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 June 30, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 0-8908
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PUBLIC STORAGE PROPERTIES IV, LTD.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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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
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed balance sheets at June 30, 2002
and December 31, 2001 2
Condensed statements of income for the thee and six
months ended June 30, 2002 and 2001 3
Condensed statement of partners' equity for the
six months ended June 30, 2002 4
Condensed statements of cash flows for the
six months ended June 30, 2002 and 2001 5
Notes to condensed financial statements 6
Management's discussion and analysis of
financial condition and results of operations 7-8
Risk Factors 8-9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K. 10
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED BALANCE SHEETS
June 30, December 31,
2002 2001
----------------- -----------------
(Unaudited)
ASSETS
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Cash and cash equivalents $ 1,075,000 $ 434,000
Marketable securities of affiliate (cost of $6,340,000) 14,518,000 13,096,000
Rent and other receivables 335,000 495,000
Real estate facilities, at cost:
Buildings and equipment 17,699,000 17,570,000
Land 5,021,000 5,021,000
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22,720,000 22,591,000
Less accumulated depreciation (15,223,000) (14,750,000)
----------------- -----------------
7,497,000 7,841,000
Other assets 77,000 62,000
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Total assets $ 23,502,000 $ 21,928,000
================= =================
LIABILITIES AND PARTNERS' EQUITY
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Accounts payable $ 249,000 $ 354,000
Deferred revenue 282,000 224,000
Partners' equity:
Limited partners' equity, $500 per unit, 40,000 units
authorized, issued and outstanding 10,973,000 10,825,000
General partners' equity 3,820,000 3,769,000
Other comprehensive income 8,178,000 6,756,000
----------------- -----------------
Total partners' equity 22,971,000 21,350,000
----------------- -----------------
Total liabilities and partners' equity $ 23,502,000 $ 21,928,000
================= =================
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
REVENUES:
Rental income $ 2,818,000 $ 2,675,000 $ 5,627,000 $ 5,241,000
Dividends from marketable securities of affiliate 179,000 91,000 359,000 183,000
Other income 21,000 17,000 40,000 28,000
---------------- ---------------- ---------------- ----------------
3,018,000 2,783,000 6,026,000 5,452,000
COSTS AND EXPENSES:
Cost of operations 730,000 560,000 1,413,000 1,112,000
Management fees paid to affiliate 168,000 155,000 333,000 309,000
Depreciation 236,000 240,000 473,000 480,000
Administrative 27,000 17,000 49,000 50,000
Interest expense - 68,000 - 183,000
---------------- ---------------- ---------------- ----------------
1,161,000 1,040,000 2,268,000 2,134,000
---------------- ---------------- ---------------- ----------------
NET INCOME $ 1,857,000 $ 1,743,000 $ 3,758,000 $ 3,318,000
================ ================ ================ ================
Limited partners' share of net income ($70.93 per
unit in 2002 and $82.03 per unit in 2001) $ 2,837,000 $ 3,281,000
General partners' share of net income 921,000 37,000
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$ 3,758,000 $ 3,318,000
================ ================
COMPREHENSIVE INCOME:
Net income $ 3,758,000 $ 3,318,000
Other comprehensive income (change in unrealized
gain of marketable equity securities) 1,422,000 2,064,000
---------------- ----------------
$ 5,180,000 $ 5,382,000
================ ================
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 - - 1,422,000 1,422,000
Net income 2,837,000 921,000 - 3,758,000
Distributions (2,640,000) (919,000) - (3,559,000)
Equity transfer (49,000) 49,000 - -
----------------- ----------------- ----------------- -----------------
Balance at June 30, 2002 $ 10,973,000 $ 3,820,000 $ 8,178,000 $ 22,971,000
================= ================= ================= =================
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
--------------------------------
2002 2001
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Cash flows from operating activities:
Net income $ 3,758,000 $ 3,318,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 473,000 480,000
Decrease (increase) in rent and other receivables 160,000 (20,000)
Amortization of prepaid loan fees - 7,000
Increase in other assets (15,000) (5,000)
(Decrease) increase in accounts payable (105,000) 206,000
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Increase in deferred revenue 58,000 53,000
Total adjustments 571,000 721,000
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Net cash provided by operating activities 4,329,000 4,039,000
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Cash flows from investing activities:
Additions to real estate facilities (129,000) (243,000)
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Net cash used in investing activities (129,000) (243,000)
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Cash flows from financing activities:
Distributions paid to partners (3,559,000) -
Principal payments on note payable to commercial bank - (3,950,000)
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Net cash used in financing activities (3,559,000) (3,950,000)
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Net increase (decrease) in cash and cash equivalents 641,000 (154,000)
Cash and cash equivalents at beginning of period 434,000 525,000
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Cash and cash equivalents at end of period $ 1,075,000 $ 371,000
============= =============
Supplemental schedule of non-cash activities:
Increase in fair market value of marketable securities:
Marketable securities $ 1,422,000 $ 2,064,000
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Other comprehensive income $ 1,422,000 $ 2,064,000
============= =============
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 June 30, 2002, the results of its operations for the three
and six months ended June 30, 2002 and 2001 and its cash flows for the
six months then ended.
3. The results of operations for the three and six months ended June 30,
2002 are not necessarily indicative of the results expected for the
full year.
4. Marketable securities at June 30, 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 June 30,
2002, we have recorded the marketable securities at fair value, based
upon the closing quoted prices of the securities at June 28, 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 was
scheduled to mature September 2002. During December 2001, the
Partnership paid the loan in full without penalty.
6. The Partnership recommenced distributions to partners in the first
quarter of 2002. Distributions of $36.00 per limited partnership unit
were paid on June 15, 2002. During the first six months of 2002, the
limited partners have been paid distributions totaling $2,640,000.
Also, during the first six months of 2002, distributions totaling
$919,000 were paid to the general partners (equal to 25.825% of the
total distribution) in accordance with the provisions of the
partnership agreement.
7. 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 June 30, 2002 that no such impairments existed and,
accordingly, no impairment charges have been recorded.
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 June 30, 2002.
6
PUBLIC STORAGE PROPERTIES IV, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
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When used within this document, the words "expects," "believes,"
"anticipates," "should," "estimates," and similar expressions are intended to
identify "forward-looking statements. 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
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 has an interest in; 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 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 June
30, 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.
RESULTS OF OPERATIONS
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THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 2001:
Our net income for the six months ended June 30, 2002 was $3,758,000
compared to $3,318,000 for the six months ended June 30, 2001, representing an
increase of $440,000 or 13%. Our net income for the three months ended June 30,
2002 was $1,857,000 compared to $1,743,000 for the three months ended June 30,
2001, representing an increase of $114,000 or 7%. These increases are primarily
a result of increased operating results at our real estate facilities and a
decrease in interest expense.
7
Rental income for the six months ended June 30, 2002 was $5,627,000
compared to $5,241,000 for the six months ended June 30, 2001, representing an
increase of $386,000 or 7%. Rental income for the three months ended June 30,
2002 was $2,818,000 compared to $2,675,000 for the three months ended June 30,
2001, representing an increase of $143,000 or 5%. These increases are primarily
attributable to higher rental rates. Weighted average occupancy levels at the
mini-warehouse facilities were 87% and 92% for the six months ended June 30,
2002 and 2001, respectively. Annual realized rent for the six months ended June
30, 2002 increased to $13.81 per occupied square foot from $13.14 per occupied
square foot for the six months ended June 30, 2001.
Cost of operations (including management fees paid to affiliate) for
the six months ended June 30, 2002 was $1,746,000 compared to $1,421,000 for the
six months ended June 30, 2001, representing an increase of $325,000 or 23%.
Cost of operations (including management fees paid to affiliate) for the three
months ended June 30, 2002 was $898,000 compared to $715,000 for the three
months ended June 30, 2001, representing an increase of $183,000 or 26%.
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
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Cash flows from operating activities ($4,329,000 for the six months
ended June 30, 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 was scheduled to
mature September 2002. During December 2001, the Partnership paid the loan in
full without penalty.
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
$2,640,000 ($66.00 per unit) and $919,000, respectively, during the first six
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
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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.
8
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;
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.
9
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:
(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
(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: August 14, 2002
PUBLIC STORAGE PROPERTIES IV, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
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John Reyes
Senior Vice President and
Chief Financial Officer
10