ITEM 1. BUSINESS. ---------
FORWARD LOOKING STATEMENTS - --------------------------
When used within this document, the words "expects," "believes," "anticipates," "should," "estimates," and similar expressions are intended to identify "forward-looking statements" within the meaning of that term in Section 27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Partnership to be materially different from those expressed or implied in the forward looking statements. Such factors include the impact of competition from new and existing real estate facilities which could impact rents and occupancy levels at the real estate facilities that the Partnership has an interest in; the Partnership's ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing Partnerships; and the impact of general economic conditions upon rental rates and occupancy levels at the real estate facilities that the Partnership has an interest in.
GENERAL - -------
PS Partners VI, Ltd. (the "Partnership") is a publicly held limited partnership formed under the California Revised Limited Partnership Act. Commencing in October 1985, 150,000 units of limited partnership interest (the "Units") were offered to the public in an interstate offering. The offering was completed in June 1986.
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 real estate investments consist of wholly-owned facilities and an investment in a general partnership (SEI/PSP VI Joint Ventures, the "Joint Venture") with Public Storage, Inc. ("PSI"), a real estate investment trust ("REIT") organized as a corporation under the laws of California
The Partnership's general partners (the "General Partners") are PSI and B. Wayne Hughes ("Hughes"). 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. PSI believes that it is the largest operator of mini-warehouse facilities in the United States.
Through 1996, the business parks of the Joint Venture were managed by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a Management Agreement. In January 1997, the Joint Venture, 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 were the business parks of the Joint Venture 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) the joint ownership of 30 of the Partnership's 32 properties (which excludes the properties transferred to PSBPLP 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 January 1, 2000, PSI owned approximately 61.48% of
the Partnership's limited partnership units and (iv) PSI is the operator of the 32 properties in which the Partnership has an interest (these 32 properties are referred to collectively hereinafter as the "Mini-Warehouse Properties").
INVESTMENT OBJECTIVES AND POLICIES - ----------------------------------
The Partnership's objectives are to (i) preserve and protect invested capital, (ii) maximize the potential for appreciation in value of its investments, (iii) provide Federal income tax deductions so that during the early years of property operations a portion of cash distributions may be treated as a return of capital for tax purposes, and therefore, may not represent taxable income to the limited partners, and (iv) provide for cash distributions from operations.
The Partnership will terminate on December 31, 2038, unless dissolved earlier. Under the terms of the general partnership agreement with PSI, PSI has the right to require the Partnership to sell all of the properties owned by the Joint Venture (see Item 12(c)).
The Partnership engaged Lawrence R. Nicholson, MAI, a principal with the firm of Nicholson-Douglas Realty Consultants, Inc. ("NDRC") to perform a limited investigation and appraisal of the properties owned by the Partnership and Joint Venture. In a letter appraisal report dated December 31, 1996, NDRC indicated that, based on the assumptions contained in the report, the aggregate market value of the Mini-Warehouse Properties (consisting not only of the Partnership's interest but also including PSI's interest), as of December 31, 1996, was $75,000,000. NDRC's report is limited in that NDRC did not inspect the properties and relied primarily upon the income capitalization approach in arriving at its opinion. NDRC's aggregate value conclusion represents the 100% property interests, and although not valued separately, includes both the interest of the Partnership in the properties, as well as the interest of PSI, which owns a joint venture interest (ranging from about 50% to 77%) in 30 of the Mini-Warehouse Properties. The analytical process that was undertaken in the appraisal included a review of the properties' unit mix, rental rates and historical financial statements. Following these reviews, a stabilized level of net operating income was projected for the Mini-Warehouse Properties (an aggregate of $7,282,000). Value estimates were then made using both a direct capitalization analysis ($76,400,000) and a discounted cash flow analysis ($74,700,000). In applying the discounted cash flow analysis to the mini-warehouses, projections of cash flow from each property were developed for an 11-year period ending in the year 2007. Growth rates for income and expenses were assumed to be 3.5% per year. NDRC then used a terminal capitalization rate of 10.0% to capitalize each property's 11th year net operating income into a residual value at the end of the holding period. The ten yearly cash flows plus the residual or reversionary proceeds net of sales costs were then discounted to present worth using a discount rate of 12.5%. In the direct capitalization analysis, NDRC applied a 9.5% capitalization rate to the mini-warehouses' stabilized net operating income. These value estimates were then compared to an estimated value ($74,000,000) using a regression analysis applied to approximately 300 sales of mini-warehouses to evaluate the reasonableness of the estimates using the direct capitalization and discounted cash flow analysis.
NDRC has prepared other appraisals for the General Partners and their affiliates and is expected to continue to prepare appraisals for the General Partners and their affiliates. No environmental investigations were conducted with respect to the limited investigation of the Partnership's properties. Accordingly, NDRC's appraisal did not take into account any environmental cleanup or other costs that might be incurred in connection with a disposition of the properties. Although there can be no assurance, based on recently completed environmental investigations (see Item 2), the Partnership is not aware of any environmental contamination of its facilities material to its overall business or financial condition. In addition to assuming compliance with applicable environmental laws, the appraisal also assumed, among other things, compliance with applicable zoning and use regulations and the existence of required licenses.
Limited Partners should recognize that appraisals are opinions as of the date specified, are subject to certain assumptions and the appraised value of the Partnership's properties may not represent their true worth or realizable value. There can be no assurance that, if these properties were sold, they would be sold at the appraised values; the sales price might be higher or lower than the appraised values.
COMPETITION - -----------
Competition in the market areas in which the Partnership operates is significant and affects the occupancy levels, rental rates and operating expenses of certain of the Partnerships facilities. Recent increases in development of mini-warehouse facilities have intensified the competition among mini-warehouse operators in many market areas in which the Partnership operates. In recent years consolidation has occurred in the fragmented mini-warehouse industry.
The Partnership believes that the significant operating and financial experience of PSI's officers and directors, combined with the Partnership's geographic diversity, economies of scale and the "Public Storage" name, should enable the Partnership to continue to compete effectively with other entities.
BUSINESS ATTRIBUTES - -------------------
Under PSI operation, the Partnership's facilities are part of a comprehensive distribution system encompassing standardized procedures, integrated reporting and information networks and centralized marketing. This distribution system is designed to maximize revenue through pricing and occupancy. The distribution system was significantly enhanced during 1996 with the introduction and implementation of the national telephone reservation center and new facility management software.
NATIONAL TELEPHONE RESERVATION SYSTEM: Commencing in early 1996, PSI began to implement a national telephone reservation system designed to provide added customer service and maximize utilization of available mini-warehouse space. Customers calling either the PSI's toll-free telephone referral system, (800) 44-STORE, or a mini-warehouse facility are directed to the national reservation system where a representative discusses with the customer space requirements, price and location.
PSI believes that the national telephone reservation system has enhanced the Partnership's ability to effectively market mini-warehouse and is primarily responsible for the Partnership's increasing occupancy levels and realized rental rates experienced at the mini-warehouse facilities during the past three years.
ECONOMIES OF SCALE: PSI is the largest provider of mini-warehouse space in the industry. As of December 31, 1999, PSI operated 1,358 mini-warehouse facilities (including 35 managed for third parties) in 37 states and had over 663,000 spaces rented. The size and scope of the PSI's operations have enabled it to achieve a consistently high level of profit margins and low level of administrative costs relative to revenues.
BRAND NAME RECOGNITION: The Partnership's operations are conducted under the "Public Storage" brand name, which the Partnership believes is the most recognized and established name in the mini-warehouse industry. PSI manages mini-warehouse operations conducted in 37 states, giving it national recognition and prominence. PSI focuses its operations within those states in the major metropolitan markets. This concentration establishes PSI as one of the dominant providers of storage space in each market that it operates in and enables it to use a variety of promotional activities, such as television and radio advertising as well as targeted discounting and referrals, which are generally not economically viable to its competitors.
INVESTMENTS IN FACILITIES - -------------------------
The Partnership owns interests in 32 properties (excluding the properties transferred to PSBPLP in January 1997); 30 of such properties are owned by the Joint Venture. Reference is made to the table in Item 2
ITEM 2. PROPERTIES. -----------
The following table sets forth information as of December 31, 1999 about properties owned by the Mini-Warehouse Properties.
Net Number Rentable of Date of Ownership Location Square Feet Spaces Acquisition Percentage - ----------------------------- ----------- ------ ----------- ---------- ALABAMA Anniston Whiteside 25,200 246 10-01-86 76.2% Birmingham Bessemer - Midfield 19,300 289 10-01-86 76.2 Birmingham Centerpoint Rd. 41,600 329 10-01-86 76.2 Birmingham Gadson Highway- 20,800 192 10-01-86 76.2 Roebuck Plaza Birmingham Lorna Rd.- Hoover 35,400 326 10-01-86 76.2 Birmingham Mini-warehouse 53,900 462 10-01-86 76.2 Rd.- Riverchase Birmingham Oporto-Eastwood 36,900 261 10-01-86 76.2 Birmingham Oxmoor Blvd. 39,100 338 10-01-86 76.2 Greensprings Birmingham Pebble Creek - Forestdale 30,200 314 10-01-86 76.2 Birmingham 27th Place S. - Highland 19,600 267 10-01-86 76.2 Huntsville Drake 43,400 362 10-01-86 76.2 Huntsville Leeman 43,800 395 10-01-86 76.2
CALIFORNIA Fremont Peralta 39,100 418 10-24-86 70.0 Sacramento Franklin Blvd. 50,400 526 05-29-86 67.6 West Los Angeles Purdue Ave. 51,000 636 07-01-86 50.0
GEORGIA Jonesboro Jonesboro Rd. 33,400 275 10-23-86 50.0
KANSAS Kansas City So. 44th 76,900 583 09-10-86 72.7
Net Number Rentable of Date of Ownership Location Square Feet Spaces Acquisition Percentage - ----------------------------- ----------- ------ ----------- ---------- MARYLAND Capital Heights Central Ave. 54,400 632 07-15-86 50.0% Laurel Ft. Meade Rd. 35,100 477 08-20-86 50.0
MICHIGAN Pontiac Dixie Hwy. 60,400 544 07-01-86 70.0
MISSOURI St. Louis Kirkham 30,600 396 04-10-86 57.4 St. Louis Reavis Barracks 29,100 317 04-10-86 57.4
TEXAS Fort Worth East Loop 36,100 314 04-10-86 100.0 Houston Fairdale 118,800 1,194 10-01-86 70.0 Houston Glenvista 59,200 619 10-01-86 70.0 Houston Gulfton 103,600 882 10-01-86 70.0 Houston N. Freeway 96,500 877 10-01-86 70.0 Houston Rogerdale 115,000 1,006 10-01-86 70.0 Houston S. Gessner 111,100 1,008 10-01-86 70.0 Houston West Park 52,200 418 10-01-86 70.0 Richland Hills Baker Blvd. 55,800 408 06-24-86 50.0
UTAH West Valley So. 3600 St. 65,900 565 06-10-86 100.0
The weighted average occupancy level for the Mini-Warehouse Properties remained stable at 92% in 1998 and 1999. The annual average realized rent per square foot for the Mini-Warehouse Properties was $8.16 in 1999 compared to $7.96 in 1998.
Substantially all of the 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 Mini-Warehouse Properties to evaluate the environmental condition of, and potential environmental liabilities of, such properties. Although there can be no assurance, the Partnership is not aware of any 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 and the Joint Venture.
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 1999.
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, 1999, there were approximately 2,415 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 (150,000 units).
(b) The General Partners distributed, concurrent with the distribution for the fourth quarter of 1997, a portion of the operating reserve estimated to be $5.94 per Unit. The General Partners distributed, concurrent with the distribution for the first quarter of 1999, a portion of the operating reserve estimated to be $9.50 per Unit.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS. --------------
FORWARD LOOKING STATEMENTS - --------------------------
When used within this document, the words "expects," "believes," "anticipates," "should," "estimates," and similar expressions are intended to identify "forward-looking statements" within the meaning of that term in Section 27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Partnership to be materially different from those expressed or implied in the forward looking statements. Such factors include the impact of competition from new and existing real estate facilities which could impact rents and occupancy levels at the real estate facilities that the Partnership has an interest in; the Partnership's ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing Partnerships; and the impact of general economic conditions upon rental rates and occupancy levels at the real estate facilities that the Partnership has an interest in.
RESULTS OF OPERATIONS - ---------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998:
The Partnership's net income was $3,030,000 in 1999 compared to $2,985,000 in 1998, representing an increase of $45,000, or 1.5%. The increase is due primarily to the Partnership's share of an improvement in operations of the mini-warehouses in which the Partnership has an interest (the "Mini-Warehouse Properties").
PROPERTY OPERATIONS: Rental income for the Partnership's wholly-owned mini-warehouse properties was $585,000 in 1999 compared to $573,000 during 1998, representing an increase of $12,000, or 2.1%. Cost of operations (including management fees) increased $4,000, or 1.5%, to $272,000 in 1999 from $268,000 during 1998. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $8,000, or 2.6%, from $305,000 in 1998 to $313,000 in 1999.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real estate entities was $2,887,000 in 1999 as compared to $2,847,000 during 1998, representing an increase of $40,000, or 1.4%. This increase was due primarily to the Partnership's share of improved operating results at the Joint Venture's mini-warehouse properties.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization attributable to the Mini-Warehouse Properties increased $12,000, or 9.0% from $134,000 in 1998 to $146,000 during 1999. This increase was primarily attributable to the depreciation of capital expenditures made during 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997:
The Partnership's net income was $2,985,000 in 1998 compared to $2,680,000 in 1997, representing an increase of $305,000, or 11.4%. The increase is due primarily to the Partnership's share of an improvement in operations of the mini-warehouses in which the Partnership has an interest (the "Mini-Warehouse Properties").
PROPERTY OPERATIONS: Rental income for the Partnership's wholly-owned mini-warehouse properties was $573,000 in 1998 compared to $579,000 during 1997, representing a decrease of $6,000, or 1.0%. Cost of operations (including management fees) increased $30,000, or 12.6%, to $268,000 in 1998 from $238,000 during 1997. Accordingly, for the Partnership's mini-warehouse operations, property net operating income decreased by $36,000, or 10.6%, from $341,000 in 1997 to $305,000 in 1998.
EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: Equity in earnings of real estate entities was $2,847,000 in 1998 as compared to $2,500,000 during 1997, representing an increase of $347,000, or 13.9%. This increase was due primarily to the Partnership's share of improved operating results at the Joint Venture's mini-warehouse properties.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization attributable to the Mini-Warehouse Properties increased $4,000, or 3.1% from $130,000 in 1997 to $134,000 during 1998. This increase was primarily attributable to the depreciation of capital expenditures made during 1998.
SUPPLEMENTAL PROPERTY DATA
During 1999 and 1998, a majority of the Partnership's net income was from the Partnership's share of the operating results of the Mini-Warehouse Properties. Therefore, in order to evaluate the Partnership's operating results, the General Partners analyze the operating performance of the Mini-Warehouse Properties.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998: Rental income for the Mini-Warehouse Properties was $12,608,000 in 1999 compared to $12,333,000 during 1998, representing an increase of $275,000, or 2.2%. The increase in rental income was primarily attributable to increased rental rates. The annual average realized rent per square foot was $8.16 in 1999 compared to $7.96 in 1998. The weighted average occupancy levels remained stable at 92% in 1998 and 1999. Cost of operations (including management fees) increased $254,000, or 5.4%, to $4,941,000 during 1999 from $4,687,000 in 1998. This increase was primarily attributable to increases in advertising, property tax and payroll expenses. Accordingly, for the Mini-Warehouse Properties, property net operating income increased by $21,000, or 0.3%, from $7,646,000 in 1998 to $7,667,000 during 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997: Rental income for the Mini-Warehouse Properties was $12,333,000 in 1998 compared to $11,746,000 during 1997, representing an increase of $587,000, or 5.0%. The increase in rental income was primarily attributable to increased rental rates, combined with increased average occupancy levels. The annual average realized rent per square foot was $7.96 in 1998 compared to $7.63 in 1997. The weighted average occupancy levels increased from 91% in 1997 to 92% in 1998. Cost of operations (including management fees) increased $366,000, or 8.5%, to $4,687,000 during 1998 from $4,321,000 in 1997. This increase was primarily attributable to increases in advertising, property tax, payroll, and repairs and maintenance expenses. Accordingly, for the Mini-Warehouse Properties, property net operating income increased by $221,000, or 3.0%, from $7,425,000 in 1997 to $7,646,000 during 1998.
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 and distributions from Real Estate Entities combined with cash on hand at December 31, 1999 of $2,092,000.
Cash flows from operating activities and distributions from Real Estate ($5,379,000 for the year ended December 31, 1999) have been sufficient to meet all current obligations of the Partnership. Total capital improvements for the Partnership's wholly-owned properties were $69,000, $37,000, and $38,000 in 1999, 1998, and 1997, respectively. During 2000, the Partnership anticipates approximately $38,000 of capital improvements to the Partnership's wholly-owned properties.
Total distributions paid to the General Partners and the limited partners (including per Unit amounts) for 1999 and prior years were as follows:
Total Per Unit ---------- -------- 1999 $5,606,000 33.30 1998 4,007,000 23.80 1997 5,007,000 29.74 1996 4,008,000 23.80 1995 4,007,000 23.80 1994 4,007,000 23.80 1993 3,265,000 19.40 1992 3,026,000 17.97 1991 4,041,000 24.00 1990 3,523,000 20.93 1989 3,368,000 20.00 1988 3,629,000 21.55 1987 4,418,000 26.25 1986 3,544,000 24.87
The Partnership, in prior years, made distributions based on anticipated operating cash flows. The General Partners distributed, concurrently with the distributions for the fourth quarter of 1991, a portion of the operating reserve of the Partnership and adjusted the on-going distribution level. The operating reserve that was distributed was estimated at $4.00 per Unit. The 1997 distribution includes a special distribution of cash reserves of approximately $5.94 per Unit. The 1999 distribution includes a special distribution of cash reserves of approximately $9.50 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 - -------------------
The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date sensitive systems may recognize the Year 2000 as 1900 or some other date, resulting in errors when information using Year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date to the Year 2000 has occurred and no Year 2000 Issues have been identified, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect the entity, including those related to customers, suppliers, or other third parties, have been fully resolved.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ------------------------------------------------------------
None.
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 Mini-Warehouse Properties are managed by PSI pursuant to a Management Agreement. Through 1996, the business parks of the Joint Venture were managed by a predecessor of PSBPLP pursuant to a Management Agreement. In January 1997, the Joint Venture transferred its business parks 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:
Name Positions with PSI - -------------------------- ------------------------------------------------- B. Wayne Hughes Chairman of the Board and Chief Executive Officer Harvey Lenkin President and Director Marvin M. Lotz Senior Vice President and Director B. Wayne Hughes, Jr. Vice President and Director John Reyes Senior Vice President and Chief Financial Officer Carl B. Phelps Senior Vice President Obren B. Gerich Senior Vice President David Goldberg Senior Vice President and General Counsel A. Timothy Scott Senior Vice President and Tax Counsel David P. Singelyn Vice President and Treasurer Sarah Hass Vice President and Secretary Robert J. Abernethy Director Dann V. Angeloff Director William C. Baker Director Thomas J. Barrack Jr. Director Uri P. Harkham Director Daniel C. Staton Director
B. Wayne Hughes, age 66, 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 30 years. He is the father of B. Wayne Hughes, Jr.
Harvey Lenkin, age 63, has been employed by PSI for 22 years and became President and a director of PSI in November 1991. Mr. Lenkin has been a director of PS Business Parks, Inc. ("PSBP"), an affiliated REIT, since March 16, 1998 and was President of PSBP (formerly Public Storage Properties XI, Inc.) from 1990 until March 16, 1998. He is a member of the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT).
Marvin M. Lotz, age 57, became a director of PSI in May 1999. He 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.
B. Wayne Hughes, Jr., age 40 became director of PSI in January 1998. He has been employed by the Company since 1989 and has been a Vice President - Acquisitions of PSI since 1992. Mr. Hughes, Jr. is involved in the coordination
and direction of PSI's acquisition and development activities. He is the son of B. Wayne Hughes.
John Reyes, age 39, 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 61, 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 61, 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.
David Goldberg, age 50, 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 48, 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. Singleyn, age 38, 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 44, 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 60, 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 trustees of Johns Hopkins University, a director of Marathon National Bank and a California Transportation Commissioner. Mr. Abernethy is a former member of the board of directors of the Los Angeles County Metropolitan Transportation Authority and the Metropolitan Water District of Southern California and a former Planning Commissioner and Telecommunications Commissioner and former Vice-Chairman of the Economic Development Commission of the City of Los Angeles.
Dann V. Angeloff, age 64, 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 AremisSoft Corporation, Balboa Capital Corporation, Compensation Resource Group, Nicholas/Applegate Growth Equity Fund,
ReadyPac Produce, Inc., Royce Medical Company, topjobs.net plc and WorldxChange Communications, Inc. He was a director of SPI from 1989 until June 1996.
William C. Baker, age 66, became a director of PSI in November 1991. From January 1999 until June 1999, Mr. Baker was President and Chief Executive Officer of Los Angeles Turf Club, Incorporated, which operates the Santa Anita Racetrack and is wholly-owned subsidiary of Magna International Inc. Since August 1998, he has been President of Meditrust Operating Company, a paired share real estate investment trust. From November 1997 until December 1998, he was Chairman of the Board and Chief Executive Officer of The Santa Anita Companies, Inc., a wholly-owned subsidiary of Meditrust Operating Company which then operated the Santa Anita Racetrack. 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 Santa Anita Realty Enterprises, Inc., the companies which were merged with Meditrust in November 1997. 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 52, 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 a 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 Kennedy-Wilson, Inc.
Uri P. Harkham, age 51, 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.
Daniel C. Staton, age 47, became a director of PSI on March 12, 1999 in connection with the merger of Storage Trust Realty, a real estate investment trust, with PSI. Mr. Staton was Chairman of the Board of Trustees of Storage Trust Realty from February 1998 until March 12, 1999 and a Trustee of Storage Trust Realty from November 1994 until March 12, 1999. He is President of Walnut Capital Partners, an investment and venture capital company. Mr. Staton was the Chief Operating Officer and Executive Vice President of Duke Realty Investments, Inc. from 1993 to 1997 and a director of Duke Realty Investments, Inc. from 1993 until August 1999. From 1981 to 1983, Mr. Staton was a principal owner of Duke Associates, the predecessor of Duke Realty Investments, Inc. Prior to joining Duke Associates in 1981, he was a partner and general manager of his own moving company, Gateway Van & Storage, Inc. in St. Louis, Missouri. Form 1986 to 1988, Mr. Staton served as president of the Greater Cincinnati Chapter of the National Association of Industrial and Office Parks.
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. 2-98968, 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 January 1, 2000, 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 Limited Public Storage, Inc. Partnership 701 Western Avenue Interest Glendale, CA 91201-2394 92,223 Units (1) 61.48% (1)
- ----------
(1) These Units are held of record by SEI Arlington Acquisition Corporation, a wholly-owned subsidiary of PSI.
In September 1997, PSI completed a cash tender offer, which had commenced in July 1997, pursuant to which PSI acquired a total of 13,075 additional limited partnership units at $351 per Unit.
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 $747,000 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.
(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. 2-98968. 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 32 properties (which exclude the properties transferred to PSBPLP in January 1997); 30 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, 1999, PSI has the right to require the Partnership to sell all of the Joint Venture's 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 1999, approximately $561,000 was paid to PSI with respect to items 1, 2, and 3 above. The Partnership owns interests in 32 properties (which exclude the properties transferred to PSBPLP in January 1997); 30 of such properties are held in a general partnership comprised of the Partnership and PSI.
The Partnership and the Joint Venture have a Management Agreement with PSI pursuant to which the Partnership and the Joint Venture pay PSI a fee of 6% of the gross revenues of the mini-warehouse spaces operated for the Partnership and the Joint Venture. During 1999, the Partnership and the Joint Venture paid fees of $756,000 to PSI pursuant to the Management Agreement.
Through 1996, the Joint Venture's business parks were managed by a predecessor of PSBPLP 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 Joint Venture. In January 1997, the Joint Venture 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 were the Joint Venture's business parks 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 Financial Statements and Financial Statement Schedules.
2. Financial Statement Schedules: See Index to 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 VI, 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.
10.3 Participation Agreement dated as of October 18, 1985, among Storage Equities, Inc., the Partnership, Public Storage, Inc., B. Wayne Hughes and Kenneth Q. Volk, Jr. Previously filed with the Securities and Exchange Commission as an exhibit to Storage Equities, Inc.'s Annual Report on Form 10-K dated November 30, 1985 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 VI, LTD. a California Limited Partnership Dated: March 28, 2000 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 VI, LTD. a California Limited Partnership
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page References ---------- PS PARTNERS VI, LTD. Report of Independent Auditors Financial Statements and Schedule: Balance Sheets as of December 31, 1999 and 1998 For the years ended December 31, 1999, 1998 and 1997: Statements of Income Statements of Partners' Equity Statements of Cash Flows Notes to Financial Statements - Schedule Schedule III - Real Estate and Accumulated Depreciation -
Financial Statements of 50 percent or less owned persons required pursuant to Rule 3-09:
PS BUSINESS PARKS, INC. - PS Business Parks, Inc. is a registrant with the Securities and Exchange Commission and its filings can be accessed through the Securities and Exchange Commission.
SEI/PSP VI JOINT VENTURES Report of Independent Auditors Financial Statements: Balance Sheets as of December 31, 1999 and 1998 For the years ended December 31, 1999, 1998 and 1997: Statements of Income Statements of Partners' Equity Statements of Cash Flows - Notes to Financial Statements - Schedule 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 VI, Ltd., a California Limited Partnership
We have audited the balance sheets of PS Partners VI, Ltd., a California Limited Partnership, as of December 31, 1999 and 1998 and the related statements of income, partners' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 VI, Ltd., a California Limited Partnership, at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 14, 2000 Los Angeles, California
PS PARTNERS VI, LTD. a California Limited Partnership BALANCE SHEETS December 31, 1999 and 1998
See accompanying notes.
PS PARTNERS VI, LTD. a California Limited Partnership STATEMENTS OF INCOME For the years ended December 31, 1999, 1998, and 1997
See accompanying notes.
PS PARTNERS VI, LTD. a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY For the years ended December 31, 1999, 1998, and 1997
See accompanying notes.
PS PARTNERS VI, LTD. a California Limited Partnership STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998, and 1997
See accompanying notes.
PS PARTNERS VI, LTD. a California Limited Partnership NOTES TO FINANCIAL STATEMENTS December 31, 1999
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------
Description of Partnership --------------------------
PS Partners VI, 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 mini-warehouse properties in which the Partnership has an interest.
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 32 properties in 9 states (collectively referred to as the "Mini-Warehouse Properties"), which exclude two properties transferred to PS Business Parks, L.P. ("PSBPLP") in January 1997. 30 of the properties are owned by SEI/PSP VI Joint Ventures (the "Joint Venture"), a general partnership between the Partnership and PSI. The Partnership is the managing general partner of the Joint Venture, with ownership interests in the individual properties of the Joint Venture ranging from 50% to 76.2%.
As used hereinafter, the Joint Venture and PSBPLP are referred to as the "Real Estate Entities."
Basis of Presentation ---------------------
The financial statements include the accounts of the Partnership. The accounts of the Joint Venture, which the Partnership does not control, are not consolidated with the Partnership and the Partnership's interest in the Joint Venture is accounted for on the equity method.
The Partnership does not control the Joint Venture because PSI has significant control rights with respect to the management of the properties, including the right to compel the sale of each property in the Joint Venture and the right to require the Partnership to submit operating budgets.
Under the terms of the general partnership agreement of the Joint Venture all depreciation and amortization with respect to each property 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.
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------ (Continued) -----------
Under the terms of the partnership agreements, 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 proceeds solely in cash. PSI's right to require the Partnership to sell all of the properties owned jointly with the Partnership has been exercisable in all periods presented.
Under the terms of the general partnership agreement of the Joint Venture, for property acquisitions in which PSI issued convertible securities to the sellers for its interest, PSI's right to receive cash flow distributions for any year after the first year of operation are subordinated to cash distributions to PSP VI equal to a cumulative annual 7% of its cash investment (not compounded). In addition, 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 PSP VI of the amount of its cash investment and the 7% distribution described above.
Depreciation and amortization -----------------------------
The Partnership and the Joint Venture depreciate 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.
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 4) 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.
Per Unit Data -------------
Per unit data is based on the number of limited partner units (150,000) outstanding during the periods presented.
Cash Distributions ------------------
The Partnership Agreement provides for quarterly distributions of cash flow from operations (as defined). Cash distributions per limited partner unit were $33.30, $23.80, and $29.74 for 1999, 1998, and 1997, 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.
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------ (Continued) -----------
Environmental Cost ------------------
Substantially all of the real estate facilities in which the Partnership has an interest 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 properties of the Partnership and the Joint Venture to evaluate the environmental condition of, and potential environmental liabilities of such properties. Although there can be no assurance, the Partnership is not aware of any environmental contamination of the Mini-Warehouse Properties which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations.
Segment Reporting -----------------
Effective January 1, 1998, the Partnership adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 established standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Partnership only has one reportable segment as defined within SFAS No. 131, therefore the adoption of SFAS No. 131 had no effect on the Partnership's disclosures.
Use of Estimates ----------------
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.
Derivatives -----------
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 2000. Management does not anticipate that the adoption of the new Statement will have significant effect on earnings or the financial position of the Partnership.
2. Real Estate Facilities ----------------------
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.
2. Real Estate Facilities (Continued) ----------------------------------
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 were the Joint Venture's business parks in exchange for a partnership interest in PSBPLP. The general partner of PSBPLP is PS Business Parks, Inc. ("PSBP").
3. Investment in Real Estate Entities ----------------------------------
During 1999, 1998, and 1997, the Partnership recognized earnings from the Real Estate Entities of $2,887,000, $2,847,000 and $2,500,000, respectively, and received cash distributions totaling $5,040,000, $5,006,000, and $3,957,000, respectively from the Real Estate Entities.
The accounting policies of the Real Estate Entities are similar to that of the Partnership. Summarized combined financial data with respect to the Real Estate Entities are as follows:
1999 1998 ------------ ------------ For the year ended December 31, Total revenues $141,819,000 $103,067,000 Minority interest in income 16,110,000 11,208,000 Net income 46,716,000 34,872,000
At December 31, Total assets, net of accumulated depreciation $961,490,000 $769,096,000 Total liabilities 59,579,000 67,738,000 Total minority interest 289,949,000 153,015,000 Total equity 611,962,000 548,343,000
The increase in the size of the combined financial position and operating results, respectively, of the Real Estate Entities for the year ended December 31, 1999 and at December 31, 1999, respectively, as compared to prior periods, is the result of the additional properties acquired by PSBPLP during 1998 and 1999.
Financial statements of the Joint Venture are filed with the Partnership's Form 10-K for 1999, in Item 14. PS Business Parks, Inc. is a registrant with the Securities and Exchange Commission, and its filings can be accessed through the Securities and Exchange Commission.
4. 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.
5. Related Party Transactions --------------------------
The Partnership has a management agreement with PSI whereby PSI operates the Mini-Warehouse Properties for a fee equal to 6% of the facilities' monthly gross revenue (as defined).
In January 1997, the Joint Venture transferred its business park facilities to PSBPLP in exchange for a partnership interest in PSBPLP. PSI has a significant economic interest in PSBPLP and PSBP.
6. 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.
7. Taxes Based on Income ---------------------
Taxes based on income are the responsibility of the individual partners and, accordingly, the Partnership's financial statements do not reflect a provision for such taxes.
Unaudited taxable net income was $2,982,000, $2,705,000 and $5,448,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The difference between taxable income and book income is primarily related to timing differences in depreciation expense.
PS PARTNERS VI, LTD. A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
PS PARTNERS VI, LTD. A CALIFORNIA LIMITED PARTNERSHIP REAL ESTATE RECONCILIATION SCHEDULE III (CONTINUED)
(A) The following is a reconciliation of cost and related accumulated depreciation.
(B) The aggregate cost of real estate for Federal income tax purposes is $3,287,000.
Report of Independent Auditors
The Partners SEI/PSP VI Joint Ventures
We have audited the balance sheets of the SEI/PSP VI Joint Ventures as of December 31, 1999 and 1998 and the related statements of income, partners' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 Joint Ventures' 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 auditing standards generally accepted in the United States. 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 the SEI/PSP VI Joint Ventures at December 31, 1999 and 1998, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 14, 2000 Los Angeles, CA
SEI/PSP VI JOINT VENTURES a California Limited Partnership BALANCE SHEETS December 31, 1999 and 1998
See accompanying notes.
SEI/PSP VI JOINT VENTURES a California Limited Partnership STATEMENTS OF INCOME For the years ended December 31, 1999, 1998, and 1997
See accompanying notes.
SEI/PSP VI JOINT VENTURES a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY For the years ended December 31, 1999, 1998, and 1997
See accompanying notes.
SEI/PSP VI JOINT VENTURES a California Limited Partnership STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998, and 1997
See accompanying notes.
SEI/PSP VI JOINT VENTURES a California Limited Partnership STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998, and 1997 (Continued)
See accompanying notes.
SEI/PSP VI JOINT VENTURES a California Limited Partnership NOTES TO FINANCIAL STATEMENTS December 31, 1999
1. Description of Partnership --------------------------
SEI/PSP VI Joint Ventures (the "Joint Venture") was formed on December 31, 1990 in connection with the consolidation of 14 separate general partnerships between Public Storage Inc. ("PSI") and PS Partners VI, Ltd. ("PSP VI"). The Joint Venture, through its predecessor general partnerships, invested in existing mini-warehouse 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 Joint Venture owns 30 properties (referred to hereinafter as the "Mini-Warehouses"), which excludes two properties which were transferred to PS Business Parks, L.P. ("PSBPLP") in January 1997. PSP VI is the managing general partner of the Joint Venture, with its ownership interests in the properties of the Joint Venture ranging from 50% to 76.2%.
2. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------
Basis of Presentation ---------------------
The financial statements include the accounts of the Joint Venture.
Under the terms of the general partnership agreement of the Joint Venture, for property acquisitions in which PSI issued convertible securities to the sellers for its interest, PSI's right to receive cash flow distributions for any year after the first year of operation are subordinated to cash distributions to PSP VI equal to a cumulative annual 7% of its cash investment (not compounded). In addition, 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 PSP VI of the amount of its cash investment and the 7% distribution described above.
Depreciation and Amortization -----------------------------
The Joint Venture 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.
Revenue Recognition -------------------
Property rents are recognized as earned.
Allocation of Net Income to PSP VI and PSI ------------------------------------------
Net income prior to depreciation is allocated to PSP VI and PSI based upon their relative ownership interest in each property and the results of each property.
Under the terms of the general partnership agreement of the Joint Venture all depreciation and amortization with respect to each Joint Venture is allocated solely to PSP VI until it recovers its 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 PSP VI and PSI in proportion to their ownership percentages.
2. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------ (Continued) -----------
Cash Distributions ------------------
The general partnership agreement of the Joint Venture provides for regular distributions of cash flow from operations (as defined).
Cash and Cash Equivalents -------------------------
For financial statement purposes, the Joint Venture considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
Environmental Cost ------------------
Substantially all of the real estate facilities in which the Joint Venture has an interest 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 Joint Venture's properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. Although there can be no assurance, the Joint Venture is not aware of any environmental contamination of the Mini-Warehouses which individually or in the aggregate would be material to the Joint Venture's overall business, financial condition, or results of operations.
Segment Reporting -----------------
Effective January 1, 1998, the Joint Venture adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 established standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Joint Venture only has one reportable segment as defined within SFAS No. 131, therefore the adoption of SFAS No. 131 had no effect on the Joint Venture's disclosures.
Use of Estimates ----------------
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.
Derivatives -----------
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 2000. Management does not anticipate that the adoption of the new Statement will have significant effect on earnings or the financial position of the Partnership.
3. Real Estate Facilities ----------------------
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 Joint Venture adopted Statement 121 in 1996 and the adoption had no effect.
In January 1997, the Joint Venture, PSI and other affiliated partnerships of PSI 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 were the Joint Venture's business parks in exchange for a partnership interest in PSBPLP. The general partner of PSBPLP is PS Business Parks, Inc. ("PSBP").
4. Investment in real estate entity --------------------------------
In 1999, 1998, and 1997, the Joint Venture recognized $1,183,000, $1,047,000, and $734,000, respectively, in equity in earnings of real estate entities with respect to the investment in PSBPLP, described in Note 3 above.
The accounting policies of PSBPLP are similar to that of the Joint Venture. Summarized combined financial data with respect to PSBPLP is as follows:
1999 1998 ------------ ----------- For the year ended December 31, Total revenues $128,613,000 $90,260,000 Minority interest in income 16,110,000 11,208,000 Net income 41,255,000 29,400,000
At December 31, Total assets, net of accumulated depreciation $903,741,000 $709,414,000 Total liabilities 58,261,000 66,494,000 Total minority interest 289,949,000 153,015,000 Total equity 555,531,000 489,905,000
The increase in the size of the combined financial position and operating results, respectively, of the Real Estate Entity for the year ended December 31, 1999 and at December 31, 1999, respectively, as compared to prior periods, is the result of the additional properties acquired by PSBPLP during 1998 and 1999.
PS Business Parks, Inc., which owns PSBPLP, is a registrant with the Securities and Exchange Commission, and its filings can be accessed through the Securities and Exchange Commission.
5. Related Party Transactions -------------------------
The Joint Venture has a management agreement with PSI whereby PSI operates the Mini-Warehouses for a fee equal to 6% of the facilities' monthly gross revenue (as defined).
In January 1997, the Joint Venture transferred its business park facilities to PSBPLP in exchange for a partnership interest in PSBPLP. PSI has a significant economic interest in PSBPLP and PSBP.
6. Leases ------
The Joint Venture 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.
7. Taxes Based on Income ---------------------
Taxes based on income are the responsibility of PSP VI and PSI and, accordingly, the Joint Venture's financial statements do not reflect a provision for such taxes.
Unaudited taxable net income was $4,411,000, $4,620,000 and $5,283,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The difference between taxable income and book income is primarily related to timing differences in depreciation expense.
SEI/PSP VI JOINT VENTURES A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEI/PSP VI JOINT VENTURES A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEI/PSP VI JOINT VENTURES A CALIFORNIA LIMITED PARTNERSHIP REAL ESTATE RECONCILIATION SCHEDULE III (CONTINUED)
(A) The following is a reconciliation of cost and related accumulated depreciation.
(B) The aggregate cost of real estate for Federal income tax purposes is $72,345,000.