UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
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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 0-16876
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PS PARTNERS VIII, LTD., a California Limited Partnership
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(Exact name of registrant as specified in its charter)
California 95-4029178
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2394
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. Business.
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General
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PS Partners VIII, Ltd. (the "Partnership") is a publicly held limited
partnership formed under the California Revised Limited Partnership Act.
Commencing in March 1987, up to 150,000 units of limited partnership interest
("Units") were offered to the public in an interstate offering. The offering was
completed in December 1987 with 52,751 Units sold.
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 45% of the net proceeds of the offering
in and operate existing office and industrial properties. The Partnership's
investments were made through general partnerships with Storage Equities, Inc.,
now known as Public Storage, Inc. ("PSI"), a real estate investment trust
("REIT") organized as a corporation under the laws of California. For tax
administrative efficiency, the original general partnerships with PSI were
consolidated into a single general partnership effective December 31, 1990.
In 1995, there was a series of mergers among Public Storage Management,
Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc.
and their affiliates (collectively, "PSMI"), culminating in the November 16,
1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI
Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired
substantially all of PSMI's United States real estate operations and became the
operator of the Partnership's mini-warehouse properties.
The Partnership's general partners (the "General Partners") are PSI and B.
Wayne Hughes ("Hughes"). PSI became a co-general partner in September 1993, when
PSI acquired the interest of PSI Associates, Inc. ("PSA"), an affiliate of PSMI,
relating to PSA's general partner capital contribution in the Partnership.
Hughes has been a general partner of the Partnership since its inception. Hughes
is the chairman of the board and chief executive officer of PSI, and Hughes and
members of his family (the "Hughes Family") are the major shareholders of PSI.
The Partnership is managed, and its investment decisions are made by Hughes and
the executive officers and directors of PSI. The limited partners of the
Partnership have no right to participate in the management or conduct of its
business affairs.
The Partnership's mini-warehouse properties are managed by PSI pursuant to
a Management Agreement. PSI believes that it is the largest operator of
mini-warehouse facilities in the United States.
Through 1996, the Partnership's commercial property was managed by Public
Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a Management
Agreement. In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to 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
park to AOPPLP in exchange for a 2.5% 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) PSI is a
co-general partner along with Hughes, who is chairman of the board and chief
executive officer of PSI, (ii) as of February 19, 1997, PSI owned approximately
53.45% of the Partnership's limited partnership units and (iii) PSI is the
operator of the Partnership's mini-warehouse facilities.
Investments in Facilities
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The Partnership owns 5 properties (which exclude the property transferred
to AOPPLP in January 1997). The Partnership purchased its last property in
February, 1988. 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.
2
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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
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 368 to 740 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 a single commercial
property; a business park located in Carson, California which was transferred to
AOPPLP in January 1997 in exchange for a 2.5% interest in AOPPLP.
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. 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 1993-1996, since the completion of the
Partnership's offering in 1987, 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.
In 1992, PSI offered Limited Partners of the Partnership (and two other
affiliated Partnerships) the right to exchange their Units for shares of PSI's
Common Stock. In connection with the exchange offer, the General Partners
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indicated to Limited Partners that they would continue to evaluate the
advisability of the sale or financing of the Partnership's properties and that
at some point prior to the expiration of the period originally estimated for the
sale or financing of the properties (at the end of 1996 in the case of the
Partnership), the General Partners intended to conduct an analysis to determine
the feasibility of a sale or financing of the properties, to make a
recommendation to Limited Partners and to retain independent appraisers to
conduct a study of the current value of the properties. In that regard, 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 March 13, 1996, NDRC indicated that, based on the
assumptions contained in the report, the aggregate market value of the
Partnership's properties, as of January 31, 1996, was $18,100,000 ($14,800,000
for the five mini-warehouses and $3,300,000 for the one business park). (In
January 1997, after the date of the appraisal, the Partnership transferred its
business park to AOPPLP in exchange for a 2.5% 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.
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 of $1,545,000 for the five mini-warehouses and
$331,000 for the one business park. Value estimates were then made using both a
direct capitalization analysis ($15,400,000 for the mini-warehouses and
$3,300,000 for the business park) and a discounted cash flow analysis
($14,800,000 for the mini-warehouses and $3,300,000 for the business park). In
the case of the mini-warehouses, these value estimates were then compared to an
estimated value ($14,400,000) using a regression analysis applied to a sample of
approximately 300 sales of mini-warehouses to evaluate the reasonableness of the
estimate of the value of the Partnership's mini-warehouses. 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 by NDRC 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, the Partnership is not aware of any environmental contamination
of its facilities material to its overall business or environmental 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 January 1996), the General
Partners have estimated a liquidation value per Unit of $320. 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 and
(iii) the Partnership's other net assets were liquidated at their book value at
March 31, 1996.
In August 1996, PSI completed a cash tender offer, which had commenced in
July 1996, pursuant to which PSI acquired a total of 6,537 additional limited
partnership units in the Partnership at $320 per Unit.
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
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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 realized rent per square foot for
the mini-warehouse facilities averaged $.76 in 1996 compared to $.73 in
1995. Weighted average occupancy levels at the mini-warehouse facilities
increased to 91% in 1996 from 89% 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 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 120
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.
5
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The Partnership's facilities are typically advertised via signage, yellow
pages, flyers and broadcast media advertising (television and radio) in
geographic areas in which many of the Partnership's facilities are located.
Broadcast media and other advertising costs are charged to the Partnership's
facilities located in geographic areas affected by the advertising. From time to
time, PSI adopts promotional programs, such as temporary rent reductions, in
selected areas or for individual facilities.
For as long as the Management Agreement is in effect, PSI has granted the
Partnership a non-exclusive license to use two PSI service marks and related
designs, including the "Public Storage" name, in conjunction with rental and
operation of facilities managed pursuant to the Management Agreement. Upon
termination of the Management Agreement, the Partnership would no longer have
the right to use the service marks and related designs. The General Partners
believe that the loss of the right to use the service marks and related designs
could have a material adverse effect on the Partnership's business.
The Management Agreement between the Partnership and PSI provides that the
Management Agreement may be terminated without cause upon 60 days written notice
by either party.
Commercial Property Operator
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Through 1996, the Partnership's commercial property was managed by PSCPG,
now known as American Office Park Properties, Inc., pursuant to a Management
Agreement. In January 1997, the Partnership transferred its commercial property
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 is 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 21 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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ITEM 2. PROPERTIES.
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The following table sets forth information as of December 31, 1996, about
properties owned by the Partnership. All of these properties are wholly-owned by
the Partnership.
Net Rentable Number of Spaces Date of
Location Square Feet Acquisition
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CALIFORNIA
Anaheim 66,600 621 02-25-88
Lakeview Ave.
Carson (A) (B) 77,300 34 05-27-87
Leapwood Ave.
FLORIDA
Plantation 51,400 510 10-16-87
South State Road 7
ILLINOIS
Oakbrook Terrace 64,700 740 07-15-87
Roosevelt Road
MARYLAND
Rockville 56,300 641 10-01-87
Frederick Road
TEXAS
San Antonio 52,200 368 08-20-87
Austin Hwy.
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(A) Business Park
(B) In January 1997, the Partnership contributed its business park facility to
AOPPLP in exchange for a 2.5% interest in AOPPLP. See Item 1.
Weighted average occupancy levels for the mini-warehouse and business
park/office building facilities were 89% and 93%, respectively, in 1996 compared
to 91% and 95%, respectively, in 1995. In 1996, the monthly realized rent per
square foot for the mini-warehouse and business park/office building facilities
averaged $.76 and $.58, respectively, compared to $.73 and $.59, respectively,
in 1995.
Substantially all of the Partnership's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995, an
independent environmental consulting firm completed environmental assessments on
the Partnership's properties to evaluate the environmental condition of, and
potential environmental liabilities of, such properties. Based on the
assessments, the Partnership expensed in 1995 an estimated $153,000 for known
environmental remediation requirements. Although there can be no assurance, the
Partnership is not aware of any unaccrued environmental contamination of any of
its property sites 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.
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No material legal proceeding is pending against the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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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, 1996, there were approximately 1,257 record holders of Units.
In August 1996, PSI completed a cash tender offer, which had commenced in
July 1996, pursuant to which PSI acquired a total of 6,537 additional limited
partnership units in the Partnership at $320 per Unit.
The Partnership makes quarterly distributions of all "Cash Available for
Distribution" and will make distributions of all "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.
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<TABLE>
<CAPTION>
For the Year Ended December 31,
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1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands, except per Unit data)
<S> <C> <C> <C> <C> <C>
Revenues $ 2,922 $ 2,828 $ 2,802 $ 2,657 $ 2,562
Depreciation and amortization 808 758 735 694 651
Net income 1,099 877 1,042 963 903
Limited partners' share 929 650 912 838 733
General partners' share 170 227 130 125 170
Limited partners' per unit data(a)
Net income $ 17.61 $ 12.32 $ 17.29 $ 15.89 $ 13.90
Cash distributions (b) $ 27.04 $ 37.18 $ 20.40 $ 19.70 $ 27.45
As of December 31,
- ------------------
Cash and cash equivalents $ 209 $ 217 $ 888 $ 510 $ 182
Total assets $ 17,858 $ 18,426 $ 19,594 $ 19,771 $ 20,003
</TABLE>
(a) Limited Partners' per unit data is based on the weighted average number of
units outstanding during the period (52,751 for all periods presented).
(b) The General Partners distributed, concurrently with the distribution for
the third quarter of 1995, a portion of the operating reserve of the
Partnership estimated to be $10.14 per Unit.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Results of Operation
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income in 1996 was $1,099,000 compared to $877,000 in
1995, representing an increase of $222,000, or 25%. The increase was primarily a
result of decreased environmental costs, combined with an increase in property
operating results, partially offset by an increase in depreciation expense and a
decrease in interest income.
Property net operating income (rental income less cost of operations and
management fees and excluding depreciation expense) increased approximately
$134,000, or 7%, in 1996 compared to 1995, as rental income increased by
$124,000, or 4%, and cost of operations (including management fees) decreased by
$10,000.
Rental income for the Partnership's mini-warehouse operations was
$2,394,000 in 1996 compared to $2,264,000 in 1995, representing an increase of
$130,000, or 6%. The increase in rental income was primarily attributable to
increased rental rates and occupancy levels at the mini-warehouse facilities.
The monthly realized rent per square foot for the mini-warehouse facilities
averaged $.76 in 1996 compared to $.73 in 1995. Weighted average occupancy
levels at the mini-warehouse facilities increased to 91% in 1996 from 89% in
1995. Cost of operations (including management fees) decreased $1,000 to
$740,000 in 1996 from $741,000 in 1995. Accordingly, for the Partnership's
mini-warehouse operations, property net operating income increased by $131,000
to $1,654,000 in 1996 from $1,523,000 in 1995.
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Rental income for the Partnership's business park operations was $513,000
in 1996 compared to $519,000 in 1995, representing a decrease of $6,000. The
decrease in rental income was primarily attributable to reduced rental rates,
partially offset by increased occupancy rates. The monthly realized rent per
square foot for the business park facility averaged $.58 in 1996 compared to
$.59 in 1995. Weighted average occupancy levels at the business park facility
increased to 95% in 1996 from 93% in 1995. Cost of operations (including
management fees) decreased $9,000, or 4%, to $206,000 in 1996 from $215,000 in
1995. The decrease in cost of operations was primarily attributable to decreases
in property tax and lease commissions expenses, partially offset by an increase
in payroll expense. Accordingly, for the Partnership's business park facility,
property net operating income increased by $3,000 to $307,000 in 1996 from
$304,000 in 1995.
Interest income decreased in 1996 over 1995 as a result of a decrease in
average invested cash balances.
Depreciation and amortization increased $50,000 to $808,000 in 1996 from
$758,000 in 1995. This increase is principally attributable to depreciation of
capital expenditures made during 1995 and 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
The Partnership's net income in 1995 was $877,000 compared to $1,042,000 in
1994, representing a decrease of $165,000, or 16%. The decrease was primarily a
result of increased environmental costs.
Property net operating income (rental income less cost of operations and
management fees and excluding depreciation expense) was $1,827,000 in 1995 and
$1,817,000 in 1994, representing an increase of $10,000.
Rental income for the Partnership's mini-warehouse operations was
$2,264,000 in 1995 compared to $2,251,000 in 1994, representing an increase of
$13,000. The increase in rental income was primarily attributable to increased
rental rates at the mini-warehouse facilities partially offset by decreased
occupancy levels. Weighted average occupancy levels at the mini-warehouse
facilities decreased from 92% in 1994 to 89% in 1995. The monthly realized rent
per square foot for the mini-warehouse facilities averaged $.73 in 1995 compared
to $.70 in 1994. Cost of operations (including management fees) decreased $7,000
to $741,000 in 1995 from $748,000 in 1994. Accordingly, for the Partnership's
mini-warehouse operations, property net operating income increased by $20,000
from $1,503,000 in 1994 to $1,523,000 in 1995.
Rental income for the Partnership's business park operations was $519,000
in 1995 compared to $525,000 in 1994, representing a decrease of $6,000. The
decrease in rental income was primarily attributable to reduced rental rates.
Weighted average occupancy levels at the business park facility remained stable
at 93% in both 1995 and 1994. The monthly realized rent per square foot for the
business park facility averaged $.59 in 1995 compared to $.60 in 1994. Cost of
operations (including management fees) increased $4,000 to $215,000 in 1995 from
$211,000 in 1994. Accordingly, for the Partnership's business park facility,
property net operating income decreased by $10,000 from $314,000 in 1994 to
$304,000 in 1995.
Substantially all of the Partnership's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995, an
independent environmental consulting firm completed environmental assessments on
the Partnership's properties to evaluate the environmental condition of, and
potential environmental liabilities of, such properties. Based on the
assessments, the Partnership expensed in 1995 an estimated $153,000 for known
environmental remediation requirements. Although there can be no assurance, the
Partnership is not aware of any unaccrued environmental contamination of any of
its property sites which individually or in the aggregate would be material to
the Partnership's overall business, financial condition or results of
operations.
Liquidity and Capital Resources
- -------------------------------
The Partnership has adequate sources of cash to finance its operations,
both on a short-term and long-term basis, primarily by internally generated cash
from property operations combined with cash on-hand at December 31, 1996 of
approximately $209,000.
10
<PAGE>
Cash flows from operating activities ($1,821,000 for the year ended
December 31, 1996) have been sufficient to meet all current obligations of the
Partnership. Capital improvements were $229,000, $272,000, and $181,000 in 1996,
1995, and 1994, respectively. The increase in capital improvements during 1995
is principally due to the repainting and reconfiguration following the vacancy
of a long-term tenant, and the refurbishment of the roof and air conditioning at
the Partnership's business park facility. During 1997, the Partnership
anticipates approximately $120,000 of capital improvements.
The Partnership expects to continue making quarterly distributions. Total
distributions paid to the General Partners and the limited partners (including
per Unit amounts) for 1996 and prior years were as follows:
Total Per Unit
----------- ---------
1996 $1,600,000 $27.04
1995 2,201,000 37.18
1994 1,208,000 20.40
1993 1,166,000 19.70
1992 1,625,000 27.45
1991 1,778,000 30.02
1990 1,554,000 26.24
1989 1,517,000 25.63
1988 1,480,000 25.01
1987 476,000 14.55
The General Partners distributed, concurrently with the distribution for
the fourth quarter of 1991, a portion of the operating reserve and adjusted the
ongoing distribution level. The operating reserve that was distributed was
estimated at $7.45 per Unit. The General Partners distributed, concurrently with
the distribution for the third quarter of 1995, a portion of the operating
reserve of the Partnership estimated to be $10.14 per Unit. Future distribution
levels will be based on cash available for distributions (cash flow from all
sources, less cash necessary for capital improvement needs and to establish
reserves).
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.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
---------------------------------------------------
The Partnership has no directors or executive officers.
The Partnership's General Partners are PSI and B. Wayne Hughes. PSI, acting
through its directors and executive officers, and Mr. Hughes manage and make
investment decisions for the Partnership. The Partnership's mini-warehouse
properties are managed by PSI pursuant to a Management Agreement. Through 1996,
the Partnership's commercial property was managed by PSCPG, now known as
American Office Park Properties, Inc., pursuant to a Management Agreement. In
January 1997, the Partnership transferred its business park to AOPPLP in
exchange for a 2.5% interest in AOPPLP.
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
John Reyes Senior Vice President and Chief Financial Officer
Hugh W. Horne 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
Sarah Hass Vice President and Secretary
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
Uri P. Harkham Director
B. Wayne Hughes, age 63, 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 was an officer and director
of affiliates of PSMI and a director of PSMI until November 1995. Mr. Hughes has
been Chairman of the Board and Chief Executive Officer since 1990 of Public
Storage Properties XI, Inc., Public Storage Properties XIV, Inc., Public Storage
Properties XV, Inc., Public Storage Properties XVI, Inc., Public Storage
Properties XVII, Inc., Public Storage Properties XVIII, Inc., Public Storage
Properties XIX, Inc. and Public Storage Properties XX, Inc. (collectively, the
"Public Storage REITs"), REITs that were organized by affiliates of PSMI. From
1989-90 until the respective dates of merger, he was Chairman of the Board and
Chief Executive Officer of Public Storage Properties VI, Inc., Public Storage
Properties VII, Inc., Public Storage Properties VIII, Inc., Public Storage
Properties IX, Inc., Public Storage Properties X, Inc. and Public Storage
Properties XII, Inc., PS Business Parks, Inc., Partners Preferred Yield, Inc.,
Partners Preferred Yield II, Inc., Partners Preferred Yield III, Inc. and
Storage Properties, Inc. ("SPI") (collectively, the "Merged Public Storage
REITs"), affiliated REITs that were merged into PSI between September 1994 and
December 1996. Mr. Hughes has been active in the real estate investment field
for over 25 years.
Harvey Lenkin, age 60, became President and a director of PSI in November
1991. Mr. Lenkin was an officer and director of PSMI and its affiliates until
November 1995. He has been President of the Public Storage REITs since 1990. He
was President of the Merged Public Storage REITs from 1989-90 until the
respective dates of merger and was also a director of SPI from 1989 until June
1996.
12
<PAGE>
John Reyes, age 36, a certified public accountant, joined PSMI 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.
Hugh W. Horne, age 52, has been a Vice President of PSI since 1980 and was
Secretary of PSI from 1980 until February 1992 and became Senior Vice President
of PSI in November 1995. He was an officer of PSMI from 1973 to November 1995.
Mr. Horne has been a Vice President of the Public Storage REITs since 1993. He
was a Vice president of SPI from 1989 until June 1996 and of the other Merged
Public Storage REITs from 1993 until the respective dates of merger. He is
responsible for managing all aspects of property acquisition for PSI.
Obren B. Gerich, age 58, a certified public accountant and certified
financial planner, 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. Mr. Gerich was an officer of PSMI from 1975 to November
1995. He has been Vice President and Secretary of the Public Storage REITS since
1990 and was Chief Financial Officer until November 1995. Mr. Gerich was Vice
President and Secretary of the Merged Public Storage REITs from 1989-90 until
the respective dates of merger.
Marvin M. Lotz, age 54, 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 PSMI with responsibility for
property acquisitions from 1983 until 1988.
David Goldberg, age 47, joined PSMI's legal staff in June 1991, rendering
services on behalf of PSI and PSMI. He became a Senior Vice President and
General Counsel of PSI in November 1995 and Vice President and General Counsel
of the Public Storage REITs in December 1995. From December 1982 until May 1991,
he was a partner in the law firm of Sachs & Phelps, then counsel to PSI and
PSMI.
A. Timothy Scott, age 45, 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
and PSMI. Prior to June 1991, his professional corporation was a partner in the
law firm of Sachs & Phelps, then counsel to PSI and PSMI.
Sarah Hass, age 41, became Secretary of PSI in February 1992. She became a
Vice President of PSI in November 1995. She joined PSMI's legal department in
June 1991, rendering services on behalf of PSI and PSMI. From 1987 until May
1991, her professional corporation was a partner in the law firm of Sachs &
Phelps, then counsel to PSI and PSMI, 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 57, is President of American Standard Development
Company and of Self-Storage Management Company, which develop and operate
mini-warehouses. 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 61, is President of the Angeloff Company, a corporate
financial advisory firm. 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 Bonded Motors, Inc., Compensation Resource Group, Datametrics
Corporation, Nicholas/Applegate Growth Equity Fund, Nicholas/Applegate
Investment Trust, ReadyPac Produce, Inc., Royce Medical Company and Seda
Specialty Packaging Corp. He was a director of SPI from 1989 until June 1996.
William C. Baker, age 63, became a director of PSI in November 1991. Since
April 1996, Mr. Baker has been Chairman of the Board of Santa Anita Realty
Enterprises, Inc., a REIT that owns the Santa Anita Racetrack and other real
estate assets. In August 1996, he became Chairman of the Board and Chief
Executive Officer of Santa Anita Operating Company, which operates the Santa
Anita Racetrack through its subsidiary the Los Angeles Turf Club, Incorporated.
13
<PAGE>
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. Since January 1992, he has been Chairman and Chief
Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red
Robin International, Inc. 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.
Uri P. Harkham, age 48, 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 and Restated
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. 33-5892, 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 February 19, 1997, PSI beneficially owned more than 5% of the Units
of the Partnership:
<TABLE>
<CAPTION>
Title Amount of Percent
of Name and Address of Beneficial of
Class Beneficial Owner Ownership Class
- -------------------- --------------------------------------------------- ------------------- ----------
<S> <C> <C> <C>
Units of Limited Public Storage, Inc.
Partnership 701 Western Avenue
Interest Glendale, CA 91201-2394 (1) 28,194 Units (1) 53.45%
</TABLE>
- ----------------
(1) These Units are held of record by SEI Arlington Acquisition Corporation,
a wholly-owned subsidiary of PSI.
The Partnership is not aware of any other beneficial owners of
more than 5% of the Units.
In August 1996, PSI completed a cash tender offer, which had
commenced in July 1996, pursuant to which PSI acquired a total of
6,537 additional limited partnership units in the Partnership at $320
per Unit.
(b) The Partnership has no officers and directors.
The General Partners (or their predecessor-in-interest) have
contributed $266,000 to the capital of the Partnership representing 1%
of the aggregate capital contributions and as a result participate in
14
<PAGE>
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 Agreement, which 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The Partnership Agreement provides that the General Partners and their
affiliates are entitled to the following compensation:
1. Incentive distributions equal to 10% of Cash Flow from
Operations.
2. Provided the limited partners have received distributions equal
to 100% of their investment plus a cumulative 8% per year (not
compounded) on their investment (reduced by distributions other
than from Cash Flow from Operations), subordinated incentive
distributions equal to 15% of remaining Cash from Sales or
Refinancings.
3. Provided the limited partners have received distributions equal
to 100% of their capital contributions plus a cumulative 6% per
year (not compounded) on their investment (reduced by
distributions other than distributions from Cash Flow from
Operations), brokerage commissions at the lesser of 3% of the
sales price of a property or 50% of a competitive commission.
During 1996, approximately $160,000 was paid to PSI with respect to items
1, 2, and 3 above.
The Partnership has a Management Agreement with PSI pursuant to which the
Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse
spaces operated for the Partnership. During 1996, the Partnership paid fees of
$143,000 to PSI pursuant to the Management Agreement.
Through 1996, the Partnership's commercial property was managed by PSCPG
pursuant to a Management Agreement which provides for the payment of a fee by
the Partnership of 5% of the gross revenues of the commercial space operated for
the Partnership. During 1996, the Partnership paid $26,000 to PSCPG pursuant to
the Management Agreement. PSI has a 95% economic interest (represented by voting
preferred stock) in PSCPG and the Hughes Family had a 5% economic interest
(represented by voting common stock) in PSCPG until December 1996, when the
Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice
President and Chief Financial Officer of PSI, who became the Chief Executive
Officer of PSCPG. PSCPG issued additional voting common stock to two other
unaffiliated investors. In January 1997, the Partnership and PSI and other
related partnerships transferred a total of 35 business parks to AOPPLP, an
operating partnership formed to own and operate business parks in which PSI has
an approximate 85% economic interest. Included among the properties transferred
was the Partnership's transfer of its business park to AOPPLP in exchange for a
2.5% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as
American Office Park Properties, Inc.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements: See Index to Consolidated Financial
Statements and Financial Statement Schedules.
2. Financial Statement Schedules: See Index to Consolidated
Financial Statements and Financial Statement Schedules.
3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K.
None
(c) Exhibits: See Exhibit Index contained herein.
16
<PAGE>
PS PARTNERS VIII LTD.,
a California Limited Partnership
INDEX TO EXHIBITS
3.1 Amended and Restated Agreement of Limited Partnership. Previously
filed with the Securities and Exchange Commission as an Exhibit to the
Storage Equities, Inc. Registration Statement No. 33-43750 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.
27. Financial data schedule. Filed herewith.
17
<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 VIII, LTD.,
a California Limited Partnership
Dated: March 26, 1997 By: Public Storage, Inc., General Partner
By: /s/ B Wayne Hughes
----------------------------------------
B. Wayne Hughes, Chairman of the Board
By: /s/ B Wayne Hughes
----------------------------------------
B. Wayne Hughes, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Partnership in the capacities and on the dates indicated.
<TABLE>
Signature Capacity Date
- ----------------------------- --------------------------------------------- ------------------
<S> <C> <C>
/s/ B. Wayne Hughes Chairman of the Board and Chief March 26, 1997
- ----------------------------- Executive Officer of Public Storage, Inc. and
B. Wayne Hughes General Partner (principal executive officer)
/s/ Harvey Lenkin President and Director March 26, 1997
- ----------------------------- of Public Storage, Inc.
Harvey Lenkin
/s/ John Reyes Senior Vice President and Chief Financial Officer March 26, 1997
- ----------------------------- of Public Storage, Inc. (principal financial
John Reyes officer and principal accounting officer)
/s/ Robert J. Abernethy Director of Public Storage, Inc. March 26, 1997
- -----------------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director of Public Storage, Inc. March 26, 1997
- -----------------------------
Dann V. Angeloff
/s/ William C. Baker Director of Public Storage, Inc. March 26, 1997
- -----------------------------
William C. Baker
/s/ Uri P. Harkham Director of Public Storage, Inc. March 26, 1997
- -----------------------------
Uri P. Harkham
</TABLE>
18
<PAGE>
PS PARTNERS VIII, LTD.,
a California Limited Partnership
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
References
-----------
Report of Independent Auditors F-1
Financial Statements and Schedules:
Balance Sheets as of December 31, 1996
and 1995 F-2
For the years ended December 31, 1996, 1995 and 1994:
F-3
Statements of Income
Statements of Partners' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-8
Schedule
III - Real Estate and Accumulated Depreciation F-9 - F-10
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.
19
<PAGE>
Report of Independent Auditors
The Partners
PS Partners VIII, Ltd., a California Limited Partnership
We have audited the balance sheets of PS Partners VIII, Ltd., a California
Limited Partnership as of December 31, 1996 and 1995 and the related statements
of income, partners' equity, and cash flows for each of the three years in the
period ended December 31, 1996. 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 VIII, Ltd., a
California Limited Partnership at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, 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
March 18, 1997
Los Angeles, Calfornia
F-1
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.,
a California Limited Partnership
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
-------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 209,000 $ 217,000
Rent and other receivables 10,000 9,000
Real estate facilities, at cost:
Land 7,461,000 7,461,000
Buildings and equipment 16,442,000 16,213,000
-------------------------------------
23,903,000 23,674,000
Less accumulated depreciation (6,309,000) (5,501,000)
-------------------------------------
17,594,000 18,173,000
Other assets 45,000 27,000
-------------------------------------
$ 17,858,000 $ 18,426,000
=====================================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 259,000 $ 324,000
Advance payments from renters 110,000 112,000
Partners' equity:
Limited partners' equity, $500 per unit, 150,000
units authorized, 52,751 issued and outstanding 17,279,000 17,776,000
General partners' equity 210,000 214,000
-------------------------------------
Total partners' equity 17,489,000 17,990,000
-------------------------------------
$ 17,858,000 $ 18,426,000
=====================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.,
a California Limited Partnership
STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
--------------------------------------------------------
REVENUE:
<S> <C> <C> <C>
Rental income $ 2,907,000 $ 2,783,000 $ 2,776,000
Interest income 15,000 45,000 26,000
--------------------------------------------------------
2,922,000 2,828,000 2,802,000
--------------------------------------------------------
COSTS AND EXPENSES:
Cost of operations 777,000 794,000 797,000
Management fees 169,000 162,000 162,000
Depreciation and amortization 808,000 758,000 735,000
Administrative 69,000 68,000 66,000
Environmental costs - 169,000 -
--------------------------------------------------------
1,823,000 1,951,000 1,760,000
--------------------------------------------------------
NET INCOME $ 1,099,000 $ 877,000 $ 1,042,000
========================================================
Limited partners' share of net income
($17.61, $12.32, and $17.29 per unit in
1996, 1995, and 1994, respectively) $ 929,000 $ 650,000 $ 912,000
General partners' share of net income 170,000 227,000 130,000
========================================================
$ 1,099,000 $ 877,000 $ 1,042,000
========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
Limited General
Partners Partners Total
--------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1993 $ 19,251,000 $ 229,000 $ 19,480,000
Net income 912,000 130,000 1,042,000
Distributions (1,076,000) (132,000) (1,208,000)
--------------------------------------------------------
Balances at December 31, 1994 19,087,000 227,000 19,314,000
Net income 650,000 227,000 877,000
Distributions (1,961,000) (240,000) (2,201,000)
--------------------------------------------------------
Balances at December 31, 1995 17,776,000 214,000 17,990,000
Net income 929,000 170,000 1,099,000
Distributions (1,426,000) (174,000) (1,600,000)
--------------------------------------------------------
Balances at December 31, 1996 $ 17,279,000 $ 210,000 $ 17,489,000
========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS For the
years ended December 31, 1996, 1995, and 1994
1996 1995 1994
------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,099,000 $ 877,000 $ 1,042,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 808,000 758,000 735,000
(Increase) decrease in rent and other receivables (1,000) 3,000 3,000
(Increase) decrease in other assets (18,000) 8,000 (2,000)
(Decrease) increase in accounts payable (65,000) 171,000 4,000
Decrease in advance payments from renters (2,000) (15,000) (15,000)
------------------------------------------------------
Total adjustments 722,000 925,000 725,000
------------------------------------------------------
Net cash provided by operating activities 1,821,000 1,802,000 1,767,000
------------------------------------------------------
Cash flows from investing activities:
Additions to real estate facilities (229,000) (272,000) (181,000)
------------------------------------------------------
Net cash used in investing activities (229,000) (272,000) (181,000)
------------------------------------------------------
Cash flows from financing activities:
Distributions to partners (1,600,000) (2,201,000) (1,208,000)
------------------------------------------------------
Net cash used in financing activities (1,600,000) (2,201,000) (1,208,000)
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,000) (671,000) 378,000
Cash and cash equivalents at the beginning of the year 217,000 888,000 510,000
------------------------------------------------------
Cash and cash equivalents at the end of the year $ 209,000 $ 217,000 $ 888,000
======================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
PS PARTNERS VIII, LTD.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
Description of Partnership
--------------------------
PS Partners VIII, Ltd., a California Limited Partnership (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"), a California corporation,
acquired the interest of PSA relating to its general partner capital
contribution in the Partnership and was substituted as a co-general
partner in place of PSA.
In 1995, there was a series of mergers among Public Storage
Management, Inc. (which was the Partnership's mini-warehouse
operator), Public Storage, Inc. and their affiliates (collectively,
"PSMI"), culminating in the November 16, 1995 merger (the "PSMI
Merger") of PSMI into Storage Equities, Inc. In the PSMI Merger,
Storage Equities, Inc. was renamed Public Storage, Inc. and it
acquired substantially all of PSMI's United States real estate
operations and became the operator of the Partnership's mini-warehouse
properties.
The Partnership has invested in existing mini-warehouse storage
facilities which offer self-service storage spaces for lease, usually
on a month-to-month basis, to the general public and, to a lesser
extent, in an existing business park facility which offers industrial
and office space for lease. The Partnership has ownership interests in
5 properties, which exclude 1 property transferred to American Office
Park Properties, L.P. ("AOPPLP") in January 1997 (see Note 6).
Real Estate Facilities
----------------------
The Partnership 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.
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.
Revenue Recognition
-------------------
Property rents are recognized as earned.
Allocation of Net Income
------------------------
The General Partners' share of net income consists of an amount
attributable to their 1% capital contribution and an additional
percentage of cash flow (as defined, see note 2) which relates to the
General Partners' share of cash distributions as set forth in the
Partnership Agreement. All remaining net income is allocated to the
limited partners.
Per Unit Data
-------------
Per unit data is based on the weighted average number of limited
partnership units (52,751) outstanding during the year.
F-6
<PAGE>
1. Summary of Significant Accounting Policies and Partnership Matters
(continued)
------------------------------------------------------------------
Environmental Cost
------------------
Substantially all of the Partnership's facilities were acquired
prior to the time that it was customary to conduct extensive
environmental investigations in connection with the property
acquisitions. During the fourth quarter of 1995, an independent
environmental consulting firm completed environmental assessments on
the Partnership's properties to evaluate the environmental condition
of, and potential environmental liabilities of such properties. Based
on the assessments, the Partnership believes that it is probable that
it will incur costs totaling $153,000 for known environmental
remediation requirements which the Partnership has accrued and
expensed in 1995. During 1996 and 1995, the Partnership paid $21,000
and $16,000, respectively, in connection with the environmental
remediations. Although there can be no assurance, the Partnership is
not aware of any unaccrued environmental contamination of its
facilities which individually or in the aggregate would be material to
the Partnership's overall business, financial condition, or results of
operations.
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash Distributions
------------------
The Partnership Agreement provides for quarterly distributions of
cash flow from operations (as defined). Cash distributions per unit
were $27.04, $37.18, and $20.40 during 1996, 1995, and 1994,
respectively.
Cash and Cash Equivalents
-------------------------
For financial statement purposes, the Partnership considers all
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
2. General Partners' Equity
------------------------
The General Partners have a 1% interest in the Partnership. In
addition, the General Partners have a 10% interest in cash
distributions attributable to operations, exclusive of distributions
attributable to sales and refinancing proceeds.
Proceeds from sales and refinancings will be distributed entirely
to the limited partners until the limited partners recover their
investment plus a cumulative 8% annual return (not compounded).
Thereafter, the General Partners have a 15% interest in remaining
proceeds.
3. Related Party Transactions
--------------------------
The Partnership has a management agreement with PSI pursuant to
which PSI operates the Partnership's mini-warehouses for a fee equal
to 6% of the facilities' monthly gross revenue (as defined). Through
1996, the Partnership's commercial property was operated by Public
Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a
management agreement which provides for a fee equal to 5% of the
facility's monthly gross revenue (as defined).
PSI has a 95% economic interest in PSCPG and the Hughes Family
had a 5% economic interest in PSCPG until December 1996, when the
Hughes Family sold its interest to Ronald L. Havner, Jr., formerly
Senior Vice President and Chief Financial Officer of PSI, who became
the Chief Executive Officer of PSCPG. PSCPG,
F-7
<PAGE>
3. Related Party Transactions (continued)
-------------------------------------
now known as American Office Park Properties, Inc., issued additional
voting common stock to two other unaffiliated investors. See Note 6.
4. Leases
------
The Partnership has invested primarily in existing mini-
warehouse storage facilities which offer self-storage spaces for lease
to the general public. Leases for such space are usually on a
month-to-month basis.
5. Taxes Based on Income
---------------------
Taxes based on income are the responsibility of the individual
partners and, accordingly, the Partnership's consolidated financial
statements do not reflect a provision for such taxes.
Taxable net income was $1,315,000, $1,153,000 and $1,191,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. The
difference between taxable income and book income is primarily related
to timing differences in depreciation expense.
6. Subsequent Event
----------------
In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to AOPPLP, an
operating partnership formed to own and operate business parks in
which PSI has an approximate 85% economic interest. Included among the
properties transferred was the Partnership's transfer of its business
park to AOPPLP in exchange for a 2.5% interest in AOPPLP. The general
partner of AOPPLP is PSCPG, now known as American Office Park
Properties, Inc.
F-8
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
Costs
subsequent
Initial Cost to acquisition
---------------------------------
Date Building & Building &
Acquired Description Land Improvement Improvements
- -----------------------------------------------------------------------------------------------------------
Mini-warehouse
<S> <C> <C> <C> <C>
7/87 Oakbrook Terrace $ 912,000 $ 2,688,000 $ 583,000
10/87 Plantation/S. State Rd. 924,000 1,801,000 224,000
2/88 Anaheim/Lakeview 995,000 1,505,000 445,000
8/87 San Antonio/Austin Hwy. 400,000 850,000 163,000
10/87 Rockville/Fredrick Rd. 1,695,000 3,305,000 611,000
Business
Park
5/87 Carson/Leapwood 2,535,000 3,165,000 1,102,000
--------------------------------------------------
$ 7,461,000 $ 13,314,000 $ 3,128,000
==================================================
</TABLE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
Gross Carrying Amount
At December 31, 1996
--------------------------------------------------------------
Date Building & Accumulated
Acquired Description Land Improvements Total Depreciation
- -----------------------------------------------------------------------------------------------------------------------
Mini-warehouse
<S> <C> <C> <C> <C> <C>
7/87 Oakbrook Terrace $ 912,000 $ 3,271,000 $ 4,183,000 $ 1,258,000
10/87 Plantation/S. State Rd. 924,000 2,025,000 2,949,000 754,000
2/88 Anaheim/Lakeview 995,000 1,950,000 2,945,000 692,000
8/87 San Antonio/Austin Hwy. 400,000 1,013,000 1,413,000 370,000
10/87 Rockville/Fredrick Rd. 1,695,000 3,916,000 5,611,000 1,448,000
Business
Park
5/87 Carson/Leapwood 2,535,000 4,267,000 6,802,000 1,787,000
---------------------------------------------------------------
$ 7,461,000 $ 16,442,000 $ 23,903,000 $ 6,309,000
===============================================================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VIII, LTD.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
(a) The following is a reconciliation of cost and related accumulated
depreciation.
GROSS CARRYING COST RECONCILIATION
For the years ended December 31,
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the period $ 23,674,000 $ 23,402,000 $ 23,221,000
Additions during the period:
Improvements, etc. 229,000 272,000 181,000
Deductions during the period - - -
----------------------------------------------------
Balance at the end of the period $ 23,903,000 $ 23,674,000 $ 23,402,000
====================================================
ACCUMULATED DEPRECIATION RECONCILIATION
For the years ended December 31,
1996 1995 1994
----------------------------------------------------
Balance at the beginning of the period $ 5,501,000 $ 4,743,000 $ 4,029,000
Additions during the period:
Improvements, etc. - -
Depreciation 808,000 758,000 714,000
Deductions during the period - - -
----------------------------------------------------
Balance at the end of the period $ 6,309,000 $ 5,501,000 $ 4,743,000
====================================================
</TABLE>
(b) The aggregate cost of real estate for Federal Income Tax purposes
is $23,722,000 at December 31, 1996.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793934
<NAME> PS PARTNERS VIII, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<CASH> 209,000
<SECURITIES> 0
<RECEIVABLES> 10,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 219,000
<PP&E> 23,903,000
<DEPRECIATION> (6,309,000)
<TOTAL-ASSETS> 17,858,000
<CURRENT-LIABILITIES> 369,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,489,000
<TOTAL-LIABILITY-AND-EQUITY> 17,858,000
<SALES> 0
<TOTAL-REVENUES> 2,922,000
<CGS> 0
<TOTAL-COSTS> 946,000
<OTHER-EXPENSES> 877,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,099,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,099,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,099,000
<EPS-PRIMARY> 17.61
<EPS-DILUTED> 17.61
</TABLE>
