ITEM 1. BUSINESS. -------- General - ------- PS Partners IV, Ltd. (the "Partnership") is a publicly held limited partnership formed under the California Uniform Limited Partnership Act. Commencing in December 1984, 128,000 units of limited partnership interest (the "Units") were offered to the public in an interstate offering. The offering was completed in July 1985.
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 40% 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 were the Partnership's transfer of its business parks to AOPPLP in exchange for a 7.5% 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. See Item 13.
PSI's current relationship with the Partnership includes (i) the joint ownership of 32 of the Partnership's 33 properties (which excludes the properties 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 54.26% of the Partnership's limited partnership units and (iv) PSI is the operator of the Partnership's mini-warehouse facilities.
Investments in Facilities - ------------------------- The Partnership owns interests in 33 properties (which exclude the properties transferred to AOPPLP in January 1997); 32 of such properties are held in a general partnership comprised of the Partnership and PSI. The Partnership originally acquired interests in 40 properties. Three of those properties were sold to the original seller during 1987 and another property was purchased during 1988. In addition, two properties, which secured mortgage notes
were foreclosed upon in January 1991 by the lender. Reference is made to the table in Item 2
ITEM 2. PROPERTIES. ---------- The following table sets forth information as of December 31, 1996, about properties owned by the Partnership. All but one of these properties were acquired jointly with PSI and were contributed to a general partnership comprised of the Partnership and PSI.
- --------------- (a) low-rise office building (b) In January 1997, the Partnership contributed its business park facilities to AOPPLP in exchange for a 7.5% interest in AOPPLP. See Item 1.
The weighted average occupancy levels for the mini-warehouse and office building facilities were 90% and 96%, respectively, in 1996 compared to 89% and 97%, respectively, in 1995. In 1996 the monthly realized rent per square foot for the mini-warehouse and office building facilities averaged $.59 and $.90, respectively, compared to $.57 and $.88, 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 believes that there are no known environmental remediation requirements at this time. Although there can be no assurance, the Partnership is not aware of any 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.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS. ------------------
No material legal proceeding is pending against the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. ------------------------------------------------------------------
The Partnership has no common stock.
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 3,226 record holders of Units.
In February 1997, PSI completed a cash tender offer, which had commenced in December 1996, pursuant to which PSI acquired a total of 14,787 limited partnership units at $300 per Unit.
The Partnership makes quarterly distributions of all "Cash Available for Distribution" and will make distributions of "Cash from Sales or Refinancing". 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA. -----------------------
(a) Limited partners' per unit data is based on the weighted average number of units outstanding during the year. (128,000 units). (b) The General Partners distributed, concurrent with the distributions for the third quarter of 1995, a portion of the Partnership's operating reserve estimated to be $6.26 per Unit.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -----------------------------------------------------------------------
Results of Operations - ---------------------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income in 1996 was $932,000 compared to $992,000 in 1995, representing a decrease of $60,000, or 6%. The decrease was primarily due to an increase in depreciation expense and a decrease in interest income, combined with an increase in minority interest in income for those properties held jointly with PSI, partially offset by improved property operations at the Partnership's real estate facilities and a decrease in environmental costs.
Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased approximately $215,000, or 3%, in 1996 compared to 1995, as rental income increased by $511,000, or 4%, and cost of operations (including management fees) increased by $296,000, or 5%.
Rental income for the Partnership's mini-warehouse operations was $11,606,000 in 1996 compared to $11,159,000 in 1995, representing an increase of $447,000, or 4%. The increase in rental income was primarily attributable to increased rental rates at the Partnership's facilities, combined with an increase in occupancy levels. The monthly average realized rent per square foot for the mini-warehouse facilities was $.59 in 1996 compared to $.57 in 1995. The weighted average occupancy levels at the mini-warehouse facilities were 90% and 89% in 1996 and 1995, respectively. Costs of operations (including management fees) increased $374,000, or 9%, to $4,564,000 in 1996 from $4,190,000 in 1995. The increase was primarily attributable to increases in property tax, advertising and repairs and maintenance expenses. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $73,000 to $7,042,000 in 1996 from $6,969,000 in 1995.
Rental income for the Partnership's business park operations was $3,392,000 in 1996 compared to $3,328,000 in 1995, representing an increase of $64,000, or 2%. The increase in rental income is primarily attributable to increased rental rates, partially offset by a decrease in occupancy levels. In September 1996, a tenant procured an early termination of its lease at the Partnership's San Antonio, Texas facility. Included in rental income for 1996 is approximately $119,000 related to this lease buyout. Included in rental income for 1995 is approximately $109,000 related to lease buyouts during 1995 at the Partnership's Houston, Texas facility. Excluding the effect of these lease buyouts, the monthly average realized rent per square foot for the business park facilities was $.87 in 1996 compared to $.85 in 1995. The weighted average occupancy levels at the business park facilities were 96% in 1996 compared to 97% in 1995. Cost of operations (including management fees) decreased $78,000, or 4%, to $2,095,000 in 1996 from $2,173,000 in 1995. The decrease is primarily attributable to decreases in lease commissions, payroll, property tax, and office expenses. Accordingly, for the Partnership's business park facilities, property net operating income increased by $142,000, or 12%, to $1,297,000 in 1996 from $1,155,000 in 1995.
Interest income decreased in 1996 over 1995 as a result of a decrease in average invested cash balances.
Depreciation and amortization increased $223,000 to $3,452,000 in 1996 from $3,229,000 in 1995. This increase is principally attributable to depreciation of capital expenditures made during 1995 and 1996.
Minority interest in income increased by $34,000 in 1996 compared to 1995. This increase was primarily attributable to an increase in operations at the Partnership's real estate facilities owned jointly with PSI, partially offset by 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 $50,000 in 1996 compared to none for 1995.
Administrative expenses decreased $36,000 from 1995 to 1996 as a result of approximately $37,000 in environmental cost in 1995 and none in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
The Partnership's net income in 1995 was $992,000 compared to $874,000 in 1994, representing an increase of $118,000, or 14%. The increase was primarily due to improved property operations at the Partnership's real estate facilities, partially offset by increases in depreciation and administrative expenses, and minority interest in income for those properties held jointly with PSI.
Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased approximately $483,000 or 6% in 1995 compared to 1994, as rental income increased by $564,000, or 4%, and cost of operations (including management fees) increased by $81,000.
Rental income for the Partnership's mini-warehouse operations was $11,159,000 in 1995 compared to $10,838,000 in 1994, representing an increase of $321,000, or 3%. The increase in rental income was primarily attributable to increased rental rates at the Partnership's facilities. The weighted average occupancy levels at the mini-warehouse facilities were 89% and 90% in 1995 and 1994, respectively. The monthly average realized rent per square foot for the mini-warehouse facilities were $.57 in 1995 compared to $.55 in 1994. Costs of operations (including management fees) increased $14,000, to $4,190,000 in 1995 from $4,176,000 in 1994. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $307,000 or 5% from $6,662,000 in 1994 to $6,969,000 in 1995.
Rental income for the Partnership's business park operations was $3,328,000 in 1995 compared to $3,085,000 in 1994, representing an increase of $243,000 or 8%. The increase in rental income is primarily attributable to increases in both occupancy levels, as well as average realized rent per square foot. The weighted average occupancy levels at the business park facilities were 97% in 1995 compared to 95% in 1994. The monthly average realized rent per square foot for the business park facilities was $.88 in 1995 compared to $.82 in 1994. Cost of operations (including management fees) increased $67,000 or 3% to $2,173,000 in 1995 from $2,106,000 in 1994. Accordingly, for the Partnership's business park facilities, property net operating income increased by $176,000 or 18% from $979,000 in 1994 to $1,155,000 in 1995.
During 1994, leases expired on units comprising approximately 50% of the available square footage at the Houston/Barkers Landing office building, which is owned jointly by the Partnership and PSI. The Partnership actively marketed the facility and was successful in obtaining new leases on the vacated space, however, tenant improvements and leasing costs were incurred in connection with leasing the vacated space. At December 1994, 97% of the available square footage at this facility had been leased.
In 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties. The Partnership has included approximately $37,000 in administrative expense in relation to these assessments.
Minority interest in income for those properties held jointly with PSI increased $214,000, or 6%, to $3,804,000 from $3,590,000. This increase was primarily due to increased property operations at the Partnership's real estate facilities held jointly with PSI.
Liquidity and Capital Resources - ------------------------------- The Partnership has adequate sources of cash to finance its operations, both on a short-term and a long-term basis, primarily by internally generated cash from property operations combined with cash on-hand at December 31, 1996 totaling $413,000.
Cash flows from operating activities ($7,972,000 for the year ended December 31, 1996) have been sufficient to meet all current obligations of the Partnership. Total capital improvements were $1,910,000, $998,000, and $1,271,000 in 1996, 1995, and 1994, respectively. 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. In addition to these budgeted improvements, the increase in 1996 capital improvements is primarily attributable to tenant improvements at the Partnership's business park
facilities. During 1997, the Partnership anticipates incurring approximately $1,340,000 of capital improvements (including PSI's joint venture share of $663,000).
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 $2,999,000 $20.88 1995 4,899,000 34.10 1994 2,816,000 19.60 1993 2,442,000 17.00 1992 2,968,000 20.66 1991 3,607,000 25.11 1990 3,144,000 21.89 1989 3,097,000 21.56 1988 3,769,000 26.23 1987 3,770,000 26.23 1986 3,593,000 25.00
During the fourth quarter of 1990, the Partnership made a special distribution totaling $1,077,000 ($7.50 per Unit), representing cash reserves held. The General Partners distributed, concurrently with the distributions for the fourth quarter of 1991, a portion of the operating reserve estimated at $9.00 per Unit. The General Partners also distributed, concurrently with the distributions for the third quarter of 1995, a portion of the operating reserve estimated at $6.26 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).
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. -------------------------------------------- The Partnership's financial statements are included elsewhere herein. Reference is made to the Index to Consolidated Financial Statements and Financial Statement Schedules in Item 14(a).
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ---------------------------------------------------- None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP. --------------------------------------------------- The Partnership has no directors or executive officers.
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 Park Properties, Inc., pursuant to a Management Agreement. In January 1997, the Partnership transferred its business parks to AOPPLP in exchange for a 7.5% interest in AOPPLP.
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
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. 2-92009, 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION. ---------------------- The Partnership has no subsidiaries, directors or officers. See Item 13 for a description of certain transactions between the Partnership and the General Partners and their affiliates.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- (a) At February 19, 1997, PSI beneficially owned more than 5% of the Units of the Partnership:
Title Amount of Percent of Name and Address of Beneficial of Class Beneficial Owner Ownership Class - ------------ ------------------------- --------- --------- Units of Public Storage, Inc. Limited 701 Western Avenue Partnership Glendale, CA 91201-2394(1) 69,448 Units(1) 54.26% Interest
- ------------- (1) These Units are held of record by SEI Arlington Acquisition Corporation, a wholly-owned subsidiary of PSI.
The Partnership is not aware of any other beneficial owners of more than 5% of the Units.
In February 1997, PSI completed a cash tender offer, which had commenced in December 1996, pursuant to which PSI acquired a total of 14,787 limited partnership units at $300 per unit.
(b) The Partnership has no officers and directors.
The General Partners (or their predecessor-in-interest) have contributed $646,000 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. 2-92009. 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 33 properties (which exclude the properties transferred to AOPPLP in January 1997); 32 of such 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.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- The Partnership Agreement provides that the General Partners and their affiliates are entitled to the following compensation:
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 $300,000 was paid to PSI with respect to items 1, 2, and 3 above. The Partnership owns interests in 33 properties (which exclude the properties transferred to AOPPLP in January 1997); 32 of such 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 $698,000 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 $169,000 to PSCPG pursuant to the Management Agreement. PSI has a 95% economic interest (represented by voting preferred stock) in PSCPG 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 its business parks to AOPPLP in exchange for a 7.5% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. ---------------------------------------------------------------- (a) List of Documents filed as part of the Report. 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 IV, 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. 2-92009 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. Previously filed with the Securities and Exchange Commission as an exhibit to PS Partners, Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.
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 December 26, 1984, 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. Annual Report on Form 10-K for the year ended December 31, 1984 and incorporated herein by reference.
27 Financial data schedule. Filed herewith.
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 IV, LTD. Dated: March 26, 1997 By: Public Storage, Inc., General Partner
By: /s/ B. Wayne Hughes --------------------------------------- B. Wayne Hughes, Chairman of the Board By: /s/ B. Wayne Hughes --------------------------------------- B. Wayne Hughes, General Partner
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.
PS PARTNERS IV, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page References ----------
Report of Independent Auditors
Consolidated Financial Statements and Schedules:
Consolidated Balance Sheets as of December 31, 1996 and 1995
For the years ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Income
Consolidated Statements of Partners' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements -
Schedule - III - Real Estate and Accumulated Depreciation
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 IV, Ltd.
We have audited the consolidated balance sheets of PS Partners IV, 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 IV, 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
See accompanying footnotes.
See accompanying footnotes.
See accompanying footnotes.
See accompanying footnotes.
PS PARTNERS IV, LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------
Description of Partnership -------------------------- PS Partners IV, Ltd. (the "Partnership") was formed with the proceeds of an interstate public offering. PSI Associates II, Inc. ("PSA"), an affiliate of Public Storage Management, Inc., organized the Partnership along with B. Wayne Hughes ("Hughes"). In September 1993, Storage Equities, Inc., now known as Public Storage Inc. ("PSI") acquired the interest of PSA relating to its general partner capital contribution in the Partnership and was substituted as a co-general partner in place of PSA.
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 33 properties, which exclude 3 properties transferred to American Office Park Properties, L.P. ("AOPPLP") in January 1997 (see Note 6). 32 of the properties are owned jointly through 23 general partnerships (the "Joint Ventures") with PSI. For tax administrative 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 49.8% to 50.9%.
Basis of Presentation --------------------- The consolidated financial statements include the accounts of the Partnership and the Joint Ventures. PSI's ownership interest in the Joint Ventures is shown as minority interest in general partnerships in the accompanying consolidated balance sheets. All significant intercompany balances and transactions have been eliminated.
Minority interest in income represents PSI's share of net income with respect to the Joint Ventures. Under the terms of the partnership agreement 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. During 1996, $50,000 was allocated to PSI with respect to the above provision.
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.
In addition to the above provisions, PSI has the right to compel the sale of each property in the general partnerships 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. PSI's right to require the Partnership to sell all of the jointly owned properties became exercisable during 1992.
1. Summary of Significant Accounting Policies and Partnership Matters (continued) ------------------------------------------------------------------
Real Estate Facilities ---------------------- The Partnership depreciates the buildings and equipment on a straight-line method over estimated useful lives of 25 and 5 years, respectively. Leasing commissions relating to business park properties are expensed when incurred.
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 method of accounting for long-lived assets that are expected to be disposed. The Partnership adopted Statement 121 in 1996 and the adoption had no effect.
Revenue Recognition ------------------- Property rents are recognized as earned.
Allocation of Net Income or Loss -------------------------------- The General Partners' share of net income or loss consists of an amount attributable to their 1% capital contribution and an additional percentage of cash flow (as defined, see Note 3) which relates to the General Partners' share of cash distributions as set forth in the Partnership Agreement. All remaining net income or loss is allocated to the limited partners.
Per Unit Data ------------- Per unit data is based on the number of limited partnership units (128,000) outstanding during the year.
Cash Distributions ------------------ The Partnership Agreement provides for quarterly distributions of cash flow from operations (as defined). Cash distributions per unit were $20.88, $34.10, and $19.60 for 1996, 1995, and 1994, respectively.
Cash and Cash Equivalents ------------------------- For financial statement purposes, the Partnership considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
Environmental Cost ------------------ 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. Administrative expense in 1995 includes $37,000 in relation to these assessments. During 1996, the Partnership paid approximately $12,000 in related costs. Based on the assessments, the Partnership believes there are no environmental remediation requirements at this time. 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.
Use of Estimates ---------------- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. General Partners' Equity ------------------------ The General Partners have a 1% interest in the Partnership. In addition, the General Partners have a 10% interest in cash distributions attributable to operations, exclusive of distributions attributable to sales and financing proceeds.
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.
3. Related Party Transactions -------------------------- The Partnership has a management agreement with PSI pursuant to which PSI operates the Partnership's mini-warehouses for a fee equal to 6% of the facilities' monthly gross revenue (as defined). Through 1996, the Partnership's commercial properties were operated by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a management agreement which provides for a fee equal to 5% of the facilities' monthly gross revenue (as defined).
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, now known as American Office Park Properties, Inc., issued additional voting common stock to two other unaffiliated investors. See Note 6.
4. Leases ------- The Partnership has invested primarily in existing mini-warehouse storage facilities which offer self-service storage spaces for lease to the general public. Leases for such space are usually on a month-to-month basis.
5. Taxes Based on Income --------------------- 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 (loss) income was $(950,000), $585,000, and $382,000 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.
6. Subsequent Event ---------------- 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 its business parks to AOPPLP in exchange for a 7.5% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc.
(C) The aggregate cost of real estate for Federal income tax purposes is $91,917,000 at December 31, 1996.