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
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
---- ------
Commission File Number 1-10709
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PUBLIC STORAGE PROPERTIES XI, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
California 95-4300881
- --------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
701 Western Avenue
Glendale, California 91201-2349
- --------------------------------- --------------------------------------
(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
Common Stock Series A, $.01 par value American Stock Exchange
- --------------------------------- -------------------------------------------
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act
None
--------------
(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 the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
--
The aggregate market value of the voting stock held by non-affiliates of the
Company as of February 28, 1997:
Common Stock Series A, $.01 Par Value-$31,987,178 (computed on the basis of
$20-1/8 per share which was the reported closing sale price of the Company's
Common Stock Series A on the American Stock Exchange on February 28, 1997).
The number of shares outstanding of the Company's classes of common stock as of
February 28, 1997:
Common Stock, $.01 Par Value - Series A 1,819,937 shares
Common Stock, $.01 Par Value - Series B 184,453 shares
Common Stock, $.01 Par Value - Series C 522,618 shares
------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
(a) Information required by Part III will be included in an amendment to
this Form 10-K under cover of a Form 10-K/A filed within 120 days of the
Company's 1996 fiscal year, which information is incorporated by reference into
Part III.
<PAGE>
PUBLIC STORAGE PROPERTIES XI, INC.
PART I.
ITEM 1. BUSINESS
--------
General
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Public Storage Properties XI, Inc. (the "Company") is a real estate
investment trust ("REIT") organized as a California corporation that was formed
to succeed to the business of Public Storage Properties XI, Ltd., a California
limited partnership (the "Partnership"), in a reorganization transaction
completed on December 31, 1990.
The Partnership offered 84,000 units of limited partnership interest (the
"Units") to the public in June 1984. The Partnership's general partners were PSI
Associates II, Inc. ("PSA"), a California corporation, and B. Wayne Hughes
("Hughes"). PSA was an affiliate of Public Storage Management, Inc., a
California corporation (see below).
Effective midnight December 31, 1990, the Partnership transferred all of
its assets and liabilities to the Company pursuant to a plan of Reorganization
approved by a majority of the limited partners. In exchange for the
Partnership's assets and liabilities, the Company issued 2,121,212 shares of
common stock Series A ("Series A shares"), 184,453 shares of common stock Series
B ("Series B shares") and 522,618 shares of common stock Series C ("Series C
shares") of the Company to the Partnership. The Partnership then made a
liquidating distribution to the limited partners by distributing 99 percent of
the Series A shares (on the basis of 25 Series A shares for each Unit). The
remaining 1 percent of the Series A shares and all of the Series B shares and
Series C shares were distributed to the general partners in respect of their
interests in the Partnership. Subsequent thereto, the Partnership was dissolved.
The Company has elected to be taxed as a REIT for Federal income tax purposes.
The Company is a finite life REIT, with a term until December 31, 2038 (the
same as the predecessor Partnership). However, pursuant to the Company's
by-laws, in 1997 the Company will be required to present the shareholders with a
proposal for the sale or financing of the properties and, in the case of a sale,
a liquidation of the Company, unless the properties have already been sold or
financed. See "Sale or Financing" below.
The Company's investment objectives are (as were the Partnership's) to
maximize cash flow from operations and to maximize capital appreciation.
The Company has acquired 15 properties, all of which are in operation. The
Company believes that its mini-warehouses have attractive operating
characteristics.
The Company's senior officers have been responsible for the acquisition of
more than 350 mini-warehouses, the development of more than 650 mini-warehouses
and the management of more than 1,000 mini-warehouses during their average 18
years of experience with the Public Storage organization.
In 1995, there were a series of mergers among Public Storage Management,
Inc. (which was the Company'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., a REIT listed on
the New York Stock Exchange. In the PSMI Merger, Storage Equities, Inc. was
renamed Public Storage, Inc. ("PSI") and PSI acquired substantially all of
PSMI's United States real estate operations and became the operator of the
Company's mini-warehouse properties. Hughes, the Company's Chief Executive
Officer, and members of his family (the "Hughes Family") are the major
shareholders of PSI. As a result of the PSMI Merger, PSI owns all of the shares
of the Company's common stock that was owned by PSMI or its affiliates, and PSI
has an option to acquire all of the shares of the Company's common stock owned
by Hughes.
Investments in Facilities
- -------------------------
At December 31, 1996, the Company owned 15 facilities located in 7 states:
Arizona (3), California (3), Connecticut (1), Kansas (1), Nevada (2), New York
(1) and Texas (4). These facilities consist of 11 mini-warehouses, two business
park facilities and two combination mini-warehouse/business park facilities.
2
<PAGE>
The Company believes that its operating results have benefited from
favorable industry trends and conditions. Notably, the level of new
mini-warehouse construction has decreased while consumer demand has increased.
In addition, the Company's mini-warehouses are characterized by a low level of
capital expenditures to maintain their condition and appearance.
MINI-WAREHOUSES
Mini-warehouses, which comprise the majority of the Company's investments
(approximately 81% of the Company's revenues for the twelve months ended
December 31, 1996), are designed to offer accessible storage space for personal
and business use at a relatively low cost. A user rents a fully enclosed space
which is for the user's exclusive use and to which only the user has access on
an unrestricted basis during business hours. On-site operation is the
responsibility of resident managers who are supervised by area managers. Some
mini-warehouses also include rentable uncovered parking areas for vehicle
storage. Leases for mini-warehouse space may be on a long-term or short-term
basis, although typically spaces are rented on a month-to-month basis. Rental
rates vary according to the location of the property and the size of the storage
space.
Users of space in mini-warehouses include both individuals and large and
small businesses. Individuals usually employ this space for storage of, among
other things, furniture, household appliances, personal belongings, motor
vehicles, boats, campers, motorcycles and other household goods. Businesses
normally employ this space for storage of excess inventory, business records,
seasonal goods, equipment and fixtures.
Mini-warehouses in which the Company has invested generally consist of
three to seven buildings containing an aggregate of between 350 to 750 storage
spaces, most of which have between 25 and 400 square feet and an interior height
of approximately 8 to 12 feet.
The Company experiences minor seasonal fluctuations in the occupancy levels
of mini-warehouses with occupancies higher in the summer months than in the
winter months. The Company believes that these fluctuations result in part from
increased moving activity during the summer.
The Company'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 Company does not intend
to convert its mini-warehouses to other uses.
COMMERCIAL PROPERTIES
The Company's non-mini-warehouse investments are business parks and
low-rise office buildings. The business parks include both industrial and office
space. Industrial space may be used for, among other things, light manufacturing
and assembly, storage and warehousing, distribution and research and development
activities. The Company believes that most of the office space is occupied by
tenants who are also renting industrial space. The remaining office space is
used for general office purposes. A business park may also include facilities
for commercial uses such as banks, travel agencies, restaurants, office supply
shops, professionals or other tenants providing services to the public.
A business park property is typically divided into units ranging in size
from 600 to 5,000 square feet. Parking is open or covered, and the ratio of
spaces to rentable square feet ranges from one to four per thousand square feet,
depending upon the use of the property and its location. Office space generally
requires a greater parking ratio than most industrial uses.
Operating Strategies
- --------------------
The Company's mini-warehouses are operated by PSI under the "Public
Storage" name, which the Company believes is the most recognized name in the
mini-warehouse industry. The major elements of the Company's operating
strategies are as follows:
3
<PAGE>
* 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, and is the largest operator of mini-warehouses in
the United States. 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 telephone referral system, (800) 44-STORE,
or a mini-warehouse facility are directed to PSI's reservation system where
a trained representative discusses with the customer space requirements,
price and location preferences and also informs the customer of other
products and services provided by PSI. As of December 31, 1996, the
telephone reservation system was supporting rental activity at all of the
Company'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 Company generally seeks to achieve average occupancy
levels in excess of 90% and to eliminate promotions prior to increasing
rental rates. Average occupancy for the Company's mini-warehouses remained
stable at 92% in 1995 and 1996. Realized monthly rents per occupied square
foot increased from $.70 in 1995 to $.72 in 1996. The Company has increased
rental rates in many markets where it has achieved high occupancy levels
and eliminated or minimized promotions.
* SYSTEMS AND CONTROLS. PSI has an organizational structure and a property
operation system, "CHAMP" (Computerized Help and Management Program), which
links its corporate office with each mini-warehouse. This enables PSI to
obtain daily information from each mini-warehouse and to achieve
efficiencies in operations and maintain control over its space inventory,
rental rates, promotional discounts and delinquencies. Expense management
is achieved through centralized payroll and accounts payable systems and a
comprehensive property tax appeals department, and PSI has an extensive
internal audit program designed to ensure proper handling of cash
collections.
* PROFESSIONAL PROPERTY OPERATION. In addition to the approximately 150
support personnel at the Public Storage corporate offices, there are
approximately 2,700 on-site personnel who manage the day-to-day operations
of the mini-warehouses in the Public Storage system. These on-site
personnel are supervised by 110 district managers, 15 regional managers and
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 12 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
"Property Operators."
Property Operators
- ------------------
The Company's mini-warehouse properties are managed by PSI (as successor to
PSMI) pursuant to a Management Agreement. Through 1996, the Company's commercial
properties were managed by Public Storage Commercial Properties Group, Inc.
("PSCPG") pursuant to a Management Agreement. PSI has a 95% economic interest in
PSCPG (represented by nonvoting preferred stock) and the Hughes Family had a 5%
economic interest in PSCPG (represented by voting common stock) 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, American Office Park
Properties, L.P. ("AOPPLP") became the manager of the Company's commercial
properties pursuant to the Management Agreement. AOPPLP is an operating
partnership formed to own and operate business parks in which PSI has an
approximate 85% economic interest. The general partner of AOPPLP is PSCPG, now
known as American Office Park Properties, Inc.
Under the supervision of the Company, PSI and AOPPLP coordinate the
operation of the facilities, establish rental policies and rates, direct
marketing activity, and direct the purchase of equipment and supplies,
maintenance activity, and the selection and engagement of all vendors, supplies
and independent contractors.
PSI and AOPPLP engage, at the expense of the Company, employees for the
operation of the Company'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 or AOPPLP.
4
<PAGE>
In the purchasing of services such as advertising (including broadcast
media advertising) and insurance, PSI and AOPPLP attempt to achieve economies by
combining the resources of the various facilities that they operate. Facilities
operated by PSI and AOPPLP have historically carried comprehensive insurance,
including fire, earthquake, liability and extended coverage.
PSI has developed systems for space inventory, accounting and handling
delinquent accounts, including a computerized network linking PSI operated
facilities. Each project manager is furnished with detailed operating procedures
and typically receives facilities management training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions taken by the project managers when delinquencies occur is
maintained.
The Company'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 Company's facilities are located.
Broadcast media and other advertising costs are charged to the Company's
facilities located in geographic areas affected by the advertising. From time to
time, PSI or AOPPLP adopt promotional programs, such as temporary rent
reductions, in selected areas or for individual facilities.
For as long as the respective Management Agreement is in effect, PSI has
granted the Company a non-exclusive license to use two PSI service marks and
related designs (and AOPPLP has granted the Company a non-exclusive license to
use a PSI service mark 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 respective Management
Agreement, the Company would no longer have the right to use the service marks
and related designs except as described below. Management believes that the loss
of the right to use the service marks and related designs could have a material
adverse effect on the Company's business.
Each Management Agreement, as amended in February 1995, provides that (i)
the Management Agreement will expire in February 2002 provided that in February
of each year it shall be automatically extended for one year (thereby
maintaining a seven-year term) unless either party notifies the other that the
Management Agreement is not being extended, in which case it expires on the
first anniversary of its then scheduled expiration date. Each Management
Agreement may also be terminated by either party for cause, but if terminated
for cause by the Company, the Company retains the rights to use the service
marks and related designs until the then scheduled expiration date, if
applicable, or otherwise a date seven years after such termination.
Certain of the directors and officers of the Company are also directors and
officers of PSI.
Competition
- -----------
Competition in the market areas in which the Company operates is
significant and affects the occupancy levels, rental rates and operating
expenses of certain of the Company'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 Company
believes that the significant operating and financial experience of its
executive officers and directors, PSI, AOPPLP and the "Public Storage" name,
should enable the Company to continue to compete effectively with other
entities.
Other Business Activities
- -------------------------
A corporation owned by the Hughes Family reinsures policies against losses
to goods stored by tenants in the Company's mini-warehouses. The Company
believes that the availability of insurance reduces the potential liability of
the Company 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.
5
<PAGE>
Sale or Financing
- -----------------
The by-laws of the Company provide that, during 1997, unless shareholders
have previously approved such a proposal, the shareholders will be presented
with a proposal to approve or disapprove (a) the sale or financing of all or
substantially all of the properties and (b) the distribution of the proceeds
from such transaction and, in the case of a sale, the liquidation of the
Company.
Employees
- ---------
As of December 31, 1996, the Company had 60 employees, 20 persons who
render services on behalf of the Company on a full-time basis and 40 persons who
render services on a part-time basis (5 of whom were executive officers). These
persons include resident managers, assistant managers, relief managers, district
managers, and administrative and maintenance personnel.
Federal Income Tax
- ------------------
The Company intends to continue to operate in a manner so as to qualify as
a REIT under the Internal Revenue Code of 1986, as amended, but no assurance can
be given that the Company will be able to continue to qualify at all times. By
qualifying as a REIT, the Company can deduct dividend distributions to its
shareholders for Federal income tax purposes, thus effectively eliminating the
"double taxation" (at the corporate and shareholder levels) that typically
applies to corporate dividends. The Company believes it is in compliance with
these requirements and, accordingly, no provision for income taxes has been
made.
6
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth information as of December 31, 1996 about
properties owned by the Company:
<TABLE>
<CAPTION>
Size of Net Rentable Number of Completion
Location Parcel Area Spaces Date
- ------------------------------------ --------------- ------------- ----------- -------------
ARIZONA
<S> <C> <C> <C> <C>
Phoenix, Black Cyn. Hwy. (a) 3.33 acres 71,000 sq. ft. 366 Jul. 1985
Phoenix, Grand Ave. (a) 6.68 acres 111,000 sq. ft. 417 May 1985
Tempe, Broadway Rd. 1.47 acres 45,000 sq. ft. 403 Oct. 1984
CALIFORNIA
Colma, El Camino Real 2.72 acres 51,000 sq. ft. 494 Dec. 1984
Pasadena, Arroyo Parkway I 2.61 acres 110,000 sq. ft. 935 Feb. 1985
So. San Francisco, Produce (a) 1.67 acres 41,000 sq. ft. 23 Mar. 1986
CONNECTICUT
Branford, U.S. Route (b) 2.76 acres 37,000 sq. ft. 327 Nov. 1984
KANSAS
Overland Park, I-435 (a) 4.34 acres 62,000 sq. ft. 42 Apr. 1985
NEW YORK
Long Island, Southern Blvd. 4.00 acres 60,000 sq. ft. 545 Jun. 1986
NEVADA
Las Vegas, Charleston Blvd. 1.76 acres 54,000 sq. ft. 442 Oct. 1984
Las Vegas, Tropicana Ave. 1.93 acres 66,000 sq. ft. 531 Nov. 1984
TEXAS
Arlington, Pioneer Pkwy. 2.50 acres 61,000 sq. ft. 544 Jul. 1985
Austin, Ben White Blvd. 2.62 acres 53,000 sq. ft. 453 Feb. 1986
Houston, Antoine Dr. 2.75 acres 62,000 sq. ft. 558 Oct. 1984
Jacinto City, I-10 1.88 acres 45,000 sq. ft. 393 Nov. 1984
</TABLE>
(a) The property or a portion of the property has been developed as a business
park.
(b) This property's net rentable area contains office space or a combination of
office and light industrial space.
Substantially all of the Company'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, the Company
completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company expensed $106,000 in 1995
for known environmental remediation requirements.
7
<PAGE>
The Company's properties are operated to maximize cash flow through the
regular review of and, when warranted by market conditions, adjustments to
scheduled rents. Approximately 81% of the Company's portfolio (based on revenues
for 1996) are mini-warehouses and the balance consists of commercial properties.
As reflected in the table below, the Company has experienced stable property
operations:
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Weighted average occupancy level (1) 92% 92% 93%
Realized monthly rent per occupied square foot (1) (2) $.72 $.70 $.67
Operating margin: (3)
Before reduction for depreciation expense 62% 61% 62%
After reduction for depreciation expense 46% 45% 47%
</TABLE>
(1) Mini-warehouse facilities only.
(2) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions. Includes administrative and late fees.
(3) Operating margin (before reduction for depreciation expense) is computed by
dividing rental income less cost of operations by rental income. Operating
margin (after reduction for depreciation expense) is computed by dividing
rental income less cost of operations and depreciation by rental income.
Additional information is set forth below with respect to the
Pasadena/Arroyo Parkway I and Overland Park properties because they are the only
properties with a book value of at least 10% of the total assets of the Company
or that have accounted for gross revenues of at least 10% of the aggregate gross
revenues of the Company.
PASADENA/ARROYO PARKWAY I. This mini-warehouse property is located in
Pasadena, California, just south of the central business district and
approximately eight miles northeast of downtown Los Angeles. The property is
surrounded by densely populated residential developments.
The 2.61-acre property, which was completed in 1985, consists of one
building containing approximately 110,000 net rentable square feet divided into
935 units. No tenant occupies 10% or more of the rentable area. At December 31,
1996, the property was 94% occupied by 875 tenants.
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the property at the dates indicated:
Annual Scheduled
Rent Per Square
Date Occupancy Rate Foot
---------------------------- ----------------- ------------------
December 31, 1996 94% $12.96
December 31, 1995 87 10.92
December 31, 1994 92 10.44
OVERLAND PARK. This property, a business park, is located in Overland Park,
Kansas, which is a suburban community approximately ten miles south of downtown
Kansas City, Missouri. The business park offers a combination of office space
and industrial space. The office space is suitable for general management use
and interaction with customers. The industrial space is suitable for light
manufacturing, assembly, distribution or research and development.
The property has good exposure and accessibility from Interstate 435 near
Metcalf Avenue, a busy surface street leading to downtown Kansas City. Situated
on 4.34 acres, the business park contains approximately 62,000 net rentable
square feet divided into 42 units. The property, which opened in 1985, was 98%
occupied at December 31, 1996 by 41 tenants. No tenant occupies 10% or more of
the rentable area.
8
<PAGE>
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the property at the dates indicated:
Annual Realized
Rent Per Square
Date Occupancy Rate Foot
----------------------- ----------------------- ----------------------
December 31, 1996 98% $9.24
December 31, 1995 98 9.00
December 31, 1994 83 8.52
A schedule showing the total annual base rent and percentage of total
income relating to leases according to their expiration dates is set forth
below:
Year of Total Amt. Percentage of
Expiration* Base Rent Total Income
----------------------- ----------------------- ----------------
1997 $347,000 48.53%
1998 226,000 31.61
1999 104,000 14.55
2000 31,000 4.34
2001 7,000 0.97
----------------------- ----------------
Total $715,000 100.00%
======================= ================
- ------------
* Assumes that none of the renewal options included in the leases will be
exercised.
ITEM 3. LITIGATION.
----------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
The Company held an annual meeting of shareholders on December 17, 1996.
Proxies for the annual meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The annual meeting involved the election of
directors, and the vote was as follows (the common Stock Series A, Series B and
Series C vote together as a single class):
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Series A Common Stock Series B
------------------------------- -------------------------------
Name Voted For Withheld Voted For Withheld
- -------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C>
B. Wayne Hughes 1,060,737 20,973 184,453 -
------------- ------------ ------------- ------------
Vern O. Curtis 1,060,537 21,173 184,453 -
------------- ------------ ------------- ------------
Jack D. Steele 1,060,537 21,173 184,453 -
------------- ------------ ------------- ------------
Number of Shares of
Common Stock Series C Total Common Stock
------------------------------- -------------------------------
Name Voted For Withheld Voted For Withheld
- -------------------- ------------- ------------ ------------- ------------
B. Wayne Hughes 522,618 - 1,767,808 20,973
------------- ------------ ------------- ------------
Vern O. Curtis 522,618 - 1,767,608 21,173
------------- ------------ ------------- ------------
Jack D. Steele 522,618 - 1,767,608 21,173
------------- ------------ ------------- ------------
</TABLE>
9
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
---------------------------------------------------------------------
The Company's Series A shares are registered under Section 12(b) of the
Securities Exchange Act of 1934 on the American Stock Exchange ("AMEX"), and
commenced trading on March 27, 1991 under the symbol PSM. The Series B and
Series C shares were not registered under Section 12 of the Securities and
Exchange Act of 1934 and no public trading market exists for the Series B and
Series C shares.
The Company's Articles of Incorporation provide that the Series B shares
and Series C shares will convert automatically into Series A shares on a
share-for-share basis (the "Conversion") when (A) the sum of (1) all cumulative
dividends and other distributions from all sources paid with respect to the
Series A shares (including liquidating distributions, but not including payments
made to redeem such stock other than in liquidation) and (2) the cumulative
Partnership distributions from all sources with respect to all Units (including
the General Partners' 1% interest) equals (B) the product of $20 multiplied by
the number of the then outstanding "Original Series A shares". The term
"Original Series A shares" means the Series A shares issued in the
Reorganization.
In general, the Series A shares, Series B shares and Series C shares have
equal voting rights. The Company's bylaws provide that during the period prior
to the conversion of the Series B and Series C shares into Series A shares, in
all shareholder matters voted on by the Partnership's general partners (the
"General Partners") or their successors in interest as holders of Series B and
Series C shares, other than the election and removal of directors and other
proposals relating to the control of the Company and its business, the General
Partners and any successors in interest have agreed to vote their Series B and
Series C shares with the holders of a majority of the outstanding unaffiliated
Series A shares entitled to vote.
Market Prices and Dividends
- ---------------------------
The following table sets forth the high and low sales prices on the AMEX
composite tape per Series A share and dividends per Series A share and Series B
share for fiscal 1995 and 1996:
<TABLE>
<CAPTION>
Sales Price
------------------- Cash Dividends
Year Quarter Ended High Low Declared*
- ------------ ---------------------------------- -------- ------ --------------
<C> <C> <C> <C> <C>
1995 March 31 $16-7/8 $15 $0.34
June 30 17-3/8 15-1/2 0.34
September 30 17-5/8 16-1/4 0.34
December 31 17-7/8 16-3/8 0.34
1996 March 31 $18-3/8 $16-7/8 $0.34
June 30 18-7/8 17-5/8 0.34
September 30 20-1/2 18-1/2 0.34
December 31 20-3/8 19-1/8 0.34
</TABLE>
* No dividends were declared on the Series C shares.
As of December 31, 1996, there were approximately 1,062 holders of record
of the Company's Series A shares.
Holders of Series A shares are entitled to receive distributions when, as
and if declared by the Board of Directors out of any funds legally available for
that purpose. The Company, as a REIT, is required to distribute, prior to filing
its tax return, at least 95% of its "real estate investment trust taxable
income," which, as defined by the relevant tax statutes and regulations, is
generally equivalent to net taxable ordinary income. Under certain
circumstances, the Company can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
A principal policy of the Company is to make quarterly cash distributions.
The Company intends to make quarterly cash distributions out of funds legally
available, as determined by the Company's Board of Directors.
10
<PAGE>
For Federal income tax purposes, distributions to shareholders are treated
as ordinary income, capital gains, return of capital or a combination thereof,
and for the past three years all distributions have been classified as ordinary
income.
Under generally accepted accounting principles, the amount of distributions
declared to shareholders was less than income by $419,000, $14,000 and $60,000
during 1996, 1995 and 1994, respectively.
Series A shares are entitled to participate equally in distributions when
declared by the Board of Directors and in the Company's net assets upon
dissolution and liquidation after repayment of the Company's liabilities. The
Series B shares (prior to conversion into Series A shares) are not entitled to
participate in distributions attributable to sales or financings of the
properties or the liquidation of the Company, but will participate in other
distributions on the same basis as the Series A shares. The Series C shares
(prior to conversion into Series A shares) are not entitled to participate in
any distributions, including liquidating distributions.
Repurchase of Company's common stock
- ------------------------------------
If considered to be an attractive investment opportunity or in other
appropriate circumstances, the Company may repurchase its Series A shares out of
legally available funds, if approved by the Board of Directors.
As of February 27, 1997, the Board of Directors has authorized the Company
to repurchase up to 400,000 Series A shares. From March 27, 1991 through
February 28, 1997, the Company has repurchased 301,275 Series A shares. The
Company repurchased 36,400 Series A shares during 1996 and no additional Series
A shares between January 1, 1997 and February 28, 1997.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
The following selected historical financial information has been derived
from the audited financial statements of the Company.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
Operating data:
- ---------------
Revenues:
<S> <C> <C> <C> <C> <C>
Rental income $7,220 $6,859 $6,651 $6,387 $5,805
Interest and other income 33 19 21 40 66
----------- ----------- ----------- ----------- -----------
7,253 6,878 6,672 6,427 5,871
----------- ----------- ----------- ----------- -----------
Expenses:
Cost of operations 2,334 2,265 2,107 2,083 1,962
Management fees paid to affiliates 394 400 388 371 337
Depreciation 1,150 1,105 1,046 1,047 1,061
General and administrative 217 205 208 233 274
Environmental cost - 106 - - -
Interest expense 3 1 - - -
----------- ----------- ----------- ----------- -----------
4,098 4,082 3,749 3,734 3,634
----------- ----------- ----------- ----------- -----------
Net Income $3,155 $2,796 $2,923 $2,693 $2,237
=========== =========== =========== =========== ===========
Net income per Series A share:
Primary $1.59 $1.37 $1.39 $1.23 $0.99
Fully diluted $1.24 $1.09 $1.11 $1.00 $0.82
Dividends declared per share:
Series A $1.36 $1.36 $1.36 $1.36 $1.36
Series B $1.36 $1.36 $1.36 $1.36 $1.36
Weighted average Common shares outstanding:
Primary- Series A 1,831 1,863 1,926 1,988 2,015
Fully diluted- Series A 2,538 2,571 2,633 2,696 2,722
Other data:
- -----------
Net cash provided by
operating activities $4,485 $3,786 $3,899 $3,780 $3,314
Net cash used in investing activities (507) (472) (216) (135) (150)
Net cash used in financing activities (3,434) (3,322) (4,143) (2,989) (3,551)
Funds from operations (1) 4,305 4,007 3,969 3,740 3,298
Capital expenditures
to maintain facilities (507) (472) (216) (135) (150)
Balance sheet data:
- -------------------
Total assets $28,129 $28,388 $28,767 $30,055 $30,932
Shareholders' equity 26,617 26,883 27,398 28,592 29,434
12
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
-----------------------------------
(1) Funds from operations (FFO) is defined by the Company, consistent with the
definition of FFO by the National Association of Real Estate Investment
Trusts (NAREIT), as net income (loss) (computed in accordance with
generally accepted accounting principles) before depreciation and
extraordinary or non-recurring items. FFO is presented because the Company,
as well as many industry analysts, consider FFO to be one measure of the
performance of the Company, ie, one that generally reflects changes in the
Company's net operating income. FFO does not take into consideration
scheduled principal payments on debt and capital improvements. Accordingly,
FFO is not necessarily a substitute for the Company's cash flow or net
income as a measure of the Company's liquidity or operating performance or
ability to pay distributions. Furthermore, the NAREIT definition of FFO
does not address the treatment of certain items and all REITs do not treat
items the same way in computing FFO. Accordingly, comparisons of levels of
FFO among REITs may not necessarily be meaningful.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
---------------------------------------------------------------
Results of Operations.
- ----------------------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995. Net
income in 1996 was $3,155,000 compared to $2,796,000 in 1995, representing an
increase of $359,000 or 13%. Net income per fully diluted Series A share was
$1.24 in 1996 compared to $1.09 in 1995, representing an increase of $.15 or 14%
per share. These increases are primarily due to an increase in property net
operating income combined with the favorable impact of comparing to expenses for
1995 which included a non-recurring charge for environmental assessments and
provision for future remediation costs.
During 1996, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $253,000 from $3,089,000 in 1995 to $3,342,000 in 1996. This increase
is primarily attributable to an increase in rental income at the Company's
mini-warehouse and business park operations.
Rental income for the mini-warehouse operations increased $245,000 or 4%
from $5,631,000 in 1995 to $5,876,000 in 1996. Cost of operations (including
management fees paid to an affiliate of the Company) increased $63,000 or 3%
from $1,993,000 in 1995 to $2,056,000 in 1996. The results of these changes was
a net increase in property net operating income before depreciation expense of
$181,000 or 5% from $3,639,000 in 1995 to $3,820,000 in 1996. The increase in
rental income is primarily due to an increase in rental rates at a majority of
the Company's mini-warehouse properties. The increase in cost of operations is
primarily due to increases in payroll, repairs and maintenance and advertising
expense. Repairs and maintenance increased due mainly to an increase in snow
removal and landscaping costs. Snow removal costs increased due to the higher
than normal snow levels experienced at the Company's mini-warehouse properties
located in the eastern states.
Property net operating income before depreciation expense with respect to
the Company's business park operations increased by $117,000 or 21% from
$556,000 in 1995 to $673,000 in 1996. This increase is due to an increase in
rental income at the Company's four business park facilities as a result of
increases in rental rates. Cost of operations remained stable in 1996 compared
to 1995.
Weighted average occupancy levels were 92% for the mini-warehouse
facilities and 97% for the business park facilities in 1996 compared to 92% for
the mini-warehouse facilities and 95% for the business park facilities in 1995.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. In 1996, the
Company expensed the prepaid management fees. The amount is included in
management fees paid to affiliates in the statements of income. As a result of
the prepayment, the Company saved approximately $26,000 in management fees,
based on the management fees that would have been payable on rental income
generated in 1996 compared to the amount prepaid.
During 1996, the Company incurred $3,000 in interest expense on its line of
credit facility.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Net
income in 1995 was $2,796,000 compared to $2,923,000 in 1994, representing a
decrease of $127,000 4%. Net income per fully diluted Series A share was $1.09
in 1995 compared to $1.11 in 1994, representing a decrease of $.02 or 2% per
share. This decrease is primarily due to a decrease in property net operating
income at the Company's business park facilities in 1995 compared to 1994 and
environmental costs incurred on the Company's properties in the fourth quarter
of 1995 (see discussion below).
During 1995, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
decreased $21,000 from $3,110,000 in 1994 to $3,089,000 in 1995. This decrease
is primarily attributable to an increase in operating expenses at the Company's
facilities.
Rental income for the mini-warehouse operations increased $202,000 or 4%
from $5,429,000 in 1994 to $5,631,000 in 1995. Cost of operations (including
management fees paid to an affiliate of the Company) increased $89,000 or 5%
from $1,904,000 in 1994 to $1,993,000 in 1995. The results of these changes was
a net increase in property net operating income before depreciation expense of
$113,000 or 3% from $3,526,000 in 1994 to $3,639,000 in 1995. The increase in
rental income is primarily due to an increase in rental rates at a majority of
14
<PAGE>
the Company's mini-warehouse properties. The increase in cost of operations is
primarily due to increases in payroll, repairs and maintenance and property tax
expense. Repairs and maintenance increased due mainly to an increase in painting
costs.
Property net operating income before depreciation expense with respect to
the Company's business park operations decreased by $75,000 or 12% from $631,000
in 1994 to $556,000 in 1995. This decrease is primarily due to an increase in
cost of operations. The increase in cost of operations is mainly due to
increases in payroll, repairs and maintenance and property tax expense. The
increase in repairs and maintenance is primarily due to $14,000 (net of
insurance reimbursement) in fire damage incurred at the Company's Phoenix,
Arizona business park facility during the second quarter of 1995. The increase
in property taxes is due to the receipt of a property tax refund in 1994 on a
property tax appeal on behalf of the San Francisco facility. Rental income
remained stable in 1995 compared to 1994.
Substantially all of the Company'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, the Company
completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company expensed $106,000 in 1995
for known environmental remediation requirements. Although there can be no
assurance, the Company is not aware of any environmental contamination of any of
its property sites which individually or in the aggregate would be material to
the Company's overall business, financial condition, or results of operations.
Weighted average occupancy levels were 92% for the mini-warehouse
facilities and 95% for the business park facilities in 1995 compared to 93% for
the mini-warehouse facilities and 95% for the business park facilities in 1994.
Mini-warehouse Operating Trends.
- --------------------------------
The following table illustrates the operating trends for the Company's 13
mini-warehouses:
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Weighted average occupancy level 92% 92% 93%
Realized monthly rent per occupied square foot (1) $.72 $.70 $.67
Operating margin: (2)
Before reduction for depreciation expense 65% 65% 65%
After reduction for depreciation expense 52% 52% 52%
</TABLE>
- --------
(1) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions. Includes administrative and late fees.
(2) Operating margin (before reduction for depreciation expense) is computed by
dividing rental income less cost of operations by rental income. Operating
margin (after reduction for depreciation expense) is computed by dividing
rental income less cost of operations and depreciation by rental income.
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
CAPITAL STRUCTURE. The Company's financial profile has been characterized
by increasing cash provided by operating activities and increasing funds from
operations ("FFO").
NET CASH PROVIDED BY OPERATING ACTIVITIES AND FUNDS FROM OPERATIONS. The
Company believes that important measures of its performance as well as liquidity
are net cash provided by operating activities and FFO.
Net cash provided by operating activities (net income plus depreciation)
reflects the cash generated from the Company's business before distributions to
shareholders and capital expenditures. Net cash provided by operating activities
has increased over the past years from $3,899,000 in 1994 to $4,485,000 in 1996.
15
<PAGE>
FFO is defined by the Company, consistent with the definition of FFO by the
National Association of Real Estate Investment Trusts (NAREIT), as net income
(loss) (computed in accordance with generally accepted accounting principles)
before depreciation and extraordinary or non-recurring items. FFO for the years
ended December 31, 1996 and 1995 was $4,305,000 and $4,007,000, respectively.
FFO is presented because the Company, as well as many industry analysts,
consider FFO to be one measure of the performance of the Company, i.e., one that
generally reflects changes in the Company's net operating income. FFO does not
take into consideration scheduled principal payments on debt and capital
improvements. Accordingly, FFO is not necessarily a substitute for the Company's
cash flow or net income, as a measure of the Company's liquidity or operating
performance or ability to pay distributions. Furthermore, the NAREIT definition
of FFO does not address the treatment of certain items and all REITs do not
treat items the same way in computing FFO. Accordingly, comparisons of levels of
FFO among REITs may not necessarily be meaningful.
The Company has an unsecured revolving credit facility with a bank for
borrowings up to $3,000,000 for working capital purposes and to repurchase the
Company's stock. Outstanding borrowings on the credit facility, at the Company's
option, bear interest at either the bank's prime rate plus .25% or the LIBOR
rate plus 2.25%. Interest is payable monthly. On December 31, 1999, all unpaid
principal and accrued interest is due and payable. During the first quarter of
1996, the Company borrowed and repaid $250,000 on its line of credit facility.
At December 31, 1996, there was no outstanding balance on the credit facility.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to pay
distributions to shareholders and repurchase its stock.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $3,155,000 $2,796,000 $2,923,000
Depreciation 1,150,000 1,105,000 1,046,000
Environmental cost - 106,000 -
---------- ---------- ----------
Funds from operations
(Net cash provided by operating activities
before changes in working capital components) 4,305,000 4,007,000 3,969,000
Capital improvements to maintain facilities (507,000) (472,000) (216,000)
---------- ---------- ----------
Funds available for distributions to
shareholders and repurchase of stock 3,798,000 3,535,000 3,753,000
Cash distributions to shareholders (2,749,000) (2,793,000) (2,889,000)
---------- ---------- ----------
Excess funds available for principal
payments, cash distributions to
shareholders and repurchase of stock $1,049,000 $ 742,000 $ 864,000
========== ========== ==========
</TABLE>
The Company believes that its rental revenues and interest and other income
will be sufficient over at least the next twelve months to meet the Company's
operating expenses, capital improvements and distributions to shareholders. For
1997, the Company anticipates expending approximately $507,000 for capital
improvements. During 1995, the Company's property operator commenced a program
to enhance the visual appearance of the mini-warehouse facilities operated by
it. Such enhancements include new signs, exterior color schemes, and
improvements to the rental offices. The vast majority of the costs associated
with these enhancements were incurred in 1995 and 1996.
During the second quarter of 1995, the Company borrowed $145,000 from an
affiliate for working capital purposes. The advance, which was repaid in May
1995, bore interest at the prime rate plus .25%. Interest expense of $1,000 was
charged to income in 1995 with respect to this advance.
The Company believes its geographically diverse portfolio has resulted in a
relatively stable and predictable investment portfolio.
On November 12, 1996, the Company's Board of Directors declared a regular
quarterly distribution per share of $0.34 payable on January 15, 1997 to
shareholders of record on December 31, 1996.
16
<PAGE>
In August 1995, the Management Agreement for the mini-warehouse facilities
was amended to provide that upon demand from PSI made prior to December 15,
1995, the Company agreed 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. In
November 1995, the Company prepaid, to PSI, 8 months of 1996 management fees at
a cost of $205,000. The amount has been expensed as management fees paid to
affiliate during 1996.
DISTRIBUTIONS
- -------------
The Company has established a conservative distribution policy. The
aggregate amount of dividends paid or accrued to the shareholders in each year
since inception of the Company were as follows:
Series A Series B Total
------------- ------------- ------------
1984 $858,000 $75,000 $933,000
1985 1,061,000 92,000 1,153,000
1986 1,273,000 111,000 1,384,000
1987 1,751,000 152,000 1,903,000
1988 2,307,000 201,000 2,508,000
1989 2,758,000 240,000 2,998,000
1990 2,865,000 249,000 3,114,000
1991 3,204,000 282,000 3,486,000
1992 2,738,000 251,000 2,989,000
1993 2,700,000 251,000 2,951,000
1994 2,612,000 251,000 2,863,000
1995 2,530,000 252,000 2,782,000
1996 2,484,000 252,000 2,736,000
------------- ------------- ------------
Total $29,141,000 $2,659,000 $31,800,000
============= ============= ============
The Convertible Series B shares and Convertible Series C shares will
convert automatically into Series A shares on a share-for-share basis (the
"Conversion") when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the Series A shares
(including liquidating distributions, but not including payments made to redeem
such stock other than in liquidation) and (2) the cumulative Partnership
distributions from all sources with respect to all units equals (B) the product
of $20 multiplied by the number of the then outstanding "Original Series A
shares". The term "Original Series A shares" means the Series A shares issued in
the Reorganization. Through December 31, 1996, the Company has made and declared
cumulative cash distributions of approximately $29,141,000 with respect to the
Series A shares. Accordingly, assuming no repurchases or redemptions of Series A
shares after December 31, 1996, Conversion will occur when $7,258,000 in
additional distributions with respect to the Series A shares have been made.
REIT DISTRIBUTION REQUIREMENT
- -----------------------------
The Company has elected and intends to continue to qualify as REIT for
Federal income tax purposes. As a REIT, the Company must meet, among other
tests, sources of income, share ownership, and certain asset tests. As a REIT,
the Company is not taxed on that portion of its taxable income which is
distributed to its shareholders provided that at least 95% of its taxable income
is so distributed to its shareholders prior to filing the Company's tax return.
Under certain circumstances, the Company can rectify a failure to meet the 95%
distribution test by making distributions after the close of a particular
taxable year and attributing those distributions to the prior year's taxable
income. The Company has satisfied the REIT distribution requirement for 1996 by
attributing distributions in 1997 to the prior year's taxable income. The extent
to which the Company will be required to attribute distributions to the prior
year will depend on the Company's operating results (taxable income) and the
level of distributions as determined by the Board of Directors. The primary
difference between book income and taxable income is depreciation expense. In
1996, the Company's Federal tax depreciation was $1,229,000.
The Company's Board of Directors has authorized the Company to purchase up
to 400,000 shares of Series A common stock. As of December 31, 1996, the Company
had purchased and retired 301,275 shares of Series A common stock.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
Company's financial statements are included elsewhere herein. Reference is
made to the Index to Financial Statements and Financial Statement Schedule in
Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
---------------------------------------------------------------
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
------------------------------------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
Incorporated by reference herein is information required by this item,
which is to be included in an amendment on Form 10-K/A to this Form 10-K filed
within 120 days of the end of the Registrant's 1996 fiscal year.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements: See Index to Financial Statements and
Financial Statement Schedule.
2. Financial Statement Schedules: See Index to Financial
Statements and Financial Statement Schedule.
3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K filed during the last quarter of the period ended
December 31, 1996:
None.
(c) Exhibits:
See Exhibit Index contained herein.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
PUBLIC STORAGE PROPERTIES XI, INC.
Dated: March 27, 1997 By:/s/ Harvey Lenkin
-------------------------
Harvey Lenkin, President
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
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- ------------------------- --------------------------------------- -------------------
<S> <C> <C>
/s/ B. Wayne Hughes Chairman of the Board, Chief Executive March 27, 1997
- ------------------------- Officer and Director
B. Wayne Hughes (Principal Executive Officer)
/s/ Vern O. Curtis Director March 27, 1997
- -------------------------
Vern O. Curtis
/s/ Jack D. Steele Director March 27, 1997
- -------------------------
Jack D. Steele
/s/ David P. Singelyn Vice President and Chief Financial Officer March 27, 1997
- --------------------- (Principal Financial Officer and
David P. Singelyn Principal Accounting Officer)
</TABLE>
<PAGE>
PUBLIC STORAGE PROPERTIES XI, INC.
INDEX TO
FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
(Item 14 (a))
Page
References
----------
Report of Independent Auditors F-1
Financial Statements and Schedule:
Balance Sheets as of December 31, 1996 and 1995 F-2
For each of the three years in the period ended December 31, 1996:
Statements of Income F-3
Statements of Shareholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-10
Schedule for the years ended December 31, 1996, 1995 and 1994:
III Real Estate and Accumulated Depreciation F-11 - F-12
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.
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Public Storage Properties XI, Inc.
We have audited the accompanying balance sheets of Public Storage Properties XI,
Inc. as of December 31, 1996 and 1995, and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the schedule listed in the
index at item 14(a). These financial statements and schedule are the
responsibility of the Company'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 Public Storage Properties XI,
Inc. 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
February 18, 1997
Los Angeles, California
F-1
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE PROPERTIES XI, INC.
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
----------- -----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $1,290,000 $746,000
Rent and other receivables 53,000 87,000
Prepaid expenses 142,000 268,000
Real estate facilities at cost:
Building, land improvements and equipment 26,526,000 26,031,000
Land 12,118,000 12,118,000
----------- -----------
38,644,000 38,149,000
Less accumulated depreciation (12,000,000) (10,862,000)
----------- -----------
26,644,000 27,287,000
----------- -----------
Total assets $28,129,000 $28,388,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $633,000 $609,000
Dividends payable 681,000 694,000
Advance payments from renters 198,000 202,000
Shareholders' equity:
Series A common, $.01 par value,
2,828,989 shares authorized,
1,819,937 shares issued and
outstanding (1,856,337 shares
issued and outstanding in 1995) 18,000 19,000
Convertible Series B common, $.01 par
value, 184,453 shares authorized,
issued and outstanding 2,000 2,000
Convertible Series C common, $.01 par
value, 522,618 shares authorized,
issued and outstanding 5,000 5,000
Paid-in-capital 32,421,000 33,105,000
Cumulative net income 25,971,000 22,816,000
Cumulative distributions (31,800,000) (29,064,000)
----------- -----------
Total shareholders' equity 26,617,000 26,883,000
----------- -----------
Total liabilities and shareholders' equity $28,129,000 $28,388,000
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE PROPERTIES XI, INC.
STATEMENTS OF INCOME
For each of the three years in the
period ended December 31, 1996
1996 1995 1994
---------- ---------- ----------
REVENUES:
<S> <C> <C> <C>
Rental income $7,220,000 $6,859,000 $6,651,000
Interest income 33,000 19,000 21,000
---------- ---------- ----------
7,253,000 6,878,000 6,672,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 2,334,000 2,265,000 2,107,000
Management fees paid to affiliates 394,000 400,000 388,000
Depreciation 1,150,000 1,105,000 1,046,000
Administrative 217,000 205,000 208,000
Environmental cost - 106,000 -
Interest expense 3,000 1,000 -
---------- ---------- ----------
4,098,000 4,082,000 3,749,000
---------- ---------- ----------
NET INCOME $3,155,000 $2,796,000 $2,923,000
========== ========== ==========
Primary earnings per share-Series A $1.59 $1.37 $1.39
========== ========== ==========
Fully diluted earnings per share-Series A $1.24 $1.09 $1.11
========== ========== ==========
Dividends declared per share:
Series A $1.36 $1.36 $1.36
========== ========== ==========
Series B $1.36 $1.36 $1.36
========== ========== ==========
Weighted average Common shares outstanding:
Primary- Series A 1,830,845 1,863,470 1,925,554
========== ========== ==========
Fully diluted- Series A 2,537,916 2,570,541 2,632,625
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE PROPERTIES XI, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For each of the three years in the period ended
December 31, 1996
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
--------- -------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 1,963,062 $20,000 184,453 $2,000 522,618 $5,000
Net income
Repurchase of shares (74,525) (1,000)
Cash distributions declared:
$1.36 per share - Series A
$1.36 per share - Series B
-----------------------------------------------------------------------------------
Balances at December 31, 1994 1,888,537 19,000 184,453 2,000 522,618 5,000
Net income
Repurchase of shares (32,200) -
Cash distributions declared:
$1.36 per share - Series A
$1.36 per share - Series B
-----------------------------------------------------------------------------------
Balances at December 31, 1995 1,856,337 19,000 184,453 2,000 522,618 5,000
Net income
Repurchase of shares (36,400) (1,000)
Cash distributions declared:
$1.36 per share - Series A
$1.36 per share - Series B
-----------------------------------------------------------------------------------
Balances at December 31, 1996 1,819,937 $18,000 184,453 $2,000 522,618 $5,000
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total
Paid-in net Cumulative shareholders'
Capital income distributions equity
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $34,887,000 $17,097,000 ($23,419,000) $28,592,000
Net income 2,923,000 2,923,000
Repurchase of shares (1,253,000) (1,254,000)
Cash distributions declared:
$1.36 per share - Series A (2,612,000) (2,612,000)
$1.36 per share - Series B (251,000) (251,000)
-------------------------------------------------------------------
Balances at December 31, 1994 33,634,000 20,020,000 (26,282,000) 27,398,000
Net income 2,796,000 2,796,000
Repurchase of shares (529,000) (529,000)
Cash distributions declared:
$1.36 per share - Series A (2,530,000) (2,530,000)
$1.36 per share - Series B (252,000) (252,000)
-------------------------------------------------------------------
Balances at December 31, 1995 33,105,000 22,816,000 (29,064,000) 26,883,000
Net income 3,155,000 3,155,000
Repurchase of shares (684,000) (685,000)
Cash distributions declared:
$1.36 per share - Series A (2,484,000) (2,484,000)
$1.36 per share - Series B (252,000) (252,000)
-------------------------------------------------------------------
Balances at December 31, 1996 $32,421,000 $25,971,000 ($31,800,000) $26,617,000
===================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE PROPERTIES XI, INC.
STATEMENTS OF CASH FLOWS
For each of the three years in the
period ended December 31, 1996
1996 1995 1994
---------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $3,155,000 $2,796,000 $2,923,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 1,150,000 1,105,000 1,046,000
Decrease (increase) in rent and
other receivables 34,000 (53,000) (1,000)
Increase in prepaid expenses (79,000) (4,000) (1,000)
Amortization (payment) of prepaid management fees 205,000 (205,000) -
Increase (decrease) in accounts payable 24,000 151,000 (29,000)
Decrease in advance payments from renters (4,000) (4,000) (39,000)
---------- ---------- ----------
Total adjustments 1,330,000 990,000 976,000
---------- ---------- ----------
Net cash provided by operating activities 4,485,000 3,786,000 3,899,000
---------- ---------- ----------
Cash flows from investing activities:
Additions to real estate facilities (507,000) (472,000) (216,000)
---------- ---------- ----------
Net cash used in investing activities (507,000) (472,000) (216,000)
---------- ---------- ----------
Cash flows from financing activities:
Distributions paid to shareholders (2,749,000) (2,793,000) (2,889,000)
Advances from affiliate - 145,000 -
Repayment of advances from affiliate - (145,000) -
Borrowing on credit facility 250,000 - -
Repayment of borrowing on credit facility (250,000) - -
Purchase of Company Series A common stock (685,000) (529,000) (1,254,000)
---------- ---------- ----------
Net cash used in financing activities (3,434,000) (3,322,000) (4,143,000)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 544,000 (8,000) (460,000)
Cash and cash equivalents at the beginning of the year 746,000 754,000 1,214,000
---------- ---------- ----------
Cash and cash equivalents at the end of the year $1,290,000 $746,000 $754,000
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PUBLIC STORAGE PROPERTIES XI, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS
Public Storage Properties XI, Inc. (the "Company") is a California
corporation which has elected to qualify as a real estate investment
trust ("REIT") for Federal income tax purposes. The Company succeeded
to the business of Public Storage Properties XI, Ltd. (the
"Partnership") in a reorganization transaction which was effective
December 31, 1990 (the "Reorganization").
The Company owns and operates primarily self-storage facilities
and, to a lesser extent, business park facilities containing commercial
or industrial spaces.
The term of the Company is until all properties have been sold
and, in any event, not later than December 31, 2038. The bylaws of the
Company provide that, during 1997, unless shareholders have previously
approved such a proposal, the shareholders will be presented with a
proposal to approve or disapprove (a) the sale or financing of all or
substantially all of the properties and (b) the distribution of the
proceeds from such transaction and, in the case of a sale, the
liquidation of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Certain prior year amounts have been reclassified in order to
conform with the 1996 presentation.
Income Taxes:
The Company has and intends to continue to qualify as a REIT, as
defined in Section 856 of the Internal Revenue Code (the Code). As a
REIT, the Company is not taxed on that portion of its taxable income
which is distributed to its shareholders provided that the Company
meets the requirements of the Code. The Company believes it is in
compliance with these requirements and, accordingly, no provision for
income taxes has been made.
Statements of Cash Flows:
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Real Estate Facilities:
Cost of land includes appraisal and legal fees related to
acquisition and closing costs. Buildings, land improvements and
equipment reflect costs incurred through December 31, 1996 and 1995 to
develop primarily mini-warehouse facilities and to a lesser extent,
business park facilities. The mini-warehouse facilities provide
self-service storage spaces for lease, usually on a month-to-month
basis, to the general public. The buildings and equipment are
depreciated on the straight-line basis over estimated useful lives of
25 and 5 years, respectively. Included in depreciation is depreciation
of tenant improvements on the Company's business park facilities of
$47,000, $50,000 and $19,000 in 1996, 1995 and 1994, respectively.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real Estate Facilities (continued):
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 accounting for long-lived assets that
are expected to be disposed of. The Company adopted Statement 121 in
1996 and based on current circumstances, such adoption did not have any
effect on the financial statements.
At December 31, 1996, the basis of real estate facilities
(excluding land) for Federal income tax purposes (after adjustment for
accumulated depreciation of $15,586,000) is $9,794,000.
Revenue Recognition:
Property rents are recognized as earned.
Net Income Per Share:
Net income per share is based on net income attributable to each
series of common shares and the weighted average number of such shares
outstanding during the periods presented.
Net income per share is presented on a primary and fully diluted
basis. Primary earnings per share represents the Series A shareholders'
rights to distributions out of the respective period's net income,
which is calculated by dividing net income after reduction for
distributions to the Convertible Series B shareholders (Series C
shareholders are not entitled to cash distributions) by the weighted
average number of outstanding Series A shares (Note 4). Fully diluted
earnings per share assumes conversion of the Convertible Series B and
Series C shares into Series A shares.
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.
Environmental Cost:
Substantially all of the Company'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, the Company completed environmental assessments
of its properties to evaluate the environmental condition of, and
potential environmental liabilities of such properties. These
assessments were performed by an independent environmental consulting
firm. Based on the assessments, the Company expensed $106,000 in 1995
for known environmental remediation requirements. Although there can be
no assurance, the Company is not aware of any environmental
contamination of any of its property sites which individually or in the
aggregate would be material to the Company's overall business,
financial condition, or results of operations.
3. RELATED PARTY TRANSACTIONS
The Company has a Management Agreement with Public Storage, Inc.
("PSI") pursuant to which PSI operates the Company's mini-warehouse
facilities for a fee equal to 6% of the facilities' monthly gross
revenue (as defined). Through 1996, the Company's commercial properties
were operated by Public Storage Commercial Properties Group, Inc.
("PSCPG") pursuant to a Management Agreement which provides for a fee
equal to 5% of the facilities' monthly gross revenue (as defined).
F-7
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
PSI has a 95% economic interest in PSCPG (represented by nonvoting
preferred stock) and B. Wayne Hughes, the Company's Chief Executive
Officer, and members of his family (the "Hughes Family") had a 5%
economic interest in PSCPG (represented by voting common stock) 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, American Office Park Properties, L.P. ("AOPPLP")
became the operator of the Company's commercial properties pursuant to
the Management Agreement. AOPPLP is an operating partnership formed to
own and operate business parks in which PSI has an approximate 85%
economic interest. The general partner of AOPPLP is PSCPG, now known as
American Office Park Properties, Inc.
Each Management Agreement, as amended in February 1995, provides
that the agreement will expire in February 2002 provided that in
February of each year it shall be automatically extended for one year
(thereby maintaining a seven-year term) unless either party notifies
the other that the Management Agreement is not being extended, in which
case it expires, on the first anniversary of its then scheduled
expiration date. Each Management Agreement may also be terminated by
either party for cause, but if terminated for cause by the Company, the
Company retains the rights to use the service marks and related designs
until the then scheduled expiration date, if applicable, or otherwise a
date seven years after such termination.
In August 1995, the Management Agreement for the mini-warehouse
facilities was amended to provide that upon demand from PSI made prior
to December 15, 1995, the Company agreed 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. In November 1995, the Company
prepaid, to PSI, 8 months of 1996 management fees at a cost of
$205,000. The amount has been expensed as management fees paid to
affiliate during 1996.
During the second quarter of 1995, the Company borrowed $145,000
from an affiliate for working capital purposes. The advance, which was
repaid in May 1995, bore interest at the prime rate plus .25%. Interest
expense of $1,000 was charged to income in 1995 with respect to this
advance.
4. SHAREHOLDERS' EQUITY
Series A shares are entitled to all distributions of cash from
sale or refinancing and participate ratably with the Convertible Series
B shares in distributions of cash flow from operations. The Convertible
Series C shares (prior to conversion into Series A shares) will not
participate in any distributions.
The Convertible Series B shares and Convertible Series C shares
will convert automatically into Series A shares on a share-for-share
basis (the "Conversion") when (A) the sum of (1) all cumulative
dividends and other distributions from all sources paid with respect to
the Series A shares (including liquidating distributions, but not
including payments made to redeem such stock other than in liquidation)
and (2) the cumulative Partnership distributions from all sources with
respect to all units equals (B) the product of $20 multiplied by the
number of the then outstanding "Original Series A shares". The term
"Original Series A shares" means the Series A shares issued in the
Reorganization. Through December 31, 1996, the Company has made and
declared cumulative cash distributions of approximately $29,141,000
with respect to the Series A shares. Accordingly, assuming no
repurchases or redemptions of Series A shares after December 31, 1996,
Conversion will occur when $7,258,000 in additional distributions with
respect to the Series A shares have been made.
F-8
<PAGE>
4. SHAREHOLDERS' EQUITY (CONTINUED)
Assuming liquidation of the Company at its net book value at
December 31, 1996 and 1995, each Series of common shares would receive
the following as a liquidating distribution:
1996 1995
--------------- ---------------
Series A $21,449,000 $22,567,000
Convertible Series B 1,348,000 1,126,000
Convertible Series C 3,820,000 3,190,000
--------------- ---------------
Total $26,617,000 $26,883,000
=============== ===============
The Series B and Series C shareholders have agreed that 47,824 of
the Series A shares received upon conversion of the Convertible Series
B and Convertible Series C shares will not be entitled to distributions
attributable to sale or financing proceeds. This agreement, which is
binding on transferees of such Series A shares, is reflected in the
liquidation values applicable to the Series A and Convertible Series B
and C shares.
The Series A shares, Convertible Series B shares and Convertible
Series C shares have equal voting rights. The holders of the
Convertible Series B and Convertible Series C shares have agreed to
vote along with the majority of the unaffiliated Series A shareholders
on matters other than control of the Company and its business.
The Company's Board of Directors has authorized the Company to
purchase up to 400,000 shares of the Company's Series A common stock.
As of December 31, 1996, the Company had purchased and retired 301,275
shares of Series A common stock, of which 36,400 and 32,200 were
purchased and retired in 1996 and 1995, respectively.
For Federal income tax purposes, all distributions declared by the
Board of Directors in 1996, 1995 and 1994 were ordinary income.
5. NOTE PAYABLE TO BANK
The Company has an unsecured revolving credit facility with a bank
for borrowings up to $3,000,000 for working capital purposes and to
repurchase the Company's stock. Outstanding borrowings on the credit
facility, at the Company's option, bear interest at either the bank's
prime rate plus .25% or the LIBOR rate plus 2.25%. Interest is payable
monthly. On December 31, 1999, all unpaid principal and accrued
interest is due and payable.
During the first quarter of 1996, the Company borrowed and repaid
$250,000 on its line of credit facility. At December 31, 1996, there
was no outstanding balance on the credit facility.
Under covenants of the credit facility, the Company is (1)
required to maintain a ratio of liabilities to assets (as defined) for
each fiscal quarter of not more than .3 to 1.0, (2) required to
maintain a debt coverage ratio (as defined) for each fiscal quarter of
not less than 8 times the debt service, (3) required to maintain a
fixed charge coverage ratio (as defined) for each fiscal quarter of not
less than 1.0 to 1.0 and (4) required to maintain a minimum
shareholder's equity (as defined) for each fiscal quarter of $20
million.
F-9
<PAGE>
6. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------------
March 1996 June 1996 Sept. 1996 Dec. 1996
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues $1,741,000 $1,822,000 $1,858,000 $1,832,000
---------- ----------- ------------- -----------
Expenses 1,004,000 1,017,000 1,028,000 1,049,000
---------- ----------- ------------- -----------
Net income $737,000 $805,000 $830,000 $783,000
========== =========== ============= ===========
Primary earnings per share- Series A $0.37 $0.40 $0.42 $0.40
========== =========== ============= ===========
Fully diluted earnings per share- Series A $0.29 $0.32 $0.32 $0.31
========== =========== ============= ===========
Three months ended
---------------------------------------------------------
March 1995 June 1995 Sept. 1995 Dec. 1995
---------- ----------- ------------- -----------
Revenues $1,652,000 $1,718,000 $1,787,000 $1,721,000
---------- ----------- ------------- -----------
Expenses 945,000 1,005,000 995,000 1,137,000
---------- ----------- ------------- -----------
Net income $707,000 $713,000 $792,000 $584,000
========== =========== ============= ===========
Primary earnings per share- Series A $0.34 $0.35 $0.39 $0.29
========== =========== ============= ===========
Fully diluted earnings per share- Series A $0.27 $0.28 $0.31 $0.23
========== =========== ============= ===========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
PUBLIC STORAGE PROPERTIES XI, INC.
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
Initial Cost
---------------------- Costs
Bldg., Land subsequent to
Date Imp & construction
Completed Description Encumbrances Land Equipment (Improvements)
-----------------------------------------------------------------------------------------------------
Mini-warehouses:
<S> <C> <C> <C> <C> <C>
11/84 Branford / Owens Commerce - $551,000 $904,000 $70,000
10/84 Houston / De Soto Dr - 882,000 1,111,000 92,000
10/84 Las Vegas / Charleston - 543,000 1,065,000 88,000
12/84 Colma / El Camino Real - 675,000 1,406,000 67,000
02/85 Pasadena /Arroyo Pkwy I - 3,021,000 3,764,000 171,000
10/84 Tempe / E Broadway - 346,000 916,000 52,000
11/84 Las Vegas / Tropicana Ave - 590,000 1,135,000 60,000
11/84 Houston / East Freeway - 394,000 970,000 132,000
05/85 Phoenix / N 43rd Ave - 193,000 969,000 58,000
07/85 Phoenix / Black Canyon - 201,000 1,025,000 62,000
12/85 Nesconset / Southern Blvd - 429,000 1,871,000 109,000
02/86 Austin / Ben White Blvd - 700,000 972,000 29,000
07/85 Arlington / E Pioneer Pkwy - 590,000 1,187,000 66,000
Business Parks:
04/85 Overland Park / I-435 - 1,172,000 2,671,000 778,000
05/85 Phoenix / 43RD Ave - 493,000 1,658,000 116,000
07/85 Phoenix / Black Canyon Hwy - 236,000 610,000 36,000
03/86 S. San Francisco / San - 1,102,000 2,017,000 289,000
Mateo
-------------------------------------------------------------
- $12,118,000 $24,251,000 $2,275,000
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Carrying Amount At December 31, 1996 Life on Which
------------------------------------------ Depreciation in
Bldg., Land Latest Income
Date Imp Accumulated Statements is
Completed Description Land & Equipment Total Depreciation Computed
-------------------------------------------------------------------------------------------------------------------------
Mini-warehouses:
<S> <C> <C> <C> <C> <C> <C>
11/84 Branford / Owens Commerce $551,000 $974,000 $1,525,000 ($460,000) 5-25 Years
10/84 Houston / De Soto Dr 882,000 1,203,000 2,085,000 (570,000) 5-25 Years
10/84 Las Vegas / Charleston 543,000 1,153,000 1,696,000 (557,000) 5-25 Years
12/84 Colma / El Camino Real 675,000 1,473,000 2,148,000 (674,000) 5-25 Years
02/85 Pasadena /Arroyo Pkwy I 3,021,000 3,935,000 6,956,000 (1,808,000) 5-25 Years
10/84 Tempe / E Broadway 346,000 968,000 1,314,000 (470,000) 5-25 Years
11/84 Las Vegas / Tropicana Ave 590,000 1,195,000 1,785,000 (577,000) 5-25 Years
11/84 Houston / East Freeway 394,000 1,102,000 1,496,000 (503,000) 5-25 Years
05/85 Phoenix / N 43rd Ave 193,000 1,027,000 1,220,000 (483,000) 5-25 Years
07/85 Phoenix / Black Canyon 201,000 1,087,000 1,288,000 (489,000) 5-25 Years
12/85 Nesconset / Southern Blvd 429,000 1,980,000 2,409,000 (830,000) 5-25 Years
02/86 Austin / Ben White Blvd 700,000 1,001,000 1,701,000 (429,000) 5-25 Years
07/85 Arlington / E Pioneer Pkwy 590,000 1,253,000 1,843,000 (571,000) 5-25 Years
Business Parks:
04/85 Overland Park / I-435 1,172,000 3,449,000 4,621,000 (1,530,000) 5-25 Years
05/85 Phoenix / 43RD Ave 493,000 1,774,000 2,267,000 (746,000) 5-25 Years
07/85 Phoenix / Black Canyon Hwy 236,000 646,000 882,000 (302,000) 5-25 Years
03/86 S. San Francisco / San 1,102,000 2,306,000 3,408,000 (1,001,000) 5-25 Years
Mateo
-----------------------------------------------------------------
$12,118,000 $26,526,000 $38,644,000 ($12,000,000)
=================================================================
</TABLE>
F-11
<PAGE>
PUBLIC STORAGE PROPERTIES XI, INC.
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)
(a) The following is a reconciliation of costs and related accumulated
depreciation.
<TABLE>
<CAPTION>
COSTS RECONCILIATION
Years Ended December 31,
------------------------------------------------------
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the period $38,149,000 $37,726,000 $37,536,000
Additions during the period:
Improvements 507,000 472,000 216,000
Deductions during the period (12,000) (49,000) (26,000)
------------------------------------------------------
Balance at the close of the period $38,644,000 $38,149,000 $37,726,000
======================================================
ACCUMULATED DEPRECIATION RECONCILIATION
Years Ended December 31,
------------------------------------------------------
1996 1995 1994
------------------------------------------------------
Balance at the beginning of the period $10,862,000 $9,806,000 $8,786,000
Additions during the period:
Depreciation 1,149,000 1,105,000 1,046,000
Deductions during the period (11,000) (49,000) (26,000)
------------------------------------------------------
Balance at the close of the period $12,000,000 $10,862,000 $9,806,000
======================================================
</TABLE>
(b) The aggregate depreciable cost of real estate (excluding land) for Federal
income tax purposes is $25,380,000.
F-12
<PAGE>
PUBLIC STORAGE PROPERTIES XI, INC.
EXHIBIT INDEX
(Item 14(c))
3.1 Articles of Incorporation. Previously filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.
3.2 Certificate of Amendment of Articles of Incorporation. Previously
filed with the Securities and Exchange Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992 and incorporated herein by reference.
3.3 Amended and Restated Bylaws. Previously filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.
3.4 Amendments to Bylaws Adopted on July 30, 1992. Previously filed with
the Securities and Exchange Commission as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.
10.1 Amended Management Agreement dated February 21, 1995 between the
Company and Public Storage Management, Inc. Previously filed with the
Securities and Exchange Commission as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.2 Amended Management Agreement dated February 21, 1995 between the
Company and Public Storage Commercial Properties Group, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.3 Amendment to Amended Management Agreement dated August 8, 1995 between
the Company, Public Storage Management, Inc. and Storage Equities,
Inc. Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1995 and incorporated herein by reference.
10.4 Revolving Note and Loan Agreement between the Company and The First
National Bank of Boston dated as of December 29, 1995. Previously
filed with the Securities and Exchange Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995 and incorporated herein by reference.
27 Financial Data Schedule. Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000866368
<NAME> PUBLIC STORAGE PROPERTIES XI, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,290,000
<SECURITIES> 0
<RECEIVABLES> 195,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,485,000
<PP&E> 38,644,000
<DEPRECIATION> (12,000,000)
<TOTAL-ASSETS> 28,129,000
<CURRENT-LIABILITIES> 1,512,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 26,592,000
<TOTAL-LIABILITY-AND-EQUITY> 28,129,000
<SALES> 0
<TOTAL-REVENUES> 7,253,000
<CGS> 0
<TOTAL-COSTS> 3,878,000
<OTHER-EXPENSES> 217,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> 3,155,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,155,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,155,000
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.24
</TABLE>
