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, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 1-10832
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PUBLIC STORAGE PROPERTIES XVIII, INC.
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(Exact name of registrant as specified in its charter)
California 95-4336616
- - ------------------------------- -----------------------
(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
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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
March 31, 1996:
2,775,900 shares of $.01 par value Series A shares
324,989 shares of $.01 par value Series B shares
920,802 shares of $.01 par value Series C shares
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<PAGE>
INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at March 31, 1996
and December 31, 1995 2
Condensed Statements of Income for the three
months ended March 31, 1996 and 1995 3
Condensed Statement of Shareholders' Equity for the
three months ended March 31, 1996 4
Condensed Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
<PAGE>
PUBLIC STORAGE PROPERTIES XVIII, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1996 1995
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(Unaudited)
ASSETS
------
Cash and cash equivalents $ 703,000 $ 484,000
Rent and other receivables 46,000 56,000
Prepaid expenses 310,000 433,000
Real estate facilities at cost:
Building, land improvements and equipment 42,469,000 42,410,000
Land 25,073,000 25,073,000
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67,542,000 67,483,000
Less accumulated depreciation (12,862,000) (12,459,000)
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54,680,000 55,024,000
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Total assets $55,739,000 $55,997,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 742,000 $ 926,000
Dividends payable 930,000 1,677,000
Advance payments from renters 391,000 350,000
Note payable 6,500,000 5,900,000
Shareholders' equity:
Series A common, $.01 par value,
4,983,165 shares authorized,
2,775,900 shares issued and
outstanding (2,779,500 shares
issued and outstanding in 1995) 28,000 28,000
Convertible Series B common, $.01 par
value, 324,989 shares authorized,
issued and outstanding 3,000 3,000
Convertible Series C common, $.01 par
value, 920,802 shares authorized,
issued and outstanding 9,000 9,000
Paid-in-capital 51,022,000 51,083,000
Cumulative income 19,047,000 18,024,000
Cumulative distributions (22,933,000) (22,003,000)
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Total shareholders' equity 47,176,000 47,144,000
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Total liabilities and shareholders' equity $55,739,000 $55,997,000
=========== ===========
See accompanying notes.
2
<PAGE>
PUBLIC STORAGE PROPERTIES XVIII, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
------------------------
1996 1995
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REVENUES:
Rental income $2,645,000 $2,521,000
Interest income 3,000 4,000
---------- ----------
2,648,000 2,525,000
---------- ----------
COSTS AND EXPENSES:
Cost of operations 882,000 742,000
Management fees paid to affiliates 139,000 149,000
Depreciation 403,000 410,000
Administrative 65,000 75,000
Interest expense 136,000 93,000
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1,625,000 1,469,000
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NET INCOME $1,023,000 $1,056,000
========== ==========
Primary earnings per share - Series A $ 0.33 $ 0.32
========== ==========
Fully diluted earnings per share - Series A $ 0.25 $ 0.25
========== ==========
Dividends declared per share:
Series A $ 0.30 $ 0.28
========== ==========
Series B $ 0.30 $ 0.28
========== ==========
Weighted average Common shares outstanding:
Primary - Series A 2,775,900 2,996,358
========== ==========
Fully diluted - Series A 4,021,691 4,242,149
========== ==========
See accompanying notes.
3
<PAGE>
Public Storage Properties XVIII, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<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 2,779,500 $28,000 324,989 $3,000 920,802 $9,000 $51,083,000
Net income - - - - - - -
Repurchase of shares (3,600) - - - - - (61,000)
Cash distributions declared:
$.30 per share - Series A - - - - - - -
$.30 per share - Series B - - - - - - -
--------- ------- ------- ------ ------- ------ -----------
Balances at March 31, 1996 2,775,900 $28,000 324,989 $3,000 920,802 $9,000 $51,022,000
========= ======= ======= ====== ======= ====== ===========
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total
Net Cumulative Shareholders'
Income Distributions Equity
----------- ------------ -----------
<S> <C> <C> <C>
Balances at December 31, 1995 $18,024,000 ($22,003,000) $47,144,000
Net income 1,023,000 - 1,023,000
Repurchase of shares - - (61,000)
Cash distributions declared:
$.30 per share - Series A - (832,000) (832,000)
$.30 per share - Series B - (98,000) (98,000)
----------- ------------ -----------
Balances at March 31, 1996 $19,047,000 ($22,933,000) $47,176,000
=========== ============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
PUBLIC STORAGE PROPERTIES XVIII, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
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Cash flows from operating activities:
Net income $ 1,023,000 $ 1,056,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 403,000 410,000
Decrease in rent and other receivables 10,000 15,000
Increase in prepaid expenses -- (1,000)
Amortization of prepaid management fees 123,000 --
Decrease in accounts payable (184,000) (240,000)
Increase in advance payments from renters 41,000 3,000
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Total adjustments 393,000 187,000
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Net cash provided by operating activities 1,416,000 1,243,000
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Cash flows from investing activities:
Additions to real estate facilities (59,000) (23,000)
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Net cash used in investing activities (59,000) (23,000)
Cash flows from financing activities:
Distributions paid to shareholders (1,677,000) (939,000)
Net borrowings on note payable to Bank 600,000 1,100,000
Purchase of Company Series A common stock (61,000) (622,000)
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Net cash used in financing activities (1,138,000) (461,000)
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Net increase in cash
and cash equivalents 219,000 759,000
Cash and cash equivalents at
the beginning of the period 484,000 301,000
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Cash and cash equivalents at
the end of the period $ 703,000 $ 1,060,000
=========== ===========
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE PROPERTIES XVIII, 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
March 31, 1996 and December 31, 1995, the results of its operations for the
three months ended March 31, 1996 and 1995 and its cash flows for the three
months then ended.
3. The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results expected for the full year.
4. In 1995, the Company prepaid eight months of 1996 management fees at a
total cost of $329,000. The Company expensed $123,000 of the 1996 prepaid
management fees for the three months ended March 31, 1996. The balance of
prepaid management fees, $206,000, is included in prepaid expenses in the
Balance Sheet at March 31, 1996.
6
<PAGE>
PUBLIC STORAGE PROPERTIES XVIII, 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 three months ended March 31, 1996 was
$1,023,000 compared to $1,056,000 for the three months ended March 31, 1995,
representing a decrease of $33,000 or 3%. This decrease is primarily the result
of an increase in interest expense. Net operating income of the properties
(rental income less cost of operations, management fees paid to affiliates, and
depreciation expense) was virtually unchanged at $1,221,000 for the three months
ended March 31, 1996 versus $1,220,000 for the three months ended March 31,
1995.
Rental income for the three months ended March 31, 1996 and 1995 was
$2,645,000 and $2,521,000, respectively, representing an increase of $124,000 or
5%. The Company's mini-warehouse operations contributed $112,000 to the increase
in rental revenues. This increase is primarily attributable to an increase in
occupancy levels and rental rates at the Company's California, New York and
Washington properties. The Company's San Diego, California business park
experienced a slight increase in rental revenue due to an increase in rental
rates.
The Company's mini-warehouse operations had weighted average occupancy
levels of 86% and 85% for the three month periods ended March 31, 1996 and 1995,
respectively. The Company's business park facility had a weighted average
occupancy level of 89% and 92% for the three month periods ended March 31, 1996
and 1995, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) increased to $1,424,000 from $1,301,000 for the three
months ended March 31, 1996 and 1995, respectively, representing an increase of
$123,000 or 9%. This increase is primarily attributable to an increase in
property tax expense and repairs and maintenance costs. The increase in property
tax expense is primarily due to one-time tax refunds received in the first
quarter of 1995 from appealing a prior year tax assessment at the Company's
Inglewood, California and San Diego business park. Repairs and maintenance costs
increased during the first quarter of 1996 mainly due to an increase in snow
removal costs associated with higher than normal snow levels experienced at the
Company's mini-warehouse properties in the eastern states.
7
<PAGE>
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 three
month period ended March 31, 1996, the Company expensed $123,000 of prepaid
management fees. The amount is included in management fees paid to affiliates in
the condensed statements of income. As a result of the prepayment, the Company
saved approximately $16,000 in management fees, based on the management fees
that would have been payable on rental income generated in the three months
ended March 31, 1996 compared to the amount prepaid.
The Company's interest expense increased to $136,000 from $93,000 during
the three months ended March 31, 1996 and 1995, respectively, representing an
increase of $43,000. The increase is due to a higher outstanding loan balance in
1996 over 1995.
LIQUIDITY AND CAPITAL RESOURCES.
- - --------------------------------
Cash flows from operating activities ($1,416,000 for the three months ended
March 31, 1996) and borrowing against the Company's credit facility were
sufficient to meet all current obligations and distributions of the Company
during the three months ended March 31, 1996. Management expects cash flows from
operations will be sufficient to fund capital expenditures and quarterly
distributions.
The Company's Board of Directors has authorized the Company to purchase up
to 1,100,000 Series A common stock. As of March 31, 1996, the Company had
repurchased 961,474 shares of Series A common stock, of which 3,600 were
purchased in the first quarter of 1996.
8
<PAGE>
In November 1994, the Company obtained an unsecured non-revolving credit
facility with a bank for borrowings up to $5,000,000 for working capital
purposes and general corporate purposes. In 1995, the Company renegotiated its
credit facility to increase the borrowings up to $7,000,000, change the credit
facility from non-revolving to revolving, extend the conversion date to a term
loan to October 1, 1996 and extend the maturity date to September 30, 2001.
Outstanding borrowings on the credit facility, at the Company's option, bear
interest at either the bank's prime rate plus .25% (8.5% at March 31, 1996) or
the bank's LIBOR rate plus 2.25% (7.75% at March 31, 1996). Interest is payable
monthly. Principal will be payable quarterly beginning on October 1, 1996. On
September 30, 2001, the remaining unpaid principal and interest is due and
payable. At March 31, 1996, the outstanding balance on the credit facility was
$6,500,000. In April 1996, the Company borrowed an additional $450,000 on its
line of credit facility. The Company is subject to certain covenants including
cash flow coverages and dividend restrictions. As of March 31, 1996, the Company
was in compliance with the covenants of the credit facility.
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 $1,196,000.
The bylaws of the Company provide that, during 1999, unless shareholders
have previously approved such a proposal, the shareholders will be presented
with a proposal to approve or disapprove (a) the sale or financing of all or
substantially all of the properties and (b) the distribution of the proceeds
from such transaction and, in the case of a sale, the liquidation of the
Company.
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 three months ended March 31, 1996 and
1995 was $1,426,000 and $1,466,000, 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.
9
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 through 5 are inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(A) EXHIBITS: The following exhibit is included herein:
(27) Financial Data Schedule
B) REPORTS ON 8-K
None
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 13, 1996
PUBLIC STORAGE PROPERTIES XVIII, INC.
BY: /s/ Ronald L. Havner, Jr.
------------------------------
Ronald L. Havner, Jr.
Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000870376
<NAME> PUBLIC STORAGE PROPERTIES XVIII, INC.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 703,000
<SECURITIES> 0
<RECEIVABLES> 356,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,059,000
<PP&E> 67,542,000
<DEPRECIATION> (12,862,000)
<TOTAL-ASSETS> 55,739,000
<CURRENT-LIABILITIES> 2,063,000
<BONDS> 6,500,000
0
0
<COMMON> 40,000
<OTHER-SE> 47,136,000
<TOTAL-LIABILITY-AND-EQUITY> 55,739,000
<SALES> 0
<TOTAL-REVENUES> 2,648,000
<CGS> 0
<TOTAL-COSTS> 1,424,000
<OTHER-EXPENSES> 65,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,000
<INCOME-PRETAX> 1,023,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,023,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,023,000
<EPS-PRIMARY> .33
<EPS-DILUTED> .25
</TABLE>
