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 June 30, 1996
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 1-10710
-------
PUBLIC STORAGE PROPERTIES XII, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4300883
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2349
- ------------------------------- -------------------------
(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
-- --
The number of shares outstanding of the Company's classes of common stock as of
June 30, 1996:
1,730,099 shares of $.01 par value Series A shares
184,453 shares of $.01 par value Series B shares
522,618 shares of $.01 par value Series C shares
------------------------------------------------
<PAGE>
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at June 30, 1996
and December 31, 1995 2
Condensed Statements of Income for the three and six
months ended June 30, 1996 and 1995 3
Condensed Statement of Shareholders' Equity for the
six months ended June 30, 1996 4
Condensed Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION 12-13
<PAGE>
<TABLE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 1,452,000 $1,406,000
Rent and other receivables 25,000 15,000
Prepaid expenses 159,000 279,000
Real estate facilities at cost:
Building, land improvements and equipment 25,210,000 25,127,000
Land 13,968,000 13,968,000
------------- ------------
39,178,000 39,095,000
Less accumulated depreciation (11,425,000) (10,869,000)
------------- ------------
27,753,000 28,226,000
------------- ------------
Total assets $ 29,389,000 $29,926,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 603,000 $ 737,000
Dividends payable 632,000 1,255,000
Advance payments from renters 272,000 258,000
Shareholders' equity:
Series A common, $.01 par value,
2,828,929 shares authorized,
1,730,099 shares issued and
outstanding (1,746,099 shares
issued and outstanding in 1995) 17,000 17,000
Convertible Series B common,
$.01 par value, 184,453 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common,
$.01 par value, 522,618 shares
authorized, issued and outstanding 5,000 5,000
Paid-in-capital 31,050,000 31,361,000
Cumulative income 26,286,000 24,505,000
Cumulative distributions (29,478,000) (28,214,000)
------------- ------------
Total shareholders' equity 27,882,000 27,676,000
------------- ------------
Total liabilities and shareholders' equity $ 29,389,000 $ 29,926,000
============= ============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
------------- -------------- ------------- -------------
REVENUES:
<S> <C> <C> <C> <C>
Rental income $ 1,785,000 $ 1,763,000 $ 3,545,000 $ 3,435,000
Interest income 9,000 15,000 15,000 25,000
------------- -------------- ------------- -------------
1,794,000 1,778,000 3,560,000 3,460,000
------------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of operations 468,000 437,000 943,000 889,000
Management fees
paid to affiliates 94,000 103,000 188,000 201,000
Depreciation 279,000 275,000 556,000 548,000
Administrative 46,000 43,000 92,000 96,000
------------- -------------- ------------- -------------
887,000 858,000 1,779,000 1,734,000
------------- -------------- ------------- -------------
NET INCOME $ 907,000 $ 920,000 $ 1,781,000 $ 1,726,000
============= ============== ============= =============
Earnings per share:
Primary - Series A $0.49 $0.48 $0.96 $0.89
============= ============== ============= =============
Fully diluted - Series A $0.37 $0.37 $0.73 $0.69
============= ============== ============= =============
Dividends declared per share:
Series A $0.33 $0.33 $0.66 $0.66
============= ============== ============= =============
Series B $0.33 $0.33 $0.66 $0.66
============= ============== ============= =============
Weighted average common shares outstanding:
Primary - Series A 1,730,099 1,787,966 1,732,166 1,797,166
============= ============== ============= =============
Fully diluted - Series A 2,437,170 2,495,037 2,439,237 2,504,237
============= ============== ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
Public Storage Properties XII, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
Convertible Convertible
Series A Series B Series C Paid-in
Shares Amount Shares Amount Shares Amount Capital
--------- ------- ------- ------ ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 1,746,099 $17,000 184,453 $2,000 522,618 $5,000 $31,361,000
Net income - - - - - - -
Repurchase of shares (16,000) - - - - - (311,000)
Cash distributions declared:
$.66 per share - Series A - - - - - - -
$.66 per share - Series B - - - - - - -
--------- ------- ------- ------ ------- ------ -----------
Balances at June 30, 1996 1,730,099 $17,000 184,453 $2,000 522,618 $5,000 $31,050,000
========= ======= ======= ====== ======= ====== ===========
</TABLE>
Public Storage Properties XII, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Cumulative Total
Net Cumulative Shareholders'
Income Distributions Equity
----------- ------------- -----------
Balances at December 31, 1995 $24,505,000 ($28,214,000) $27,676,000
Net income 1,781,000 - 1,781,000
Repurchase of shares - - (311,000)
Cash distributions declared:
$.66 per share - Series A - (1,142,000) (1,142,000)
$.66 per share - Series B - (122,000) (122,000)
----------- ------------- -----------
Balances at June 30, 1996 $26,286,000 ($29,478,000) $27,882,000
=========== ============ ===========
See accompanying notes.
4
<PAGE>
<TABLE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1996 1995
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,781,000 $ 1,726,000
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation 556,000 548,000
(Increase) decrease in rent and other receivables (10,000) 2,000
Amortization of prepaid management fees 158,000 -
(Increase) decrease in prepaid expenses (38,000) 1,000
Decrease in accounts payable (134,000) (56,000)
Increase (decrease) in advance payments from renters 14,000 (13,000)
---------------- ----------------
Total adjustments 546,000 482,000
---------------- ----------------
Net cash provided by operating activities 2,327,000 2,208,000
---------------- ----------------
Cash flows from investing activities:
Additions to real estate facilities (83,000) (74,000)
---------------- ----------------
Net cash used in investing activities (83,000) (74,000)
---------------- ----------------
Cash flows from financing activities:
Distributions paid to shareholders (1,887,000) (1,316,000)
Purchase of Company Series A common stock (311,000) (578,000)
---------------- ----------------
Net cash used in financing activities (2,198,000) (1,894,000)
---------------- ----------------
Net increase in cash
and cash equivalents 46,000 240,000
Cash and cash equivalents at
the beginning of the period 1,406,000 1,087,000
---------------- ----------------
Cash and cash equivalents at
the end of the period $ 1,452,000 $ 1,327,000
================ ===============
</TABLE>
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Company's Form 10-K for the year ended December 31, 1995.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Company's financial position at
June 30, 1996 and December 31, 1995, the results of its operations for the
three and six months ended June 30, 1996 and 1995 and its cash flows for
the six months then ended.
3. The results of operations for the three months and six months ended June
30, 1996 are not necessarily indicative of the results expected for the
full year.
4. In February 1996, the Company's Board of Directors authorized the Company
to obtain a line of credit facility for a maximum of $2,000,000 for working
capital purposes, including the repurchase of the Company's stock.
In April 1996, the Company obtained an unsecured revolving credit facility
with a bank for borrowings up to $2,000,000. Outstanding borrowings on the
credit facility which, at the Company's option, bear interest at either the
bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%, will
convert to a term loan on December 31, 1997. Interest is payable monthly
until maturity. Commencing on January 31, 1998, principal will be payable
monthly in eleven installments equal to one forty-eighth of the outstanding
principal amount of the line of credit on December 31, 1997. On December
31, 1998, the remaining unpaid principal and interest is due and payable.
There was no outstanding balance on the credit facility at June 30, 1996.
6
<PAGE>
5. In 1995, the Company prepaid eight months of 1996 management fees at a
total cost of $210,000. The Company expensed $158,000 of the 1996 prepaid
management fees for the six months ended June 30, 1996. The balance of
prepaid management fees, $52,000, is included in prepaid expenses in the
Balance Sheet at June 30, 1996.
7
<PAGE>
6. In June 1996, the Company and Public Storage, Inc. ("PSI") agreed, subject
to certain conditions, to merge. Upon the merger, each outstanding share of
the Company's common stock series A (other than shares held by PSI or by
shareholders of the Company who have properly exercised dissenters' rights
under California law ("Dissenting Shares")) will be converted into the
right to receive cash, PSI common stock or a combination of the two, as
follows: (i) with respect to a certain number of shares of the Company's
common stock series A (not to exceed 20% of the outstanding common stock
series A of the Company, less any Dissenting Shares), upon a shareholder's
election, $22.34 in cash, subject to reduction as described below or (ii)
that number (subject to rounding) of shares of PSI common stock determined
by dividing $22.34, subject to reduction as described below, by the average
of the per share closing prices on the New York Stock Exchange of PSI
common stock during the 20 consecutive trading days ending on the fifth
trading day prior to the special meeting of the Company's shareholders. The
consideration paid by PSI in the merger will be reduced on a pro rata basis
by the amount of cash distributions required to be paid by the Company to
its shareholders prior to completion of the merger in order to satisfy the
Company's REIT distribution requirements ("Required REIT Distributions").
The consideration received by the Company's shareholders in the merger,
however, along with any Required REIT Distributions, will not be less than
$22.34 per share of the Company's common stock series A, which amount
represents the market value of the Company's real estate assets at May 31,
1996 (based on an independent appraisal) and the estimated net asset value
of its other assets at September 30, 1996. Additional distributions will be
made to the Company's shareholders to cause the Company's estimated net
asset value as of the date of the merger to be substantially equivalent to
its estimated net asset value as of September 30, 1996. Upon the merger,
each share of the Company's common stock series B and common stock series C
would be converted into the right to receive $17.95 in PSI common stock
(valued as in the case of the Company's common stock series A) plus the
estimated Required REIT Distributions attributable to the Company's common
stock series B of $1.07 per share. The common stock of the Company held by
PSI will be canceled in the merger. The merger is conditioned on, among
other requirements, approval by the Company's shareholders. It is expected
that any merger would close in September 1996. PSI is the Company's
mini-warehouse operator and owns 20.65% of the total combined shares of the
Company's common stock series A, B and C.
8
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors occurring during the periods presented in the accompanying
Condensed Financial Statements.
Results of Operations.
- ----------------------
The Company's net income for the six months ended June 30, 1996 and 1995
was $1,781,000 and $1,726,000, respectively, representing an increase of $55,000
or 3%. Net income for the three months ended June 30, 1996 and 1995 was $907,000
and $920,000, respectively, representing a decrease of $13,000 or 1%. The
increase for the six months ended June 30, 1996 is primarily the result of an
increase in property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense). The
decrease for the three months ended June 30, 1996 is mainly due to a decrease in
property net operating income.
Rental income for the six months ended June 30, 1996 and 1995 was
$3,545,000 and $3,435,000, respectively, representing an increase of $110,000 or
3%. Rental income for the three months ended June 30, 1996 and 1995 was
$1,785,000 and $1,763,000, respectively, representing an increase of $22,000 or
1%. The Company's mini-warehouse properties showed an increase in rental income
of $37,000 for the six months ended June 30 1996. Approximately 73% of this
increase is attributable to increases in rental income at the Company's four
Texas properties primarily as a result of increases in rental rates. Rental
income increased by $73,000 and $21,000 at the Company's business park
operations for the six and three months ended June 30, 1996, respectively,
compared to the same periods in 1995. These increases are mainly due to
increases in rental rates and occupancy levels at all three of the Company's
business park facilities.
The Company's mini-warehouse operations had weighted average occupancy
levels of 89% and 91% for the six month periods ended June 30, 1996 and 1995,
respectively. The Company's business park operations had weighted average
occupancy levels of 96% and 94% for the six month periods ended June 30, 1996
and 1995, respectively.
9
<PAGE>
Cost of operations (including management fees paid to affiliates and
depreciation expense) for the six months ended June 30, 1996 and 1995 was
$1,687,000 and $1,638,000, respectively, representing an increase of $49,000 or
3%. Cost of operations for the three months ended June 30, 1996 and 1995 was
$841,000 and $815,000, respectively, representing an increase of $26,000 or 3%.
These increases are primarily due to increases in payroll expense and repairs
and maintenance costs. The increase in repairs and maintenance costs is
attributable to an increase in snow removal costs associated with higher than
normal snow levels experienced at the Company's facilities in the eastern
states.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. During the six
month period ended June 30, 1996, the Company expensed $158,000 of prepaid
management fees. The amount is included in management fees paid to affiliates in
the condensed statement of income. As a result of the prepayment, the Company
saved approximately $18,000 in management fees, based on the management fees
that would have been payable on rental income generated in the six months ended
June 30, 1996 compared to the amount prepaid.
Liquidity and Capital Resources.
- --------------------------------
Cash flows from operating activities ($2,327,000 in 1996) and cash reserves
were sufficient to meet all current obligations and distributions of the Company
during the six months ended June 30, 1996. Management expects cash flows from
operating activities will be sufficient to fund capital expenditures and
quarterly distributions.
In April 1996, the Company obtained an unsecured revolving credit facility
with a bank for borrowings up to $2,000,000. Outstanding borrowings on the
credit facility which, at the Company's option, bear interest at either the
bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%, will convert to
a term loan on December 31, 1997. Interest is payable monthly until maturity.
Commencing on January 31, 1998, principal will be payable monthly in eleven
installments equal to one forty-eighth of the outstanding principal amount on
the line of credit at December 31, 1997. On December 31, 1998, the remaining
unpaid principal and interest is due and payable. There was no outstanding
balance on the credit facility at June 30, 1996.
The Company's Board of Directors has authorized the Company to purchase up
to 500,000 shares of Series A common stock. The Company has repurchased 391,113
shares of Series A common stock, of which 16,000 shares were purchased in the
first quarter of 1996.
10
<PAGE>
The Company has elected and intends to continue to qualify as a real estate
investment trust ("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. 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 the
Company's tax return. The primary difference between book income and taxable
income is depreciation expense. In 1995, the Company's federal tax depreciation
was $1,168,000.
Supplemental Information.
- -------------------------
The Company's funds from operations ("FFO") is defined generally by the
National Association of Real Estate Investment Trusts as net income before loss
on early extinguishment of debt and gain on disposition of real estate, plus
depreciation and amortization. FFO for the six months ended June 30, 1996 and
1995 was $2,337,000 and $2,274,000, respectively. FFO for the three months ended
June 30, 1996 and 1995 was $1,186,000 and $1,195,000, respectively. FFO is a
supplemental performance measure for equity Real Estate Investment Trusts used
by industry analysts. FFO does not take into consideration principal payments on
debt, capital improvements, distributions and other obligations of the Company.
The only depreciation or amortization that is added to income to derive FFO is
depreciation and amortization directly related to physical real estate. All
depreciation and amortization reported by the Company relates to physical real
estate and does not include any depreciation or amortization related to
goodwill, deferred financing costs or other intangibles. FFO is not a substitute
for the Company's net cash provided by operating activities or net income
computed in accordance with generally accepted accounting principles, as a
measure of liquidity or operating performance.
Proposed Merger.
- ----------------
See footnote 6 to financial statements for a discussion of a proposed
merger.
11
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 through 4 are inapplicable.
ITEM 5. Other Information
-----------------
In June 1996, the Company and Public Storage, Inc. ("PSI") agreed,
subject to certain conditions, to merge. Upon the merger, each
outstanding share of the Company's common stock series A (other than
shares held by PSI or by shareholders of the Company who have properly
exercised dissenters' rights under California law ("Dissenting
Shares")) will be converted into the right to receive cash, PSI common
stock or a combination of the two, as follows: (i) with respect to a
certain number of shares of the Company's common stock series A (not to
exceed 20% of the outstanding common stock series A of the Company,
less any Dissenting Shares), upon a shareholder's election, $22.34 in
cash, subject to reduction as described below or (ii) that number
(subject to rounding) of shares of PSI common stock determined by
dividing $22.34, subject to reduction as described below, by the
average of the per share closing prices on the New York Stock Exchange
of PSI common stock during the 20 consecutive trading days ending on
the fifth trading day prior to the special meeting of the Company's
shareholders. The consideration paid by PSI in the merger will be
reduced on a pro rata basis by the amount of cash distributions
required to be paid by the Company to its shareholders prior to
completion of the merger in order to satisfy the Company's REIT
distribution requirements ("Required REIT Distributions"). The
consideration received by the Company's shareholders in the merger,
however, along with any Required REIT Distributions, will not be less
than $22.34 per share of the Company's common stock series A, which
amount represents the market value of the Company's real estate assets
at May 31, 1996 (based on an independent appraisal) and the estimated
net asset value of its other assets at September 30, 1996. Additional
distributions will be made to the Company's shareholders to cause the
Company's estimated net asset value as of the date of the merger to be
substantially equivalent to its estimated net asset value as of
September 30, 1996. Upon the merger, each share of the Company's common
stock series B and common stock series C would be converted into the
right to receive $17.95 in PSI common stock (valued as in the case of
the Company's common stock series A) plus the estimated Required REIT
Distributions attributable to the Company's common stock series B of
$1.07 per share. The common stock of the Company held by PSI will be
canceled in the merger. The merger is conditioned on, among other
requirements, approval by the Company's shareholders. It is expected
that any merger would close in September 1996. PSI is the Company's
mini-warehouse operator and owns 20.65% of the total combined shares of
the Company's common stock series A, B and C.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
A) EXHIBITS: The following exhibits are included herein:
(2) Agreement and Plan of Reorganization between the Company and
PSI. Filed with PSI's Registration Statement No. 333-08791
and incorporated herein by reference.
(27) Financial Data Schedule
B) REPORTS ON FORM 8-K
A Form 8-K dated June 20, 1996 was filed on June 25, 1996,
which reported under Item 5 that the Company and PSI had
agreed, subject to certain conditions, to merge.
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: August 13, 1996
PUBLIC STORAGE PROPERTIES XII, INC.
BY: /s/ Ronald L. Havner, Jr.
--------------------------
Ronald L. Havner, Jr.
Senior Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000869795
<NAME> PUBLIC STORAGE PROPERTIES XII, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<PERIOD-START> JAN-1-1996
<EXCHANGE-RATE> 1
<CASH> 1,452,000
<SECURITIES> 0
<RECEIVABLES> 184,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,636,000
<PP&E> 39,178,000
<DEPRECIATION> (11,425,000)
<TOTAL-ASSETS> 29,389,000
<CURRENT-LIABILITIES> 1,507,000
<BONDS> 0
0
0
<COMMON> 24,000
<OTHER-SE> 27,858,000
<TOTAL-LIABILITY-AND-EQUITY> 29,389,000
<SALES> 0
<TOTAL-REVENUES> 3,560,000
<CGS> 0
<TOTAL-COSTS> 1,687,000
<OTHER-EXPENSES> 92,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,781,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,781,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,781,000
<EPS-PRIMARY> .96
<EPS-DILUTED> .73
</TABLE>
