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 1-10902
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PARTNERS PREFERRED YIELD, INC.
------------------------------
(Exact name of registrant as specified in its charter)
California 95-4325987
- - ------------------------------- ---------------------
(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
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The number of shares outstanding of the Company's classes of common stock as of
March 31, 1996:
3,086,428 shares of $.01 par value Series A shares
420,875 shares of $.01 par value Series B shares
247,574 shares of $.01 par value Series C shares
163,036 shares of $.01 par value Series D 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 10
<PAGE>
PARTNERS PREFERRED YIELD, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1996 1995
---------- ----------
(Unaudited)
ASSETS
Cash and cash equivalents $ 516,000 $ 890,000
Rent and other receivables 50,000 50,000
Real estate facilities at cost:
Buildings and equipment 45,182,000 45,138,000
Land 14,361,000 14,361,000
---------- ----------
59,543,000 59,499,000
Less accumulated depreciation (14,594,000) (14,097,000)
---------- ----------
44,949,000 45,402,000
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Other assets 333,000 464,000
---------- ----------
Total assets $45,848,000 $46,806,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 539,000 $ 634,000
Dividends payable 947,000 1,508,000
Advance payments from renters 380,000 328,000
Note payable 1,000,000 -
Shareholders' equity:
Series A common, $.01 par value,
4,456,328 shares authorized,
3,086,428 shares issued and
outstanding (3,170,528 shares
issued and outstanding in 1995) 31,000 32,000
Convertible Series B common, $.01 par
value, 420,875 shares authorized,
issued and outstanding 4,000 4,000
Convertible Series C common, $.01 par
value, 247,574 shares authorized,
issued and outstanding 2,000 2,000
Series D common, $.01 par value,
163,036 shares authorized, issued
and outstanding 2,000 2,000
Paid-in-capital 60,678,000 61,997,000
Cumulative income 20,592,000 19,679,000
Cumulative distributions (38,327,000) (37,380,000)
---------- ----------
Total shareholders' equity 42,982,000 44,336,000
---------- ----------
Total liabilities and shareholders' equity $45,848,000 $46,806,000
=========== ===========
See accompanying notes.
2
<PAGE>
PARTNERS PREFERRED YIELD, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
------------------------
1996 1995
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REVENUES:
Rental income $2,388,000 $2,322,000
Interest income 5,000 11,000
---------- ----------
2,393,000 2,333,000
---------- ----------
COSTS AND EXPENSES:
Cost of operations 757,000 652,000
Management fees paid to affiliate 131,000 139,000
Depreciation 497,000 483,000
Administrative 76,000 79,000
Interest expense 19,000 --
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1,480,000 1,353,000
NET INCOME $ 913,000 $ 980,000
========== ==========
Primary earnings per share - Series A $ 0.26 $ 0.26
========== ==========
Fully diluted earnings per share - Series A $ 0.24 $ 0.25
========== ==========
Dividends declared per share:
Series A $ 0.27 $ 0.27
========== ==========
Series B $ 0.27 $ 0.27
========== ==========
Weighted average Common shares outstanding:
Primary - Series A 3,118,128 3,288,195
========== ==========
Fully diluted - Series A 3,786,577 3,956,644
========== ==========
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
Partners Preferred Yield, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Convertible Convertible
Series A Series B Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1995 3,170,528 $32,000 420,875 $4,000 247,574 $2,000 163,036 $2,000
Net income - - - - - - - -
Repurchase of shares (84,100) (1,000) - - - - - -
Cash distributions declared:
$.27 per share - Series A - - - - - - - -
$.27 per share - Series B - - - - - - - -
--------- ------- ------- ------ ------- ------ ------- ------
Balances at March 31, 1996 3,086,428 $31,000 420,875 $4,000 247,574 $2,000 163,036 $2,000
========= ======= ======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Partners Preferred Yield, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
Cumulative Total
Paid-in Net Cumulative Shareholders'
Capital Income Distributions Equity
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at
December 31, 1995 $61,997,000 $19,679,000 ($37,380,000) $44,336,000
Net income - 913,000 - 913,000
Repurchase of shares (1,319,000) - - (1,320,000)
Cash distributions declared:
$.27 per share - Series A - - (833,000) (833,000)
$.27 per share - Series B - - (114,000) (114,000)
----------- ----------- ------------ -----------
Balances at March 31, 1996 $60,678,000 $20,592,000 ($38,327,000) $42,982,000
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
PARTNERS PREFERRED YIELD, 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 $ 913,000 $ 980,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 497,000 483,000
Decrease in rent and other receivables -- 4,000
Increase in other assets -- (2,000)
Amortization of prepaid management fees 131,000 --
Decrease in accounts payable (95,000) (86,000)
Increase in advance payments from renters 52,000 29,000
----------- -----------
Total adjustments 585,000 428,000
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Net cash provided by operating activities 1,498,000 1,408,000
----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (44,000) (6,000)
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Net cash used in investing activities (44,000) (6,000)
----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (1,508,000) (1,679,000)
Proceeds from note payable to Bank 1,000,000 --
Purchase of Company Series A common stock (1,320,000) (444,000)
----------- -----------
Net cash used in financing activities (1,828,000) (2,123,000)
----------- -----------
Net decrease in cash
and cash equivalents (374,000) (721,000)
Cash and cash equivalents at
the beginning of the period 890,000 1,927,000
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Cash and cash equivalents at
the end of the period $ 516,000 $ 1,206,000
=========== ===========
See accompanying notes.
5
<PAGE>
PARTNERS PREFERRED YIELD, 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 $351,000. The Company expensed $131,000 of the 1996 prepaid
management fees for the three months ended March 31, 1996. The balance of
prepaid management fees, $220,000, is included in other assets in the
Balance Sheet at March 31, 1996.
6
<PAGE>
PARTNERS PREFERRED YIELD, 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
$913,000 compared to $980,000 for the three months ended March 31, 1995,
representing a decrease of $67,000 or 7%. This decrease is primarily the result
of a decrease in property net operating income (rental income less cost of
operations, management fees paid to affiliate and depreciation expense) combined
with an increase in interest expense.
Rental income for the three months ended March 31, 1996 and 1995 was
$2,388,000 and $2,322,000, respectively, representing an increase of $66,000 or
3%. The Company's three Pennsylvania properties contributed 32% to the increase
in mini-warehouse rental revenues as a result of an increase in rental rates of
3% for the three months ended March 31, 1996 compared to the same period in
1995. The Company's mini-warehouse properties in Oregon, Illinois and Washington
also contributed to the increase in rental revenues due to an increase in rental
rates.
The Company's mini-warehouse operations had weighted average occupancy
levels of 87% and 88% for the three month periods ended March 31, 1996 and 1995,
respectively.
Cost of operations (including management fees paid to affiliate and
depreciation expense) increased to $1,385,000 from $1,274,000 for the three
months ended March 31, 1996 and 1995, respectively, representing an increase of
$111,000 or 9%. This increase is primarily attributable to an increase in
property tax expense and repairs and maintenance costs. Property taxes increased
approximately $52,000 during the first quarter of 1996 over the same period in
the prior year due primarily to an increase in property tax rates at the
Company's Colorado and Illinois properties. 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.
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 $131,000 of prepaid
management fees. The amount is shown as management fees paid to affiliate in the
condensed statements of income. As a result of the prepayment, the Company saved
approximately $12,000 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.
During the three months ended March 31, 1996, the Company incurred $19,000
in interest expense on its line of credit facility. No such expense was incurred
during the same period in 1995 since the Company did not have a credit facility.
LIQUIDITY AND CAPITAL RESOURCES.
- - --------------------------------
Cash flows from operating activities ($1,498,000 for the three months ended
March 31, 1996) were sufficient to meet all current obligations and
distributions of the Company during the three months ended March 31, 1996. The
Company borrowed under its credit facility $1,000,000 during the three months
ended March 31, 1996. These funds along with cash reserves were used to purchase
the Company's Series A stock. Management expects cash flows from operations will
be sufficient to fund capital expenditures and quarterly distributions.
In December 1995, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $2,500,000 for working capital
purposes and to repurchase the Company's stock. Outstanding borrowings on the
credit facility, at the Company's option, bear interest at either the bank's
prime rate plus .25% (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. On December 31,
1999, all unpaid principal and accrued interest is due and payable. During the
first quarter of 1996, the Company borrowed $1,000,000 on its line of credit
facility. At March 31, 1996, the outstanding balance on the credit facility was
$1,000,000. 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's Board of Directors has authorized the Company to purchase up
to 800,000 Series A common stock. As of March 31, 1996, the Company had
repurchased 701,451 shares of Series A common stock, of which 84,100 were
purchased in the first quarter of 1996.
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 $1,517,000.
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 $1,410,000 and $1,463,000, 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
PARTNERS PREFERRED YIELD, INC.
BY: /s/ Ronald L. Havner, Jr.
-------------------------
Ronald L. Havner, Jr.
Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000870825
<NAME> PARTNERS PREFERRED YIELD, INC.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 516,000
<SECURITIES> 0
<RECEIVABLES> 383,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 899,000
<PP&E> 59,543,000
<DEPRECIATION> (14,594,000)
<TOTAL-ASSETS> 45,848,000
<CURRENT-LIABILITIES> 1,866,000
<BONDS> 1,000,000
0
0
<COMMON> 39,000
<OTHER-SE> 42,943,000
<TOTAL-LIABILITY-AND-EQUITY> 45,848,000
<SALES> 0
<TOTAL-REVENUES> 2,393,000
<CGS> 0
<TOTAL-COSTS> 1,385,000
<OTHER-EXPENSES> 76,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,000
<INCOME-PRETAX> 913,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 913,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 913,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .24
</TABLE>
