Item 2. PROPERTIES
Registrant owns a fee interest in five mini-storage facilities and a thirty percent (30%) interest in a joint venture with DSI Realty Income Fund IX, an affiliated California limited partnership, owning a sixth mini-storage facility, none of which are subject to long-term indebtedness. Additional information is set forth in Registrant's letter to its Limited Partners regarding the Annual Report, attached hereto as Exhibit 2, and incorporated by this reference. The following table sets forth information as of December 31, 1998 regarding properties owned by the Partnership.
Location Size of Net Rentable No. of Completion Parcel Area Rental Units Date
Stockton, CA 2.88 acres 48,017 560 2/11/85
Pittsburg, CA 1.91 acres 30,483 383 6/01/85
El Centro, CA 1.42 acres 24,818 276 4/01/85
Huntington Beach, CA 3.28 acres 62,192 601 6/14/85
Lompoc, CA 2.24 acres 47,472 438 2/28/85
Aurora, CO* 4.6 acres 86,676 887 9/05/85 - ---------- *The Partnership has a 30% fee interest in this facility. DSI Realty Income Fund IX, a California Limited Partnership, (an affiliated partnership) owns a 70% fee interest in this facility.
Item 3.
Item 3. LEGAL PROCEEDINGS
Registrant is not a party to any material pending legal proceedings.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant, a publicly-held limited partnership, sold 24,000 limited partnership units during its offering and currently has 889 limited partners of record. There is no intention to sell additional limited partnership units nor is there a market for these units.
Average cash distributions of $12.50 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 1998 and of $11.25 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 1997 and 1996. It is Registrant's expectations that distributions will continue to be paid in the future.
Item 6.
Item 6. SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995, AND 1994 -------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ----
REVENUES $1,899,608 $1,712,288 $1,624,001 $1,636,156 $1,604,279
COSTS AND EXPENSES 1,253,740 1,217,044 1,229,425 1,196,068 1,169,399
EQUITY IN EARNINGS OF REAL ESTATE JOINT VENTURE 109,741 93,305 82,729 116,421 93,634 ---------- ---------- ---------- ---------- ----------
NET INCOME $ 755,609 $ 588,549 $ 477,305 $ 556,509 $ 528,514 ========== ========== ========== ========== ==========
TOTAL ASSETS $3,668,506 $4,132,136 $4,632,052 $5,245,858 $5,785,750 ========== ========== ========== ========== ==========
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,219,731 $1,103,067 $1,054,462 $1,136,519 $ 937,601 ========== ========== ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 31.17 $ 24.28 $ 19.69 $ 22.96 $ 21.80 ========== ========== ========== ========== ==========
CASH DISTRIBUTIONS PER $500 LIMITED PARTNERSHIP UNIT $ 50.00 $ 45.00 $ 45.00 $ 45.00 $ 42.50 ========== ========== ========== ========== ==========
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Total revenues increased from $1,712,288 in 1997 to $1,899,608 in 1998, while total expenses increased from $1,217,044 to $1,253,740 and income from the real estate joint venture increased from $93,305 to $109,741. As a result, net income increased from $588,549 in 1997 to $755,609 in 1998. The increase in revenues includes a one-time gain from involuntary conversion of land (see Note 7 to Financial Statements). The increase in rental revenues is due primarily to higher unit rental rates. Average occupancy levels for the Partnership's five mini-storage facilities was 84.9% for the year ended December 31, 1997 and 84.0% for the year ended December 31, 1998. The approximately $30,300 (7.7%) increase in operating expenses was primarily due to increases in yellow pages advertising costs, maintenance and repair, real estate tax expenses and salaries and wages. General and administrative expenses decreased approximately $8,900 (5.6%) primarily as a result of a decrease in legal and professional expenses. The General Partners' incentive management fee increased approximately $7,900 (7.2%) as a result of an increase in cash available for distribution on which this fee is based. Property management fees, which are based on revenue, increased as a result of the increase in rental revenue. The increase in income from the real estate joint venture was the result of higher unit rental rates, as operating and general and administrative expenses remained relatively constant. Average occupancy of the joint venture was 87.6% in 1998 compared to 88.3% in 1997.
1997 COMPARED TO 1996
Total revenues increased from $1,624,001 in 1996 to $1,712,288 in 1997, while total expenses decreased from $1,229,425 to $1,217,044 and income from the real estate joint venture increased from $82,729 to $93,305. As a result, net income increased from $477,305 in 1996 to $588,549 in 1997. The increase in rental revenues is due primarily to higher unit rental rates. Average occupancy levels for the Partnership's five mini-storage facilities was 84.4% for the year ended December 31, 1996 and 84.9% for the year ended December 31, 1997. The approximately $35,300 (8.2%) decrease in operating expenses was primarily due to a decrease in yellow pages advertising costs, maintenance and repair and real estate tax expenses partially offset by an increase in salaries and wages. General and administrative expenses increased approximately $21,900 (16.1%) primarily as a result of increases in legal and professional and postage expenses. The General Partners' incentive management fee increased approximately $9,500 (9.5%) as a result of an increase in cash available for distribution on which this fee is based. Property management fees, which are based on revenue, increased as a result of the increase in rental revenue. The increase in income from the real estate joint venture was the result of higher occupancy and unit rental rates as well as an increase in salaries and wage expense partially offset by a decrease in yellow page advertising costs and maintenance and repair expense. Average occupancy of the joint venture was 88.3% in 1997 compared to 81.7% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased approximately $118,500 (10.8%) in 1998 compared to 1997, primarily due to the increase in net income. Net cash provided by operating activities increased approximately $46,700 (4.4%) in 1997 compared to 1996, primarily due to the increase in net income.
Cash used in financing activities, as set forth in the statements of cash flows, has been limited to distributions paid to the partners. A special distribution of 1% was declared and paid on December 15, 1998. This action was the result of the Partnership's increased cash flow from the operations of its properties.
Cash used in investing activities, as set forth in the statements of cash flows, consisted of acquisitions of equipment for the Partnership's mini- storage properties and proceeds from involuntary conversion of land (see Note 7 to Financial Statements). The Partnership has no material commitments for capital expenditures.
The General Partners plan to continue their policy of funding the continuing improvement and maintenance of Partnership properties with cash generated from operations. The Partnership's financial resources appear to be adequate to meet its needs for the next twelve months.
The Year 2000 issue refers to the inability of certain computer systems to recognize a date using "00" as the Year 2000. The Partnership has implemented a Year 2000 program, which has three phases: (1) identification; (2) remediation; and (3) testing and verification. The Partnerhip, as well as the property management company and the Partnership's warehouse facilities have completed those phases. Computer programs have been upgraded and tested to function properly with respect to the dates in the Year 2000 and thereafter. Year 2000 compliance costs are nominal and have been expensed in the regular course of business. The Partnership provides no assurance that third-party suppliers and customers will be compliant. Nevertheless, the Partnership does not believe that the Year 2000 issue will have a material adverse effect on its financial condition or results of operations.
The General Partners are not aware of any environmental problems which could have a material adverse effect upon the financial position of the Partnership.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto as Exhibit l is the information required to be set forth as Item 8, Part II hereof.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER
The General Partners of Registrant are the same as when the Partnership was formed, i.e., DSI Properties, Inc., a California corporation, and Diversified Investors Agency. As of December 31, 1998, Messrs. Robert J. Conway and Joseph W. Conway, each of whom own approximately 48.4% of the issued and outstanding capital stock of DSI Financial, Inc., a California corporation, together with Mr. Joseph W. Stok, currently comprise the entire Board of Directors of DSI Properties, Inc.
Mr. Robert J. Conway is 65 years of age and is a licensed California real estate broker, and since 1965 has been President and a member of the Board of Directors of Diversified Securities, Inc., and since 1973 President, Chief Financial Officer and a member of the Board of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Science Degree from Marquette University with majors in Corporate Finance and Real Estate.
Mr. Joseph W. Conway is age 69 and has been Executive Vice President, Treasurer and a member of the Board of Directors of Diversified Securities, Inc. since 1965 and since 1973 the Vice President, Treasurer and member of the Board of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Arts Degree from Loras College with a major in Accounting.
Mr. Joseph W. Stok is age 75 and has been a member of the Board of Directors of DSI Properties, Inc. since 1994, a Vice President of Diversified Securities, Inc. since 1973, and an Account Executive with Diversified Securities, Inc. since 1967.
Item 11.
Item 11. EXECUTIVE COMPENSATION (MANAGEMENT REMUNERATION AND TRANSACTIONS)
The information required to be furnished in Item 11 of Part III is contained in Registrant's Financial Statements for its fiscal year ended December 31, 1998, which together with the report of its independent auditors, Deloitte & Touche LLP, is attached hereto as Exhibit 1 and incorporated herein by this reference. In addition to such information:
(a) No annuity, pension or retirement benefits are proposed to be paid by Registrant to any of the General Partners or to any officer or director of the corporate General Partner;
(b) No standard or other arrangement exists by which directors of the Registrant are compensated;
(c) The Registrant has not granted any option to purchase any of its securities; and
(d) The Registrant has no plan, nor does the Registrant presently propose a plan, which will result in any renumeration being paid to any officer or director upon termination of employment.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1998, no person of record owned more than 5% of the limited partnership units of Registrant, nor was any person known by Registrant to own of record and beneficially, or beneficially only, more than 5% thereof. The balance of the information required to be furnished in Item 12 of Part III is contained in Registrant's Registration Statement on Form S-11, previously filed pursuant to the Securities Act of 1933, as amended, and which is incorporated herein by this reference. The only change to the information contained in said Registration Statement on Form S-11 is the fact that Messrs. Benes and Blakley have retired and Messrs. Robert J. Conway and Joseph W. Conway equity interest in DSI Financial, Inc., parent of DSI Properties, Inc., has increased. Please see information contained in Item 10 hereinabove.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished in Item 13 of Part III is contained in Registrant's Financial Statements for its fiscal year ended December 31, 1998, attached hereto as Exhibit l and incorporated herein by this reference.
PART IV
Item 14
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) Attached hereto and incorporated herein by this reference as Exhibit l are Registrant's Financial Statements and Supplemental Schedule for its fiscal year ended December 31, 1998, together with the reports of its independent auditors, Deloitte & Touche LLP. See Index to Financial Statements and Supplemental Schedule.
(a)(2) Attached hereto and incorporated herein by this reference as Exhibit 2 is Registrant's letter to its Limited Partners regarding its Annual Report for its fiscal year ended December 31, 1998.
(b) No reports on Form 8K were filed during the fiscal year ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
DSI REALTY INCOME FUND VIII by: DSI Properties, Inc., a California corporation, as General Partner
By_____________________________ Dated: March 31, 1999 ROBERT J. CONWAY, President (Chief Executive Officer, Chief Financial Officer, and Director)
By____________________________ Dated: March 31, 1999 JOSEPH W. CONWAY (Executive Vice President and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.
DSI REALTY INCOME FUND VIII by: DSI Properties, Inc., a California corporation, as General Partner
By:__________________________ Dated: March 31, 1999 ROBERT J. CONWAY, President, Chief Executive Officer, Chief Financial Officer, and Director
By___________________________ Dated: March 31, 1999 JOSEPH W. CONWAY (Executive Vice President and Director)
DSI REALTY INCOME FUND VIII
CROSS REFERENCE SHEET
FORM 1O-K ITEMS TO ANNUAL REPORT
PART I, Item 3. There are no legal proceedings pending or threatened.
PART I, Item 4. Not applicable.
PART II, Item 5. Not applicable.
PART II, Item 6. The information required is contained in Registrant's Financial Statements for its fiscal year ended December 31, 1998, attached as Exhibit l to Form 10-K.
PART II, Item 8. See Exhibit l to Form 10-K filed herewith.
PART II, Item 9. Not applicable.
EXHIBIT l DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
SELECTED FINANCIAL DATA FIVE YEARS ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994
REVENUES $1,899,608 $1,712,288 $1,624,001 $1,636,156 $1,604,279
EXPENSES 1,253,740 1,217,044 1,229,425 1,196,068 1,169,399
EQUITY IN EARNINGS OF REAL ESTATE JOINT VENTURE 109,741 93,305 82,729 116,421 93,634 ---------- ---------- ---------- ---------- ---------- NET INCOME $ 755,609 $ 588,549 $ 477,305 $ 556,509 $ 528,514 ========== ========== ========== ========== ========== TOTAL ASSETS $3,668,506 $4,132,136 $4,632,052 $5,245,858 $5,785,750 ========== ========== ========== ========== ========== NET CASH PROVIDED BY OPERATING ACTIVITIES $1,219,731 $1,101,200 $1,054,462 $1,136,519 $ 937,601 ========== ========== ========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 31.17 $ 24.28 $ 19.69 $ 22.96 $ 21.80 ========== ========== ========== ========== ==========
CASH DISTRIBUTIONS PER $500 LIMITED PARTNERSHIP UNIT $ 50.00 $ 45.00 $ 45.00 $ 45.00 $ 42.50 ========== ========== ========== ========== ==========
Operating Partners' Results Equity
Per financial statements $ 755,609 $ 3,063,173 Excess financial statement depreciation 134,953 1,337,305 Excess tax return income from real estate joint venture 15,760 190,121 Accrued incentive management fees 266,768 Capitalization of property acquisition costs 80,713 Fixed asset adjustments 2,080 Recognition of deferred rental revenues 41,918 Accrued distributions to partners 272,728 ----------- ----------- Per Partnership income tax return $ 906,322 $ 5,254,806 =========== =========== Net taxable income per $500 limited partnership unit $ 37.76 ===========
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the Three Years Ended December 31, 1998
Statements of Changes in Partners' Equity for the Three Years Ended December 31, 1998
Statements of Cash Flows for the Three Years Ended December 31, 1998
Notes to Financial Statements
SUPPLEMENTAL SCHEDULE:
Independent Auditors' Report
Schedule XI - Real Estate and Accumulated Depreciation
SCHEDULES OMITTED:
Financial statements and schedules not listed above are omitted because of the absence of conditions under which they are required or because the information is included in the financial statements named above, or in the notes thereto.
INDEPENDENT AUDITORS' REPORT To the Partners of DSI Realty Income Fund VIII:
We have audited the accompanying balance sheets of DSI Realty Income Fund VIII, a California Real Estate Limited Partnership (the "Partnership") as of December 31, 1998 and 1997, and the related statements of income, changes in partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements 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, such financial statements present fairly, in all material respects, the financial position of DSI Realty Income Fund VIII at December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
February 5, 1999
DELOITTE & TOUCHE LONG BEACH, CALIFORNIA
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
BALANCE SHEETS DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
ASSETS 1998 1997
CASH AND CASH EQUIVALENTS $ 458,025 $ 399,704
PROPERTY, net (Notes 1, 2, 3 and 6) 2,914,449 3,387,178
INVESTMENT IN REAL ESTATE JOINT VENTURE (Notes 1,2, and 5) 262,591 313,650
OTHER ASSETS 33,443 31,604 ----------- ----------- TOTAL $ 3,668,508 $ 4,132,136 =========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES: Distribution due to partners (Note 4) $ 272,727 $ 272,727 Incentive management fee payable to general partners (Note 4) 273,143 280,715 Property management fees payable (Note 1) 7,545 7,090 Customer deposits and other liabilities 51,918 51,918 ----------- ----------- Total liabilities 605,333 612,450 ----------- ----------- PARTNERS' EQUITY (Notes 1 and 4): General partners (77,149) (72,584) Limited partners (24,000 limited partnership units outstanding at December 31, 1998 and 1997) 3,140,324 3,592,270 ------------ ----------- Total partners' equity 3,063,175 3,519,686 ------------ ----------- TOTAL $ 3,668,508 $ 4,132,136 ============ ===========
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
STATEMENTS OF INCOME THREE YEARS ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
1998 1997 1996
REVENUES: Rental revenues $1,841,672 $1,704,301 $1,612,680 Gain from involuntary conversion (Note 7) 47,117 Interest income 10,819 7,987 11,321 ---------- ---------- ---------- Total revenues 1,899,608 1,712,288 1,624,001 ---------- ---------- ---------- EXPENSES: Depreciation (Note 2) 469,134 469,132 481,696 Operating expenses (Note 1) 425,539 395,194 430,463 General and administrative 149,116 158,008 136,110 General partners' incentive management fee (Note 4) 117,867 109,991 100,514 Property management fee (Note 1) 92,084 84,719 80,642 ---------- ---------- ---------- Total expenses 1,253,740 1,217,044 1,229,425 ---------- ---------- ----------
INCOME BEFORE EQUITY IN INCOME OF REAL ESTATE JOINT VENTURE 645,868 495,244 394,576
EQUITY IN INCOME OF REAL ESTATE JOINT VENTURE (Notes 1,2 and 5) 109,741 93,305 82,729 __________ __________ _________
NET INCOME $ 755,609 $ 588,549 $ 477,305 ========== ========== ========== AGGREGATE NET INCOME ALLOCATED TO (Note 4): Limited partners $ 748,053 $ 582,664 $ 472,532 General partners 7,556 5,885 4,773 ---------- ---------- ---------- TOTAL $ 755,609 $ 588,549 $ 477,305 ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT (Notes 2 and 4) $ 31.17 $ 24.28 $ 19.69 ========== ========== ==========
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
General Limited Partners Partners Total
BALANCE AT JANUARY 1, 1996 ($61,424) $ 4,697,074 $ 4,635,650
Net income 4,773 472,532 477,305
Distributions (10,909) (1,080,000) (1,090,909) -------- ----------- ---------- BALANCE AT DECEMBER 31, 1996 $(67,560) $4,089,606 $4,022,046
Net income 5,885 582,664 588,549
Distributions (10,909) (1,080,000) (1,090,909) -------- ----------- ----------- BALANCE AT DECEMBER 31, 1997 $(72,584) $3,592,270 $3,519,686
Net income 7,556 748,053 755,609
Distributions (12,122) (1,200,000) (1,212,122) -------- ----------- ---------- BALANCE AT DECEMBER 31, 1998 $(77,150) $3,140,323 $3,063,173 ======== =========== ==========
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
STATEMENTS OF CASH FLOWS THREE YEARS ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 755,609 $ 588,549 $ 477,305 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 469,134 469,132 481,696 Equity in earnings of real estate joint venture (109,741) (93,305) (82,729) Distributions from real estate joint venture 160,800 144,300 135,750 Gain from involuntary conversion (47,117) Changes in assets and liabilities: Receivable from general partners Other assets (1,837) (9,920) 42,642 Incentive management fee payable to general partners (7,572) 13,946 (12,486) Property management fees payable 455 833 (51) Customer deposits and other liabilities (12,335) 12,335 ----------- ----------- ----------- Net cash provided by operating activities 1,219,731 1,101,200 1,054,462
CASH FLOWS FROM FINANCING ACTIVITIES - Distributions to partners (1,212,122) (1,090,909) (1,090,909)
CASH FLOWS FROM INVESTING ACTIVITIES - Additions of property (14,288) (19,797) Proceeds from involuntary conversion 65,000 ----------- ----------- ------------ Net cash provided by (used in) investing activities 50,712 (19,797) ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 58,321 10,291 (56,244)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 399,704 389,413 445,657 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 458,025 $ 399,704 $ 389,413 =========== =========== ============
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
NOTES TO FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 1998
1. GENERAL
DSI Realty Income Fund VIII, a California Real Estate Limited Partnership (the "Partnership"), has two general partners (DSI Properties, Inc. and Diversified Investors Agency) and limited partners owning 24,000 limited partnership units, which were purchased for $500 a unit. The general partners have made no capital contribution to the Partnership and are not required to make any capital contribution in the future. The Partnership has a maximum life of 50 years and was formed on April 23, 1984 under the California Uniform Limited Partnership Act for the primary purpose of acquiring and operating real estate.
The Partnership has acquired five mini-storage facilities located in Stockton, Pittsburgh, El Centro, Huntington Beach, and Lompoc, California. The Partnership has also entered into a joint venture with DSI Realty Income Fund IX, through which the Partnership has a 30% interest in a mini- storage facility in Aurora, Colorado (see Note 5). All facilities were acquired from Dahn Corporation ("Dahn"). Dahn is not affiliated with the Partnership. Dahn is affiliated with other partnerships in which DSI Properties, Inc. is a general partner. The mini-storage facilities are operated for the Partnership by Dahn under various agreements that are subject to renewal annually. Under the terms of the agreements, the Partnership is required to pay Dahn a property management fee equal to 5% of gross revenue from operations, as defined.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Partnership classifies its short-term investments purchased with an original maturity of three months or less as cash equivalents.
Property and Depreciation - Property is recorded at cost and is composed primarily of mini-storage facilities. Depreciation is provided for using the straight-line method over an estimated useful life of 15 years. Building improvements are depreciated over a five year period.
Income Taxes - No provision has been made for income taxes in the accompanying financial statements. The taxable income or loss of the Partnership is allocated to each partner in accordance with the terms of the Agreement of Limited Partnership. Each partner's tax status, in turn, determines the appropriate income tax for its allocated share of the Partnership taxable income or loss. The net difference between the bases of the Partnership's assets and liabilities for federal income tax purposes and as reported for financial statement purposes is $2,191,631.
Revenues - Rental revenue is recognized using the accrual method based on contractual amounts provided for in the lease agreements, which approximates recognition on a straight line basis. The term of the lease agreements is usually less than one year.
Investment in Real Estate Joint Venture - The Partnership accounts for its 30% interest in the Aurora, Colorado facility using the equity method of accounting (see Note 5).
Net Income per Limited Partnership Unit - Net income per limited partnership unit is computed by dividing the net income allocated to the limited partners by the weighted average number of limited partnership units outstanding during each year (24,000 in 1998, 1997 and 1996).
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Partnership's management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets - The Partnership regularly reviews long- lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flow is less than the carrying amount of the asset, the Partnership recognizes an impairment loss. No impairment losses were required in 1998, 1997 or 1996.
Fair Value of Financial Instruments - The Company's financial instruments consist primarily of cash, receivables, accounts payable and accrued liabilities. The carrying values of all financial instruments are representative of their fair values due to their short-term maturities.
Concentrations of Credit Risk - Financial instruments that potentially subject the Partnership to concentrations of credit risk consist primarily of cash equivalents and rent receivables. The Partnership places its cash equivalents with high credit quality institutions.
3. PROPERTY
As of December 31, 1998 and 1997, the total cost of property and accumulated depreciation are as follows:
1998 1997 Land $ 2,287,427 $ 2,305,310 Buildings and improvements 7,108,615 7,094,327 ----------- -----------
Total 9,396,042 9,399,637 Less accumulated depreciation (6,481,593) (6,012,459) ----------- ----------
Property, net $ 2,914,449 $ 3,387,178 =========== ===========
During 1998, the Partnership received proceeds of $65,000 for an involuntary conversion of the land. An adjustment in the amount of $17,883 was recorded against the land account to reduce it to what management believes to be its fair market value.
4. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNERS' MANAGEMENT FEES
Under the Agreement of Limited Partnership, the general partners are to be allocated 1% of the net profits or net losses from operations and the limited partners are to be allocated the balance of the net profits or losses from operations in proportion to their limited partnership interests. The general partners are also entitled to receive a percentage, based on a predetermined formula, of any cash distribution from the sale, other disposition, or refinancing of a real estate project.
In addition, the general partners are entitled to receive an incentive management fee for supervising the operations of the Partnership. The fee is to be paid in an amount equal to 9% per annum of the cash available for distribution, as defined.
5. BUSINESS SEGMENT INFORMATION
The following disclosure about segment reporting of the Partnership is made in accordance with the requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Partner- ship operates under a single segment; storage facility operations, under which the Partnership rents its storage facilities to its customers on a need basis and charges rent on a predetermined rate.
6. INVESTMENT IN REAL ESTATE JOINT VENTURE
The Partnership is involved in a joint venture (the Buckley Road facility) that owns a mini-storage facility in Aurora, Colorado. Under the terms of the joint venture agreement, the Partnership is entitled to 30% of the profits or losses of the venture and owns 30% of the mini-storage facility as a tenant in common with DSI Realty Income Fund IX ("Fund IX"), which has the remaining 70% interest in the venture. The agreement specifies that DSI Properties, Inc. (a general partner in both the Partnership and Fund IX) shall make all decisions relating to the activities of the joint venture and the management of the property. Summarized financial information of the unaudited Buckley Road financial statements is as follows:
1998 1997 ASSETS: Cash $ 11,642 $ 12,002
Property: Land 586,500 586,500 Building 2,565,446 2,565,446 ----------- ----------- Total 3,151,946 3,151,946 Less accumulated depreciation (2,267,136) (2,097,533) ----------- ----------- Property - net 884,810 1,054,413 ----------- ----------- Other assets 8,994 8,995 ----------- -----------
TOTAL $ 905,446 $ 1,075,410 =========== ===========
LIABILITIES AND PARTNERS' EQUITY Liabilities 26,912 26,678 Partner's equity 878,534 1,048,732 ----------- ----------- TOTAL $ 905,446 $ 1,075,410 =========== ===========
1998 1997 1996
INCOME STATEMENT DATA: Rental revenues $717,772 $659,073 $620,720 Less operating expenses 351,970 348,055 344,957 -------- -------- -------- Net income $365,802 $311,018 $275,763 ======== ======== ========
Property is stated at cost; depreciation is provided for using the straight-line method over the estimated useful life of 15 years.
7. INVOLUNTARY CONVERSION
In March 1998, the City of Stockton acquired approximately 6,089 square feet or 4.8% of the land to create a pedestrian under pass next to the Partnership's Stockton property. During 1998, the Partnership received a reimbursement in the amount of $65,000 for what City of Stockton believes to have been the fair value of the land. A gain from involuntary conversion was recorded in the amount of $47,117 and the cost of land was reduced by $17,883.
INDEPENDENT AUDITORS' REPORT
To the Partners of DSI Realty Income Fund VIII:
We have audited the statements of income, changes in venturers' capital, and cash flows for the year ended December 31, 1998 of Mini U Storage, Buckley Road Joint Venture, a California General Partnership (the "Joint Venture"). These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of Mini U Storage, Buckley Road Joint Venture for the year ended December 31, 1998 conformity with generally accepted accounting principles.
Deloitte & Touche LLP Long Beach, California
February 5, 1999
MINI U STORAGE, BUCKLEY ROAD JOINT VENTURE (A California General Partnership)
BALANCE SHEET DECEMBER 31, 1998 AND 1997 - -------------------------------------------------------------------------------
ASSETS 1998 1997 (Unaudited) (Unaudited)
CASH AND CASH EQUIVALENTS (Notes 2) $ 11,642 $ 12,002
PROPERTY, net (Notes 1,2 and 3) 884,810 1,054,413
OTHER ASSETS 8,995 8,995 ----------- ----------- TOTAL $ 905,447 $ 1,075,410 =========== ===========
LIABILITIES AND VENTURERS' CAPITAL
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 26,913 $ 26,678
VENTURERS' CAPITAL (Note 1) 878,534 1,048,732 ----------- ----------- TOTAL $ 905,447 $ 1,075,410 =========== ===========
See accompanying notes to financial statements.
MINI U STORAGE, BUCKLEY ROAD JOINT VENTURE (A California General Partnership)
STATEMENTS OF INCOME THREE YEARS ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------
1998 1997 1996 (Unaudited) (Unaudited)
RENTAL REVENUES (Note 2) $ 717,772 $ 659,073 $ 620,720 --------- --------- --------- EXPENSES: Depreciation (Note 2) 169,603 169,603 175,364 Operating 135,386 132,962 125,041 General and administrative 46,981 45,490 44,552 --------- --------- --------- Total expenses 351,970 348,055 344,957 --------- --------- --------- NET INCOME $ 365,802 $ 311,018 $ 275,763 ========= ========= =========
See accompanying notes to financial statements.
MINI U STORAGE, BUCKLEY ROAD JOINT VENTURE (A California General Partnership)
STATEMENTS OF CHANGES IN VENTURERS' CAPITAL THREE YEARS ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------
Fund VIII Fund IX Total
BALANCE, JANUARY 1, 1996 417,666 977,784 1,395,450
Net income (Unaudited) 82,729 193,034 275,763
Distributions (Unaudited) (135,750) (316,749) (452,499) --------- --------- ---------- BALANCE, DECEMBER 31, 1996 (Unaudited) $ 364,645 $ 854,069 $1,218,714
Net income (Unaudited) 93,305 217,713 311,018
Distributions (Unaudited) (144,300) (336,700) (481,000) --------- --------- ---------- BALANCE, DECEMBER 31, 1997 Unaudited) $ 313,650 $ 735,082 $1,048,732
Net income (Unaudited) 109,741 256,061 365,802
Distributions (Unaudited) (160,800) (375,200) (536,000) --------- --------- ---------- BALANCE, DECEMBER 31, 1998 (Unaudited) $ 262,591 $ 615,943 $ 878,534 ========= ========= ==========
See accompanying notes to financial statements.
MINI U STORAGE, BUCKLEY ROAD JOINT VENTURE (A California General Partnership)
STATEMENTS OF CASH FLOWS THREE YEARS ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------
1998 1997 1996 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 365,802 $ 311,018 $ 275,763 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 169,603 169,603 175,364 Changes in operating assets and liabilities- Accounts payable and accrued expenses 235 (2,513) 1,067 --------- --------- --------- Net cash provided by operating activities $ 535,640 $ 478,108 $ 452,194 ========= ========= =========
CASH FLOWS FROM FINANCING ACTIVITIES- Distributions to partners (526,000) (481,000) (452,499) --------- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (360) (2,892) (305)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,002 14,894 15,199 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,642 $ 12,002 $ 14,894 ========= ========= =========
See accompanying notes to financial statements.
MINI U STORAGE, BUCKLEY ROAD JOINT VENTURE (A California General Partnership)
NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------
1. GENERAL
Mini U Storage, Buckley Road Joint Venture, a California General Partnership (the "Joint Venture"), was formed by DSI Realty Income Fund VIII ("Fund VIII"), a California Real Estate Limited Partnership, and DSI Realty Income Fund IX ("Fund IX"), a California Real Estate Limited Partnership, pursuant to an agreement dated August 30, 1985 to operate a mini-storage facility known as Buckley Road located in Aurora, Colorado. The term of the Joint Venture is to continue until the earliest of the following events:
* Acquisition of all of one venturer's interest by the other;
* Sale or other disposition of substantially all of the property; or
* Dissolution of the Joint Venture pursuant to the provisions of the agreement.
Under the terms of the joint venture agreement, Fund VIII is entitled to 30% of the profits and losses of the Joint Venture and owns 30% of the mini-storage facility as a tenant in common with Fund IX, which has the remaining 70% interest in the Joint Venture. The agreement specifies that DSI Properties, Inc. (a general partner of both Fund VIII and Fund IX) shall make all decisions relating to the activities of the Joint Venture and the management of the property.
The mini-storage facility was acquired from Dahn Corporation ("Dahn"). Dahn is not affiliated with the Joint Venture. Dahn is affiliated with other partnerships in which DSI Properties, Inc. is a general partner. The mini-storage facility is operated for the Joint Venture by Dahn under various agreements that are subject to renewal annually. Under the terms of the agreements, the Joint Venture is required to pay Dahn a property management fee equal to 5% of gross revenue from operations, as defined.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Joint Venture classifies its short-term investments purchased with an original maturity of three months or less as cash equivalents.
Property and Depreciation - Property is recorded at cost and comprises primarily a mini-storage facility. Depreciation is provided for using the straight-line method over an estimated useful life of 15 years.
Income Taxes - The Joint Venture is not a taxpaying entity for federal and state income tax purposes, and thus no income tax expense has been recorded in the accompanying statements. Net income from the Joint Venture is allocated to the venturers.
Rental Revenue - Rental revenue is recognized using the accrual method based on contractual amounts provided for in the lease agreements, which approximates recognition on the straight-line basis. The term of the lease agreements is usually less than one year.
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Joint Venturer's management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets - The Partnership regularly reviews long- lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flow is less than the carrying amount of the asset, the Partnership recognizes an impairment loss. No impairment losses were required in 1998, 1997 or 1996.
Concentrations of Credit Risk - Financial instruments that potentially subject the Partnership to concentrations of credit risk consist primarily of cash equivalents and rent receivables. The Partnership places its cash equivalents with high credit quality institutions.
3. PROPERTY
As of December 31, 1998 and 1997, the total cost of property and accumulated depreciation are as follows:
1998 1997 (Unaudited)
Land $ 586,500 $ 586,500 Buildings and improvements 2,565,446 2,565,446 ----------- ----------- Total 3,151,946 3,151,946 Accumulated depreciation (2,267,136) (2,097,533) ----------- ----------- Property, net $ 884,810 $ 1,054,413 =========== ===========
*****
DSI REALTY INCOME FUND VIII (A California Real Estate Limited Partnership)
REAL ESTATE AND ACCUMULATED DEPRECIATION - --------------------------------------------------------------------------------
Real Estate Accumulated at Cost Depreciation
Balance at January 1, 1996 $ 9,379,840 $5,061,631 Additions 19,797 481,696 ----------- ---------- Balance at December 31, 1996 $ 9,399,637 $5,543,327 Additions 469,132 ----------- ---------- Balance at December 31, 1997 $ 9,399,637 $6,012,459 Additions 14,287 469,134 Disposals (17,882) ----------- ---------- Balance at December 31, 1998 $ 9,396,042 $6,481,593 =========== ==========
EXHIBIT 2
March 27, 1999
ANNUAL REPORT TO LIMITED PARTNERS OF
DSI REALTY INCOME FUND VIII
Dear Limited Partner:
This report contains the Partnership's balance sheets as of December 31, 1998 and 1997, and the related statements of income, changes in partners' equity and cash flows for each of the three years in the period ended December 31, 1997 accompanied by an independent auditors' report. The Partnership owns five mini-storage facilities, plus a 30% interest in a sixth mini-storage facility on a joint venture basis with an affiliated Partnership, DSI Realty Income Fund IX, a California Limited Partnership. The Partnership's properties were each purchased for all cash and funded solely from subscriptions for limited partnership interests without the use of mortgage financing.
Your attention is directed to the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations for the General Partners' discussion and analysis of the financial statements and operations of the Partnership.
Average occupancy levels for each of the Partnership's six properties for the years ended December 31, 1998 and December 31, 1997 were as follows:
Location of Property Average Occupancy Average Occupancy Levels for the Levels for the Year Ended Year Ended Dec. 31, 1998 Dec. 31, 1997
El Centro, CA 74% 75%
Lompoc, CA 80% 89%
Pittsburg, CA 90% 85%
Stockton, CA 86% 78%
Huntington Beach, CA 90% 89%
Aurora, CO* 88% 88% - ---------
*The Partnership owns a 30% fee interest in this facility.
We will keep you informed of the activities of DSI Realty Income Fund VIII as they develop. If you have any questions, please contact us at your convenience at (562) 493-3022.
If you would like a copy of the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998 which was filed with the Securities and Exchange Commission (which report includes the enclosed Financial Statements), we will forward a copy of the report to you upon written request.
Very truly yours,
DSI REALTY INCOME FUND VIII By: DSI Properties, Inc.
By___________________________ ROBERT J. CONWAY, President