UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
----------------- ----------------
Commission File Number 1-10709
PS BUSINESS PARKS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
California 95-4300881
---------- ----------
(State or Other Jurisdiction I.R.S. Employer
of Incorporation) Identification Number)
701 Western Avenue, Glendale, California 91201-2397
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
- --------------------------------------------------------------------------------
of May 7, 1998: Common Stock, $.01 par value, 18,609,850 shares outstanding
- ---------------------------------------------------------------------------
<PAGE>
PS BUSINESS PARKS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at March 31, 1998
and December 31, 1997 2
Condensed consolidated statements of income for the three
months ended March 31, 1998 and 1997 3
Condensed consolidated statement of shareholder's equity for
the three months ended March 31, 1998 4
Condensed consolidated statements of cash flows for the
three months ended March 31, 1998 and 1997 5-6
Notes to condensed consolidated financial statements 7-15
Item 2. Management's discussion and analysis
of financial condition and results of operations 16-21
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 23-24
Item 5. Other Information 25-37
Item 6. Exhibits and Reports on Form 8-K 38
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------ -----------------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................. $ 11,259,000 $ 3,884,000
Real estate facilities, at cost:
Land............................................. 122,784,000 91,754,000
Buildings and equipment.......................... 301,042,000 226,466,000
------------------ -----------------
423,826,000 318,220,000
Accumulated depreciation......................... (6,133,000) (3,982,000)
------------------ -----------------
417,693,000 314,238,000
Intangible assets, net................................ 1,808,000 3,272,000
Other assets.......................................... 2,233,000 2,060,000
------------------ -----------------
Total assets............................ $ 432,993,000 $ 323,454,000
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accrued and other liabilities............................ $ 10,069,000 $ 8,331,000
Mortgage notes payable................................... 14,526,000 -
Note payable to affiliate................................ - 3,500,000
------------------ -----------------
Total liabilities..................................... 24,595,000 11,831,000
Minority interest........................................ 140,904,000 168,665,000
Shareholders' equity:
Preferred Stock, $0.10 par value, 100,000,000
shares authorized, none outstanding at March 31, 1998 and
December 31, 1997................................... - -
Common stock, $0.10 par value, 100,000,000 shares
authorized 14,020,965 shares issued and outstanding
at March 31, 1998 (7,728,309 shares issued and
outstanding at December 31, 1997)................... 1,402,000 773,000
Paid in capital....................................... 266,237,000 142,581,000
Cumulative net income................................. 7,484,000 3,154,000
Cumulative distributions.............................. (7,629,000) (3,550,000)
------------------ -----------------
Total shareholders' equity...................... 267,494,000 142,958,000
------------------ -----------------
Total liabilities and shareholders' equity. $ 432,993,000 $ 323,454,000
================== =================
</TABLE>
See accompanying notes.
2
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
----------------- ----------------
Revenues:
<S> <C> <C>
Rental income........................................................ $ 14,353,000 $ 5,805,000
Facility management fees primarily from affiliates................... 202,000 247,000
Interest and other income............................................ 233,000 29,000
----------------- ----------------
14,788,000 6,081,000
----------------- ----------------
Expenses:
Cost of operations.................................................... 4,627,000 2,493,000
Cost of facility management........................................... 25,000 60,000
Depreciation and amortization......................................... 2,300,000 820,000
General and administrative............................................ 445,000 213,000
Interest expense..................................................... 247,000 -
----------------- ----------------
7,644,000 3,586,000
----------------- ----------------
Income before minority interest......................................... 7,144,000 2,495,000
Minority interest in income........................................... (2,814,000) (1,813,000)
----------------- ----------------
Net income.............................................................. $ 4,330,000 $ 682,000
================= ================
Net income per share:
Basic................................................................. $ 0.38 $ 0.31
================= ================
Diluted............................................................... $ 0.38 $ 0.31
================= ================
Weighted average shares outstanding:
Basic................................................................. 11,314,469 2,192,848
================= ================
Diluted............................................................... 11,357,036 2,192,848
================= ================
</TABLE>
See accompanying notes.
3
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the three months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount Paid-in Capital
------ ------ ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997............. - $ - 7,728,309 $ 773,000 $ 142,581,000
Issuances of common stock:
Conversion of OP Units............. - - 1,785,008 179,000 32,844,000
Private offering, net of costs..... - - 2,185,189 219,000 47,381,000
Exercise of stock options.......... - - 39,021 3,000 648,000
In connection with a business
combination...................... - - 2,283,438 228,000 46,582,000
Net income............................. - - - - -
Distributions ($0.347 per common share)
- - - - -
Adjustment to reflect minority
interest to underlying ownership - - - - (3,799,000)
interest.............................
------ ------ ----------- ------------- ---------------
Balances at March 31, 1998................ - $ - 14,020,965 $ 1,402,000 $ 266,237,000
====== ====== =========== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
Total
Cumulative Cumulative Shareholders'
Net Income Distributions Equity
------------ --------------- ---------------
<S> <C> <C> <C>
Balances at December 31, 1997............. $ 3,154,000 $ (3,550,000) $ 142,958,000
Issuances of common stock:
Conversion of OP Units............. - - 33,023,000
Private offering, net of costs..... - - 47,600,000
Exercise of stock options.......... - - 651,000
In connection with a business
combination...................... - - 46,810,000
Net income............................. 4,330,000 - 4,330,000
Distributions ($0.347 per common share)
- (4,079,000) (4,079,000)
Adjustment to reflect minority
interest to underlying ownership - - (3,799,000)
interest.............................
------------ --------------- ---------------
Balances at March 31, 1998................ $ 7,484,000 $ (7,629,000) $ 267,494,000
============ =============== ===============
</TABLE>
See accompanying notes.
4
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
----------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income................................................. $ 4,330,000 $ 682,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................. 2,300,000 820,000
Minority interest in income............................ 2,814,000 1,813,000
Increase in other assets............................... (521,000) 358,000
Increase in accrued and other liabilities.............. 371,000 388,000
----------------- ----------------
Total adjustments................................. 4,964,000 3,379,000
----------------- ----------------
Net cash provided by operating activities............ 9,294,000 4,061,000
----------------- ----------------
Cash flows from investing activities:
Payment received from sellers for net property
operating liabilities assumed....................... - 1,779,000
Acquisition of real estate facilities.................. (38,754,000) -
Acquisition cost of business combination............... (424,000) -
Capital improvements to real estate facilities......... (857,000) (582,000)
----------------- ----------------
Net cash used in investing activities................ (40,035,000) 1,197,000
----------------- ----------------
Cash flows from financing activities:
Repayment of note payable to affiliate................. (3,500,000) -
Increase in receivable from affiliate.................. - (308,000)
Net proceeds from the issuance of common stock......... 48,251,000 80,000
Dividends paid to shareholders......................... (4,079,000) -
Distributions to minority interests.................... (2,556,000) -
----------------- ----------------
Net cash provided by (used in) financing activities.. 38,116,000 (228,000)
----------------- ----------------
Net increase in cash and cash equivalents..................... 7,375,000 5,030,000
Cash and cash equivalents at the beginning of the period...... 3,884,000 919,000
----------------- ----------------
Cash and cash equivalents at the end of the period............ $ 11,259,000 $ 5,949,000
================= ================
</TABLE>
See accompanying notes.
5
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
----------------- ----------------
Supplemental schedule of non cash investing and financial activities:
Acquisitions of real estate facilities in exchange for preferred
stock, minority interests, and mortgage notes payable:
<S> <C> <C>
Real estate facilities................................. $ (16,680,000) $(117,180,000)
Other assets........................................... 800,000 -
Accrued and other liabilities.......................... 149,000 -
Minority interest...................................... 1,205,000 97,180,000
Preferred stock........................................ - 120,000
Paid in capital ....................................... - 19,880,000
Mortgage notes payable................................. 14,526,000 -
Business combination:
Real estate facilities................................. (48,000,000) -
Other assets........................................... (452,000) -
Accrued and other liabilities.......................... 1,218,000 -
Common stock........................................... 228,000 -
Paid in capital........................................ 46,582,000 -
Conversion of OP Units into shares of common stock:
Minority interest...................................... (33,023,000) -
Common stock........................................... 179,000 -
Additional paid in capital............................. 32,844,000 -
Adjustment to reflect minority interest to underlying ownership interest:
Minority interest...................................... 3,799,000 -
Additional paid in capital............................. (3,799,000) -
Exchange of preferred stock for common stock:
Preferred stock........................................ - (210,000)
Common stock........................................... - 210,000
Adjustment to acquisition cost (see Note 2):
Real estate facilities................................. (1,315,000) (7,146,000)
Accumulated depreciation............................... - (820,000)
Intangible assets...................................... 1,315,000 (4,395,000)
Paid in capital........................................ - 12,361,000
</TABLE>
See accompanying notes.
6
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
ORGANIZATION
PS Business Parks, Inc. ("PSB"), a California corporation, is the successor
to American Office Park Properties, Inc. ("AOPP") which merged with and
into Public Storage Properties XI, Inc. ("PSP 11") on March 17, 1998 (the
"Merger"). The name of the company was changed to "PS Business Parks, Inc."
in connection with the Merger. See Note 3 for a description of the Merger
and its terms.
Based upon the terms of the Merger, the transaction for financial reporting
and accounting purposes has been accounted for as a reverse acquisition
whereby AOPP is deemed to have acquired PSP11. However, PSP11 is the
continuing legal entity and registrant for both Securities and Exchange
filing purposes and income tax reporting purposes. All subsequent
references to PSB for periods prior to March 17, 1998 shall refer to AOPP.
PSB was organized in California in 1986 as a wholly-owned subsidiary of
Public Storage Management, Inc. ("PSMI"), a privately owned company of B.
Wayne Hughes and his family (collectively "Hughes").
On November 16, 1995, Public Storage, Inc. ("PSI") acquired PSMI in a
business combination accounted for using the purchase method. In connection
with the transaction, PSI exchanged its common stock for all of the
non-voting participating preferred stock of PSB, representing a 95%
economic interest, and Hughes purchased all the voting common stock of PSB,
representing the remaining 5% economic interest. During December 1996,
Ronald L. Havner, Jr. (then an executive officer of PSI) acquired all of
Hughes' common stock in PSB.
On January 2, 1997, in connection with the reorganization of the commercial
property operations of PSI and affiliated entities, PSB formed a
partnership (the "Operating Partnership") whereby PSB became the general
partner. Concurrent with the formation of the Operating Partnership, PSI
and affiliated entities contributed commercial properties to the Operating
Partnership in exchange for limited partnership units ("OP Units"). In
addition, PSI contributed commercial properties to PSB in exchange for
shares of non-voting participating preferred stock, and such properties
were immediately contributed by PSB along with its commercial property
management operations and cash to the Operating Partnership for OP Units.
Subject to certain limitations as described in Note 7, holders of OP Units,
other than PSB, have the right to require PSB to redeem such holders' OP
Units at any time or from time to time beginning on the date that is one
year after the date on which such limited partner is admitted to the
Operating Partnership.
On March 31, 1997, PSI exchanged its non-voting participating preferred
stock into common shares of PSB. As a result of the exchange, PSI owned a
majority of the voting common stock and effectively gained control of PSB
at that time.
DESCRIPTION OF BUSINESS
PSB is a fully-integrated, self-managed real estate investment trust
("REIT") that acquires, owns and operates commercial properties containing
commercial and industrial rental space. From 1986 through 1996, PSB's sole
business activity consisted of the management of commercial properties
owned by PSI and affiliated entities.
Commencing in 1997, PSB began to own and operate commercial properties for
its own behalf. At March 31, 1998, PSB and the Operating Partnership
7
<PAGE>
collectively owned and operated 65 commercial properties (approximately 7.6
million net rentable square feet) located in 11 states. In addition, the
Operating Partnership managed, on behalf of PSI and affiliated entities, 35
commercial properties (approximately 1.0 million net rentable square feet).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The preparation of the
condensed consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results could differ
from estimates. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes of PSB for the year ended December 31,
1997 filed on Form 8-K/A dated April 17, 1998 (amending Form 8-K dated
March 17, 1998).
The condensed consolidated financial statements include the accounts of PSB
and the Operating Partnership. PSB, as the sole general of the Operating
Partnership, has full, exclusive and complete responsibility and discretion
in managing and controlling the Operating Partnership.
On March 31, 1997, PSB and PSI agreed to exchange the non-voting
participating preferred stock held by PSI for 2,098,288 shares of voting
common stock of PSB. After the exchange, PSI owned in excess of 95% of the
outstanding common voting common stock of PSB and PSB accounted for the
transaction as if PSI acquired PSB in a transaction accounted for as a
purchase. Accordingly, PSB reflected PSI's cost of its investment in PSB in
accordance with Accounting Principles Board Opinion No. 16. As a result of
PSI attaining control of PSB, the carrying value of PSB's assets and
liabilities were adjusted to reflect PSI's acquisition cost of its
controlling interest in PSB of approximately $35 million. As a result, the
carrying value of real estate facilities was increased approximately $8.0
million, intangible assets increased approximately $4.4 million and paid in
capital increased approximately $12.4 million.
STOCK SPLIT AND STOCK DIVIDEND:
On January 1, 1997, the number of outstanding shares of preferred and
common stock increased as a result of a 10 for 1 stock split. In March
1997, the preferred stock of PSB was converted into common stock on a share
for share basis. In December 1997, PSB declared a common stock dividend at
a rate of .01583 shares for each common share outstanding. Similarly, the
Operating Partnership's outstanding OP Units were adjusted to reflect the
stock dividend. No adjustment was made to the outstanding OP Units for the
January 1997 stock split, as the issuance of OP Units during 1997 already
reflected the stock split.
On March 17, 1998, in connection with the merger, PSB's common shares were
converted into 1.18 shares of PSP11. Similarly, holders of OP Units
received an additional 0.18 OP Units for each outstanding OP Unit held at
the time of the merger.
8
<PAGE>
References in the condensed consolidated financial statements and notes
thereto with respect to shares of preferred stock, common stock, stock
options, and OP Units and the related per share/per unit amounts have been
retroactively adjusted to reflect the January 1997 stock split, the
December 1997 stock dividend and the March 1998 conversion in connection
with the Merger.
CASH AND CASH EQUIVALENTS:
PSB considers all highly liquid investments with an original maturity of
three months or less at the date of purchase to be cash equivalents.
REAL ESTATE FACILITIES:
Costs related to the improvements of properties are capitalized.
Expenditures for repair and maintenance are charged to expense when
incurred. After March 31, 1997, acquisition of facilities from PSI and
entities controlled by PSI are recorded at the predecessor's basis until
such time that PSB is not controlled by PSI. Buildings and equipment are
depreciated on the straight line method over the estimated useful lives,
which is generally 25 and 5 years, respectively.
INTANGIBLE ASSETS:
Intangible assets consist of property management contracts for properties
managed, but not owned, by PSB. The intangible assets are being amortized
over seven years. As properties managed are subsequently acquired by PSB,
the unamortized basis of intangible assets related to such property is
included in the cost of acquisition of such property. During April 1997,
PSB acquired four properties from PSI and included in the cost of real
estate facilities for such properties is $730,000 of cost previously
classified as intangible assets. In connection with the Merger, PSB
acquired 13 properties and included in the cost of such properties is
$1,315,000 (which is net of accumulated amortization of $228,000) of costs
previously classified as intangible assets. Intangible assets at March 31,
1998 are net of accumulated amortization of $314,000.
EVALUATION OF ASSET IMPAIRMENT:
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" which requires impairment losses to be recorded on long-lived assets.
PSB evaluates its assets used in operations, by identifying indicators of
impairment and by comparing the sum of the estimated undiscounted future
cash flows for each asset to the asset's carrying amount. When indicators
of impairment are present and the sum of the undiscounted future cash flows
is less than the carrying value of such asset, an impairment loss is
recorded equal to the difference between the asset's current carrying value
and its value based on discounting its estimated future cash flows. SFAS
No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. Such assets are to be reported at the lower of
their carrying amount or fair value, less cost to sell. PSB adopted SFAS
No. 121 in 1996 and the adoption had no effect. PSB's subsequent
evaluations have indicated no impairment in the carrying amount of its
assets.
NOTE PAYABLE TO AFFILIATE:
Note payable to affiliate at December 31, 1997 of $3,500,000 reflects
amounts borrowed from PSI on that date. The note bore interest at 6.97% and
was repaid on January 31, 1998.
9
<PAGE>
REVENUE AND EXPENSE RECOGNITION:
All leases are classified as operating leases. Rental income is recognized
on a straight-line basis over the terms of the leases. Reimbursements from
tenants for real estate taxes and other recoverable operating expenses are
recognized as revenue in the period the applicable costs are incurred.
Costs incurred in connection with leasing (primarily tenant improvements
and leasing commissions) are capitalized and amortized over the lease
period.
Property management fees are recognized in the period earned.
NET INCOME PER COMMON SHARE:
In 1997, the FASB issued SFAS No. 128, Earnings per Share. SFAS No. 128
replaced the calculation of "primary" and "fully diluted" earnings per
share with "basic" and "diluted" earnings per share.
"Diluted" shares include the dilutive effect of stock options, while
"basic" shares exclude such effect. In addition, weighted average shares
utilized in computing basic and diluted earnings per share includes the
weighted average participating preferred shares, because such shares were
allocated income (subject to certain preferences upon liquidation described
below) on an equal per share basis with the common shares.
INCOME TAXES:
During 1997, PSB qualified and intends to continue to qualify as a real
estate investment trust ("REIT"), as defined in Section 856 of the Internal
Revenue Code. As a REIT, PSB is not taxed on that portion of its taxable
income which is distributed to its shareholders provided that PSB meets
certain tests. PSB believes it met these tests during 1997. In addition,
PSP11 (the legal entity for income tax reporting purposes subsequent to the
March 17, 1998 merger) believes it has also met the REIT tests during 1997
and for the three months ended March 31, 1998. Accordingly, no provision
for income taxes has been made in the accompanying financial statements.
GENERAL AND ADMINISTRATIVE EXPENSE:
General and administrative expense includes legal and office expense, state
income taxes, executive salaries, cost of acquisition personnel and other
such administrative items. Such amounts include amounts incurred by PSI on
behalf of PSB, which were subsequently charged to PSB in accordance with
the allocation methodology pursuant to the cost allocation and
administrative services agreement between PSB and PSI.
RECLASSIFICATIONS:
Certain reclassifications have been made to the financial statements for
1997 in order to conform to the 1998 presentation.
10
<PAGE>
3. BUSINESS COMBINATION
On March 17, 1998, AOPP merged into PSP11, a publicly traded real estate
investment trust and an affiliate of PSI. Upon consummation of the Merger
of AOPP into PSP11, the surviving corporation was renamed "PS Business
Parks, Inc." (PSB as defined in Note 1). In connection with the Merger:
* Each outstanding share of PSP11 common stock, which did not
elect cash, continued to be owned by current holders. A total
of 106,155 PSP11 common shares elected to receive cash of
$20.50 per share.
* Each share of PSP11 common stock Series B and each share of
PSP11 common stock Series C converted into .8641 share of PSP11
common stock.
* Each share of AOPP common stock converted into 1.18 shares of
PSP11 common stock.
* Concurrent with the Merger, PSP11 exchanged 11 mini-warehouses
and two properties that combine mini-warehouse and commercial
space for 11 commercial properties owned by PSI. The fair value
of the real estate facilities owned by PSP11 was approximately
$48 million.
The Merger has been accounted for as a reverse merger whereby PSB is
treated as the accounting acquirer using the purchase method. This has been
determined based upon the following: (i) the former shareholders and
unitholders of PSB owned in excess of 80% of the merged companies and (ii)
the business focus post-Merger will continue to be that of PSB's which
includes the acquisition, ownership and management of commercial
properties. Prior to the Merger, PSP11's business focus has been primarily
on the ownership and operation of its self-storage facilities which
represented approximately 81% of its portfolio.
Allocations of the total acquisition cost to the net assets acquired were
made based upon the fair value of PSP11's assets and liabilities as of the
date of the Merger. The acquisition cost and the fair market values of the
assets acquired and liabilities assumed in the Merger are summarized as
follows:
Acquisition cost:
Issuance of common stock......... $46,810,000
Cash............................. 424,000
-----------
Total acquisition cost....... $47,234,000
===========
Allocation of acquisition cost:
Real estate facilities........... $48,000,000
Other assets..................... 452,000
Accrued and other liabilities.... (1,218,000)
-----------
Total allocation............. $47,234,000
===========
11
<PAGE>
The historical operating results of PSP11 prior to the Merger have not been
included in PSB's historical operating results. Pro forma data for the
three months ended March 31, 1998 and 1997 as though the Merger had been
effective at the beginning of fiscal 1997 are as follows:
Three months ended March 31,
1998 1997
------------- ------------
Revenues.............................. $ 16,666,000 $ 8,145,000
Net income............................ 5,115,000 1,410,000
Net income per share - basic.......... $ 0.39 $ 0.32
Net income per share - diluted........ 0.39 0.32
The pro forma data does not purport to be indicative either of the results
of operations that would have occurred had the Merger occurred at the
beginning of fiscal 1997 or future results of PSB.
4. REAL ESTATE FACILITIES
The activity in real estate facilities for the three months ended March 31,
1998 is as follows:
<TABLE>
<CAPTION>
Accumulated
Land Buildings Depreciation Total
------------ ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997........ $ 91,754,000 $ 226,466,000 $ (3,982,000) $ 314,238,000
Property acquisitions................ 16,630,000 38,804,000 - 55,434,000
Acquired in connection with Merger... 14,400,000 33,600,000 - 48,000,000
Adjustment from intangible assets.... - 1,315,000 - 1,315,000
Capital improvements................. - 857,000 - 857,000
Depreciation expense................. - - (2,151,000) (2,151,000)
------------ ------------- ---------------- ---------------
Balances at March 31, 1998........... $122,784,000 $ 301,042,000 $ (6,133,000) $ 417,693,000
============ ============= ================ ===============
</TABLE>
On January 13, 1998, PSB purchased a commercial property from an
unaffiliated third party for approximately $22,518,000, consisting of
$22,325,000 cash (of which $500,000 was paid before December 31, 1997) and
the issuance of 8,428 OP Units having a value of approximately $193,000.
In March 1998, PSB purchased two commercial properties from unaffiliated
third parties for an aggregate cost of approximately $32,916,000, composed
of $17,377,000 cash (of which $300,000 was paid before December 31, 1997),
the issuance of 44,250 OP units having a value of approximately $1,013,000,
and the assumption of mortgage notes payable of $14,526,000.
12
<PAGE>
5. LEASING ACTIVITY
Future minimum rental revenues under non-cancelable leases as of March 31,
1998 with tenants for the above real estate facilities are as follows:
1998 (April - December) $ 42,761,000
1999 41,079,000
2000 27,079,000
2001 15,762,000
2002 9,047,000
Thereafter 10,118,000
--------------
$ 145,846,000
==============
6. MORTGAGE NOTES PAYABLE
Mortgage notes at March 31, 1998 consist of the following:
7-1/8 % mortgage note, secured by one commercial property,
principal and interest payable monthly, due May 2006 $9,036,000
8-1/8 % mortgage note, secured by one commercial property,
principal and interest payable monthly, due July 2005 5,490,000
-----------
$14,526,000
===========
7. MINORITY INTERESTS
In consolidation, PSB classifies ownership interests in the Operating
Partnership, other than its own, as minority interest on the consolidated
financial statements. Minority interest in income consists of the minority
interests' share of the consolidated operating results.
Subject to certain limitations described below, each limited partner other
than PSB has the right to require the redemption of such limited partner's
partnership interests at any time or from time to time beginning on the
date that is one year after the date on which such limited partner is
admitted to the Operating Partnership.
Unless PSB, as general partner, elects to assume and perform the Operating
Partnership's obligation with respect to a redemption right, as described
below, a limited partner that exercises its redemption right will receive
cash from the Operating Partnership in an amount equal to the market value
(as defined in the Operating Partnership Agreement) of the partnership
interests redeemed. In lieu of the Operating Partnership redeeming the
partner for cash, PSB, as general partner, has the right to elect to
acquire the partnership interest directly from a limited partner exercising
its redemption right, in exchange for cash in the amount specified above or
by issuance of one share of PSB common stock for each unit of limited
partnership interest redeemed.
A limited partner cannot exercise its redemption right if delivery of
shares of PSB common stock would be prohibited under the applicable
articles of incorporation, if the general partner believes that there is a
risk that delivery of shares of common stock would cause the general
partner to no longer qualify as a REIT, would cause a violation of the
applicable securities laws, or would result in the Operating Partnership no
longer being treated as a partnership for federal income tax purposes.
13
<PAGE>
At March 31, 1998, there were 7,385,529 OP Units owned by minority
interests (7,305,352 were owned by PSI and affiliated entities and 80,177
were owned by unaffiliated third parties). On a fully converted basis,
assuming all 7,385,529 minority interest OP Units were converted into
shares of common stock of PSB at March 31, 1998, the minority interests
would own approximately 34.5% of the pro forma common shares outstanding.
At the end of each reporting period, PSB determines the amount of equity
(book value of net assets) which is allocable to the minority interest
based upon this pro forma ownership interest and an adjustment is made to
the minority interest, with a corresponding adjustment to Additional paid
in capital, to reflect the minority interests' equity.
8. PROPERTY MANAGEMENT CONTRACTS
The Operating Partnership manages industrial, office and retail facilities
for PSI and entities affiliated with PSI, and third party owners. These
facilities, all located in the United States, operate under the "Public
Storage" or "PS Business Parks" name.
The property management contracts provide for compensation of five percent
of the gross revenue of the facilities managed. Under the supervision of
the property owners, the Operating Partnership coordinates rental policies,
rent collections, marketing activities, the purchase of equipment and
supplies, maintenance activities, and the selection and engagement of
vendors, suppliers and independent contractors. In addition, the Operating
Partnership assists and advises the property owners in establishing
policies for the hire, discharge and supervision of employees for the
operation of these facilities, including property managers, leasing,
billing and maintenance personnel.
The property management contract with PSI is for a seven year term with the
term being extended one year each anniversary. The property management
contracts with affiliates of PSI are cancelable by either party upon sixty
days notice.
9. SHAREHOLDERS' EQUITY
On January 7, 1998, a holder of OP Units exercised its option and converted
its 1,785,008 OP Units into an equal number of shares of PSB common stock.
The conversion resulted in an increase in shareholders' equity and a
corresponding decrease in minority interest of approximately $33,023,000,
representing the book value of the OP Units at the time of conversion.
In January 1998, PSB entered into an agreement with a group of
institutional investors under which PSB agreed to issue up to 6,744,074
shares of PSB common stock at $22.88 per share in cash (an aggregate of up
to $155,000,000) in separate tranches. The first tranche, representing
2,185,189 shares or $50.0 million, was issued in January 1998. The Company
incurred $2,400,000 in costs associated with the issuance. The remainder of
the common shares (4,558,885 common shares) were issued on May 6, 1998 and
the net proceeds ($105.0 million) were used to fund a portion of the cost
to acquire commercial properties in May 1998.
On March 31, 1998, PSB paid distributions to its common shareholders'
totaling $4,079,000, or $0.347 per common share.
14
<PAGE>
10. LINE OF CREDIT WITH PSI
PSB has entered into a line of credit agreement with PSI for borrowings up
to $50,000,000 with an interest rate of the London Interbank Offered Rate
("LIBOR") plus 1.25%. The credit agreement expires on December 31, 1998.
There were no amounts outstanding as of March 31, 1998. In addition, PSI
has provided PSB with additional funds, at the same interest rate, which
PSB required to acquire the property portfolio on May 4, 1998. At May 14,
1998, there was approximately $74.0 million outstanding on the lines of
credit as a result of borrowings to fund a portion of the acquisition cost
of properties acquired in May 1998.
11. SUBSEQUENT EVENTS
PROPERTY ACQUISITION
On May 4, 1998, the Company purchased 14 properties (approximately 1.0
million rentable square feet) located in Beaverton, Oregon and 14
properties (approximately 1.3 million rentable square feet) located in the
Dallas, Texas area. The properties were acquired from Principal Mutual Life
Insurance Company, an insurance company, and its affiliated companies. The
aggregate purchase price was approximately $190.5 million in cash. The
acquisition contains approximately 2,265,000 rentable square feet and
contains approximately 15 acres of land in the Beaverton market for future
development. In addition, the Company contracted to purchase an additional
property containing 56,000 square feet in Texas for approximately $5.7
million. The property is currently under construction and pre-leased.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
GENERAL: Private Securities Litigation Reform Act Safe Harbor Statement. In
addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and financial
position. Such forward-looking statements are often identified by the words
"estimate," "project," "intend," "plan," "expect," "believe," or similar
expressions. Such statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to differ materially
from that indicated by the forward-looking statement. Such factors include, but
are not limited to a change in economic conditions in the various markets served
by the Company's operations which would adversely affect the level of demand for
rental of commercial space and the cost structure of the Company. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
HISTORICAL OVERVIEW: PS Business Parks, Inc. ("PSB" or the "Company") is a
self-managed, self-advised real estate investment trust that acquires, owns and
operates commercial properties. The Company is the sole general partner of PS
Business Parks, L.P. (the "Operating Partnership") through which the Company
conducts most of its activities and owned, as of May 6, 1998, an approximate 66%
partnership interest. Substantially all of the remaining partnership interest is
owned by Public Storage, Inc. ("PSI") and its affiliates.
The commercial properties owned by the Company and the Operating Partnership
generally include both business park (industrial/flex space) and office space.
The industrial space is used for, among other things, light manufacturing and
assembly, storage and warehousing, distribution and research and development
activities. Most of the office space is occupied by tenants who are also renting
industrial space. The commercial properties typically consist of one to ten
one-story buildings located on three to 20 acres and contain from approximately
10,000 to 500,000 square feet of rentable space (more than 50,000 square feet in
the case of the free-standing properties). A property is typically divided into
units ranging in size from 500 to 10,000 square feet. Leases generally range
from one to five years and some tenants have options to extend the original
terms of their leases.
During 1997 and the first three months of fiscal 1998, the Company completed a
number of business transactions which have had a significant impact to the
Company's comparative operating results for the three months ended March 31,
1998 and 1997:
* Merger: PS Business Parks, Inc. ("PSB") is the successor to
American Office Park Properties, Inc. ("AOPP") which merged
with and into Public Storage Properties XI, Inc. ("PSP 11") on
March 17, 1998 (the "Merger"). The name of the surviving
company was changed to "PS Business Parks, Inc." in connection
with the merger.
Based upon the terms of the Merger, the transaction for
financial accounting purposes has been accounted for as a
reverse acquisition whereby AOPP is deemed to have acquired
PSP11. However, PSP11 is the continuing legal entity and
registrant for both Securities and Exchange Commission filing
purposes and income tax reporting purposes. All subsequent
references to "PSB" or the "Company" for periods prior to March
17, 1998 shall refer to AOPP.
In connection with the Merger, PSP11 exchanged eleven
mini-warehouses and two properties that combine mini-warehouse
and commercial space for eleven commercial properties owned by
PSI. The fair value of the real estate facilities owned by
PSP11 and the commercial facilities received by PSP11 was
16
<PAGE>
approximately $48 million. As a result of this transaction, PSB
acquired 13 properties with a total of approximately 815,000
net rentable square feet.
* PROPERTY ACQUISITIONS: Prior to January 2, 1997, the Company
and its Operating Partnership did not have an ownership
interest in any properties.
On January 2, 1997, the Company acquired 35 commercial
properties (approximately 3.0 million net rentable square feet)
from Public Storage, Inc. ("PSI") and affiliated entities in
exchange for 1,198,680 shares of non-voting participating
preferred stock and 5,824,383 units of the Operating
Partnership ("OP Units").
On April 1, 1997, the Company acquired four commercial
properties from PSI (approximately 370,000 million net rentable
square feet) in exchange for 1,480,968 OP Units.
On July 31, 1997, the Company acquired two commercial
properties (approximately 435,000 net rentable square feet)
from an unaffiliated third party for cash totaling $33,310,000.
On September 24, 1997, the Company acquired a commercial
property (approximately 150,000 net rentable square feet) from
an unaffiliated third party for an aggregate cost of
$10,283,000 consisting of cash of $9,959,000 and the issuance
of 14,384 OP Units.
On December 10, 1997, the Company purchased a commercial
property (approximately 51,000 net rentable square feet) from
an unaffiliated third party for $3,854,000, consisting of cash
of $3,554,000 and the issuance of 13,111 OP Units.
On December 24, 1997, the Company acquired six commercial
properties (approximately 2.0 million net rentable square feet)
valued at $118,655,000 and $1,000,000 in cash from a subsidiary
of a state pension plan through a merger and contribution. In
connection with the transaction, the Company issued to the
subsidiary of the state pension plan 3,504,758 common shares of
the Company and 1,785,007 OP Units. The Company incurred
approximately $3,300,000 in costs in connection with the
transaction.
On January 13, 1998, the Company acquired a commercial property
(approximately 308,000 net rentable square feet) for
$22,518,000, consisting of cash of $22,325,000 and the issuance
of 8,428 OP Units having a value of approximately $193,000.
In March 1998, the Company acquired two commercial properties
(approximately 403,000 net rentable square feet) for an
aggregate cost of $32,916,000, consisting of cash of
$17,377,000, assumption of mortgage notes payable of
$14,526,000 and the issuance of 44,250 OP Units having a value
of approximately $1,013,000.
* COMMON STOCK ISSUANCES FOR CASH: In connection with the
Company's July 1997 acquisition of properties, the Company
issued 2,025,769 shares of common stock primarily to PSI for
cash totaling $33,800,000.
In January 1998, the Company entered into an agreement with a
group of institutional investors under which the Company agreed
to issue up to 6,744,074 shares of common stock at $22.88 per
share in separate tranches. The first tranche, representing
2,185,189 shares or $50.0 million was issued in January 1998.
The remainder of the shares were issued on May 6, 1998 for
$105.0 million.
17
<PAGE>
* EXCHANGE OF NON-VOTING PREFERRED STOCK FOR VOTING COMMON STOCK:
On March 31, 1997, PSI exchanged its non-voting common stock
for voting common stock of the Company in a transaction
accounted for as a purchase of PSB by PSI. As a result of PSI
attaining a 95% ownership interest in PSB voting common stock,
PSB reflected PSI's cost of its investment in PSB in accordance
with Accounting Principles Board Opinion No. 16. As a result of
PSI attaining control of PSB, the carrying value of PSB's
assets and liabilities were adjusted to reflect PSI's
acquisition cost of its controlling interest in PSB of
approximately $35 million. As a result, the carrying value of
real estate facilities was increased at March 31, 1997 by
approximately $8.0 million, intangible assets increased by
approximately $4.4 million and paid in capital increased by
approximately $12.4 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997: Net income for the three months ended March 31, 1998 was $4,330,000
compared to $682,000 for the same period in 1997. Net income per common share on
a diluted basis was $0.38 (based on weighted average diluted shares outstanding
of 11,357,036) for the three months ended March 31, 1998 compared to net income
per common share on a diluted basis of $0.31 (based on diluted weighted average
shares outstanding of 2,192,848) for the three months ended March 31, 1997,
representing an increase of 22.6%. The significant increase in net income and
net income per share reflects the Company's significant growth in its asset base
through the acquisition of commercial properties.
PROPERTY OPERATIONS: The Company's property operations account for more than 98%
of the net operating income earned by the Company for the three months ended
March 31, 1998. The following table presents the operating results of the
properties for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------------
1998 1997 Change
---------------- -------------- -----------
Rental income:
<S> <C> <C> <C>
Facilities owned throughout each period (35 facilities, 3.0
million net rentable square feet)........................... $ 6,015,000 $5,805,000 3.6%
Facilities acquired between March 31 and December 31, 1997
(14 facilities, 3.0 million net rentable square feet)....... 7,047,000 - n/a
Facilities acquired during the three months ended March 31,
1998 (16 facilities, 1.6 million net rentable square feet).. 1,291,000 - n/a
---------------- -------------- -----------
Total rental income......................................... $ 14,353,000 $5,805,000 147.3%
================ ============== ===========
Cost of operations (excluding depreciation):
Facilities owned throughout each period........................ $ 2,528,000 $2,493,000 1.4%
Facilities acquired between March 31 and December 31, 1997..... 1,811,000 - n/a
Facilities acquired during the three months ended March 31,
1998........................................................ 288,000 - n/a
---------------- -------------- -----------
Total cost of operations.................................... $ 4,627,000 $2,493,000 85.6%
================ ============== ===========
Net operating income (rental income less cost of operations):
Facilities owned throughout each period....................... $ 3,487,000 $3,312,000 5.3%
Facilities acquired between March 31 and December 31, 1997.... 5,236,000 - n/a
Facilities acquired during the three months ended March 31,
1998.......................................................... 1,003,000 - n/a
---------------- -------------- -----------
Total net operating income.............................. $ 9,726,000 $3,312,000 193.7%
================ ============== ===========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------------
1998 1997 Change
---------------- -------------- -----------
Other operating data: Facilities owned throughout each period:
<S> <C> <C> <C>
Annualized realized rent per occupied square foot......... $8.50 $8.16 4.2%
Weighted average occupancy for the period................. 94.6% 95.1% (0.5%)
</TABLE>
The results of operations for the 35 facilities operated in both periods was
negatively impacted by one of the Company's commercial properties located in
Culver City, California. Rental revenues for this property decreased by
approximately $100,000 for the three months ended March 31, 1998 compared to the
same period in 1997, primarily as a result of the following lease renewal.
During the three months ended March 31, 1997, a tenant at this property was
leasing space on a "hold-over" lease rate (a rental rate which was above
long-term market rates for the area) on a month-to-month basis pending renewal
of the lease. The lease was renewed during the second quarter of 1997 at a lower
long-term lease rate. . Excluding the reduction in the Culver City revenues,
revenues from facilities owned throughout each period would have increased
$310,000 or 5.3%, net operating income would have increased $275,000 or 8.3% and
annualized rent per square foot would have increased $0.48 or 5.9%. No other
facility within this group had significant variances.
SUPPLEMENTAL PROPERTY DATA AND TRENDS: In order to evaluate how the Company's
overall portfolio has performed, management analyzes the operating performance
of a consistent group of 51 properties (4.2 million net rentable square feet).
These 51 properties represent a mature group of properties which have been
managed by the Company for at least three years and, as of March 31, 1998, were
owned by the Company. The table below summarizes the historical operations of
the 51 properties for the three months ended March 31, 1998 and 1997; however,
the Company did not own all of the properties throughout the periods presented
and therefore, such operations are not all reflected in the Company's historical
operating results.
The following table summarizes the pre-depreciation historical operating results
of these "Same Park" facilities:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------
1998 1997 Change
-------------- ------------- ---------
<S> <C> <C> <C>
Rental income................................. $9,390,000 $8,876,000 5.8%
Cost of operations (1)........................ 4,067,000 4,027,000 1.0%
-------------- ------------- ---------
Net operating income........................ $5,323,000 $4,849,000 9.8%
============== ============= =========
Gross Margin (2).......................... 56.7% 54.6%
Annualized realized rent per occupied
square foot (3)............................. $9.36 $8.83 6.0%
Weighted average occupancy for the period..... 95.5% 95.7% (0.2%)
</TABLE>
- -----------------------
(1) Assumes payment of a management fee equal to 5% of revenues on all
facilities, including those facilities while owned by the Company for which
no fee is paid.
(2) Gross margin is computed by dividing property net operating income by
rental revenues.
(3) Realized rent per square foot represents the actual revenue earned per
occupied square foot.
19
<PAGE>
FACILITY MANAGEMENT OPERATIONS: The Company's facility management accounts for
approximately 2% of the net operating income earned by the Company for the three
months ended March 31, 1998 compared to approximately 5% of the net operating
income earned by the Company for the three months ended March 31, 1997. During
the three months ended March 31, 1998, $177,000 in net operating income was
recognized from facility management operations compared to $187,000 for the same
period in 1997. During the three months ended March 31, 1997, the Company
managed 53 properties. As of March 31, 1998, the Company had acquired 17 of
these 53 facilities previously managed. Accordingly, due to the acquisition of
properties previously managed, the Company's facility management fees should
continue to decrease in 1998 compared to 1997.
INTEREST AND OTHER INCOME: Interest and other income primarily reflects earnings
on cash balances. Interest and other income was $233,000 for the three months
ended March 31, 1998 as compared to $29,000 for the same period in 1997. The
increase is attributable to increased average cash balances principally due to
the Company's issuance of common stock to institutional investors in January
1998 and the timing of investing these funds in newly acquired real estate
facilities.
DEPRECIATION AND AMORTIZATION EXPENSE: Depreciation and amortization expense for
the three months ended March 31, 1998 was $2,300,000, as compared to $820,000
for the same period in 1997. The increase is due to the acquisition of real
estate facilities in 1997 and 1998.
GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative expense was
$445,000 for the three months ended March 31, 1998 compared to $213,000 for the
three months ended March 31, 1997. The increase is due to the increased scope
and acquisition activities of the Company. Management anticipates that upon the
hiring of certain additional executive staff, and as the Company's asset and
shareholder bases increase, general and administrative expense will increase.
INTEREST EXPENSE: Interest expense is attributable to amounts borrowed from PSI
pursuant to its line of credit, as well as to interest expense on mortgage notes
assumed in connection with the acquisition of real estate facilities in March
1998. There were no outstanding borrowings in the same period in 1997.
MINORITY INTEREST IN INCOME: Minority interest in income reflects the income
allocable to equity interests in the Operating Partnership which are not owned
by the Company. Minority interest in income for the three months ended March 31,
1998 was $2,814,000 as compared to $1,813,000 for the same period in 1997. The
increase in minority interest in income is due to improved operating results and
the issuance of additional Operating Partnership units, primarily in connection
with the acquisition of real estate facilities from PSI on April 1, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March 31,
1998 and 1997 was $9,294,000 and 4,061,000, respectively. Management believes
that its internally generated net cash provided by operating activities will
continue to be sufficient to enable it to meet its operating expenses, capital
improvements, debt service requirements and distributions to shareholders and
holders of Operating Partnership units for the foreseeable future.
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 acquire property interests.
20
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Net income.......................................................... $ 4,330,000 $ 682,000
Depreciation and amortization....................................... 2,300,000 820,000
Change in working capital........................................... (150,000) 746,000
Minority interest in income......................................... 2,814,000 1,813,000
---------------- --------------
Net cash provided by operating activities........................... 9,294,000 4,061,000
Capital improvements to maintain facilities......................... (857,000) (582,000)
---------------- --------------
Funds available for distributions to shareholders, minority
interests, acquisitions and other corporate purposes.............. 8,437,000 3,479,000
Cash distributions to shareholders and minority interests........... (6,635,000) -
---------------- --------------
Excess funds available for acquisitions and other corporate purposes $ 1,802,000 $ 3,479,000
================ ==============
</TABLE>
The Company's capital structure is characterized by low level of leverage. As of
March 31, 1998, the Company had two fixed rate mortgage notes payable totaling
$14,526,000, which represented less than 4% of its total capitalization
(including minority interests and debt).
The Company has entered into a line of credit agreement with PSI for borrowings
up to $50 million which are available to fund operations and future
acquisitions. The line of credit bears interest at a rate of the London
Interbank Offered Rate ("LIBOR") plus 1.25% and matures December 31, 1998. In
addition, PSI has provided the Company with additional funds, at the same
interest rate, which the Company required to acquire the property portfolio on
May 4, 1998. At May 14, 1998, the Company had outstanding borrowings of $74
million on the lines of credit.
The Company expects to fund its growth strategies with cash on hand, internally
generated retained cash flows and borrowings from its line of credit. The
Company intends to repay amounts borrowed under the credit facility from
undistributed cash flow or, as market conditions permit and as determined to be
advantageous, from the public or private placement of equity securities.
In January 1998, the Company entered into an agreement with institutional
investors whereby the Company agreed to issue up to 6,744,074 shares of its
common stock for cash ($155 million) in separate tranches. The first tranche,
representing 2,185,189 shares or $50.0 million, was issued in January 1998. The
Company incurred $2,400,000 in costs associated with the issuance. The remainder
of the common shares (4,558,885 common shares) were issued on May 6, 1998 and
the net proceeds ($105.0 million) were used to fund a portion of the cost to
acquire commercial properties in May 1998.
FUNDS FROM OPERATIONS: Funds from operations ("FFO") is defined by the Company
as net income (loss), computed in accordance with generally accepted accounting
principles ("GAAP"), before depreciation, amortization and extraordinary or
non-recurring items. FFO is presented because the Company considers FFO to be a
useful measure of the operating performance of a REIT which, together with net
income and cash flows, provides investors with a basis to evaluate the operating
and cash flow performances of a REIT. FFO does not represent net income or cash
flows from operations as defined by GAAP. FFO does not take into consideration
scheduled principal payments on debt and capital improvements. Accordingly, FFO
is not necessarily a substitute for cash flow or net income as a measure of
liquidity or operating performance or ability to make acquisitions and capital
improvements or ability to pay distributions or debt principal payments. Also,
FFO as computed and disclosed by the Company may not be comparable to FFO
computed and disclosed by other REITs.
21
<PAGE>
Funds from operations for the Company is computed as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Net income......................................................... $ 4,330,000 $ 682,000
Minority interest in income........................................ 2,814,000 1,813,000
Depreciation and amortization...................................... 2,300,000 820,000
----------------- ----------------
Subtotal......................................................... 9,444,000 3,315,000
FFO allocated to minority interests................................ (3,719,000) (2,408,000)
----------------- ----------------
Funds from operations allocated to shareholders.................... $ 5,725,000 $ 907,000
================= ================
</TABLE>
DISTRIBUTIONS: The Company has elected and intends to qualify as a 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. In addition,
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 of its tax return.
On May 7, 1998, the Company declared a regular dividend of $0.25 per share
payable on June 30, 1998 to shareholders of record on June 15, 1998. This
reflects a decrease from $0.34 per common share which was paid to the previous
shareholders of Public Storage Properties XI, Inc. The Board of Directors has
established a distribution policy to maximize the retention of operating cash
flow and only distribute the minimum amount required for the Company to maintain
its tax status as a REIT.
SUBSEQUENT EVENTS
On May 4, 1998, the Company acquired 28 commercial properties (approximately 2.3
million net rentable square feet) and approximately 15 acres of vacant land for
an aggregate cost of approximately $190.5 million in cash. The Company financed
the acquisition with the remaining $105.0 million from its equity agreement with
institutional investors, available cash balances, and borrowings from PSI on its
line of credit.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As a result of the conversion of the Registrant's common stock Series B and C
into common stock Series A in connection with the merger of AOPP into the
Registrant, the Registrant's common stock series A was reconstituted as common
stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held an annual meeting of shareholders on March 16, 1998. Proxies
for the annual meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934. The annual meeting involved the following
matters:
1. Approval of Amended and Restated Agreement and Plan of Reorganization among
the Registrant, American Office Park Properties, Inc. and Public Storage,
Inc. - this proposal was approved by more than 50% of the outstanding
shares of common stock; less than 3% of such shares were voted against such
proposal and less than 2% of such shares abstained with respect to such
proposal.
2. Adoption of an amendment to the Registrant's articles of incorporation in
the form of Appendix E-1 to the Registrant's Proxy Statement and Prospectus
dated February 5, 1998 (the "Proxy Statement") to authorize additional
shares of common stock and new preferred stock and equity stock (and
eliminate references to the common stock series B and C and reclassify the
common stock series A as common stock) - this proposal was approved by more
than 50% of the outstanding shares of common stock; less than 3% of such
shares were voted against such proposal and less than 2% of such shares
abstained with respect to such proposal.
3. Adoption of (i) amendments to the Registrant's articles of incorporation to
(a) eliminate the Registrant's fixed term and (b) eliminate the provision
allowing the Registrant's officers and directors to compete with the
Registrant for investment opportunities and (ii) amendments to the
Registrants' bylaws to (a) eliminate the requirement for shareholder
approval for disposition of assets or issuance of securities, except as
required by California law (b) allow transactions with affiliates if
approved by the independent directors upon receipt of independent
appraisals or fairness opinions, (c) modify the proposal for disposition of
the Registrant's assets if the merger is approved, (d) eliminate the
restrictions on the Registrant's investment objectives, (e) eliminate
provisions that are inapplicable upon conversion of the common stock series
B and C into common stock series A and (f) delete or modify certain
definitions - this proposal was approved by more than 50% of the
outstanding shares of common stock; less than 3% of such shares were voted
against such proposal and less than 2% of such shares abstained with
respect to such proposal.
4. Adoption of (i) amendments to the Registrant's articles of incorporation in
the form of Appendix E-3 to the Proxy Statement to create certain ownership
limitations with respect to all classes of the Registrant's capital stock
and (ii) amendments to the Registrant's bylaws to eliminate the ownership
limitation contained in the bylaws - this proposal was approved by more
than 50% of the outstanding shares of common stock; less than 3% of such
shares were voted against such proposal and less than 2% of such shares
abstained with respect to such proposal.
5. Adoption of an amendment to the Registrant's bylaws in the form of Appendix
E-4 to the Proxy Statement to change the authorized number of directors
from a range of three to five to a range of five to nine, with the exact
number of directors to be initially fixed at seven - this proposal was
approved by more than 50% of the outstanding shares of common stock; less
than 3% of such shares were voted against such proposal and less than 2% of
such shares abstained with respect to such proposal.
23
<PAGE>
6. Assumption and adoption of the American Office Park Properties, Inc. 1997
Stock Option and Incentive Plan in the form of Appendix F to the Proxy
Statement - this proposal was approved by more than 50% of the outstanding
shares of common stock; less than 4% of such shares were voted against such
proposal and less than 2% of such shares abstained with respect to such
shares.
7. Election of Directors - more than 50% of the shares of common stock were
voted for each of the following persons, and less than 3% of such shares
were withheld with respect to each of the following persons: Ronald L.
Havner, Jr., Harvey Lenkin, Vern O. Curtis, Jack D. Steele, James H. Kropp,
Arthur M. Friedman and Alan K. Pribble.
24
<PAGE>
ITEM 5. OTHER INFORMATION
BUSINESS:
GENERAL. The Company is a self-managed, self-advised real estate investment
trust that acquires, owns and operates commercial properties. The Company is the
sole general partner of PS Business Parks, L.P. (the "Operating Partnership")
through which the Company conducts most of its activities and owned, as of May
6, 1998, an approximate 66% partnership interest. Substantially all of the
remaining partnership interest is owned by Public Storage, Inc. ("PSI") and its
affiliates.
In a March 1998 merger (the "Merger") with American Office Park Properties, Inc.
("AOPP"), the Company acquired the commercial property business previously
operated by AOPP and was renamed "PS Business Parks, Inc." Concurrent with the
Merger, the Company exchanged 11 mini-warehouses and 2 properties that combine
mini-warehouse and commercial space for 11 commercial properties owned by PSI.
In May 1998, the Company acquired from The Principal Mutual Life Insurance
Company and certain of its affiliates, a portfolio consisting of 28 commercial
properties (approximately 2,265,000 net rentable square feet) located in Oregon
and Texas.
As of May 6, 1998, the Company and the Operating Partnership owned 93 commercial
properties in 11 states containing approximately 9.9 million square feet of
space. The Operating Partnership also manages 35 commercial properties
(approximately 1.0 million square feet of space) in which it has no ownership
interest.
The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended, commencing with its taxable year ended December 31, 1997. To
the extent that the Company continues to qualify as a REIT, it will not be
taxed, with certain limited exceptions, on the net income that is distributed
currently to its shareholders.
The commercial properties owned by the Company and the Operating Partnership
generally include both business park (industrial/flex space) and office space.
The industrial space is used for, among other things, light manufacturing and
assembly, storage and warehousing, distribution and research and development
activities. Most of the office space is occupied by tenants who are also renting
industrial space. The commercial properties typically consist of one to ten
one-story buildings located on three to 20 acres and contain from approximately
10,000 to 500,000 square feet of rentable space (more than 50,000 square feet in
the case of the free-standing properties). A property is typically divided into
units ranging in size from 500 to 10,000 square feet. Leases generally range
from one to five years and some tenants have options to extend the original
terms of their leases. The larger facilities have on-site management. Parking is
open or covered, and the ratio of spaces to rentable square feet ranges from
three 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. The Company may acquire properties that do not have these
characteristics.
The Company intends to continue to acquire commercial properties located
throughout the United States. The Company's policy of acquiring commercial
properties may be changed by its Board of Directors without shareholder
approval. However, the Board of Directors has no intention to change this
policy. Although the Company currently operates properties in 11 states, it may
expand its operations to other states. Properties are acquired both for income
and potential capital appreciation; there is no limitation on the amount that
can be invested in any specific property. Although there is no limitation on
mortgage debt, the Company has no current intention to incur significant debt
(other than short-term borrowings from time to time (including from PSI) to fund
acquisitions). The Company may acquire land on which it develops commercial
properties, particularly land which is adjacent to existing commercial
25
<PAGE>
properties which the Company acquires. However, the Company has no current
intention to engage in a significant amount of development.
OPERATING PARTNERSHIP. The properties in which the Company has an equity
interest generally will be owned by the Operating Partnership. This structure
enables the Company to acquire interests in additional properties in
transactions that could defer the contributors' tax consequences. This structure
also enabled PSI and its consolidated partnerships to contribute interests in
their properties and to defer until a later date the tax liabilities that they
otherwise would have incurred if they had received Common Stock.
As the general partner of the Operating Partnership, the Company has the
exclusive power under the Operating Partnership Agreement to manage and conduct
the business of the Operating Partnership. The Board of Directors will direct
the affairs of the Operating Partnership by managing the Company's affairs. The
Operating Partnership will be responsible for, and pay when due, its share of
all administrative and operating expenses of the properties it owns.
The Company's interest in the Operating Partnership entitles it to share in cash
distributions from, and in the profits and losses of, the Operating Partnership
in proportion to the Company's economic interest in the Operating Partnership
(apart from tax allocations of profits and losses to take into account
pre-contribution property appreciation or depreciation). Substantially all of
the economic interest in the Operating Partnership which is not held by the
Company is held by PSI and its consolidated partnerships as limited partners.
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT. The following summary of the
Operating Partnership Agreement is qualified in its entirety by reference to the
Operating Partnership Agreement, which has been filed as an exhibit with the
Securities and Exchange Commission.
ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS. As the general partner of the
Operating Partnership, the Company is authorized to cause the Operating
Partnership from time to time to issue to partners of the Operating Partnership
or to other persons additional partnership units in one or more classes, and in
one or more series of any of such classes, with such designations, preferences
and relative, participating, optional, or other special rights, powers and
duties (which may be senior to the existing partnership units), as will be
determined by the Company, in its sole and absolute discretion. No such
additional partnership units, however, will be issued to the Company unless (i)
the agreement to issue the additional partnership interests arises in connection
with the issuance of shares of the Company, which shares have designations,
preferences and other rights, such that the economic interests are substantially
similar to the designations, preferences and other rights of the additional
partnership units that would be issued to the Company and (ii) the Company
agrees to make a capital contribution to the Operating Partnership in an amount
equal to the proceeds raised in connection with the issuance of such shares of
the Company.
CAPITAL CONTRIBUTIONS. No partner is required to make additional capital
contributions to the Operating Partnership, except the Company as the general
partner is required to contribute the net proceeds of the sale of equity
interests in the Company to the Operating Partnership. A limited partner may be
required to pay to the Operating Partnership any taxes paid by the Operating
Partnership on behalf of that limited partner. No partner is required to pay to
the Operating Partnership any deficit or negative balance which may exist in its
capital account.
DISTRIBUTIONS. The Company, as general partner, is required to distribute at
least quarterly the "available cash" (as defined in the Operating Partnership
Agreement) generated by the Operating Partnership for such quarter.
Distributions are to be made (i) first, with respect to any class of partnership
interests having a preference over other classes of partnership interests; and
(ii) second, in accordance with the partners' respective percentage interests on
the "partnership record date" (as defined in the Operating Partnership
Agreement). Commencing in 1998, the Operating Partnership's policy is to make
distributions per unit that are equal to the per share distributions made by the
Company with respect to its Common Stock, and in any case the per unit and per
share distributions will be equal during partnership years 1998, 1999 and 2000.
26
<PAGE>
REDEMPTION OF PARTNERSHIP INTERESTS. Subject to certain limitations described
below, each limited partner other than the Company has the right to require the
redemption of such limited partner's unit. This right may be exercised on at
least 10 days notice at any time or from time to time, beginning on the date
that is one year after the date on which such limited partner is admitted to the
Operating Partnership (unless otherwise contractually agreed by the general
partner).
Unless the Company, as general partner, elects to assume and perform the
Operating Partnership's obligation with respect to a redemption right, as
described below, a limited partner that exercises its redemption right will
receive cash from the Operating Partnership in an amount equal to the
"redemption amount" (as defined in the Operating Partnership Agreement generally
to reflect the average trading price of the Common Stock of the Company over a
specified ten day period) for the units redeemed. In lieu of the Operating
Partnership redeeming the partner for cash, the Company, as the general partner,
has the right to elect to acquire the units directly from a limited partner
exercising its redemption right, in exchange for cash in the amount specified
above as the "redemption amount" or by issuance of the "shares amount" (as
defined in the Operating Partnership Agreement generally to mean the issuance of
one share of the Company Common Stock for each unit of limited partnership
interest redeemed).
A limited partner cannot exercise its redemption right if delivery of shares of
Common Stock would be prohibited under the applicable articles of incorporation
or if the general partner believes that there is a risk that delivery of shares
of Common Stock would cause the general partner to no longer qualify as a REIT,
would cause a violation of the applicable securities or certain antitrust laws,
or would result in the Operating Partnership no longer being treated as a
partnership for federal income tax purposes.
MANAGEMENT. The Operating Partnership is organized as a California limited
partnership. The Company, as the sole general partner of the Operating
Partnership has full, exclusive and complete responsibility and discretion in
managing and controlling the Operating Partnership, except as provided in the
Operating Partnership Agreement and by applicable law. The limited partners of
the Operating Partnership have no authority to transact business for, or
participate in the management activities or decisions of, the Operating
Partnership except as provided in the Operating Partnership Agreement and as
permitted by applicable law. However, the consent of the limited partners
holding a majority of the interests of the limited partners (including limited
partnership interests held by the Company) generally will be required to amend
the Operating Partnership Agreement. Further, the Operating Partnership
Agreement cannot be amended without the consent of each partner adversely
affected if, among other things, the amendment would alter the partner's rights
to distributions from the Operating Partnership (except as specifically
permitted in the Operating Partnership Agreement), alter the redemption right,
or impose on the limited partners an obligations to make additional capital
contributions. The consent of all limited partners will be required to (i) take
any action that would make it impossible to carry on the ordinary business of
the Operating Partnership, except as otherwise provided in the Operating
Partnership Agreement; or (ii) possess Operating Partnership property, or assign
any rights in specific Operating Partnership property, for other than an
Operating Partnership purpose except as otherwise provided in the Operating
Partnership Agreement. In addition, without the consent of any adversely
affected limited partner, the general partner may not perform any act that would
subject a limited partner to liability as a general partner in any jurisdiction
or any other liability except as provided in the Operating Partnership Agreement
or under California law.
EXTRAORDINARY TRANSACTIONS. The Operating Partnership Agreement provides that
the Company may not engage in any business combination, defined to mean any
merger, consolidation or other combination with or into another person or sale
of all or substantially all of its assets, any reclassification, any
recapitalization (other than certain stock splits or stock dividends) or change
of outstanding shares of common stock, unless (i) the limited partners of the
Operating Partnership will receive, or have the opportunity to receive, the same
proportionate consideration per unit in the transaction as shareholders of the
Company (without regard to tax considerations); or (ii) limited partners of the
Operating Partnership (other than the general partner) holding at least 60% of
the interests in the Operating Partnership held by limited partners (other than
the general partner) vote to approve the business combination. In addition, the
Company, as general partner of the Operating Partnership, has agreed in the
Operating Partnership Agreement with the limited partners of the Operating
Partnership that it will not consummate a business combination in which the
Company conducted a vote of shareholders unless the matter is also submitted to
a vote of the partners. The foregoing provision of the Operating Partnership
27
<PAGE>
Agreement would under no circumstances enable or require the Company to engage
in a business combination which required the approval of shareholders if the
shareholders of the Company did not in fact give the requisite approval. Rather,
if the shareholders did approve a business combination, the Company would not
consummate the transaction unless the Company as general partner first conducts
a vote of partners of the Operating Partnership on the matter. For purposes of
the Operating Partnership vote, the Company shall be deemed to vote its
partnership interest in the same proportion as the shareholders of the Company
voted on the matter (disregarding shareholders who do not vote). The Operating
Partnership vote will be deemed approved if the votes recorded are such that if
the Operating Partnership vote had been a vote of shareholders, the business
combination would have been approved by the shareholders. As a result of these
provisions of the Operating Partnership, a third party may be inhibited from
making an acquisition proposal that it would otherwise make, or the Company,
despite having the requisite authority under its articles of incorporation, may
not be authorized to engage in a proposed business combination.
TAX PROTECTION PROVISIONS. The Operating Partnership Agreement provides that,
until 2007, the Operating Partnership may not sell any of 13 designated
properties in a transaction that will produce taxable gain for the contributing
partner without the prior written consent of PSI. The Operating Partnership is
not required to obtain PSI's consent if PSI and its affiliated partnerships do
not continue to hold at the time of the sale at least 30% of their original
interest in the Operating Partnership. Since PSI's consent is required only in
connection with a taxable sale of one of the 13 designated properties, the
Operating Partnership will not be required to obtain PSI's consent in connection
with a "like-kind" exchange or other nontaxable transaction involving one of
these properties.
INDEMNIFICATION. The Operating Partnership Agreement provides that the Company
and its officers and directors will be indemnified and held harmless by the
Operating Partnership for any act performed for, or on behalf of, the Operating
Partnership, or in furtherance of the Operating Partnership's business unless it
is established that (i) the act or omission of the indemnified person was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the indemnified person did not meet the
requisite standard of conduct set forth above. The termination of any proceeding
by conviction or upon a plea of nolo contendere or its equivalent, or an entry
of an order of probation prior to judgment, creates a rebuttable presumption
that the indemnified person did not meet the requisite standard of conduct set
forth above. Any indemnification so made shall be made only out of the assets of
the Operating Partnership.
DUTIES AND CONFLICTS. The Operating Partnership Agreement allows the Company to
operate the Operating Partnership in a manner that will enable the Company to
satisfy the requirements for being classified as a REIT. The Company intends to
conduct all of its business activities, including all activities pertaining to
the acquisition, management and operation of properties, through the Operating
Partnership. However, the Company may own, directly or through subsidiaries,
interest in Operating Partnership properties that do not exceed 1% of the
economic interest of any property, and if appropriate for regulatory, tax, or
other purposes, the Company also may own, directly or through subsidiaries,
interests in assets that the Operating partnership otherwise could acquire, if
the Company grants to the Operating Partnership the option to acquire the assets
within a period not to exceed three years in exchange for the number of
partnership units that would be issued if the Operating Partnership had acquired
the assets at the time of acquisition by the Company.
TERM. The Operating Partnership will continue in full force and effect until
December 31, 2096 or until sooner dissolved upon the withdrawal of the general
partner (unless the limited partners elect to continue the Operating
Partnership), or by the election of the general partner (with the consent of the
holders of a majority of the partnerships interests if such vote is held before
January 1, 2056), in connection with a merger, by the sale or other disposition
of all or substantially all of the assets of the Operating Partnership, or by
judicial decree.
COST ALLOCATION AND ADMINISTRATIVE SERVICES. Pursuant to a cost sharing and
administrative services agreement, PSCC, Inc. has been formed to serve as a
cooperative cost allocation and administrative services clearing house that
performs centralized administrative services for the Company, PSI and other
property owners affiliated with PSI. These services include accounting and
28
<PAGE>
finance, employee relations, management information systems, legal, office
services, marketing, administration and property management training. In
addition, to take advantage of economies of scale, PSCC purchases many supplies
and services for the benefit of multiple property owners and allocates the costs
of these supplies and services to the benefited property owners and employs and
administers the payroll for employees required for the operation of the
properties and the ownership entities. As to the Company, this agreement is not
terminable for five years. The Company has no intention to terminate this
agreement. The capital stock of PSCC is owned by the Company, PSI and certain
other property owners. Since the Company owns less than 10% of the capital stock
of PSCC, the Company does not control the operations and activities of PSCC.
Under this agreement, PSCC allocates costs to the Company in accordance with a
methodology that is intended to fairly allocate charges among participating
entities.
COMMON OFFICERS AND DIRECTORS. Harvey Lenkin, the president of PSI, is a
director of both the Company and PSI. Ronald L. Havner, Jr., the chairman and
chief executive officer of the Company, was a senior vice president and chief
financial officer of PSI until December 1996 and is currently an employee of
PSI. Mary Jayne Howard, the executive vice president of the Company, was a
senior vice president of PSI until December 1996. John Reyes, Obren B. Gerich,
David Goldberg, Sarah Hass, A. Timothy Scott and David P. Singelyn, executive
officers of PSI, are vice presidents of the Company. The Company intends to
engage additional executive personnel who will render services exclusively for
the Company. However, it is expected that officers of PSI will continue to
render services for the Company as requested.
MANAGEMENT AGREEMENT. The Company continues to manage commercial properties
owned by PSI and affiliates, which are generally adjacent to mini-warehouses,
for a fee of 5% of the gross revenues of such properties.
29
<PAGE>
PROPERTIES
The following table contains information as of May 6, 1998 about properties
owned by the Company and the Operating Partnership.
<TABLE>
<CAPTION>
Rentable Square Footage
----------------------------------------------------
Occupancy at
City Business Park Office Total March 31, 1998
------------------------------- ------------- ---------- ---------- ----------------
ARKANSAS
<S> <C> <C> <C> <C>
Little Rock 91,100 - 91,100 95%
------------- ---------- ---------- ----------------
1 91,100 - 91,100 95%
------------- ---------- ---------- ----------------
ARIZONA
Tempe 22,900 - 22,900 98%
Tempe 199,800 - 199,800 99%
Mesa 78,000 - 78,000 100%
Tempe 68,600 - 68,600 99%
------------- ---------- ---------- ----------------
4 369,300 - 369,300 99%
------------- ---------- ---------- ----------------
NORTHERN CALIFORNIA
San Ramon - 27,500 27,500 86%
So. San Francisco 41,400 - 41,400 98%
So. San Francisco 52,300 - 52,300 100%
San Jose 173,200 - 173,200 100%
Sacramento 153,500 - 153,500 92%
San Ramon 24,600 - 24,600 86%
------------- ---------- ---------- ----------------
6 445,000 27,500 472,500 95%
------------- ---------- ---------- ----------------
SOUTHERN CALIFORNIA
Torrance 115,200 - 115,200 96%
Monterey Park 199,100 - 199,100 95%
Monterey - 12,000 12,000 96%
Cerritos - 31,300 31,300 81%
San Diego 107,600 - 107,600 99%
Torrance 32,000 - 32,000 80%
Signal Hill 69,800 - 69,800 95%
Lakewood - 56,900 56,900 100%
San Diego - 75,300 75,300 94%
Culver City 145,400 - 145,400 88%
Signal Hill 108,400 - 108,400 100%
Carson 77,600 - 77,600 95%
Studio City 22,100 - 22,100 100%
Buena Park 317,300 - 317,300 61%
Cerritos 394,600 - 394,600 93%
Hayward 406,700 - 406,700 98%
Lake Forest 296,600 - 296,600 91%
Laguna Hills 513,100 - 513,100 91%
Laguna Hills 100,800 - 100,800 91%
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Rentable Square Footage
----------------------------------------------------
Occupancy at
City Business Park Office Total March 31, 1998
------------------------------- ------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
San Diego 74,500 - 74,500 92%
San Diego 89,600 - 89,600 92%
San Diego 117,800 - 117,800 71%
San Diego 57,000 - 57,000 86%
San Diego 83,000 - 83,000 86%
------------- ---------- ---------- ----------------
24 3,328,200 175,500 3,503,700 90%
------------- ---------- ---------- ----------------
KANSAS
Overland Park 61,800 - 61,800 98%
------------- ---------- ---------- ----------------
1 61,800 - 61,800 98%
------------- ---------- ---------- ----------------
MARYLAND
Gaithersburg 29,000 - 29,000 94%
Largo 149,900 - 149,900 100%
Beltsville 307,800 - 307,800 100%
Landover - 254,200 254,200 94%
Baltimore (1) - 240,900 240,900 91%
------------- ---------- ---------- ----------------
5 486,700 495,100 981,800 96%
------------- ---------- ---------- ----------------
OKLAHOMA
Broken Arrow 87,900 - 87,900 91%
Tulsa 56,600 - 56,600 93%
------------- ---------- ---------- ----------------
2 144,500 - 144,500 92%
------------- ---------- ---------- ----------------
OREGON
Beaverton (2) 115,800 - 115,800 100%
Beaverton (2) 33,000 - 33,000 100%
Beaverton (2) 20,200 - 20,200 100%
Beaverton (2) 54,400 - 54,400 100%
Beaverton (2) 54,200 - 54,200 100%
Beaverton (2) - 45,800 45,800 98%
Beaverton (2) 75,200 - 75,200 100%
Beaverton (2) 117,900 - 117,900 100%
Beaverton (2) 35,900 - 35,900 94%
Beaverton (2) 131,000 - 131,000 100%
Beaverton (2) 43,000 - 43,000 83%
Beaverton (2) 54,300 - 54,300 100%
Beaverton (2) 85,900 - 85,900 100%
Beaverton (2) 94,100 - 94,100 100%
Milwaukee 61,400 - 61,400 99%
Milwaukee 40,200 - 40,176 99%
------------- ---------- ---------- ----------------
16 1,056,500 45,800 1,102,300 99%
------------- ---------- ---------- ----------------
TENNESSEE
Nashville 76,600 - 76,600 91%
Nashville 61,400 - 61,400 97%
------------- ---------- ---------- ----------------
2 138,000 - 138,000 94%
------------- ---------- ---------- ----------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Rentable Square Footage
----------------------------------------------------
Occupancy at
City Business Park Office Total March 31, 1998
------------------------------- ------------- ---------- ---------- ----------------
TEXAS
<S> <C> <C> <C> <C>
Pasadena (2) 154,000 - 154,000 100%
Richardson (2) 116,800 - 116,800 88%
Plano (2) 184,800 - 184,800 100%
Dallas (2) 193,300 - 193,300 85%
Dallas (2) 44,600 - 44,600 81%
Irving (2) 35,000 - 35,000 100%
Irving (2) 56,300 - 56,300 100%
Irving (2) 43,300 - 43,300 99%
Irving (2) 22,100 - 22,100 100%
Irving (2) 231,200 - 231,200 100%
Irving (2) 69,900 - 69,900 100%
Irving (2) 33,500 - 33,500 100%
Irving (2) 82,600 - 82,600 100%
Irving (2) 49,000 - 49,000 100%
Irving (2) 102,200 - 102,200 100%
Austin 199,800 - 199,800 89%
Houston - 130,600 130,600 98%
San Antonio - 155,800 155,800 85%
San Antonio - 43,400 43,400 93%
Mesquite 56,500 - 56,500 92%
Garland 36,500 - 36,400 96%
Missouri City 66,000 - 66,000 100%
------------- ---------- ---------- ----------------
23 1,177,400 329,800 2,107,200 95%
------------- ---------- ---------- ----------------
VIRGINIA
Alexandria 94,900 - 94,900 97%
Woodbridge 113,600 - 113,600 96%
Sterling 51,000 - 51,000 96%
Sterling 148,500 - 148,500 100%
Herndon 193,600 - 193,600 99%
Alexandria 53,700 - 53,700 71%
Alexandria 59,800 - 59,800 71%
Springfield 90,400 - 90,400 86%
Springfield 59,800 - 59,800 86%
------------- ---------- ---------- ----------------
9 865,300 - 865,300 93%
------------- ---------- ---------- ----------------
WASHINGTON
Renton 27,900 - 27,900 92%
------------- ---------- ---------- ----------------
1 27,900 - 27,900 92%
------------- ---------- ---------- ----------------
Totals - 11 states 93 8,791,700 1,073,700 9,865,400 93%
============= ========== ========== ================
</TABLE>
(1) Property is subject to a ground lease.
(2) Property acquired May 1998.
As of May 6, each of these properties is generating sufficient revenues to cover
its current operating expenses. Only two of the properties are subject to any
material mortgage, lien, or any encumbrance other than liens for taxes and
assessments not due or payable, utility easements or other immaterial liens or
encumbrances. The two properties are encumbered by mortgages in the aggregate
32
<PAGE>
amount of approximately $14,500,000 bearing interest at rates ranging from 71/8%
to 81/8% per year and maturing between 2005 and 2006. The carrying value of
these two properties is approximately $32.9 million at March 31, 1998
Each of these properties will continue to be used for its current purpose and,
in the Company's opinion, are adequately covered by insurance. Competition
exists in the market areas in which these properties are located, barriers to
entry are relatively low for competitors with the necessary capital and the
Company will be competing for properties and tenants with entities that have
greater financial resources than the Company. However, the Company believes that
the current overall demand for commercial space is strong.
As of May 6, 1998, none of these properties has a book value of more than 10% of
the Company's current total assets or accounts for more than 10% of its current
aggregate gross revenues. As of May 6, 1998, 85 (6 of which render services part
time) persons rendered services on behalf of the Company.
For the properties that the Company owned as of May 6, 1998, approximately 28%,
20% and 19% of the leases in place as of January 1, 1998 expire in the years
1998, 1999 and 2000, respectively.
In order to evaluate the ongoing performance of its properties, the Company
analyzes the operating performance of a consistent group of properties
representing 51 properties in which the Company currently has an equity interest
(the "Same Park" facilities) and which have been managed by the Operating
Partnership or its predecessor for at least the past three years. The following
table reflects information on the "Same Park" facilities:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------ -------------------------
1995 1996 1997 1997 1998
----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level............ 95.1% 95.8% 95.8% 95.7% 95.5%
Realized annualized rent per occupied square
foot (1)................................. $8.45 $8.66 $9.13 $8.83 $9.36
</TABLE>
(1) Realized annualized rent per occupied square foot represents the actual
annualized revenue earned per occupied square foot.
33
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of the dates indicated with
respect to the persons known to the Registrant to be the beneficial owners of
more than 5% of the outstanding shares of the Registrant's Common Stock:
Shares of Common Stock Beneficially Owned
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
<S> <C> <C>
Public Storage, Inc. ("PSI"), 4,914,428 26.4%
PS Texas Holdings, Ltd.,
PS GPT Properties, Inc.
701 Western Avenue
Glendale, California 91201-2397(1)
Acquiport Two Corporation 5,289,765 28.4%
c/o Heitman Capital Management
Corporation
180 North LaSalle Street
Chicago, Illinois 60601,
New York State Common Retirement Fund
633 Third Avenue, 31st Floor
New York, New York 10017-6754(2)
State of Michigan Retirement Systems 1,311,111 7.0%
430 West Allegan
Lansing, Michigan 48901(3)
Cohen & Steers Capital
Management, Inc. 1,311,111 7.0%
757 Third Avenue
New York, New York 10017(3)(4)
Morgan Stanley Asset Management 1,092,593 5.9%
1221 Avenue of the Americas
New York, New York 10020(3)(4)
</TABLE>
- ---------------
(1) This information is as of May 7, 1998. The reporting persons listed above
have filed a joint Schedule 13D, amended as of March 17, 1998. The 4,914,428
shares of Common Stock beneficially owned by the reporting persons include (i)
4,533,367 shares as to which PSI has sole voting and dispositive power, (ii)
114,355 shares which PSI has an option to acquire (together with other
securities) from B. Wayne Hughes as trustee of the B.W. Hughes Living Trust and
as to which PSI has sole voting power (pursuant to an irrevocable proxy) and no
dispositive power and (iii) 266,706 shares held of record by PS Texas Holdings,
Ltd., a Texas limited partnership, as to which (a) PS GPT Properties, Inc., the
sole general partner of PS Texas Holdings, Ltd. and a wholly-owned subsidiary of
PSI, and (b) PSI, share voting and dispositive power.
The 4,914,428 shares of Common Stock in the above table does not include
7,305,355 units of limited partnership interest in the Operating Partnership
("Units") held by PSI and affiliated partnerships which (pursuant to the terms
34
<PAGE>
of the Operating Partnership Agreement") are redeemable for cash, or at the
Registrant's election, for shares of the Registrant's Common Stock on a
one-for-one basis. Upon conversion of such Units to Common Stock, PSI and its
affiliated partnerships would own 47.2% of the Common Stock.
(2) This information is as of March 17, 1998 and is based on a joint Schedule
13D dated March 17, 1998 filed by the reporting persons listed above (except
that the percent shown in the table is based on the shares of Common Stock
outstanding at May 7, 1998). The 5,289,765 shares of Common Stock beneficially
owned by the reporting persons are held of record by Acquiport Two Corporation.
New York State Common Retirement Fund, as the sole stockholder of Acquiport Two
Corporation, shares voting and dispositive power with respect to the 5,289,765
shares.
(3) This information is as of May 7, 1998. To the Registrant's best knowledge,
the persons listed as beneficial owners of the shares have sole voting and
investment power with respect to such shares.
(4) All shares of Common Stock held as agent for and for the benefit of certain
of such holder's clients.
35
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of May 7, 1998 concerning the
beneficial ownership of the Registrant's Common Stock of each director of the
Registrant, B. Wayne Hughes (who was the Registrant's chief executive officer on
December 31, 1997) and all directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares of Common Stock:
Beneficially Owned (1)
Shares Subject to Options (2)
------------------------------------------
Number of Shares
Name Percent
<S> <C> <C>
Ronald L. Havner, Jr. 71,448(1)(3) 0.4%
25,945(2) 0.1%
------
97,393 0.5%
Harvey Lenkin 313(1)(4) *
3,995(2) *
------
-
4,308 *
Vern O. Curtis 2,000(1) *
Arthur M. Friedman 100(1)(5) *
James H. Kropp 8,891(1)(6) *
Alan K. Pribble 2,000(1) *
Jack D. Steele 1,100(1)(7) *
B. Wayne Hughes 114,355(1)(8) 0.6%
All Directors and Executive Officers
as a Group (eight persons) 85,912(1)(3)(4) 0.5%
(5)(6)(7)(8)
45,922(2) 0.2%
-------
131,834 0.7%
- ---------------
* Less than 0.1%.
</TABLE>
(1) Shares of Common Stock beneficially owned as of May 7, 1998. Except as
otherwise indicated and subject to applicable community property and similar
statutes, the persons listed as beneficial owners of the shares have sole voting
and investment power with respect to such shares.
(2) Represents vested portion as of May 7, 1998, and portion of which will be
vested within 60 days of May 7, 1998, of shares of Common Stock subject to
options under the 1997 Stock Option and Incentive Plan which were assumed by the
Registrant in the Merger.
(3) Includes 500 shares held by a custodian of an IRA for Mrs. Havner as to
which she has investment power.
36
<PAGE>
(4) Includes 77 shares held by a custodian of an IRA for Mr. Lenkin as to which
he has investment power, 68 shares held by Mrs. Lenkin as to which she has
investment power and 76 and 62 shares held by Mrs. Lenkin as custodian for two
sons.
(5) Shares held by Mr. Friedman as trustee of Friedman Living Trust.
(6) Includes 8,391 shares held by a custodian of an IRA for Mr. Kropp as to
which he has investment power and 500 shares held by CWC Good Company Portfolio,
a general partnership of which Mr. Kropp is a general partner.
(7) Shares held by a custodian of a simplified employee pension for Mr. Steele
as to which he has investment power.
(8) Shares owned by B. Wayne Hughes as trustee of the B.W. Hughes Living Trust
as to Mr. Hughes has sole dispositive power and no voting power; PSI has an
option to acquire these shares and an irrevocable proxy to vote these shares.
37
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are included herein:
(10.1) Form of Indemnity Agreement
(10.2) Cost Sharing and Administrative Services Agreement dated
as of November 16, 1995 by and among PSCC, Inc. and the
owners listed therein.
(10.3) Amendment to Cost Sharing and Administrative Services
Agreement dated as of January 2, 1997 by and among PSCC,
Inc. and the owners listed therein.
(10.4) Accounts Payable and Payroll Disbursement Services
Agreement dated as of January 2, 1997 by and between PSCC,
Inc. and American Office Park Properties, LP.
(11) Statement re: Computation of Earnings per Share
(12) Statement re: Computation of Ratio of Earnings to Fixed
Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K/A dated
January 29, 1998 pursuant to Item 5 relating to the proposed
merger of American Office Park Properties, Inc. into the
Registrant.
The Registrant filed a Current Report on Form 8-K dated
March 17, 1998 (filed April 1, 1998) pursuant to Item 2 and Item
5 relating to the merger of American Office Park Properties, Inc.
into the Registrant.
The Registrant filed a Current Report on Form 8-K/A dated
April 17, 1998 (amending Form 8-K dated March 17, 1998) pursuant
to Item 7 which filed financial statements for PS Business Parks,
Inc. (successor to American Office Park Properties, Inc).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 1998
PS BUSINESS PARKS, INC.
BY: /s/ Ronald L. Havner, Jr.
--------------------------
Ronald L. Havner, Jr.
President and Chief Financial Officer
38
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (the "Agreement") is made as of this ------ day of
- -----------, 19--- by and between PS Business Parks, Inc., a California
corporation (the "Company") and ---------------, [an officer] [a director] of
the Company ("Indemnitee").
RECITALS
A. Both the Company and Indemnitee recognize the increased risk of
litigation and other claims currently being asserted against directors and
officers of corporations.
B. The Company wishes to continue to attract and retain high quality
directors and officers of its choice and believes that adequate indemnity or
insurance against the risks of liability is required for this purpose.
C. In recognition of Indemnitee's need for substantial protection against
personal liability in order to enhance Indemnitee's continued and effective
service to the Company, and in order to induce Indemnitee to provide services to
the Company as [an officer], [a director], the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies.
AGREEMENT
In consideration of the foregoing recitals and of Indemnitee's continuing
to serve the Company and intending to be legally bound hereby, the parties agree
as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement the following terms shall have the meanings
set forth in this section:
(a) EXPENSES: any expense, liability, or loss, including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties,
amounts paid or to be paid in settlement, any interest, assessments, or
other charges imposed thereon, and any federal, state, local, or foreign
taxes imposed as a result of the actual or deemed receipt of any payments
under this Agreement, paid or incurred in connection with investigating,
defending, being a witness in, or participating in (including on appeal),
or preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event.
(b) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement, related to
Indemnitee's service as [an officer] [a director] of the Company [or an
affiliate], or, at the request of the Company, as a director, officer,
employee, trustee, agent, or fiduciary of another foreign or domestic
corporation, partnership, joint venture, employee benefit plan, trust, or
other enterprise, or as a director, officer, employee, or agent of a
foreign or domestic corporation that was a predecessor corporation of the
Company or of another enterprise at the request of such predecessor
39
<PAGE>
corporation, or related to anything done or not done by Indemnitee in any
such capacity, whether or not the basis of the Proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in
any other capacity while serving as a director, officer, employee, or agent
of the Company, as described above.
(c) PROCEEDING: (i) any threatened, pending, or completed action,
suit, or proceedings, whether civil, criminal, administrative,
investigative or other, or (ii) any inquiry, hearing, or investigation,
whether conducted by the Company or any other party, that Indemnitee in
good faith believes might lead to the institution of any such action, suit
or proceeding.
2. AGREEMENT TO INDEMNIFY.
(a) GENERAL AGREEMENT. If Indemnitee becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in any Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, Indemnitee shall be indemnified and
held harmless by the Company from and against any and all Expenses actually
or reasonably incurred or suffered by Indemnitee in connection with such
Proceeding to the fullest extent permitted by law, as the same exists or
may hereafter be amended or interpreted (but in the case of any such
amendment or interpretation, only to the extent that such amendment or
interpretation permits the Company to provide broader indemnification
rights than were permitted prior thereto). The Company shall also cooperate
fully with Indemnitee and render such assistance as Indemnitee may
reasonably require in the defense of any Proceeding in which Indemnitee was
or is a party or is threatened to be made a party, and shall make available
to Indemnitee and his counsel all information and documents reasonably
available to it which relate to the subject of any such Proceeding. The
parties hereto intend that this Agreement shall provide for indemnification
in excess of that expressly permitted by statute, including, without
limitation, any indemnification provided by the Company's Articles of
Incorporation, its Bylaws, or vote of its shareholders or disinterested
directors.
(b) STATUTORY LIMITATION ON INDEMNIFICATION. The parties intend
to indemnify Indemnitee to the fullest extent permitted by law. The General
Corporation Law of California presently prohibits indemnification in an
action brought by or in the right of the corporation for breach of a
director's duties to the corporation and its shareholders (i) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that an Indemnitee believes to
be contrary to the best interests of the Company or its shareholders or
that involve the absence of good faith on the part of the Indemnitee, (iii)
for any transaction from which an Indemnitee derived an improper personal
benefit, (iv) for acts or omissions that show a reckless disregard for the
Indemnitee's duty to the Company or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the Indemnitee's duty to the Company or its
shareholders, (vi) under Section 310 of the General Corporation Law of
California or (vii) under Section 316 of the General Corporation Law of
California. The General Corporation Law of California also presently
prohibits indemnification in circumstances in which indemnity is expressly
prohibited by Section 317 of the General Corporation Law of California. To
the extent that the General Corporation Law of California is amended or
interpreted to permit the Company to provide broader indemnification rights
than are now permitted, the parties contemplate that this Agreement,
without amendment or modification, shall encompass such broadened powers to
indemnify and that Indemnitee shall be entitled hereunder to any such
broadened indemnification rights.
(c) INITIATION OF PROCEEDING. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any
Proceeding initiated by Indemnitee against the Company or any director or
40
<PAGE>
officer of the Company unless (i) the Company has joined in or the Board of
Directors has consented to the initiation of such Proceeding, or (ii) the
Proceeding is one to enforce indemnification rights.
(d) EXPENSE ADVANCES. Expenses incurred by Indemnitee in
defending any Proceeding relating in whole or in part to an Indemnifiable
Event shall be advanced by the Company prior to the final disposition of
any such Proceeding upon receipt by the Company of an undertaking by or on
behalf of Indemnitee to repay all amounts so advanced if it should be
determined ultimately that Indemnitee is not entitled to be indemnified
under this Agreement or otherwise.
(e) MANDATORY INDEMNIFICATION. Notwithstanding any other
provision of this Agreement, (i) to the extent that Indemnitee has been
successful on the merits in defense of any Proceeding relating in whole or
in part to an Indemnifiable Event or in defense of any issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith and (ii) if the monetary liability of Indemnitee in a
Proceeding brought by the Company or by a shareholder suing derivatively on
behalf of the Company may be eliminated pursuant to Section 204(a) of the
General Corporation Law of California, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
(f) PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled.
3. NOTIFICATION AND DEFENSE OF PROCEEDING.
(a) NOTICE. Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding, Indemnitee will, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of the commencement thereof; but the omission so to notify the
Company will not relieve it from any liability that it may have to
Indemnitee.
(b) DEFENSE. With respect to any Proceeding as to which
Indemnitee notifies the Company of the commencement thereof, the Company
will be entitled to participate in the Proceeding to the full extent
permitted by law and at its own expense, when, and only to the extent that
the Company, in its sole discretion, chooses to so participate. The
Indemnitee shall cooperate fully with the Company and render such
assistance as the Company may reasonably require in the Company's
participation in any such Proceeding and shall make available to the
Company and its counsel all information and documents reasonably available
to Indemnitee which relate to the subject of such Proceeding. The Company
shall not be liable to indemnify the Indemnitee under this Agreement with
regard to any judicial award if the Company was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of such
action; the Company's liability hereunder shall not be excused if
participation in the Proceeding by the Company was barred.
(c) SETTLEMENT OF CLAIMS. The Company shall not be liable to
indemnify Indemnitee under this Agreement or otherwise for any amounts paid
in settlement of any Proceeding effected without the Company's written
consent; the Company will not unreasonably withhold its consent to any
proposed settlement.
4. REMEDY TO ENFORCE RIGHT TO INDEMNIFICATION. If a claim for indemnity
under Section 2 of this Agreement is not paid in full by the Company within
ninety days after a written claim has been received by the Company, Indemnitee
may at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim, together with interest thereon, and if successful in whole
or in part, Indemnitee shall also be entitled to be paid the expense of
prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than an
action brought to enforce a claim for Expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking
has been tendered to the Company) that Indemnitee has not met the standards of
conduct which make it permissible under the General Corporation Law of
California for the Company to indemnify Indemnitee for the amount claimed, but
the burden of proving such a defense shall be on the Company. Neither the
failure of the Company (or of its full Board of Directors, its directors who are
not parties to the Proceeding with respect to which indemnification is claimed,
its shareholders, or independent legal counsel) to have made a determination
prior to the commencement of an action pursuant to this Section 4 that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct set forth in the General Corporation
Law of California, nor an actual determination by any such person or persons
that Indemnitee has not met such applicable standard of conduct, shall be a
defense to such action or create a presumption that Indemnitee has not met the
applicable standard of conduct.
5. CONTRACT RIGHT NOT EXCLUSIVE. The rights conferred by this Agreement
shall not be exclusive of any other right which Indemnitee may have or hereafter
acquire under the General Corporation Law of California or any other statute, or
any provision contained in the Company's Articles of Incorporation or Bylaws, or
any agreement, or pursuant to a vote of shareholders or disinterested directors,
or otherwise.
6. INSURANCE. The Company may purchase and maintain insurance on
behalf of its directors and officers against any liability asserted against or
incurred by any of them by reason of the fact that such person is or was a
director or officer of the Company whether or not the Company would have the
power to indemnify such persons against such liability under the General
Corporation Law of California.
7. AMENDMENT OF THIS AGREEMENT. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. Unless otherwise consented to in writing by Indemnitee,
any amendment to this Agreement shall apply only to acts or omissions of
Indemnitee after such amendment is executed by Indemnitee but such amendment
shall not affect Indemnitee's rights hereunder with respect to acts or omissions
occurring prior thereto. No waiver of any of the provisions of this Agreement
shall operate as a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver. Except as
specifically provided herein, no failure to exercise or any delay in exercising
any right or remedy hereunder shall constitute a waiver thereof.
8. AMENDMENT OF ARTICLES OF INCORPORATION, BYLAWS. The Company
shall be entitled to amend or repeal its Articles of Incorporation or Bylaws or
both but any amendment which reduces or eliminates Indemnitee's right to
indemnification shall apply only to acts or omissions of Indemnitee after such
amendment is effective and such amendment shall not affect Indemnitee's rights
with respect to acts or omissions occurring prior to the effectiveness of such
amendment. If the Company amends its Articles of Incorporation or Bylaws or both
to permit the Company to provide broader indemnification than currently
permitted under the Articles of Incorporation or Bylaws or both, Indemnitee
shall be entitled to such broadened indemnification rights to the fullest extent
permitted by law.
9. TERMINATION. This Agreement may be terminated by a writing to that
effect executed by the Company and delivered to Indemnitee; such termination
shall apply only to acts or omissions of Indemnitee after such notice is
delivered to Indemnitee but such termination shall not affect Indemnitee's
rights hereunder with respect to acts or omissions occurring prior thereto.
Indemnitee shall not forfeit Indemnitee's status as a beneficiary under this
Agreement by the termination of Indemnitee's position with the Company.
10. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder.
42
<PAGE>
11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), spouses, heirs, and personal and legal representatives.
The Company shall require and cause any successor (whether direct or indirect by
purchase, merger, consolidation, or otherwise) to all, substantially all, or a
substantial part, of the business and/or assets of the Company, by written
agreement in form and substance satisfactory to Indemnitee, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though he may have ceased to
serve in such capacity at the time of any Proceeding.
12. SEVERABILITY. If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the remaining provisions shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void, or otherwise unenforceable, that is not itself invalid, void, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, void, or unenforceable.
13. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.
14. NOTICES. All notices, demands, and other communications required
or permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand, against receipt, or mailed, postage prepaid,
certified or registered mail, return receipt requested, and addressed to the
Company at:
PS Business Parks, Inc.
701 Western Avenue
Glendale, California 91201-2397
Attn: Obren B. Gerich, Vice President
and to Indemnitee at:
701 Western Avenue
Glendale, California 91201-2397
Notice of change of address shall be effective only when done in accordance
with this Section. All notices complying with this Section shall be deemed to
have been received on the date of delivery or on the third business day after
mailing.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day specified above.
PS BUSINESS PARKS, INC.
By:
------------------------
Name: Obren B. Gerich
Title: Vice President
43
<PAGE>
INDEMNITEE
------------------------
Name:------------------
44
Exhibit 10.2
Cost Sharing and Administrative Services Agreement
This Cost Sharing and Administrative Services Agreement, dated as of
November 16, 1995 by and among PSCC, Inc., a California corporation ("PSCC"),
and each of the entities listed on the signature pages hereof under the
designation "Owners" (individually, an "Owner" and collectively, the "Owners"):
RECITALS:
A. Each of the Owners now owns mini-warehouses and/or commercial properties
that are operated by the Owner under the "Public Storage" name and may in the
future acquire other such properties (the "Properties");
B. Each Owner is required to employ on-site personnel and other service
providers in connection with the operation and maintenance of its Properties
(including, for example, on-site resident managers, relief managers, maintenance
managers, maintenance staff, and others);
C. Each Owner also requires the benefit of certain administrative services
with respect to the operation of its Properties and, as to certain Owners, the
administration of the Owner, as an entity, that can be more efficiently provided
to the Owners (both in terms of costs and in terms of the quality of services
received) on a centralized basis (for example, accounting and finance; legal;
auditing; employee relations; advertising; management information; investor
relations; office services; property software; and property tax administration);
and
D. Each of the Owners desires to engage PSCC, on a cost-reimbursement
basis, to employ personnel required by the Owner for the operation of its
Properties and to provide centralized administrative services necessary or
useful to the operation of the Owner's Properties and, as to certain Owners, the
administration of the Owner (referred to in the aggregate as the "Cost Sharing
and Administrative Services," as more fully described on Schedule A hereto).
Now, therefore, the parties agree as follows:
1. Engagement
----------
(a) Each of the Owners hereby engages PSCC as an independent
contractor, and PSCC hereby accepts such engagement as described herein, upon
the terms and conditions hereinafter set forth.
(b) Each of the Owners acknowledges that PSCC is in the business of
rendering Cost Sharing and Administrative Services in connection with facilities
currently owned or to be acquired by others. It is hereby expressly agreed that
PSCC and its affiliates may continue to engage in such activities (whether or
not such other facilities may be in direct or indirect competition with the
Owner's facilities) and may in the future engage in other businesses which may
compete directly or indirectly with activities of the Owners.
(c) In the performance of its duties under this Agreement, PSCC shall
occupy the position of an independent contractor with respect to each of the
Owners. Nothing contained herein shall be construed as making the parties hereto
partners or joint venturers, nor, except as expressly otherwise provided for
herein, construed as making PSCC an agent or employee of any of the Owners.
2. Duties and Authority of PSCC
----------------------------
(a) Notwithstanding anything else in this Agreement, each of the
Owners shall have the sole and exclusive authority to fully and completely
operate and manage the Properties and to supervise and direct the business and
affairs associated or related to the daily operation thereof.
45
<PAGE>
(b) PSCC shall provide (i) each of the Owners with all personnel and
centralized administrative services requested by Owners for the operation and
maintenance of the Properties and (ii) those Owners set forth on Schedule C with
all personnel and centralized administrative services requested by Owners for
the corporate or partnership administration of the Owner, provided that PSCC
shall not be required to provide (iii) executive and other senior management
personnel for the Owners or (iv) management or operational oversight with
respect to the Owners' Properties (which oversight shall be performed by the
Owner itself or a property management company employed directly by the Owner).
The personnel and centralized administrative services to be provided by PSCC
hereunder shall include the categories listed on Schedule A attached hereto.
(c) PSCC shall provide each of the Owners with necessary central
office space and equipment for such services as are described in Section 2(b) of
this Agreement.
(d) Each of the Owners understands and acknowledges that PSCC and some
or all of the personnel described in Section 2(b) of this Agreement may
simultaneously render similar services for other Owners and for other owners of
facilities for whom PSCC is rendering services, some of whom may (i) be
affiliates of PSCC and/or (ii) compete with one or more Owners.
3. Duties of Owners
----------------
Each of the Owners hereby agrees to cooperate with PSCC in
PSCC's performance of the Cost Sharing and Administrative Services provided for
under this Agreement and to that end, upon the request of PSCC, to give PSCC
access to all files, books and records of such Owner related its Properties that
may be relevant to the performance of such Services.
4. Compensation of PSCC
--------------------
(a) In consideration for the Cost Sharing and Administrative Services
rendered by PSCC under section 2(b) of this Agreement, each of the Owners shall
pay to PSCC an amount equal to the costs incurred by PSCC (including fringe
benefits) of the personnel included in the categories listed on Schedule A
rendering services for or on behalf of such Owner and all other costs incurred
by PSCC reasonably related to the performance of the Cost Sharing and
Administrative Services on behalf of such Owner. The costs of such personnel and
the Services shall be allocated so that each Owner will bear all direct expenses
attributable to services rendered or costs incurred on behalf of that Owner, as
well as the appropriate proportionate share of the shares expenses incurred on
behalf of all or multiple Owners. The process of establishing formulae to
specify the Owners' shares of allocated expenses will be consistent with the
allocation practices of PSCC's predecessor and with any pre-existing agreements
between the Owners and PSCC's predecessor. The allocations shall be reviewed and
appropriately adjusted on an annual (or more frequent, as necessary) basis, and
the formulae and the basis upon which the formulae have been produced shall be
available for inspection by the Owners. Upon request, PSCC shall furnish the
Owners with an accounting of such allocations. The cost to an Owner for the Cost
Allocation and Administrative Services provided hereunder shall not exceed
prevailing rates for comparable personnel performing the same or similar
services functions.
(b) In addition, in consideration of the office space to be provided
the Owners under Section 2(c) of this Agreement, each of the Owners listed on
Schedule B attached hereto shall pay PSCC an appropriate proportionate share of
the costs incurred by PSCC in providing such office space, determined as set
forth in Section 4(a) of this Agreement.
(c) Payments to PSCC under this Agreement shall be made upon demand by
PSCC, but not more often than weekly.
5. Term
----
(a) This Agreement shall expire on the first anniversary of the date
hereof, provided that on each anniversary of the date hereof, this Agreement
shall be automatically extended for one year unless terminated in accordance
with the provisions of this Section 5. At any time more than 30 days prior to a
scheduled expiration date of this Agreement, any Owner may give written notice
to PSCC pursuant to Section 10 hereof that this Agreement shall not be extended
on the next scheduled expiration date with respect to such Owner. In the event
that an Owner gives such notice, this Agreement shall expire on the next
scheduled expiration date with respect to the Properties owned by, and
administrative services rendered for, such Owner.
46
<PAGE>
(b) Upon termination of this Agreement with respect to an Owner, PSCC
shall promptly return to such Owner all moneys, books, records and other
materials held by it for or on behalf of Owner.
6. Indemnification
---------------
Each of the Owners hereby agrees to indemnify and hold PSCC and
all officers and directors of PSCC harmless from any and all costs, expenses,
attorneys' fees, suits, liabilities, judgments, damages and claims when engaged
in services under this Agreement on behalf of such Owner, arising from any
cause, except for the willful misconduct, negligence or negligent omissions on
the part of PSCC or any such other person. PSCC and all officers, directors and
employees of PSCC also shall not be liable for any error of judgment or for any
mistake of fact or law, or for anything which they may do or refrain from doing
hereinafter, except in cases of willful misconduct or negligence. PSCC hereby
agrees to indemnify and hold Owners harmless from any and all costs, expenses,
attorneys' fees, suits, liabilities, judgments, damages and claims in connection
with the Properties arising from the willful misconduct or negligence of PSCC
and all officers and directors of PSCC.
7. Assignment
----------
Neither this Agreement nor any right hereunder shall be
assignable by an Owner and any attempt to do so shall be void. PSCC shall have
the right to assign this Agreement to an affiliate or a wholly or majority owned
subsidiary or any entity acquiring substantially all of the assets of PSCC;
provided, however, any such assignee must assume all obligations of PSCC
hereunder, Owners' rights hereunder will be enforceable against any such
assignee and PSCC shall not be released from its liabilities hereunder unless
Owners shall expressly agree thereto in writing.
8. Headings
--------
The headings contained herein are for convenience of reference
only and are not intended to define, limit or describe the scope or intent of
any provision of this Agreement.
9. Governing Law
-------------
The validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties shall be governed by
the internal laws of the state of California.
10. Notices
-------
Any notice required or permitted herein to be given shall be
given in writing and shall be personally delivered or mailed, first class
postage prepaid, to the respective addresses of the parties set forth below
their signatures on the signature page hereof, or to such other address as any
party may give to the other in writing.
11. Severability
------------
Should any term or provision hereof be deemed invalid, void or
unenforceable either in its entirety or in a particular application, the
remainder of this Agreement shall nonetheless remain in full force and effect
and, if the subject term or provision is deemed to be invalid, void or
unenforceable only with respect to a particular application, such term or
provision shall remain in full force and effect with respect to all other
applications.
12. Property Management Agreements With SEI and CPG
-----------------------------------------------
Certain of the Owners have entered into management agreements
with Storage Equities, Inc. ("SEI") (or the corporate predecessor to SEI) and
Public Storage Commercial Properties Group, Inc. ("CPG"), a subsidiary that is
owned 95% by SEI, pursuant to which SEI or CPG provides property management
services with respect to Properties owned by such Owner (the "Management
Agreements"). Each such Owner acknowledges and agrees that (i) PSCC shall not be
responsible for the performance or failure to perform of SEI or CPG under the
Management Agreements, (ii) SEI and CPG shall not be responsible for the
performance or failure to perform of PSCC under this Agreement, and (iii) the
compensation of PSCC under this Agreement is separate from and in addition to
the compensation of SEI or CPG under the Management Agreements. The compensation
of PSCC will not be reduced by the compensation of SEI or CPG under the
Management Agreements, and the compensation of SEI or CPG under the Management
Agreements will not be reduced by the compensation of PSCC under this Agreement.
13. Successors
-----------
47
<PAGE>
This Agreement shall be binding upon and inure to the benefit of
the respective parties hereto and their permitted assigns and successors in
interest.
14. Attorneys' Fees
---------------
If it shall become necessary for either party hereto to engage
attorneys to institute legal action for the purpose of enforcing its rights
hereunder or for the purpose of defending legal action brought by the other
party hereto, the party or parties prevailing in such litigation shall be
entitled to receive all costs, expenses and fees (including reasonable
attorneys' fees) incurred by it in such litigation (including appeals).
15. Counterparts
-----------
This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written. "PSCC"
PSCC, INC.
By: /s/ Ronald L. Havner, Jr.
-------------------------------------
Ronald L. Havner, Jr., Vice President
600 North Brand Boulevard
Glendale, California 91203
"Owners"
PUBLIC STORAGE, INC. (formerly known as
STORAGE EQUITIES, INC.)
By: /s/ Harvey Lenkin
-------------------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES IV, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
49
<PAGE>
PUBLIC STORAGE PROPERTIES V, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES IX, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES X, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES XI, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
50
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES XIV, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES XV, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES XVI, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
51
<PAGE>
PUBLIC STORAGE PROPERTIES XVII, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES XVIII, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE PROPERTIES XIX, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
52
<PAGE>
PARTNERS PREFERRED YIELD, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PARTNERS PREFERRED YIELD II, INC.
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PS PARTNERS, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
53
<PAGE>
PS PARTNERS II, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PS PARTNERS III, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PS PARTNERS IV, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
54
<PAGE>
PS PARTNERS V, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PS PARTNERS VI, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PS PARTNERS VII, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
55
<PAGE>
DIVERSIFIED STORAGE FUND,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
CONNECTICUT STORAGE FUND,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
METROPUBLIC STORAGE FUND,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
56
<PAGE>
PUBLIC STORAGE INSTITUTIONAL FUND,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE INSTITUTIONAL FUND II,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
PUBLIC STORAGE INSTITUTIONAL FUND III,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
58
<PAGE>
PS CO-INVESTMENT PARTNERS,
a general partnership
By: Public Storage Institutional Fund IV,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
general partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
By: Diversified Storage Venture Fund
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
general partner
By: /s/ Harvey Lenkin
----------------------------
Harvey Lenkin, President
600 North Brand Boulevard
Glendale, California 91203
58
<PAGE>
SCHEDULE A
Accounting and Finance
- ----------------------
Property accounting and finance, including producing general ledgers and
income statements
Corporate tax
Financial reporting
Cash control
Compliance with applicable statutes, ordinances, laws, rules, regulations
Administrative Services
- -----------------------
Employee relations
Property tax appeals
Yellow page advertising
Management information systems
Hotline/CHAMP
Acquisition of furniture, fixtures and supplies
Insurance, including filing and managing insurance claims and
administering entity level insurance
Selection of vendors, suppliers, contractors, subcontractors and
employees Negotiation and execution of agreements related to utilities,
service,
concessions, supplies, maintenance, operation and repair
Management
- ----------
Legal
Marketing
Training
Investor services, including answering investor's questions and sending
correspondence and financial reports to investors and coordinating
efforts of outside transfer agents
Institutional Realty
Maintenance, repair and landscaping
Project personnel
- -----------------
Resident managers
District managers
Relief managers
Maintenance managers
Miscellaneous
- -------------
PSCP facilities support
<PAGE>
SCHEDULE B
PUBLIC STORAGE PROPERTIES IV, LTD.
PUBLIC STORAGE PROPERTIES V, LTD.
PUBLIC STORAGE PROPERTIES IX, INC.
PUBLIC STORAGE PROPERTIES X, INC.
PUBLIC STORAGE PROPERTIES XI, INC.
PUBLIC STORAGE PROPERTIES XII, INC.
PUBLIC STORAGE PROPERTIES XIV, INC.
PUBLIC STORAGE PROPERTIES XV, INC.
PUBLIC STORAGE PROPERTIES XVI, INC.
PUBLIC STORAGE PROPERTIES XVII, INC.
PUBLIC STORAGE PROPERTIES XVIII, INC.
PUBLIC STORAGE PROPERTIES XIX, INC.
STORAGE EQUITIES, INC.
PS PARTNERS, LTD.
PS PARTNERS II, LTD.
PS PARTNERS III, LTD.
PS PARTNERS IV, LTD.
PS PARTNERS V, LTD.
PS PARTNERS VI, LTD.
PS PARTNERS VII, LTD.
PARTNERS PREFERRED YIELD, INC.
PARTNERS PREFERRED YIELD II, INC.
DIVERSIFIED STORAGE FUND
CONNECTICUT STORAGE FUND
METROPUBLIC STORAGE FUND
PUBLIC STORAGE INSTITUTIONAL FUND
PUBLIC STORAGE INSTITUTIONAL FUND II
PUBLIC STORAGE INSTITUTIONAL FUND III
PS CO-INVESTMENT PARTNERS
<PAGE>
SCHEDULE C
[List of Owners for which PSCC provides entity administration services]
Exhibit 10.3
Amendment to Cost Sharing and Administrative
Services Agreement
This Amendment to Cost Sharing and Administrative Services Agreement (the
"Amendment") dated as of January 2, 1997 by and among PSCC, Inc., a California
corporation ("PSCC"), and each of the entities listed on the signature pages
hereof under the designation "Owners" (the "Owners"):
RECITALS:
A. PSCC and the Owners (other than American Office Park Properties, L.P.)
are parties to the Cost Sharing and Administrative Services Agreement dated as
of November 16, 1995 (the "Original Agreement").
B. The parties to this Amendment desire to add American Office Park
Properties, L.P. ("AOPP") as a party to the Original Agreement on the terms set
forth in this Amendment.
Now, therefore, the parties agree as follows:
1. AOPP is hereby added as a party to the Original Agreement as one of the
Owners for all purposes and is hereby included on Schedules B and C to the
Original Agreement. Amended and restated Schedules B and C are attached to this
Amendment.
2. Notwithstanding section 5(a) of the Original Agreement, the Original
Agreement, as amended, shall not be terminable as to AOPP until the fifth
anniversary of this Amendment. Thereafter, the Original Agreement, as amended,
shall expire in accordance with section 5(a) of the Original Agreement.
3. Section 12 of the Original Agreement is hereby amended in its entirety
to read as follows:
"12. Property Management Agreements With PSI and AOPP
Certain of the Owners have entered into management agreements with PSI and
AOPP, pursuant to which PSI or AOPP provides property management services with
respect to Properties owned by such Owner (the "Management Agreements"). Each
such Owner acknowledges and agrees that (i) PSCC shall not be responsible for
the performance or failure to perform of PSI or AOPP under the Management
Agreements, (ii) PSI and AOPP shall not be responsible for the performance or
failure to perform of PSCC under this Agreement, and (iii) the compensation of
PSCC under this Agreement is separate from and in addition to the compensation
of PSI or AOPP under the Management Agreements. The compensation of PSCC will
not be reduced by the compensation of PSI or AOPP under the Management
Agreements, and the compensation of PSI or AOPP under the Management Agreements
will not be reduced by the compensation of PSCC under this Agreement." 4. Except
as provided by this Amendment, all of the terms of the Original Agreement are
hereby ratified and affirmed. IN WITNESS WHEREOF, the parties hereto have
executed this Amendment as of the date first above written.
67
<PAGE>
"PSCC" PSCC, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
"Owners"
PUBLIC STORAGE, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn, Vice President
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XI, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XIV, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XV, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XVI, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XVII, INC.
68
<PAGE>
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XVIII, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XIX, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES XX, INC.
By: /s/ David P. Singelyn
------------------------------
David P. Singelyn
Chief Financial Officer
701 Western Avenue
Glendale, California 91201
69
<PAGE>
PS PARTNERS, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
----------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PS PARTNERS II, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
PS PARTNERS III, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
PS PARTNERS IV, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
70
<PAGE>
PS PARTNERS V, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
PS PARTNERS VI, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
PS PARTNERS VII, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
PS PARTNERS VIII, LTD.,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
71
<PAGE>
CONNECTICUT STORAGE FUND,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
METROPUBLIC STORAGE FUND,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE INSTITUTIONAL FUND,
a California Limited Partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn
Vice President
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE INSTITUTIONAL FUND II,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE INSTITUTIONAL FUND III,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
72
<PAGE>
PS CO-INVESTMENT PARTNERS,
a general partnership
By: Public Storage Institutional Fund IV,
a California Limited Partnership
By: PSI Institutional Advisors, Inc.
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
By: Diversified Storage Venture Fund,
a California Limited Partnership
By: Public Storage, Inc.
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PARTNERS, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PARTNERS II, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
73
<PAGE>
PUBLIC STORAGE PROPERTIES, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Vice President
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES IV, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Vice President
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE PROPERTIES V, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Vice President
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE MID-ATLANTIC, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE MID-ATLANTIC II, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
74
<PAGE>
PS MINI-WAREHOUSE FUND I-X
By: PSI Institutional Advisors, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE GERMAN FUND II, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO FUND III, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP IV,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP V,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
75
<PAGE>
PUBLIC STORAGE EURO PARTNERSHIP VI,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP VII,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP VIII,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP IX,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP X,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
76
<PAGE>
PUBLIC STORAGE EURO PARTNERSHIP XI,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP XII,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE EURO PARTNERSHIP XIII,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE BENELUX PARTNERS I, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE BENELUX PARTNERSHIP V, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
77
<PAGE>
PUBLIC STORAGE CRESCENT FUND, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE GLENDALE FREEWAY, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
PUBLIC STORAGE ALAMEDA, LTD.,
a California limited partnership
By: Public Storage, Inc.,
General Partner
By: /s/ David P. Singelyn
---------------------------
David P. Singelyn, Controller
701 Western Avenue
Glendale, California 91201
AMERICAN OFFICE PARK PROPERTIES, L.P.,
a California limited partnership
By: American Office Park Properties, Inc.,
General Partner
By: /s/Ronald L. Havner, Jr.
---------------------------
Ronald L. Havner, Jr., President
701 Western Avenue
Glendale, California 91201
78
<PAGE>
SCHEDULE A
ACCOUNTING AND FINANCE
- ----------------------
Property accounting and finance, including producing general ledgers and
income statements
Corporate tax
Financial reporting
Cash control
Compliance with applicable statutes, ordinances, laws, rules, regulations
ADMINISTRATIVE SERVICES
- -----------------------
Employee relations
Property tax appeals
Yellow page advertising
Management information systems
Hotline/CHAMP
Acquisition of furniture, fixtures and supplies
Insurance, including filing and managing insurance claims and
administering entity level insurance
Selection of vendors, suppliers, contractors, subcontractors and
employees Negotiation and execution of agreements related to utilities,
service,
concessions, supplies, maintenance, operation and repair
MANAGEMENT
- ----------
Legal
Marketing
Training
Investor services, including answering investor's questions and sending
correspondence and financial reports to investors and coordinating
efforts of outside transfer agents
Institutional Realty
Maintenance, repair and landscaping
PROJECT PERSONNEL
- -----------------
Resident managers
District managers
Relief managers
Maintenance managers
MISCELLANEOUS
- -------------
PSCP facilities support
79
<PAGE>
SCHEDULE B
Public Storage Properties XI, Inc.
Public Storage Properties XIV, Inc.
Public Storage Properties XV, Inc.
Public Storage Properties XVI, Inc.
Public Storage Properties XVII, Inc.
Public Storage Properties XVIII, Inc.
Public Storage Properties XIX, Inc.
Public Storage Properties XX, Inc.
American Office Park Properties, L.P.
80
<PAGE>
SCHEDULE C
Public Storage, Inc.
Public Storage Properties XI, Inc.
Public Storage Properties XIV, Inc.
Public Storage Properties XV, Inc.
Public Storage Properties XVI, Inc.
Public Storage Properties XVII, Inc.
Public Storage Properties XVIII, Inc.
Public Storage Properties XIX, Inc.
Public Storage Properties XX, Inc.
PS Partners, Ltd.
PS Partners II, Ltd.
PS Partners III, Ltd.
PS Partners IV, Ltd.
PS Partners V, Ltd.
PS Partners VI, Ltd.
PS Partners VII, Ltd.
PS Partners VIII, Ltd.
Connecticut Storage Fund
Metropublic Storage Fund
Public Storage Institutional Fund
Public Storage Institutional Fund II
Public Storage Institutional Fund III
PS Co-Investment Partners
Public Storage Partners, Ltd.
Public Storage Partners II, Ltd.
Public Storage Properties, Ltd.
Public Storage Properties IV, Ltd.
Public Storage Properties V, Ltd.
Public Storage Mid-Atlantic, Ltd.
Public Storage Mid-Atlantic II, Ltd.
Public Storage Mini-Warehouse Fund I-X
Public Storage German Fund II, Ltd.
Public Storage Euro Fund III, Ltd.
Public Storage Euro Partnership IV, Ltd.
81
<PAGE>
Public Storage Euro Partnership V, Ltd.
Public Storage Euro Partnership VI, Ltd.
Public Storage Euro Partnership VII, Ltd.
Public Storage Euro Partnership VIII, Ltd.
Public Storage Euro Partnership IX, Ltd.
Public Storage Euro Partnership X, Ltd.
Public Storage Euro Partnership XI, Ltd.
Public Storage Euro Partnership XII, Ltd.
Public Storage Euro Partnership XIII, Ltd.
Public Storage Benelux Partners I, Ltd.
Public Storage Benelux Partnership V, Ltd.
Public Storage Crescent Fund, Ltd.
Public Storage Glendale Freeway, Ltd.
Public Storage Alameda, Ltd.
American Office Park Properties, L.P.
82
Exhibit 10.4
Accounts Payable and Payroll
Disbursement Services Agreement
This Accounts Payable and Payroll Disbursement Services Agreement, dated as
of January 2, 1997 by and between PSCC, Inc., a California corporation ("PSCC"),
and American Office Park Properties, L.P., a California limited partnership
("AOPP"):
RECITALS:
A. AOPP is a party to certain property management agreements, (the
"Management Agreements"), whereby AOPP renders management services to owners
("Owners") of commercial properties ("Properties") in connection with the
operation of such Properties, and AOPP operates the Properties owned by AOPP;
and
B. Under the Management Agreements, AOPP is required to be responsible for
disbursing funds held on behalf of the Owners for the payment of accounts
payable of the Owners and payroll obligations of the Owners (referred to as the
"Accounts Payable and Payroll Disbursement Services"). AOPP desires to engage
PSCC to perform such Accounts Payable and Payroll Disbursement Services for
AOPP, with respect to both Properties managed by AOPP and Properties owned by
AOPP, and to employ the necessary personnel to perform such services.
Now, therefore, the parties agree as follows:
1. Engagement
(a) AOPP hereby engages PSCC as an independent contractor and PSCC
hereby accepts such engagement as described herein, upon the terms and
conditions hereinafter set forth.
(b) In the performance of its duties under this Agreement, PSCC shall
occupy the position of an independent contractor with respect to AOPP. Nothing
contained herein shall be construed as making the parties hereto partners or
joint venturers, nor, except as expressly otherwise provided for herein,
construed as making PSCC an agent or employee of AOPP or its affiliates. PSCC
shall not be responsible for the performance or failure to perform of AOPP under
the Management Agreements.
2. Duties and Authority of PSCC
(a) PSCC shall provide the personnel and administrative services
required for the performance of the Accounts Payable and Payroll Disbursement
Services and shall be responsible for performing such Accounts Payable and
Payroll Disbursement Services on behalf of AOPP as and when directed by AOPP.
(b) AOPP understands and acknowledges that some or all of the
personnel described in Section 2(b) of this Agreement may simultaneously render
services for other property managers and for other owners of facilities for whom
PSCC is rendering services, some of whom may (i) be affiliates of PSCC and/or
(ii) compete with AOPP.
3. Duties of AOPP
AOPP hereby agrees to cooperate with PSCC in the performance of its
duties under this Agreement and to that end, upon the request of PSCC to give
PSCC access to all files, books and records of AOPP relevant to the Accounts
Payable and Payroll Disbursement Services to be performed by PSCC hereunder.
4. Compensation of PSCC
(a) In consideration for the services rendered by PSCC under this
Agreement, AOPP shall pay to PSCC an amount equal to the costs incurred by PSCC
(including fringe benefits) in rendering to, and on behalf of, AOPP, the
Accounts Payable and Payroll Disbursements Services provided for in Section 2(a)
of this Agreement. AOPP will bear all direct expenses, attributable to services
rendered on behalf of AOPP hereunder, as well as the appropriate proportionate
share of shared expenses incurred on behalf of AOPP and others. Upon request,
PSCC shall furnish AOPP with an accounting of such allocations.
(b) Payments to PSCC under this Agreement shall be made upon demand by
PSCC, but not more often than weekly.
5. Term
(a) This Agreement shall expire on the first anniversary of the date
hereof, provided that on each anniversary of the date hereof, this Agreement
shall be automatically extended for one year unless terminated in accordance
with the provisions of this Section 5. At any time more than 30 days prior to a
scheduled expiration date of this Agreement, AOPP may give written notice to
PSCC pursuant to Section 10 hereof that this Agreement shall not be extended on
the next scheduled expiration date. In the event that AOPP gives such notice,
this Agreement shall expire on the next scheduled expiration date.
(b) Upon termination of this Agreement, PSCC shall promptly return to
AOPP all monies, books, records and other materials held by it for or on behalf
of AOPP.
6. Indemnification
AOPP hereby agrees to indemnify and hold PSCC and all officers and
directors of PSCC harmless from any and all costs, expenses, attorneys' fees,
suits, liabilities, judgments, damages and claims when engaged in services under
this Agreement on behalf of AOPP, arising from any cause, except for the willful
misconduct, negligence or negligent omissions on the part of PSCC or any such
other person. PSCC and all officers, directors and employees of PSCC also shall
not be liable for any error of judgment or for any mistake of fact or law, or
for anything which they may do or refrain from doing hereinafter, except in
cases of willful misconduct or negligence. PSCC hereby agrees to indemnify and
hold AOPP harmless from any and all costs, expenses, attorneys' fees, suits,
liabilities, judgments, damages and claims in connection with the management of
the Properties arising from the willful misconduct or negligence of PSCC and all
officers and directors of PSCC.
7. Assignment
Neither this Agreement nor any right hereunder shall be assignable by
AOPP and any attempt to do so shall be void. PSCC shall have the right to assign
this Agreement to an affiliate or a wholly or majority owned subsidiary or any
entity acquiring substantially all of the assets of PSCC; provided, however, any
such assignee must assume all obligations of PSCC hereunder, AOPP's rights
hereunder will be enforceable against any such assignee and PSCC shall not be
released from its liabilities hereunder unless AOPP shall expressly agree
thereto in writing.
8. Headings
The headings contained herein are for convenience of reference only
and are not intended to define, limit or describe the scope or intent of any
provision of this Agreement.
9. Governing Law
The validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties shall be governed by the
internal laws of the state of California.
10. Notices
Any notice required or permitted herein to be given shall be given in
writing and shall be personally delivered or mailed, first class postage
prepaid, to the respective addresses of the parties set forth below their
signatures on the signature page hereof, or to such other address as any party
may give to the other in writing.
11. Severability
Should any term or provision hereof be deemed invalid, void or
unenforceable either in its entirety or in a particular application, the
remainder of this Agreement shall nonetheless remain in full force and effect
and, if the subject term or provision is deemed to be invalid, void or
unenforceable only with respect to a particular application, such term or
provision shall remain in full force and effect with respect to all other
applications.
12. Successors
This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto and their permitted assigns and successors in
interest.
13. Attorneys' Fees
If it shall become necessary for either party hereto to engage
attorneys to institute legal action for the purpose of enforcing its rights
hereunder or for the purpose of defending legal action brought by the other
party hereto, the party or parties prevailing in such litigation shall be
entitled to receive all costs, expenses and fees (including reasonable
attorneys' fees) incurred by it in such litigation (including appeals).
14. Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"PSCC"
PSCC, INC.
By: /s/ Ronald L. Havner, Jr.
------------------------------
Ronald L. Havner, Jr., Vice President
701 Western Avenue
Glendale, California 91201
"AOPP"
AMERICAN OFFICE PARK PROPERTIES, L.P.
By: American Office Park Properties, Inc.,
General Partner
By: /s/ Ronald L. Havner, Jr.
------------------------------
Ronald L. Havner, Jr., President
701 Western Avenue
Glendale, California 91201
<TABLE>
<CAPTION>
PS BUSINESS PARKS, INC.
Exhibit 11: Statement re: Computation of Earnings per Share
For the Three Months Ended
March 31,
Basic and Diluted Earnings Per Share: 1998 1997
- ----------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Net income and net income allocable to common shareholders (same for Basic
and Diluted computations)................................................ $ 4,330,000 $ 682,000
============= =============
Weighted average common shares outstanding:
Basic - weighted average common shares outstanding....................... 11,314,469 2,192,848
Net effect of dilutive stock options - based on treasury stock method
using average market price............................................. 42,567 -
------------- -------------
Diluted weighted average common shares outstanding....................... 11,357,036 2,192,848
============= =============
Basic earnings per common share............................................. $ 0.38 $ 0.31
============= =============
Diluted earnings per common share........................................... $ 0.38 $ 0.31
============= =============
</TABLE>
83
<TABLE>
<CAPTION>
PS BUSINESS PARKS, INC.
Exhibit 12: Statement re: Computation of Ratio of Earnings
to Fixed Charges
Three Months Ended
March 31,
---------------------------------------
1998 1997
--------------- -----------------
(Amounts in thousands, except ratios)
<S> <C> <C>
Net income $ 4,330 $ 682
Add: minority interest 2,814 1,813
Less: minority interest that do not have fixed - (1,813)
--------------- -----------------
charges
7,144 682
Add: Interest expense 247 -
--------------- -----------------
Earnings available to cover fixed charges $ 7,391 $ 682
=============== =================
Fixed charges (interest expense) $ 247 $ -
=============== =================
Ratio of earnings to fixed charges 29.92 NA
=============== =================
Year Ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- -------------- ------------- -------------- -----------
(Amounts in thousands, except ratios)
Net income before taxes $ 3,836 $ 519 $ 1,192 $ 1,245 $ 1,517
Minority interest 8,566 - - - -
------------- -------------- ------------- -------------- -----------
12,402 519 1,192 1,245 1,517
Interest expense 1 - - - -
------------- -------------- ------------- -------------- -----------
Earnings available to cover
fixed charges $ 12,403 $ 519 $ 1,192 $ 1,245 $ 1,517
============= ============== ============= ============== ===========
Fixed charges - interest expense $ 1 $ - $ - $ - $ -
============= ============== ============= ============== ===========
Ratio of earnings to fixed
charges 12,403 NA NA NA NA
============= ============== ============= ============== ===========
</TABLE>
84
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000866368
<NAME> PS Business Parks, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 11,259,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,259,000
<PP&E> 423,826,000
<DEPRECIATION> (6,133,000)
<TOTAL-ASSETS> 432,993,000
<CURRENT-LIABILITIES> 10,069,000
<BONDS> 0
0
0
<COMMON> 1,402,000
<OTHER-SE> 266,092,000
<TOTAL-LIABILITY-AND-EQUITY> 432,993,000
<SALES> 0
<TOTAL-REVENUES> 14,788,000
<CGS> 0
<TOTAL-COSTS> 4,652,000
<OTHER-EXPENSES> 2,992,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,000
<INCOME-PRETAX> 4,330,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,330,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,330,000
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
