UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 2007
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 0-8667
PUBLIC STORAGE PROPERTIES, LTD.
-------------------------------
(Exact name of registrant as specified in its charter)
California 95-3196921
--------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue, Glendale, California 91201-2349
--------------------------------------- ----------------------
(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 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]
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 August 13, 2007: 20,000.
PUBLIC STORAGE PROPERTIES, LTD.
INDEX Pages
PART I. FINANCIAL INFORMATION (Item 3 not applicable)
---------------------
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets at June 30, 2007
and December 31, 2006 1
Condensed Statements of Income for the Three and Six
Months Ended June 30, 2007 and 2006 2
Condensed Statement of Partners' Equity for the
Six Months Ended June 30, 2007 3
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2007 and 2006 4
Notes to Condensed Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 12
Item 4. Controls and Procedures 12 - 13
PART II. OTHER INFORMATION (Items 2 - 5 not applicable)
-----------------
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 6. Exhibits 14
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED BALANCE SHEETS
June 30, December 31,
2007 2006
----------- -------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 749,000 $ 1,483,000
Rent and other receivables 88,000 73,000
Real estate facilities, at cost:
Building, land improvements and equipment 9,807,000 9,765,000
Land 2,476,000 2,476,000
------------ -------------
12,283,000 12,241,000
Less accumulated depreciation (9,235,000) (9,169,000)
------------ -------------
3,048,000 3,072,000
Other assets 81,000 92,000
------------ -------------
Total assets $ 3,966,000 $ 4,720,000
============ =============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 123,000 $ 98,000
Deferred revenue 214,000 159,000
----------- -------------
Total liabilities 337,000 257,000
Commitments and contingencies (Note 6)
Partners' equity:
Limited partners' equity, $500 per unit,
20,000 units authorized, issued and
outstanding 2,695,000 3,314,000
General partners' equity 934,000 1,149,000
----------- -------------
Total partners' equity 3,629,000 4,463,000
----------- -------------
Total liabilities and partners' equity $ 3,966,000 $ 4,720,000
============ =============
See accompanying notes.
1
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
REVENUES:
Rental income $ 1,810,000 $ 1,808,000 $ 3,611,000 $ 3,566,000
Other income 42,000 36,000 80,000 70,000
----------- ----------- ----------- -----------
1,852,000 1,844,000 3,691,000 3,636,000
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of operations 397,000 417,000 789,000 826,000
Management fees paid to affiliate 109,000 109,000 217,000 214,000
Depreciation 33,000 39,000 66,000 81,000
Administrative 33,000 34,000 59,000 69,000
----------- ----------- ----------- -----------
572,000 599,000 1,131,000 1,190,000
----------- ----------- ----------- -----------
NET INCOME: $ 1,280,000 $ 1,245,000 $ 2,560,000 $ 2,446,000
=========== =========== =========== ===========
Limited partners' share of net income $ 714,000 $ 946,000 $ 1,694,000 $ 1,848,000
General partners' share of net income 566,000 299,000 866,000 598,000
----------- ----------- ----------- -----------
$ 1,280,000 $ 1,245,000 $ 2,560,000 $ 2,446,000
=========== =========== =========== ===========
Limited partners' share of net income per
unit (20,000 units outstanding) $ 35.70 $ 47.30 $ 84.70 $ 92.40
=========== =========== =========== ===========
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Total
Limited General Partners'
Partners' Partners' Equity
------------- ------------- --------------
Balance at December 31, 2006 $ 3,314,000 $ 1,149,000 $ 4,463,000
Net income 1,694,000 866,000 2,560,000
Cash distributions (2,520,000) (874,000) (3,394,000)
Equity transfer 207,000 (207,000) -
-------------- -------------- --------------
Balance at June 30, 2007 $ 2,695,000 $ 934,000 $ 3,629,000
============== ============== ==============
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
----------------------------------
2007 2006
------------- --------------
Cash flows from operating activities:
Net income $ 2,560,000 $ 2,446,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 66,000 81,000
Increase in rent and other receivables (15,000) (59,000)
Decrease (increase) in other assets 11,000 (24,000)
Increase in accounts payable and accrued liabilities 25,000 23,000
Increase in deferred revenue 55,000 45,000
------------- --------------
Total adjustments 142,000 66,000
------------- --------------
Net cash provided by operating activities 2,702,000 2,512,000
------------- --------------
Cash flows from investing activities:
Additions to real estate facilities (42,000) (102,000)
------------- --------------
Net cash used in investing activities (42,000) (102,000)
------------- --------------
Cash flows from financing activities:
Distributions paid to partners (3,394,000) (2,316,000)
------------- --------------
Net cash used in financing activities (3,394,000) (2,316,000)
------------- --------------
Net (decrease) increase in cash and cash equivalents (734,000) 94,000
Cash and cash equivalents at the beginning of the year 1,483,000 1,448,000
------------- --------------
Cash and cash equivalents at the end of the period $ 749,000 $ 1,542,000
============= ==============
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of the Business
---------------------------
Public Storage Properties, Ltd. (the "Partnership") is a publicly held
limited partnership formed under the California Uniform Limited Partnership
Act in November 1976. The Partnership raised $10,000,000 in gross proceeds
by selling 20,000 units of limited partnership interest ("Units") in an
interstate offering, which commenced in October 1977 and completed in
January 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 nine self-storage facilities located in California.
2. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
Use of Estimates:
-----------------
The preparation of the financial statements in conformity with U.S.
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.
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.
Allocation of Net Income:
-------------------------
The general partners' share of net income consists of amounts
attributable to their 1% capital contribution and an additional percentage
of cash flow (as defined) which relates to the general partners' share of
cash distributions as set forth in the Partnership Agreement (Note 4). All
remaining net income is allocated to the limited partners.
Per unit data is based on the weighted average number of the limited
partnership units (20,000) outstanding during the period.
Cash and Cash Equivalents:
--------------------------
For financial statement purposes, the Partnership considers all highly
liquid financial instruments such as short-term treasury securities or
investment grade short-term commercial paper to be cash equivalents.
5
PUBLIC STORAGE PROPERTIES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2007, all of the
real estate facilities have been in service longer than 25 years, and
accordingly the original development cost of such buildings are fully
depreciated at June 30, 2007.
We evaluate our real estate for impairment on a quarterly basis. We
first evaluate these assets for indicators of impairment such as a) a
significant decrease in the market price of real estate, b) a significant
adverse change in the extent or manner in which real estate is being used
or in its physical condition, c) a significant adverse change in legal
factors or the business climate that could affect the value of the real
estate, d) an accumulation of costs significantly in excess of the amount
originally projected for the acquisition of or construction of the real
estate, or e) a current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of the real estate.
When any such indicators of impairment are noted, we compare the carrying
value of the real estate to the future estimated undiscounted cash flows
attributable to the real estate. If the real estate's recoverable amount is
less than the carrying value of the asset, then an impairment charge is
booked for the excess of carrying value over the real estate's fair value.
Our evaluations have identified no such impairments at June 30, 2007.
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 $214,000 at June 30, 2007 ($159,000 at
December 31, 2006), consists of prepaid rents, which are recognized 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, 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 or state income tax expense is recorded by the
Partnership.
6
PUBLIC STORAGE PROPERTIES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Recent Accounting Pronouncements and Guidance:
----------------------------------------------
As of August 14, 2007, there have been no recent accounting
pronouncements and guidance, which were not effective for implementation
prior to June 30, 2007, 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 as defined within
Statement of Financial Accounting Standards No. 131.
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. For the
three months ended June 30, 2007, we paid distributions to the limited and
general partners totaling $1,660,000 ($83.00 per unit) and $576,000,
respectively. For the six months ended June 30, 2007, we paid distributions
to the limited and general partners totaling $2,520,000 ($126.00 per unit)
and $874,000, respectively. Future distribution rates may be adjusted to
levels which are supported by operating cash flow after 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. In
2002, BWH Marina Corporation II sold its interests to H-G Family
Corporation. As such, Mr. Hughes continues to act as a general partner but
receives no direct compensation or other consideration from the
Partnership.
The general partners have a 1% interest in the Partnership. In
addition, the general partners have an 8% interest in cash distributions
attributable to operations (exclusive of distributions attributable to sale
and financing proceeds until the limited partners recover all of their
initial investment). Thereafter, the general partners have a 25% interest
in all cash distributions (including sale and financing proceeds). In 1985,
the limited partners recovered all of their initial investment. All
subsequent cash distributions are being made 25.75% (including the 1%
interest) to the general partners and 74.25% to the limited partners.
Transfers of equity are made periodically to 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 Agreement and Shared Expenses with PS:
-------------------------------------------------
The Partnership has a 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 and six months ended
June 30, 2007, the Partnership paid PS $109,000 and $217,000, respectively,
and $109,000 and $214,000 for the same periods in 2006, 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.
The Partnership's facilities, along with facilities owned by PS and its
affiliates, are managed and marketed jointly by PS in order to take
7
PUBLIC STORAGE PROPERTIES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
advantage of scale and other efficiencies. 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,
substantially all of which are included in cost of operations in our
accompanying condensed statements of income, amounted to $217,000 and
$222,000 for the three months ended June 30, 2007 and 2006, respectively.
For the six months ended June 30, 2007 and 2006, the total of such expenses
were $422,000 and $457,000, respectively.
Ownership Interest by the General Partners
------------------------------------------
PS owns 6,169 Limited Partnership Units ("Units"), as to which PS has
sole voting and dispositive power.
Hughes and members of his family (the "Hughes Family") own 6,105 Units.
Hughes owns 6,025 Units, as to which Hughes has sole voting and dispositive
power, through a wholly-owned corporation and Tamara Hughes Gustavson, an
adult daughter of Hughes, owns 80 Units as to which Tamara Hughes Gustavson
has sole voting and dispositive power. PS has an option to acquire 25 of
the Units held by Hughes and the 80 Units held by Tamara Hughes Gustavson.
In addition, there are 196 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's management and related
individuals own approximately 6%.
Captive Insurance Activities with PS
------------------------------------
The Partnership has a 0.9% 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, on the cost method.
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.
Other Activities with PS
------------------------
PS owns a corporation that reinsures policies against losses to goods
stored by tenants in the Partnership's and PS's storage facilities. This
corporation receives the premiums and bears the risks associated with the
re-insurance. The Partnership receives an access fee from this corporation
in return for providing tenant listings. This fee is based on number of
spaces the Partnership has to rent. Included in other income on our
accompanying condensed statements of income for these fees are $15,000 for
each of the three month periods ended June 30, 2007 and 2006, respectively.
For each of the six month periods ended June 30, 2007 and 2006, these fees
were $29,000.
8
PUBLIC STORAGE PROPERTIES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A subsidiary of PS sells locks and boxes and rents trucks to the
general public and tenants to be used in securing their spaces and moving
their goods. The subsidiary of PS receives the revenues and bears the cost
of the activities.
6. Commitments and Contingencies
-----------------------------
Legal Proceedings:
------------------
Serrao v. Public Storage, Inc. (filed April 2003) (Superior Court of
-----------------------------------------------------------------------
California - Orange County)
---------------------------
The plaintiff in this case filed a suit against PS on behalf of a
putative class of renters who rented self-storage units from PS. Plaintiff
alleges that PS misrepresented the size of its storage units, has brought
claims under California statutory and common law relating to consumer
protection, fraud, unfair competition, and negligent misrepresentation, and
is seeking monetary damages, restitution, and declaratory and injunctive
relief.
The claim in this case is substantially similar to those in Henriquez
v. Public Storage, Inc., which was disclosed in prior reports. In January
2003, the plaintiff caused the Henriquez action to be dismissed.
Based upon the uncertainty inherent in any putative class action, PS
cannot presently determine the potential damages, if any, or the ultimate
outcome of this litigation. On November 3, 2003, the court granted our
motion to strike the plaintiff's nationwide class allegations and to limit
any putative class to California residents only. In August 2005, PS filed a
motion to remove the case to federal court, but the case has been remanded
to the Superior Court. PS is vigorously contesting the claims upon which
this lawsuit is based, including class certification efforts.
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 subclass
certified and dismissed those claims. They only surviving claims are those
relating to the named plaintiff only.
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.
9
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: 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 are made pursuant to the safe-harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. These
forward-looking statements involve known and unknown risks and
uncertainties, which may cause the Partnership's 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 these
forward-looking statements as predictions of future events.
Factors and risks that may impact future results and performance
include, but are not limited to, those described in Item 1A, "Risk Factors"
in the Partnership's Annual Report on Form 10-K for the year ended December
31, 2006 and in our other filings with the Securities and Exchange
Commission. These risks include the following: changes in general economic
conditions and in the markets in which the Partnership operates and the
impact of competition from new and existing storage and commercial
facilities and other storage alternatives, which could impact rents and
occupancy levels at the Partnership's facilities; the impact of the
regulatory environment as well as national, state, and local laws and
regulations, which could increase the Partnership's expense and reduce the
Partnership's cash available for distribution; and economic uncertainty due
to the impact of war or terrorism could adversely affect our business plan.
We 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 assume no 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.
Overview
--------
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.
PS is the largest owner and operator of self-storage facilities in the
United States. All of PS' facilities in the United States 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 of PS' competitors.
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 potential future
increases in rental income to come primarily from increases in realized
rent, although there can be no assurance.
10
Critical Accounting Policies
----------------------------
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 real
estate for impairment requires determining whether indicators of impairment
exist, which is a subjective process. When any indicators of impairment are
found, the evaluation then entails projections of future operating cash
flows, which also involves significant judgment. We identified no such
impairments at June 30, 2007. However, future events, or facts and
circumstances that currently exist that we have not yet identified, could
cause us to conclude in the future that our real estate is impaired. Any
resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.
Estimated Useful Lives of Long-Lived Assets
-------------------------------------------
Substantially all of our assets consist of depreciable, long-lived
assets. We record depreciation expense with respect to these assets based
upon their estimated useful lives. Any change in the estimated useful lives
of those assets, caused by functional or economic obsolescence or other
factors, could have a material adverse impact on our financial condition or
results of operations.
Accruals for Contingencies
--------------------------
We are exposed to business and legal liability risks with respect to
events that have occurred, but in accordance with U.S. generally accepted
accounting principles, we have not accrued for such potential liabilities
because the loss is either not probable or not estimable or because we are
not aware of the event. Future events and the result of pending litigation
could result in such potential losses becoming probable and estimable,
which could have a material, adverse impact on our financial condition or
results of operations. Some of these potential losses, which we are aware
of, are described in Notes 5 and 6 to our 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, the timing of the recognition of our expenses could be
incorrect. Cost of operations, interest expense, general and administrative
expense, as well as television, yellow page, and other advertising
expenditures are expensed as incurred.
Results of Operations
---------------------
Three months ended June 30, 2007 compared to three months ended June
-----------------------------------------------------------------------
30, 2006:
---------
Our net income for the three months ended June 30, 2007 was $1,280,000
compared to $1,245,000 for the three months ended June 30, 2006,
representing an increase of $35,000 or 2.8%.
Rental income for the three months ended June 30, 2007 was $1,810,000
compared to $1,808,000 for the three months ended June 30, 2006,
representing a slight increase of $2,000 or 0.1%. Weighted average
occupancy levels at the self-storage facilities were 91% for the three
months ended June 30, 2007 and 92% for the three months ended June 30,
2006. Annual realized rent for the three months ended June 30, 2007
increased to $15.54 per occupied square foot compared to $15.38 per
occupied square foot for the three months ended June 30, 2006.
Cost of operations, including management fees paid to an affiliate,
(see Note 5 to our condensed financial statements) for the three months
ended June 30, 2007 was $506,000 compared to $526,000 for the three months
ended June 30, 2006, representing a decrease of $20,000 or 3.8%. The
decrease was primarily due to decreases in repairs and maintenance and
property insurance expenses, partially offset by increases in advertising
and promotion and data processing expenses.
11
Depreciation expense was $33,000 for the three months ended June 30,
2007 compared to $39,000 for the same period in 2006, a decrease of $6,000
or 15.4%.
Six months ended June 30, 2007 compared to six months ended June 30,
-----------------------------------------------------------------------
2006:
-----
Our net income for the six months ended June 30, 2007 was $2,560,000
compared to $2,446,000 for the six months ended June 30, 2006, representing
an increase of $114,000 or 4.7%.
Rental income for the six months ended June 30, 2007 was $3,611,000
compared to $3,566,000 for the six months ended June 30, 2006, representing
an increase of $45,000 or 1.3%. The increase in rental income was a result
of an increase in realized rent per square foot. Weighted average occupancy
levels at the self-storage facilities were 91% for each of the six month
periods ended June 30, 2007 and 2006, respectively. Annual realized rent
for the six months ended June 30, 2007 increased to $15.51 per occupied
square foot compared to $15.31 per occupied square foot for the six months
ended June 30, 2006.
Cost of operations, including management fees paid to an affiliate,
(see Note 5 to our condensed financial statements) for the six months ended
June 30, 2007 was $1,006,000 compared to $1,040,000 for the six months
ended June 30, 2006, representing a decrease of $36,000 or 3.5%. The
decrease was primarily due to decreases in advertising and promotion and
repairs and maintenance expenses.
Depreciation expense was $66,000 for the six months ended June 30, 2007
compared to $81,000 for the same period in 2006, a decrease of $15,000 or
18.5%. The decrease in depreciation expense is primarily related to the
initial development costs of buildings for the Partnership's self-storage
facilities becoming fully depreciated.
Liquidity and Capital Resources
-------------------------------
Cash generated from operations ($2,702,000 for the six months ended
June 30, 2007) has been sufficient to meet all current obligations of the
Partnership. Capital improvements totaled $42,000 and $102,000 for the six
months ended June 30, 2007 and 2006, respectively.
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.
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. We paid
distributions to the limited and general partners totaling $1,660,000
($83.00 per unit) and $576,000, respectively, for the three months ended
June 30, 2007. We paid distributions to the limited and general partners
totaling $2,520,000 ($126.00 per unit) and $874,000, respectively, for the
six months ended June 30, 2007. Future distribution rates will be adjusted
to levels which are supported by operating cash flow after capital
improvements and any other necessary obligations.
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 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 Rule 13a-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.
12
At the end of the period 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. Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Partnership's disclosure controls and procedures
were effective. During the second quarter of 2007, there were no
significant changes in the Partnership's internal controls over financial
reporting that have materially affected, or are reasonably likely to
materially affect, the Partnership's internal control over financial
reporting.
13
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
-----------------
The information set forth under the heading "Legal Proceedings" in Note
6 to our condensed financial statements in this Form 10-Q is incorporated
by reference in this Item 1.
Item 1A. Risk Factors
------------
As of June 30, 2007, no material changes had occurred in our risk
factors as discussed in Item 1A of our Form 10K for the year ended December
31, 2006.
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.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATED: August 13, 2007
PUBLIC STORAGE PROPERTIES, LTD.
BY: Public Storage
General Partner
BY: /s/ John Reyes
--------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
15
Exhibit No. Exhibit Index
- ----------- -------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Filed herewith.
32 Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer. Filed herewith.
16