-----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, VIK8OqR3rkOBn87YB48reO1XX5p7LS3mrG9x/PZo36ap5G0m60vuu3ComhWPkMoI SF4j9sYS1/P8RmGw27YvTw== 0000202953-03-000002.txt : 20030331 0000202953-03-000002.hdr.sgml : 20030331 20030328202825 ACCESSION NUMBER: 0000202953-03-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC STORAGE PROPERTIES LTD CENTRAL INDEX KEY: 0000202953 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 953196912 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08667 FILM NUMBER: 03626930 BUSINESS ADDRESS: STREET 1: 701 WESTERN AVE STREET 2: SUITE 200 CITY: GLENDALE STATE: CA ZIP: 91201-2397 BUSINESS PHONE: (818) 244-8080 MAIL ADDRESS: STREET 1: 701 WESTERN AVE STREET 2: SUITE 200 CITY: GLENDALE STATE: CA ZIP: 91201 10-K 1 q402prop3.txt PUBLIC STORAGE PROPERTIES, LTD. 2002 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, 2002 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 0-8667 ------ PUBLIC STORAGE PROPERTIES, LTD. ------------------------------- (Exact name of registrant as specified in its charter) California 95-3196921 - ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 701 Western Avenue Glendale, California 91201 - ---------------------------------------- ---------------------- (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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes No X --- --- 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 Forward Looking Statements - -------------------------- When used within this document, the words "expects," "believes," "anticipates," "should," "estimates," and similar expressions are intended to identify "forward-looking statements" within the meaning of that term in Section 27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Partnership to be materially different from those expressed or implied in the forward looking statements. Such factors are described in Item 1A, "Risk Factors" and include changes in general economic conditions and in the markets in which the Partnership operates and the impact of competition from new and existing storage and commercial facilities and other storage alternatives, which could impact rents and occupancy levels at the Partnership's facilities; the impact of the regulatory environment as well as national, state, and local laws and regulations, which could increase the Partnership's expense and reduce the Partnership's cash available for distribution; and economic uncertainty due to the impact of war or terrorism could adversely affect our business plan. We disclaim any obligation to publicly release the results of any revisions to these forward-looking statements reflecting new estimates, events or circumstances after the date of this report. General - ------- Public Storage Properties, Ltd. (the "Partnership") is a publicly held limited partnership formed under the California Uniform Limited Partnership Act in November 1976. The Partnership raised $10,000,000 in gross proceeds by selling 20,000 units of limited partnership interest ("Units") in an interstate offering, which commenced in October, 1977 and was completed in January, 1978. The Partnership was formed to engage in the business of developing and operating storage space for personal and business use ("mini-warehouses"). The Partnership has reported annually to the Securities and Exchange Commission on form 10-K which includes financial statements certified by independent public accountants. The Partnership has also reported quarterly to the Securities and Exchange Commission on Form 10-Q and includes unaudited financial statements with such filings. The Partnership expects to continue such reporting. In 1995, there were a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. (which was one of the Partnership's general partners) ("old PSI") and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc., a real estate investment trust ("REIT") organized as a California corporation. In the PSMI Merger, Storage Equities, Inc. was renamed Public Storage, Inc. ("PSI") and PSI acquired substantially all of PSMI's United States real estate operations and became a co-general partner of the Partnership and the operator of the Partnership's mini-warehouse properties. The Partnership's general partners are PSI and B. Wayne Hughes ("Hughes") (collectively referred to as the "General Partners"). Hughes has been a general partner of the Partnership since its inception. Hughes is chairman of the board of PSI, was chief executive officer through November 7, 2002 of PSI, and Hughes and members of his family (the "Hughes Family") is the major shareholder 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 operation or conduct of its business and affairs. The Partnership's objectives are to (i) maximize the potential for appreciation in value of the Partnership's properties and (ii) generate sufficient cash flow from operations to pay all expenses, including the payment of interest to Noteholders. All of the properties were financed in September 1987. The term of the Partnership is until all properties have been sold and, in any event, not later than December 31, 2035. 2 Investment Objectives and Policies - ---------------------------------- The Partnership's objectives are to (i) preserve and protect invested capital, (ii) maximize the potential for appreciation in value of its investments, (iii) provide Federal income tax deductions so that during the early years of property operations a portion of cash distributions may be treated as a return of capital for tax purposes, and therefore, may not represent taxable income to the limited partners, and (iv) provided for cash distributions from operations. Following are the Partnership's investment practices and policies. The Partnership does not anticipate making any additional investments other than maintenance capital expenditures and does not anticipate liquidating the investments it now holds. While a vote of the limited partners is generally required to change the Partnership's investment policies, PSI holds a majority of the limited partnership units, and as a result, the General Partners could change these policies through PSI's vote. * Our investments consists of 9 self-storage facilities. These investments are in real estate or real estate entities holding real estate located in the United States. See "Mini-warehouses" and Item 2 "Properties" for further information. These investments were acquired both for income and capital gains. * There is no limitation on the amount or percentage of assets which can be invested in any specific person. The Partnership does not anticipated borrowing money, issuing senior securities, making loans to other persons, investing in the securities of other issuers for the purpose of exercising control, underwriting the securities of other issuers, engaging in the purchase and sale of investments, offering securities in exchange for property, or repurchasing or otherwise reacquiring its outstanding securities. Mini-warehouses - --------------- Mini-warehouses 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, among other things, 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 350 to 750 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. 3 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, and is the largest operator of mini-warehouses in the United States. 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 telephone referral system, (800) 44-STORE, or a mini-warehouse 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. The telephone reservation system supports rental activity at all of the Partnership's properties. PSI's toll-free telephone referral system services approximately 200,000 calls per month from potential customers inquiring as to the nearest Public Storage mini-warehouse. * MAINTAIN HIGH OCCUPANCY LEVELS AND INCREASE ANNUAL 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. Average occupancy for the Partnership's mini-warehouses was 92% and 87% for 2001 and 2002, respectively. Realized annual rents per square foot increased 6.6% from $12.84 in 2001 to $13.69 in 2002. The Partnership has increased rental rates in many markets where it has achieved high occupancy levels. * 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. There are approximately 4,500 persons who render services for the Public Storage system, primarily personnel engaged in property operations, substantially all of whom are employed by a clearing company that provides certain administrative and cost-sharing services to PSI and other owners of properties operated by PSI. Property Operator - ----------------- The Partnership's mini-warehouses are managed by PSI (as successor-in-interest to PSMI) under a Management Agreement. 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. Under the supervision of the Partnership, PSI coordinates the operation of the facilities, establishes rental policies and rates, directs marketing activity and 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, real estate investment trusts 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 they operate. Facilities operated by PSI have historically carried comprehensive insurance, including fire, earthquake, liability and extended coverage. 4 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. 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 except as described below. 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 the Partnership or six months notice by PSI. 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, and the "Public Storage" name, should enable the Partnership to continue to compete effectively with other entities. Other Business Activities - ------------------------- A corporation that reinsures policies against losses to goods stored by tenants in PSI's storage facilities was purchased by PSI from Mr. Hughes and members of his family (the "Hughes Family") on December 31, 2001. We believe that the availability of insurance reduces our potential liability to tenants for losses to their goods from theft or destruction. This corporation receives the premiums and bears the risks associated with the re-insurance. A subsidiary of PSI sells locks and boxes and rents trucks to the general public and tenants to be used in securing their spaces and moving their goods. We believe that the availability of locks and boxes for sale and the rental of trucks promote the rental of spaces. Federal Income Tax - ------------------ Public Storage Properties, Ltd. is treated as a partnership for federal income tax purposes with the taxable income of the entity allocated to each partners in accordance with the partnership agreement. Employees - --------- There are 13 persons who render services on behalf of the Partnership on a full-time basis, and 21 persons who render services on a part-time basis. These persons include resident managers, assistant managers, relief managers, area managers, and administrative and maintenance personnel. Some employees may be employed on a part-time basis and may be employed by other persons, Partnerships, REITs or other entities owning facilities operated by PSI. 5 ITEM 1A. RISK FACTORS In addition to the other information in our Form 10-K, you should consider the following factors in evaluating the Partnership: PUBLIC STORAGE HAS A SIGNIFICANT DEGREE OF CONTROL OVER THE PARTNERSHIP. Public Storage is general partner and owns approximately 31.4% of our outstanding limited partnership units. As a result, Public Storage has a significant degree of control over matters submitted to a vote of our unitholders, including amending our organizational documents, dissolving the Partnership and approving other extraordinary transactions. SINCE OUR BUSINESS CONSISTS PRIMARILY OF ACQUIRING AND OPERATING REAL ESTATE, WE ARE SUBJECT TO REAL ESTATE OPERATING RISKS. The value of our investments may be reduced by general risks of real estate ownership. Since we derive substantially all of our income from real estate operations, we are subject to the general risks of owning real estate-related assets, including: * lack of demand for rental spaces or units in a locale; * changes in general economic or local conditions; * changes in supply of or demand for similar or competing facilities in an area; * potential terrorists attacks; * the impact of environmental protection laws; * changes in interest rates and availability of permanent mortgage funds which may render the sale or financing of a property difficult or unattractive; and * changes in tax, real estate and zoning laws. There is significant competition among self-storage facilities and from other storage alternatives. Most of our properties are self-storage facilities, which generated 94% of our rental revenue during 2002. Local market conditions will play a significant part in how competition will affect us. Competition in the market areas in which many of our properties are located from other self-storage facilities and other storage alternatives is significant and has affected the occupancy levels, rental rates and operating expenses of some of our properties. Any increase in availability of funds for investment in real estate may accelerate competition. Further development of self-storage facilities may intensify competition among operators of self-storage facilities in the market areas in which we operate. We may incur significant environmental costs and liabilities. As an owner of real properties, under various federal, state and local environmental laws, we are required to clean up spills or other releases of hazardous or toxic substances on or from our properties. Certain environmental laws impose liability whether or not the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. In some cases, liability may not be limited to the value of the property. The presence of these substances, or the failure to properly remediate any resulting contamination, also may adversely affect the owner's or operator's ability to sell, lease or operate its property or to borrow using its property as collateral. We have conducted preliminary environmental assessments on the properties the Partnership has an interest in to evaluate the environmental condition of, and potential environmental liabilities associated with, our properties. These assessments generally consist of an investigation of environmental conditions at the property (not including soil or groundwater sampling or analysis), as well as a review of available information regarding the site and publicly available data regarding conditions at other sites in the vicinity. In connection with these property assessments, we have become aware that prior operations or activities at some facilities or from nearby locations have or may have resulted in contamination to the soil or groundwater at these facilities. In this regard, some of our facilities are or may be the subject of federal or state environment investigations or remedial actions. Although we cannot provide any assurance, based on the preliminary environmental assessments, we believe we have funds available to cover any liability from environmental contamination or potential contamination and we are not aware of any environmental contamination of our facilities material to our overall business, financial condition or results of operation. Property taxes can increase and cause a decline in yields on investments. Each of our properties is subject to real property taxes. These real property taxes may increase in the future as property tax rates change and as our properties are assessed or reassessed by tax authorities. Such increases could adversely impact the Partnership's profitability. We must comply with the Americans with Disabilities Act and fire and safety regulations, which can require significant expenditures: All our properties must comply with the Americans with Disabilities Act and with related regulations (the "ADA"). The ADA has separate compliance requirements for "public accomodations" and "commercial facilities," but generally requires that buildings be made accessible to persons with disabilities. Various state laws impose similar requirements. A failure to comply with the ADA or similar state laws could result in government imposed fines on us and the award of damages to individuals affected by the failure. In addition, we must operate our properties in compliance with numerous local fire and safety regulations, building codes, and other land use regulations. Compliance with these requirements can require us to spend substantial amounts of money, which would reduce cash otherwise available for distribution to Partners. Failure to comply with these requirements could also affect the marketability of our real estate facilities. TERRORIST ATTACKS AND THE POSSIBILITY OF WIDER ARMED CONFLICT MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS AND OPERATING RESULTS AND COULD DECREASE THE VALUE OF OUR ASSETS. Terrorist attacks and other acts of violence or war, such as those that took place on September 11, 2001, could have a material adverse impact on our business and operating results. There can be no assurance that there will not be further terrorist attacks against the United States or its businesses or interests. Attacks or armed conflicts that directly impact one or more of our properties could significantly affect our ability to operate those properties and thereby impair our operating results. Further, we may not have insurance coverage for losses caused by a terrorist attack. Such insurance may not be available, or if it is available and we decide to obtain such terrorist coverage, the cost for the insurance may be significant in relationship to the risk overall. In addition, the adverse effects that such violent acts and threats of future attacks could have on the U.S. economy could similarly have a material adverse effect on our business and results of operations. Finally, further terrorist acts could cause the United States to enter into a wider armed conflict, which could further impact our business and operating results. 6 ITEM 2. PROPERTIES The following table sets forth information as of December 31, 2002 about properties owned by the Partnership:
Net Number Date Completion Location Size of Parcel Rentable Area of Spaces of Purchase Date - -------------------- ---------------- ------------------ ------------- --------------- ---------- California - ---------- Corona 2.82 acres 52,000 sq. ft. 467 June 29, 1978 Dec. 1978 Fremont 3.00 acres 53,000 sq. ft. 465 Mar. 21, 1978 Nov. 1978 Milpitas (1) 3.40 acres 55,000 sq. ft 430 May 8, 1978 Nov. 1978 Norco 1.66 acres 29,000 sq. ft 257 July 19, 1978 Dec. 1978 North Hollywood 2.06 acres 38,000 sq. ft. 343 Mar. 17, 1978 Dec. 1979 Pasadena 1.84 acres 37,000 sq. ft. 385 Feb. 24, 1978 Aug. 1978 Sun Valley 2.72 acres 53,000 sq. ft. 477 May 30, 1978 Oct. 1978 Wilmington 6.32 acres 133,000 sq. ft. 1,088 Apr. 18, 1978 Aug. 1978 Whittier - El Monte (2) 3.28 acres 58,000 sq. ft. 538 Nov. 29, 1977 July 1978
(1) In the first quarter of 2000, the Partnership sold approximately 2% of the land. (2) In the second quarter of 2000, the Partnership sold approximately 19% of the land. The weighted average occupancy level for the mini-warehouse facilities was 92% and 87% for 2001 and 2002, respectively. As of December 31, 2002, the properties are not encumbered as described further in this report under Note 7 of the Notes to the Financial Statements included in Item 15(a). The Partnership does not have any agreements to buy or sell any real estate nor does it expect to further develop any of its facilities except for capital improvements. ITEM 3. LEGAL PROCEEDINGS Salaam, et. Al V. Public Storage, Inc. (filed February 2000) - ------------------------------------------------------------ The plaintiffs in this case are suing the Company on behalf of a purported class of California resident property managers who claim that they were not compensated for all the hours they worked. The named plaintiffs have indicated that their claims total less than $20,000 in aggregate. This maximum potential liability can only be increased if a class is certified or if claims are permitted to be brought on behalf of the others under the California Unfair Business Practices Act. The plaintiffs' motion for class certification was denied in August 2002; the plaintiffs have appealed this denial. This denial does not deal with the claim under the California Unfair Business Practices Act. The Company is continuing to vigorously contest the claims in this case and intends to resist any expansion beyond the named plaintiffs on the grounds of lack of commonality of claims. The Company's resistance will include opposing the plaintiffs' appeal of the court's denial of class certification and opposing the claim on behalf of others under the California Unfair Business Practices Act. Henriquez v. Public Storage, Inc. (Filed June 2002; Dismissed January, 2003) - ---------------------------------------------------------------------------- The plaintiff in this case filed a suit against the Company on behalf of a purported class of renters who rented self-storage units from the Company. Plaintiff alleged that the Company misrepresents the size of its units and sought damages and injunctive and declaratory relief under California statutory and common law relating to consumer protection, unfair competition, fraud and deceit and negligent misrepresentation. In January 2003, the plaintiff caused this suit to be dismissed. The plaintiff's attorney has advised that he anticipates filing a similar suit against the Company on behalf of a new plaintiff. However, the Company cannot presently determine the potential total damages, if any, or the ultimate outcome of any such litigation. If a new suit is filed, the Company intends to vigorously contest any claims on which it is based. 7 Public Storage and the Partnership are parties to various claims, complaints, and other legal actions that have arisen in the normal course of business from time to time. We believe that the outcome of these other pending legal proceedings, in the aggregate, will not have a material adverse effect upon the operations or financial position of 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 2002. 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 Certificate and 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 the General Partners (and their affiliates) have 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 certain limited partnership interests, including the prices at which such secondary sales transactions are effectuated. Exclusive of the General Partners' interest in the Partnership, as of December 31, 2002, there were approximately 595 record holders of Units. Distributions to the general and limited partners of all cash available for distribution (as defined) are made quarterly. Cash available for distribution is generally funds from operations of the Partnership, without deductions for depreciation, but after deducting funds to pay or establish reserves for all other expenses (other than incentive distributions to the general Partners) and capital improvements, plus net proceeds from any sale or financing of the Partnership's properties. Reference is made to Item 6 and 7 hereof for information on the amount of such distributions. 8 ITEM 6. SELECTED FINANCIAL DATA
For the Year Ended December 31, 2002 2001 2000 1999 1998 - ----------------------------- ----------------- ----------------- ----------------- ----------------- ----------------- Revenues $ 5,938,000 $ 6,006,000 $ 5,401,000 $ 4,978,000 $ 4,629,000 Depreciation and amortization 516,000 533,000 534,000 579,000 498,000 Interest expense 14,000 221,000 415,000 601,000 1,077,000 Net income (2) 3,729,000 3,643,000 2,997,000 2,288,000 1,622,000 Limited partners' share 3,242,000 3,607,000 2,967,000 2,265,000 1,605,000 General partners' share 487,000 36,000 30,000 23,000 17,000 Limited partners' per unit data (1): Net income (2) $162.10 $180.35 $148.35 $113.25 $80.25 Cash Distributions $67.50 - - - - As of December 31, - ------------------ Cash and cash equivalents $ 538,000 $ 175,000 $ 324,000 $ 153,000 $ 248,000 Total assets $ 4,178,000 $ 4,242,000 $ 4,664,000 $ 4,873,000 $ 5,349,000 Notes payable $ - $ 2,000,000 $ 6,025,000 $ 9,225,000 $ 12,000,000
(1) Per unit data is based on the weighted average number of the limited partnership units (20,000) outstanding during the period. (2) Net income for the year ended December 31, 2000 includes a gain relating to a sale of land totaling $136,000 ($5.05 per limited partnership unit). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements - -------------------------- When used within this document, the words "expects," "believes," "anticipates," "should," "estimates," and similar expressions are intended to identify "forward-looking statements" within the meaning of that term in Section 27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Partnership to be materially different from those expressed or implied in the forward looking statements. Such factors are described in Item 1A, "Risk Factors" and include changes in general economic conditions and in the markets in which the Partnership operates and the impact of competition from new and existing storage and commercial facilities and other storage alternatives, which could impact rents and occupancy levels at the Partnership's facilities; the impact of the regulatory environment as well as national, state, and local laws and regulations, which could increase the Partnership's expense and reduce the Partnership's cash available for distribution; and economic uncertainty due to the impact of war or terrorism could adversely affect our business plan. We disclaim any obligation to publicly release the results of any revisions to these forward-looking statements reflecting new estimates, events or circumstances after the date of this report. 9 Critical Accounting Policies - ---------------------------- IMPAIRMENT OF REAL ESTATE Substantially all of our assets consist of real estate. We quarterly evaluate our real estate for impairment. The evaluation of real estate for impairment requires determining whether indicators of impairment exist, which is a subjective process. When any indicators of impairment are found, the evaluation then entails projections of future operating cashflows, which also involves significant judgment. We have identified no such impairments at December 31, 2002. However, future events, or facts and circumstances that currently exist that we have not yet identified, could cause us to conclude in the future that our real estate is impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. ESTIMATED USEFUL LIVES OF LONG-LIVED ASSETS Substantially all of our assets consist of depreciable, long-lived assets. We record depreciation expense with respect to these assets based upon their estimated useful lives. Any change in the estimated useful lives of those assets, caused by functional or economic obsolescence or other factors, could have a material adverse impact on our financial condition or results of operations. ACCRUALS FOR CONTINGENCIES We are exposed to business and legal liability risks with respect to events that have occurred, but in accordance with generally accepted accounting principles we have not accrued for such potential liabilities because the loss is either not probable or not estimable or because we are not aware of the event. Future events and the result of pending litigation could result in such potential losses becoming probable and estimable, which could have a material adverse impact on our financial condition or results of operations. Some of these potential losses, which we are aware of, are described in Note 9 to the partnership's financial statements. ACCRUALS FOR OPERATING EXPENSES We accrue for property tax expense and other operating expenses based upon estimates and historical trends and current and anticipated local and state government rules and regulations. If these estimates and assumptions are incorrect, our expenses could be misstated. Results of Operations - --------------------- YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001: The Partnership's net income in 2002 was $3,729,000 compared to $3,643,000 in 2001, representing an increase of $86,000. The increase is primarily attributable to the significant reduction in interest expense related to the note payable which was paid off in the third quarter of 2002. During 2002, property net operating income (rental income less cost of operations, management fees paid to an affiliate and depreciation expense) decreased $123,000 or 3% from $3,787,000 in 2002 to $3,910,000 in 2001. This decrease is primarily attributable to a decrease in rental revenues at the Partnership's mini-warehouse facilities and an increase in cost of operations. Rental income was $5,900,000 in 2002 compared to $5,972,000 in 2001, representing a decrease of $72,000, or 1%. The decrease is attributable to a decrease in average occupancy at the Partnership's mini-warehouse facilities. Weighted average occupancy levels at the mini-warehouses was 87% and 92% for 2002 and 2001, respectively. The average annual realized rent per square foot at the mini-warehouses was $13.69 in 2002 compared to $12.84 in 2001. Cost of operations (including management fees paid to an affiliate) was $1,597,000 and $1,529,000 in 2002 and 2001, respectively, representing an increase of $68,000, or 4%. This increase is mainly attributable to increases in advertising and promotion expenses. Interest expense was $14,000 and $221,000 in 2002 and 2001, respectively, representing a decrease of $207,000, or 9%. The decrease results from a lower average outstanding loan balance in 2002 compared to 2001. See Liquidity and Capital Resources for a discussion of the refinancing of the Partnership's indebtedness. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000: The Partnership's net income in 2001 was $3,643,000 compared to $2,997,000 in 2000, representing an increase of $646,000. This increase is primarily a result of increased operating results at the Partnership's real estate facilities and a decrease in interest expense. 10 During 2001, property net operating income (rental income less cost of operations, management fees paid to an affiliate and depreciation expense) increased $554,000 or 17% from $3,356,000 in 2000 to $3,910,000 in 2001. This increase is primarily attributable to an increase in rental revenues at the Partnership's mini-warehouse facilities partially offset by an increase in cost of operations. Rental income was $5,972,000 in 2001 compared to $5,393,000 in 2000, representing an increase of $579,000, or 11%. This increase is primarily attributable to increased rental rates at the Partnership's real estate facilities. Weighted average occupancy levels at the mini-warehouses was 92% and 96% for 2001 and 2000, respectively. The average annual realized rent per square foot at the mini-warehouses was $12.84 in 2001 compared to $11.08 in 2000. Cost of operations (including management fees paid to an affiliate) was $1,529,000 and $1,503,000 in 2001 and 2000, respectively, representing an increase of $26,000, or 2%. This increase is mainly attributable to increases in management fees and advertising and promotion expenses. Interest expense was $221,000 and $415,000 in 2001 and 2000, respectively, representing a decrease of $194,000, or 47%. The decrease results from a lower average outstanding loan balance in 2001 compared to 2000. See Liquidity and Capital Resources for a discussion of the refinancing of the Partnership's indebtedness. Liquidity and Capital Resources - ------------------------------- Cash flow from operating activities of $4,376,000 in 2002 has been sufficient to meet all current obligations of the Partnership. During 2003, the Partnership anticipates approximately $104,000 of capital improvements compared to $196,000 in 2002 and $207,000 in 2001. During October 1998, the Partnership borrowed $12,400,000 from a commercial bank to payoff existing notes. Interest on the unsecured loan was based on the London Interbank Offering Rate ("LIBOR") plus a spread 0.55%. The loan required monthly payments of interest and matured on October 2002. During the second quarter of 2002, the Partnership paid the loan in full without premium or penalty. The Partnership entered into interest rate swap agreements to reduce the impact of changes in interest rates on a portion of its floating rate debt. The agreement, which covered $5,000,000 of debt through October 2000, effectively changed the interest rate exposure from floating rate to a fixed rate of 5.205%. The second agreement, which covered $2,500,000 of debt which expired during October 2001, effectively changed the interest rate exposure from floating rate to a fixed rate of 5.33%. Market gains and losses on the value of the swap were deferred and included in income over the life of the contract. The Partnership recorded the differences paid or received on the interest rate swap in interest expense as payments were made or received. DISTRIBUTIONS Distributions to the limited and general partners for the years 1978-1990 aggregated $37,832,000 including $20,202,000 distributed to the partners in 1987. The Partnership Agreement requires that cash available for distribution (cash flow from all sources less cash necessary for any obligations or capital improvement needs) be distributed at least quarterly. Cash distributions were suspended during the fourth quarter of 1990 for debt service payments. As all debt service have been repaid as of September 30, 2002, the Partnership resumed with quarterly distributions beginning in the third quarter of 2002. We paid distributions to the limited and general partners totaling $1,350,000 (67.50 per unit) and $467,000, respectively, for the year ended December 31, 2002. Future distribution rates may be adjusted to levels which are supported by operating cash flow after capital improvements and any other necessary obligations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2002, the Partnership had no outstanding debt. 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 15(a). 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 Mini-Warehouse Properties are managed by PSI pursuant to a Management Agreement. 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 Chief Executive Officer (through November 7, 2002) and Chairman of the Board Ronald L. Havner, Jr. Chief Executive Officer (after November 7, 2002) and Vice Chairman of the Board Harvey Lenkin President and Director Marvin M. Lotz Senior Vice President and Director B. Wayne Hughes, Jr. Director John Reyes Senior Vice President and Chief Financial Officer Robert J. Abernethy Director Dann V. Angeloff Director William C. Baker Director Thomas J. Barrack Jr. Director Uri P. Harkham Director Daniel C. Staton Director B. Wayne Hughes, age 69, 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. On November 7, 2002, Mr. Hughes resigned as Chief Executive Officer of PSI. He remains as chairman of the board of directors, and intends to focus on strategic and marketing initiatives. Mr. Hughes has been active in the real estate investment field for over 30 years. He is the father of B. Wayne Hughes, Jr. Ronald L. Havner, Jr., age 45, was appointed Vice Chairman and Chief Executive Officer of PSI on November 7, 2002. Mr. Havner has been employed by PSI in various accounting and operational capacities since 1986 and served as Senior Vice President and Chief Financial Officer from November 1991 until December 1996 when be became Chairman, President and Chief Executive Officer of PS Business Parks, Inc. (AMEX: symbol PSB) an affiliate of the Company. He is a member of the National Association of Real Estate Investment Trusts (NAREIT) and the Urban Land Institute (ULI) and a Director of Business Machine Security, Inc. and Mobile Storage Group, Inc. Mr. Havner earned a Bachelor of Arts degree in Economics from the University of California, Los Angeles. Harvey Lenkin, age 66, has been employed by PSI for 25 years and became President and a director of PSI in November 1991. Mr. Lenkin has been a director of PS Business Parks, Inc. ("PSBP"), an affiliated REIT, since March 16, 1998 and was President of PSBP (formerly Public Storage Properties XI, Inc.) from 1990 until March 16, 1998. He is a member of the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT). Marvin M. Lotz, age 60, became a director of PSI in May 1999. Mr. Lotz has been a Senior Vice President of the Company since November 1995 and President of the Property Management Division since 1988 with overall responsibility for Public Storage's mini-warehouse operations. He had overall responsibility for the Company's property acquisitions from 1983 until 1988. 12 B. Wayne Hughes, Jr., age 43 became a director of PSI in January 1998. He has been employed by PSI from 1989 to 2002 serving as Vice President - Acquisitions of PSI from 1992 to 2002. Mr. Hughes, Jr. is the president of a firm that manufactures and distributes sweets. He is the son of B. Wayne Hughes. John Reyes, age 42, a certified public accountant, joined PSI in 1990 and was Controller of PSI from 1992 until December 1996 when he became Chief Financial Officer. He became a Vice President of PSI in November 1995 and a Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was employed by Ernst & Young. Robert J. Abernethy, age 63, has been President of American Standard Development Company and of Self-Storage Management Company, which develop and operate mini-warehouses, since 1976 and 1977, respectively. Mr. Abernethy has been a director of PSI since its organization in 1980. He is a member of the board of trustees of Johns Hopkins University, a director of Marathon National Bank and a California Transportation Commissioner. Mr. Abernethy is a former member of the board of directors of the Los Angeles County Metropolitan Transportation Authority and the Metropolitan Water District of Southern California and a former Planning Commissioner and Telecommunications Commissioner and former Vice-Chairman of the Economic Development Commission of the City of Los Angeles. Dann V. Angeloff, age 67, has been President of the Angeloff Company, a corporate financial advisory firm, since 1976. Mr. Angeloff is the general partner of a limited partnership that owns a mini-warehouse operated by PSI and which secures a note owned by PSI. Mr. Angeloff has been a director of PSI since its organization in 1980. He is a director of AremisSoft Corporation, Balboa Capital Corporation, Nicholas/Applegate Growth Equity Fund, ReadyPac Produce, Inc., Royce Medical Company and xDimentional Technologies, Inc. He was a director of SPI from 1989 until June 1996. William C. Baker, age 69, became a director of PSI in November 1991. Since 1970, Mr. Baker has been a partner in Baker & Simpson, a private investment entity. From August 1998 through April 2000, he was President and Treasurer of Meditrust Operating Company, a real estate investment trust. From April 1996 to December 1998, Mr. Baker was Chief Executive Officer of Santa Anita Companies which then operated the Santa Anita Racetrack. From April 1993 through May 1995, Mr. Baker was President of Red Robin International, Inc., an operator and franchiser of casual dining restaurants in the United States and Canada. From January 1992 through December 1995 he was Chairman and Chief Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc. From 1991 to 1999, he was Chairman of the Board of Coast Newport Properties, a real estate brokerage company. From 1976 to 1988, he was a principal shareholder and Chairman and Chief Executive Officer of Del Taco, Inc., an operator and franchiser of fast food restaurants in California. Mr. Baker is a director of Callaway Golf Company, Meditrust Operating Company and Meditrust Corporation. Thomas J. Barrack, Jr., age 55, became a director of PSI in February 1998. Mr. Barrack has been the Chairman and Chief Executive Officer of Colony Capital, Inc. since September, 1991. Colony Capital, Inc. is one of the largest real estate investors in America, having acquired properties in the U.S., Europe and Asia. Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack was a principal with the Robert M. Bass Group, Inc., the principal investment vehicle for Robert M. Bass of Fort Worth, Texas. From 1985 to 1987, Mr. Barrack was President of Oxford Ventures, Inc., a Canadian-based real estate development company. From 1984 to 1985 he was a Senior Vice President at E. F. Hutton Corporate Finance in New York. Mr. Barrack was appointed by President Ronald Reagan as Deputy Under Secretary at the U.S. Department of the Interior from 1982 to 1983. Mr. Barrack currently is a director of Continental Airlines, Inc. and Kennedy-Wilson, Inc. Uri P. Harkham, age 54, 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. 13 Daniel C. Staton, age 50, became a director of PSI on March 12, 1999 in connection with the merger of Storage Trust Realty, a real estate investment trust, with PSI. Mr. Staton was Chairman of the Board of Trustees of Storage Trust Realty from February 1998 until March 12, 1999 and a Trustee of Storage Trust Realty from November 1994 until March 12, 1999. He is President of Walnut Capital Partners, an investment and venture capital company. Mr. Staton was the Chief Operating Officer and Executive Vice President of Duke Realty Investments, Inc. from 1993 to 1997 and a director of Duke Realty Investments, Inc. from 1993 until August 1999. From 1981 to 1983, Mr. Staton was a principal owner of Duke Associates, the predecessor of Duke Realty Investments, Inc. Prior to joining Duke Associates in 1981, he was a partner and general manager of his own moving company, Gateway Van & Storage, Inc. in St. Louis, Missouri. Form 1986 to 1988, Mr. Staton served as president of the Greater Cincinnati Chapter of the National Association of Industrial and Office Parks. Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate and Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement, File No. 2-92009, 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 its General Partners and their affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) At March 10, 2003, the following beneficially owned more than 5% of the Units:
Title Name and Address Beneficial Percent of Class of Beneficial Owner Ownership of Class - --------------------- ------------------------------------------ --------------- --------- Units of Limited Public Storage, Inc. 6,274 Units (1) 31.4% Partnership Interest 701 Western Ave. Glendale, California 91201 Units of Limited H-G Family Corporation, Tamara Hughes 6,227 Units (2) 31.1% Partnership Interest Gustavson, PS Orangeco Partnerships, Inc. 701 Western Ave. Glendale, California 91201
(1) Includes (i) 6,169 Units owned by PSI as to which PSI has sole voting and dispositive power, (ii) 25 Units which PSI has an option to acquire from a corporation of which Hughes' children are shareholders and (iii) 80 Units which PSI has an option to acquire from Tamara Hughes Gustavson, an adult daughter of Hughes. (2) Includes (i) 6,025 Units owned by H-G Family Corporation, a corporation of which Hughes' children are shareholders; PSI has an option to acquire 25 of these Units, (ii) 80 Units owned by Tamara Hughes Gustavson as to which Tamara Hughes Gustavson has sole voting and dispositive power; PSI has an option to acquire these 80 Units, and (iii) 122 Units owned by PS Orangeco Partnerships, Inc., a corporation in which Hughes and members of his family own approximately 48% of the voting stock and PSI and members of management own the remaining 52%. (b) The Partnership has no officers and directors. 14 The General Partners (or their predecessor-in-interest) have contributed $101,010 to the capital of the Partnership and as a result participates in the distributions to the limited partners and in the Partnership's profits and losses in the same proportion that the General Partners' capital contribution bears to the total capital contribution (approximately $80,808 was contributed by PSI and $20,202 was contributed by Mr. Hughes). In 1995, Mr. Hughes contributed his ownership and rights to distributions from the Partnership to BWH Marina Corporation II, a corporation wholly-owned by Mr. Hughes. In 2002, BWH Marina Corporation II sold its interest to H-G Family Corporation. As such, Mr. Hughes continues to act as a general partner but receives no direct compensation or other consideration from the Partnership. Information regarding ownership of Units by PSI and Hughes, the General Partners, is set forth under section (a) above. The directors and executive officers of PSI (including Hughes), as a group (17 persons), beneficially own an aggregate of 6,165 Units, representing 30.8% of the Units (including the 6,025 Units owned by H-G Family Corporation and the 122 Units owned by PS Orangeco Partnerships, Inc.). (c) The Partnership knows of no contractual arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership, except for articles 16, 17 and 21.1 of the Partnership's Amended Certificate and Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement File No. 2-57750. Those articles provide, in substance, that the limited partners shall have the right, by majority vote, to remove a general partner and that a general partner may designate a successor with the consent of the other general partner and a majority of the limited partners. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership Agreement provides that the General Partners will be entitled to cash incentive distributions in an amount equal to (i) 8% of distributions of cash flow from operations until the distributions to all partners from all sources equal their capital contributions; thereafter, 25% of distributions of cash flow from operations, and (ii) 25% of distributions from net proceeds from sale and financing of the Partnership's properties remaining after distribution to all partners of any portion thereof required to cause distributions to partners from all sources to equal their capital contributions. During 1985, the partners received cumulative distributions equal to their capital contributions. Mr. Hughes has assigned his ownership and distribution rights in the Partnership to BWH Marina Corporation II ("BWH Marinas"), and BWH Marinas sold its interests to H-G Family Corporation in 2002. In addition to their distribution rights with respect to their general partner's interests, PSI and H-G Family Corporation own 6,169 and 6,025 Units. During 2002, PSI and H-G Family Corporation received $374,000 and $93,000 in distributions related to their general partner's ownership interests. The Partnership has a Management Agreement with PSI (as successor-in-interest to PSMI). Under the Management Agreement, the Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse properties operated for the Partnership. 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 tight to use the service marks and related designs could have a material adverse effect on the Partnership's business. The Management Agreement with PSI provides that the Management Agreement may be terminated without cause upon 60 days written notice by the Partnership or 6 months notice by PSI. During 2002, the Partnership paid fees of $352,000 to PSI pursuant to the Management Agreement. In addition, the Partnership combines its insurance purchasing power with PSI through a captive insurance company controlled by PSI, STOR-Re Mutual Insurance Corporation ("Stor-Re"). Stor-Re provides limited property and liability insurance to the Partnership at commercially competitive rates. The Partnership and PSI also utilize unaffiliated insurance carriers to provide property and liability insurance in excess of Stor-Re's limitations. ITEM 14. CONTROLS AND PROCEDURES The Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports the Partnership files and submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in accordance with SEC guidelines and that such information is communicated to the Partnership's management, to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" in Rule 13a-14(c) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. 15 Within 90 days prior to the date of this report, the Partnership carried out an evaluation, under the supervision and with the participation of the Partnership's management, of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures. Based upon this evaluation, the Partnership's Chief Executive Officer and Chief Financial Officer concluded that the Partnership's disclosure controls and procedures were effective. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of the Partnership's evaluation. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Documents filed as part of the Report. 1. Financial Statements. See Index to Financial Statements and Financial Statement Schedule. 2. Financial Statement Schedules. See Index to Financial Statements and Financial Statement Schedule. 3. Exhibits: See Exhibit Index contained below. 4. Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: No reports on Form 8-K were filed during 2002. (c) Exhibits: See Exhibit Index contained below. 16 PUBLIC STORAGE PROPERTIES, LTD. EXHIBIT INDEX (Item 15(c)) 3.1 Amended Certificate and Agreement of Limited Partnership. Previously filed with the Securities and Exchange Commission as Exhibit A to the Partnership's Prospectus included in Registration Statement No. 2-57750 and incorporated herein by reference. 10.1 Second Amended and Restated Management Agreement dated November 16, 1995 between the Partnership and Public Storage, 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 Loan documents dated January 27, 1998 between the Partnership and Public Storage, 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, 1997 and incorporated herein by reference. 10.3 Credit Agreement dated October 23, 1998 between Public Storage Properties, Ltd. and First Union Bank. Previously filed with the Securities and Exchange Commission as an exhibit to the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference. 99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. 99.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 99.3 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 99.4 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 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. PUBLIC STORAGE PROPERTIES, LTD. a California Limited Partnership Dated: March 28, 2003 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 of Public Storage, Inc. and March 28, 2003 - --------------------------------------- General Partner B. Wayne Hughes /s/ Ronald L. Havner, Jr. Vice Chairman of the Board and Chief Executive March 28, 2003 - --------------------------------------- Officer of Public Storage, Inc. Ronald L. Havner, Jr. /s/ Harvey Lenkin President and Director March 28, 2003 - --------------------------------------- of Public Storage, Inc. Harvey Lenkin /s/ Marvin M. Lotz Senior Vice President and Director March 28, 2003 - --------------------------------------- Marvin M. Lotz /s/ B. Wayne Hughes, Jr. Vice President and Director March 28, 2003 - --------------------------------------- of Public Storage, Inc. B. Wayne Hughes, Jr. /s/ John Reyes Senior Vice President and Chief Financial March 28, 2003 - --------------------------------------- Officer of Public Storage, Inc. (principal John Reyes financial officer and principal accounting officer) /s/ Robert J. Abernethy Director of Public Storage, Inc. March 28, 2003 - --------------------------------------- Robert J. Abernethy /s/ Dann V. Angeloff Director of Public Storage, Inc. March 28, 2003 - --------------------------------------- Dann V. Angeloff /s/ William C. Baker Director of Public Storage, Inc. March 28, 2003 - --------------------------------------- William C. Baker Director of Public Storage, Inc. - --------------------------------------- Thomas J. Barrack, Jr. /s/ Uri P. Harkham Director of Public Storage, Inc. March 28, 2003 - --------------------------------------- Uri P. Harkham /s/ Daniel C. Staton Director of Public Storage, Inc. March 28, 2003 - --------------------------------------- Daniel C. Staton
18 PUBLIC STORAGE PROPERTIES, LTD. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE (Item 15 (a)) Page References ---------- Report of Independent Auditors F-1 Financial Statements and Schedule: Balance Sheets as of December 31, 2002 and 2001 F-2 For the years ended December 31, 2002, 2001 and 2000: Statements of Income F-3 Statements of Partners' Equity (Deficit) F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-6 - F-10 Schedule: III - Real Estate and Accumulated Depreciation F-11 - F-12 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto. Report of Independent Auditors The Partners Public Storage Properties, Ltd. We have audited the accompanying balance sheets of Public Storage Properties, Ltd. (the "Partnership") as of December 31, 2002 and 2001, and the related statements of income, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the schedule listed in the index at item 15(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides 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 Public Storage Properties, Ltd. at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP March 19, 2003 Los Angeles, California F-1 PUBLIC STORAGE PROPERTIES, LTD. BALANCE SHEETS December 31, 2002 and 2001
2002 2001 ---------------- ---------------- ASSETS Cash and cash equivalents $ 538,000 $ 175,000 Rent and other receivables 49,000 157,000 Real estate facilities, at cost: Building, land improvements and equipment 9,217,000 9,021,000 Land 2,476,000 2,476,000 ---------------- ---------------- 11,693,000 11,497,000 Less accumulated depreciation (8,152,000) (7,636,000) ---------------- ---------------- 3,541,000 3,861,000 Other assets 50,000 49,000 ---------------- ---------------- Total assets $ 4,178,000 $ 4,242,000 ================ ================ LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 52,000 $ 56,000 Deferred revenue 160,000 132,000 Note payable to commercial bank - 2,000,000 Partners' equity Limited partners' equity, $500 per unit, 20,000 units authorized, issued and outstanding 2,944,000 1,525,000 General partners' equity 1,022,000 529,000 ---------------- ---------------- Total partners' equity 3,966,000 2,054,000 ---------------- ---------------- Total liabilities and partners' equity $ 4,178,000 $ 4,242,000 ================ ================
See accompanying notes. F-2 PUBLIC STORAGE PROPERTIES, LTD. STATEMENTS OF INCOME For the years ended December 31, 2002, 2001 and 2000
2002 2001 2000 ------------------ ------------------ ------------------ REVENUES: Rental income $ 5,900,000 $ 5,972,000 $ 5,393,000 Gain on sale of land - - 136,000 Other income 38,000 34,000 8,000 ------------------ ------------------ ------------------ 5,938,000 6,006,000 5,537,000 ------------------ ------------------ ------------------ COSTS AND EXPENSES: Cost of operations 1,245,000 1,171,000 1,180,000 Management fees paid to affiliate 352,000 358,000 323,000 Depreciation 516,000 533,000 534,000 Administrative 82,000 80,000 88,000 Interest expense 14,000 221,000 415,000 ------------------ ------------------ ------------------ 2,209,000 2,363,000 2,540,000 ------------------ ------------------ ------------------ NET INCOME $ 3,729,000 $ 3,643,000 $ 2,997,000 ================== ================== ================== Limited partners' share of net income ($162.10 per unit in 2002, $180.35 per unit in 2001 and $148.35 per unit in 2000) $ 3,242,000 $ 3,607,000 $ 2,967,000 General partners' share of net income 487,000 36,000 30,000 ------------------ ------------------ ------------------ $ 3,729,000 $ 3,643,000 $ 2,997,000 ================== ================== ==================
See accompanying notes. F-3 PUBLIC STORAGE PROPERTIES, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the years ended December 31, 2002, 2001 and 2000
Total Partners' Limited Partners General Partners Equity (Deficit) ----------------- ----------------- ----------------- Balance at December 31, 1999 $ (3,405,000) $ (1,181,000) $ (4,586,000) Net income 2,967,000 30,000 2,997,000 Equity transfer (742,000) 742,000 - ----------------- ----------------- ----------------- Balance at December 31, 2000 (1,180,000) (409,000) (1,589,000) Net income 3,607,000 36,000 3,643,000 Equity transfer (902,000) 902,000 - ----------------- ----------------- ----------------- Balance at December 31, 2001 1,525,000 529,000 2,054,000 Net income 3,242,000 487,000 3,729,000 Distributions paid to partners (1,350,000) (467,000) (1,817,000) Equity transfer (473,000) 473,000 - ----------------- ----------------- ----------------- Balance at December 31, 2002 $ 2,944,000 $ 1,022,000 $ 3,966,000 ================= ================= =================
See accompanying notes. F-4 PUBLIC STORAGE PROPERTIES, LTD. STATEMENTS OF CASH FLOWS For the years ended December 31, 2002, 2001 and 2000
2002 2001 2000 --------------- --------------- --------------- Cash flows from operating activities: Net income $ 3,729,000 $ 3,643,000 $ 2,997,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 516,000 533,000 534,000 Gain on sale of land - - (136,000) Decrease (increase) in rent and other receivables 108,000 (83,000) (1,000) Amortization of prepaid loan fees - 17,000 17,000 (Increase) decrease in other assets (1,000) 13,000 (2,000) Decrease in accounts payable (4,000) (21,000) (1,000) Increase (decrease) in deferred revenue 28,000 (19,000) (5,000) --------------- --------------- --------------- Total adjustments 647,000 440,000 406,000 --------------- --------------- --------------- Net cash provided by operating activities 4,376,000 4,083,000 3,403,000 --------------- --------------- --------------- Cash flows from investing activities: Proceeds from sale of land - - 172,000 Additions to real estate facilities (196,000) (207,000) (204,000) --------------- --------------- --------------- Net cash used in investing activities (196,000) (207,000) (32,000) --------------- --------------- --------------- Cash flows from financing activities: Distributions paid to partners (1,817,000) - - Principal payments on note payable to commercial bank (2,000,000) (4,025,000) (3,200,000) --------------- --------------- --------------- Net cash used in financing activities (3,817,000) (4,025,000) (3,200,000) --------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 363,000 (149,000) 171,000 Cash and cash equivalents at the beginning of the year 175,000 324,000 153,000 --------------- --------------- --------------- Cash and cash equivalents at the end of the year $ 538,000 $ 175,000 $ 324,000 =============== =============== ===============
See accompanying notes. F-5 PUBLIC STORAGE PROPERTIES, LTD. NOTES TO FINANCIAL STATEMENTS December 31, 2002 1. Description of Partnership Public Storage Properties, Ltd. (the "Partnership") was formed with the proceeds of a public offering. The general partners in the Partnership are Public Storage, Inc. ("PSI") and B. Wayne Hughes ("Hughes"). The Partnership owns nine mini-warehouse facilities located in California. 2. Summary of Significant Accounting Policies and Partnership Matters Mini-Warehouse Facilities: -------------------------- Cost of land includes appraisal fees and legal fees related to acquisition and closing costs. Buildings, land improvements and equipment reflect costs incurred through December 31, 2002 and 2001 to develop mini-warehouse facilities which provide self-service storage spaces for lease, usually on a month-to-month basis, to the general public. The buildings and equipment are generally depreciated on a straight-line basis over estimated useful lives of 25 and 5 years, respectively. During the year 2000, the Partnership sold 3 parcels of excess land adjacent to operating facilities for an aggregate sale price of $172,000 resulting in a gain of $136,000. Revenue Recognition: -------------------- Property rents are recognized as earned. Advertising costs of $266,000, $190,000 and $148,000 in 2002, 2001 and 2000, respectively, are expensed as incurred. Allocation of Net Income: ------------------------- The general partners' share of net income consists of amounts attributable to their 1% capital contribution and an additional percentage of cash flow (as defined) which relates to the general partners' share of cash distributions as set forth in the Partnership Agreement (Note 4). All remaining net income is allocated to the limited partners. Per unit data is based on the weighted average number of the limited partnership units (20,000) outstanding during the period. 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. Other Assets: ------------- In 1998, the Partnership incurred financing costs of $71,000 in connection with the note payable from a commercial bank. These costs are being amortized over the life of the loan. As of December 31, 2002 all financing costs have been fully amortized. 2. Summary of Significant Accounting Policies and Partnership Matters (Continued) Use of Estimates: ----------------- The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-6 Impairment of Real Estate: -------------------------- We evaluate our real estate for impairment on a quarterly basis. We first evaluate these assets for indicators of impairment such as a) a significant decrease in the market price of real estate, b) a significant adverse change in the extent or manner in which real estate is being used or in its physical condition, c) a significant adverse change in legal factors or the business climate that could affect the value of the real estate, d) an accumulation of costs significantly in excess of the amount originally projected for the acquisition of construction of the real estate, or e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the real estate. When any such indicators of impairment are noted, we compare the carrying value of the real estate to the future estimated undiscounted cash flows attributable to the real estate. If the real estate's recoverable amount is less than the carrying value of the asset, then an impairment charge is booked for the excess of carrying value over the real estate's fair value. Our evaluations have indicated no impairment. Any real estate which we expect to sell or dispose of prior to their previously estimated useful life are stated at the lower of their estimated net realizable value or their carrying value, less cost to sell, and are evaluated throughout the sale process for impairment. Environmental Cost: ------------------- 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. Although there can be no assurance, the Partnership is not aware of any environmental contamination of any of its property sites which individually or in the aggregate would be material to the Partnership's overall business, financial condition or results of operations. Segment Reporting: ------------------ The Partnership only has one reportable segment as defined within Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), therefore the adoption of SFAS No. 131 had no effect on the Partnership disclosures. Recent Accounting Pronouncements and Guidance --------------------------------------------- As of March 20, 2003, there have been no recent accounting pronouncements and guidance, which were not effective for implementation prior to December 31, 2002, that would have a material impact upon the operations of the Partnership. F-7 3. Cash Distributions The Partnership Agreement requires that cash available for distribution (cash flow from all sources less cash necessary for any obligations or capital improvement needs) be distributed at least quarterly. Cash distributions have been suspended since the fourth quarter of 1990 for debt service payments. As all debt service have been repaid as of September 30, 2002, the Partnership resumed with quarterly distributions beginning in the third quarter of 2002. We paid distributions to the limited and general partners totaling $1,350,000 (67.50 per unit) and $467,000, respectively, for the year ended December 31, 2002. Future distribution rates may be adjusted to levels which are supported by operating cash flow after capital improvements and any other necessary obligations. 4. Partners' Equity PSI and Hughes are general partners of the Partnership. In 1995, Hughes contributed his ownership and rights to distributions from the Partnership to BWH Marina Corporation II, a corporation wholly-owned by Hughes. In 2002, BWH Marina Corporation II sold its interests to H-G Family Corporation. As such, Mr. Hughes continues to act as a general partner but receives no direct compensation or other consideration from the Partnership. The general partners have a 1% interest in the Partnership. In addition, the general partners have an 8% interest in cash distributions attributable to operations (exclusive of distributions attributable to sale and financing proceeds until the limited partners recover all of their initial investment). Thereafter, the general partners have a 25% interest in all cash distributions (including sale and financing proceeds). In 1985, the limited partners recovered all of their initial investment. All subsequent cash distributions are being made 25.75% (including the 1% interest) to the general partners and 74.25% to the limited partners. Transfers of equity are made periodically to conform the partners' equity accounts to the provisions of the Partnership Agreement. These transfers have no effect on the results of operations or distributions to partners. Concurrent with the financing of the Partnership's properties in 1987 (Note 7), the Partnership made a special distribution totaling $20,202,000 to the partners. This special distribution had no effect on the Partnership's taxable income, however, resulted in a deficit in the limited and general partners' equity accounts. 5. Related Party Transactions The Partnership has a Management Agreement with PSI. Under the terms of the agreement, PSI operates the mini-warehouse facilities for a fee equal to 6% of the facilities' gross revenue (as defined). For 2002, 2001 and 2000, the Partnership paid PSI $352,000, $358,000 and $323,000, respectively, pursuant to this management agreement. The Management Agreement between the Partnership and PSI provides that the Management Agreement may be terminated without cause upon 60 days written notice by the Partnership or six months notice by PSI. In addition, the Partnership combines its insurance purchasing power with PSI through a captive insurance company controlled by PSI, STOR-Re Mutual Insurance Corporation ("Stor-Re"). Stor-Re provides limited property and liability insurance to the Partnership at commercially competitive rates. The Partnership and PSI also utilize unaffiliated insurance carriers to provide property and liability insurance in excess of Stor-Re's limitations. F-8 6. Taxes Based on Income Taxes based on income are the responsibility of the individual partners and, accordingly, the Partnership's financial statements do not reflect a provision for such taxes. Unaudited taxable net income was $3,863,000, $3,723,000 and $3,164,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The difference between taxable net income and net income is primarily related to depreciation expense resulting from difference in depreciation methods. 7. Notes Payable During October 1998, the Partnership borrowed $12,400,000 from a commercial bank to payoff existing notes. Interest on the unsecured loan was based on the London Interbank Offering Rate ("LIBOR") plus a spread of 0.55%. The loan required monthly payments of interest and matured on October 2002. During the second quarter of 2002, the Partnership paid the loan in full without premium or penalty. The Partnership entered into interest rate swap agreements to reduce the impact of changes in interest rates on a portion of its floating rate debt. The agreement, which covered $5,000,000 of debt through October 2000, effectively changed the interest rate exposure from floating rate to a fixed rate of 5.205%. The second agreement, which covered $2,500,000 of debt which expired during October 2001, effectively changed the interest rate exposure from floating rate to a fixed rate of 5.33%. Market gains and losses on the value of the swap were deferred and included in income over the life of the contract. The Partnership recorded the differences paid or received on the interest rate swap in interest expense as payments were made or received. Interest paid during 2002, 2001 and 2000 was $21,000, $226,000 and $427,000, respectively. 8. Supplementary Quarterly Financial Data (Unaudited)
Three Months Ended ------------------------------------------------------------------------------- March 31, 2002 June 30, 2002 September 30, 2002 December 31, 2002 -------------- --------------- ------------------ ----------------- Rental Income $ 1,481,000 $ 1,470,000 $ 1,459,000 $ 1,490,000 Cost of Operations (including management fees and depreciation $ 491,000 $ 503,000 $ 534,000 $ 585,000 Net Income $ 967,000 $ 939,000 $ 923,000 $ 900,000 Net Income Per Unit $ 47.85 $ 46.50 $ 34.45 $ 33.30 Distributions $ - $ - $ 875,000 $ 942,000 Three Months Ended ------------------------------------------------------------------------------- March 31, 2001 June 30, 2001 September 30, 2001 December 31, 2001 -------------- --------------- ------------------ ----------------- Rental Income $ 1,438,000 $ 1,471,000 $ 1,532,000 $ 1,531,000 Cost of Operations (including management fees and depreciation $ 512,000 $ 505,000 $ 528,000 $ 517,000 Net Income $ 820,000 $ 885,000 $ 940,000 $ 998,000 Net Income Per Unit $ 40.60 $ 43.80 $ 46.55 $ 49.40 Distributions $ - $ - $ - $ -
F-9 9. Commitments and Contingencies Salaam, et. Al V. Public Storage, Inc. (filed February 2000) ------------------------------------------------------------ The plaintiffs in this case are suing the Company on behalf of a purported class of California resident property managers who claim that they were not compensated for all the hours they worked. The named plaintiffs have indicated that their claims total less than $20,000 in aggregate. This maximum potential liability can only be increased if a class is certified or if claims are permitted to be brought on behalf of the others under the California Unfair Business Practices Act. The plaintiffs' motion for class certification was denied in August 2002; the plaintiffs have appealed this denial. This denial does not deal with the claim under the California Unfair Business Practices Act. The Company is continuing to vigorously contest the claims in this case and intends to resist any expansion beyond the named plaintiffs on the grounds of lack of commonality of claims. The Company's resistance will include opposing the plaintiffs' appeal of the court's denial of class certification and opposing the claim on behalf of others under the California Unfair Business Practices Act. Henriquez v. Public Storage, Inc. (Filed June 2002; Dismissed January, ---------------------------------------------------------------------- 2003) ----- The plaintiff in this case filed a suit against the Company on behalf of a purported class of renters who rented self-storage units from the Company. Plaintiff alleged that the Company misrepresents the size of its units and sought damages and injunctive and declaratory relief under California statutory and common law relating to consumer protection, unfair competition, fraud and deceit and negligent misrepresentation. In January 2003, the plaintiff caused this suit to be dismissed. The plaintiff's attorney has advised that he anticipates filing a similar suit against the Company on behalf of a new plaintiff. However, the Company cannot presently determine the potential total damages, if any, or the ultimate outcome of any such litigation. If a new suit is filed, the Company intends to vigorously contest any claims on which it is based. Public Storage and the Partnership are parties to various claims, complaints, and other legal actions that have arisen in the normal course of business from time to time. We believe that the outcome of these other pending legal proceedings, in the aggregate, will not have a material adverse effect upon the operations or financial position of the Partnership. F-10 Public Storage Properties, Ltd. Schedule III - Real Estate and Accumulated Depreciation For the year ended December 31, 2002
Initial Cost --------------------------- Building, Costs Subsequent to Land Imp & construction Description Land Equipment (Improvements) - ------------------------- ----------- -------------- -------------------- Pasadena $327,000 $515,000 $274,000 Whittier - El Monte (1) 166,000 763,000 303,000 Fremont 112,000 741,000 362,000 Milpitas (2) 198,000 649,000 244,000 Wilmington 815,000 1,336,000 607,000 Sun Valley 329,000 611,000 315,000 Corona 155,000 757,000 316,000 Norco 95,000 456,000 151,000 North Hollywood 314,000 553,000 229,000 ----------- -------------- -------------------- $2,511,000 $6,381,000 $2,801,000 =========== ============== ====================
Gross Carrying Amount at December 31, 2002 ---------------------------------------------- Building, Land Imp & Accumulated Date Description Land Equipment Total Depreciation Completed - ------------------------- ---------- -------------- ------------- -------------- ------------ Pasadena $327,000 $789,000 $1,116,000 $714,000 08/78 Whittier - El Monte (1) 134,000 1,098,000 1,232,000 972,000 07/78 Fremont 112,000 1,103,000 1,215,000 1,007,000 11/78 Milpitas (2) 195,000 896,000 1,091,000 755,000 11/78 Wilmington 815,000 1,943,000 2,758,000 1,764,000 08/78 Sun Valley 329,000 926,000 1,255,000 853,000 10/78 Corona 155,000 1,073,000 1,228,000 894,000 12/78 Norco 95,000 607,000 702,000 511,000 12/78 North Hollywood 314,000 782,000 1,096,000 682,000 12/79 ---------- -------------- ------------- -------------- $2,476,000 $9,217,000 $11,693,000 $8,152,000 ========== ============== ============= ==============
(1) In the second quarter of 2000, the Partnership sold approximately 19% of the land. (2) In the first quarter of 2000, the Partnership sold approximately 2% of the land. F-11 Public Storage Properties, Ltd. Schedule III - Real Estate and Accumulated Depreciation (Continued) Reconciliation of Real Estate and Accumulated Depreciation COST 2002 2001 ------------- ------------- Balance at the beginning of the period $ 11,497,000 $ 11,290,000 Additions during the period Improvements 196,000 207,000 ------------- ------------- Balance at the close of the period $ 11,693,000 $ 11,497,000 ============= ============= ACCUMULATED DEPRECIATION RECONCILIATION 2002 2001 ------------- ------------- Balance at the beginning of the period $ 7,636,000 $ 7,103,000 Additions during the period Depreciation 516,000 533,000 ------------- ------------- Balance at the close of the period $ 8,152,000 $ 7,636,000 ============= ============= (a) The aggregate depreciable cost of real estate (excluding land) for Federal income tax purposes is $8,892,000 (unaudited). F-12 EX-99.1 3 q402prop3_ex991.txt CERTIFICATION Exhibit 99.1 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Year-end Report on Form 10-K of Public Storage Properties, Ltd. (the "Partnership") for the year-end period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), B. Wayne Hughes, as Chief Executive Officer of Public Storage, Inc. (through November 7, 2002), Ronald L. Havner, Jr., as Chief Executive Officer of Public Storage, Inc., and John Reyes, as Chief Financial Officer of Public Storage, Inc., each hereby certifies, pursuant to 18 U.S.C.ss.1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ B. Wayne Hughes - -------------------- Name: B. Wayne Hughes Title: Chief Executive Officer of Public Storage, Inc. (through November 7, 2002), Corporate General Partner and Individual General Partner Date: March 28, 2003 /s/ Ronald L. Havner, Jr. - -------------------------- Name: Ronald L. Havner, Jr. Title: Chief Executive Officer of Public Storage, Inc., Corporate General Partner Date: March 28, 2003 /s/ John Reyes - --------------- Name: John Reyes Title: Chief Financial Officer of Public Storage, Inc., Corporate General Partner Date: March 28, 2003 This certification accompanies the Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of ss.18 of the Securities Exchange Act of 1934, as amended. EX-99.2 4 q402prop3_ex992.txt HUGHES CERTIFICATION Exhibit 99.2 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, B. Wayne Hughes, certify that: 1. I have reviewed this year-end report on Form 10-K of Public Storage Properties, Ltd.; 2. Based on my knowledge, this year-end report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this year-end report; 3. Based on my knowledge, the financial statements, and other financial information included in this year-end report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this year-end report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this year-end report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this year-end report (the "Evaluation Date"); and c) presented in this year-end report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this year-end report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ B. Wayne Hughes - -------------------- Name: B. Wayne Hughes Title: Chief Executive Officer of Public Storage, Inc. (through November 7, 2002), Corporate General Partner and Individual General Partner Date: March 28, 2003 EX-99.3 5 q402prop3_ex993.txt HAVNER CERTIFICATION Exhibit 99.3 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ronald L. Havner, Jr., certify that: 1. I have reviewed this year-end report on Form 10-K of Public Storage Properties, Ltd.; 2. Based on my knowledge, this year-end report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this year-end report; 3. Based on my knowledge, the financial statements, and other financial information included in this year-end report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this year-end report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this year-end report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this year-end report (the "Evaluation Date"); and c) presented in this year-end report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 7. The registrant's other certifying officers and I have indicated in this year-end report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Ronald L. Havner, Jr. - -------------------------- Name: Ronald L. Havner, Jr. Title: Chief Executive Officer of Public Storage, Inc. (after November 7, 2002), Corporate General Partner Date: March 28, 2003 EX-99.4 6 q402prop3_ex994.txt REYES CERTIFICATION Exhibit 99.4 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John Reyes, certify that: 1. I have reviewed this year-end report on Form 10-K of Public Storage Properties, Ltd.; 2. Based on my knowledge, this year-end report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this year-end report; 3. Based on my knowledge, the financial statements, and other financial information included in this year-end report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this year-end report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this year-end report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this year-end report (the "Evaluation Date"); and c) presented in this year-end report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this year-end report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ John Reyes - --------------- Name: John Reyes Title: Chief Financial Officer of Public Storage, Inc., Corporate General Partner Date: March 28, 2003 -----END PRIVACY-ENHANCED MESSAGE-----