UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------- ----------- Commission File Number 1-10709 ------- PUBLIC STORAGE PROPERTIES XI, INC. --------------------------------------- (Exact name of registrant as specified in its charter) California 95-4300881 - ---------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 701 Western Avenue Glendale, California 91201-2349 - ---------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 244-8080 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the Company's classes of common stock as of September 30, 1996: 1,819,937 shares of $.01 par value Series A shares 184,453 shares of $.01 par value Series B shares 522,618 shares of $.01 par value Series C shares ------------------------------------------------ INDEX Page ---- PART I. FINANCIAL INFORMATION Condensed Balance Sheets at September 30, 1996 and December 31, 1995 2 Condensed Statements of Income for the three and nine months ended September 30, 1996 and 1995 3 Condensed Statement of Shareholders' Equity for the nine months ended September 30, 1996 4 Condensed Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 5 Notes to Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II. OTHER INFORMATION 10 PUBLIC STORAGE PROPERTIES XI, INC. CONDENSED BALANCE SHEETS
September 30, December 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS ------ Cash and cash equivalents $ 1,000,000 $ 746,000 Rent and other receivables 103,000 87,000 Prepaid expenses 81,000 268,000 Real estate facilities at cost: Building, land improvements and equipment 26,330,000 26,031,000 Land 12,118,000 12,118,000 ------------- ------------ 38,448,000 38,149,000 Less accumulated depreciation (11,698,000) (10,862,000) ------------- ------------ 26,750,000 27,287,000 ------------- ------------ Total assets $27,934,000 $28,388,000 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Accounts payable $ 564,000 $ 609,000 Dividends payable 681,000 694,000 Advance payments from renters 174,000 202,000 Shareholders' equity: Series A common, $.01 par value, 2,828,989 shares authorized, 1,819,937 shares issued and outstanding (1,856,337 shares issued and outstanding in 1995) 18,000 19,000 Convertible Series B common, $.01 par value, 184,453 shares authorized, issued and outstanding 2,000 2,000 Convertible Series C common, $.01 par value, 522,618 shares authorized, issued and outstanding 5,000 5,000 Paid-in-capital 32,421,000 33,105,000 Cumulative income 25,188,000 22,816,000 Cumulative distributions (31,119,000) (29,064,000) ------------- ------------ Total shareholders' equity 26,515,000 26,883,000 ------------- ------------ Total liabilities and shareholders' equity $27,934,000 $28,388,000 ============= ============
See accompanying notes. 2 PUBLIC STORAGE PROPERTIES XI, INC. CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------- ----------------------------------- 1996 1995 1996 1995 --------------- ---------------- -------------- -------------- REVENUES: Rental income $1,849,000 $1,781,000 $5,401,000 $5,143,000 Interest income 9,000 6,000 20,000 14,000 --------------- ---------------- -------------- -------------- 1,858,000 1,787,000 5,421,000 5,157,000 --------------- ---------------- -------------- -------------- COSTS AND EXPENSES: Cost of operations 573,000 554,000 1,746,000 1,664,000 Management fees paid to affiliates 100,000 104,000 288,000 300,000 Depreciation 296,000 280,000 848,000 819,000 Administrative 59,000 57,000 164,000 161,000 Interest expense - - 3,000 1,000 --------------- ---------------- -------------- -------------- 1,028,000 995,000 3,049,000 2,945,000 --------------- ---------------- -------------- -------------- NET INCOME $ 830,000 $ 792,000 $2,372,000 $2,212,000 =============== ================ ============== ============== Earnings per share: Primary - Series A $0.42 $0.39 $1.19 $1.08 =============== ================ ============== ============== Fully diluted - Series A $0.32 $0.31 $0.93 $0.86 =============== ================ ============== ============== Dividends declared per share: Series A $0.34 $0.34 $1.02 $1.02 =============== ================ ============== ============== Series B $0.34 $0.34 $1.02 $1.02 =============== ================ ============== ============== Weighted average common shares outstanding: Primary - Series A 1,824,804 1,859,004 1,834,481 1,865,848 =============== ================ ============== ============== Fully diluted - Series A 2,531,875 2,566,075 2,541,552 2,572,919 =============== ================ ============== ==============
See accompanying notes. 3 Public Storage Properties XI, Inc. Condensed Statement of Shareholders' Equity (Unaudited)
Convertible Convertible Series A Series B Series C Paid-in Shares Amount Shares Amount Shares Amount Capital ------ ------ ------ ------ ------ ------ --------- Balances at December 31, 1995 1,856,337 $19,000 184,453 $2,000 522,618 $5,000 $33,105,000 Net income - - - - - - - Repurchase of shares (36,400) (1,000) - - - - (684,000) Cash distributions declared: $1.02 per share - Series A - - - - - - - $1.02 per share - Series B - - - - - - - ------ ------ ------ ------ ------ ------ --------- Balances at September 30, 1996 1,819,937 $18,000 184,453 $2,000 522,618 $5,000 $32,421,000 ========= ======== ======= ====== ======= ======= ===========
Public Storage Properties XI, Inc. Condensed Statement of Shareholders' Equity (Unaudited)
Cumulative Total Net Cumulative Shareholders' Income Distributions Equity ----------- --------------- ------------- Balances at December 31, 1995 $22,816,000 ($29,064,000) $26,883,000 Net income 2,372,000 - 2,372,000 Repurchase of shares - - (685,000) Cash distributions declared: $1.02 per share - Series A - (1,866,000) (1,866,000) $1.02 per share - Series B - (189,000) (189,000) ----------- --------------- ------------- Balances at September 30, 1996 $25,188,000 ($31,119,000) $26,515,000 =========== =============== ==============
See accompanying notes. 4 PUBLIC STORAGE PROPERTIES XI, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ----------------------------------- 1996 1995 --------------- ------------- Cash Flows From Operating Activities: Net income $2,372,000 $2,212,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 848,000 819,000 (Increase) decrease in rent and other receivables (16,000) 17,000 Increase in prepaid expenses (18,000) (27,000) Amortization of prepaid management fees 205,000 - (Decrease) increase in accounts payable (45,000) 99,000 Decrease in advance payments from renters (28,000) (9,000) --------------- ------------- Total adjustments 946,000 899,000 --------------- ------------- Net cash provided by operating activities 3,318,000 3,111,000 --------------- ------------- Cash Flows From Investing Activities: Additions to real estate facilities (311,000) (329,000) --------------- ------------- Net cash used in investing activities (311,000) (329,000) --------------- ------------- Cash Flows From Financing Activities: Distributions paid to shareholders (2,068,000) (2,099,000) Purchase of Company Series A common stock (685,000) (529,000) --------------- ------------- Net cash used in financing activities (2,753,000) (2,628,000) --------------- ------------- Net increase in cash and cash equivalents 254,000 154,000 Cash and cash equivalents at the beginning of the period 746,000 754,000 --------------- ------------- Cash and cash equivalents at the end of the period $1,000,000 $ 908,000 =============== =============
See accompanying notes. 5 PUBLIC STORAGE PROPERTIES XI, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures contained herein are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes appearing in the Company's Form 10-K for the year ended December 31, 1995. 2. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal accruals, necessary to present fairly the Company's financial position at September 30, 1996 and December 31, 1995, the results of its operations for the three and nine months ended September 30, 1996 and 1995 and its cash flows for the nine months then ended. 3. The results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results expected for the full year. 4. In December 1995, the Company obtained an unsecured revolving credit facility with a bank for borrowings up to $3,000,000 for working capital purposes and to repurchase the Company's stock. Outstanding borrowings on the credit facility, at the Company's option, bear interest at either the bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%. Interest is payable monthly. On December 31, 1999, all unpaid principal and accrued interest is due and payable. During the first quarter of 1996, the Company borrowed and repaid $250,000 on its line of credit facility. At September 30, 1996, there was no outstanding balance on the credit facility. 5. In 1995, the Company prepaid eight months of 1996 management fees at a total cost of $205,000. The amount has been expensed as management fees paid to affiliate during the nine months ended September 30, 1996. 6 PUBLIC STORAGE PROPERTIES XI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors occurring during the periods presented in the accompanying Condensed Financial Statements. RESULTS OF OPERATIONS. - ---------------------- The Company's net income for the nine months ended September 30, 1996 and 1995 was $2,372,000 and $2,212,000, respectively, representing an increase of $160,000 or 7%. Net income for the three months ended September 30, 1996 and 1995 was $830,000 and $792,000, respectively, representing an increase of $38,000 or 4%. These increases are primarily the result of increases in property net operating income (rental income less cost of operations, management fees paid to affiliates and depreciation expense). Rental income for the nine months ended September 30, 1996 and 1995 was $5,401,000 and $5,143,000, respectively, representing an increase of $258,000 or 5%. Rental income for the three months ended September 30, 1996 and 1995 was $1,849,000 and $1,781,000, respectively, representing an increase of $68,000 or 3%. The Company's mini-warehouse operations showed increases in rental income of $179,000 and $37,000 for the nine and three month periods ended September 30, 1996, respectively, compared to the same periods in 1995 primarily due to an increase in rental rates at a majority of the Company's properties. The Company's business park operations also contributed to the increase in rental income due to increases in rental rates. The Company's mini-warehouse operations had weighted average occupancy levels of 92% for both the nine month periods ended September 30, 1996 and 1995. The Company's business park operations had weighted average occupancy levels of 98% and 96% for the nine month periods ended September 30, 1996 and 1995, respectively. Cost of operations (including management fees paid to affiliates and depreciation expense) for the nine months ended September 30, 1996 and 1995 was $2,882,000 and $2,783,000, respectively, representing an increase of $99,000 or 3%. Cost of operations for the three months ended September 30, 1996 and 1995 was $969,000 and $938,000, respectively, representing an increase of $31,000 or 3%. These increases are mainly attributable to increases in payroll expense, advertising and repairs and maintenance costs. The increase in repairs and maintenance costs is primarily due to increases in snow removal costs associated with higher than normal snow levels experienced at the Company's mini-warehouse properties in the eastern states and landscaping costs. In 1995, the Company prepaid eight months of 1996 management fees on its mini-warehouse operations (based on the management fees for the comparable period during the calendar year immediately preceding the prepayment) discounted at the rate of 14% per year to compensate for early payment. The Company has expensed the prepaid management fees. The amount is included in management fees paid to affiliates in the condensed statements of income. As a result of the prepayment, the Company saved approximately $26,000 in management fees, based on the management fees that would have been payable on rental income generated in the nine months ended September 30, 1996 compared to the amount prepaid. 7 During the nine months ended September 30, 1996, the Company incurred $3,000 in interest expense on its line of credit facility. LIQUIDITY AND CAPITAL RESOURCES. - -------------------------------- Cash flows from operating activities ($3,318,000 in 1996) and cash reserves were sufficient to meet all current obligations and distributions of the Company during the nine months ended September 30, 1996. Management expects cash flows from operations will be sufficient to fund capital expenditures and quarterly distributions. In December 1995, the Company obtained an unsecured revolving credit facility with a bank for borrowings up to $3,000,000 for working capital purposes and to repurchase the Company's stock. Outstanding borrowings on the credit facility, at the Company's option, bear interest at either the bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%. Interest is payable monthly. On December 31, 1999, all unpaid principal and accrued interest is due and payable. During the first quarter of 1996, the Company borrowed and repaid $250,000 on its line of credit facility. At September 30, 1996, there was no outstanding balance on the credit facility. On November 12, 1996, the Company's Board of Directors declared a regular quarterly distribution per share of $0.34 payable on January 15, 1997 to shareholders of record on December 31, 1996. The Company's Board of Directors has authorized the Company to purchase up to 400,000 shares of Series A common stock. As of September 30, 1996, the Company had repurchased 301,275 shares of Series A common stock, of which 36,400 were purchased in 1996. The Company has elected and intends to continue to qualify as a real estate investment trust ("REIT") for federal income tax purposes. As a REIT, the Company must meet, among other tests, sources of income, share ownership, and certain asset tests. The Company is not taxed on that portion of its taxable income which is distributed to its shareholders provided that at least 95% of its taxable income is so distributed to its shareholders prior to filing of the Company's tax return. The primary difference between book income and taxable income is depreciation expense. In 1995, the Company's federal tax depreciation was $1,218,000. The bylaws of the Company provide that, during 1997, unless shareholders have previously approved such a proposal, the shareholders will be presented with a proposal to approve or disapprove (a) the sale or financing of all or substantially all of the properties and (b) the distribution of the proceeds from such transaction and, in the case of a sale, the liquidation of the Company. SUPPLEMENTAL INFORMATION. - ------------------------- The Company's funds from operations ("FFO") is defined generally by the National Association of Real Estate Investment Trusts as net income before loss on early extinguishment of debt and gain on disposition of real estate, plus depreciation and amortization. FFO for the nine months ended September 30, 1996 and 1995 was $3,220,000 and $3,031,000, respectively. FFO for the three months ended September 30, 1996 and 1995 was $1,126,000 and $1,072,000, respectively. 8 FFO is a supplemental performance measure for equity Real Estate Investment Trusts used by industry analysts. FFO does not take into consideration principal payments on debt, capital improvements, distributions and other obligations of the Company. The only depreciation or amortization that is added to income to derive FFO is depreciation and amortization directly related to physical real estate. All depreciation and amortization reported by the Company relates to physical real estate and does not include any depreciation or amortization related to goodwill, deferred financing costs or other intangibles. FFO is not a substitute for the Company's net cash provided by operating activities or net income computed in accordance with generally accepted accounting principles, as a measure of liquidity or operating performance. 9 PART II. OTHER INFORMATION ITEMS 1 through 5 are inapplicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. --------------------------------- (A) EXHIBITS: The following exhibit is included herein: (27) Financial Data Schedule (B) REPORTS ON FORM 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: November 13, 1996 PUBLIC STORAGE PROPERTIES XI, INC. BY: /s/ Ronald L. Havner, Jr. -------------------------- Ronald L. Havner, Jr. Senior Vice President and Chief Financial Officer 10