Attached files
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EX-32 - PS PROPERTIES IV, LTD EXHIBIT 32 - PUBLIC STORAGE PROPERTIES IV LTD | psp4-exb32.htm |
EX-31.2 - PS PROPERTIES IV, LTD EXHIBIT 31.2 - PUBLIC STORAGE PROPERTIES IV LTD | psp4-exb312.htm |
EX-31.1 - PS PROPERTIES IV, LTD EXHIBIT 31.1 - PUBLIC STORAGE PROPERTIES IV LTD | psp4-exb311.htm |
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 quarterly period ended September 30,
2009
Or
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For
the transition period from ________________________ to
________________________
Commission
File Number: 0-8908
|
PUBLIC STORAGE
PROPERTIES IV, LTD.
|
|
(Exact
name of Registrant as specified in its
charter)
|
California
|
95-3192402
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
701
Western Avenue, Glendale, California
|
91201-2349
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
Registrant's
telephone number, including area code: (818)
244-8080.
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
[X] Yes
|
[ ] No
|
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
[ ] Yes
|
[ ] No
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of
“accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer
[ ] Accelerated
Filer
[ ] Non-accelerated
Filer
[X] Smaller
Reporting Company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ] Yes
|
[X] No
|
The
Registrant is a limited partnership and issues units representing ownership of
limited partner interests, with a par value of $500.00 per
unit. Number of units outstanding at November 12,
2009: 40,00
PUBLIC
STORAGE PROPERTIES IV, LTD.
|
||
INDEX
|
||
PART
I
|
FINANCIAL INFORMATION (Item 3 not
applicable)
|
Pages
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
Condensed
Balance Sheets at September 30, 2009
and
December 31, 2009
|
1
|
|
Condensed
Statements of Income for the
Three
and Nine Months Ended September 30, 2009 and 2008
|
2
|
|
Condensed
Statements of Partners’ Equity for the
Nine
Months Ended September 30, 2009
|
3
|
|
Condensed
Statements of Cash Flows for the
Nine
Months Ended September 30, 2009 and 2008
|
4
|
|
Notes
to Condensed Financial Statements
|
5 -
10
|
|
Item
2.
|
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
|
11
- 15
|
Item
4.
|
Controls
and Procedures
|
16
|
PART
II.
|
OTHER INFORMATION (Items 2 – 5 not
applicable)
|
|
Item
1.
|
Legal
Proceedings
|
17
|
Item
1A.
|
Risk
Factors
|
17
|
Item
6.
|
Exhibits
|
17
|
PUBLIC
STORAGE PROPERTIES IV, LTD.
CONDENSED
BALANCE SHEETS
September
30,
2009
|
December
31,
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 1,360,000 | $ | 1,139,000 | ||||
Rent
and other receivables
|
78,000 | 74,000 | ||||||
Real
estate facilities, at cost:
|
||||||||
Buildings
and equipment
|
20,719,000 | 20,358,000 | ||||||
Land
|
5,021,000 | 5,021,000 | ||||||
25,740,000 | 25,379,000 | |||||||
Less
accumulated depreciation
|
(18,964,000 | ) | (18,642,000 | ) | ||||
6,776,000 | 6,737,000 | |||||||
Other
assets
|
112,000 | 124,000 | ||||||
Total
assets
|
$ | 8,326,000 | $ | 8,074,000 | ||||
LIABILITIES AND PARTNERS’
EQUITY
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 472,000 | $ | 270,000 | ||||
Deferred
revenue
|
242,000 | 297,000 | ||||||
Total
liabilities
|
714,000 | 567,000 | ||||||
Commitments
and contingencies (Note 6)
|
||||||||
Partners’
equity:
|
||||||||
Limited
partners’ equity, $500 per unit, 40,000 units
authorized, issued and outstanding
|
5,652,000 | 5,574,000 | ||||||
General
partners’ equity
|
1,960,000 | 1,933,000 | ||||||
Total
partners’ equity
|
7,612,000 | 7,507,000 | ||||||
Total
liabilities and partners’ equity
|
$ | 8,326,000 | $ | 8,074,000 |
See
accompanying notes.
1
PUBLIC
STORAGE PROPERTIES IV, LTD.
CONDENSED
STATEMENTS OF INCOME
(UNAUDITED)
Three
Months Ended
September
30
|
Nine
Months Ended
September
30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
REVENUES:
|
||||||||||||||||
Rental
income
|
$ | 2,775,000 | $ | 2,975,000 | $ | 8,347,000 | $ | 8,674,000 | ||||||||
Other
income
|
138,000 | 202,000 | 395,000 | 367,000 | ||||||||||||
Revenues
from affiliate under
performance
agreement
|
372,000 | 369,000 | 1,047,000 | 1,004,000 | ||||||||||||
3,285,000 | 3,546,000 | 9,789,000 | 10,045,000 | |||||||||||||
COSTS
AND EXPENSES:
|
||||||||||||||||
Cost
of operations
|
693,000 | 696,000 | 2,141,000 | 2,191,000 | ||||||||||||
Management
fees paid to affiliate
|
172,000 | 179,000 | 506,000 | 520,000 | ||||||||||||
Depreciation
|
113,000 | 133,000 | 322,000 | 335,000 | ||||||||||||
Administrative
|
20,000 | 16,000 | 89,000 | 87,000 | ||||||||||||
998,000 | 1,024,000 | 3,058,000 | 3,133,000 | |||||||||||||
NET
INCOME
|
$ | 2,287,000 | $ | 2,522,000 | $ | 6,731,000 | $ | 6,912,000 | ||||||||
Limited
partners’ share of net income
|
$ | 1,704,000 | $ | 1,883,000 | $ | 5,023,000 | $ | 5,176,000 | ||||||||
General
partners’ share of net income
|
583,000 | 639,000 | 1,708,000 | 1,736,000 | ||||||||||||
$ | 2,287,000 | $ | 2,522,000 | $ | 6,731,000 | $ | 6,912,000 | |||||||||
Limited
partners’ share of net income per unit
(40,000
units outstanding)
|
$ | 42.60 | $ | 47.08 | $ | 125.58 | $ | 129.40 | ||||||||
See
accompanying notes.
2
PUBLIC
STORAGE PROPERTIES IV, LTD.
CONDENSED
STATEMENT OF PARTNERS’ EQUITY
(UNAUDITED)
Limited
Partners’
|
General
Partners’
|
Total
Partners’ Equity
|
||||||||||
Balance
at December 31, 2008
|
$ | 5,574,000 | $ | 1,933,000 | $ | 7,507,000 | ||||||
Net
income
|
5,023,000 | 1,708,000 | 6,731,000 | |||||||||
Cash
distributions
|
(4,920,000 | ) | (1,706,000 | ) | (6,626,000 | ) | ||||||
Equity
transfer
|
(25,000 | ) | 25,000 | - | ||||||||
Balance
at September 30, 2009
|
$ | 5,652,000 | $ | 1,960,000 | $ | 7,612,000 |
See
accompanying notes.
3
PUBLIC
STORAGE PROPERTIES IV, LTD.
CONDENSED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 6,731,000 | $ | 6,912,000 | ||||
Adjustments
to reconcile net income to net cash provided
by
operating activities:
|
||||||||
Depreciation
|
322,000 | 335,000 | ||||||
Increase
in rent and other receivables
|
(4,000 | ) | - | |||||
Decrease
in other assets
|
12,000 | 15,000 | ||||||
Increase
in accounts payable and accrued liabilities
|
202,000 | 449,000 | ||||||
Decrease
in deferred revenue
|
(55,000 | ) | (38,000 | ) | ||||
Total
adjustments
|
477,000 | 761,000 | ||||||
Net
cash provided by operating activities
|
7,208,000 | 7,673,000 | ||||||
Cash
flows from investing activities:
|
||||||||
Additions
to real estate facilities
|
(361,000 | ) | (259,000 | ) | ||||
Net
cash used in investing activities
|
(361,000 | ) | (259,000 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Distributions
paid to partners
|
(6,626,000 | ) | (6,734,000 | ) | ||||
Net
cash used in financing activities
|
(6,626,000 | ) | (6,734,000 | ) | ||||
Net
increase in cash and cash equivalents
|
221,000 | 680,000 | ||||||
Cash
and cash equivalents at the beginning of the period
|
1,139,000 | 787,000 | ||||||
Cash
and cash equivalents at the end of the period
|
$ | 1,360,000 | $ | 1,467,000 | ||||
See
accompanying notes.
4
PUBLIC
STORAGE PROPERTIES IV, LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1.
|
Description
of the Business and Basis of
Presentation
|
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 completed in November
1978. The general partners in the Partnership are Public Storage,
formerly Public Storage, Inc., (“PS”) and B. Wayne Hughes
(“Hughes”).
The
Partnership was formed to engage in the business of developing and operating
self-storage facilities for personal and business use. The
Partnership owns 17 self-storage properties in California and
Florida.
The
accompanying unaudited condensed financial statements have been prepared by us
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”) on the same basis as our audited annual financial statements and, in our
opinion reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set forth
therein. Certain information and note disclosures normally included
in financial statements prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”), as defined in the Financial Accounting Standards
Board Accounting Standards Codification (the “Codification”), have
been condensed or omitted pursuant to such rules and regulations, although we
believe that the following disclosures, when read in conjunction with the
audited financial statements and notes thereto as of December 31, 2008, are
adequate to make the information presented not misleading.
The
Partnership has evaluated subsequent events through November 13, 2009, which
represents the filing date of this Form 10-Q with the SEC. As of
November 13, 2009, there were no subsequent events which required recognition or
disclosure.
2.
|
Summary
of Significant Accounting Policies and Partnership
Matters
|
Use of
Estimates:
The
preparation of the financial statements in conformity with GAAP 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.
Revenue and Expense
Recognition:
Rental
income, which is generally earned pursuant to month-to-month leases for storage
space, is recognized as earned. Promotional discounts are recognized
as a reduction to rental income over the promotional period, which is generally
during the first month of occupancy. Late charges and administrative
fees are recognized as income when collected. Interest income is
recognized as earned.
We accrue
for property tax expense based upon estimates and historical trends. If these
estimates are incorrect, the timing of expense recognition could be
affected.
Cost of
operations, general and administrative expense, as well as television, yellow
page, and other advertising expenditures are expensed as
incurred. Casualty losses or gains are recognized in the period the
casualty occurs, based upon the differential between the book value of assets
destroyed, and estimated insurance proceeds, if any, that we expect to receive
in accordance with our insurance contracts.
5
PUBLIC
STORAGE PROPERTIES IV, LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Allocation of Net
Income:
The
general partners' share of net income consists of amounts attributable to their
1% capital contribution and an additional percentage of cash flow (as defined)
which relates to the general partners' share of cash distributions as set forth
in the Partnership Agreement (Note 4). All remaining net income is
allocated to the limited partners.
Per unit
data is based on the weighted average number of the limited partnership units
(40,000) outstanding during the period.
Financial
Instruments:
The
Partnership has estimated the fair value of its financial instruments using
available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting
market data to develop estimates of market value. Accordingly,
estimated fair values are not necessarily indicative of the amounts that could
be realized in current market exchanges.
For
purposes of financial statement presentation, the Partnership considers all
highly liquid financial instruments such as short-term treasury securities,
money market funds with daily liquidity and a rating in excess of AAA by
Standard and Poor’s, or investment grade (rated A1 by Standard and Poor’s)
short-term commercial paper with remaining maturities of three months or less at
the date of acquisition to be cash equivalents.
Due to
the short maturity and the underlying characteristics of our cash and cash
equivalents, other assets, and accrued and other liabilities, the Partnership
believes the carrying values as presented on the condensed balance sheets are
reasonable estimates of fair value.
Financial
assets that are exposed to credit risk consist primarily of cash and cash
equivalents as well as rent and other receivables. Our cash and cash
equivalents are invested in investment grade short-term investments and our
receivables consist of small individual amounts. Accordingly, credit
risk on these assets as a whole is minimal.
Real Estate Facilities and
Evaluation of Asset Impairment:
Real
estate facilities are recorded at cost. Costs associated with the
development, construction, renovation and improvement of properties are
capitalized. Interest, property taxes, and other costs associated
with the development incurred during the construction period are capitalized as
building cost. Expenditures for repairs and maintenance are charged
to expense as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the buildings and
improvements, which are generally between 5 and 25 years. At
September 30, 2009, all of the real estate facilities have been in service
longer than 25 years, and accordingly the original development costs of such
buildings are fully depreciated.
We
evaluate our real estate for impairment on a quarterly basis. We
first evaluate these assets for indicators of impairment, and when any such
indicators of impairment are noted, we compare the carrying value of the real
estate to the future estimated undiscounted cash flows attributable to the real
estate. If the real estate’s recoverable amount is less than the
carrying value, then an impairment charge is booked for the excess of carrying
value over the real estate’s fair value. Our evaluations have
identified no such impairments at September 30, 2009.
6
PUBLIC
STORAGE PROPERTIES IV, LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Any real
estate facility, which we expect to sell or dispose of prior to its previously
estimated useful life, is stated at the lower of its estimated net realizable
value, less cost to sell, or its carrying value.
Deferred
Revenue:
Deferred
revenue totaling $242,000 at September 30, 2009 ($297,000 at December 31, 2008),
consists of prepaid rents, which are recognized as rental income when
earned.
Environmental
Cost:
The
Partnership’s policy is to accrue environmental assessments and/or remediation
costs when it is probable that such efforts will be required and the related
costs can be reasonably estimated. Although there can be no
assurance, we are not aware of any environmental contamination at any of our
facilities, which, individually or in the aggregate, would be material to our
overall business, financial condition or results of operations.
Income
Taxes:
Public
Storage Properties IV, Ltd. is treated as a partnership for federal and state
income tax purposes with the taxable income of the entity allocated to each
partner in accordance with the partnership agreement. Accordingly, no
federal income tax expense is recorded by the Partnership.
Recent Accounting
Pronouncements and Guidance:
As of
November 13, 2009, there have been no recent accounting pronouncements and
guidance, which were not effective for implementation prior to September 30,
2009, that would have a material impact upon reporting the operations or
financial position of the Partnership.
Segment
Reporting:
The
Partnership only has one reportable segment.
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
improvements) needs to be distributed at least quarterly. During the
three months ended September 30, 2009, we paid cash distributions to the limited
and general partners totaling $1,680,000 ($42.00 per unit) and $582,000,
respectively, and $1,840,000 ($46.00 per unit) and $638,000, respectively, for
the same period in 2008. During the nine months ended September 30,
2009, we paid cash distributions to the limited and general partners totaling
$4,920,000 ($123.00 per unit) and $1,706,000, respectively, and $5,000,000
($125.00 per unit) and $1,734,000, respectively, for the same period in
2008. Future distribution rates may be adjusted to levels, which are
supported by operating cash flow after provisions for capital improvements and
any other obligations.
4.
|
Partners'
Equity
|
PS and
Hughes are general partners of the Partnership. In 1995, Hughes
contributed his ownership and rights to distributions from the Partnership to
BWH Marina Corporation II, a corporation wholly-owned by Hughes. As
such, Hughes continues to act as a general partner of the Partnership but does
not directly receive any compensation, distributions or other consideration from
the Partnership.
7
PUBLIC
STORAGE PROPERTIES IV, LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The
general partners have a 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
25.75% (including the 1% interest) to the general partners and 74.25% to the
limited partners. Transfers of equity are made periodically to
reconcile the partners’ equity accounts to the provisions of the Partnership
Agreement. These transfers have no effect on the results of
operations or distributions to partners.
5. Related
Party Transactions
Management Agreements and
Shared Expenses with Affiliates
The
Partnership has a management agreement (the “Management Agreement”) with PS
pursuant to which PS operates the self-storage facilities for a fee equal to 6%
of the facilities' gross revenue (as defined). For the three months
ended September 30, 2009 and 2008, the Partnership paid PS $172,000 and
$179,000, respectively, under this Management Agreement. For the nine
months ended September 30, 2009 and 2008, the Partnership paid PS $506,000 and
$520,000, respectively, under this Management Agreement.
The
Management Agreement between the Partnership and PS provides that the Management
Agreement may be terminated without cause upon 60 days written notice by the
Partnership or six months notice by PS.
A real
estate facility owned by the Partnership (the “Azusa Property”) is operated
pursuant to a management and performance agreement (the “Performance Agreement”)
with a subsidiary of PS (the “PS Sub”). Following the commencement of
the Performance Agreement in March 2001, the facility was initially expanded to
include industrial space, and this industrial space was subsequently converted
to self-storage space. These improvements, along with any other
subsequent improvements or capital expenditures during the term of the
Performance Agreement, are entirely funded by the PS Sub. During the
term of the Performance Agreement, the Partnership is guaranteed to receive the
same net operating income it received with respect to the Azusa Property prior
to the effective date of the Performance Agreement, with an annual increase of
the greater of a) 1% or b) the percentage increase in net operating income
achieved at the self-storage facilities managed by PS in the market in which
this facility is located (the “Guaranteed Amounts”). The Performance
Agreement expires on December 31, 2015, at which time the Partnership will
commence collecting the actual net operating income currently earned by the PS
Sub from operating the Azusa Property, and the Guaranteed Amounts will no longer
apply. The PS Sub recorded revenues of $1,652,000 and $1,598,000 for
the nine months ended September 30, 2009 and 2008, respectively, and cost of
operations totaling $520,000 and $510,000 in the nine months ended
September 30, 2009 and 2008, respectively, with respect to the operation of
the Azusa Property. Capital expenditures for the Azusa Property
totaled $18,000 and $4,000 in the nine months ended September 30, 2009 and 2008,
respectively. Average occupancy of the Azusa Property was 89.1% and
83.4% during the nine months ended September 30, 2009 and 2008,
respectively. The lower average occupancy during the nine months
ended September 30, 2008 is primarily due to the fill-up of expanded
self-storage space which was completed at the Azusa property, and paid for by
the PS Sub, during 2006. Included in the line item “revenues from
affiliate under performance agreement” in the Partnership’s accompanying
condensed statements of income, is the Guaranteed Amounts earned by the
Partnership under the Performance Agreement.
8
PUBLIC
STORAGE PROPERTIES IV, LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The
Partnership’s facilities, along with facilities owned by PS and its affiliates,
are managed and marketed jointly by PS in order to take advantage of scale and
other efficiencies. Joint costs are allocated on a methodology meant
to fairly allocate such costs based upon the related activities. As a
result, significant components of cost of operations, such as payroll costs,
advertising and promotion, data processing and insurance expenses are shared and
allocated among the properties using methodologies meant to fairly allocate such
costs based upon the related activities. The total of such expenses
included in cost of operations on our accompanying condensed statements of
income, amounted to $410,000 and $390,000 for the three months ended September
30, 2009 and 2008, respectively, and $1,325,000 and $1,343,000 for the nine
months ended September 30, 2009 and 2008, respectively.
Ownership Interest by the
General Partners
In
addition to the general partnership interests outlined in Note 4, PS owns 11,671
Limited Partnership Units (“Units”), as to which PS has sole voting and
dispositive power.
At
December 31, 2008, Hughes and members of his family (the “Hughes Family”) owned
6,198 Units. Hughes owned 5,892 Units, as to which Hughes had sole
voting and dispositive power, through a wholly-owned corporation and Tamara
Hughes Gustavson, an adult daughter of Hughes, owned 306 Units as to which
Tamara Hughes Gustavson had sole voting and dispositive power. On
January 1, 2009, PS exercised its option to acquire the 306 Units held by Tamara
Hughes Gustavson for a cost of approximately $136,000. At September
30, 2009, Hughes owns 5,892 Units.
In
addition, there are 7,299 Units owned by PS Orangeco Partnerships, Inc., a
corporation in which Hughes Family owns approximately 48% of the voting stock,
PS owns 46% and members of PS management and related individuals own
approximately 6%.
Captive Insurance Activities
with PS
The
Partnership has a 1.8% ownership interest in STOR-Re Mutual Insurance
Corporation (“STOR-Re”), which was formed in 1994 as an association captive
insurance company, and is controlled by PS. The Partnership accounts
for its investment in STOR-Re, which is included in other assets in our
accompanying condensed balance sheets, on the cost method, and has received no
distributions during the nine months ended September 30, 2009 or
2008.
STOR-Re
provides limited property and liability insurance coverage to the Partnership,
PS, and affiliates for losses occurring before April 1, 2004. STOR-Re
was succeeded with respect to these activities for losses occurring after March
31, 2004 by a wholly owned subsidiary of PS (collectively, this entity and
STOR-Re are referred to as the “Captive Entities”). Liabilities for
losses and loss adjustment expenses include an amount determined from loss
reports and individual cases and an amount, based on recommendations from an
outside actuary that is a member of the American Academy of Actuaries, using a
frequency and severity method, for losses incurred but not
reported. Determining the liability for unpaid losses and loss
adjustment expense is based upon estimates and while we believe that the amount
is adequate, the ultimate loss may be in excess of or less than the amounts
provided. The methods for making such estimates and for establishing
the resulting liability are reviewed quarterly.
9
PUBLIC
STORAGE PROPERTIES IV, LTD.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Other Activities with
PS
PS
Insurance Company – Hawaii, Ltd. (“PSICH”), a corporation that reinsures
policies against losses to goods stored by tenants in the Partnership’s and PS’
storage facilities. PSICH receives the premiums and bears the risks
associated with the re-insurance. The Partnership receives a fee (an
“Access Fee”) from PSICH in return for providing tenant
listings. This Access Fee is based on the number of spaces the
Partnership has to rent. Included in other income on our accompanying
condensed statements of income for these Access Fees are $135,000 and $190,000
for the three months ended September 30, 2009 and 2008, respectively, and
$287,000 and $306,000 for the nine months ended September 30, 2009 and 2008,
respectively.
A
subsidiary of PS sells locks and boxes to the general public and tenants
associated with securing their spaces and storing and moving their
goods. The subsidiary of PS receives the revenues and bears the cost
of the activities.
6. Commitments
and Contingencies
Legal
Proceedings:
Brinkley v. Public Storage,
Inc. (filed April 2005) (Superior Court of California – Los Angeles
County)
The
plaintiff sued PS on behalf of a purported class of California non-exempt
employees based on various California wage and hour laws and seeking monetary
damages and injunctive relief. In May 2006, a motion for class
certification was filed seeking to certify five subclasses. Plaintiff
sought certification for alleged meal period violations, rest period violations,
failure to pay for travel time, failure to pay for mileage reimbursement, and
for wage statement violations. In October 2006, the Court declined to
certify three out of the five subclasses. The Court did, however,
certify subclasses based on alleged meal period and wage statement
violations. Subsequently, PS filed a motion for summary judgment
seeking to dismiss the matter in its entirety. On June 22, 2007, the
Court granted PS’ summary judgment motion as to the causes of action relating to
the subclasses certified and dismissed those claims. The only
surviving claims are those relating to the named plaintiff. The
plaintiff has filed an appeal to the Court’s June 22, 2007 summary judgment
ruling. On October 28, 2008, the Court of Appeals sustained the trial
court’s ruling. The plaintiff filed a petition for review with the
California Supreme Court, which was granted but further action in this matter
was deferred pending consideration and disposition of a related issue in Brinker Restaurant Corp. v. Superior
Court which is currently pending before the California Supreme
Court.
Other
Items
PS and
the Partnership are a party to various claims, complaints, and other legal
actions that have arisen in the normal course of business from time to time,
that are not described above. We believe that it is unlikely that the
outcome of these other pending legal proceedings including employment and tenant
claims, in the aggregate, will have a material adverse effect upon the
operations or financial position of the Partnership.
10
Item
2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The
following should be read in conjunction with the Partnership’s condensed
financial statements and notes thereto.
Forward Looking
Statements: This document contains forward-looking statements
within the meaning of the federal securities laws. All statements in this
document, other than statements of historical fact, are forward-looking
statements which may be identified by the use of the words
"expects," "believes,"
"anticipates," "plans," "would," "should," "may," "estimates"
and similar expressions. These forward-looking statements involve
known and unknown risks and uncertainties, which may cause Public Storage
Properties IV, Ltd.’s (the “Partnership”) actual results and performance to be
materially different from those expressed or implied in the forward-looking
statements. As a result, you should not rely on any forward-looking
statements in this report, or which management may make orally or in writing
from time to time, as predictions of future events nor guarantees of future
performance. We caution you not to place undue reliance on
forward-looking statements, which speak only as the date of this report or as of
the dates indicated in the statements. All of our forward-looking
statements, including those in this report, are qualified in their entirely by
this statement. We expressly disclaim any obligation to update publicly or
otherwise revise any forward-looking statements, whether as a result of new
information, new estimates, or other factors, events or circumstances after the
date of this document, except where expressly required by
law. Accordingly, you should use caution in relying on past
forward-looking statements to anticipate future results.
Factors
and risks that may impact our future results and performance include, but are
not limited to, those described in Item 1A, "Risk Factors" in the Public Storage
Properties IV, Ltd. Annual Report on Form 10-K for the year ended December 31,
2008 and in our other filings with the Securities and Exchange Commission
(“SEC”). These risks include, among others, the
following:
·
|
general
risks associated with the ownership and operation of real estate including
changes in demand, potential liability for environmental contamination,
adverse changes in tax laws, including property tax rates and assessments,
real estate and zoning laws and regulations, and the impact of natural
disasters;
|
·
|
risks
associated with downturns in the local economies in the markets in which
we operate, including risks related to current economic
conditions;
|
·
|
the
impact of competition from new and existing self-storage and commercial
facilities and other storage
alternatives;
|
·
|
the
impact of the regulatory environment as well as national, state, and local
laws and regulations including, without limitation, those governing
environmental, tax and tenant insurance matters, and risks related to the
impact of existing and potential new laws and
regulations;
|
·
|
disruptions
or shutdowns of our automated processes and systems or breaches of our
data security; and
|
·
|
economic
uncertainty due to the impact of war or
terrorism.
|
The risks
included here are not exhaustive as it is not possible for management to predict
all possible risk factors that may exist or emerge from time to
time. Investors should refer to our future reports and other
information filed from time to time with the SEC for additional
information.
11
Critical Accounting
Policies
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses our financial statements, which have been prepared in accordance with
United States (“U.S.”) generally accepted accounting principles
(“GAAP”). The preparation of our financial statements and related
disclosures in conformity with GAAP and our discussion and analysis of our
financial condition and results of operations requires management to make
judgments, assumptions and estimates that affect the amounts reported in our
condensed financial statements and accompanying notes. The notes to
the Partnership’s September 30, 2009 condensed financial statements, primarily
Note 2, summarize the significant accounting policies and methods used in the
preparation of our condensed financial statements and related
disclosures.
Management
believes the following are the critical accounting policies that have a material
impact on the Partnership’s financial presentation. That is, they are
both important to the portrayal of our financial condition and results, and they
require management to make judgments and estimates about matters that are
inherently uncertain.
Impairment of Real Estate:
Substantially all of our assets consist of real estate. On a
quarterly basis, we evaluate our real estate for impairment. The
evaluation of our real estate for impairment includes determining whether
indicators of impairment exist, which is a subjective process. When
any indicators of impairment are found, the evaluation then entails projections
of future operating cash flows, which also involves significant
judgment. We identified no such impairments at September 30,
2009. However, future events, or facts and circumstances that
currently exist, that we have not yet identified, could cause us to conclude in
the future that our real estate is impaired. Any resulting impairment
loss could have a material adverse impact on the Partnership’s financial
condition and results of operations.
Estimated Useful Lives of Long-Lived
Assets: Substantially all of our assets consist of depreciable,
long-lived assets. We record depreciation expense with respect to
these assets based upon their estimated useful lives. Any change in
the estimated useful lives of those assets, caused by functional or economic
obsolescence or other factors, could have a material adverse impact on our
financial condition or results of operations.
Accruals for Contingencies: We
are exposed to business and legal liability risks with respect to events that
have occurred, but in accordance with GAAP, we have not accrued for such
potential liabilities because the loss is either not probable or not estimable
or because we are not aware of the event. Future events and the
result of pending litigation could result in such potential losses becoming
probable and estimable, which could have a material, adverse impact on our
financial condition or results of operations. Some of these potential
losses, which we are aware of, are described in Notes 5 and 6 to the
Partnership’s September 30, 2009 condensed financial statements.
Accruals for Operating
Expenses: We accrue for property tax expense and other operating expenses
based upon estimates and historical trends and current and anticipated local and
state government rules and regulations. If these estimates and
assumptions are incorrect, our expenses could be misstated.
Overview of Management’s
Discussion and Analysis of Operations
The
self-storage industry is highly fragmented and is composed predominantly of
numerous local and regional operators. Competition in the markets in
which we operate is significant and has increased over the past several years
due to additional development of self-storage facilities. We believe
that the increase in competition has had a negative impact to the Partnership’s
occupancy levels and rental rates in many markets. However, we
believe that the Partnership’s affiliation with Public Storage (“PS”) provides
several distinguishing characteristics that enable the Partnership to compete
effectively with other owners and operators.
12
PS is the
largest owner and operator of self-storage facilities in the U.S. All
of the PS facilities in the U.S. are operated under the “Public Storage” brand
name, which we believe is the most recognized and established name in the
self-storage industry. Market concentration establishes PS as one of
the dominant providers of self-storage space in most markets in which PS
operates and enables PS to use a variety of promotional activities, such as
television advertising as well as targeted discounting and referrals, which are
generally not economically viable to most competitors of PS, as well as more
substantial, well-placed yellow page advertisements than can many of its
competitors.
The
self-storage industry is not immune to the recessionary pressures in the general
economic environment. Demand for self-storage space in the U.S. has softened
and, as a result, the Partnership is experiencing downward pressure on occupancy
levels, rental rates and revenue growth.
We will
continue to focus our growth strategies on improving the operating performance
of our existing self-storage properties primarily through increases in revenues
achieved through the telephone reservation center and associated marketing
efforts. We expect any potential future increases in rental income to
come primarily from increases in realized rent rather than increases in
occupancy, although there can be no assurance that we will experience such
increases.
Results of
Operations
Three
months ended September 30, 2009 as compared to three months ended September 30,
2008:
The
Partnership's net income for the three months ended September 30, 2009 was
$2,287,000, as compared to $2,522,000 for the same period in 2008, representing
a decrease of $235,000 or 9.3%. Property net operating income (rental
income less cost of operations, management fees paid to an affiliate and
depreciation expense) decreased $170,000 or 8.6% from $1,967,000 for the three
months ended September 30, 2008 to $1,797,000 for the three months ended
September 30, 2009.
Rental
income for the three months ended September 30, 2009 was $2,775,000 as compared
to $2,975,000 for the three months ended September 30, 2008, representing a
decrease of $200,000 or 6.7%. The decrease in rental income is
attributable primarily to a 3.2% decrease in annualized realized rent for the
three months ended September 30, 2009 to $15.64 per occupied square foot,
as compared to $16.15 per occupied square foot for the same period in
2008. Additionally, weighted average occupancy levels at the
self-storage facilities decreased slightly to 89.9% for the three months ended
September 30, 2009, as compared to 90.4% for the same period in
2008. These amounts exclude the property operated pursuant to the
management and performance agreement with a subsidiary of PS (the “PS
Sub”). See Note 5 to the Partnership’s September 30, 2009 condensed
financial statements for additional information.
We
believe that demand for self-storage space has been negatively impacted by
general economic conditions, the slowdown in housing sales and moving activity,
as well as increased competition. Based upon certain comparative
September 30, 2009 key operating metrics for the Partnership’s self-storage
facilities including 7.5% lower in place annual rent per occupied square foot
from $18.02 at September 30, 2008 to $16.67 at September 30, 2009, offset
by a slight increase in square foot occupancy from 88.6% at September 30, 2008
to 89.1% at September 30, 2009, we expect that the revenue will decline for the
Partnership’s facilities for the three months ending December 31, 2009, as
compared to the same period in 2008. The Partnership’s operating
strategy will be to continue to focus on maintaining occupancy levels by
adjusting rental rates, promotional discounts and marketing
activities. It is unclear to us how much the above mentioned factors
will impact our revenues beyond the fourth quarter of 2009.
13
Other
income was $138,000 for the three months ended September 30, 2009, as compared
to $202,000 for the three months ended September 30, 2008, representing a
decrease of $64,000 or 31.7%. Included in other income are access
fees paid by PS Insurance Company - Hawaii, Ltd. (“PSICH”), a corporation owned
by PS (described more fully in Note 5 to the Partnership’s September 30, 2009
condensed financial statements), totaling $135,000 and $190,000 for the three
months ended September 30, 2009 and 2008, respectively. The decline
is due to adjustments in timing of the recording of income in 2008 due to
changes in accounting estimates. Interest income on cash balances for
the three months ended September 30, 2009 declined as compared to the same
period in 2008 due to significant decreases in average interest
rates. The Partnership has $1,360,000 in cash on hand at September
30, 2009 invested primarily in money-market funds, which earn nominal rates of
interest in the current interest rate environment.
Revenues
from Affiliates under the Performance Agreement increased $3,000 or 0.8% to
$372,000 for the three months ended September 30, 2009 from $369,000 for the
three months ended September 30, 2008. See Note 5 to the
Partnership’s September 30, 2009 condensed financial statements for further
discussion of the nature of these revenues.
Cost of
operations, including management fees paid to an affiliate, (see Note 5 to the
Partnership’s September 30, 2009 condensed financial statements) for the three
months ended September 30, 2009 was $865,000 compared to $875,000 for the three
months ended September 30, 2008, representing a decrease of $10,000 or 1.1%, as
reductions in repairs and maintenance and payroll expenses, were mostly offset
by increases in media advertising expense.
Depreciation
expense was $113,000 and $133,000 for the three months ended September 30, 2009
and 2008, respectively, representing a decrease of $20,000.
Administrative
expense was $20,000 and $16,000 for the three months ended September 30, 2009
and 2008, respectively.
Nine
months ended September 30, 2009 as compared to nine months ended September 30,
2008:
The
Partnership's net income for the nine months ended September 30, 2009 was
$6,731,000, as compared to $6,912,000 for the same period in 2008, representing
a decrease of $181,000 or 2.6%. Property net operating income (rental
income less cost of operations, management fees paid to an affiliate and
depreciation expense) decreased $250,000 or 4.4% from $5,628,000 for the nine
months ended September 30, 2008 to $5,378,000 for the nine months ended
September 30, 2009.
Rental
income for the nine months ended September 30, 2009 was $8,347,000 as compared
to $8,674,000 for the nine months ended September 30, 2008, representing a
decrease of $327,000 or 3.8%. The decrease in rental income is
attributable primarily to a 2.6% decrease in annualized realized rent for the
nine months ended September 30, 2009 to $15.32 per occupied square foot, as
compared to $15.73 per occupied square foot for the same period in
2008. Additionally, weighted average occupancy levels at the
self-storage facilities decreased slightly to 90.0% for the nine months ended
September 30, 2009, as compared to 90.4% for the same period in
2008. These amounts exclude the property operated pursuant to the
management and performance agreement with a subsidiary of PS (the “PS
Sub”). See Note 5 to the Partnership’s September 30, 2009 condensed
financial statements for additional information.
Other
income was $395,000 for the nine months ended September 30, 2009, as compared to
$367,000 for the nine months ended September 30, 2008, representing an increase
of $28,000 or 7.6%. Included in other income are access fees paid by
PSICH (described more fully in Note 5 to the Partnership’s September 30, 2009
condensed financial statements), totaling $287,000 and $306,000 for the nine
months ended September 30, 2009 and 2008, respectively. Included in
other income for the nine months ended September 30, 2009 is $97,000 in
nonrecurring income in settlement of a contractual issue. Interest
income on cash balances for the nine months ended September 30, 2009
declined as compared to the same period in 2008 due to significantly lower
interest rates.
14
Revenues
from Affiliates under the Performance Agreement increased $43,000 or 4.3% to
$1,047,000 for the nine months ended September 30, 2009 from $1,004,000 for the
nine months ended September 30, 2008. See Note 5 to the Partnership’s
September 30, 2009 condensed financial statements for further discussion of the
nature of these revenues.
Cost of
operations, including management fees paid to an affiliate, (see Note 5 to the
Partnership’s September 30, 2009 condensed financial statements) for the nine
months ended September 30, 2009 was $2,647,000 compared to $2,711,000 for the
nine months ended September 30, 2008, representing a decrease of $64,000 or
2.4%, as reductions in repairs and maintenance, payroll costs and property
insurance expenses, were partially offset by increases in property tax, media
advertising and office expenses.
Depreciation
expense was $322,000 and $335,000 for the nine months ended September 30, 2009
and 2008, respectively, representing a decrease of $13,000 or 3.9%.
Administrative
expense was $89,000 and $87,000 in the nine months ended September 30, 2009 and
2008, respectively, representing an increase of $2,000 or 2.3%.
Liquidity and Capital
Resources
At
September 30, 2009, the Partnership had cash of $1,360,000 as compared to total
liabilities of $694,000. Cash generated from operations ($7,208,000
for the nine months ended September 30, 2009) has been sufficient to meet all
current obligations of the Partnership. Capital improvements totaled
$361,000 and $259,000 in the nine months ended September 30, 2009 and 2008,
respectively. Capital improvements are budgeted at $414,000 for the
year ending December 31, 2009.
The
Partnership does not anticipate issuing senior securities, making loans to other
persons, investing in the securities of other issuers for the purpose of
exercising control, underwriting the securities of other issuers, engaging in
the purchase and sale of investments, offering securities in exchange for
property, or repurchasing or otherwise reacquiring its outstanding
securities. The Partnership may consider borrowing money with the
intent of using the proceeds for distribution to partners. As the
capital and credit markets are currently constrained and in flux, there can be
no assurance that the Partnership would be able to access any such borrowings in
order to do so, if such a course of action were otherwise deemed
necessary.
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. During the three months
ended September 30, 2009, we paid cash distributions to the limited and general
partners totaling $1,680,000 ($42.00 per unit) and $582,000, respectively, and
$1,840,000 ($46.00 per unit) and $638,000, respectively, for the same period in
2008. During the nine months ended September 30, 2009, we paid cash
distributions to the limited and general partners totaling $4,920,000 ($123.00
per unit) and $1,706,000, respectively, and $5,000,000 ($125.00 per unit) and
$1,734,000, respectively, for the same period in 2008. Future
distribution rates will be adjusted to levels which are supported by operating
cash flow after provisions for capital improvements and any other necessary
obligations.
15
Item
4. Controls and
Procedures
Public
Storage maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in reports the Partnership files and
submits under the Securities Exchange Act of 1934, as amended, (“Exchange Act”)
is recorded, processed, summarized and reported within the time periods
specified in accordance with SEC guidelines and that such information is
communicated to the Partnership’s management, including Public Storage’s Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure based on the definition of "disclosure controls
and procedures" in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives and management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures in reaching that level of reasonable
assurance.
As of the
end of the fiscal quarter covered by this report, Public Storage carried out an
evaluation, under the supervision and with the participation of the
Partnership’s management, including Public Storage’s Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Partnership’s disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that
evaluation, Public Storage’s Chief Executive Officer and Chief Financial Officer
concluded that the Partnership’s disclosure controls and procedures were
effective.
There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the quarter to which this report relates that have materially affected,
or are reasonable likely to materially affect, our internal control over
financial reporting.
16
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
The
information set forth under the heading “Legal Proceedings” in Note 6 to the
Partnership’s September 30, 2009 condensed financial statements in this
Form 10-Q is incorporated by reference in this Item 1.
Item
1A. Risk
Factors
The risk
factors set forth below update the corresponding risk factor in Part I, “Item
1A. Risk Factors” in the Public Storage Properties IV, Ltd. Annual Report on
Form 10-K for the year ended December 31, 2008. In addition to the
risk factor below, you should carefully consider the other risk factors
discussed in the Partnership’s Annual Report on Form 10-K for the year ended
December 31, 2008, which could materially affect the Partnership’s business,
financial position and results of operations.
The
Partnership is subject to governmental regulations and actions that affect its
operating results and financial condition.
The
Partnership’s business is subject to regulation under a wide variety of U.S.
federal, state and local laws, regulations and policies. There can be
no assurance that, in response to current economic conditions or the current
political environment or otherwise, laws and regulations will not be implemented
or changed in ways that adversely affect the Partnership’s operating results and
financial condition, such as current federal legislative proposals to expand
health care coverage costs or facilitate union activity or otherwise increase
operating costs.
Item
6. Exhibits
Exhibits
required by Item 601 of Regulation S-K are listed in the attached Exhibit Index,
and are filed herewith or incorporated herein by reference.
17
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:
November 13, 2009
PUBLIC
STORAGE PROPERTIES IV, LTD.
BY: Public
Storage
General Partner
BY: /s/ John
Reyes
John Reyes
Senior Vice President and
Chief Financial
Officer
18
Exhibit
No. Exhibit Index
31.1
|
Rule
13a-14(a) Certification. Filed
herewith.
|
31.2
|
Rule
13a-14(a) Certification. Filed
herewith.
|
32
|
Section
1350 Certifications. Filed
herewith.
|
19