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, 1997
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 1-10913
-------
PUBLIC STORAGE PROPERTIES XIX, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4325981
- ------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
--- ---
The number of shares outstanding of the Company's classes of common stock as of
March 31, 1997:
3,023,371 shares of $.01 par value Series A shares
283,224 shares of $.01 par value Series B shares
802,466 shares of $.01 par value Series C shares
--------------------------------------------------
<PAGE>
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Condensed Balance Sheets at March 31, 1997
and December 31, 1996 2
Condensed Statements of Income for the three
months ended March 31, 1997 and 1996 3
Condensed Statement of Shareholders' Equity for the
three months ended March 31, 1997 4
Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. OTHER INFORMATION 10-11
<PAGE>
<TABLE>
PUBLIC STORAGE PROPERTIES XIX, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
--------------- ----------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $847,000 $1,232,000
Rent and other receivables 110,000 115,000
Prepaid expenses 93,000 113,000
Real estate facilities at cost:
Building, land improvements and equipment 43,988,000 43,916,000
Land 17,791,000 17,791,000
--------------- ----------------
61,779,000 61,707,000
Less accumulated depreciation (14,067,000) (13,640,000)
--------------- ----------------
47,712,000 48,067,000
--------------- ----------------
Total assets $48,762,000 $49,527,000
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $745,000 $644,000
Dividends payable 595,000 1,686,000
Advance payments from renters 251,000 229,000
Shareholders' equity:
Series A common, $.01 par value, 4,342,762 shares authorized,
3,023,371 shares issued and outstanding in 1997 and 1996 30,000 30,000
Convertible Series B common, $.01 par value,
283,224 shares authorized, issued and outstanding 3,000 3,000
Convertible Series C common, $.01 par value,
802,466 shares authorized, issued and outstanding 8,000 8,000
Paid-in-capital 53,652,000 53,652,000
Cumulative net income 8,435,000 7,637,000
Cumulative distributions (14,957,000) (14,362,000)
--------------- ----------------
Total shareholders' equity 47,171,000 46,968,000
--------------- ----------------
Total liabilities and shareholders' equity $48,762,000 $49,527,000
=============== ================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
PUBLIC STORAGE PROPERTIES XIX, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
---------------- ----------------
REVENUES:
<S> <C> <C>
Rental income $2,144,000 $2,040,000
Interest income 6,000 5,000
---------------- ----------------
2,150,000 2,045,000
---------------- ----------------
COSTS AND EXPENSES:
Cost of operations 747,000 746,000
Management fees paid to affiliates 122,000 107,000
Depreciation 427,000 465,000
Administrative 54,000 51,000
Interest expense 2,000 6,000
---------------- ----------------
1,352,000 1,375,000
---------------- ----------------
NET INCOME $798,000 $670,000
================ ================
Primary earnings per share - Series A $0.25 $0.20
================ ================
Fully diluted earnings per share - Series A $0.19 $0.16
================ ================
Dividends declared per share:
Series A $0.18 $0.18
================ ================
Series B $0.18 $0.18
================ ================
Weighted average Common shares outstanding:
Primary - Series A 3,023,371 3,074,404
================ ================
Fully diluted - Series A 4,109,061 4,160,094
================ ================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
Public Storage Properties XIX, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 3,023,371 $30,000 283,224 $3,000 802,466 $8,000
Net income
Cash distributions declared:
$.18 per share - Series A
$.18 per share - Series B
------------- -------------- ------------- ------------- ------------- -------------
Balances at March 31, 1997 3,023,371 $30,000 283,224 $3,000 802,466 $8,000
============= ============== ============= ============= ============= =============
</TABLE>
<TABLE>
Public Storage Properties XIX, Inc.
Condensed Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
Cumulative Total
Paid-in net Cumulative shareholders'
capital income distributions equity
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 $53,652,000 $7,637,000 ($14,362,000) $46,968,000
Net income 798,000 798,000
Cash distributions declared:
$.18 per share - Series A (544,000) (544,000)
$.18 per share - Series B (51,000) (51,000)
------------- ------------- --------------- --------------
Balances at March 31, 1997 $53,652,000 $8,435,000 ($14,957,000) $47,171,000
============= ============= =============== ==============
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
PUBLIC STORAGE PROPERTIES XIX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
---------------------------------------------
1997 1996
------------------- -----------------------
(Restated)
Cash flows from operating activities:
<S> <C> <C>
Net income $798,000 $670,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 427,000 465,000
Decrease in rent and other receivables 5,000 1,000
Decrease (increase) in prepaid expenses 20,000 (1,000)
Amortization of prepaid management fees - 78,000
Increase in accounts payable 101,000 38,000
Increase in advance payments from renters 22,000 14,000
------------------- -----------------------
Total adjustments 575,000 595,000
------------------- -----------------------
Net cash provided by operating activities 1,373,000 1,265,000
------------------- -----------------------
Cash flows from investing activities:
Additions to real estate facilities (72,000) (19,000)
------------------- -----------------------
Net cash used in investing activities (72,000) (19,000)
------------------- -----------------------
Cash flows from financing activities:
Distributions paid to shareholders (1,686,000) (1,621,000)
Borrowing on credit facility 300,000 450,000
Repayment of borrowing on credit facility (300,000) (450,000)
Purchase of Company Series A common stock - (338,000)
------------------- -----------------------
Net cash used in financing activities (1,686,000) (1,959,000)
------------------- -----------------------
Net decrease in cash and cash equivalents (385,000) (713,000)
Cash and cash equivalents at the beginning of the period 1,232,000 1,296,000
------------------- -----------------------
Cash and cash equivalents at the end of the period $847,000 $583,000
=================== =======================
</TABLE>
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE PROPERTIES XIX, 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, 1996.
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, 1997 and December 31, 1996, the results of its operations for the
three months ended March 31, 1997 and 1996 and its cash flows for the three
months then ended.
3. The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results expected for the full year.
4. Certain prior year amounts have been reclassified in order to conform with
current year presentation.
5. The Company has an unsecured revolving credit facility with a bank for
borrowings up to $6,000,000. Outstanding borrowings on the credit facility,
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%. Interest is payable monthly until
maturity. On January 1, 2002, the remaining unpaid principal and interest
is due and payable. During the first quarter of 1997, the Company borrowed
and repaid $300,000 on its line of credit facility. At March 31, 1997,
there was no outstanding balance on the credit facility. In May 1997, the
Company terminated its line of credit facility.
6
<PAGE>
6. In April 1997, 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
holders of the Company's common stock series A ("Series A Shareholders")
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 Series A Shareholder's election, $16.72 in
cash, subject to reduction as described below or (ii) that number (subject
to rounding) of shares of PSI common stock determined by dividing $16.72,
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 to the Series A Shareholders in the merger will be reduced by the
amount of cash distributions required to be paid to the Series A
Shareholders by the Company prior to completion of the merger (estimated at
$0.35 per share) in order to satisfy the Company's REIT distribution
requirements ("Required REIT Distributions"). The consideration received by
the Series A Shareholders in the merger, however, along with any Required
REIT Distributions, will not be less than $16.72 per share of the Company's
common stock series A, which amount represents the market value of the
Company's real estate assets at March 17, 1997 (based on an independent
appraisal) and interest of the Series A Shareholders in the estimated net
asset value of its other assets at June 30, 1997. Additional distributions
will be made to the Series A Shareholders to cause the Company's estimated
net asset value allocable to the Series A Shareholders as of the date of
the merger to be substantially equivalent to $16.72 per share. Upon the
merger, each share of the Company's common stock series B and common stock
series C (other than shares held by PSI) would be converted into the right
to receive $1.41 in PSI common stock (valued as in the case of the
Company's common stock series A) plus (i) any additional distributions
equal to the amount by which the Company's estimated net asset value
allocable to the holders of the Company's common stock series B and C as of
the date of the merger exceeds $1.41 per share and (ii) the estimated
Required REIT Distributions payable to the holders of the Company's common
stock series B of $0.35 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 the merger will close in June or July of 1997. PSI is the Company's
mini-warehouse operator and owns 42.2% of the total combined shares of the
Company's common stock series A, B and C.
7
<PAGE>
PUBLIC STORAGE PROPERTIES XIX, 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, 1997 and 1996
was $798,000 and $670,000, respectively, representing an increase of $128,000 or
19%. This increase 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).
Rental income for the three months ended March 31, 1997 and 1996 was
$2,144,000 and $2,040,000, respectively, representing an increase of $104,000 or
5%. The Company's mini-warehouse operations contributed $92,000 to the increase
in rental income. The Company's four California properties contributed 47% to
the increase in mini-warehouse rental income as a result of an increase in
rental rates. The Company's business park operations also showed an increase in
rental income generated primarily by the Company's San Ramon, California
facility 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, 1997 and 1996,
respectively. The Company's business park operations had weighted average
occupancy levels of 98% and 99% for the three month periods ended March 31, 1997
and 1996, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) for the three months ended March 31, 1997 and 1996 was
$1,296,000 and $1,318,000, respectively, representing a decrease of $22,000 or
2%. This decrease is primarily attributable to decreases in depreciation expense
and repairs and maintenance costs offset by increases in payroll, management
fees and advertising costs. Depreciation expense decreased due to certain assets
being fully depreciated. Repairs and maintenance costs decreased due to a
decrease in snow removal costs incurred in 1997 compared to 1996. Snow removal
costs were higher in 1996 compared to 1997 due to higher than normal snow levels
experienced at the Company's facilities located in the eastern states.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations discounted at a 14% effective rate to compensate for
early payment. As a result, management fee expense for the three months ended
March 31, 1996 was $9,000 lower than it would have been under the customary,
undiscounted fee structure.
During the three months ended March 31, 1997 and 1996, the Company incurred
$2,000 and $6,000 in interest expense on its line of credit facility.
Liquidity and Capital Resources.
- --------------------------------
Cash flows from operating activities ($1,373,000 for the three months ended
March 31, 1997) and cash reserves were sufficient to meet all current
obligations and distributions of the Company during the three months ended March
8
<PAGE>
31, 1997. Management expects cash flows from operations will be sufficient to
fund capital expenditures and quarterly distributions.
The Company has an unsecured revolving credit facility with a bank for
borrowings up to $6,000,000. Outstanding borrowings on the credit facility, 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%. Interest is payable monthly until maturity. On
January 1, 2002, the remaining unpaid principal and interest is due and payable.
During the first quarter of 1997, the Company borrowed and repaid $300,000 on
its line of credit facility. At March 31, 1997, there was no outstanding balance
on the credit facility. In May 1997, the Company terminated its line of credit
facility.
The Company's Board of Directors has authorized the Company to purchase up
to 500,000 shares of Series A common stock. As of March 31, 1997, the Company
had repurchased 233,700 shares of Series A common stock, none of which were
purchased in the first quarter of 1997.
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.
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 1996, the Company's Federal tax depreciation
was $1,126,000.
Supplemental Information.
- -------------------------
Funds from operations (FFO) is defined by the Company, consistent with the
definition of FFO by the National Association of Real Estate Investment Trusts
(NAREIT), as net income (loss) (computed in accordance with generally accepted
accounting principles) before depreciation and extraordinary or non-recurring
items. FFO for the three months ended March 31, 1997 and 1996 was $1,225,000 and
$1,135,000, respectively. FFO is presented because the Company, as well as many
industry analysts, consider FFO to be one measure of the performance of the
Company, ie, one that generally reflects changes in the Company's net operating
income. FFO does not take into consideration scheduled principal payments on
debt and capital improvements. Accordingly, FFO is not necessarily a substitute
for the Company's cash flow or net income as a measure of the Company's
liquidity or operating performance or ability to pay distributions. Furthermore,
the NAREIT definition of FFO does not address the treatment of certain items and
all REITs do not treat items the same way in computing FFO. Accordingly,
comparisons of levels of FFO among REITs may not necessarily be meaningful.
Proposed Merger.
- ----------------
See footnote 6 to condensed financial statements for a discussion of a
proposed merger.
9
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1 through 4 are inapplicable.
ITEM 5 Other Information
-----------------
In April 1997, 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
holders of the Company's common stock series A ("Series A Shareholders")
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 Series A Shareholder's election, $16.72 in
cash, subject to reduction as described below or (ii) that number (subject
to rounding) of shares of PSI common stock determined by dividing $16.72,
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 to the Series A Shareholders in the merger will be reduced by the
amount of cash distributions required to be paid to the Series A
Shareholders by the Company prior to completion of the merger (estimated at
$0.35 per share) in order to satisfy the Company's REIT distribution
requirements ("Required REIT Distributions"). The consideration received by
the Series A Shareholders in the merger, however, along with any Required
REIT Distributions, will not be less than $16.72 per share of the Company's
common stock series A, which amount represents the market value of the
Company's real estate assets at March 17, 1997 (based on an independent
appraisal) and interest of the Series A Shareholders in the estimated net
asset value of its other assets at June 30, 1997. Additional distributions
will be made to the Series A Shareholders to cause the Company's estimated
net asset value allocable to the Series A Shareholders as of the date of
the merger to be substantially equivalent to $16.72 per share. Upon the
merger, each share of the Company's common stock series B and common stock
series C (other than shares held by PSI) would be converted into the right
to receive $1.41 in PSI common stock (valued as in the case of the
Company's common stock series A) plus (i) any additional distributions
equal to the amount by which the Company's estimated net asset value
allocable to the holders of the Company's common stock series B and C as of
the date of the merger exceeds $1.41 per share and (ii) the estimated
Required REIT Distributions payable to the holders of the Company's common
stock series B of $0.35 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 the merger will close in June or July of 1997. PSI is the Company's
mini-warehouse operator and owns 42.2% of the total combined shares of the
Company's common stock series A, B and C.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) EXHIBITS: The following exhibits are included herein:
(2) Agreement and Plan of Reorganization among the Company, Public
Storage Properties XVI, Inc., Public Storage Properties XVII, Inc.,
Public Storage Properties XVIII, Inc. and PSI dated as of April 9,
1997. Filed with PSI's Schedule 13D (Amendment No. 9) relating to the
beneficial ownership of securities issued by Public Storage Properties
XVI, Inc. and incorporated herein by reference.
(27) Financial Data Schedule
B) REPORTS ON FORM 8-K
A Form 8-K dated April 9, 1997 was filed on April 10, 1997, 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: May 14, 1997
PUBLIC STORAGE PROPERTIES XIX, INC.
BY: /s/ David P. Singelyn
---------------------
David P. Singelyn
Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000870905
<NAME> PUBLIC STORAGE PROPERTIES XIX, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 847,000
<SECURITIES> 0
<RECEIVABLES> 203,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,050,000
<PP&E> 61,779,000
<DEPRECIATION> (14,067,000)
<TOTAL-ASSETS> 48,762,000
<CURRENT-LIABILITIES> 1,591,000
<BONDS> 0
0
0
<COMMON> 41,000
<OTHER-SE> 47,130,000
<TOTAL-LIABILITY-AND-EQUITY> 48,762,000
<SALES> 0
<TOTAL-REVENUES> 2,150,000
<CGS> 0
<TOTAL-COSTS> 1,296,000
<OTHER-EXPENSES> 54,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 798,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 798,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 798,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.19
</TABLE>
