UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[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, 1996
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 0-14477
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PS PARTNERS VI, LTD., a California Limited
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Partnership (Exact name of registrant as
specified in its charter)
California 95-3950440
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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
(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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PS PARTNERS VI, LTD
This amendment No. 1 to Form 10-K for the year ended December 31, 1996 restates
Item 1 in its entirety.
ITEM 1. BUSINESS.
General
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PS Partners VI, Ltd. (the "Partnership") is a publicly held limited
partnership formed under the California Revised Limited Partnership Act.
Commencing in October 1985, 150,000 units of limited partnership interest (the
"Units") were offered to the public in an interstate offering. The offering was
completed in June 1986.
The Partnership was formed to invest in and operate existing self-service
facilities offering storage space for personal and business use (the
"mini-warehouses") and to invest up to 40% of the net proceeds of the offering
in and operate existing office and industrial properties. The Partnership's
investments were made through general partnerships with Storage Equities, Inc.,
now known as Public Storage, Inc. ("PSI"), a real estate investment trust
("REIT") organized as a corporation under the laws of California. For tax
administrative efficiency, the original general partnerships with PSI were
consolidated into a single general partnership effective December 31, 1990.
In 1995, there was a series of mergers among Public Storage Management,
Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc.
and their affiliates (collectively, "PSMI"), culminating in the November 16,
1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI
Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired
substantially all of PSMI's United States real estate operations and became the
operator of the Partnership's mini-warehouse properties.
The Partnership's general partners (the "General Partners") are PSI and B.
Wayne Hughes ("Hughes"). PSI became a co-general partner in September 1993, when
PSI acquired the interest of PSI Associates, Inc. ("PSA"), an affiliate of PSMI,
relating to PSA's general partner capital contribution in the Partnership.
Hughes has been a general partner of the Partnership since its inception. Hughes
is the chairman of the board and chief executive officer of PSI, and Hughes and
members of his family (the "Hughes Family") are the major shareholders of PSI.
The Partnership is managed, and its investment decisions are made by Hughes and
the executive officers and directors of PSI. The limited partners of the
Partnership have no right to participate in the management or conduct of its
business affairs.
The Partnership's mini-warehouse properties are managed by PSI pursuant to
a Management Agreement. PSI believes that it is the largest operator of
mini-warehouse facilities in the United States.
Through 1996, the Partnership's commercial properties were managed by
Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a
Management Agreement. In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to American Office Park
Properties, L.P. ("AOPPLP"), an operating partnership formed to own and operate
business parks in which PSI has approximately an 85% economic interest. Included
among the properties transferred was the Partnership's transfer of its business
parks to AOPPLP in exchange for a 9.1% interest in AOPPLP. The general partner
of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. Ronald L.
Havner, Jr., formerly Senior Vice-President and Chief Financial Officer of PSI,
is the Chief Executive Officer of American Office Park Properties, Inc. See Item
13.
PSI's current relationship with the Partnership includes (i) the joint
ownership of 30 of the Partnership's 32 properties (which excludes the
properties transferred to AOPPLP 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 February 19, 1997, PSI owned approximately 51.53% of
the Partnership's limited partnership units and (iv) PSI is the operator of the
Partnership's mini-warehouse facilities.
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Investments in Facilities
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The Partnership owns interests in 32 properties (which exclude the
properties transferred to AOPPLP in January 1997); 30 of such properties are
held in a general partnership comprised of the Partnership and PSI. The
Partnership purchased its last property in November, 1986. 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.
Mini-warehouses in which the Partnership has invested generally consist of
three to seven buildings containing an aggregate of between 194 to 1,191 storage
spaces, most of which have between 25 and 400 square feet and an interior height
of approximately 8 to 12 feet.
The Partnership experiences minor seasonal fluctuations in the occupancy
levels of mini-warehouses with occupancies higher in the summer months than in
the winter months. The Partnership believes that these fluctuations result in
part from increased moving activity during the summer.
The Partnership's mini-warehouses are geographically diversified and are
generally located in heavily populated areas and close to concentrations of
apartment complexes, single family residences and commercial developments.
However, there may be circumstances in which it may be appropriate to own a
property in a less populated area, for example, in an area that is highly
visible from a major thoroughfare and close to, although not in, a heavily
populated area. Moreover, in certain population centers, land costs and zoning
restrictions may create a demand for space in nearby less populated areas.
As with most other types of real estate, the conversion of mini-warehouses
to alternative uses in connection with a sale or otherwise would generally
require substantial capital expenditures. However, the Partnership does not
intend to convert its mini-warehouses to other uses.
Commercial Properties
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Through 1996, the Partnership owned and operated two business parks; one in
Signal Hill, California and one in Tempe, Arizona. These properties were
transferred to AOPPLP in January 1997 in exchange for a 9.1% interest in AOPPLP.
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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
properties, (iii) provide Federal income tax deductions so that during the early
years of property operations a portion of cash distributions may be treated as a
return of capital for tax purposes, and therefore, may not represent taxable
income to the limited partners and (iv) provide for cash distributions from
operations.
The Partnership will terminate on December 31, 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 joint venture properties
(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 1991-1994, since the completion
of the Partnership's offering in 1986, significant changes have taken place in
the financial and real estate markets that must be taken into account in
considering the timing of any proposed sale or financing, including: (i) the
increased construction of mini-warehouses from 1984 to 1988, which has increased
competition, (ii) the general deterioration of the real estate market (resulting
from a variety of factors, including changes in tax laws), which has
significantly affected property values and decreased sales activities and (iii)
the reduced sources of real estate financing.
The Partnership engaged Lawrence R. Nicholson, MAI, a principal with the
firm of Nicholson-Douglas Realty Consultants, Inc. ("NDRC") to perform a limited
investigation and appraisal of the Partnership's property portfolio. In a letter
appraisal report dated December 31, 1996, NDRC indicated that, based on the
assumptions contained in the report, the aggregate market value of the
Partnership's 34 properties (consisting not only of the Partnership's interest
but also including PSI's interest), as of December 31, 1996, was $86,900,000
($75,000,000 for the 32 mini-warehouses and $11,900,000 for the 2 business
parks). (In January 1997, after the date of the appraisal, the Partnership
transferred its business parks to AOPPLP in exchange for a 9.1% 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 50% to 90%) in 32 of the 34
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 $7,282,000 for the 32
mini-warehouses and $1,137,000 for the 2 business parks). In the case of the
mini-warehouses, value estimates were then made using both a direct
capitalization analysis ($76,400,000) and a discounted cash flow analysis
($74,700,000). 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 10.0% 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 12.5%. In the direct capitalization
analysis, NDRC applied a 9.5% capitalization rate to the mini-warehouses'
stabilized net operating income. These value estimates were then compared to an
estimated value ($74,000,000) using a regression analysis applied to
approximately 300 sales of mini-warehouses to evaluate the reasonableness of the
estimates using the direct capitalization and discounted cash flow analysis.
The business parks were valued using a direct capitalization analysis by
applying a 9.25% to 10.0% capitalization rate to the business parks' stabilized
net operating income and then making adjustments for any necessary capital
improvements and stabilization costs. 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
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Partnership's properties. Accordingly, NDRC's appraisal did not take into
account any environmental cleanup or other costs that might be incurred in
connection with a disposition of the properties. Although there can be no
assurance, based on recently completed environmental investigations (see Item
2), the Partnership is not aware of any environmental contamination of its
facilities material to its overall business or financial condition. In addition
to assuming compliance with applicable environmental laws, the appraisal also
assumed, among other things, compliance with applicable zoning and use
regulations and the existence of required licenses.
Limited Partners should recognize that appraisals are opinions as of the
date specified, are subject to certain assumptions and the appraised value of
the Partnership's properties may not represent their true worth or realizable
value. There can be no assurance that, if these properties were sold, they would
be sold at the appraised values; the sales price might be higher or lower than
the appraised values.
Based on NDRC's limited appraisal (as of December 31, 1996), the General
Partners have estimated a liquidation value per Unit of $385. This liquidation
value was calculated assuming (i) the properties owned by the Partnership and
PSI were sold at the values reflected in NDRC's report, (ii) costs of 5% of the
sales price of the properties were incurred in the sale of the properties, (iii)
the proceeds from the properties held jointly by the Partnership and PSI were
allocated between them in accordance with the joint venture agreement and (iv)
the Partnership's other net assets were liquidated at their book value at
December 31, 1996.
Operating Strategies
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The Partnership's mini-warehouses are operated by PSI under the "Public
Storage" name, which the Partnership believes is the most recognized name in the
mini-warehouse industry. The major elements of the Partnership's operating
strategies are as follows:
* Capitalize on Public Storage's name recognition. PSI, together
with its predecessor, has more than 20 years of operating
experience in the mini-warehouse business. PSI has informed the
Partnership that it is the largest mini-warehouse facility
operator in the United States in terms of both number of
facilities and rentable space operated. PSI believes that its
marketing and advertising programs improve its competitive
position in the market. PSI's in-house Yellow Pages staff designs
and places advertisements in approximately 700 directories.
Commencing in early 1996, PSI began to experiment with a telephone
reservation system designed to provide added customer service.
Customers calling either PSI's toll-free referral system, (800)
44-STORE, or a mini-warehouse facility are directed to PSI's
reservation system where a trained representative discusses with
the customer space requirements, price and location preferences
and also informs the customer of other products and services
provided by PSI. As of December 31, 1996, the telephone
reservation system was supporting rental activity at all of the
Partnership's properties. PSI's toll-free telephone referral
system services approximately 120,000 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. The monthly average
realized rent per square foot for the mini-warehouse facilities
was $.62 in 1996 compared to $.60 in 1995. The weighted average
occupancy levels at the mini-warehouse facilities were 90% in 1996
compared to 88% in 1995. 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
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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-warehouse in the
Public Storage system. These on-site personnel are supervised by
110 district managers, 15 regional managers and three 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 13 years of experience
with the Public Storage organization). PSI carefully selects and
extensively trains the operational and support personnel and
offers them a progressive career path. See "Mini-warehouse
Property Operator."
Mini-warehouse Property Operator
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The Partnership's mini-warehouse properties are managed by PSI pursuant to
a Management Agreement.
Under the supervision of the Partnership, PSI coordinates the operation of
the facilities, establishes rental policies and rates, directs marketing
activity and directs the purchase of equipment and supplies, maintenance
activity, and the selection and engagement of all vendors, supplies and
independent contractors.
PSI engages, at the expense of the Partnership, employees for the operation
of the Partnership's facilities, including resident managers, assistant
managers, relief managers, and billing and maintenance personnel. Some or all of
these employees may be employed on a part-time basis and may also be employed by
other persons, partnerships, REITs or other entities owning facilities operated
by PSI.
In the purchasing of services such as advertising (including broadcast
media advertising) and insurance, PSI attempts to achieve economies by combining
the resources of the various facilities that it operates. Facilities operated by
PSI have historically carried comprehensive insurance, including fire,
earthquake, liability and extended coverage.
PSI has developed systems for space inventory, accounting and handling
delinquent accounts, including a computerized network linking PSI operated
facilities. Each project manager is furnished with detailed operating procedures
and typically receives facilities management training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions taken by the project managers when delinquencies occur is
maintained.
The Partnership's facilities are typically advertised via signage, yellow
pages, flyers and broadcast media advertising (television and radio) in
geographic areas in which many of the Partnership's facilities are located.
Broadcast media and other advertising costs are charged to the Partnership's
facilities located in geographic areas affected by the advertising. From time to
time, PSI adopts promotional programs, such as temporary rent reductions, in
selected areas or for individual facilities.
For as long as the Management Agreement is in effect, PSI has granted the
Partnership a non-exclusive license to use two PSI service marks and related
designs, including the "Public Storage" name, in conjunction with rental and
operation of facilities managed pursuant to the Management Agreement. Upon
termination of the Management Agreement, the Partnership would no longer have
the right to use the service marks and related designs. The General Partners
believe that the loss of the right to use the service marks and related designs
could have a material adverse effect on the Partnership's business.
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The Management Agreement between the Partnership and PSI provides that the
Management Agreement may be terminated without cause upon 60 days written notice
by either party.
Commercial Property Operator
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Through 1996, the Partnership's commercial properties were managed by
PSCPG, now known as American Office Park Properties, Inc., pursuant to a
Management Agreement. In January 1997, the Partnership transferred its
commercial properties to AOPPLP.
Competition
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Competition in the market areas in which the Partnership operates is
significant, and affects the occupancy levels, rental rates, and operating
expenses of certain of the Partnership's facilities. Competition may be
accelerated by any increase in availability of funds for investment in real
estate. Recent increases in plans for development of mini-warehouses are
expected to further intensify competition among mini-warehouse operators in
certain market areas. In addition to competition from mini-warehouses operated
by PSI, there are three other national firms and numerous regional and local
operators. The Partnership believes that the significant operating and financial
experience of PSI's executive officers and directors and the "Public Storage"
name should enable the Partnership to continue to compete effectively with other
entities.
Other Business Activities
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A corporation owned by the Hughes Family reinsures policies against losses
to goods stored by tenants in the Partnership's mini-warehouses. The Partnership
believes that the availability of insurance reduces the potential liability of
the Partnership to tenants for losses to their goods from theft or destruction.
This corporation receives the premiums and bears the risks associated with the
insurance.
A corporation, in which PSI has 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 111 persons who render services on behalf of the Partnership.
These persons include resident managers, assistant managers, relief managers,
district managers, and administrative personnel. Some of these employees may be
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
AOPPLP.
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SIGNATURES
Pursuant to the requirements 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 VI, LTD.,
a California Limited Partnership
Dated: May 21, 1997 By: Public Storage, Inc., General Partner
By /s/ John Reyes
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John Reyes
Senior Vice President and
Chief Financial Officer
