10-Q 1 q102prop4.txt PUBLIC STORAGE PROPERTIES IV, LTD. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 2002 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------- -------------- Commission File Number 0-8908 ------ PUBLIC STORAGE PROPERTIES IV, LTD. ---------------------------------- (Exact name of registrant as specified in its charter) California 95-3192402 ---------------------------------------- ---------- (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 -------------- 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 No X --- --- INDEX Page ---- PART I. FINANCIAL INFORMATION Condensed balance sheets at March 31, 2002 and December 31, 2001 2 Condensed statements of income for the three months ended March 31, 2002 and 2001 3 Condensed statement of partners' equity for the three months ended March 31, 2002 4 Condensed statements of cash flows for the three months ended March 31, 2002 and 2001 5 Notes to condensed financial statements 6-7 Management's discussion and analysis of financial condition and results of operations 8-11 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K. 12 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED BALANCE SHEETS
March 31, December 31, 2002 2001 ----------------- ----------------- (Unaudited) ASSETS Cash and cash equivalents $ 1,174,000 $ 434,000 Marketable securities of affiliate (cost of $6,340,000) 14,474,000 13,096,000 Rent and other receivables 394,000 495,000 Real estate facilities, at cost: Buildings and equipment 17,627,000 17,570,000 Land 5,021,000 5,021,000 ----------------- ----------------- 22,648,000 22,591,000 Less accumulated depreciation (14,987,000) (14,750,000) ----------------- ----------------- 7,661,000 7,841,000 Other assets 77,000 62,000 ----------------- ----------------- Total assets $ 23,780,000 $ 21,928,000 ================= ================= LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 499,000 $ 354,000 Deferred revenue 270,000 224,000 Partners' equity: Limited partners' equity, $500 per unit, 40,000 units authorized, issued and outstanding 11,035,000 10,825,000 General partners' equity 3,842,000 3,769,000 Other comprehensive income 8,134,000 6,756,000 ----------------- ----------------- Total partners' equity 23,011,000 21,350,000 ----------------- ----------------- Total liabilities and partners' equity $ 23,780,000 $ 21,928,000 ================= =================
See accompanying notes. 2 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, ----------------------------------- 2002 2001 ---------------- ---------------- REVENUES: Rental income $ 2,809,000 $ 2,566,000 Dividends from marketable securities of affiliate 180,000 92,000 Other income 19,000 11,000 ---------------- ---------------- 3,008,000 2,669,000 ---------------- ---------------- COSTS AND EXPENSES: Cost of operations 683,000 552,000 Management fees paid to affiliate 165,000 154,000 Depreciation 237,000 240,000 Administrative 22,000 33,000 Interest expense - 115,000 ---------------- ---------------- 1,107,000 1,094,000 ---------------- ---------------- NET INCOME $ 1,901,000 $ 1,575,000 ================ ================ Limited partners' share of net income ($37.00 per unit in 2002 and $38.95 per unit in 2001) $ 1,480,000 $ 1,558,000 General partners' share of net income 421,000 17,000 ---------------- ---------------- $ 1,901,000 $ 1,575,000 ================ ================ COMPREHENSIVE INCOME: Net income $ 1,901,000 $ 1,575,000 Other comprehensive income (change in unrealized gain of marketable equity securities) 1,378,000 769,000 ---------------- ---------------- $ 3,279,000 $ 2,344,000 ================ ================
See accompanying notes. 3 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED STATEMENT OF PARTNERS' EQUITY (UNAUDITED)
Other Limited General Comprehensive Total Partners' Partners Partners Income Equity ----------------- ----------------- ----------------- ----------------- Balance at December 31, 2001 $ 10,825,000 $ 3,769,000 $ 6,756,000 $ 21,350,000 Change in unrealized gain of marketable equity securities - - 1,378,000 1,378,000 Net income 1,480,000 421,000 - 1,901,000 Distributions (1,200,000) (418,000) - (1,618,000) Equity transfer (70,000) 70,000 - - ----------------- ----------------- ----------------- ----------------- Balance at March 31, 2002 $ 11,035,000 $ 3,842,000 $ 8,134,000 $ 23,011,000 ================= ================= ================= =================
See accompanying notes. 4 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, -------------------------------- 2002 2001 ------------- ------------- Cash flows from operating activities: Net income $ 1,901,000 $ 1,575,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 237,000 240,000 Decrease in rent and other receivables 101,000 1,000 (Increase) decrease in other assets (15,000) 4,000 Increase in accounts payable 145,000 36,000 Increase in deferred revenue 46,000 57,000 ------------- ------------- Total adjustments 514,000 338,000 ------------- ------------- Net cash provided by operating activities 2,415,000 1,913,000 ------------- ------------- Cash flows from investing activities: Additions to real estate facilities (57,000) (24,000) ------------- ------------- Net cash used in investing activities (57,000) (24,000) ------------- ------------- Cash flows from financing activities: Distributions paid to partners (1,618,000) - Principal payments on note payable to commercial bank - (1,750,000) ------------- ------------- Net cash used in financing activities (1,618,000) (1,750,000) ------------- ------------- Net increase in cash and cash equivalents 740,000 139,000 Cash and cash equivalents at beginning of period 434,000 525,000 ------------- ------------- Cash and cash equivalents at end of period $ 1,174,000 $ 664,000 ============= ============= Supplemental schedule of non-cash activities: Increase in fair market value of marketable securities: Marketable securities $ 1,378,000 $ 769,000 ============= ============= Other comprehensive income $ 1,378,000 $ 769,000 ============= =============
See accompanying notes. 5 PUBLIC STORAGE PROPERTIES IV, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures contained herein are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes appearing in the Partnership's Form 10-K for the year ended December 31, 2001. 2. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal accruals, necessary to present fairly the Partnership's financial position at March 31, 2002, the results of its operations for the three months ended March 31, 2002 and 2001 and its cash flows for the three months then ended. 3. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results expected for the full year. 4. Marketable securities at March 31, 2002 consist of 381,980 shares of common stock and 12,412 shares of Equity Stock, Series A of Public Storage, Inc., a publicly traded real estate investment trust and a general partner of the Partnership. We have designated our portfolio of marketable securities as available for sale. Accordingly, at March 31, 2002, we have recorded the marketable securities at fair value, based upon the closing quoted prices of the securities at March 29, 2002. Changes in market value of marketable securities are reflected as unrealized gains or losses directly in Partners' Equity and accordingly have no effect on net income. 5. During September 1998, the Partnership borrowed $21,000,000 from a commercial bank. The loan is unsecured and bears interest at the London Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20%. The loan requires monthly payments of interest and matures September 2002. Principal may be paid, in whole or in part, at any time without penalty or premium. During December 2001, the Partnership paid the loan in full. 6. The Partnership recommenced distributions to partners in the first quarter of 2002. Distributions of $30.00 per limited partnership unit were paid on March 15, 2002. Also, distributions in the amount of $418,000 were paid to the general partners (equal to 25% of the total distribution) in accordance with the provisions of the partnership agreement. 6 7. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 141, "Business Combinations," ("SFAS 141") which sets forth revised accounting guidance with respect to accounting for acquisitions of business enterprises. In accordance with the transition provisions of SFAS 141, the Partnership adopted the disclosure and accounting provisions of SFAS 141 on June 30, 2001 and the adoption had no effect on the Partnership's financial statements. 8. In October 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In June 2001, the FASB issued Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets," ("SFAS 142"). We adopted these statements effective January 1, 2002. We evaluate our long-lived assets on a quarterly basis for indicators of impairment. When indicators of impairment are detected, we evaluate the recoverability of such long-lived assets. To the extent that the estimated future undiscounted cash flows are less than the respective book value, an impairment charge is recorded. The Partnership has determined at March 31, 2002 that no such impairments existed and, accordingly, no impairment charges have been recorded. 9. Statement No. 144 also addresses the accounting for long-lived assets that are likely to be disposed of before the end of their previously estimated useful life. Such assets are to be reported at the lower of their carrying amount or fair value, less cost to sell. Our evaluations have determined that there are no such impairments at March 31, 2002. 10. As of January 1, 1998, the Partnership adopted Statement 130, Reporting Comprehensive Income. Statement 130 requires unrealized gains or losses on the Partnership's available-for- sale securities to be included in other comprehensive income. 7 PUBLIC STORAGE PROPERTIES IV, LTD. 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 "Risk Factors" (page 10), and include the impact of competition from new and existing real estate facilities which could impact rents and occupancy levels at the real estate facilities that the Partnership's has an interest in; the risk of terrorist attacks; the Partnership's ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing Partnerships; and the impact of general economic conditions upon rental rates and occupancy levels at the real estate facilities that the Partnership has an interest in. CRITICAL ACCOUNTING POLICIES ---------------------------- IMPAIRMENT OF LONG LIVED ASSETS Substantially all of the Partnership's assets consist of long-lived assets, primarily real estate. We evaluate our long-lived assets on a quartelry basis for indicators of impairment. When indicators of impairment are detected, we evaluate the recoverability of such long-lived assets. To the extent that the estimated future undiscounted cash flows are less than the respective book value, an impairment charge is recorded. The Partnership has determined at March 31, 2002 that no such impairments existed and, accordingly, no impairment charges have been recorded. Future events could cause us to conclude that our long-lived assets are 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 the Partnership's 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 obsolescense or other factors, could have a material adverse impact on our financial condition or results of operations. 8 RESULTS OF OPERATIONS --------------------- THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001: Our net income for the three months ended March 31, 2002 was $1,901,000 compared to $1,575,000 for the three months ended March 31, 2001, representing an increase of $326,000 or 21%. The increase is primarily a result of increased operating results at our real estate facilities and a decrease in interest expense. Rental income for the three months ended March 31, 2002 was $2,809,000 compared to $2,566,000 for the three months ended March 31, 2001, representing an increase of $243,000 or 9%. The increase is attributable to higher rental rates. Annual realized rent for the three months ended March 31, 2002 increased to $14.97 per occupied square foot from $13.01 per occupied square foot for the three months ended March 31, 2001, a 15% increase. The weighted average occupancy levels at the mini-warehouse facilities were 86% and 92% for each of the three months ended March 31, 2002 and 2001, respectively. Cost of operations (including management fees paid to affiliate) for the three months ended March 31, 2002 was $848,000 compared to $706,000 for the three months ended March 31, 2001, representing a increase of $142,000 or 20%. During 2001, we began offering containerized storage at one of our facilities. As a result, we have experienced an increase in both rental income and cost of operations, however, there has been no material impact to net operating income from this property. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Cash flows from operating activities ($2,415,000 for the three months ended March 31, 2002) have been sufficient to meet all current obligations of the Partnership. During September 1998, the Partnership borrowed $21,000,000 from a commercial bank. The loan is unsecured and bears interest at the London Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20%. The loan requires monthly payments of interest and matures September 2002. Principal may be paid, in whole or in part, at any time without penalty or premium. During December 2001, the Partnership paid the loan in full. 9 Distributions to the limited and general partners for the years 1978-1991 aggregated $62,032,000 including $29,360,000 distributed to the partners in 1988 in connection with a financing of the properties. In the third quarter of 1991, quarterly distributions were discontinued to enable the Partnership to increase its funds available for debt principal payments. As all debt service has been repaid as of December 31, 2001, the Partnership resumed with quarterly distributions beginning in the first quarter of 2002. We paid distributions to the limited and general partners totaling $1,200,000 ($30.00 per unit) and $418,000, respectively, during the first three months of 2002. Future distribution rates may be adjusted to levels which are supported by operating cash flow after capital improvements and any other necessary obligations. RISK FACTORS ------------ In addition to the other information in our Form 10-Q, 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 33.2% of our outstanding limited partnership units. In addition, PS Orangeco Partnerships, Inc., an affiliate of Public Storage, owns 18.2% 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: o lack of demand for rental spaces or units in a locale; o changes in general economic or local conditions; o changes in supply of or demand for similar or competing facilities in an area; o potential terrorist attacks; o the impact of environmental protection laws; 10 o changes in interest rates and availability of permanent mortgage funds which may render the sale or financing of a property difficult or unattractive; and o changes in tax, real estate and zoning laws. There is significant competition among self-storage facilities. Most of the properties the Partnership has an interest in are self-storage facilities. Competition in the market areas in which many of our properties are located 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 certain 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 most of 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. 11 PART II. OTHER INFORMATION Items 1 through 5 are inapplicable. Item 6 Exhibits and Reports on Form 8-K. --------------------------------- (a) The following exhibits are included herein: None (b) Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: May 15, 2002 PUBLIC STORAGE PROPERTIES IV, LTD. BY: Public Storage, Inc. General Partner BY: /s/ John Reyes -------------- John Reyes Senior Vice President and Chief Financial Officer 12