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
----------------- ---------------
Commission File Number 1-10925
PARTNERS PREFERRED YIELD III, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4325983
- - ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Ave.
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
March 31, 1996:
1,314,384 shares of $.01 par value Series A shares
168,709 shares of $.01 par value Series B shares
99,241 shares of $.01 par value Series C shares
65,354 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 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION 11
<PAGE>
PARTNERS PREFERRED YIELD III, INC.
CONDENSED BALANCE SHEETS
<TABLE>
March 31, December 31,
1996 1995
-------------- -------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 789,000 $ 775,000
Marketable securities of affiliate
at market value (cost of $173,000) 238,000 222,000
Rent and other receivables 27,000 28,000
Other assets 159,000 225,000
Real estate facilities at cost:
Building, land improvements and equipment 19,108,000 19,091,000
Land 4,870,000 4,870,000
-------------- -------------
23,978,000 23,961,000
Less accumulated depreciation (5,107,000) (4,888,000)
-------------- -------------
18,871,000 19,073,000
-------------- -------------
Total assets $ 20,084,000 $20,323,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 536,000 $ 565,000
Dividends payable 504,000 611,000
Advance payments from renters 175,000 162,000
Shareholders' equity:
Series A common, $.01 par value,
1,851,696 shares authorized,
1,314,384 shares issued and
outstanding (1,333,584 shares
issued and outstanding in 1995) 13,000 13,000
Convertible Series B common,
$.01 par value, 168,709 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common,
$.01 par value, 99,241 shares
authorized, issued and outstanding 1,000 1,000
Series D common, $.01 par value
65,354 shares authorized, issued
and outstanding 1,000 1,000
Paid-in-capital 24,883,000 25,012,000
Cumulative income 8,890,000 8,389,000
Unrealized gain in marketable securities 65,000 49,000
Cumulative distributions (14,986,000) (14,482,000)
------------ -------------
Total shareholders' equity 18,869,000 18,985,000
------------ ------------
Total liabilities and shareholders' equity $20,084,000 $ 20,323,000
=========== ============
See accompanying notes.
2
</TABLE>
<PAGE>
PARTNERS PREFERRED YIELD III, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------------------
1996 1995
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REVENUES:
<S> <C> <C>
Rental income $1,260,000 $1,187,000
Interest and other income
(including $3,000 of dividends from marketable
securities of affiliate in both 1996 and 1995) 9,000 3,000
------------- ---------------
1,269,000 1,190,000
----------- ------------
COSTS AND EXPENSES:
Cost of operations 452,000 396,000
Management fees paid to an affiliate 66,000 72,000
Depreciation 219,000 214,000
Administrative 31,000 36,000
-------------- -------------
768,000 718,000
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NET INCOME $ 501,000 $ 472,000
============== ============
Primary earnings per share - Series A $0.34 $0.31
===== =====
Fully diluted earnings per share - Series A $0.32 $0.29
===== =====
Dividends declared per share:
Series A $0.34 $0.34
===== =====
Series B $0.34 $0.34
===== =====
Weighted average Common shares outstanding:
Primary - Series A 1,316,217 1,332,784
========= =========
Fully diluted - Series A 1,584,167 1,600,734
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
Partners Preferred Yield III, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
<TABLE>
Convertible 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 1,321,984 $13,000 168,709 $2,000 99,241 $1,000 65,354 $1,000
December 31, 1995
Net income - - - - - - - -
Repurchase of shares (7,600) - - - - - - -
Unrealized gain in - - - - - - - -
marketable securities
Cash distributions
declared:
$.34 per share - Series A - - - - - - - -
$.34 per share - Series B - - - - - - - -
--------- ------- ------- ------ ------ ------ ------ ------
Balances at March 31, 1996 1,314,384 $13,000 168,709 $2,000 99,241 $1,000 65,354 $1,000
========= ======= ======= ====== ====== ====== ====== ======
</TABLE>
<TABLE>
Unrealized
Cumulative gain in
Paid-in Net Cumulative marketable Shareholders'
Capital Income Distributions securities Equity
----------- ---------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C>
Balances at $25,012,000 $8,389,000 ($14,482,000) $49,000 $18,985,000
December 31, 1995
Net income - 501,000 - - 501,000
Repurchase of shares (129,000) - - - (129,000)
Unrealized gain in - - - 16,000 16,000
marketable securities
Cash distributions
declared:
$.34 per share - Series A - - (447,000) - (447,000)
$.34 per share - Series B - - (57,000) - (57,000)
----------- ---------- ------------ ------- -----------
Balances at March 31, 1996 $24,883,000 $8,890,000 ($14,986,000) $65,000 $18,869,000
=========== ========== ============ ======= ===========
</TABLE>
See accompanying notes.
4
<PAGE>
PARTNERS PREFERRED YIELD III, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
------------------------------------
1996 1995
-------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 501,000 $ 472,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 219,000 214,000
Decrease (increase) in rent and other receivables 1,000 (3,000)
Amortization of prepaid management fees 66,000 -
Decrease in accounts payable (29,000) (24,000)
Increase (decrease) in advance payments from renters 13,000 (1,000)
-------------- ----------------
Total adjustments 270,000 186,000
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Net cash provided by operating activities 771,000 658,000
-------------- ----------------
Cash flows from investing activities:
Additions to real estate facilities (17,000) -
-------------- ----------------
Net cash used in investing activities (17,000) -
-------------- ----------------
Cash flows from financing activities:
Distributions paid to shareholders (611,000) (708,000)
Purchase of Company Series A common stock (129,000) (11,000)
--------------- --------------
Net cash used in financing activities (740,000) (719,000)
-------------- ----------------
Net increase (decrease) in cash and cash equivalents 14,000 (61,000)
Cash and cash equivalents at the beginning of the period 775,000 579,000
-------------- ----------------
Cash and cash equivalents at the end of the period $ 789,000 $ 518,000
============= ===========
Supplemental schedule of non-cash investing and financing activities:
Increase in fair value of marketable securities $ (16,000) $ (40,000)
============= ===========
Unrealized gain on marketable securities $ 16,000 $ 40,000
============= ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PARTNERS PREFERRED YIELD III, 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 $176,000. The Company expensed $66,000 of the 1996 prepaid
management fees for the three months ended March 31, 1996. The balance of
prepaid management fees, $110,000, is included in other assets in the
Balance Sheet at March 31, 1996.
6
<PAGE>
5. In February 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $1,000,000 for working capital
purposes and to repurchase the Company's stock. Outstanding borrowings on
the credit facility, at the Company's option, bear interest at either the
bank's Prime Rate (8.50% at March 31, 1996) or the bank's Libor Rate plus
2.25% (7.75% at March 31, 1996). Interest is payable monthly and on
January 31, 1999, all unpaid principal and accrued interest is due and
payable. As of March 31, 1996, the Company was in compliance with the
covenants of the credit facility.
7
<PAGE>
PARTNERS PREFERRED YIELD III, 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
$501,000 compared to $472,000 for the three months ended March 31, 1995,
representing an increase of $29,000 or 6%. This increase is primarily a result
of an increase in property net operating income (rental revenue less cost of
operations, management fees paid to an affiliate and depreciation expense).
Rental income for the three months ended March 31, 1996 and 1995 was
$1,260,000 and $1,187,000, respectively, representing an increase of $73,000 or
6%. This increase was primarily due to increased rental rates at seven of the
eight mini-warehouse facilities owned by the Company. The Company's two Illinois
properties contributed approximately $32,000 of the increase in rental revenues.
The Company's mini-warehouse operations had weighted average occupancy
levels of 92.2% and 92.3% 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 $55,000 or 8% to $737,000 from $682,000 for the
three months ended March 31, 1996 and 1995, respectively. This increase is
mainly attributable to an increase in property taxes at the Company's Illinois
properties due to a reassessment caused by increased revenues.
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 $66,000 of prepaid
management fees. The amount is shown as management fees paid to affiliate in the
condensed statement of income. As a result of the prepayment, the Company saved
approximately $10,000 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.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
- - --------------------------------
Cash flows from operating activities ($771,000 for the three months ended
March 31, 1996) and cash reserves were sufficient to meet all current
obligations of the Company including a regular distribution of $.34 per Series A
common share ($504,000 in aggregate for the three months ended March 31, 1996).
In February 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $1,000,000 for working capital
purposes and to repurchase the Company's stock. Outstanding borrowings on the
credit facility, at the Company's option, bear interest at either the bank's
Prime Rate (8.50% at March 31, 1996) or the bank's Libor Rate plus 2.25% (7.75%
at March 31, 1996). Interest is payable monthly and on January 31, 1999, all
unpaid principal and accrued interest is due and payable. 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 250,000 shares of Series A common stock. The Company has repurchased 204,000
shares of Series A common stock, of which 7,600 shares were purchased in the
first quarter of 1996.
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.
In February 1994, the Company purchased 11,700 common shares of Public
Storage, Inc., a publicly traded real estate investment trust and an affiliate
of the Company, for $173,000. The market value of these securities at March 31,
1996 was $209,000. The Company recognized $3,000 in dividends for the three
months ended March 31, 1996 and included this amount in other income on the
condensed statements of Income.
9
<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 $494,000.
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 three months ended March 31, 1996 and
1995 was $720,000 and $686,000, 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.
10
<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 III, INC.
BY: /s/ Ronald L. Havner, Jr.
--------------------------
Ronald L. Havner, Jr.
Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000870871
<NAME> PARTNERS PREFERRED YIELD III, INC.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 789,000
<SECURITIES> 238,000
<RECEIVABLES> 186,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,213,000
<PP&E> 23,978,000
<DEPRECIATION> (5,107,000)
<TOTAL-ASSETS> 20,084,000
<CURRENT-LIABILITIES> 1,215,000
<BONDS> 0
0
0
<COMMON> 17,000
<OTHER-SE> 18,852,000
<TOTAL-LIABILITY-AND-EQUITY> 20,084,000
<SALES> 0
<TOTAL-REVENUES> 1,269,000
<CGS> 0
<TOTAL-COSTS> 737,000
<OTHER-EXPENSES> 31,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 501,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 501,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501,000
<EPS-PRIMARY> .34
<EPS-DILUTED> .32
</TABLE>
