ITEM 1. BUSINESS. -------- General - ------- PS Partners VIII, Ltd. (the "Partnership") is a publicly held limited partnership formed under the California Revised Limited Partnership Act. Commencing in March 1987, up to 150,000 units of limited partnership interest ("Units") were offered to the public in an interstate offering. The offering was completed in December 1987 with 52,751 Units sold.
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 45% of the net proceeds of the offering in and operate existing office and industrial properties. The Partnership's investments were made through direct purchase of properties.
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 property was 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 PS Business Parks, L.P. ("PSBPLP"), formerly known as American Office Park Properties, L.P., an operating partnership formed to own and operate business parks in which PSI has a significant interest. Included among the properties transferred was the Partnership's business park in exchange for a partnership interest in PSBPLP. Until March 17, 1998, the general partner of PSBPLP was American Office Park Properties, Inc., an affiliate of PSI. On March 17, 1998, American Office Park Properties, Inc. was merged into Public Storage Properties XI, Inc., which changed its name to PS Business Parks, Inc. ("PSBP"). PSBP is a REIT affiliated with PSI, and is publicly traded on the American Stock Exchange. As a result of the merger, PSBP became the general partner of PSBPLP (which changed its name from American Office Park Properties, L.P. to PS Business Parks, L.P.). See Item 13.
PSI's current relationship with the Partnership includes (i) PSI is a co-general partner along with Hughes, who is chairman of the board and chief executive officer of PSI, (ii) as of December 31, 1997, PSI owned approximately 53.56% of the Partnership's limited partnership units and (iii) PSI is the operator of the Partnership's mini-warehouse facilities.
Investments in Facilities - ------------------------- The Partnership owns 5 properties (excluding the property transferred to PSBPLP in January 1997). The Partnership purchased its last property in February, 1988. Reference is made to the table in Item 2
ITEM 2. PROPERTIES. ---------- The following table sets forth information as of December 31, 1997, about properties owned by the Partnership. All of these properties are wholly-owned by the Partnership.
The weighted average occupancy level for the mini-warehouse facilities was 93% in 1997 compared to 91% in 1996. The monthly average realized rent per square foot for the mini-warehouse facilities was $.80 in 1997 compared to $.76 in 1996.
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with 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 $120,000 after December 31, 1997 for known environmental remediation requirements. Although there can be no assurance, the Partnership is not aware of any unaccrued environmental contamination of any of its property sites 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 1997.
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, 1997, there were approximately 1,241 record holders of Units.
The Partnership makes quarterly distributions of all "Cash Available for Distribution" and will make distributions of all "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 period (52,751 for all periods presented). (b) The General Partners distributed, concurrent with the distribution for the third quarter of 1995, a portion of the operating reserve of the Partnership estimated to be $10.14 per Unit.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ---------------------------------------------------------------
Results of Operation - --------------------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
The Partnership's net income was $1,358,000 in 1997 compared to $1,099,000 in 1996, representing an increase of $259,000, or 24%. Excluding the 1996 operations for the Partnership's business park facility as compared to the 1997 equity in income of real estate partnership, the increase is primarily attributable to an increase in the Partnership's mini-warehouse operations.
Rental income for the Partnership's mini-warehouse operations was $2,599,000 during 1997 compared to $2,394,000 in 1996, representing an increase of $205,000, or 9%. The increase in rental income was primarily attributable to increased rental rates at the mini-warehouse facilities, combined with increased occupancy levels. The monthly average realized rent per square foot for the mini-warehouse facilities was $.80 in 1997 compared to $.76 for 1996. The weighted average occupancy levels at the mini-warehouse facilities increased from 91% in 1996 to 93% during 1997. Cost of operations (including management fees) increased $81,000, or 11%, to $821,000 during 1997 from $740,000 for 1996. This increase was primarily attributable to increases in property tax, advertising, and payroll expenses. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased $124,000, or 8%, from $1,654,000 in 1996 to $1,778,000 during 1997.
The following table summarizes the Partnership's operating income, net of depreciation, from its investment in PSBPLP during 1997 compared to that of the exchanged business park facility for 1996:
1997 1996 ------------ ------------- Equity in earnings of real estate partnership $ 199,000 $ - Rental income - 513,000 Cost of operations - 206,000 ------------ ------------- Net operating income 199,000 307,000 Depreciation - 267,000 ------------ ------------- Operating income, net of depreciation $ 199,000 $ 40,000 ========== =========
The difference in operating income, net of depreciation, in 1997 and 1996 is primarily due to the effect of depreciation and an improvement in property operations.
Depreciation and amortization attributable to the Partnership's mini-warehouse facilities increased $18,000 from $541,000 in 1996 to $559,000 in 1997. This increase was primarily attributable to the depreciation of capital expenditures made during 1996 and 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income in 1996 was $1,099,000 compared to $877,000 in 1995, representing an increase of $222,000, or 25%. The increase was primarily a result of decreased environmental costs, combined with an increase in property operating results, 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 $134,000, or 7%, in 1996 compared to 1995, as rental income increased by $124,000, or 4%, and cost of operations (including management fees) decreased by $10,000.
Rental income for the Partnership's mini-warehouse operations was $2,394,000 in 1996 compared to $2,264,000 in 1995, representing an increase of $130,000, or 6%. The increase in rental income was primarily attributable to increased rental rates and occupancy levels at the mini-warehouse facilities. The monthly realized rent per square foot for the mini-warehouse facilities averaged $.76 in 1996 compared to $.73 in 1995. Weighted average occupancy levels at the mini-warehouse facilities increased to 91% in 1996 from 89% in 1995. Cost of operations (including management fees) decreased $1,000 to $740,000 in 1996 from $741,000 in 1995. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $131,000 to $1,654,000 in 1996 from $1,523,000 in 1995.
Rental income for the Partnership's business park operations was $513,000 in 1996 compared to $519,000 in 1995, representing a decrease of $6,000. The decrease in rental income was primarily attributable to reduced rental rates, partially offset by increased occupancy rates. The monthly realized rent per square foot for the business park facility averaged $.58 in 1996 compared to $.59 in 1995. Weighted average occupancy levels at the business park facility increased to 95% in 1996 from 93% in 1995. Cost of operations (including management fees) decreased $9,000, or 4%, to $206,000 in 1996 from $215,000 in 1995. The decrease in cost of operations was primarily attributable to decreases in property tax and lease commissions expenses, partially offset by an increase in payroll expense. Accordingly, for the Partnership's business park facility, property net operating income increased by $3,000 to $307,000 in 1996 from $304,000 in 1995.
Interest income decreased in 1996 over 1995 as a result of a decrease in average invested cash balances.
Depreciation and amortization increased $50,000 to $808,000 in 1996 from $758,000 in 1995. This increase is principally attributable to depreciation of capital expenditures made during 1995 and 1996.
Liquidity and Capital Resources - ------------------------------- The Partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis, primarily by internally generated cash from property operations combined with cash on-hand at December 31, 1997 of approximately $249,000.
Cash flows from operating activities ($1,706,000 for the year ended December 31, 1997) have been sufficient to meet all current obligations of the Partnership. Capital improvements were $145,000, $229,000, and $272,000 in 1997, 1996, and 1995, respectively. During 1998, the Partnership anticipates approximately $188,000 of capital improvements.
The Partnership expects to continue making quarterly distributions. Total distributions paid to the General Partners and the limited partners (including per Unit amounts) for 1997 and prior years were as follows:
Total Per Unit ----------- ----------- 1997 $1,601,000 $27.04 1996 1,600,000 27.04 1995 2,201,000 37.18 1994 1,208,000 20.40 1993 1,166,000 19.70 1992 1,625,000 27.45 1991 1,778,000 30.02 1990 1,554,000 26.24 1989 1,517,000 25.63 1988 1,480,000 25.01 1987 476,000 14.55
The General Partners distributed, concurrently with the distribution for the fourth quarter of 1991, a portion of the operating reserve and adjusted the ongoing distribution level. The operating reserve that was distributed was estimated at $7.45 per Unit. The General Partners distributed, concurrently with
the distribution for the third quarter of 1995, a portion of the operating reserve of the Partnership estimated to be $10.14 per Unit. Future distribution levels will be based on cash available for distributions (cash flow from all sources, less cash necessary for capital improvement needs and to establish reserves).
Impact of Year 2000 - ------------------- PSI has completed an initial assessment of its computer systems. The majority of the computer programs were installed or upgraded over the past few years and are Year 2000 compliant. Some of the older computer programs utilized by PSI were written without regard for Year 2000 issues and could cause a system failure or miscalculations with possible disruption of operations. Each of these computer programs and systems has been evaluated to be upgraded or replaced as part of PSI's Year 2000 project.
The cost of the Year 2000 project will be allocated to all entities that use the PSI computer systems. The cost of the Year 2000 project which is expected to be allocated to the Partnership is approximately $15,000. The cost of new software will be capitalized and the cost of maintenance to existing systems will be expensed as incurred.
The project is expected to be completed by March 31, 1999 which is prior to any anticipated impact on operating systems. PSI believes that with modifications to existing software and, in some instances, the conversion to new software, the Year 2000 issue will not pose significant operational problems. However, if such modifications are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of the Partnership.
The costs of the project and the date on which PSI believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events. There can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated.
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 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 property was managed by PSCPG, now known as PS Business Parks, Inc., pursuant to a Management Agreement. In January 1997, the Partnership transferred its business park to PSBPLP in exchange for a partnership interest in PSBPLP.
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:
B. Wayne Hughes, age 64, 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 has been active in the real estate investment field for over 25 years. He is the father of B. Wayne Hughes, Jr.
Harvey Lenkin, age 61, has been employed by PSI for 20 years and became President and a director of PSI in November 1991. Mr. Lenkin is a director of the National Association of Real Estate Investment Trusts (NAREIT).
B. Wayne Hughes, Jr., age 38, became a director of PSI in January 1998. He has been Vice President - Acquisitions of the Company since 1992. He is the son of B. Wayne Hughes.
John Reyes, age 37, a certified public accountant, joined PSI 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.
Carl B. Phelps, age 58, became a Senior Vice President of PSI in January 1998 with overall responsibility for property acquisition and development. From June 1991 until joining PSI, he was a partner in the law firm of Andrews & Kurth, L.L.P., which performed legal services for PSI. From December 1982 through May 1991, his professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI.
Obren B. Gerich, age 59, a certified public accountant, 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.
Marvin M. Lotz, age 55, 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 PSI with responsibility for property acquisitions from 1983 until 1988.
David Goldberg, age 48, joined PSI's legal staff in June 1991. He became Senior Vice President and General Counsel of PSI in November 1995. From December 1982 until May 1991, he was a partner in the law firm of Sachs & Phelps, then counsel to PSI.
A. Timothy Scott, age 46, 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. Prior to June 1991, his professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI.
David P. Singelyn, age 36, a certified public accountant, has been employed by PSI since 1989 and became Vice President and Treasurer of PSI in November 1995. From 1987 to 1989, Mr. Singelyn was Controller of Winchell's Donut Houses, L.P.
Sarah Hass, age 42, became Secretary of PSI in February 1992. She became a Vice President of PSI in November 1995. She joined PSI's legal department in June 1991, rendering services on behalf of PSI. From 1987 until May 1991, her professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI, 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 58, has been President of American Standard Development Company and of Self-Storage Management Company, which develop and operate mini-warehouses, since 1976 and 1977, respectively. 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 62, has been President of the Angeloff Company, a corporate financial advisory firm, since 1976. 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 Compensation Resource Group, Eagle Lifestyle Nutrition, Inc., Nicholas/Applegate Growth Equity Fund, Nicholas/Applegate Investment Trust, ReadyPac Produce, Inc. and Royce Medical Company.
William C. Baker, age 64, became a director of PSI in November 1991. Since November 1997, Mr. Baker has been Chairman of the Board and Chief Executive Officer of The Santa Anita Companies, Inc., which operates the Santa Anita Racetrack and is a wholly-owned subsidiary of Meditrust Operating Company. From August 1996 until November 1997, he was Chairman of the Board and Chief Executive Officer of Santa Anita Operating Company and Chairman of the Board of the Board of Santa Anita Realty Enterprises, Inc., the companies which were merged with Meditrust in November 1992. 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. From January 1992 through December 1995, he was Chairman and Chief Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc. Since 1991, he has been Chairman of the Board of Coast Newport Properties, a real estate brokerage company. 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 and Meditrust Operating Company.
Thomas J. Barrack, Jr., age 50, became a director of PSI in February 1998. Mr. Barrack has been the Chairman and Chief Executive Officer of Colony Capital, Inc. since September 1991. Colony Capital, Inc. is one of the largest real estate investors in America, having acquired properties in the U.S., Europe and Asia. Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack was a principal with the Robert M. Bass Group, Inc., the principal investment vehicle for Robert M. Bass of Fort Worth, Texas. From 1985 to 1987, Mr. Barrack was President of Oxford Ventures, Inc., a Canadian-based real estate development company. From 1984 to 1985, he was Senior Vice President at E.F. Hutton Corporate Finance in New York. Mr. Barrack was appointed by President Ronald Reagan as Deputy Under Secretary at the U.S. Department of the Interior from 1982 to 1983. Mr. Barrack currently is a director of Continental Airlines, Inc. and Virgin Entertainment Group, Ltd.
Uri P. Harkham, age 49, 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 and Restated 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. 33-5892, 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 December 31, 1997, PSI beneficially owned more than 5% of the Units of the Partnership:
- --------- (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.
(b) The Partnership has no officers and directors.
The General Partners (or their predecessor-in-interest) have contributed $266,000 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 Agreement, which 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.
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 1997, approximately $160,000 was paid to PSI with respect to items 1, 2, and 3 above.
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 1997, the Partnership paid fees of $156,000 to PSI pursuant to the Management Agreement.
Through 1996, the Partnership's commercial property was 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. In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to PSBPLP, an operating partnership formed to own and operate business parks in which PSI has a significant interest. Included among the properties transferred was the Partnership's business park in exchange for a partnership interest in PSBPLP. The general partner of PSBPLP is PS Business Parks, Inc., a REIT traded on the American Stock Exchange.
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 VIII LTD., a California Limited Partnership INDEX TO EXHIBITS
3.1 Amended and Restated Agreement of Limited Partnership. Previously filed with the Securities and Exchange Commission as an Exhibit to the Storage Equities, Inc. Registration Statement No. 33-43750 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.
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 VIII, LTD., a California Limited Partnership Dated: March 26, 1998 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 VIII, LTD., a California Limited Partnership
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page References
Report of Independent Auditors
Financial Statements and Schedules:
Balance Sheets as of December 31, 1997 and 1996
For the years ended December 31, 1997, 1996 and 1995:
Statements of Income
Statements of Partners' Equity
Statements of Cash Flows -
Notes to 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 financial statements or the notes thereto.
Report of Independent Auditors
The Partners PS Partners VIII, Ltd., a California Limited Partnership
We have audited the balance sheets of PS Partners VIII, Ltd., a California Limited Partnership as of December 31, 1997 and 1996 and the related statements of income, partners' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 financial statements referred to above present fairly, in all material respects, the financial position of PS Partners VIII, Ltd., a California Limited Partnership at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, 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
February 23, 1998 Los Angeles, California
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
PS PARTNERS VIII, LTD., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS December 31, 1997
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------
Description of Partnership -------------------------- PS Partners VIII, Ltd., a California Limited Partnership (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"), a California corporation, 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 an existing business park facility which offers industrial and office space for lease. The Partnership has ownership interests in 5 properties in 5 states, which exclude 1 property transferred to PS Business Parks, L.P. ("PSBPLP") in January 1997.
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.
In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to PSBPLP, an operating partnership formed to own and operate business parks in which PSI has a significant interest. Included among the properties transferred was the Partnership's business park in exchange for a partnership interest in PSBPLP. The general partner of PSBPLP is PS Business Parks, Inc.
Revenue Recognition ------------------- Property rents are recognized as earned.
Allocation of Net Income ------------------------ The General Partners' share of net income consists of an amount attributable to their 1% capital contribution and an additional percentage of cash flow (as defined, see note 2) which relates to the General Partners' share of cash distributions as set forth in the Partnership Agreement. All remaining net income is allocated to the limited partners.
PS PARTNERS VIII, LTD., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS December 31, 1997
1. Summary of Significant Accounting Policies and Partnership Matters (continued) ------------------------------------------------------------------
Per Unit Data ------------- Per unit data is based on the weighted average number of limited partnership units (52,751) outstanding during the year.
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. Based on the assessments, the Partnership believes that it is probable that it will incur costs totaling $120,000 after December 31, 1997 for known environmental remediation requirements. During 1997, 1996, and 1995, the Partnership paid $12,000, $21,000, and $16,000, respectively, in connection with the environmental remediations. 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.
Cash Distributions ------------------ The Partnership Agreement provides for quarterly distributions of cash flow from operations (as defined). Cash distributions per unit were $27.04, $27.04, and $37.18 during 1997, 1996, and 1995, 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.
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 refinancing 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 whereby PSI operates the Partnership's mini-warehouse facilities for a fee equal to 6% of the facilities' monthly gross revenue (as defined).
PS PARTNERS VIII, LTD., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS December 31, 1997
3. Related Party Transactions (continued) -------------------------------------- In January 1997, the Partnership transferred its business park facility to PSBPLP in exchange for a partnership interest in PSBPLP.
PSI has a significant economic interest in PSBPLP and PSBP.
4. Leases ------ The Partnership has invested primarily in existing mini- warehouse storage facilities which offer self-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 income was $1,511,000, $1,315,000 and $1,153,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The difference between taxable income and book income is primarily related to timing differences in depreciation expense.
(b) The aggregate cost of real estate for Federal Income Tax purposes is $17,079,000.