-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U3l6YDrTLjd0ffsSQeKuVEKa9yL44zhtIjnoQ/kd8bfkp6rZhsApYWA0jOg6GwTF OIDOwWZtTItETu+wjrpOYQ== 0000702276-97-000017.txt : 19970329 0000702276-97-000017.hdr.sgml : 19970329 ACCESSION NUMBER: 0000702276-97-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PS PARTNERS VIII LTD CENTRAL INDEX KEY: 0000793934 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 954029178 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16876 FILM NUMBER: 97566758 BUSINESS ADDRESS: STREET 1: 701 WESTERN AVE STREET 2: SUITE 200 CITY: GLENDALE STATE: CA ZIP: 91201-2397 BUSINESS PHONE: 8182448080 MAIL ADDRESS: STREET 1: 701 WESTERN AVE STREET 2: SUITE 200 CITY: GLENDALE STATE: CA ZIP: 91201 10-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996 ---------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to ----------- ------------- Commission File Number 0-16876 ------- PS PARTNERS VIII, LTD., a California Limited Partnership -------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-4029178 - ------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 701 Western Avenue Glendale, California 91201-2394 - ------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 244-8080 -------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest ------------------------------------- (Title of class) 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 -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE NONE PART I ITEM 1. Business. -------- General - ------- PS Partners VIII, Ltd. (the "Partnership") is a publicly held limited partnership formed under the California Revised Limited Partnership Act. Commencing in March 1987, up to 150,000 units of limited partnership interest ("Units") were offered to the public in an interstate offering. The offering was completed in December 1987 with 52,751 Units sold. The Partnership was formed to invest in and operate existing self-service facilities offering storage space for personal and business use (the "mini-warehouses") and to invest up to 45% of the net proceeds of the offering in and operate existing office and industrial properties. The Partnership's investments were made through general partnerships with Storage Equities, Inc., now known as Public Storage, Inc. ("PSI"), a real estate investment trust ("REIT") organized as a corporation under the laws of California. For tax administrative efficiency, the original general partnerships with PSI were consolidated into a single general partnership effective December 31, 1990. In 1995, there was a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired substantially all of PSMI's United States real estate operations and became the operator of the Partnership's mini-warehouse properties. The Partnership's general partners (the "General Partners") are PSI and B. Wayne Hughes ("Hughes"). PSI became a co-general partner in September 1993, when PSI acquired the interest of PSI Associates, Inc. ("PSA"), an affiliate of PSMI, relating to PSA's general partner capital contribution in the Partnership. Hughes has been a general partner of the Partnership since its inception. Hughes is the chairman of the board and chief executive officer of PSI, and Hughes and members of his family (the "Hughes Family") are the major shareholders of PSI. The Partnership is managed, and its investment decisions are made by Hughes and the executive officers and directors of PSI. The limited partners of the Partnership have no right to participate in the management or conduct of its business affairs. The Partnership's mini-warehouse properties are managed by PSI pursuant to a Management Agreement. PSI believes that it is the largest operator of mini-warehouse facilities in the United States. Through 1996, the Partnership's commercial property was managed by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a Management Agreement. In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to American Office Park Properties, L.P. ("AOPPLP"), an operating partnership formed to own and operate business parks in which PSI has approximately an 85% economic interest. Included among the properties transferred was the Partnership's transfer of its business park to AOPPLP in exchange for a 2.5% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. Ronald L. Havner, Jr., formerly Senior Vice-President and Chief Financial Officer of PSI, is the Chief Executive Officer of American Office Park Properties, Inc. See Item 13. PSI's current relationship with the Partnership includes (i) PSI is a co-general partner along with Hughes, who is chairman of the board and chief executive officer of PSI, (ii) as of February 19, 1997, PSI owned approximately 53.45% of the Partnership's limited partnership units and (iii) PSI is the operator of the Partnership's mini-warehouse facilities. Investments in Facilities - ------------------------- The Partnership owns 5 properties (which exclude the property transferred to AOPPLP in January 1997). The Partnership purchased its last property in February, 1988. Reference is made to the table in Item 2 for a summary of information about the Partnership's properties. The Partnership believes that its operating results have benefited from favorable industry trends and conditions. Notably, the level of new mini-warehouse construction has decreased since 1988 while consumer demand has increased. In addition, in recent years consolidation has occurred in the fragmented mini-warehouse industry. 2 Mini-warehouses - --------------- Mini-warehouses, which comprise the majority of the Partnership's investments, are designed to offer accessible storage space for personal and business use at a relatively low cost. A user rents a fully enclosed space which is for the user's exclusive use and to which only the user has access on an unrestricted basis during business hours. On-site operation is the responsibility of resident managers who are supervised by area managers. Some mini-warehouses also include rentable uncovered parking areas for vehicle storage. Leases for mini-warehouse space may be on a long-term or short-term basis, although typically spaces are rented on a month-to-month basis. Rental rates vary according to the location of the property and the size of the storage space. Users of space in mini-warehouses include both individuals and large and small businesses. Individuals usually employ this space for storage of furniture, household appliances, personal belongings, motor vehicles, boats, campers, motorcycles and other household goods. Businesses normally employ this space for storage of excess inventory, business records, seasonal goods, equipment and fixtures. Mini-warehouses in which the Partnership has invested generally consist of three to seven buildings containing an aggregate of between 368 to 740 storage spaces, most of which have between 25 and 400 square feet and an interior height of approximately 8 to 12 feet. The Partnership experiences minor seasonal fluctuations in the occupancy levels of mini-warehouses with occupancies higher in the summer months than in the winter months. The Partnership believes that these fluctuations result in part from increased moving activity during the summer. The Partnership's mini-warehouses are geographically diversified and are generally located in heavily populated areas and close to concentrations of apartment complexes, single family residences and commercial developments. However, there may be circumstances in which it may be appropriate to own a property in a less populated area, for example, in an area that is highly visible from a major thoroughfare and close to, although not in, a heavily populated area. Moreover, in certain population centers, land costs and zoning restrictions may create a demand for space in nearby less populated areas. As with most other types of real estate, the conversion of mini-warehouses to alternative uses in connection with a sale or otherwise would generally require substantial capital expenditures. However, the Partnership does not intend to convert its mini-warehouses to other uses. Commercial Properties - --------------------- Through 1996, the Partnership owned and operated a single commercial property; a business park located in Carson, California which was transferred to AOPPLP in January 1997 in exchange for a 2.5% interest in AOPPLP. Investment Objectives and Polices; Sale or Financing of Investments - ------------------------------------------------------------------- The Partnership's objectives are to (i) preserve and protect invested capital, (ii) maximize the potential for appreciation in value of its properties, (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. The General Partners have no present intention to seek the liquidation of the Partnership because they believe that it is not an opportune time to sell mini-warehouses. Although the General Partners originally anticipated a liquidation of the Partnership in 1993-1996, since the completion of the Partnership's offering in 1987, significant changes have taken place in the financial and real estate markets that must be taken into account in considering the timing of any proposed sale or financing, including: (i) the increased construction of mini-warehouses from 1984 to 1988, which has increased competition, (ii) the general deterioration of the real estate market (resulting from a variety of factors, including changes in tax laws), which has significantly affected property values and decreased sales activities and (iii) the reduced sources of real estate financing. In 1992, PSI offered Limited Partners of the Partnership (and two other affiliated Partnerships) the right to exchange their Units for shares of PSI's Common Stock. In connection with the exchange offer, the General Partners 3 indicated to Limited Partners that they would continue to evaluate the advisability of the sale or financing of the Partnership's properties and that at some point prior to the expiration of the period originally estimated for the sale or financing of the properties (at the end of 1996 in the case of the Partnership), the General Partners intended to conduct an analysis to determine the feasibility of a sale or financing of the properties, to make a recommendation to Limited Partners and to retain independent appraisers to conduct a study of the current value of the properties. In that regard, the Partnership engaged Lawrence R. Nicholson, MAI, a principal with the firm of Nicholson-Douglas Realty Consultants, Inc. ("NDRC") to perform a limited investigation and appraisal of the Partnership's property portfolio. In a letter appraisal report dated March 13, 1996, NDRC indicated that, based on the assumptions contained in the report, the aggregate market value of the Partnership's properties, as of January 31, 1996, was $18,100,000 ($14,800,000 for the five mini-warehouses and $3,300,000 for the one business park). (In January 1997, after the date of the appraisal, the Partnership transferred its business park to AOPPLP in exchange for a 2.5% interest in AOPPLP.) NDRC's report is limited in that NDRC did not inspect the properties and relied primarily upon the income capitalization approach in arriving at its opinion. The analytical process that was undertaken in the appraisal included a review of the properties' unit mix, rental rates and historical financial statements. Following these reviews, a stabilized level of net operating income was projected for the properties of $1,545,000 for the five mini-warehouses and $331,000 for the one business park. Value estimates were then made using both a direct capitalization analysis ($15,400,000 for the mini-warehouses and $3,300,000 for the business park) and a discounted cash flow analysis ($14,800,000 for the mini-warehouses and $3,300,000 for the business park). In the case of the mini-warehouses, these value estimates were then compared to an estimated value ($14,400,000) using a regression analysis applied to a sample of approximately 300 sales of mini-warehouses to evaluate the reasonableness of the estimate of the value of the Partnership's mini-warehouses. 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 by NDRC 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, the Partnership is not aware of any environmental contamination of its facilities material to its overall business or environmental condition. In addition to assuming compliance with applicable environmental laws, the appraisal also assumed, among other things, compliance with applicable zoning and use regulations and the existence of required licenses. Limited Partners should recognize that appraisals are opinions as of the date specified, are subject to certain assumptions and the appraised value of the Partnership's properties may not represent their true worth or realizable value. There can be no assurance that, if these properties were sold, they would be sold at the appraised values; the sales price might be higher or lower than the appraised values. Based on NDRC's limited appraisal (as of January 1996), the General Partners have estimated a liquidation value per Unit of $320. This liquidation value was calculated assuming (i) the properties owned by the Partnership and PSI were sold at the values reflected in NDRC's report, (ii) costs of 5% of the sales price of the properties were incurred in the sale of the properties and (iii) the Partnership's other net assets were liquidated at their book value at March 31, 1996. In August 1996, PSI completed a cash tender offer, which had commenced in July 1996, pursuant to which PSI acquired a total of 6,537 additional limited partnership units in the Partnership at $320 per Unit. Operating Strategies - -------------------- The Partnership's mini-warehouses are operated by PSI under the "Public Storage" name, which the Partnership believes is the most recognized name in the mini-warehouse industry. The major elements of the Partnership's operating strategies are as follows: * Capitalize on Public Storage's name recognition. PSI, together with its predecessor, has more than 20 years of operating experience in the mini-warehouse business. PSI has informed the Partnership that it is the largest mini-warehouse facility operator in the United States in terms of both number of facilities and rentable space operated. PSI believes that its marketing and advertising programs improve its competitive position in the market. PSI's in-house Yellow Pages staff designs and places advertisements in approximately 700 directories. Commencing in early 1996, PSI began to experiment with a telephone reservation system designed to provide added customer service. Customers calling either PSI's toll-free referral system, (800) 44-STORE, or a mini-warehouse 4 facility are directed to PSI's reservation system where a trained representative discusses with the customer space requirements, price and location preferences and also informs the customer of other products and services provided by PSI. As of December 31, 1996, the telephone reservation system was supporting rental activity at all of the Partnership's properties. PSI's toll-free telephone referral system services approximately 120,000 calls per month from potential customers inquiring as to the nearest Public Storage mini-warehouse. * Maintain high occupancy levels and increase realized rents. Subject to market conditions, the Partnership generally seeks to achieve average occupancy levels in excess of 90% and to eliminate promotions prior to increasing rental rates. The monthly realized rent per square foot for the mini-warehouse facilities averaged $.76 in 1996 compared to $.73 in 1995. Weighted average occupancy levels at the mini-warehouse facilities increased to 91% in 1996 from 89% in 1995. The Partnership has increased rental rates in many markets where it has achieved high occupancy levels and eliminated or minimized promotions. * Systems and controls. PSI has an organizational structure and a property operation system, "CHAMP" (Computerized Help and Management Program), which links its corporate office with each mini-warehouse. This enables PSI to obtain daily information from each mini-warehouse and to achieve efficiencies in operations and maintain control over its space inventory, rental rates, promotional discounts and delinquencies. Expense management is achieved through centralized payroll and accounts payable systems and a comprehensive property tax appeals department, and PSI has an extensive internal audit program designed to ensure proper handling of cash collections. * Professional property operation. In addition to the approximately 120 support personnel at the Public Storage corporate offices, there are approximately 2,700 on-site personnel who manage the day-to-day operations of the mini-warehouse in the Public Storage system. These on-site personnel are supervised by 110 district managers, 15 regional managers and three divisional managers (with an average of 13 years experience in the mini-warehouse industry) who report to the president of the mini-warehouse property operator (who has 13 years of experience with the Public Storage organization). PSI carefully selects and extensively trains the operational and support personnel and offers them a progressive career path. See "Mini-warehouse Property Operator." Mini-warehouse Property Operator - -------------------------------- The Partnership's mini-warehouse properties are managed by PSI pursuant to a Management Agreement. Under the supervision of the Partnership, PSI coordinates the operation of the facilities, establishes rental policies and rates, directs marketing activity and directs the purchase of equipment and supplies, maintenance activity, and the selection and engagement of all vendors, supplies and independent contractors. PSI engages, at the expense of the Partnership, employees for the operation of the Partnership's facilities, including resident managers, assistant managers, relief managers, and billing and maintenance personnel. Some or all of these employees may be employed on a part-time basis and may also be employed by other persons, partnerships, REITs or other entities owning facilities operated by PSI. In the purchasing of services such as advertising (including broadcast media advertising) and insurance, PSI attempts to achieve economies by combining the resources of the various facilities that it operates. Facilities operated by PSI have historically carried comprehensive insurance, including fire, earthquake, liability and extended coverage. PSI has developed systems for space inventory, accounting and handling delinquent accounts, including a computerized network linking PSI operated facilities. Each project manager is furnished with detailed operating procedures and typically receives facilities management training from PSI. Form letters covering a variety of circumstances are also supplied to the project managers. A record of actions taken by the project managers when delinquencies occur is maintained. 5 The Partnership's facilities are typically advertised via signage, yellow pages, flyers and broadcast media advertising (television and radio) in geographic areas in which many of the Partnership's facilities are located. Broadcast media and other advertising costs are charged to the Partnership's facilities located in geographic areas affected by the advertising. From time to time, PSI adopts promotional programs, such as temporary rent reductions, in selected areas or for individual facilities. For as long as the Management Agreement is in effect, PSI has granted the Partnership a non-exclusive license to use two PSI service marks and related designs, including the "Public Storage" name, in conjunction with rental and operation of facilities managed pursuant to the Management Agreement. Upon termination of the Management Agreement, the Partnership would no longer have the right to use the service marks and related designs. The General Partners believe that the loss of the right to use the service marks and related designs could have a material adverse effect on the Partnership's business. The Management Agreement between the Partnership and PSI provides that the Management Agreement may be terminated without cause upon 60 days written notice by either party. Commercial Property Operator - ---------------------------- Through 1996, the Partnership's commercial property was managed by PSCPG, now known as American Office Park Properties, Inc., pursuant to a Management Agreement. In January 1997, the Partnership transferred its commercial property to AOPPLP. 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 Partnership's facilities. Competition may be accelerated by any increase in availability of funds for investment in real estate. Recent increases in plans for development of mini-warehouses is expected to further intensify competition among mini-warehouse operators in certain market areas. In addition to competition from mini-warehouses operated by PSI, there are three other national firms and numerous regional and local operators. The Partnership believes that the significant operating and financial experience of PSI's executive officers and directors and the "Public Storage" name should enable the Partnership to continue to compete effectively with other entities. Other Business Activities - ------------------------- A corporation owned by the Hughes Family reinsures policies against losses to goods stored by tenants in the Partnership's mini-warehouses. The Partnership believes that the availability of insurance reduces the potential liability of the Partnership to tenants for losses to their goods from theft or destruction. This corporation receives the premiums and bears the risks associated with the insurance. A corporation, in which PSI has a 95% economic interest and the Hughes Family has a 5% economic interest, sells locks, boxes, and tape to tenants to be used in securing their spaces and moving their goods. PSI believes that the availability of locks, boxes, and tape for sale promotes the rental of spaces. Employees - --------- There are 21 persons who render services on behalf of the Partnership. These persons include resident managers, assistant managers, relief managers, district managers, and administrative personnel. Some of these employees may be employed on a part-time basis and may also be employed by other persons, partnerships, REITs, or other entities owning facilities operated by PSI or AOPPLP. 6 ITEM 2. PROPERTIES. ---------- The following table sets forth information as of December 31, 1996, about properties owned by the Partnership. All of these properties are wholly-owned by the Partnership. Net Rentable Number of Spaces Date of Location Square Feet Acquisition - ---------------------- -------------- ---------------- ------------- CALIFORNIA Anaheim 66,600 621 02-25-88 Lakeview Ave. Carson (A) (B) 77,300 34 05-27-87 Leapwood Ave. FLORIDA Plantation 51,400 510 10-16-87 South State Road 7 ILLINOIS Oakbrook Terrace 64,700 740 07-15-87 Roosevelt Road MARYLAND Rockville 56,300 641 10-01-87 Frederick Road TEXAS San Antonio 52,200 368 08-20-87 Austin Hwy. - ------------ (A) Business Park (B) In January 1997, the Partnership contributed its business park facility to AOPPLP in exchange for a 2.5% interest in AOPPLP. See Item 1. Weighted average occupancy levels for the mini-warehouse and business park/office building facilities were 89% and 93%, respectively, in 1996 compared to 91% and 95%, respectively, in 1995. In 1996, the monthly realized rent per square foot for the mini-warehouse and business park/office building facilities averaged $.76 and $.58, respectively, compared to $.73 and $.59, respectively, in 1995. Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of, such properties. Based on the assessments, the Partnership expensed in 1995 an estimated $153,000 for known environmental remediation requirements. Although there can be no assurance, the Partnership is not aware of any unaccrued environmental contamination of any of its property sites which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations. ITEM 3. LEGAL PROCEEDINGS. ------------------ No material legal proceeding is pending against the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ---------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of 1996. 7 PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. ------------------------------------------------------------------ The Partnership has no common stock. The Units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the Units. Secondary sales activity for the Units has been limited and sporadic. The General Partners monitor transfers of the Units (a) because the admission of the transferee as a substitute limited partner requires the consent of the General Partners under the Partnership's Amended and Restated Agreement of Limited Partnership, (b) in order to ensure compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes and (c) because PSI has purchased Units. However, the General Partners do not have information regarding the prices at which all secondary sale transactions in the Units have been effectuated. Various organizations offer to purchase and sell limited partnership interests (including securities of the type such as the Units) in secondary sales transactions. Various publications such as The Stanger Report summarize and report information (on a monthly, bimonthly or less frequent basis) regarding secondary sales transactions in limited partnership interests (including the Units), including the prices at which such secondary sales transactions are effectuated. Exclusive of the General Partners' interest in the Partnership, as of December 31, 1996, there were approximately 1,257 record holders of Units. In August 1996, PSI completed a cash tender offer, which had commenced in July 1996, pursuant to which PSI acquired a total of 6,537 additional limited partnership units in the Partnership at $320 per Unit. 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. 8 ITEM 6. SELECTED FINANCIAL DATA. -----------------------
For the Year Ended December 31, ------------------------------------------------------------------------ 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (In thousands, except per Unit data) Revenues $ 2,922 $ 2,828 $ 2,802 $ 2,657 $ 2,562 Depreciation and amortization 808 758 735 694 651 Net income 1,099 877 1,042 963 903 Limited partners' share 929 650 912 838 733 General partners' share 170 227 130 125 170 Limited partners' per unit data(a) Net income $ 17.61 $ 12.32 $ 17.29 $ 15.89 $ 13.90 Cash distributions (b) $ 27.04 $ 37.18 $ 20.40 $ 19.70 $ 27.45 As of December 31, - ------------------ Cash and cash equivalents $ 209 $ 217 $ 888 $ 510 $ 182 Total assets $ 17,858 $ 18,426 $ 19,594 $ 19,771 $ 20,003
(a) Limited Partners' per unit data is based on the weighted average number of units outstanding during the period (52,751 for all periods presented). (b) The General Partners distributed, concurrently with the distribution for the third quarter of 1995, a portion of the operating reserve of the Partnership estimated to be $10.14 per Unit. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------------- Results of Operation - -------------------- YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995: The Partnership's net income in 1996 was $1,099,000 compared to $877,000 in 1995, representing an increase of $222,000, or 25%. The increase was primarily a result of decreased environmental costs, combined with an increase in property operating results, partially offset by an increase in depreciation expense and a decrease in interest income. Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased approximately $134,000, or 7%, in 1996 compared to 1995, as rental income increased by $124,000, or 4%, and cost of operations (including management fees) decreased by $10,000. Rental income for the Partnership's mini-warehouse operations was $2,394,000 in 1996 compared to $2,264,000 in 1995, representing an increase of $130,000, or 6%. The increase in rental income was primarily attributable to increased rental rates and occupancy levels at the mini-warehouse facilities. The monthly realized rent per square foot for the mini-warehouse facilities averaged $.76 in 1996 compared to $.73 in 1995. Weighted average occupancy levels at the mini-warehouse facilities increased to 91% in 1996 from 89% in 1995. Cost of operations (including management fees) decreased $1,000 to $740,000 in 1996 from $741,000 in 1995. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $131,000 to $1,654,000 in 1996 from $1,523,000 in 1995. 9 Rental income for the Partnership's business park operations was $513,000 in 1996 compared to $519,000 in 1995, representing a decrease of $6,000. The decrease in rental income was primarily attributable to reduced rental rates, partially offset by increased occupancy rates. The monthly realized rent per square foot for the business park facility averaged $.58 in 1996 compared to $.59 in 1995. Weighted average occupancy levels at the business park facility increased to 95% in 1996 from 93% in 1995. Cost of operations (including management fees) decreased $9,000, or 4%, to $206,000 in 1996 from $215,000 in 1995. The decrease in cost of operations was primarily attributable to decreases in property tax and lease commissions expenses, partially offset by an increase in payroll expense. Accordingly, for the Partnership's business park facility, property net operating income increased by $3,000 to $307,000 in 1996 from $304,000 in 1995. Interest income decreased in 1996 over 1995 as a result of a decrease in average invested cash balances. Depreciation and amortization increased $50,000 to $808,000 in 1996 from $758,000 in 1995. This increase is principally attributable to depreciation of capital expenditures made during 1995 and 1996. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994: The Partnership's net income in 1995 was $877,000 compared to $1,042,000 in 1994, representing a decrease of $165,000, or 16%. The decrease was primarily a result of increased environmental costs. Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) was $1,827,000 in 1995 and $1,817,000 in 1994, representing an increase of $10,000. Rental income for the Partnership's mini-warehouse operations was $2,264,000 in 1995 compared to $2,251,000 in 1994, representing an increase of $13,000. The increase in rental income was primarily attributable to increased rental rates at the mini-warehouse facilities partially offset by decreased occupancy levels. Weighted average occupancy levels at the mini-warehouse facilities decreased from 92% in 1994 to 89% in 1995. The monthly realized rent per square foot for the mini-warehouse facilities averaged $.73 in 1995 compared to $.70 in 1994. Cost of operations (including management fees) decreased $7,000 to $741,000 in 1995 from $748,000 in 1994. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $20,000 from $1,503,000 in 1994 to $1,523,000 in 1995. Rental income for the Partnership's business park operations was $519,000 in 1995 compared to $525,000 in 1994, representing a decrease of $6,000. The decrease in rental income was primarily attributable to reduced rental rates. Weighted average occupancy levels at the business park facility remained stable at 93% in both 1995 and 1994. The monthly realized rent per square foot for the business park facility averaged $.59 in 1995 compared to $.60 in 1994. Cost of operations (including management fees) increased $4,000 to $215,000 in 1995 from $211,000 in 1994. Accordingly, for the Partnership's business park facility, property net operating income decreased by $10,000 from $314,000 in 1994 to $304,000 in 1995. Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of, such properties. Based on the assessments, the Partnership expensed in 1995 an estimated $153,000 for known environmental remediation requirements. Although there can be no assurance, the Partnership is not aware of any unaccrued environmental contamination of any of its property sites which individually or in the aggregate would be material to the Partnership's overall business, financial condition or results of operations. Liquidity and Capital Resources - ------------------------------- The Partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis, primarily by internally generated cash from property operations combined with cash on-hand at December 31, 1996 of approximately $209,000. 10 Cash flows from operating activities ($1,821,000 for the year ended December 31, 1996) have been sufficient to meet all current obligations of the Partnership. Capital improvements were $229,000, $272,000, and $181,000 in 1996, 1995, and 1994, respectively. The increase in capital improvements during 1995 is principally due to the repainting and reconfiguration following the vacancy of a long-term tenant, and the refurbishment of the roof and air conditioning at the Partnership's business park facility. During 1997, the Partnership anticipates approximately $120,000 of capital improvements. The Partnership expects to continue making quarterly distributions. Total distributions paid to the General Partners and the limited partners (including per Unit amounts) for 1996 and prior years were as follows: Total Per Unit ----------- --------- 1996 $1,600,000 $27.04 1995 2,201,000 37.18 1994 1,208,000 20.40 1993 1,166,000 19.70 1992 1,625,000 27.45 1991 1,778,000 30.02 1990 1,554,000 26.24 1989 1,517,000 25.63 1988 1,480,000 25.01 1987 476,000 14.55 The General Partners distributed, concurrently with the distribution for the fourth quarter of 1991, a portion of the operating reserve and adjusted the ongoing distribution level. The operating reserve that was distributed was estimated at $7.45 per Unit. The General Partners distributed, concurrently with the distribution for the third quarter of 1995, a portion of the operating reserve of the Partnership estimated to be $10.14 per Unit. Future distribution levels will be based on cash available for distributions (cash flow from all sources, less cash necessary for capital improvement needs and to establish reserves). 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. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ---------------------------------------------------- None. 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP. --------------------------------------------------- The Partnership has no directors or executive officers. The Partnership's General Partners are PSI and B. Wayne Hughes. PSI, acting through its directors and executive officers, and Mr. Hughes manage and make investment decisions for the Partnership. The Partnership's mini-warehouse properties are managed by PSI pursuant to a Management Agreement. Through 1996, the Partnership's commercial property was managed by PSCPG, now known as American Office Park Properties, Inc., pursuant to a Management Agreement. In January 1997, the Partnership transferred its business park to AOPPLP in exchange for a 2.5% interest in AOPPLP. The names of all directors and executive officers of PSI, the offices held by each of them with PSI, and their ages and business experience during the past five years are as follows: Name Positions with PSI - ------------------- -------------------------------------------------- B. Wayne Hughes Chairman of the Board and Chief Executive Officer Harvey Lenkin President and Director John Reyes Senior Vice President and Chief Financial Officer Hugh W. Horne Senior Vice President Obren B. Gerich Senior Vice President Marvin M. Lotz Senior Vice President David Goldberg Senior Vice President and General Counsel A. Timothy Scott Senior Vice President and Tax Counsel Sarah Hass Vice President and Secretary Robert J. Abernethy Director Dann V. Angeloff Director William C. Baker Director Uri P. Harkham Director B. Wayne Hughes, age 63, a general partner of the Partnership, has been a director of PSI since its organization in 1980 and was President and Co-Chief Executive Officer from 1980 until November 1991 when he became Chairman of the Board and sole Chief Executive Officer. Mr. Hughes was an officer and director of affiliates of PSMI and a director of PSMI until November 1995. Mr. Hughes has been Chairman of the Board and Chief Executive Officer since 1990 of Public Storage Properties XI, Inc., Public Storage Properties XIV, Inc., Public Storage Properties XV, Inc., Public Storage Properties XVI, Inc., Public Storage Properties XVII, Inc., Public Storage Properties XVIII, Inc., Public Storage Properties XIX, Inc. and Public Storage Properties XX, Inc. (collectively, the "Public Storage REITs"), REITs that were organized by affiliates of PSMI. From 1989-90 until the respective dates of merger, he was Chairman of the Board and Chief Executive Officer of Public Storage Properties VI, Inc., Public Storage Properties VII, Inc., Public Storage Properties VIII, Inc., Public Storage Properties IX, Inc., Public Storage Properties X, Inc. and Public Storage Properties XII, Inc., PS Business Parks, Inc., Partners Preferred Yield, Inc., Partners Preferred Yield II, Inc., Partners Preferred Yield III, Inc. and Storage Properties, Inc. ("SPI") (collectively, the "Merged Public Storage REITs"), affiliated REITs that were merged into PSI between September 1994 and December 1996. Mr. Hughes has been active in the real estate investment field for over 25 years. Harvey Lenkin, age 60, became President and a director of PSI in November 1991. Mr. Lenkin was an officer and director of PSMI and its affiliates until November 1995. He has been President of the Public Storage REITs since 1990. He was President of the Merged Public Storage REITs from 1989-90 until the respective dates of merger and was also a director of SPI from 1989 until June 1996. 12 John Reyes, age 36, a certified public accountant, joined PSMI in 1990 and was controller of PSI from 1992 until December 1996 when he became Chief Financial Officer. He became a Vice President of PSI in November 1995 and a Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was employed by Ernst & Young. Hugh W. Horne, age 52, has been a Vice President of PSI since 1980 and was Secretary of PSI from 1980 until February 1992 and became Senior Vice President of PSI in November 1995. He was an officer of PSMI from 1973 to November 1995. Mr. Horne has been a Vice President of the Public Storage REITs since 1993. He was a Vice president of SPI from 1989 until June 1996 and of the other Merged Public Storage REITs from 1993 until the respective dates of merger. He is responsible for managing all aspects of property acquisition for PSI. Obren B. Gerich, age 58, a certified public accountant and certified financial planner, has been a Vice President of PSI since 1980 and became Senior Vice President of PSI in November 1995. He was Chief Financial Officer of PSI until November 1991. Mr. Gerich was an officer of PSMI from 1975 to November 1995. He has been Vice President and Secretary of the Public Storage REITS since 1990 and was Chief Financial Officer until November 1995. Mr. Gerich was Vice President and Secretary of the Merged Public Storage REITs from 1989-90 until the respective dates of merger. Marvin M. Lotz, age 54, has had overall responsibility for Public Storage's mini-warehouse operations since 1988. He became a Senior Vice President of PSI in November 1995. Mr. Lotz was an officer of PSMI with responsibility for property acquisitions from 1983 until 1988. David Goldberg, age 47, joined PSMI's legal staff in June 1991, rendering services on behalf of PSI and PSMI. He became a Senior Vice President and General Counsel of PSI in November 1995 and Vice President and General Counsel of the Public Storage REITs in December 1995. From December 1982 until May 1991, he was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI. A. Timothy Scott, age 45, became a Senior Vice President and Tax Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in November 1996. From June 1991 until joining PSI, Mr. Scott practiced tax law as a shareholder of the law firm of Heller, Ehrman, White & McAuliffe, counsel to PSI and PSMI. Prior to June 1991, his professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI. Sarah Hass, age 41, became Secretary of PSI in February 1992. She became a Vice President of PSI in November 1995. She joined PSMI's legal department in June 1991, rendering services on behalf of PSI and PSMI. From 1987 until May 1991, her professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI, and from April 1986 until June 1987, she was associated with that firm, practicing in the area of securities law. From September 1979 until September 1985, Ms. Hass was associated with the law firm of Rifkind & Sterling, Incorporated. Robert J. Abernethy, age 57, is President of American Standard Development Company and of Self-Storage Management Company, which develop and operate mini-warehouses. Mr. Abernethy has been a director of PSI since its organization in 1980. He is a member of the board of directors of Johns Hopkins University and of the Los Angeles County Metropolitan Transportation Authority and a former member of the board of directors of the Metropolitan Water District of Southern California. Dann V. Angeloff, age 61, is President of the Angeloff Company, a corporate financial advisory firm. The Angeloff Company has rendered, and is expected to continue to render, financial advisory and securities brokerage services for PSI. Mr. Angeloff is the general partner of a limited partnership that owns a mini-warehouse operated by PSI and which secures a note owned by PSI. Mr. Angeloff has been a director of PSI since its organization in 1980. He is a director of Bonded Motors, Inc., Compensation Resource Group, Datametrics Corporation, Nicholas/Applegate Growth Equity Fund, Nicholas/Applegate Investment Trust, ReadyPac Produce, Inc., Royce Medical Company and Seda Specialty Packaging Corp. He was a director of SPI from 1989 until June 1996. William C. Baker, age 63, became a director of PSI in November 1991. Since April 1996, Mr. Baker has been Chairman of the Board of Santa Anita Realty Enterprises, Inc., a REIT that owns the Santa Anita Racetrack and other real estate assets. In August 1996, he became Chairman of the Board and Chief Executive Officer of Santa Anita Operating Company, which operates the Santa Anita Racetrack through its subsidiary the Los Angeles Turf Club, Incorporated. 13 From April 1993 through May 1995, Mr. Baker was President of Red Robin International, Inc., an operator and franchiser of casual dining restaurants in the United States and Canada. Since January 1992, he has been Chairman and Chief Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc. From 1976 to 1988, he was a principal shareholder and Chairman and Chief Executive Officer of Del Taco, Inc., an operator and franchiser of fast food restaurants in California. Mr. Baker is a director of Callaway Golf Company. Uri P. Harkham, age 48, became a director of PSI in March 1993. Mr. Harkham has been the President and Chief Executive Officer of the Jonathan Martin Fashion Group, which specializes in designing, manufacturing and marketing women's clothing, since its organization in 1976. Since 1978, Mr. Harkham has been the Chairman of the Board of Harkham Properties, a real estate firm specializing in buying and managing fashion warehouses in Los Angeles and Australia. Pursuant to Articles 16 and 17 of the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement, File No. 33-5892, each of the General Partners continues to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii) withdrawal with the consent of the other general partner and a majority vote of the limited partners, or (iii) removal by a majority vote of the limited partners. Each director of PSI serves until he resigns or is removed from office by PSI, and may resign or be removed from office at any time with or without cause. Each officer of PSI serves until he resigns or is removed by the board of directors of PSI. Any such officer may resign or be removed from office at any time with or without cause. There have been no events under any bankruptcy act, no criminal proceedings, and no judgments or injunctions material to the evaluation of the ability of any director or executive officer of PSI during the past five years. ITEM 11. 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- (a) At February 19, 1997, PSI beneficially owned more than 5% of the Units of the Partnership:
Title Amount of Percent of Name and Address of Beneficial of Class Beneficial Owner Ownership Class - -------------------- --------------------------------------------------- ------------------- ---------- Units of Limited Public Storage, Inc. Partnership 701 Western Avenue Interest Glendale, CA 91201-2394 (1) 28,194 Units (1) 53.45%
- ---------------- (1) These Units are held of record by SEI Arlington Acquisition Corporation, a wholly-owned subsidiary of PSI. The Partnership is not aware of any other beneficial owners of more than 5% of the Units. In August 1996, PSI completed a cash tender offer, which had commenced in July 1996, pursuant to which PSI acquired a total of 6,537 additional limited partnership units in the Partnership at $320 per Unit. (b) The Partnership has no officers and directors. The General Partners (or their predecessor-in-interest) have contributed $266,000 to the capital of the Partnership representing 1% of the aggregate capital contributions and as a result participate in 14 the distributions to the limited partners and in the Partnership's profits and losses in the same proportion that the general partners' capital contribution bears to the total capital contribution. Information regarding ownership of the Units by PSI, a General Partner, is set forth under section (a) above. The directors and executive officers of PSI, as a group, do not own any units. (c) The Partnership knows of no contractual arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership, except for articles 16, 17 and 21.1 of the Partnership Agreement, which provide, in substance, that the limited partners shall have the right, by majority vote, to remove a general partner and that a general partner may designate a successor with the consent of the other general partner and a majority of the limited partners. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- The Partnership Agreement provides that the General Partners and their affiliates are entitled to the following compensation: 1. Incentive distributions equal to 10% of Cash Flow from Operations. 2. Provided the limited partners have received distributions equal to 100% of their investment plus a cumulative 8% per year (not compounded) on their investment (reduced by distributions other than from Cash Flow from Operations), subordinated incentive distributions equal to 15% of remaining Cash from Sales or Refinancings. 3. Provided the limited partners have received distributions equal to 100% of their capital contributions plus a cumulative 6% per year (not compounded) on their investment (reduced by distributions other than distributions from Cash Flow from Operations), brokerage commissions at the lesser of 3% of the sales price of a property or 50% of a competitive commission. During 1996, approximately $160,000 was paid to PSI with respect to items 1, 2, and 3 above. The Partnership has a Management Agreement with PSI pursuant to which the Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse spaces operated for the Partnership. During 1996, the Partnership paid fees of $143,000 to PSI pursuant to the Management Agreement. Through 1996, the Partnership's commercial property was managed by PSCPG pursuant to a Management Agreement which provides for the payment of a fee by the Partnership of 5% of the gross revenues of the commercial space operated for the Partnership. During 1996, the Partnership paid $26,000 to PSCPG pursuant to the Management Agreement. PSI has a 95% economic interest (represented by voting preferred stock) in PSCPG and the Hughes Family had a 5% economic interest (represented by voting common stock) in PSCPG until December 1996, when the Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice President and Chief Financial Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG issued additional voting common stock to two other unaffiliated investors. In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to AOPPLP, an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. Included among the properties transferred was the Partnership's transfer of its business park to AOPPLP in exchange for a 2.5% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. --------------------------------------------------------------- (a) List of Documents filed as part of the Report. 1. Financial Statements: See Index to Consolidated Financial Statements and Financial Statement Schedules. 2. Financial Statement Schedules: See Index to Consolidated Financial Statements and Financial Statement Schedules. 3. Exhibits: See Exhibit Index contained herein. (b) Reports on Form 8-K. None (c) Exhibits: See Exhibit Index contained herein. 16 PS PARTNERS VIII LTD., a California Limited Partnership INDEX TO EXHIBITS 3.1 Amended and Restated Agreement of Limited Partnership. Previously filed with the Securities and Exchange Commission as an Exhibit to the Storage Equities, Inc. Registration Statement No. 33-43750 and incorporated herein by reference. 10.1 Second Amended and Restated Management Agreement dated November 16, 1995, between the Partnership and Public Storage Management, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to PS Partners, Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference. 10.2 Amended Management Agreement dated February 21, 1995 between Storage Equities, Inc. and Public Storage Commercial Properties Group, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference. 27. Financial data schedule. Filed herewith. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PS PARTNERS VIII, LTD., a California Limited Partnership Dated: March 26, 1997 By: Public Storage, Inc., General Partner By: /s/ B Wayne Hughes ---------------------------------------- B. Wayne Hughes, Chairman of the Board By: /s/ B Wayne Hughes ---------------------------------------- B. Wayne Hughes, General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership in the capacities and on the dates indicated. Signature Capacity Date - ----------------------------- --------------------------------------------- ------------------ /s/ B. Wayne Hughes Chairman of the Board and Chief March 26, 1997 - ----------------------------- Executive Officer of Public Storage, Inc. and B. Wayne Hughes General Partner (principal executive officer) /s/ Harvey Lenkin President and Director March 26, 1997 - ----------------------------- of Public Storage, Inc. Harvey Lenkin /s/ John Reyes Senior Vice President and Chief Financial Officer March 26, 1997 - ----------------------------- of Public Storage, Inc. (principal financial John Reyes officer and principal accounting officer) /s/ Robert J. Abernethy Director of Public Storage, Inc. March 26, 1997 - ----------------------------- Robert J. Abernethy /s/ Dann V. Angeloff Director of Public Storage, Inc. March 26, 1997 - ----------------------------- Dann V. Angeloff /s/ William C. Baker Director of Public Storage, Inc. March 26, 1997 - ----------------------------- William C. Baker /s/ Uri P. Harkham Director of Public Storage, Inc. March 26, 1997 - ----------------------------- Uri P. Harkham
18 PS PARTNERS VIII, LTD., a California Limited Partnership INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14 (a)) Page References ----------- Report of Independent Auditors F-1 Financial Statements and Schedules: Balance Sheets as of December 31, 1996 and 1995 F-2 For the years ended December 31, 1996, 1995 and 1994: F-3 Statements of Income Statements of Partners' Equity F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-6 - F-8 Schedule III - Real Estate and Accumulated Depreciation F-9 - F-10 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. 19 Report of Independent Auditors The Partners PS Partners VIII, Ltd., a California Limited Partnership We have audited the balance sheets of PS Partners VIII, Ltd., a California Limited Partnership as of December 31, 1996 and 1995 and the related statements of income, partners' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PS Partners VIII, Ltd., a California Limited Partnership at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP March 18, 1997 Los Angeles, Calfornia F-1
PS PARTNERS VIII, LTD., a California Limited Partnership BALANCE SHEETS December 31, 1996 and 1995 1996 1995 ------------------------------------- ASSETS Cash and cash equivalents $ 209,000 $ 217,000 Rent and other receivables 10,000 9,000 Real estate facilities, at cost: Land 7,461,000 7,461,000 Buildings and equipment 16,442,000 16,213,000 ------------------------------------- 23,903,000 23,674,000 Less accumulated depreciation (6,309,000) (5,501,000) ------------------------------------- 17,594,000 18,173,000 Other assets 45,000 27,000 ------------------------------------- $ 17,858,000 $ 18,426,000 ===================================== LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 259,000 $ 324,000 Advance payments from renters 110,000 112,000 Partners' equity: Limited partners' equity, $500 per unit, 150,000 units authorized, 52,751 issued and outstanding 17,279,000 17,776,000 General partners' equity 210,000 214,000 ------------------------------------- Total partners' equity 17,489,000 17,990,000 ------------------------------------- $ 17,858,000 $ 18,426,000 =====================================
See accompanying notes. F-2
PS PARTNERS VIII, LTD., a California Limited Partnership STATEMENTS OF INCOME For the years ended December 31, 1996, 1995, and 1994 1996 1995 1994 -------------------------------------------------------- REVENUE: Rental income $ 2,907,000 $ 2,783,000 $ 2,776,000 Interest income 15,000 45,000 26,000 -------------------------------------------------------- 2,922,000 2,828,000 2,802,000 -------------------------------------------------------- COSTS AND EXPENSES: Cost of operations 777,000 794,000 797,000 Management fees 169,000 162,000 162,000 Depreciation and amortization 808,000 758,000 735,000 Administrative 69,000 68,000 66,000 Environmental costs - 169,000 - -------------------------------------------------------- 1,823,000 1,951,000 1,760,000 -------------------------------------------------------- NET INCOME $ 1,099,000 $ 877,000 $ 1,042,000 ======================================================== Limited partners' share of net income ($17.61, $12.32, and $17.29 per unit in 1996, 1995, and 1994, respectively) $ 929,000 $ 650,000 $ 912,000 General partners' share of net income 170,000 227,000 130,000 ======================================================== $ 1,099,000 $ 877,000 $ 1,042,000 ========================================================
See accompanying notes. F-3
PS PARTNERS VIII, LTD., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY For the years ended December 31, 1996, 1995, and 1994 Limited General Partners Partners Total -------------------------------------------------------- Balances at December 31, 1993 $ 19,251,000 $ 229,000 $ 19,480,000 Net income 912,000 130,000 1,042,000 Distributions (1,076,000) (132,000) (1,208,000) -------------------------------------------------------- Balances at December 31, 1994 19,087,000 227,000 19,314,000 Net income 650,000 227,000 877,000 Distributions (1,961,000) (240,000) (2,201,000) -------------------------------------------------------- Balances at December 31, 1995 17,776,000 214,000 17,990,000 Net income 929,000 170,000 1,099,000 Distributions (1,426,000) (174,000) (1,600,000) -------------------------------------------------------- Balances at December 31, 1996 $ 17,279,000 $ 210,000 $ 17,489,000 ========================================================
See accompanying notes. F-4
PS PARTNERS VIII, LTD., a California Limited Partnership STATEMENTS OF CASH FLOWS For the years ended December 31, 1996, 1995, and 1994 1996 1995 1994 ------------------------------------------------------ Cash flows from operating activities: Net income $ 1,099,000 $ 877,000 $ 1,042,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 808,000 758,000 735,000 (Increase) decrease in rent and other receivables (1,000) 3,000 3,000 (Increase) decrease in other assets (18,000) 8,000 (2,000) (Decrease) increase in accounts payable (65,000) 171,000 4,000 Decrease in advance payments from renters (2,000) (15,000) (15,000) ------------------------------------------------------ Total adjustments 722,000 925,000 725,000 ------------------------------------------------------ Net cash provided by operating activities 1,821,000 1,802,000 1,767,000 ------------------------------------------------------ Cash flows from investing activities: Additions to real estate facilities (229,000) (272,000) (181,000) ------------------------------------------------------ Net cash used in investing activities (229,000) (272,000) (181,000) ------------------------------------------------------ Cash flows from financing activities: Distributions to partners (1,600,000) (2,201,000) (1,208,000) ------------------------------------------------------ Net cash used in financing activities (1,600,000) (2,201,000) (1,208,000) ------------------------------------------------------ Net (decrease) increase in cash and cash equivalents (8,000) (671,000) 378,000 Cash and cash equivalents at the beginning of the year 217,000 888,000 510,000 ------------------------------------------------------ Cash and cash equivalents at the end of the year $ 209,000 $ 217,000 $ 888,000 ======================================================
See accompanying notes. F-5 PS PARTNERS VIII, LTD., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------ Description of Partnership -------------------------- PS Partners VIII, Ltd., a California Limited Partnership (the "Partnership") was formed with the proceeds of an interstate public offering. PSI Associates II, Inc. ("PSA"), an affiliate of Public Storage Management, Inc., organized the Partnership along with B. Wayne Hughes ("Hughes"). In September 1993, Storage Equities, Inc., now known as Public Storage, Inc. ("PSI"), a California corporation, acquired the interest of PSA relating to its general partner capital contribution in the Partnership and was substituted as a co-general partner in place of PSA. In 1995, there was a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI Merger, Storage Equities, Inc. was renamed Public Storage, Inc. and it acquired substantially all of PSMI's United States real estate operations and became the operator of the Partnership's mini-warehouse properties. The Partnership has invested in existing mini-warehouse storage facilities which offer self-service storage spaces for lease, usually on a month-to-month basis, to the general public and, to a lesser extent, in an existing business park facility which offers industrial and office space for lease. The Partnership has ownership interests in 5 properties, which exclude 1 property transferred to American Office Park Properties, L.P. ("AOPPLP") in January 1997 (see Note 6). Real Estate Facilities ---------------------- The Partnership depreciates the buildings and equipment on a straight-line method over estimated useful lives of 25 and 5 years, respectively. Leasing commissions relating to business park properties are expensed when incurred. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("Statement 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the method of accounting for long-lived assets that are expected to be disposed. The Partnership adopted Statement 121 in 1996 and the adoption had no effect. Revenue Recognition ------------------- Property rents are recognized as earned. Allocation of Net Income ------------------------ The General Partners' share of net income consists of an amount attributable to their 1% capital contribution and an additional percentage of cash flow (as defined, see note 2) which relates to the General Partners' share of cash distributions as set forth in the Partnership Agreement. All remaining net income is allocated to the limited partners. Per Unit Data ------------- Per unit data is based on the weighted average number of limited partnership units (52,751) outstanding during the year. F-6 1. Summary of Significant Accounting Policies and Partnership Matters (continued) ------------------------------------------------------------------ Environmental Cost ------------------ Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct extensive environmental investigations in connection with the property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of such properties. Based on the assessments, the Partnership believes that it is probable that it will incur costs totaling $153,000 for known environmental remediation requirements which the Partnership has accrued and expensed in 1995. During 1996 and 1995, the Partnership paid $21,000 and $16,000, respectively, in connection with the environmental remediations. Although there can be no assurance, the Partnership is not aware of any unaccrued environmental contamination of its facilities which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations. Use of Estimates ---------------- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Distributions ------------------ The Partnership Agreement provides for quarterly distributions of cash flow from operations (as defined). Cash distributions per unit were $27.04, $37.18, and $20.40 during 1996, 1995, and 1994, respectively. Cash and Cash Equivalents ------------------------- For financial statement purposes, the Partnership considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 2. General Partners' Equity ------------------------ The General Partners have a 1% interest in the Partnership. In addition, the General Partners have a 10% interest in cash distributions attributable to operations, exclusive of distributions attributable to sales and refinancing proceeds. Proceeds from sales and refinancings will be distributed entirely to the limited partners until the limited partners recover their investment plus a cumulative 8% annual return (not compounded). Thereafter, the General Partners have a 15% interest in remaining proceeds. 3. Related Party Transactions -------------------------- The Partnership has a management agreement with PSI pursuant to which PSI operates the Partnership's mini-warehouses for a fee equal to 6% of the facilities' monthly gross revenue (as defined). Through 1996, the Partnership's commercial property was operated by Public Storage Commercial Properties Group, Inc. ("PSCPG") pursuant to a management agreement which provides for a fee equal to 5% of the facility's monthly gross revenue (as defined). PSI has a 95% economic interest in PSCPG and the Hughes Family had a 5% economic interest in PSCPG until December 1996, when the Hughes Family sold its interest to Ronald L. Havner, Jr., formerly Senior Vice President and Chief Financial Officer of PSI, who became the Chief Executive Officer of PSCPG. PSCPG, F-7 3. Related Party Transactions (continued) ------------------------------------- now known as American Office Park Properties, Inc., issued additional voting common stock to two other unaffiliated investors. See Note 6. 4. Leases ------ The Partnership has invested primarily in existing mini- warehouse storage facilities which offer self-storage spaces for lease to the general public. Leases for such space are usually on a month-to-month basis. 5. Taxes Based on Income --------------------- Taxes based on income are the responsibility of the individual partners and, accordingly, the Partnership's consolidated financial statements do not reflect a provision for such taxes. Taxable net income was $1,315,000, $1,153,000 and $1,191,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The difference between taxable income and book income is primarily related to timing differences in depreciation expense. 6. Subsequent Event ---------------- In January 1997, the Partnership and PSI and other related partnerships transferred a total of 35 business parks to AOPPLP, an operating partnership formed to own and operate business parks in which PSI has an approximate 85% economic interest. Included among the properties transferred was the Partnership's transfer of its business park to AOPPLP in exchange for a 2.5% interest in AOPPLP. The general partner of AOPPLP is PSCPG, now known as American Office Park Properties, Inc. F-8
PS PARTNERS VIII, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Costs subsequent Initial Cost to acquisition --------------------------------- Date Building & Building & Acquired Description Land Improvement Improvements - ----------------------------------------------------------------------------------------------------------- Mini-warehouse 7/87 Oakbrook Terrace $ 912,000 $ 2,688,000 $ 583,000 10/87 Plantation/S. State Rd. 924,000 1,801,000 224,000 2/88 Anaheim/Lakeview 995,000 1,505,000 445,000 8/87 San Antonio/Austin Hwy. 400,000 850,000 163,000 10/87 Rockville/Fredrick Rd. 1,695,000 3,305,000 611,000 Business Park 5/87 Carson/Leapwood 2,535,000 3,165,000 1,102,000 -------------------------------------------------- $ 7,461,000 $ 13,314,000 $ 3,128,000 ==================================================
PS PARTNERS VIII, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Gross Carrying Amount At December 31, 1996 -------------------------------------------------------------- Date Building & Accumulated Acquired Description Land Improvements Total Depreciation - ----------------------------------------------------------------------------------------------------------------------- Mini-warehouse 7/87 Oakbrook Terrace $ 912,000 $ 3,271,000 $ 4,183,000 $ 1,258,000 10/87 Plantation/S. State Rd. 924,000 2,025,000 2,949,000 754,000 2/88 Anaheim/Lakeview 995,000 1,950,000 2,945,000 692,000 8/87 San Antonio/Austin Hwy. 400,000 1,013,000 1,413,000 370,000 10/87 Rockville/Fredrick Rd. 1,695,000 3,916,000 5,611,000 1,448,000 Business Park 5/87 Carson/Leapwood 2,535,000 4,267,000 6,802,000 1,787,000 --------------------------------------------------------------- $ 7,461,000 $ 16,442,000 $ 23,903,000 $ 6,309,000 ===============================================================
F-9
PS PARTNERS VIII, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (a) The following is a reconciliation of cost and related accumulated depreciation. GROSS CARRYING COST RECONCILIATION For the years ended December 31, 1996 1995 1994 ---------------------------------------------------- Balance at the beginning of the period $ 23,674,000 $ 23,402,000 $ 23,221,000 Additions during the period: Improvements, etc. 229,000 272,000 181,000 Deductions during the period - - - ---------------------------------------------------- Balance at the end of the period $ 23,903,000 $ 23,674,000 $ 23,402,000 ==================================================== ACCUMULATED DEPRECIATION RECONCILIATION For the years ended December 31, 1996 1995 1994 ---------------------------------------------------- Balance at the beginning of the period $ 5,501,000 $ 4,743,000 $ 4,029,000 Additions during the period: Improvements, etc. - - Depreciation 808,000 758,000 714,000 Deductions during the period - - - ---------------------------------------------------- Balance at the end of the period $ 6,309,000 $ 5,501,000 $ 4,743,000 ====================================================
(b) The aggregate cost of real estate for Federal Income Tax purposes is $23,722,000 at December 31, 1996. F-10 EX-27 2 FDS --ARTICLE 5
5 0000793934 PS PARTNERS VIII, LTD. 1 U.S. 12-Mos Dec-31-1996 Jan-1-1996 Dec-31-1996 1 209,000 0 10,000 0 0 219,000 23,903,000 (6,309,000) 17,858,000 369,000 0 0 0 0 17,489,000 17,858,000 0 2,922,000 0 946,000 877,000 0 0 1,099,000 0 1,099,000 0 0 0 1,099,000 17.61 17.61
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