------------------------------------------------------------------------------------------------------
Mini-warehouse
<S> <C> <C> <C> <C> <C>
10/85 Wichita/ Carey Lane $192,000 $584,000 $776,000 $272,000
10/85 Wichita/ E. Macarthur 220,000 620,000 840,000 297,000
10/85 Joplin/ S. Range Line 264,000 838,000 1,102,000 443,000
12/85 Milpitas 1,623,000 1,865,000 3,488,000 882,000
12/85 Pleasanton/ Santa Rita 1,226,000 2,391,000 3,617,000 1,112,000
-----------------------------------------------------------------
TOTAL $14,327,000 $44,759,000 $59,086,000 $21,863,000
=================================================================
</TABLE>
F-23
<PAGE>
SEI/PSP IV JOINT VENTURES
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,
----------------------------------------
1997 1996 1995
----------------------------------------
Balance at beginning of the period $91,589,000 $89,684,000 $88,686,000
Additions during the period:
Improvements, etc. 1,079,000 1,905,000 998,000
Deductions during the period:
Disposition of real estate (33,582,000) - -
----------------------------------------
Balance at the close of the period $59,086,000 $91,589,000 $89,684,000
========================================
Accumulated Depreciation Reconciliation
Years Ended December 31,
----------------------------------------
1997 1996 1995
----------------------------------------
Balance at beginning of the period $33,625,000 $30,234,000 $27,065,000
Additions during the period:
Depreciation 2,170,000 3,391,000 3,169,000
Deductions during the period:
Disposition of real estate (13,932,000) - -
----------------------------------------
Balance at the close of the period $21,863,000 $33,625,000 $30,234,000
========================================
(B) The aggregate cost of real estate for Federal income tax purposes is
$59,508,000.
F-24
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000748901
<NAME> PS PARTNERS IV, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,293,000
<SECURITIES> 0
<RECEIVABLES> 2,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,295,000
<PP&E> 1,621,000
<DEPRECIATION> (581,000)
<TOTAL-ASSETS> 19,853,000
<CURRENT-LIABILITIES> 159,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,694,000
<TOTAL-LIABILITY-AND-EQUITY> 19,853,000
<SALES> 0
<TOTAL-REVENUES> 2,256,000
<CGS> 0
<TOTAL-COSTS> 127,000
<OTHER-EXPENSES> 205,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,924,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,924,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,924,000
<EPS-PRIMARY> 13.34
<EPS-DILUTED> 13.34
</TABLE>
