<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
COMMISSION FILE NUMBER: 1-10609
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STORAGE PROPERTIES, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 95-4209511
------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
600 North Brand Boulevard, Glendale, California 91203
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
----------------
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.
[X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1995:
3,348,167 shares of $.05 par value common stock
-----------------------------------------------
<PAGE>
STORAGE PROPERTIES, INC.
INDEX
PART I. FINANCIAL INFORMATION. Page
----
Item 1. Condensed Balance Sheets at September 30, 1995 2
and December 31, 1994
Condensed Statements of Income for the Three and 3
Nine Months Ended September 30, 1995 and 1994
Condensed Statements of Cash Flows for the 4
Nine Months Ended September 30, 1995 and 1994
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of 6 - 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION. 8 - 9
<PAGE>
STORAGE PROPERTIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 3,538,000 $ 2,241,000
Note receivable - 417,000
Due from affiliate - 899,000
Rent and other receivables 54,000 237,000
Unimproved land 578,000 578,000
Real estate facilities, at cost:
Land 7,499,000 7,499,000
Buildings 18,364,000 18,275,000
----------- -----------
25,863,000 25,774,000
Accumulated depreciation (1,770,000) (1,190,000)
----------- -----------
24,093,000 24,584,000
----------- -----------
Total assets $28,263,000 $28,956,000
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accrued and other liabilities $ 191,000 $ 109,000
Dividends payable 268,000 1,339,000
Advance payments from renters 104,000 75,000
Shareholders' equity:
Preferred stock, $.05 par value,
10,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.05 par value,
100,000,000 shares authorized,
3,348,167 shares issued and outstanding 167,000 167,000
Paid-in capital 28,898,000 28,898,000
Cumulative net income 14,065,000 12,994,000
Cumulative distributions declared (15,430,000) (14,626,000)
------------ ------------
Total shareholders' equity 27,700,000 27,433,000
------------ ------------
Total liabilities and shareholders' equity $ 28,263,000 $ 28,956,000
------------ ------------
</TABLE>
See accompanying notes.
2
<PAGE>
STORAGE PROPERTIES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 927,000 $ 747,000 $2,680,000 $1,926,000
Interest income - affiliate - 193,000 16,000 649,000
Interest income - other 43,000 6,000 112,000 31,000
---------- ---------- ---------- ----------
970,000 946,000 2,808,000 2,606,000
---------- ---------- ---------- ----------
EXPENSES:
Cost of operations 297,000 239,000 886,000 629,000
Management fees paid to affiliate 56,000 44,000 161,000 115,000
General and administrative 34,000 34,000 110,000 114,000
Depreciation expense 194,000 161,000 580,000 446,000
---------- ---------- ---------- ----------
581,000 478,000 1,737,000 1,304,000
---------- ---------- ---------- ----------
Net income $ 389,000 $ 468,000 $1,071,000 $1,302,000
========== ========== ========== ==========
Net income per share $ .12 $.14 $.32 $ .39
========== ========== ========== ==========
Distributions declared per share $ .08 $.07 $.24 $ .21
========== ========== ========== ==========
Weighted average common shares outstanding 3,348,167 3,348,167 3,348,167 3,348,167
========== ========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
STORAGE PROPERTIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1995 1994
---------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,071,000 $1,302,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 580,000 446,000
Amortization of note premium - 15,000
Decrease in rent and other receivables 183,000 33,000
Increase in advance payments from renters 29,000 -
Increase in accrued and other liabilities 82,000 1,000
----------- -----------
Total adjustments 874,000 495,000
----------- -----------
Net cash provided by operating activities 1,945,000 1,797,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment received on due from affiliate 899,000 -
Principal payments received on note receivable 417,000 -
Acquisition of real estate facility - (2,315,000)
Proceeds on sale of unimproved land - 127,000
Additions to real estate facilities (89,000) (101,000)
----------- -----------
Net cash provided by (used in) financing activities 1,227,000 (2,289,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to shareholders (1,875,000) (872,000)
----------- -----------
Net cash used in financing activities (1,875,000) (872,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,297,000 (1,364,000)
Cash and cash equivalents at the beginning of the period 2,241,000 2,280,000
----------- -----------
Cash and cash equivalents at the end of the period $ 3,538,000 $ 916,000
=========== ===========
Supplemental schedule of non-cash investing activities:
Receipt of note receivable as proceeds
from sale of unimproved land $ - $ 450,000
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
STORAGE PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes appearing
in the Company's Form 10-K for the year ended December 31, 1994.
2. In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting of only normal accruals,
necessary to present fairly the Company's financial position at September 30,
1995 and December 31, 1994, the results of operations for the three and nine
months ended September 30, 1995 and 1994, and its cash flows for the nine
months then ended.
3. The results of operations for the three and nine months ended September 30,
1995 are not necessarily indicative of results expected for the full year.
4. In connection with a sale of unimproved land to an unaffiliated third party
in September 1994, the Company received a $450,000 mortgage note. In April
1995, the note was paid off prior to its maturity.
5. Public Storage, Inc. ("PSI") and Public Storage Management, Inc. ("PSMI"),
the Company's property manager, have entered into an Agreement and Plan of
Reorganization by and among PSI, PSMI and Storage Equities, Inc. ("SEI"),
dated as of June 30, 1995, pursuant to which PSMI would be merged into SEI.
The merger is subject to a number of conditions.
In November 1995, the management agreement with Public Storage Management,
Inc. ("PSMI") was amended to provide that upon demand from PSMI or Storage
Equities, Inc. ("SEI") made prior to December 15, 1995, the Company agrees to
prepay (within 15 days after such demand) up to 12 months of management fees
(based on the management fees for the comparable period during the calendar
year immediately preceding such prepayment) discounted at the rate of 14% per
year to compensate for early payment. The Company's disinterested directors
approved such prepayment.
5
<PAGE>
STORAGE PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Through 1994, the Company had one First Mortgage Convertible Loan ("FMCL")
secured by a mini-warehouse property in Brooklyn, New York. In accordance with
an existing agreement, the Advisor paid down the FMCL secured by the Brooklyn,
New York property in an amount such that the annualized cash flow from the
property for the six months ended December 31, 1994 provided a four percent
yield on the FMCL (the "Paydown Amount"). The Paydown Amount was approximately
$1,899,000 (in addition to a paydown on the FMCL made in June 1994 through the
transfer by the Advisor to the Company of unimproved land with an appraised
value of $1,155,000). Effective December 31, 1994, the Company exercised its
purchase option with respect to the Brooklyn, New York property, thereby
converting the FMCL to an equity ownership.
RESULTS OF OPERATIONS
- - ---------------------
The Company's net income for the three and nine month periods ended
September 30, 1995 compared to the same periods in 1994 reflects the impact of
converting the Brooklyn, New York FMCL to a fee interest in the property in
December 1994 and the operations of a property acquisition in June 1994. Net
income for the three month period ended September 30, 1995 was $389,000 ($.12
per common share) compared to $468,000 ($.14 per common share) for the same
period in 1994.
Rental income increased $180,000 or 24% from $747,000 to $927,000 for the
three months ending September 30, 1994 and 1995, respectively. Rental income
increased $754,000 or 39% from $1,926,000 to $2,680,000 for the nine months
ending September 30, 1994 and 1995, respectively. The improvements are
attributable to an increase in occupancy levels and rental rates at the
Company's "Same Store" properties (properties owned since June 23, 1993) and the
acquisition of additional properties in June 1994 and December 1994. The
Company's properties had weighted average occupancy levels of 91% and 90% for
the nine months ending September 30, 1995 and 1994, respectively.
Interest income - affiliate decreased $193,000 and $633,000 for the three
and nine month periods ended September 30, 1995 compared to the same periods in
1994 due to the conversion of the Brooklyn, New York FMCL to equity ownership in
the property in December 1994. For the nine months ended September 30, 1995, the
Company earned $16,000 of interest on the balance of the Brooklyn, New York
Paydown Amount collected in February 1995.
Interest income - other increased $37,000 and $81,000 for the three and
nine month periods ended September 30, 1995 over the same periods in 1994 as the
result of increases in interest rates earned and average cash balances invested.
Additionally, the Company earned interest income of approximately $11,000 during
the nine months ended September 30, 1995 on a note receivable which the Company
did not have in the same period in 1994.
6
<PAGE>
Cost of operations (including management fees paid to affiliate) increased
$70,000 (or 25%) and $303,000 (or 40%) for the three and nine month periods
ended September 30, 1995, respectively, over the same periods in 1994 due to the
acquisition of additional properties in June 1994 and December 1994. Cost of
operations at the Company's "Same Store" properties increased $14,000 (or 2%)
during the nine months ending September 30, 1995 compared to the same period in
1994. This increase was attributable to an increase in management fees paid to
an affiliate as a result of increased rental income.
Depreciation expense increased $33,000 and $134,000 for the three and nine
months ending September 30, 1995 over the same periods in 1994 as the result of
property acquisitions in June 1994 and December 1994.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Cash and cash equivalents of $3,538,000 at September 30, 1995 consist of
cash on hand and cash invested in short-term investments. Cash flow from
operating activities of $1,945,000 for the nine months ended September 30, 1995
has been sufficient to meet all current obligations of the Company. The Company
believes cash flow from operating activities will be sufficient to cover the
Company's cash requirements, including capital expenditures and distributions to
shareholders.
In connection with a sale of land to an unaffiliated third party in
September 1994, the Company received a $450,000 mortgage note. In April 1995,
the note was paid off prior to its maturity.
SUPPLEMENTAL INFORMATION
- - ------------------------
Funds From Operations ("FFO") is generally defined by the National
Associations of Real Estate Investment Trust ("NAREIT") as net income before
loss on early extinguishment of debt and gain on disposition of real estate plus
depreciation and amortization, was $1,651,000 and $1,748,000 for the nine months
ended September 30, 1995 and 1994, respectively. NAREIT has recently adopted
revisions to the definition of funds from operations which will become effective
in 1996. The most material impact of the new guidelines will be (i) amortization
of deferred financing costs will be treated as an expense - i.e. it will no
longer be treated as an add-back to net income and (ii) certain gains on sales
of land will be included in funds from operations if deemed to be recurring.
These changes will have no impact on the way the Company currently computes its
funds from operations. FFO is a supplemental performance measure for equity
REITs used by industry analysts. FFO does not take into consideration principal
payments on debt, capital improvements, distributions and other obligations of
the Company. The only depreciation or amortization that is added to income to
derive FFO is depreciation and amortization directly related to physical real
estate. All depreciation and amortization reported by the Company relates to
physical real estate and does not include any depreciation or amortization
related to goodwill, deferred financing costs or other intangibles. FFO is not a
substitute for the Company's net cash provided by operating activities or net
income computed in accordance with generally accepted accounting principles, as
a measure of liquidity or operating performance.
7
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5 are inapplicable.
Item 6 Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following exhibits are included herein:
(10) Amendment to Management Agreement among Public Storage
Management, Inc., Storage Equities, Inc. and the Company, dated
as of November 13, 1995.
(27) Financial Data Schedule
(b) Form 8-K
None
8
<PAGE>
STORAGE PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: November 13, 1995 STORAGE PROPERTIES, INC.
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President/Controller
9
<PAGE>
EXHIBIT 10
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment to Management Agreement is executed as of November 13, 1995,
by and among Public Storage Management, Inc. ("PSMI"), Storage Equities, Inc.
("SEI") and Storage Properties, Inc. (the "Owner").
A. On June 23, 1989, PSMI and Owner entered into a Management Agreement
(the "Management Agreement") providing for the management by PSMI of the mini-
warehouses owned by Owner and monthly payments of management fees equal to 6% of
the gross revenues generated by Owner's mini-warehouses.
B. SEI and PSMI have entered into an Agreement and Plan of Reorganization
dated as of June 30, 1995 pursuant to which PSMI would be merged with and into
SEI. Upon completion of the merger, SEI will manage the mini-warehouses owned
by Owner.
C. On November 13, 1995, the board of directors of Owner approved Owner's
prepayment of management fees on the terms set forth in this Amendment, which
such board believes is financially beneficial to Owner, and the parties hereto
desire to modify the Management Agreement to provide for such prepayment.
Now, therefore, the parties agree as follows:
1. The following shall be added as the last two sentences of the first
paragraph of Section 4 of the Management Agreement:
"Upon demand from SEI or PSMI made prior to December 15, 1995, Owner
agrees to pay within 15 days after such demand in advance up to 12 months
of management fees discounted at the rate of 14% per year (based on the
management fees for the comparable period during the calendar year
immediately preceding such prepayment). The property manager shall be
deemed to have earned such prepayments at the time of payment thereof, and
Owner shall not be entitled to a return of such prepayment, or any portion
thereof, under any circumstances. In addition, the property manager shall
not be entitled to any further or additional payment of management fees for
a period with respect to which a prepayment is made hereunder because the
actual gross revenues for such period would have resulted in a higher
management fee had such prepayment not been made."
2. Other than as set forth in this Amendment, all of the provisions
contained in the Management Agreement are hereby ratified and approved.
1
<PAGE>
In witness whereof, the undersigned have executed this Amendment, as of the
day and year first above written.
"PSMI"
PUBLIC STORAGE MANAGEMENT, INC.
By: /s/ RONALD L. HAVNER, JR.
-----------------------------
Ronald L. Havner, Jr.,
Vice President
"SEI"
STORAGE EQUITIES, INC.
By: /s/ B. WAYNE HUGHES
-----------------------
B. Wayne Hughes,
Chairman of the Board
"Owner"
STORAGE PROPERTIES, INC.
By: /s/ RONALD L. HAVNER, JR.
-----------------------------
Ronald L. Havner, Jr.,
Vice President
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 3,538,000
<SECURITIES> 0
<RECEIVABLES> 54,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,592,000
<PP&E> 26,441,000
<DEPRECIATION> (1,770,000)
<TOTAL-ASSETS> 28,263,000
<CURRENT-LIABILITIES> 563,000
<BONDS> 0
<COMMON> 167,000
0
0
<OTHER-SE> 27,533,000
<TOTAL-LIABILITY-AND-EQUITY> 28,263,000
<SALES> 0
<TOTAL-REVENUES> 2,808,000
<CGS> 0
<TOTAL-COSTS> 1,627,000
<OTHER-EXPENSES> 110,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,071,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,071,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,071,000
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
