UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
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California 95-3729108
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2394
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
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.
PART I
The Partnership was formed to invest in and operate existing self-service facilities offering storage space for personal and business use (the "mini-warehouses") and to invest up to 30% of the net proceeds of the offering in and operate existing office and industrial properties. The Partnership's investments were made through general partnerships with Storage Equities, Inc., now known as Public Storage, Inc. ("PSI"), a real estate investment trust ("REIT") organized as a corporation under the laws of California. For tax administrative efficiency, the original general partnerships with PSI were consolidated into a single general partnership effective December 31, 1990.
In 1995, there was a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired substantially all of PSMI's United States real estate operations and became the operator of the Partnership's mini-warehouse properties.
The Partnership's general partners (the "General Partners") are PSI and B. Wayne Hughes ("Hughes"). PSI became a co-general partner in September 1993, when PSI acquired the interest of PSI Associates, Inc. ("PSA"), an affiliate of PSMI, relating to PSA's general partner capital contribution in the Partnership. Hughes has been a general partner of the Partnership since its inception. Hughes is the chairman of the board and chief executive officer of PSI, and Hughes and members of his family (the "Hughes Family") are the major shareholders of PSI. The Partnership is managed, and its investment decisions are made by Hughes and the executive officers and directors of PSI. The limited partners of the Partnership have no right to participate in the management or conduct of its business affairs.
The Partnership's mini-warehouse properties are managed by PSI pursuant to a Management Agreement. PSI believes that it is the largest operator of mini-warehouse facilities in the United States.
Through 1996, the Partnership's commercial properties were managed by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a Management Agreement. In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to American Office Park Properties, L.P. ("AOPPLP"), an operating partnership formed to own and operate business parks in which PSI has approximately an 85% economic interest. Included among the properties transferred was the Partnership's transfer of the Signal Hill, California business park to AOPPLP in exchange for a 2.2% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. Ronald L. Havner, Jr., formerly Senior Vice-President and Chief Financial Officer of PSI, is the Chief Executive Officer of American Office Park Properties, Inc. Since January 1997, AOPPLP also manages the commercial operations of the Partnership's Webster, Texas property. See Item 13.
PSI's current relationship with the Partnership includes (i) the joint
ownership of the Partnership's 27 properties (which excludes the property
transferred to AOPPLP in January 1997), (ii) PSI is a co-general partner along
with Hughes, who is chairman of the board and chief executive officer of PSI,
(iii) as of February 19, 1997, PSI owned approximately 69.12% of the
Partnership's limited partnership units and (iv) PSI is the operator of the
Partnership's mini-warehouse facilities.
The Partnership believes that its operating results have benefited from favorable industry trends and conditions. Notably, the level of new mini-warehouse construction has decreased since 1988 while consumer demand has increased. In addition, in recent years consolidation has occurred in the fragmented mini-warehouse industry.
Users of space in mini-warehouses include both individuals and large and small businesses. Individuals usually employ this space for storage of, among other things, furniture, household appliances, personal belongings, motor vehicles, boats, campers, motorcycles and other household goods. Businesses normally employ this space for storage of excess inventory, business records, seasonal goods, equipment and fixtures.
Mini-warehouses in which the Partnership has invested generally consist of three to seven buildings containing an aggregate of between 147 to 1,141 storage spaces, most of which have between 25 and 400 square feet and an interior height of approximately 8 to 12 feet.
The Partnership experiences minor seasonal fluctuations in the occupancy levels of mini-warehouses with occupancies higher in the summer months than in the winter months. The Partnership believes that these fluctuations result in part from increased moving activity during the summer.
The Partnership's mini-warehouses are geographically diversified and are generally located in heavily populated areas and close to concentrations of apartment complexes, single family residences and commercial developments. However, there may be circumstances in which it may be appropriate to own a property in a less populated area, for example, in an area that is highly visible from a major thoroughfare and close to, although not in, a heavily populated area. Moreover, in certain population centers, land costs and zoning restrictions may create a demand for space in nearby less populated areas.
As with most other types of real estate, the conversion of mini-warehouses to alternative uses in connection with a sale or otherwise would generally require substantial capital expenditures. However, the Partnership does not intend to convert its mini-warehouses to other uses.
The Partnership will terminate on December 31, 2015 unless dissolved earlier. Under the terms of the general partnership agreement with PSI, as of December 31, 1996, PSI has the right to require the Partnership to sell all of its properties (see Item 12(c)). The General Partners have no present intention to seek the liquidation of the Partnership because they believe that it is not an opportune time to sell mini-warehouses. Although the General Partners
originally anticipated a liquidation of the Partnership in 1988-1991, since the completion of the Partnership's offering in 1983, significant changes have taken place in the financial and real estate markets that must be taken into account in considering the timing of any proposed sale or financing, including: (i) the increased construction of mini-warehouses from 1984 to 1988, which has increased competition, (ii) the general deterioration of the real estate market (resulting from a variety of factors, including changes in tax laws), which has significantly affected property values and decreased sales activities and (iii) the reduced sources of real estate financing.
The Partnership engaged Lawrence R. Nicholson, MAI, a principal with the firm of Nicholson-Douglas Realty Consultants, Inc. ("NDRC") to perform a limited investigation and appraisal of the Partnership's property portfolio. In a letter appraisal report dated May 10, 1996, NDRC indicated that, based on the assumptions contained in the report, the aggregate market value of the Partnership's 28 properties (consisting not only of the Partnership's interest but also including PSI's interest), as of January 31, 1996, was $68,100,000 ($64,200,000 for the 26 mini-warehouses and $3,900,000 for a business park and for the business park component of combination mini-warehouse/business park property). (In January 1997, after the date of the appraisal, the Partnership transferred a business park to AOPPLP in exchange for a 2.2% interest in AOPPLP.) NDRC's report is limited in that NDRC did not inspect the properties and relied primarily upon the income capitalization approach in arriving at its opinion. NDRC's aggregate value conclusion represents the 100% property interest, and although not valued separately, includes both the interest of the Partnership' in the properties, as well as the interest of PSI, which owns a joint venture interest (ranging from about 25% to 70%) in all of the 28 properties. The analytical process that was undertaken in the appraisal included a review of the properties' unit mix, rental rates and historical financial statements. Following these reviews, a stabilized level of net operating income was projected for the properties (an aggregate of $6,630,000 for the 26 mini-warehouses and $380,000 for the business park space). In the case of the mini-warehouses, value estimates were then made using both a direct capitalization analysis ($66,300,000) and a discounted cash flow analysis ($62,700,000). In applying the discounted cash flow analysis to the mini-warehouses, projections of cash flow from each property were developed for an 11-year period ending in the year 2007. Growth rates for income and expenses were assumed to be 3.5% per year. NDRC then used a terminal capitalization rate of 10.5% to capitalize each property's 11th year net operating income into a residual value at the end of the holding period. The ten yearly cash flows plus the residual or reversionary proceeds net of sales costs were then discounted to present worth using a discount rate of 13.25%. In the direct capitalization analysis, NDRC applied a 10% capitalization rate to the mini-warehouses' stabilized net operating income. These value estimates were then compared to an estimated value ($63,000,000) using a regression analysis applied to approximately 300 sales of mini-warehouses to evaluate the reasonableness of the estimates using the direct capitalization and discounted cash flow analysis.
The business parks were valued using a direct capitalization analysis by applying a 10% capitalization rate to the business parks' stabilized net operating income. NDRC has prepared other appraisals for the General Partners and their affiliates and is expected to continue to prepare appraisals for the General Partners and their affiliates. No environmental investigations were conducted with respect to the limited investigation of the Partnership's properties. Accordingly, NDRC's appraisal did not take into account any environmental cleanup or other costs that might be incurred in connection with a disposition of the properties. Although there can be no assurance, based on recently completed environmental investigations (see Item 2), the Partnership is not aware of any environmental contamination of its facilities material to its overall business or financial condition. In addition to assuming compliance with applicable environmental laws, the appraisal also assumed, among other things, compliance with applicable zoning and use regulations and the existence of required licenses.
Limited Partners should recognize that appraisals are opinions as of the date specified, are subject to certain assumptions and the appraised value of the Partnership's properties may not represent their true worth or realizable value. There can be no assurance that, if these properties were sold, they would be sold at the appraised values; the sales price might be higher or lower than the appraised values.
Based on NDRC's limited appraisal (as of January 1996), the General Partners have estimated a liquidation value per Unit of $548. This liquidation value was calculated assuming (i) the properties owned by the Partnership and PSI were sold at the values reflected in NDRC's report, (ii) costs of 5% of the sales price of the properties were incurred in the sale of the properties (exclusive of payments to General Partners), (iii) the proceeds from the
properties held jointly by the Partnership and PSI were allocated between them in accordance with the joint venture agreement and (iv) the Partnership's other net assets were liquidated at their book value at March 31, 1996.
In September 1996, PSI completed a cash tender offer, which had commenced in July 1996, pursuant to which PSI acquired a total of 4,532 additional limited partnership units in the Partnership at $548 per Unit.
* Capitalize on Public Storage's name recognition. PSI, together with its predecessor, has more than 20 years of operating experience in the mini-warehouse business. PSI has informed the Partnership that it is the largest mini-warehouse facility operator in the United States in terms of both number of facilities and rentable space operated. PSI believes that its marketing and advertising programs improve its competitive position in the market. PSI's in-house Yellow Pages staff designs and places advertisements in approximately 700 directories. Commencing in early 1996, PSI began to experiment with a telephone reservation system designed to provide added customer service. Customers calling either PSI's toll-free referral system, (800) 44-STORE, or a mini-warehouse facility are directed to PSI's reservation system where a trained representative discusses with the customer space requirements, price and location preferences and also informs the customer of other products and services provided by PSI. As of December 31, 1996, the telephone reservation system was supporting rental activity at all of the Partnership's properties. PSI's toll-free telephone referral system services approximately 120,000 calls per month from potential customers inquiring as to the nearest Public Storage mini-warehouse.
* Maintain high occupancy levels and increase realized rents. Subject to market conditions, the Partnership generally seeks to achieve average occupancy levels in excess of 90% and to eliminate promotions prior to increasing rental rates. Average occupancy for the Partnership's mini-warehouses remained stable at 89% for both 1996 and 1995. Realized monthly rents per square foot increased from $.59 in 1995 to $.60 in 1996. The Partnership has increased rental rates in many markets where it has achieved high occupancy levels and eliminated or minimized promotions.
* Systems and controls. PSI has an organizational structure and a property operation system, "CHAMP" (Computerized Help and Management Program), which links its corporate office with each mini-warehouse. This enables PSI to obtain daily information from each mini-warehouse and to achieve efficiencies in operations and maintain control over its space inventory, rental rates, promotional discounts and delinquencies. Expense management is achieved through centralized payroll and accounts payable systems and a comprehensive property tax appeals department, and PSI has an extensive internal audit program designed to ensure proper handling of cash collections.
* Professional property operation. In addition to the approximately 120 support personnel at the Public Storage corporate offices, there are approximately 2,700 on-site personnel who manage the day-to-day operations of the mini-warehouse in the Public Storage system. These on-site personnel are supervised by 110 district managers, 15 regional managers and three divisional managers (with an average of 13 years experience in the mini-warehouse industry) who report to the president of the mini-warehouse property operator (who has 13 years of experience with the Public Storage organization). PSI carefully selects and extensively trains the operational and support personnel and offers them a progressive career path. See "Mini-warehouse Property Operator."
Under the supervision of the Partnership, PSI coordinates the operation of the facilities, establishes rental policies and rates, directs marketing activity and directs the purchase of equipment and supplies, maintenance activity, and the selection and engagement of all vendors, supplies and independent contractors.
PSI engages, at the expense of the Partnership, employees for the operation of the Partnership's facilities, including resident managers, assistant managers, relief managers, and billing and maintenance personnel. Some or all of these employees may be employed on a part-time basis and may also be employed by other persons, partnerships, REITs or other entities owning facilities operated by PSI.
In the purchasing of services such as advertising (including broadcast media advertising) and insurance, PSI attempts to achieve economies by combining the resources of the various facilities that it operates. Facilities operated by PSI have historically carried comprehensive insurance, including fire, earthquake, liability and extended coverage.
PSI has developed systems for space inventory, accounting and handling delinquent accounts, including a computerized network linking PSI operated facilities. Each project manager is furnished with detailed operating procedures and typically receives facilities management training from PSI. Form letters covering a variety of circumstances are also supplied to the project managers. A record of actions taken by the project managers when delinquencies occur is maintained.
The Partnership's facilities are typically advertised via signage, yellow pages, flyers and broadcast media advertising (television and radio) in geographic areas in which many of the Partnership's facilities are located. Broadcast media and other advertising costs are charged to the Partnership's facilities located in geographic areas affected by the advertising. From time to time, PSI adopts promotional programs, such as temporary rent reductions, in selected areas or for individual facilities.
For as long as the Management Agreement is in effect, PSI has granted the Partnership a non-exclusive license to use two PSI service marks and related designs, including the "Public Storage" name, in conjunction with rental and operation of facilities managed pursuant to the Management Agreement. Upon termination of the Management Agreement, the Partnership would no longer have the right to use the service marks and related designs. The General Partners believe that the loss of the right to use the service marks and related designs could have a material adverse effect on the Partnership's business.
The Management Agreement between the Partnership and PSI provides that the Management Agreement may be terminated without cause upon 60 days written notice by either party.
A corporation, in which PSI has a 95% economic interest and the Hughes Family has a 5% economic interest, sells locks, boxes and tape to tenants to be used in securing their spaces and moving their goods. PSI believes that the availability of locks, boxes and tape for sale promotes the rental of spaces.
Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
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ARIZONA
Tucson 63,400 585 11/02/83 72.5%
N. Romero Rd.
CALIFORNIA
Campbell 52,300 379 11/10/83 50.0
Salmar Ave.
Sacramento 36,900 406 12/30/82 58.7
Folsom
Signal Hill 67,900 36 12/29/83 75.0
Junipero (2) (3)
Ventura 51,900 526 06/17/83 68.8
Walker
COLORADO
Aurora 39,400 334 11/18/83 70.0
Hanover Way
Colorado Springs 26,500 147 05/13/83 59.7
Delta Drive
Colorado Springs 83,000 542 11/02/83 72.5
Edison Ave.
Colorado Springs 51,600 427 11/02/83 72.5
Mount View
Colorado Springs 50,400 478 01/04/83 51.6
Platte Ave.
Thornton 66,900 602 11/02/83 72.5
York St.
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Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
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CONNECTICUT
Southington 42,600 491 09/08/83 46.5%
Spring St.
DELAWARE
Dover 51,400 587 09/20/83 50.0
Jeffric
New Castle 64,900 667 09/20/83 50.0
New Churchmans Rd
Newark 62,600 748 09/20/83 50.0
Bellevue Rd.
FLORIDA
Orlando 56,500 537 10/13/83 70.0
J. Young Parkway
Semoran 82,200 733 01/31/83 50.8
Extra
INDIANA
Ft. Wayne 42,000 447 09/20/83 70.0
Bluffton Rd.
Ft. Wayne 67,600 599 09/20/83 70.0
W. Colliseum
Hobart 81,100 470 08/31/83 70.0
Ridge Rd.
NEW JERSEY
Blackwood 64,100 594 03/29/83 44.2
Peters Lane
NEW YORK
Vailsgate 37,200 354 04/22/83 41.6
Route 94
OKLAHOMA
Oklahoma City 62,900 478 11/02/83 72.5
Reno Ave.
OREGON
Portland 34,200 367 12/30/82 58.7
Halsey
PENNSYLVANIA
Langhorne 98,800 1,141 09/20/83 50.0
S. Flower Mill
Southhampton 93,000 785 09/13/83 30.0
Jaymor
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Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
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TEXAS
Webster 75,100 609 09/01/83 60.4%
Gulf Freeway
Webster NASA Rd.
mini-warehouse 97,000 934 11/10/83 70.0
business park 20,700 20 11/10/83 70.0
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The weighted average occupancy levels for the mini-warehouse and business park facilities were 89% and 93%, respectively, in 1996 compared to 89% and 91%, respectively, in 1995. The monthly average realized rent per square foot for the mini-warehouse and business park facilities was $.60 and $.64, respectively, in 1996 compared to $.59 and $.65, respectively, in 1995.
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct extensive environmental investigations in connection with the property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. Based on the assessments, the Partnership expensed in 1995 an estimated $179,000 for known environmental remediation requirements. Although there can be no assurance, the Partnership is not aware of any unaccrued environmental contamination of its facilities which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations.
PART II
The Units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the Units. Secondary sales activity for the Units has been limited and sporadic. The General Partners monitor transfers of the Units (a) because the admission of the transferee as a substitute limited partner requires the consent of the General Partners under the Partnership's Amended and Restated Agreement of Limited Partnership, (b) in order to ensure compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes and (c) because PSI has purchased Units. However, the General Partners do not have information regarding the prices at which all secondary sale transactions in the Units have been effectuated. Various organizations offer to purchase and sell limited partnership interests (including securities of the type such as the Units) in secondary sales transactions. Various publications such as The Stanger Report summarize and report information (on a monthly, bimonthly or less frequent basis) regarding secondary sales transactions in limited partnership interests (including the Units), including the prices at which such secondary sales transactions are effectuated.
Exclusive of the General Partners' interest in the Partnership, as of December 31, 1996, there were approximately 971 record holders of Units.
In September 1996, PSI completed a cash tender offer, which had commenced in July 1996, pursuant to which PSI acquired a total of 4,532 additional limited partnership units in the Partnership at $548 per Unit.
The Partnership makes quarterly distributions of all "Cash Available for Distribution" and will make distributions of "Cash from Sales or Refinancings". Cash Available for Distribution is cash flow from all sources less cash necessary for any obligations or capital improvements or reserves.
Reference is made to Items 6 and 7 hereof for information on the amount of such distributions.
For the Year Ended December 31,
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1996 1995 1994 1993 1992
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(In thousands, except per Unit data)
Revenues $ 11,258 $ 10,998 $ 10,692 $ 10,113 $ 9,477
Depreciation and amortization 2,401 2,263 2,141 2,028 1,870
Interest expense - - - 196 477
Net income 2,600 2,067 2,061 1,904 1,549
Limited partners' share 2,257 1,569 1,806 1,701 1,351
General partners' share 343 498 255 203 198
Limited partners'
per unit data (a)
Net income $ 34.20 $ 23.77 $ 27.36 $ 25.77 $ 20.47
Cash distributions (b) $ 43.20 $ 65.10 $ 32.00 $ 25.00 $ 25.00
As of December 31,
Cash and cash
equivalents $ 506 $ 511 $ 1,855 $ 831 $ 816
Total assets $ 34,941 $ 36,307 $ 39,040 $ 39,452 $40,694
Mortgage notes $ - $ - $ - $ - $ 2,157
payable
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(a) Limited Partners' per unit data is based on the weighted average number of
units (66,000) outstanding during the year.
(b) The General Partners distributed, concurrently with the distributions for
the third quarter of 1995, a portion of the operating cash reserve of the
Partnership estimated to be $22.95 per Unit.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income in 1996 was $2,600,000 compared to $2,067,000 in 1995, representing an increase of $533,000. The increase was primarily due to improved property operations at the Partnership's real estate facilities and a reduction in environmental costs, combined with reduced minority interest in income for those properties held jointly with PSI, partially offset by an increase in depreciation expense and a decrease in interest income.
Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased approximately $41,000 in 1996 compared to 1995, as rental income increased by $322,000, or 3%, and cost of operations (including management fees) increased by $281,000, or 7%.
Rental income for the Partnership's mini-warehouse operations was $10,561,000 in 1996 compared to $10,256,000 in 1995, representing an increase of $305,000, or 3%. The increase in rental income was primarily attributable to increased rental rates. The monthly average realized rent per square foot for the mini-warehouse facilities was $.60 in 1996 compared to $.59 in 1995. The weighted average occupancy levels at the mini-warehouse facilities remained stable at 89% for both 1996 and 1995. Costs of operations (including management fees) for the mini-warehouses increased $278,000, or 7%, to $4,013,000 in 1996 from $3,735,000 in 1995. This increase was primarily attributable to increases in repairs and maintenance, property tax, and advertising expenses. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $27,000 to $6,548,000 in 1996 from $6,521,000 in 1995.
Rental income for the Partnership's business park operations was $666,000 in 1996 compared to $649,000 in 1995, representing an increase of $17,000, or 3%. The increase in rental income was primarily attributable to increased occupancy levels, partially offset by decreased rental rates. The weighted average occupancy levels at the business park facilities were 93% in 1996 compared to 91% in 1995. The monthly average realized rent per square foot for the business park facilities was $.64 in 1996 compared to $.65 in 1995. Cost of operations (including management fees) for the business parks increased $3,000 to $295,000 in 1996 from $292,000 in 1995. Accordingly, for the Partnership's business park facilities, property net operating income increased by $14,000, or 4%, to $371,000 in 1996 from $357,000 in 1995.
Interest income decreased in 1996 over 1995 as a result of a decrease in average invested cash balances.
Depreciation and amortization increased $138,000 to $2,401,000 in 1996 from $2,263,000 in 1995. This increase is principally attributable to depreciation of capital expenditures made during 1995 and 1996.
Minority interest in income decreased by $479,000 in 1996 compared to 1995. This decrease was primarily attributed to the allocation of depreciation and amortization expense (pursuant to the partnership agreement with respect to those real estate facilities which are jointly owned with PSI) to PSI of $1,029,000 compared to $465,000 for 1996 and 1995, respectively, partially offset by an increase in operations at the Partnership's real estate facilities owned jointly with PSI.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
The Partnership's net income in 1995 was $2,067,000 compared to $2,061,000 in 1994, representing an increase of $6,000. The increase was primarily due to improved property operations at the Partnership's real estate facilities combined with reduced minority interest in income for those properties held jointly with PSI, partially offset by increased environmental costs.
Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased approximately $149,000 or 2% in 1995 compared to 1994, as rental income increased by $260,000 or 2%, and cost of operations (including management fees) increased by $111,000 or 3%.
Rental income for the Partnership's mini-warehouse operations was $10,256,000 in 1995 compared to $10,039,000 in 1994, representing an increase of $217,000, or 2%. The increase in rental income was primarily attributable to increased rental rates. The weighted average occupancy levels at the mini-warehouse facilities were 89% in 1995 compared to 90% in 1994. The monthly average realized rent per square foot for the mini-warehouse facilities was $.59 in 1995 compared to $.57 in 1994. Costs of operations (including management fees) for the mini-warehouses increased $103,000 or 3%, to $3,735,000 in 1995 from $3,632,000 in 1994. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $114,000 or 2% from $6,407,000 in 1994 to $6,521,000 in 1995.
Rental income for the Partnership's business park operations was $649,000 in 1995 compared to $606,000 in 1994, representing an increase of $43,000 or 7%. The increase in rental income was primarily attributable to increased rental rates, combined with increased occupancy levels. The weighted average occupancy levels at the business park facilities were 91% in 1995 compared to 90% in 1994. The monthly average realized rent per square foot for the business park facilities was $.65 in 1995 compared to $.63 in 1994. Cost of operations (including management fees) for the business parks increased $8,000 or 3% to $292,000 in 1995 from $284,000 in 1994. Accordingly, for the Partnership's business park facilities, property net operating income increased by $35,000 or 11% from $322,000 in 1994 to $357,000 in 1995.
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct extensive environmental investigations in connection with the property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. Based on the assessments, the Partnership expensed in 1995 an estimated $179,000 for known environmental remediation requirements. Although there can be no assurance, the Partnership is not aware of any unaccrued environmental contamination of its facilities which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations.
Minority interest in income decreased by $134,000 in 1995 compared to 1994. This decrease was primarily attributed to the allocation of depreciation and amortization expense (pursuant to the partnership agreement with respect to those real estate facilities which are jointly owned by PSI) to PSI of $465,000 compared to $327,000 for 1995 and 1994, respectively, partially offset by an increase in operations at the Partnership's real estate facilities owned jointly with PSI.
Cash flows from operating activities ($6,702,000 for the year ended December 31, 1996) have been sufficient to meet all current obligations of the Partnership. Total capital improvements were $996,000, $803,000 and $694,000 in 1996, 1995 and 1994, respectively. During 1997, the Partnership anticipates approximately $940,000 of capital improvements (of which $378,000 represents PSI's joint venture share). During 1995, the Partnership's property manager commenced a program to enhance the visual appearance of the mini-warehouse facilities. Such enhancements include new signs, exterior color schemes, and improvements to the rental offices.
The Partnership expects to continue making quarterly distributions. Total distributions paid to the General Partners and the limited partners (including per Unit amounts) for 1996 and prior years were as follows:
Total Per Unit
-------------- --------------
1996 $3,200,000 $43.20
1995 4,823,000 65.10
1994 2,371,000 32.00
1993 1,850,000 25.00
1992 1,850,000 25.00
1991 2,522,000 34.04
1990 347,000 4.70
1989 2,223,000 30.00
1988 2,222,000 30.00
1987 2,222,000 30.00
1986 2,407,000 32.50
1985 2,963,000 40.00
1984 2,963,000 40.00
1983 2,407,000 32.50
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Distributions were reduced significantly in 1990 in order to pay off short-term borrowings as well as the prepayment of long-term borrowings. In 1991, the General Partners distributed a portion of the operating cash reserve of the Partnership. The operating reserve that was distributed was estimated at $8.10 per unit. During 1992, 1993 and 1994, the distribution level was adjusted to a level supported by property operations after reduction for funds needed for capital improvements, debt service and necessary cash reserves. The 1995 distribution includes a portion of the operating cash reserve of the Partnership, estimated to be $22.95 per Unit. Future distribution levels will be based upon cash flows available for distributions (cash flows from operations less capital improvements, distributions to minority interest and necessary cash reserves).
PART III
The Partnership's General Partners are PSI and B. Wayne Hughes. PSI, acting through its directors and executive officers, and Mr. Hughes manage and make investment decisions for the Partnership. The Partnership's mini-warehouse properties are managed by PSI pursuant to a Management Agreement. Through 1996, the Partnership's commercial properties were managed by PSCPG, now known as American Office Park Properties, Inc., pursuant to a Management Agreement. In January 1997, the Partnership transferred the Signal Hill, California business park to AOPPLP in exchange for a 2.2% interest in AOPPLP, and AOPPLP became the manager of the commercial operations of the Partnership's Webster, Texas property pursuant to the Management Agreement.
The names of all directors and executive officers of PSI, the offices held by each of them with PSI, and their ages and business experience during the past five years are as follows:
Name Positions with PSI
- -------------------- -------------------------------------------------
B. Wayne Hughes Chairman of the Board and Chief Executive Officer
Harvey Lenkin President and Director
John Reyes Senior Vice President and Chief Financial Officer
Hugh W. Horne Senior Vice President
Obren B. Gerich Senior Vice President
Marvin M. Lotz Senior Vice President
David Goldberg Senior Vice President and General Counsel
A. Timothy Scott Senior Vice President and Tax Counsel
Sarah Hass Vice President and Secretary
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
Uri P. Harkham Director
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B. Wayne Hughes, age 63, a general partner of the Partnership, has been a director of PSI since its organization in 1980 and was President and Co-Chief Executive Officer from 1980 until November 1991 when he became Chairman of the Board and sole Chief Executive Officer. Mr. Hughes was an officer and director of affiliates of PSMI and a director of PSMI until November 1995. Mr. Hughes has been Chairman of the Board and Chief Executive Officer since 1990 of Public Storage Properties XI, Inc., Public Storage Properties XIV, Inc., Public Storage Properties XV, Inc., Public Storage Properties XVI, Inc., Public Storage Properties XVII, Inc., Public Storage Properties XVIII, Inc., Public Storage Properties XIX, Inc. and Public Storage Properties XX, Inc. (collectively, the "Public Storage REITs"), REITs that were organized by affiliates of PSMI. From 1989-90 until the respective dates of merger, he was Chairman of the Board and Chief Executive Officer of Public Storage Properties VI, Inc., Public Storage Properties VII, Inc., Public Storage Properties VIII, Inc., Public Storage Properties IX, Inc., Public Storage Properties X, Inc. and Public Storage Properties XII, Inc., PS Business Parks, Inc., Partners Preferred Yield, Inc., Partners Preferred Yield II, Inc., Partners Preferred Yield III, Inc. and Storage Properties, Inc. ("SPI") (collectively, the "Merged Public Storage REITs"), affiliated REITs that were merged into PSI between September 1994 and December 1996. Mr. Hughes has been active in the real estate investment field for over 25 years.
Harvey Lenkin, age 60, became President and a director of PSI in November 1991. Mr. Lenkin was an officer and director of PSMI and its affiliates until November 1995. He has been President of the Public Storage REITs since 1990. He was President of the Merged Public Storage REITs from 1989-90 until the respective dates of merger and was also a director of SPI from 1989 until June 1996.
John Reyes, age 36, a certified public accountant, joined PSMI in 1990 and was controller of PSI from 1992 until December 1996 when he became Chief Financial Officer. He became a Vice President of PSI in November 1995 and a Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was employed by Ernst & Young.
Hugh W. Horne, age 52, has been a Vice President of PSI since 1980 and was Secretary of PSI from 1980 until February 1992 and became Senior Vice President of PSI in November 1995. He was an officer of PSMI from 1973 to November 1995. Mr. Horne has been a Vice President of the Public Storage REITs since 1993. He was a Vice president of SPI from 1989 until June 1996 and of the other Merged Public Storage REITs from 1993 until the respective dates of merger. He is responsible for managing all aspects of property acquisition for PSI.
Obren B. Gerich, age 58, a certified public accountant and certified financial planner, has been a Vice President of PSI since 1980 and became Senior Vice President of PSI in November 1995. He was Chief Financial Officer of PSI until November 1991. Mr. Gerich was an officer of PSMI from 1975 to November 1995. He has been Vice President and Secretary of the Public Storage REITS since 1990 and was Chief Financial Officer until November 1995. Mr. Gerich was Vice President and Secretary of the Merged Public Storage REITs from 1989-90 until the respective dates of merger.
Marvin M. Lotz, age 54, has had overall responsibility for Public Storage's mini-warehouse operations since 1988. He became a Senior Vice President of PSI in November 1995. Mr. Lotz was an officer of PSMI with responsibility for property acquisitions from 1983 until 1988.
David Goldberg, age 47, joined PSMI's legal staff in June 1991, rendering services on behalf of PSI and PSMI. He became a Senior Vice President and General Counsel of PSI in November 1995 and Vice President and General Counsel of the Public Storage REITs in December 1995. From December 1982 until May 1991, he was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI.
A. Timothy Scott, age 45, became a Senior Vice President and Tax Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in November 1996. From June 1991 until joining PSI, Mr. Scott practiced tax law as a shareholder of the law firm of Heller, Ehrman, White & McAuliffe, counsel to PSI and PSMI. Prior to June 1991, his professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI.
Sarah Hass, age 41, became Secretary of PSI in February 1992. She became a Vice President of PSI in November 1995. She joined PSMI's legal department in June 1991, rendering services on behalf of PSI and PSMI. From 1987 until May 1991, her professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI, and from April 1986 until June 1987, she was associated with that firm, practicing in the area of securities law. From September 1979 until September 1985, Ms. Hass was associated with the law firm of Rifkind & Sterling, Incorporated.
Robert J. Abernethy, age 57, is President of American Standard Development Company and of Self-Storage Management Company, which develop and operate mini-warehouses. Mr. Abernethy has been a director of PSI since its organization in 1980. He is a member of the board of directors of Johns Hopkins University and of the Los Angeles County Metropolitan Transportation Authority and a former member of the board of directors of the Metropolitan Water District of Southern California.
Dann V. Angeloff, age 61, is President of the Angeloff Company, a corporate financial advisory firm. The Angeloff Company has rendered, and is expected to continue to render, financial advisory and securities brokerage services for PSI. Mr. Angeloff is the general partner of a limited partnership that owns a mini-warehouse operated by PSI and which secures a note owned by PSI. Mr. Angeloff has been a director of PSI since its organization in 1980. He is a director of Bonded Motors, Inc., Compensation Resource Group, Datametrics Corporation, Nicholas/Applegate Growth Equity Fund, Nicholas/Applegate Investment Trust, ReadyPac Produce, Inc., Royce Medical Company and Seda Specialty Packaging Corp. He was a director of SPI from 1989 until June 1996.
William C. Baker, age 63, became a director of PSI in November 1991. Since April 1996, Mr. Baker has been Chairman of the Board of Santa Anita Realty Enterprises, Inc., a REIT that owns the Santa Anita Racetrack and other real estate assets. In August 1996, he became Chairman of the Board and Chief Executive Officer of Santa Anita Operating Company, which operates the Santa
Anita Racetrack through its subsidiary the Los Angeles Turf Club, Incorporated. From April 1993 through May 1995, Mr. Baker was President of Red Robin International, Inc., an operator and franchiser of casual dining restaurants in the United States and Canada. Since January 1992, he has been Chairman and Chief Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc. From 1976 to 1988, he was a principal shareholder and Chairman and Chief Executive Officer of Del Taco, Inc., an operator and franchiser of fast food restaurants in California. Mr. Baker is a director of Callaway Golf Company.
Uri P. Harkham, age 48, became a director of PSI in March 1993. Mr. Harkham has been the President and Chief Executive Officer of the Jonathan Martin Fashion Group, which specializes in designing, manufacturing and marketing women's clothing, since its organization in 1976. Since 1978, Mr. Harkham has been the Chairman of the Board of Harkham Properties, a real estate firm specializing in buying and managing fashion warehouses in Los Angeles and Australia.
Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate and Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement, File No. 2-77224, each of the General Partners continues to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii) withdrawal with the consent of the other general partner and a majority vote of the limited partners, or (iii) removal by a majority vote of the limited partners.
Each director of PSI serves until he resigns or is removed from office by PSI, and may resign or be removed from office at any time with or without cause. Each officer of PSI serves until he resigns or is removed by the board of directors of PSI. Any such officer may resign or be removed from office at any time with or without cause.
There have been no events under any bankruptcy act, no criminal proceedings, and no judgments or injunctions material to the evaluation of the ability of any director or executive officer of PSI during the past five years.
Title Name and Address Amount of Beneficial Percent
of Class of Beneficial Owner Ownership of Class
- ------------------ --------------------------- ------------------------- ------------
Units of Limited Public Storage, Inc. 45,618 Units (1) 69.12%
Partnership Interest 701 Western Avenue
Glendale, CA 91201-2394 (1)
|
The Partnership is not aware of any other beneficial owners of more than 5% of the Units.
In September 1996, PSI completed a cash tender offer, which had commenced in July 1996, pursuant to which PSI acquired a total of 4,532 additional limited partnership units in the Partnership at $548 per Unit.
(b) The Partnership has no officers and directors.
The General Partners (or their predecessor-in-interest) have contributed $333,000 to the capital of the Partnership representing 1% of the aggregate capital contributions and as a result participate in the distributions to the limited partners and in the Partnership's profits and losses in the same proportion that the general partners' capital contribution bears to the total capital contribution. Information regarding ownership of the Units by PSI, a General Partner, is set forth under section (a) above. The directors and executive officers of PSI, as a group, do not own any Units.
(c) The Partnership knows of no contractual arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership, except for articles 16, 17 and 21.1 of the Partnership's Amended Certificate and Agreement of Limited Partnership, a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement File No. 2-77224. Those articles provide, in substance, that the limited partners shall have the right, by majority vote, to remove a general partner and that a general partner may designate a successor with the consent of the other general partner and a majority of the limited partners.
The Partnership owns interests in 27 properties (which exclude the property transferred to AOPPLP in January 1997); all of these properties are held in a general partnership comprised of the Partnership and PSI.
Under the terms of the partnership agreement relating to the ownership of the properties, PSI has the right to compel a sale of each property at any time after seven years from the date of acquisition at not less than its independently determined fair market value provided the Partnership receives its share of the net sales proceeds solely in cash. As of December 31, 1996, PSI has the right to require the Partnership to sell all of the joint venture properties on these terms.
1. Incentive distributions equal to 10% of Cash Flow from Operations.
2. Provided the limited partners have received distributions equal to 100% of their investment plus a cumulative 8% per year (not compounded) on their investment (reduced by distributions other than from Cash Flow from Operations), subordinated incentive distributions equal to 15% of remaining Cash from Sales or Refinancings.
3. Provided the limited partners have received distributions equal to 100% of their capital contributions plus a cumulative 6% per year (not compounded) on their investment (reduced by distributions other than distributions from Cash Flow from Operations), brokerage commissions at the lesser of 3% of the sales price of a property or 50% of a competitive commission.
During 1996, approximately $320,000 was paid to PSI with respect to items 1, 2, and 3 above. The Partnership owns interests in 27 properties (which exclude the property transferred to AOPPLP in January 1997); all of these properties are held in a general partnership comprised of the Partnership and PSI.
The Partnership has a Management Agreement with PSI pursuant to which the Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse spaces operated for the Partnership. During 1996, the Partnership paid fees of $635,000 to PSI pursuant to the Management Agreement.
Through 1996, the Partnership's commercial properties were managed by PSCPG pursuant to a Management Agreement which provides for the payment of a fee by the Partnership of 5% of the gross revenues of the commercial space operated for the Partnership. During 1996, the Partnership paid $33,000 to PSCPG pursuant to the Management Agreement. PSI has a 95% economic interest (represented by voting preferred stock) in PSCP and the Hughes Family had a 5% economic interest
(represented by voting common stock) in PSCPG until December 1996, when the Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice President and Chief Financial Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG issued additional voting common stock to two other unaffiliated investors. In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to AOPPLP, an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. Included among the properties transferred was the Partnership's transfer of the Signal Hill, California business park to AOPPLP in exchange for a 2.2% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. Since January 1997, AOPPLP also manages the commercial operations of the Partnership's Webster, Texas property pursuant to the Management Agreement.
PART IV
1. Financial Statements: See Index to Consolidated Financial
Statements and Financial Statement Schedules.
2. Financial Statement Schedules: See Index to Consolidated
Financial Statements and Financial Statement Schedules.
3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K:
None
(c) Exhibits: See Exhibit Index contained herein.
PS PARTNERS, LTD.,
INDEX TO EXHIBITS
3.1 Amended Certificate and Agreement of Limited Partnership. Previously
filed with the Securities and Exchange Commission as Exhibit A to the
Partnership's Prospectus included in Registration Statement No.
2-77224 and incorporated herein by reference.
10.1 Second Amended and Restated Management Agreement dated November 16,
1995, between the Partnership and Public Storage Management, Inc.
Filed herewith.
10.2 Amended Management Agreement dated February 21, 1995 between Storage
Equities, Inc. and Public Storage Commercial Properties Group, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
10.3 Participation Agreement dated as of September 14, 1982, among Storage
Equities, Inc., the Partnership, Public Storage, Inc., B. Wayne Hughes
and Kenneth Q. Volk, Jr. Previously filed with the Securities and
Exchange Commission as an exhibit to Storage Equities, Inc.'s Annual
Report on Form 8-K dated September 14, 1982 and incorporated herein by
reference.
27 Financial data schedule. Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PS PARTNERS, LTD.
Dated: March 26, 1997 By: Public Storage, Inc., General Partner
By: /s/ B. Wayne Hughes
--------------------------------------
B. Wayne Hughes, Chairman of the Board
/s/ B. Wayne Hughes
--------------------------------------
B. Wayne Hughes, General Partner
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership in the capacities and on the dates indicated.
Signature Capacity Date
- --------------------------- --------------------------------------------- ------------------------------
/s/ B. Wayne Hughes Chairman of the Board and Chief March 26, 1997
- --------------------------- Executive Officer of Public Storage, Inc. and
B. Wayne Hughes General Partner (principal executive officer)
/s/ Harvey Lenkin President and Director March 26, 1997
- --------------------------- of Public Storage, Inc.
Harvey Lenkin
/s/ John Reyes Senior Vice President and Chief Financial Officer March 26, 1997
- ---------------------------
John Reyes of Public Storage, Inc. (principal financial
officer and principal accounting officer)
/s/ Robert J. Abernethy Director of Public Storage, Inc. March 26, 1997
- ---------------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director of Public Storage, Inc. March 26, 1997
- ---------------------------
Dann V. Angeloff
/s/ William C. Baker Director of Public Storage, Inc. March 26, 1997
- ---------------------------
William C. Baker
/s/ Uri P. Harkham Director of Public Storage, Inc. March 26, 1997
- ---------------------------
Uri P. Harkham
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PS PARTNERS, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
References
Report of Independent Auditors F-1
Consolidated Financial Statements and Schedules:
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
For the years ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Income F-3
Consolidated Statements of Partners' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-9
Schedule
III- Real Estate and Accumulated Depreciation F-10 - F-12
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All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
Report of Independent Auditors
The Partners
PS Partners, Ltd.
We have audited the consolidated balance sheets of PS Partners, Ltd. as of December 31, 1996 and 1995 and the related consolidated statements of income, partners' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PS Partners, Ltd. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, CA
March 18, 1997
PS PARTNERS, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
----------- -----------
ASSETS
Cash and cash equivalents $ 506,000 $ 511,000
Rent and other receivables 89,000 121,000
Real estate facilities, at cost:
Land 11,855,000 11,855,000
Buildings and equipment 46,862,000 45,866,000
----------- -----------
58,717,000 57,721,000
Less accumulated depreciation (24,576,000) (22,175,000)
----------- -----------
34,141,000 35,546,000
Other assets 205,000 129,000
----------- -----------
$ 34,141,000 $ 35,546,000
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 654,000 $ 746,000
Advance payments from renters 366,000 391,000
Minority interest in general partnerships 20,668,000 21,317,000
Partners' equity:
Limited partners' equity, $500 per unit, 66,000
units authorized, issued and outstanding 13,077,000 13,671,000
General partners' equity 176,000 182,000
----------- -----------
Total partners' equity 13,253,000 13,853,000
----------- -----------
$ 34,941,000 $ 36,307,000
============ ============
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See accompanying notes.
PS PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
----------- ----------- -----------
REVENUE:
Rental income $ 11,227,000 $ 10,905,000 $ 10,645,000
Interest income 31,000 93,000 47,000
----------- ----------- -----------
11,258,000 10,998,000 10,692,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of operations 3,640,000 3,378,000 3,283,000
Management fees 668,000 649,000 633,000
Depreciation and amortization 2,401,000 2,263,000 2,141,000
Administrative 87,000 84,000 99,000
Environmental costs - 216,000 -
----------- ----------- -----------
6,796,000 6,590,000 6,156,000
----------- ----------- -----------
Income before minority interest 4,462,000 4,408,000 4,536,000
Minority interest in income (1,862,000) (2,341,000) (2,475,000)
----------- ----------- -----------
NET INCOME $ 2,600,000 $ 2,067,000 $ 2,061,000
=========== =========== ===========
Limited partners' share of net income
($34.20, $23.77, and $27.36 per unit in 1996,
1995, and 1994, respectively) $ 2,257,000 $ 1,569,000 $ 1,806,000
General partners' share of net income 343,000 498,000 255,000
----------- ----------- -----------
$ 2,600,000 $ 2,067,000 $ 2,061,000
=========== =========== ===========
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See accompanying notes.
PS PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
Limited General
Partners Partners Total
------------ --------- ------------
Balances at December 31, 1993 $ 16,705,000 $ 214,000 $ 16,919,000
------------ --------- ------------
Net income 1,806,000 255,000 2,061,000
Distributions (2,112,000) (259,000) (2,371,000)
------------ --------- ------------
Balances at December 31, 1994 16,399,000 210,000 16,609,000
Net income 1,569,000 498,000 2,067,000
Distributions (4,297,000) (526,000) (4,823,000)
------------ --------- ------------
Balances at December 31, 1995 13,671,000 182,000 13,853,000
Net income 2,257,000 343,000 2,600,000
Distributions (2,851,000) (349,000) (3,200,000)
------------ --------- ------------
Balances at December 31, 1996 $ 13,077,000 $ 176,000 $ 13,253,000
============ ========= ============
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See accompanying notes.
PS PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,600,000 $ 2,067,000 $ 2,061,000
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,401,000 2,263,000 2,141,000
Decrease (increase) in rent and other receivables 32,000 (64,000) (9,000)
Increase in other assets (76,000) (7,000) (2,000)
(Decrease) increase in accounts payable (92,000) 260,000 (5,000)
Decrease in advance payments from renters (25,000) (14,000) (39,000)
Minority interest in income 1,862,000 2,341,000 2,475,000
----------- ----------- -----------
Total adjustments 4,102,000 4,779,000 4,561,000
----------- ----------- -----------
Net cash provided by operating activities 6,702,000 6,846,000 6,622,000
----------- ----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (996,000) (803,000) (694,000)
----------- ----------- -----------
Net cash used in investing activities (996,000) (803,000) (694,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to holder of minority interest (2,511,000) (2,564,000) (2,533,000)
Distributions to partners (3,200,000) (4,823,000) (2,371,000)
----------- ----------- -----------
Net cash used in financing activities (5,711,000) (7,387,000) (4,904,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (5,000) (1,344,000) 1,024,000
Cash and cash equivalents at the beginning of the year 511,000 1,855,000 831,000
----------- ----------- -----------
Cash and cash equivalents at the end of the year $ 506,000 $ 511,000 $ 1,855,000
=========== =========== ===========
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See accompanying notes.
PS PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
In 1995, there was a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired substantially all of PSMI's United States real estate operations and became the operator of the Partnership's mini-warehouse properties.
The Partnership has invested in existing mini-warehouse storage facilities which offer self-service storage spaces for lease, usually on a month-to-month basis, to the general public and, to a lesser extent, in existing business park facilities which offer industrial and office space for lease.
The Partnership has ownership interests in 27 properties, which exclude a property transferred to American Office Park Properties, L.P. ("AOPPLP") in January 1997 (see Note 5). All of the properties are owned jointly through 22 general partnerships (the "Joint Ventures") with PSI. For tax adminstrative efficiency, the Joint Ventures were subsequently consolidated into a single general partnership. The Partnership is the managing general partner of the Joint Ventures, with ownership interests in the Joint Ventures ranging from 30% to 72.5%.
Minority interest in income represents PSI's share of net income with respect to the Joint Ventures. Under the terms of the partnership agreements all depreciation and amortization with respect to each Joint Venture is allocated solely to the Partnership until the limited partners recover their initial capital contribution. Thereafter, all depreciation and amortization is allocated solely to PSI until it recovers its initial capital contribution. All remaining depreciation and amortization is allocated to the Partnership and PSI in proportion to their ownership percentages.
Depreciation and amortization allocated to PSI was $1,029,000 in 1996, $465,000 in 1995 and $327,000 in 1994. The allocation of depreciation and amortization to PSI has the effect of reducing minority interest in income and has no effect on the reported depreciation and amortization expense.
Under the terms of the partnership agreements, for property acquisitions in which PSI issued convertible securities to the sellers for its interest, PSI's rights to receive cash flow distributions from the partnerships for any year after the first year of operation are subordinated to cash distributions to the Partnership equal to a cumulative annual 7% of its cash investment (not compounded). These agreements also specify that upon sale or refinancing of a property for more than its original purchase price, distribution of proceeds to PSI is subordinated to the return to the Partnership of the amount of its cash investment and the 7% distribution described above.
PS PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership adopted Statement 121 in 1996 and the adoption has no effect.
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct extensive environmental investigations in connection with the property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. Based on the assessments, the Partnership believes that it is probable that it will incur costs totaling $179,000 for known environmental remediation requirements which the Partnership accrued and expensed at the end of 1995. During 1996 and 1995, the Partnership paid $33,000 and $37,000, respectively, in connection with the environmental remediations. Although there can be no assurance, the
PS PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Proceeds from sales and refinancings will be distributed entirely to the limited partners until the limited partners recover their investment plus a cumulative 8% annual return (not compounded); thereafter, the General Partners have a 15% interest in remaining proceeds.
PSI has a 95% economic interest in PSCPG and the Hughes Family had a 5% economic interest in PSCPG until December 1996, when the Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice President and Chief Financial Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG issued additional voting common stock to two other unaffiliated investors. See Note 5.
In January 1997, AOPPLP became the operator of the Partnership's commercial properties pursuant to the Management Agreement. AOPPLP is an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc.
Taxes based on income are the responsibility of the individual partners and, accordingly, the Partnership's consolidated financial statements do not reflect a provision for such taxes.
Taxable net income was $3,065,000, $3,415,000 and $2,992,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The difference between taxable income and book income is primarily related to timing differences in depreciation expense.
PS PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to AOPPLP, an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. Included among the properties transferred was the Partnership's transfer of the Signal Hill, California business park to AOPPLP in exchange for a 2.2% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. Since January 1997, AOPPLP also manages the commercial operations of the Partnership's Webster, Texas Property pursuant to the Management Agreement.
PS PARTNERS, LTD
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION
Costs
subsequent
Initial Cost to acquisition
----------------------------------
Date Building & Building &
Acquired Description Encumbrances Land Improvement Improvements
- -----------------------------------------------------------------------------------------------------------
Mini-warehouses
----------------------------------
1/83 Platte - $ 409,000 $ 953,000 $ 167,000
5/83 Delta Drive - 67,000 481,000 101,000
12/82 Port/Halsey - 357,000 1,150,000 (470,000)
12/82 Sacto/Folsom - 396,000 329,000 480,000
1/83 Semoran - 442,000 1,882,000 115,000
3/83 Blackwood - 213,000 1,559,000 110,000
10/83 Orlando J. Y. Parkway - 383,000 1,512,000 206,000
9/83 Southington - 124,000 1,233,000 208,000
4/83 Vailsgate - 103,000 990,000 186,000
6/83 Ventura - 658,000 1,734,000 44,000
9/83 Southhampton - 331,000 1,738,000 424,000
9/83 Webster/Keystone - 449,000 1,688,000 600,000
9/83 Dover - 107,000 1,462,000 272,000
9/83 Newcastle - 227,000 2,163,000 251,000
9/83 Newark - 208,000 2,031,000 138,000
9/83 Langhorne - 263,000 3,549,000 177,000
8/83 Hobart - 215,000 1,491,000 226,000
9/83 Ft. Wayne/W. Coliseum - 160,000 1,395,000 36,000
9/83 Ft. Wayne/Bluffton - 88,000 675,000 94,000
11/83 Aurora - 505,000 758,000 182,000
11/83 Campbell - 1,820,000 1,408,000 (712,000)
|
Gross Carrying Amount
At December 31, 1996
---------------------------------------------------------------
Date Building & Accumulated
Acquired Description Land Improvements Total Depreciation
- --------------------------------------------------------------------------------------------------------
Mini-warehouses
----------------------------------
1/83 Platte $ 409,000 $ 1,120,000 $ 1,529,000 $ 603,000
5/83 Delta Drive 67,000 582,000 649,000 314,000
12/82 Port/Halsey 357,000 680,000 1,037,000 367,000
12/82 Sacto/Folsom 396,000 809,000 1,205,000 415,000
1/83 Semoran 442,000 1,997,000 2,439,000 1,108,000
3/83 Blackwood 213,000 1,669,000 1,882,000 904,000
10/83 Orlando J. Y. Parkway 383,000 1,718,000 2,101,000 901,000
9/83 Southington 124,000 1,441,000 1,565,000 742,000
4/83 Vailsgate 103,000 1,176,000 1,279,000 620,000
6/83 Ventura 658,000 1,778,000 2,436,000 955,000
9/83 Southhampton 331,000 2,162,000 2,493,000 1,143,000
9/83 Webster/Keystone 449,000 2,288,000 2,737,000 1,096,000
9/83 Dover 107,000 1,734,000 1,841,000 885,000
9/83 Newcastle 227,000 2,414,000 2,641,000 1,275,000
9/83 Newark 208,000 2,169,000 2,377,000 1,134,000
9/83 Langhorne 263,000 3,726,000 3,989,000 1,972,000
8/83 Hobart 215,000 1,717,000 1,932,000 883,000
9/83 Ft. Wayne/W. Coliseum 160,000 1,431,000 1,591,000 754,000
9/83 Ft. Wayne/Bluffton 88,000 769,000 857,000 397,000
11/83 Aurora 505,000 940,000 1,445,000 479,000
11/83 Campbell 1,379,000 1,137,000 2,516,000 572,000
|
Costs
subsequent
Initial Cost to acquisition
----------------------------------
Date Building & Building &
Acquired Description Encumbrances Land Improvement Improvements
- -----------------------------------------------------------------------------------------------------------
11/83 Col Springs/Ed (Coulter) - $ 471,000 $ 1,640,000 $ (16,000)
11/83 Col Springs/Mv (Coulter) - 320,000 1,036,000 85,000
11/83 Thorton (Coulter) - 418,000 1,400,000 0
11/83 Oklahoma City (Coulter) - 454,000 1,030,000 570,000
11/83 Tucson (Coulter) - 343,000 778,000 431,000
Business park
12/83 Signal Hill/Bus. Park - 1,195,000 2,220,000 832,000
Mini-warehouse & business
park
11/83 Webster/NASA - 1,570,000 2,457,000 942,000
---------------------------------------------------------------------
TOTAL - $ 12,296,000 $ 40,742,000 $ 5,679,000
=====================================================================
|
Gross Carrying Amount
At December 31, 1996
---------------------------------------------------------------
Date Building & Accumulated
Acquired Description Land Improvements Total Depreciation
- --------------------------------------------------------------------------------------------------------
11/83 Col Springs/Ed (Coulter) $ 471,000 $ 1,624,000 $ 2,095,000 $ 858,000
11/83 Col Springs/Mv (Coulter) 320,000 1,121,000 1,441,000 613,000
11/83 Thorton (Coulter) 418,000 1,400,000 1,818,000 754,000
11/83 Oklahoma City (Coulter) 454,000 1,600,000 2,054,000 849,000
11/83 Tucson (Coulter) 343,000 1,209,000 1,552,000 602,000
Business park
12/83 Signal Hill/Bus. Park 1,195,000 3,052,000 4,247,000 1,522,000
Mini-warehouse & business
park
11/83 Webster/NASA 1,570,000 3,399,000 4,969,000 1,859,000
---------------------------------------------------------------
TOTAL $ 11,855,000 $ 46,862,000 $ 58,717,000 $ 24,576,000
===============================================================
|
PS PARTNERS, LTD.
A CALIFORNIA LIMITED PARTNERSHIP
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)
(a) The following is a reconciliation of cost and related accumulated
depreciation.
GROSS CARRYING COST RECONCILIATION
Years Ended
December 31,
--------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
Balance at beginning of the period $57,721,000 $ 56,918,000 $56,224,000
Additions during the period:
Improvements, etc. 996,000 803,000 694,000
Deductions during the period - - -
------------ ------------ ------------
Balance at close of the period $ 58,717,000 $ 57,721,000 $ 56,918,000
============ ============ ============
ACCUMULATED DEPRECIATION RECONCILIATION
1996 1995 1994
------------ ------------ ------------
Balance at beginning of the period $ 22,175,000 $ 19,913,000 $17,772,000
Additions during the period:
Depreciation 2,401,000 2,262,000 2,141,000
Deductions during the period - - -
------------ ------------ ------------
$ 24,576,000 $ 22,175,000 $ 19,913,000
============ ============ ============
|
(b) The aggregate cost of real estate for Federal income tax purposes is $57,829,000 at December 31, 1996.
EXHIBIT 10.1
SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT (the "Agreement"), dated as of November 16, 1995, by and among PUBLIC STORAGE, INC., a California corporation ("PSI") and each of the entities listed on Schedule A (individually, "Owner" and collectively, "Owners"):
A. The parties desire to amend and restate the terms and provisions of an Amended Management Agreement dated as of February 21, 1995 (the "Original Agreement") in their entirety to reflect the merger of Public Storage Management, Inc. into PSI;
B. Owners own mini-warehouse properties (the "Properties");
C. PSI is currently performing services, and has special expertise, in regard to other similar facilities owned by PSI and by other owners;
D. Owners desire to continue to engage PSI to render certain services in regard to the Properties and PSI desires to accept said engagement, all in accordance with the terms and conditions of this Agreement as hereinafter set forth; and
E. Owners desire and intend to continue to retain final authority over and operational control of the Properties during the term of this Agreement, including final decisions as to personnel, third party vendors, repairs and maintenance, purchase of inventory and supplies, eviction procedures, rent collections, and operating procedures and budgets for the Properties.
NOW, THEREFORE, in consideration for the mutual covenants herein contained, the parties hereto hereby adopt the following complete amendment and restatement of the Original Agreement:
(a) Owner hereby engages PSI as an independent contractor and PSI hereby accepts such engagement and as described herein, upon the terms and conditions hereinafter set forth.
(b) Owner acknowledges that PSI is in the business of rendering services in connection with facilities currently owned or to be acquired by PSI and others. It is hereby expressly agreed that PSI may continue to engage in such activities (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other businesses which may compete directly or indirectly with activities of Owner.
(c) In the performance of its duties under this Agreement, PSI shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto partners or joint venturers, nor, except as expressly otherwise provided for herein, construed as making PSI an agent or employee of Owner.
(a) GENERAL DUTIES AND AUTHORITY. Subject to the restrictions and limitations provided herein, PSI shall coordinate all aspects of the operation of the Properties. Unless otherwise expressly provided in this Agreement to the contrary all such operations shall be performed on behalf of, for the account of, and under the supervision of Owner. Notwithstanding the foregoing or anything else in this Agreement, Owner shall have the sole and exclusive authority to fully and completely manage the Properties and supervise and direct the business and affairs associated or related to the daily operation thereof.
(b) RENTING OF THE PROPERTIES. PSI shall advise in respect of, and coordinate general policies and procedures for, the marketing activities of Owner's employees for the Properties, including providing Owner with the recommended terms and conditions of occupancy and forms of rental agreement in each state in which the Properties are located, monitoring related legal requirements and implementing necessary changes to such terms and conditions and
forms of rental agreement. Owner's employees shall enter into rental agreements on behalf, in the name and for the account of Owner with tenants and collect rent from tenants of the Properties in accordance with such rental agreements. PSI shall advise in respect of, and coordinate general policies and procedures for, yellow page and media advertising.
(c) REPAIR, MAINTENANCE AND IMPROVEMENTS. PSI shall assist, advise and coordinate the acquisition of furniture, fixtures and supplies for the Properties, and the purchase, lease or other acquisition of the same on behalf, in the name and for the account of Owner. PSI shall advise Owner's employees in respect of all decisions concerning the maintenance, repair and landscaping of the Properties; all costs incurred in connection therewith shall be on behalf, in the name and for the account of Owner.
(d) PERSONNEL. PSI shall assist, advise and coordinate, through Owner's employees, the selection of all vendors, suppliers, contractors, subcontractors and employees with respect to the Properties and shall assist and advise Owner in establishing policies for the hire, discharge and supervision of all labor and employees required for the operation (including billing and collections) and maintenance of the Properties, including attorneys, accountants, consultants and clerical employees; all such acts shall be on behalf of and on the account of Owner. Any employees so hired shall be employees of Owner, but shall be carried on the payroll of a corporation organized to employ such personnel and shall not be deemed to be employees of PSI. Owner shall not bear the salaries or fringe benefits of the executive officers, directors and controlling persons of PSI. Employees of Owner may render services on a full-time or part-time basis. Employees of Owner may include, but will not be limited to, on-site resident managers, maintenance personnel and other individuals located, rendering services, or performing activities on the Properties in connection with their operation. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Properties. It is understood and acknowledged that some or all of such persons may be simultaneously employed by Owner and by or for the account of the owners of other facilities for whom PSI is performing services, some of whom may (i) be affiliates of PSI and (ii) compete with Owner. These persons shall be employed by Owner on a part-time basis and Owner shall pay only for the time allocable to services to Owner on an equitable basis and PSI shall report such allocation to Owner.
PSI shall be responsible for the disbursement of funds in payment of all expenses incurred in connection with the operation of the Properties and Owner shall not be required to employ personnel in such disbursement. PSI shall not be separately reimbursed for the cost of furnishing such service and shall not be reimbursed for the time of its executive officers devoted to Owner's affairs or for the other overhead expenses of PSI.
(e) AGREEMENTS. PSI shall assist, advise and coordinate the negotiation and execution by Owner's employees of such agreements deemed necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Properties and such other agreements which are intended for the benefit of the Properties and which are incidental to the matters covered by this Agreement.
(f) REGULATIONS AND PERMITS. PSI shall assist and advise in regard to, and coordinate, the compliance with applicable statutes, ordinances, laws, rules, regulations and orders of any governmental or regulatory body, having jurisdiction over the Properties, in each of the jurisdictions in which the Properties are located, respecting the use of the Properties and the maintenance or operation thereof. PSI shall assist, advise and coordinate with Owner in applying for and attempting to obtain and maintain, on behalf, in the name and for the account of Owner, all licenses and permits required or advisable in connection with the management and operation of the Properties. PSI shall maintain, at PSI's offices, a legal staff, at the expense of Owner (and other owners of facilities), to respond to inquiries by Owner's employees regarding the foregoing.
(g) RECORDS, REPORTS AND ACCOUNTING. PSI shall maintain the operation of a system of record keeping, bookkeeping and accounting with respect to all receipts and disbursements in connection with the management and operation of the Properties. The books, records and accounts shall be maintained at PSI's office, shall be organized in a manner which will permit the performance of an audit thereon, and shall be available and open to examination and audit by Owner or its representatives at all reasonable times.
PSI shall cause to be prepared and delivered to Owner, at Owner's expense and by Owner's employees financial statements as follows:
(i) On or before thirty (30) days after the end of each calendar month, a statement of operations showing the results of operation of each of the Properties (including expenses paid by Owner) for the next preceding month and for Owner's fiscal year to date having annexed thereto a computation of the fee under this Agreement for such month.
(ii) On or before one hundred twenty (120) days after the close of the fiscal year, a statement of operations showing the results of the operations of the Properties during said fiscal year, having annexed thereto a computation of the fee for such fiscal year.
(h) DEPOSITS AND DISBURSEMENTS. PSI shall cause the establishment of bank accounts in the name of Owner and Owner's employees shall deposit in such bank accounts all receipts and monies arising from the operation of the Properties or otherwise received for and on behalf of Owner. Interest income from such funds of Owner shall not be deemed income from the Properties for purposes of computing the fee payable hereunder. PSI shall not commingle any of the above-described revenues with any other funds. PSI shall disburse Owner's funds from said accounts on behalf of Owner in such amounts and at such times as disbursement of such revenues for payment of expenses is required in accordance with this Agreement. Funds of Owner in excess of those required for the operation and maintenance of the Properties in accordance with this Agreement during the term hereof shall be distributed to Owner monthly concurrently with the report required by Section 2(g) hereof.
(i) COLLECTION. PSI shall advise on general procedures in regard to billing and collection by Owner's employees of all accounts receivable with respect to the Properties and shall coordinate policies and procedures to minimize the amount of bad debts.
(j) LEGAL ACTIONS. PSI shall coordinate in the name of Owner any and all legal actions or proceedings deemed necessary or advisable to collect charges, rent or other income due to Owner with respect to the Properties or to oust or dispossess tenants or other persons unlawfully in possession under any lease, license, concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or
occupant. The costs of all such legal actions or proceedings shall be borne by Owner. PSI shall maintain, at PSI's offices, a legal staff, at the expense of Owner (and other owners of facilities) to assist, advise and coordinate such activities.
(k) INSURANCE. PSI shall use its best efforts to assure that there is obtained and kept in force, at the expense of Owner, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities, to the extent reasonably available on economic terms. To reduce the cost of such insurance, PSI shall coordinate the purchase of such insurance with other owners for whom PSI is rendering similar services. In an effort to reduce the potential liability of Owner to tenants for losses to their goods PSI shall also use its best efforts to assure that there is kept in force a program to insure tenants in the Properties against losses to their goods from theft or destruction. Such program is currently provided by an affiliate of PSI, which receives the premiums and bears the risks associated with such insurance.
(l) TAXES. PSI shall disburse all taxes, personal and real, and assessments properly levied on the Properties in the name and for the account of Owner. PSI shall implement and maintain a procedure for review by Owner's employees of all amounts assessed on the Properties.
(m) OPERATIONS SYSTEMS. PSI shall develop and maintain systems for space inventory, accounting and handling delinquent accounts, including a computerized network linking the Properties with PSI's headquarter offices and integrating data on the Properties with Owner's accounting system.
(n) RESTRICTIONS. Notwithstanding anything to the contrary set forth in this Section 2, PSI shall not be required to do, or cause to be done, anything for the account of Owner (i) which may make PSI liable to third parties, (ii) which may not be commenced, undertaken or completed because of insufficient funds of Owner, or (iii) which may not be commenced, undertaken or completed because of acts of God, strikes, governmental regulations or laws, acts of war or other types of events beyond PSI's control whether similar or dissimilar to the foregoing.
(o) LIMITATIONS ON PSI'S AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, PSI shall not, without obtaining the prior written consent of Owner: (i) rent storage space in Properties by written lease or agreement; (ii) alter the buildings or other structures of the Properties in any material manner; (iii) make any agreements which exceed one year and are not
terminable on thirty (30) days' notice at the will of Owner, without penalty, payment or surcharge; or (iv) sell, mortgage or otherwise dispose of any Properties. PSI operates in the state of California in the same offices as, and currently utilizing common control personnel as, Owner. Nothing herein shall be construed to require PSI to maintain personnel in the state where facilities are located.
(p) SHARED EXPENSES. Certain economies may be achieved with respect to certain expenses to be incurred on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by PSI in quantity for use not only in connection with the Properties but in connection with other properties as to which PSI renders services. PSI shall have the right to purchase such materials, supplies, insurance or services in its own name and charge Owner an equitable share of the cost; provided, however, that such cost to Owner shall not be greater than would otherwise be incurred at competitive prices and terms available in the area where the Properties are located and provided further, PSI shall give Owner access to records so Owner may review any such expenses incurred.
3. ANNUAL BUDGET AND LIMITATION ON CERTAIN EXPENDITURES. Upon Owner's
request, on or before December 1st of each calendar year, PSI shall prepare at
Owner's expense, and submit to Owner, a proposed operating budget containing:
(i) a proposed schedule of rents of the Properties for the ensuing year, (ii) an
estimate of proposed expenditures and revenues for the ensuing year for the
Properties showing all items for which expenditures shall be made, and (iii)
such other facts and information respecting the ownership and operation of the
Properties as may be reasonably required by Owner. Each operating budget shall
cover the period from January 1 to December 31. Each operating budget shall, in
each such case, be approved in writing by Owner before it shall become
effective. No expenditures not shown on any budget approved by Owner shall be
made by PSI during any such budget period, except with the prior written consent
of Owner or as otherwise permitted by this Section 3.
Notwithstanding the foregoing, PSI may, without Owner's prior consent, make expenditures not shown on a budget approved by Owner as follows: (i) in an aggregate annual amount of up to 130% of the total annual amount provided for in the then approved budget for any expenditures; and (ii) any expenditure, irrespective of amount, which PSI reasonably believes is necessary to preserve the physical well-being of a Property and which must be made before Owner's consent could reasonably be obtained.
Owner shall promptly review each proposed operating budget, and each proposed revision thereto, and shall promptly notify PSI of any items not acceptable to Owner. If Owner does not object to a proposed operating budget within 10 days of receipt, it shall be deemed approved.
4. DUTIES OF OWNER. Owner hereby agrees to cooperate with PSI in the performance of its duties under this Agreement and to that end, upon the request of PSI, to provide reasonable temporary office space for PSI employees on the premises of the Properties if ever required, and to give PSI access to all files, books and records of Owner relevant to the Properties.
5. COMPENSATION OF PSI. Owner shall pay to PSI as the full amount due for the services herein provided a fee equal to six percent (6%) of the "Gross Revenue." The term "Gross Revenue" shall mean all amounts actually received by Owner (net of security deposits returned to tenants) arising from the operation of the Properties, including without limitation, rental and late payments of lessees of space in the Properties, vending machine or concessionaire revenues, if any, paid by the tenant of the Properties in addition to basic rent, parking fees, if any, and all money whether or not otherwise described herein paid for the use of the Properties. Gross Revenue shall be determined on a cash basis. The fee for each month shall be paid promptly after receipt of the report required by Section 2(g) hereof.
The term "Gross Revenue" shall not include amounts received in connection with the Properties which do not arise from their operations, including but not limited to, insurance recoveries, condemnation awards and property damage payments.
It is understood and agreed that such compensation will not be reduced by the cost to Owner of those employees and independent contractors engaged by or on behalf of Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 5, it is further understood and agreed that PSI shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement.
(a) PSI represents and warrants that it has the right to grant a non-exclusive license in the United States to Owner under the following PSI registered service marks: "PUBLIC STORAGE" and "PS: PUBLIC STORAGE RENTAL SPACES" (the "Service Marks").
(b) PSI hereby grants to Owner, during the term hereof, a non-exclusive license to use the Service Marks and related designs in conjunction with the rental and operation of Properties which are managed by PSI pursuant to this Agreement, and for no other purpose.
(c) Owner agrees to bring to PSI's attention any notice of infringement or a conflict with asserted rights of others with respect to the Service Marks. PSI shall take, or cause to be taken, such action which, in its reasonable judgment, is necessary to protect such Service Marks.
(d) PSI agrees to indemnify and hold harmless Owner and its officers and directors against any damages, liabilities or expenses (including attorneys' fees) resulting from an action or claim against Owner for infringement of the Service Marks.
(e) Owner acknowledges that the Service Marks and related designs shall remain and be at all times the property of PSI, and that, except for the use thereof in conjunction with the rental and operation of Properties under this Agreement, during the term hereof, Owner shall have no right therein. Upon termination of this Agreement at any time for any reason, all such use by and for the benefit of Owner of the Service Marks and related designs in connection with the Properties shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. Owner acknowledges that PSI will use and shall be unrestricted in its use or license, of the Service Marks and related designs in rendering services on behalf of other owners of self storage facilities both during and after the expiration or termination of the term of this Agreement.
(a) TERM. Owner may terminate this Agreement without cause upon sixty (60)
days' notice to PSI, pursuant to Section 13 hereof and PSI may terminate this
Agreement without cause upon sixty (60) days' notice to Owner given pursuant to
Section 13 hereof.
(b) RETURN OF MATERIALS. Upon termination of this Agreement with respect to it, PSI shall promptly return to Owner all monies, books, records and other materials held by it for or on behalf of Owner.
8. INDEMNIFICATION. Owner hereby agrees to indemnify and hold PSI and all officers, directors and employees of PSI harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims when engaged in services under this Agreement, arising from any cause, except for the willful misconduct, negligence or negligent omissions on the part of PSI or any such other person. PSI and all officers, directors and employees of PSI also shall not be liable for any error of judgment or for any mistake of fact or law, or for anything which they may do or refrain from doing hereinafter, except in cases of willful misconduct or negligence. PSI hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the Properties arising from the willful misconduct or negligence of PSI and all officers, directors and employees of PSI and, in addition, any amendments to this Agreement which would have the unintended effect of changing the economic relationship of the parties hereto, unless expressly stated otherwise herein.
9. ASSIGNMENT. Neither this Agreement nor any right hereunder shall be assignable by Owner, and any attempt to do so shall be void. PSI shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of PSI hereunder, Owner's rights hereunder will be enforceable against any such assignee and PSI shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing.
10. ADDITIONAL PARTIES. The term "Owner" as used in this Agreement shall include, and this Agreement shall cover not only the entities listed on Schedule
A hereto, but also any limited partnership, general partnership or joint venture organized after the date of this Agreement as to which PSI or a subsidiary is a general partner or joint venturer to the extent such entities own mini-warehouses.
11. HEADINGS. The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement.
12. GOVERNING LAW. The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the state of California.
13. NOTICES. Any notice required or permitted herein to be given shall be given in writing and shall be personally delivered or mailed, first class postage prepaid, to the respective addresses of the parties set forth below their signatures on the signature page hereof, or to such other address as any party may give to the other in writing.
14. SEVERABILITY. Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications.
15. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest.
16. ATTORNEYS' FEES. If it shall become necessary for either party hereto to engage attorneys to institute legal action for the purpose of enforcing its rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals).
17. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
"PSI"
PUBLIC STORAGE, INC
By: /s/ Harvey Lenkin
-------------------------------------------
Harvey Lenkin, President
701 Western Avenue, Suite 200
Glendale, California 91201
|
"Owners"
PUBLIC STORAGE, INC.
By: /s/ Harvey Lenkin ------------------------------------------- Harvey Lenkin, President 701 Western Avenue, Suite 200 Glendale, California 91201 |
On behalf of all of the entities listed on Schedule A
| ARTICLE 5 |
| CIK: 0000702276 |
| NAME: PS PARTNERS, LTD. |
| MULTIPLIER: 1 |
| CURRENCY: us |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | JAN 1 1996 |
| PERIOD END | DEC 31 1996 |
| EXCHANGE RATE | 1 |
| CASH | 506,000 |
| SECURITIES | 0 |
| RECEIVABLES | 89,000 |
| ALLOWANCES | 0 |
| INVENTORY | 0 |
| CURRENT ASSETS | 595,000 |
| PP&E | 58,717,000 |
| DEPRECIATION | (24,576,000) |
| TOTAL ASSETS | 34,941,000 |
| CURRENT LIABILITIES | 1,020,000 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 13,253,000 |
| TOTAL LIABILITY AND EQUITY | 34,941,000 |
| SALES | 0 |
| TOTAL REVENUES | 11,258,000 |
| CGS | 0 |
| TOTAL COSTS | 4,308,000 |
| OTHER EXPENSES | 2,488,000 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | 2,600,000 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 2,600,000 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2,600,000 |
| EPS PRIMARY | 34.20 |
| EPS DILUTED | 34.20 |