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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, 1997
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
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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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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K of any
amendment to the form 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. BUSINESS.
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General
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Public Storage Properties IV, Ltd., (the "Partnership") is a publicly
held limited partnership formed under the California Uniform Limited Partnership
Act in December 1977. The Partnership raised $20,000,000 in gross proceeds by
selling 40,000 units of limited partnership interest ("Units") in an interstate
offering, which commenced in May 1978 and was completed in November 1978.
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 and chief executive officer of PSI, and Hughes and members of his
family (the "Hughes Family") are the major shareholders of PSI.
The Partnership is managed and its investment decisions are made by
Hughes and the executive officers and directors of PSI. The limited partners of
the Partnership have no right to participate in the 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
1988.
The term of the Partnership is until all properties have been sold and
in any event, not later than December 31, 2038.
Investments in Facilities
- -------------------------
At December 31, 1997, the Partnership owned 17 properties in two
states.
The Partnership believes that its operating results have benefited from
favorable industry trends and conditions. Notably, the level of new
mini-warehouse construction has decreased since 1988 while consumer demand has
increased. In addition, in recent years consolidation has occurred in the
fragmented mini-warehouse industry.
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.
2
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.
Operating Strategies
- --------------------
The Partnership's mini-warehouses are operated by PSI under the "Public
Storage" name, which the Partnership believes is the most recognized name in the
mini-warehouse industry. The major elements of the Partnership's operating
strategies are as follows:
* Capitalize on "Public Storage's" name recognition. PSI, together with its
predecessor, has more than 20 years of operating experience in the
mini-warehouse business. PSI has informed the Partnership that it is the
largest mini-warehouse facility operator in the United States in terms of
both number of facilities and rentable space operated. PSI believes that
its marketing and advertising programs improve its competitive position in
the market. PSI's in-house Yellow Pages staff designs and places
advertisements in approximately 700 directories. Commencing in early 1996,
PSI began to experiment with a telephone reservation system designed to
provide added customer service. Customers calling either PSI's toll-free
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 160,000 calls per month from potential
customers inquiring as to the nearest Public Storage mini-warehouse.
* Maintain high occupancy levels and increase realized rents. Subject to
market conditions, the Partnership generally seeks to achieve average
occupancy levels in excess of 90% and to eliminate promotions prior to
increasing rental rates. Average occupancy for the Partnership's
mini-warehouses has increased from 89% in 1996 to 93% 1997. The Partnership
has increased rental rates in many markets where it has achieved high
occupancy levels and eliminated or minimized promotions.
* Systems and controls. PSI has an organizational structure and a property
operation system, "CHAMP" (Computerized Help and Management Program), which
links its corporate office with each mini-warehouse. This enables PSI to
obtain daily information from each mini-warehouse and to achieve
efficiencies in operations and maintain control over its space inventory,
rental rates, promotional discounts and delinquencies. Expense management
is achieved through centralized payroll and accounts payable systems and a
comprehensive property tax appeals department and PSI has an extensive
internal audit program designed to ensure proper handling of cash
collections.
* Professional property operation. There are approximately 3,800 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 others owners of properties operated by PSI.
3
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 directs the purchase of equipment and supplies, maintenance
activity and the selection and engagement of all vendors, supplies and
independent contractors.
PSI engages, at the expense of the Partnership, employees for the
operation of the Partnership's facilities, including resident managers,
assistant managers, relief managers, and billing and maintenance personnel. Some
or all of these employees may be employed on a part-time basis and may also be
employed by other persons, partnerships, 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 it operates. Facilities operated by
PSI have historically carried comprehensive insurance, including fire,
earthquake, liability and extended coverage.
PSI has developed systems for space inventory, accounting and handling
delinquent accounts, including a computerized network linking PSI operated
facilities. Each project manager is furnished with detailed operating procedures
and typically receives facilities management training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions taken by the project managers when delinquencies occur is
maintained.
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 either party.
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 owned by the Hughes Family reinsures policies against
losses to goods stored by tenants in the Partnership's mini-warehouses. The
Partnership believes that the availability of insurance reduces the potential
liability of the Partnership to tenants for losses to their goods from theft or
destruction. This corporation receives the premiums and bears the risks
associated with the insurance.
4
A corporation, in which PSI has a 95% economic interest and the Hughes
Family has a 5% economic interest, sells locks, boxes and tape to tenants to be
used in securing their spaces and moving their goods. PSI believes that the
availability of locks, boxes and tape for sale promotes the rental of spaces.
Employees
- ---------
There are 54 persons who render services on behalf of the Partnership.
These persons include resident managers, assistant managers, relief managers,
district managers, and administrative 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.
Year 2000 Compliance
- --------------------
PSI has completed an initial assessment of its computer systems. The
majority of the computer programs were installed or upgraded over the past few
years and are Year 2000 compliant. Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as
part of PSI Year 2000 project.
The cost of the Year 2000 project will be allocated to all companies
that use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Company is less than $50,000. The cost of new
software will be capitalized and the cost of existing software will be expensed
as incurred.
The project is expected to be completed by March 31, 1999 which is
prior to any anticipated impact on operating systems. PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.
The costs of the project and the date on which PSI believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
5
ITEM 2. PROPERTIES.
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The following table sets forth information as of December 31, 1997
about properties owned by the Partnership:
Net Rentable Number of
Location Size of Parcel Area Spaces Date of Purchase Completion Date
- -------------------------- -------------- ---------------- --------- ---------------- ---------------
CALIFORNIA
Azusa 5.85 acres 105,000 sq. ft. 941 July 14, 1978 Nov. 1978
Concord 2.87 acres 52,000 sq. ft. 525 June 20, 1978 Jan. 1979
Oakland 1.97 acres 41,000 sq. ft. 370 Oct. 11, 1978 Apr. 1979
Pasadena 1.82 acres 37,000 sq. ft. 339 July 19, 1978 Nov. 1978
Redlands 3.44 acres 63,000 sq. ft. 580 Aug. 24, 1978 Feb. 1979
Richmond 1.82 acres 35,000 sq. ft. 352 Aug. 23, 1978 Mar. 1979
Riverside 2.47 acres 45,000 sq. ft. 393 Jan. 2, 1979 May 1979
Sacramento
Howe Avenue 2.36 acres 41,000 sq. ft. 386 Dec. 14, 1978 Aug. 1979
.
Sacramento
West Capitol 3.38 acres 44,000 sq. ft. 457 Jan. 5, 1979 June 1979
San Carlos 2.80 acres 51,000 sq. ft. 458 Jan. 30, 1979 Oct. 1979
Santa Clara 4.45 acres 75,000 sq. ft. 698 Dec. 22, 1978 June 1979 and
July 1981
Tustin 4.40 acres 67,000 sq. ft. 559 July 3, 1978 Dec. 1978
FLORIDA
Miami Airport
Expressway 1.70 acres 29,000 sq. ft. 274 Aug. 24, 1978 Jan. 1979
Miami (1)
Cutler Ridge 4.00 acres 46,000 sq. ft. 481 Sept. 6, 1978 Apr. 1979
Pembroke Park (2) 2.35 acres 49,000 sq. ft. 446 Sept. 1, 1978 July 1979
Ft. Lauderdale
I95 & 23rd Ave. 2.77 acres 45,000 sq. ft. 504 Nov. 9, 1978 Sept. 1979
Ft. Lauderdale
I95 & Sunrise 3.32 acres 56,000 sq. ft. 558 Dec. 4, 1979 Sept. 1979
- ---------------
(1) On August 24, 1992, this property was damaged by Hurricane Andrew and, as a
result, the facility became idle as of this date. The facility has been
rebuilt and recommenced operations in October 1994.
(2) In 1995, the Partnership sold approximately 4,729 sq. ft. of this property
to the State of Florida under a condemnation proceeding.
6
Substantially all of the Partnership's facilities were acquired prior
to the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During 1995, the Partnership completed
environmental assessments of its properties to evaluate the environmental
condition of, and potential environmental liabilities of such properties. These
assessments were performed by an independent environmental consulting firm.
Based on the assessments, the Partnership expensed $26,000 in 1995 for known
environmental remediation requirements.
The properties are held subject to encumbrances which are described in
this report under Note 7 of the Notes to the Financial Statements included in
Item 14(a).
ITEM 3. LEGAL PROCEEDINGS.
------------------
No material legal proceeding is pending against the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
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 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 Units), including the prices at which such secondary sales transactions are
effectuated.
Exclusive of the General Partners' interest in the Partnership, as of
December 31, 1997, there were approximately 1,120 record holders of Units.
In May 1997, B. Wayne Hughes ("Hughes") a general partner of the
Partnership, completed a cash tender offer, which commenced in March 1997,
pursuant to which Hughes acquired a total of 5,003 limited partnership units at
$447 per Unit.
Distributions to the general and limited partners of all cash available
for distribution have been made quarterly. Cash available for distribution is
generally funds from operations of the Partnership, without deduction 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. In the third quarter of 1991, quarterly distributions
were discontinued to enable the Partnership to increase its reserves for
principal repayments that commenced in 1990 and will continue through 1998, at
which time the entire remaining principal balance will be payable.
Reference is made to Item 6 and 7 hereof for information on the amount
of such distributions.
7
PUBLIC STORAGE PROPERTIES IV, LTD.
ITEM 6. SELECTED FINANCIAL DATA.
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For the Year Ended December 31, 1997 1996 1995 1994 1993
- ------------------------------- -------------- -------------- -------------- -------------- --------------
Revenues $ 8,516,000 $ 7,774,000 $ 7,629,000 $ 7,085,000 $ 6,979,000
Depreciation and amortization 881,000 814,000 742,000 692,000 648,000
Interest expense 2,805,000 2,898,000 2,967,000 3,071,000 3,137,000
Gain on sale of real estate - - 125,000 - -
Net income 2,281,000 1,698,000 1,724,000 1,208,000 1,099,000
Limited partners' share 2,256,000 1,680,000 1,704,000 1,195,000 1,087,000
General partners' share 25,000 18,000 20,000 13,000 12,000
Limited partners' per unit data (1)
Net income $56.40 $42.00 $42.60 $29.88 $27.18
As of December 31,
- ------------------
Cash and cash equivalents $ 1,911,000 $ 2,440,000 $ 967,000 $ 551,000 $ 2,807,000
Total Assets $ 23,818,000 $ 22,742,000 $ 18,367,000 $ 16,505,000 $ 17,548,000
Mortgage note payable $ 25,405,000 $ 26,338,000 $ 27,178,000 $ 28,086,000 $ 28,754,000
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(1) Per unit data is based on the weighted average number of the limited
partnership units (40,000) outstanding during the period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
Results of Operations
- ---------------------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
The Partnership's net income was $2,281,000 in 1997 compared to
$1,698,000 in 1996, representing an increase of $583,000. This increase is
primarily a result of increased operating results at the Partnership's real
estate facilities combined with a decrease in interest expense.
During 1997 property net operating income (rental income less cost of
operations, management fees paid to an affiliate and depreciation expense) was
$4,731,000 in 1997 compared to $4,310,000 in 1996, representing an increase of
$421,000 or 10%. This increase was primarily attributable to an increase in
rental income at the Partnership's mini-warehouse facilities partially offset by
an increase in cost of operations and depreciation expense.
8
Rental income was $8,086,000 in 1997 compared to $7,423,000 in 1996,
representing an increase of $663,000 or 9%. The increase was primarily
attributable to an increase in occupancy level at the Partnership's facilities.
The weighted average occupancy levels at the mini-warehouse facilities were 93%
and 89% in 1997 and 1996, respectively. The monthly realized rent per occupied
square foot averaged $.83 in 1997 compared to $.79 in 1996.
Other income increased $40,000 in 1997 compared to 1996. This increase
is primarily due to an increase in invested cash balances.
Dividend income from marketable securities of affiliate increased
$39,000 in 1997 compared to 1996. This increase is primarily due to an increase
in the weighted average number of shares owned in 1997 compared to 1996.
Cost of operations (including management fees paid to an affiliate)
increased $175,000 or 8% to $2,474,000 in 1997 from $2,299,000 in 1996. This
increase was primarily attributable to increases in management fees,
advertising, property tax, and repairs and maintenance expenses.
In 1995, the Partnership prepaid eight months of 1996 management fees
on its mini-warehouse operations discounted at the rate of 14% effective rate to
compensate for early payment. As a result, management fee expense for the twelve
months ended December 31, 1996 was $26,000 lower than it would have been without
the discounted fee structure.
Interest expense was $2,805,000 and $2,898,000 in 1997 and 1996,
respectively, representing a decrease of $93,000 or 3%. The decrease was
primarily a result of a lower average outstanding loan balance in 1997 compared
to 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income was $1,698,000 in 1996 compared to
$1,724,000 in 1995, representing a decrease of $26,000. The decrease was
primarily attributed to the effects in 1995 of a one-time gain from insurance
proceeds ($236,000 gain from reconstruction receipts and $49,000 in business
interruption proceeds) and the disposition of land in 1995 at a gain of
$125,000. These effects were offset by a $234,000 increase in net property
income in 1996.
During 1996, property net operating income (rental income less cost of
operations, management fees paid to an affiliate and depreciation expense) was
$4,310,000 in 1996 compared to $4,076,000 in 1995, representing an increase of
$234,000 or 6%. This increase was primarily attributable to an increase in
rental income at the Partnership's mini-warehouse facilities partially offset by
an increase in cost of operations and depreciation expense.
Rental income was $7,423,000 in 1996 compared to $7,045,000 in 1995,
representing an increase of $378,000 or 5%. The increase was primarily
attributable to an increase in occupancy level at the Partnership's facilities.
The weighted average occupancy levels at the mini-warehouse facilities were 89%
and 85% in 1996 and 1995, respectively. The monthly realized rent per occupied
square foot averaged $.79 in 1996 compared to $.78 in 1995.
Other income decreased $248,000 in 1996 compared to 1995. The decrease
is due to the 1995 recognition of a $236,000 gain from reconstruction proceeds
and the 1995 recognition of $49,000 of business interruption insurance proceeds.
The $236,000 gain is attributable to actual cost being lower than amounts
received from insurance proceeds to reconstruct a real estate facility located
in Miami, Florida, which was damaged by Hurricane Andrew in August 1992 (see
Note 8 in the Notes to Financial Statements) included in Item 14(a). These
negative effects were offset by a $37,000 increase in other income due to
increased invested cash balances.
Dividend income from marketable securities of affiliate increased
$15,000 in 1996 compared to 1995. This increase is primarily due to an increase
in the weighted average number of shares owned in 1996 compared to 1995.
Cost of operations (including management fees paid to an affiliate)
increased $72,000 or 3% to $2,299,000 in 1996 from $2,227,000 in 1995. This
increase was primarily attributable to increases in advertising, property tax
costs, and repairs and maintenance.
9
In 1995, the Partnership prepaid eight months of 1996 management fees
on its mini-warehouse operations (based on the management fees for the
comparable period during the calendar year immediately preceding the prepayment)
discounted at the rate of 14% per year to compensate for early payment. The
Partnership has expensed the prepaid management fees during 1996. The amount is
included in management fees paid to affiliate in the statements of income. As a
result of the prepayment, the Partnership saved approximately $26,000 in
management fees, based on the management fees that would have been payable on
rental income generated during 1996 compared to the amount prepaid.
Interest expense was $2,898,000 and $2,967,000 in 1996 and 1995,
respectively, representing a decrease of $69,000 or 2%. The decrease was
primarily a result of a lower average outstanding loan balance in 1996 compared
to 1995.
Liquidity and Capital Resources
- -------------------------------
Cash flows from operating activities ($3,294,000 for the year ended
December 31, 1997) have been sufficient to meet all current obligations of the
Partnership. During 1998, the Partnership anticipates approximately $331,000 of
capital improvements. During 1995, the Partnership's property operator commenced
a program to enhance the visual appearance of the mini-warehouse facilities.
Such enhancements will include new signs, exterior color schemes and
improvements to the rental offices.
At December 31, 1997, the Partnership held 381,980 (including 1997
purchase) shares of common stock (marketable securities) with a fair value
totaling $11,220,000 (cost basis of $6,091,000 at December 31, 1997) in Public
Storage, Inc. (PSI). During 1997, the Partnership purchased an additional 84,850
shares of common stock in Public Storage, Inc. at an aggregate cost of
$2,300,000 . The Partnership recognized $301,000 in dividends during 1997.
In the third quarter of 1991, quarterly distributions were discontinued
to enable the Partnership to increase its funds available for principal payments
that commenced in 1990 and increase in subsequent years through 1998, at which
time the remaining principal balance is due.
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 (see below).
During 1991, the Partnership stopped paying distributions to pay debt, build
cash and other liquid assets.
During 1988, the Partnership financed all of its properties with a
$30,500,000 loan with fixed interest of 10.47 percent per annum. Net proceeds of
$29,360,000 were distributed to the partners in October 1988 and are included in
the 1988 distribution. At December 31, 1997, the outstanding balance of the
mortgage note was $25,405,000, which matures on October 1, 1998.
Year 2000 System Issues
- -----------------------
PSI has completed an initial assessment of its computer systems. The
majority of the computer programs were installed or upgraded over the past few
years and are Year 2000 compliant. Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as
part of PSI Year 2000 project.
The cost of the Year 2000 project will be allocated to all companies
that use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Company is less than $50,000. The cost of new
software will be capitalized and the cost of existing software will be expensed
as incurred.
The project is expected to be completed by March 31, 1999 which is
prior to any anticipated impact on operating systems. PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software, the Year 2000 issue will not pose significant operational problems.
However, if such modifications are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.
The costs of the project and the date on which PSI believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
10
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
Schedule in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
----------------------------------------------------
The Partnership has no directors or executive officers.
The Partnership's general partners are PSI and B. Wayne Hughes. PSI,
acting through its directors and executive officers, and Mr. Hughes manage and
make investment decisions for the Partnership.
The names of all directors and executive officers of PSI, the offices
held by each of them with PSI, and their ages and business experience during the
past five years are as follows:
Name Positions with PSI
- ---------------------- ------------------------------------------------
B. Wayne Hughes Chairman of the Board and Chief Executive Officer
Harvey Lenkin President and Director
B. Wayne Hughes, Jr. Vice President and Director
John Reyes Senior Vice President and Chief Financial Officer
Carl B. Phelps Senior Vice President
Obren B. Gerich Senior Vice President
Marvin M. Lotz Senior Vice President
David Goldberg Senior Vice President and General Counsel
A. Timothy Scott Senior Vice President and Tax Counsel
David P. Singelyn Vice President and Treasurer
Sarah Hass Vice President and Secretary
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
Thomas J. Barrack Jr. Director
Uri P. Harkham Director
B. Wayne Hughes, age 64, a general partner of the Partnership, has been
a director of PSI since its organization in 1980 and was President and Co-Chief
Executive Officer from 1980 until November 1991 when he became Chairman of the
Board and sole Chief Executive Officer. Mr. Hughes has been active in the real
estate investment field for over 25 years. He is the father of B. Wayne Hughes,
Jr.
Harvey Lenkin, age 61, has been employed by PSI for 20 years and became
President and a director of PSI in November 1991. Mr. Lenkin is a director of
the National Association of Real Estate Investment Trusts (NAREIT).
B. Wayne Hughes, Jr., age 38, became director of PSI in January 1998.
He has been a Vice President - Acquisitions of PSI since 1992. He is the son of
B. Wayne Hughes.
John Reyes, age 37, 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.
Carl B. Phelps, age 58, became a Senior Vice President of PSI in
January 1998 with overall responsibility for property acquisition and
development. From June 1991 until joining PSI, he was a partner in the law firm
of Andrews & Kurth, L.L.P., which performed legal services for PSI. From
December 1982 through May 1991, his professional corporation was a partner in
the law firm of Sachs & Phelps, then counsel to PSI.
Obren B. Gerich, age 59, a certified public accountant, has been a Vice
President of PSI since 1980 and became Senior Vice President of PSI in November
1995. He was Chief Financial Officer of PSI until November 1991.
Marvin M. Lotz, age 55, has had overall responsibility for Public
Storage's mini-warehouse operations since 1988. He became a Senior Vice
President of PSI in November 1995. Mr. Lotz was an officer of PSI with
responsibility for property acquisitions from 1983 until 1988.
12
David Goldberg, age 48, joined PSI's legal staff in June 1991. He
became Senior Vice President and General Counsel of PSI in November 1995. From
December 1982 until May 1991, he was a partner in the law firm of Sachs &
Phelps, then counsel to PSI.
A. Timothy Scott, age 46, became a Senior Vice President and Tax
Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in
November 1996. From June 1991 until joining PSI, Mr. Scott practiced tax law as
a shareholder of the law firm of Heller, Ehrman, White & McAuliffe, counsel to
PSI. Prior to June 1991, his professional corporation was a partner in the law
firm of Sachs & Phelps, then counsel to PSI.
David P. Singleyn, age 36, a certified public accountant, has been
employed by PSI since 1989 and became Vice President and Treasurer of PSI in
November 1995. From 1987 to 1989, Mr. Singelyn was Controller of Winchell's
Donut Houses, L.P.
Sarah Hass, age 42, became Secretary of PSI in February 1992. She
became a Vice President of PSI in November 1995. She joined PSI's legal
department in June 1991, rendering services on behalf of PSI. From 1987 until
May 1991, her professional corporation was a partner in the law firm of Sachs &
Phelps, then counsel to PSI, and from April 1986 until June 1987, she was
associated with that firm, practicing in the area of securities law. From
September 1979 until September 1985, Ms. Hass was associated with the law firm
of Rifkind & Sterling, Incorporated.
Robert J. Abernethy, age 58, 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 directors of Johns Hopkins University and of the Los Angeles County
Metropolitan Transportation Authority, and a former member of the board of
directors of the Metropolitan Water District of Southern California.
Dann V. Angeloff, age 62, has been President of the Angeloff Company, a
corporate financial advisory firm, since 1976. The Angeloff Company has
rendered, and is expected to continue to render, financial advisory and
securities brokerage services for PSI. Mr. Angeloff is the general partner of a
limited partnership that owns a mini-warehouse operated by PSI and which secures
a note owned by PSI. Mr. Angeloff has been a director of PSI since its
organization in 1980. He is a director of Compensation Resource Group, Eagle
Lifestyle Nutrition, Inc., Nicholas/Applegate Growth Equity Fund,
Nicholas/Applegate Investment Trust, Ready Pac Produce, Inc. and Royce Medical
Company.
William C. Baker, age 64, became a director of PSI in November 1991.
Since November 1997, Mr. Baker has been Chairman of the Board of and Chief
Executive Officer of The Santa Anita Companies, Inc., which operates the Santa
Anita Racetrack and is a wholly-owned subsidiary of Meditrust Operating Company.
From August 1996 until November 1997, he was Chairman of the Board and Chief
Executive Officer of Santa Anita Operating Company and Chairman of the Board of
Santa Anita Realty Enterprises, Inc., the companies which were merged with
Meditrust in November 1997. 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. Since 1991, he
has been 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 and Meditrust Operating Company .
Thomas J. Barrack, Jr., age 50, 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 Roland
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 Virgin Entertainment Group, Ltd.
Uri P. Harkham, age 49, 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
13
marketing women's clothing, since its organization in 1976. Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties, a real estate
firm specializing in buying and managing fashion warehouses in Los Angeles and
Australia.
Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate
and Agreement of Limited Partnership, a copy of which is included in the
Partnership's prospectus included in the Partnership's Registration Statement
File No. 2-60530, 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 the shareholders of 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, 1998, the following persons beneficially owned more
than 5% of the Units:
Name and Address of
Title of Class Beneficial Owners Beneficial Ownership Percent of Class
- ----------------------------- --------------------------- --------------------- ----------------
Units of Limited Partnership Public Storage, Inc.
Interest 701 Western Avenue 12,965 Units (1) 32.4%
Glendale, California 91201 11,345 Units (2) 28.4%
Units of Limited Partnership B. Wayne Hughes
Interest Tamara L. Hughes 11,627 Units (3) 29.1%
701 Western Avenue
Glendale, California 91201
- ----------------
(1) Units owned by PSI as to which PSI has sole voting and dispositive power.
(2) Includes (i) 5,892 Units which PSI has an option to acquire (together with
other securities) from BWH Marina Corporation II (a corporation wholly-owned
by Hughes) and as to which PSI has sole voting power (pursuant to an
irrevocable proxy) and no dispositive power and (ii) 5,453 Units which PSI
has an option to acquire from BWH Marina Corporation II commencing May 2,
1998.
(3) Includes (i) 5,577 Units owned by BWH Marina Corporation II, a corporation
wholly-owned by Hughes, as to which Hughes has sole voting and dispositive
power; PSI has an option to acquire 5,453 of these Units commencing May 2,
1998, (ii) 5,892 Units owned by BWH Marina Corporation II as to which Hughes
has sole dispositive power and no voting power; PSI has an option to acquire
these Units and an irrevocable proxy to vote these Units and (iii) 158 Units
owned by THG Acquisitions, Inc., a corporation wholly-owned by Tamara L.
Hughes, an adult daughter of Hughes, as to which Tamara L. Hughes has sole
voting and dispositive power.
(b) The Partnership has no officers and directors. The General Partners
contributed $202,000 to the original capital of the Partnership and as a result
participate 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.
Information regarding ownership of Units by PSI and Hughes, the General
Partners, is set forth under section (a) above. Dann V. Angeloff, a director of
PSI, beneficially owns 9 Units (0.02% of the Units). The directors and executive
14
officers of PSI (including Hughes), as a group (16 persons), own an aggregate of
11,488 Units, representing 28.7% of the Units (including the 11,469 Units
beneficially owned by Hughes as set forth above).
(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. 2-60530. 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 1986, the partners received cumulative distributions equal to their
capital contributions. The Partnership has not made any distributions since the
third quarter of 1991.
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. During 1997, the Partnership paid fees of $485,000
to PSI pursuant to the Management Agreement.
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) List of Documents file 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.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
last quarter of fiscal 1996.
(c) Exhibits: See Exhibit Index contained below.
15
PUBLIC STORAGE PROPERTIES IV, LTD.
EXHIBIT INDEX
(Item 14 (c))
3.1 Amended Certificate and Agreement of Limited Partnership. Previously
filed with the Securities and Exchange Commission as Exhibit A to the
Registrant's Prospectus included in Registration Statement No. 2-60530
and incorporated herein by references.
3.2 Thirty-fifth Amendment to Amended Certificate and Agreement of Limited
Partnership. Previously filed with the Securities and Exchange
Commission as an exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 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 September 16, 1988 between the Registrant and The
Prudential Insurance Company of America. Previously filed with the
Securities and Exchange Commission as an exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
27 Financial Data Schedule. Filed herewith.
16
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 IV, LTD.,
a California Limited Partnership
Dated: March 31, 1998 By: Public Storage, Inc., General Partner
By: /s/ B Wayne Hughes
--------------------------------------
B. Wayne Hughes, Chairman of the Board
By: /s/ B Wayne Hughes
--------------------------------------
B. Wayne Hughes, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Partnership in the capacities and on the dates indicated.
Signature Capacity Date
- ----------------------- ----------------------------------- ----------------
/s/ B Wayne Hughes Chairman of the Board and March 31, 1998
- ----------------------- Chief Executive Officer of
B. Wayne Hughes Public Storage, Inc. and General
Partner (principal executive offer)
/s/ Harvey Lenkin President and Director of March 31, 1998
- ----------------------- Public Storage, Inc.
Harvey Lenkin
/s/ B. Wayne Hughes, Jr. Vice President and Director of March 31, 1998
- ----------------------- Public Storage, Inc.
B. Wayne Hughes, Jr.
/s/ John Reyes Senior Vice President and Chief March 31, 1998
- ----------------------- Financial Officer of Public Storage, Inc.
John Reyes (principal financial officer and
principal accounting officer)
/s/ Robert J. Abernethy Director of Public Storage, Inc. March 31, 1998
- -----------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director of Public Storage, Inc. March 31, 1998
- -----------------------
Dann V. Angeloff
/s/ William C. Baker Director of Public Storage, Inc. March 31, 1998
- -----------------------
William C. Baker
Director of Public Storage, Inc. March 31, 1998
- -----------------------
Thomas J. Barrack, Jr.
/s/ Uri P. Harkham Director of Public Storage, Inc. March 31, 1998
- -----------------------
Uri P. Harkham
17
PUBLIC STORAGE PROPERTIES IV, LTD.
INDEX TO
FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
(Item 14 (a))
Page
References
----------
Report of Independent Auditors F-1
Financial Statements and Schedule:
Balance Sheets as of December 31, 1997 and 1996 F-2
For the years ended December 31, 1997, 1996 and 1995:
Statements of Income F-3
Statements of Partners' Deficit F-4
Statements of Cash Flows F-5 - F-6
Notes to Financial Statements F-7 - 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 IV, Ltd.
We have audited the accompanying balance sheets of Public Storage Properties IV,
Ltd. as of December 31, 1997 and 1996, and the related statements of income,
partners' deficit and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the schedule listed in the index at
item 14(a). These financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Storage Properties IV,
Ltd. at December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
March 24, 1998
Los Angeles, California
F-1
PUBLIC STORAGE PROPERTIES IV, LTD.
BALANCE SHEETS
December 31, 1997 and 1996
1997 1996
--------------- ---------------
ASSETS
------
Cash and cash equivalents $ 1,911,000 $ 2,440,000
Marketable securities of affiliate (cost of $6,091,000 in 1997
and $3,791,000 in 1996) 11,220,000 9,211,000
Rent and other receivables 166,000 150,000
Real estate facilities:
Building and equipment 16,031,000 15,441,000
Land 5,244,000 5,244,000
--------------- ---------------
21,275,000 20,685,000
Less accumulated depreciation (10,898,000) (10,017,000)
--------------- ---------------
10,377,000 10,668,000
--------------- ---------------
Other assets 144,000 273,000
--------------- ---------------
Total assets $ 23,818,000 $ 22,742,000
=============== ===============
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Accounts payable $ 65,000 $ 52,000
Deferred revenue 230,000 224,000
Mortgage note payable 25,405,000 26,338,000
Partners' deficit:
Limited partners' deficit, $500 per unit, 40,000 units authorized,
issued and outstanding (5,200,000) (6,892,000)
General partners' deficit (1,811,000) (2,400,000)
Unrealized gain on marketable securities 5,129,000 5,420,000
--------------- ---------------
Total partners' deficit (1,882,000) (3,872,000)
--------------- ---------------
Total liabilities and partners' deficit $ 23,818,000 $ 22,742,000
=============== ===============
See accompanying notes.
F-2
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996, and 1995
1997 1996 1995
---------------- ------------------ ------------------
REVENUES:
Rental income $ 8,086,000 $ 7,423,000 $ 7,045,000
Dividends from marketable securities
of affiliate 301,000 262,000 247,000
Other income 129,000 89,000 337,000
---------------- ------------------ ------------------
8,516,000 7,774,000 7,629,000
---------------- ------------------ ------------------
COSTS AND EXPENSES:
Cost of operations 1,989,000 1,880,000 1,804,000
Management fees paid to affiliate 485,000 419,000 423,000
Depreciation 881,000 814,000 742,000
Administrative 75,000 65,000 68,000
Environmental cost - - 26,000
Interest expense 2,805,000 2,898,000 2,967,000
---------------- ------------------ ------------------
6,235,000 6,076,000 6,030,000
---------------- ------------------ ------------------
Income before gain on sale of land 2,281,000 1,698,000 1,599,000
Gain on sale of land - - 125,000
---------------- ------------------ ------------------
NET INCOME $ 2,281,000 $ 1,698,000 $ 1,724,000
================ ================== ==================
Limited partners' share of net income ($56.40
per unit in 1997, $42.00 per unit in 1996,
$42.60 per unit in 1995) $ 2,256,000 $ 1,680,000 $ 1,704,000
General partners' share of net income 25,000 18,000 20,000
---------------- ------------------ ------------------
$ 2,281,000 $ 1,698,000 $ 1,724,000
================ ================== ==================
See accompanying notes.
F-3
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF PARTNERS' DEFICIT
For the years ended December 31, 1997, 1996, and 1995
Unrealized Gain
on Marketable Total Partners'
Limited Partners General Partners Securities Deficit
----------------- ------------------ ---------------- ------------------
Balance at December 31, 1994 $ (9,430,000) $ (3,284,000) $ 556,000 $ (12,158,000)
Unrealized gain on marketable
securities - - 1,298,000 1,298,000
Net income 1,704,000 20,000 - 1,724,000
Equity transfer (426,000) 426,000 - -
----------------- ------------------ ---------------- ------------------
Balance at December 31, 1995 (8,152,000) (2,838,000) 1,854,000 (9,136,000)
Unrealized gain on marketable securities
- - 3,566,000 3,566,000
Net income 1,680,000 18,000 - 1,698,000
Equity transfer (420,000) 420,000 - -
----------------- ------------------ ---------------- ------------------
Balance at December 31, 1996 (6,892,000) (2,400,000) 5,420,000 (3,872,000)
Unrealized loss on marketable securities
- - (291,000) (291,000)
Net income 2,256,000 25,000 - 2,281,000
Equity transfer (564,000) 564,000 - -
----------------- ------------------ ---------------- ------------------
Balance at December 31, 1997 $ (5,200,000) $ (1,811,000) $ 5,129,000 $ (1,882,000)
================= ================== ================ ==================
See accompanying notes.
F-4
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
1997 1996 1995
--------------- --------------- ----------------
Cash flows from operating activities:
Net income $ 2,281,000 $ 1,698,000 $ 1,724,000
Adjustments to reconcile net income
to cash provided by operating activities:
Gain on sale of land - - (125,000)
Depreciation 881,000 814,000 742,000
Increase in rent and other receivables (16,000) (50,000) (12,000)
Amortization of prepaid loan fees 92,000 92,000 92,000
Decrease (increase) in other assets 37,000 (31,000) (6,000)
Amortization (payment) of prepaid management fees - 265,000 (265,000)
Increase (decrease) in accounts payable 13,000 (29,000) 33,000
Decrease in advances to reconstruct real estate
facility - - (236,000)
Increase (decrease) in deferred revenue 6,000 (20,000) (48,000)
--------------- --------------- ----------------
Total adjustments 1,013,000 1,041,000 175,000
--------------- --------------- ----------------
Net cash provided by operating activities 3,294,000 2,739,000 1,899,000
--------------- --------------- ----------------
Cash flows from investing activities:
Proceeds from sale of land - - 137,000
Purchase of marketable securities of affiliate (2,300,000) - (399,000)
Expenditures to reconstruct damaged real estate
facility - - (1,000)
Additions to real estate facilities (590,000) (426,000) (312,000)
--------------- --------------- ----------------
Net cash used in investing activities (2,890,000) (426,000) (575,000)
--------------- --------------- ----------------
Cash flows from financing activities:
Principal payments on mortgage note payable (933,000) (840,000) (908,000)
--------------- --------------- ----------------
Net cash used in financing activities (933,000) (840,000) (908,000)
--------------- --------------- ----------------
Net (decrease) increase in cash and cash equivalents (529,000) 1,473,000 416,000
Cash and cash equivalents at the beginning of the year 2,440,000 967,000 551,000
--------------- --------------- ----------------
Cash and cash equivalents at the end of the year $ 1,911,000 $ 2,440,000 $ 967,000
=============== ================ ================
See accompanying notes.
F-5
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
(Continued)
1997 1996 1995
--------------- --------------- ----------------
Supplemental schedule of non-cash investing and financing activities:
Decrease (increase) in fair value of marketable
securities of affiliate $291,000 $(3,566,000) $(1,298,000)
=============== ================ ================
Unrealized ( loss) gain on marketable securities of
affiliate $(291,000) $3,566,000 $1,298,000
=============== ================ ================
See accompanying notes.
F-6
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. DESCRIPTION OF PARTNERSHIP
Public Storage Properties IV, 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 17 mini-warehouse facilities located
in California and Florida.
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 and equipment reflect costs
incurred to develop primarily 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
depreciated on a straight-line basis over estimated useful lives of 25
and 5 years, respectively.
In 1995, the Partnership sold a portion of its Pembroke,
Florida property to the State of Florida under a condemnation
proceeding for $137,000. The Partnership recognized a gain of $125,000
on the sale. Proceeds from the sale were used to make an unscheduled
principal payment on the Partnership's mortgage note payable.
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("Statement 121"). Statement 121 requires impairment
losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Partnership
adopted Statement 121 in 1996 and the adoption had no effect on the
Partnership's financial Statements.
Allocation of Net Income:
-------------------------
The general partners' share of net income consists of amounts
attributable to their 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 (40,000) 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.
F-7
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PARTNERSHIP MATTERS
------------------------------------------------------------------
(CONTINUED)
-----------
Marketable Securities:
----------------------
Marketable securities at December 31, 1997 and 1996 consist of
381,980 and 297,130 shares of common stock of PSI, respectively. During
1997, the Partnership purchased an additional 84,850 shares of common
stock in Public Storage, Inc. at an aggregate cost of $2,300,000. The
Partnership has designated its portfolio of marketable securities as
being available for sale. Accordingly, at December 31, 1997 and 1996,
the Partnership has recorded the marketable securities at fair value,
based upon the closing quoted price of the securities at December 31,
1997 and 1996, and has recorded a corresponding unrealized (loss) gain
totaling $(291,000), $3,566,000 and $1,298,000 for the years ended
December 31, 1997, 1996, 1995, respectively, as a (decrease) increase
to Partnership equity. The Partnership recognized dividends of
$301,000, $262,000, and $247,000 for the years ended December 31, 1997,
1996, and 1995, respectively.
Other Assets:
-------------
Included in other assets is deferred financing costs of
$68,000 ($160,000 at December 31, 1996). Such balance is being
amortized as interest expense using the straight-line method over the
life of the related mortgage note payable.
Use of Estimates:
-----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
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.
During 1995, the Partnership completed environmental assessments of its
properties to evaluate the environmental condition of, and potential
environmental liabilities of such properties. These assessments were
performed by an independent environmental consulting firm. Based on the
assessments, the Partnership expensed $26,000 in 1995 for known
environmental remediation requirements. 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.
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 third
quarter of 1991 in order to build cash reserves for future debt service
payments.
4. PARTNERS' DEFICIT
The general partners have a 1.1% interest in the Partnership.
In addition, the general partners had an 8% interest in cash
distributions attributable to operations (exclusive of distributions
attributable to sale and financing proceeds) until the limited partners
recovered all of their investment. Thereafter, the general partners
have a 25% interest in all cash distributions (including sale and
financing proceeds). During 1986, the limited partners recovered all of
their initial investment. All subsequent distributions are being made
25.83% (including the 1.1% interest) to the general partners and 74.17%
to the limited partners.
F-8
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
4. PARTNERS' DEFICIT (CONTINUED)
Transfers of equity are made periodically to conform the
partners' equity accounts to the provisions of the Partnership
Agreement. These transactions have no effect on the results of
operations or distributions to partners. The financing of the
properties (Note 7) provided the Partnership with cash for a special
distribution without affecting the Partnership's taxable income. The
majority of the proceeds from the financing, approximately $29,360,000,
were distributed to the partners in October 1988 resulting in a deficit
in limited and general partners' equity accounts.
5. RELATED PARTY TRANSACTIONS
The Partnership has a Management Agreement with PSI (as
successor-in-interest to PSMI). Under the terms of the agreement, PSI
operates the mini-warehouse facilities for a fee equal to 6% of the
facilities' monthly gross revenue (as defined).
In November 1995, the Management Agreement was amended to
provide that upon demand from PSI or PSMI made prior to December 15,
1995, the Partnership agreed to prepay (within 15 days after such
demand) up to 12 months of management fees (based on the management
fees for the comparable period during the calendar year immediately
preceding such prepayment) discounted at the rate of 14% per year to
compensate for early payment. In December 1995, the Partnership
prepaid, to PSI, 8 months of 1996 management fees at a cost of
$265,000. The amount is included in other assets in the balance sheet
at December 31, 1995. The amount was amortized as management fees paid
to affiliate during 1996.
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.
Taxable net income was $2,550,000, $2,100,000, and $1,715,000
for the years ended December 31, 1997, 1996 and 1995, respectively. The
difference between taxable net income and net income is primarily
related to depreciation expense resulting from differences in
depreciation methods.
7. MORTGAGE NOTE PAYABLE
During September 1988, the Partnership financed all of its
properties with a $30,500,000, ten-year nonrecourse mortgage note
secured by the Partnership's properties. The note provides for fixed
interest of 10.47 percent per annum. Loan payments for the first year
consisted of interest only. Thereafter, principal is being amortized
over a 20 year term with monthly payments of principal and interest of
$303,891. The note matures on October 1, 1998 and a balloon payment is
due for accrued interest and any unpaid principal on that date. The
general partners believes the Partnership can refinance the loan on
terms acceptable to the Partnership upon maturity.
Interest paid on the note was $2,713,000, $2,806,000 and
$2,876,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
F-9
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
8. INSURANCE SETTLEMENT ON RECONSTRUCTION OF REAL ESTATE FACILITY
In 1993, the Partnership reached a settlement with its
insurance carrier for damage sustained to the Partnerships' Miami,
Florida property and for business interruption while the facility was
being reconstructed. The settlement provided for the payment of
$2,987,000 consisting of (i) reconstruction and related costs of the
facility and (ii) business interruption. The facility recommenced
operations in October 1994 and the reconstruction of the facility was
completed in the second quarter of 1995. During 1995, the Partnership
recognized $236,000 of income as a result of actual cost to reconstruct
the facility being lower then amounts received from insurance proceeds.
Business interruption proceeds were being recognized over the
period from the time the facility was damaged through the time
estimated that the project would be fully operating at a stabilized
occupancy. Other income includes business interruption insurance
proceeds (net of certain costs and expenses of maintaining the
facility) of $49,000 for the year ended December 31, 1995.
F-10
Public Storage Properties IV, Ltd.
Schedule III - Real Estate and Accumulated Depreciation
For the year ended December 31, 1997
Gross Carrying Amount
Initial Cost at December 31, 1996
------------------------ --------------------------------------
Costs
Building, Subsequent to Building,
Land Imp & construction Land Imp & Accum. Date
Description Encumbrances Land Equipment (Improvement) Land Equipment Total Depr. Compeleted
- -------------------- -------------- ---------- ------------ ---------- ---------- ------------ ------------ ------- ---------
Mini-warehouses:
CALIFORNIA
Azusa - $501,000 $1,093,000 $153,000 $501,000 $1,246,000 $1,747,000 $912,000 11/78
Concord - 349,000 805,000 182,000 349,000 987,000 1,336,000 654,000 01/79
Oakland - 177,000 650,000 145,000 177,000 795,000 972,000 553,000 04/79
Pasadena - 379,000 496,000 113,000 379,000 609,000 988,000 414,000 11/79
Redlands - 227,000 771,000 126,000 227,000 897,000 1,124,000 609,000 02/79
Richmond - 225,000 639,000 246,000 225,000 885,000 1,110,000 555,000 03/79
Riverside - 51,000 595,000 176,000 51,000 771,000 822,000 522,000 05/79
Sacramento/Howe - 194,000 666,000 199,000 194,000 865,000 1,059,000 556,000 08/79
Sacramento/West Capitol - 100,000 719,000 262,000 100,000 981,000 1,081,000 667,000 06/79
San Carlos 396,000 902,000 111,000 396,000 1,013,000 1,409,000 712,000 10/79
6/79
Santa Clara 633,000 1,156,000 161,000 633,000 1,317,000 1,950,000 889,000 & 7/79
Tustin 517,000 844,000 192,000 517,000 1,036,000 1,553,000 726,000 12/78
Florida
Miami/Airport Expressway - 186,000 442,000 205,000 186,000 647,000 833,000 436,000 01/79
Miami/Cutler Ridge - 525,000 901,000 158,000 525,000 1,059,000 1,584,000 727,000 04/79
Pembroke Park (2) - 255,000 607,000 327,000 255,000 934,000 1,189,000 625,000 07/79
Ft. Lauderdale/I-95 & 23rd
Ave. 243,000 611,000 304,000 243,000 915,000 1,158,000 622,000
Ft. Lauderdale/I-95 &
Sunrise - 286,000 690,000 384,000 286,000 1,074,000 1,360,000 719,000 10/79
-------------- ---------- ------------ ---------- ---------- ------------ ------------ -----------
$25,405,000(1) $5,244,000 $12,587,000 $3,444,000 $5,244,000 $16,031,000 $21,275,000 $10,898,000
============== ========== ============ ========== ========== ============ ============ ===========
(1) All 17 mini-warehouse locations are encumbered by a promissory
note. The $25,405,000 listed above is the principal balance remaining
on the note at 12/31/97.
(2) In 1995, the Partnership sold approximately 4,729 sq. ft. of the
facility to the State of Florida under condemnation proceeding. The
Partnership adjusted land by $12,000 for the sale.
F-11
Public Storage Properties IV, Ltd.
Schedule III - Real Estate and Accumulated Depreciation
(Continued)
Reconciliation of Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
1997 1996 1995
---------------------- ----------------------- -----------------------
Investment in Real estate
Balance at the beginning of the year $ 20,685,000 $ 20,259,000 $ 19,959,000
Additions through cash expenditures 590,000 426,000 312,000
Deductions during the period:
Sale of land - - (12,000)
---------------------- ----------------------- -----------------------
Balance at the end of the year $ 21,275,000 $ 20,685,000 $ 20,259,000
====================== ======================= =======================
Accumulated Depreciation
Balance at the beginning of the year $ 10,017,000 $ 9,203,000 $ 8,461,000
Additions charged to costs and expenses 881,000 814,000 742,000
---------------------- ----------------------- -----------------------
$ 10,898,000 $ 10,017,000 $ 9,203,000
====================== ======================= =======================
(a) The aggregate depreciable cost of real estate (excluding land) for Federal
income tax purposes is $16,031,000.
F-12