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 September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 0-8667
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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 Ave.
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.
Yes X No
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INDEX
Page
PART I. FINANCIAL INFORMATION
Condensed balance sheets at September 30, 1998
and December 31, 1997 2
Condensed statements of income for the three
and nine months ended September 30, 1998 and 1997 3
Condensed statement of partners' deficit for the
nine months ended September 30, 1998 4
Condensed statements of cash flows for the
nine months ended September 30, 1998 and 1997 5
Notes to condensed financial statements 6-7
Management's discussion and analysis of
financial condition and results of operations 8-11
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED BALANCE SHEETS
September 30, December 31,
1998 1997
----------------- -----------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 169,000 $ 546,000
Rent and other receivables 39,000 46,000
Real estate facilities, at cost:
Building, land improvements and equipment 8,347,000 8,001,000
Land 2,511,000 2,511,000
----------------- -----------------
10,858,000 10,512,000
Less accumulated depreciation (5,856,000) (5,492,000)
----------------- -----------------
5,002,000 5,020,000
----------------- -----------------
Other assets 125,000 148,000
----------------- -----------------
Total assets $ 5,335,000 $ 5,760,000
================= =================
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Accounts payable $ 152,000 $ 32,000
Deferred revenue 136,000 131,000
Mortgage note 1,551,000 13,793,000
Note payable to general partner 10,770,000 300,000
Partners' deficit:
Limited partners' deficit, $500 per unit, 20,000 units
authorized, issued and outstanding (5,401,000) (6,308,000)
General partners' deficit (1,873,000) (2,188,000)
----------------- -----------------
Total partners' deficit (7,274,000) (8,496,000)
----------------- -----------------
Total liabilities and partners' deficit $ 5,335,000 $ 5,760,000
================= =================
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- -------------- ----------------
REVENUES:
Rental income $ 1,164,000 $ 1,102,000 $ 3,431,000 $ 3,203,000
Other income 2,000 4,000 17,000 9,000
--------------- --------------- -------------- ----------------
1,166,000 1,106,000 3,448,000 3,212,000
--------------- --------------- -------------- ----------------
COSTS AND EXPENSES:
Cost of operations 272,000 233,000 792,000 709,000
Management fees paid to affiliate 69,000 66,000 205,000 192,000
Depreciation 128,000 115,000 364,000 329,000
Administrative 13,000 14,000 48,000 39,000
Interest expense 243,000 310,000 817,000 948,000
--------------- --------------- -------------- ----------------
725,000 738,000 2,226,000 2,217,000
--------------- --------------- -------------- ----------------
NET INCOME $ 441,000 $ 368,000 $ 1,222,000 $ 995,000
=============== =============== ============== ================
Limited partners' share of net income ($60.45 per
unit in 1998 and $49.25 per unit in 1997) $ 1,209,000 $ 985,000
General partners' share of net income 13,000 10,000
-------------- ----------------
$ 1,222,000 $ 995,000
============== ================
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED STATEMENT OF PARTNERS' DEFICIT
(UNAUDITED)
Total
Limited General Partners'
Partners Partners Deficit
------------------- ------------------- -------------------
Balance at December 31, 1997 $ (6,308,000) $ (2,188,000) $ (8,496,000)
Net income 1,209,000 13,000 1,222,000
Equity transfer (302,000) 302,000 -
------------------- ------------------- -------------------
Balance at September 30, 1998 $ (5,401,000) $ (1,873,000) $ (7,274,000)
=================== =================== ===================
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
-------------------------------------
1998 1997
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,222,000 $ 995,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 364,000 329,000
Decrease (increase) in rent and other receivables 7,000 (1,000)
Amortization of prepaid loan fees 25,000 25,000
(Increase) decrease in other assets (2,000) 10,000
Increase in accounts payable 120,000 42,000
Increase in deferred revenue 5,000 8,000
------------------ ------------------
Total adjustments 519,000 413,000
------------------ ------------------
Net cash provided by operating activities 1,741,000 1,408,000
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate facilities (346,000) (259,000)
------------------ ------------------
Net cash used in investing activities (346,000) (259,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage note payable (12,242,000) (389,000)
Proceeds from note payable to general partner 11,000,000 -
Principal payment on note payable to general partner (530,000) (450,000)
------------------ ------------------
Net cash used in financing activities (1,772,000) (839,000)
------------------ ------------------
Net (decrease) increase in cash and cash equivalents (377,000) 310,000
Cash and cash equivalents at the beginning of the period 546,000 69,000
------------------ ------------------
Cash and cash equivalents at the end of the period $ 169,000 $ 379,000
================== ==================
See accompanying notes.
5
PUBLIC STORAGE PROPERTIES, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Partnership's Form 10-K for the year ended December 31,
1997.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Partnership's financial position
at September 30, 1998, the results of its operations for the three and nine
months ended September 30, 1998 and 1997 and its cash flows for the nine
months then ended.
3. The results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of the results expected for the full
year.
4. On June 1, 1998, the Partnership paid down its mortgage note with a third
party lender by $11,641,000. The payment was made from cash reserves and an
$11,000,000 loan from Public Storage, Inc., a general partner of the
Partnership. The loan from Public Storage, Inc. bears interest at the fixed
rate of 7.3% and matures June 1999. The loan calls for monthly payments of
interest only. Principal may be paid at anytime without penalty. Public
Storage, Inc. has also provided the Partnership with options to extend the
loan term through June 2003. Interest paid to Public Storage, Inc. in 1998
was $317,000.
5. During October 1998, the Partnership borrowed $12,400,000 from a commercial
bank to payoff the loan from Public storage, Inc. and the mortgage note
with a third party. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.55% (5.77% as of November 9,
1998). The loan requires monthly payments of interest and mature October
2002. Principal may be paid, in whole or in part, at any time without
penalty or premium.
6
5. (continued)
The Partnership also entered into interest rate swap agreements to reduce
the impact of changes in interest rates on a portion of its floating rate
debt. The agreement, which covers $5,000,000 of debt through October 2000,
effectively changes the interest rate exposure from floating rate to a
fixed rate of 5.205%. The second agreement, which covers $2,500,000 of debt
through October 2001 and effectively changes the interest rate exposure
from floating rate to a fixed rate of 5.33%. Market gains and losses on the
value of the swap are deferred and included in income over the life of the
contract. The Partnership records the differences paid or received on the
interest rate swap in interest expense as payments are made or received.
7
PUBLIC STORAGE PROPERTIES, LTD.,
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
- --------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains "forward looking" statements that involve risks and
uncertainties and are based upon a number of assumptions. Actual results and
trends may differ materially depending upon a number of factors. Information
regarding these factors is contained in the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and in the reports for the
quarterly periods on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998.
RESULTS OF OPERATIONS
- ---------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997:
The Partnership's net income for the nine months ended September 30, 1998
was $1,222,000 compared to $995,000 for the nine months ended September 30,
1997, representing an increase of $227,000 or 23%. The Partnership's net income
for the three months ended September 30, 1998 was $441,000 compared to $368,000
for the three months ended September 30, 1997, representing an increase of
$73,000 or 20%. These increases are primarily a result of increased operating
results at the Partnership's real estate facilities combined with a decrease in
interest expense resulting from a lower notes payable balance in 1998 compared
to 1997.
Rental income for the nine months ended September 30, 1998 was $3,431,000
compared to $3,203,000 for the nine months ended September 30,1997, representing
an increase of $228,000 or 7%. Rental income for the three months ended
September 30, 1998 was $1,164,000 compared to $1,102,000 for the three months
ended September 30, 1997, representing an increase of $62,000 or 6%. These
increases are primarily attributable to higher rental rates at the Partnership's
mini-warehouse facilities. The weighted average occupancy levels at the
mini-warehouse facilities were 94% and 95% for the nine months ended September
30, 1998 and 1997, respectively. Realized rent for the nine months ended
September 30, 1998 increased to $.80 per occupied square foot from $.74 per
occupied square foot for the nine months ended September 30, 1997.
Cost of operations (including management fees paid to an affiliate) for the
nine months ended September 30, 1998 was $997,000 compared to $901,000 for the
nine months ended September 30, 1997, representing an increase of $96,000 or
11%. Cost of operations (including management fees paid to an affiliate) for the
three months ended September 30, 1998 was $341,000 compared to $299,000 for the
three months ended September 30, 1997, representing an increase of $42,000 or
8
14%. This increase is mainly attributable to increases in management fees, and
advertising and promotion expenses.
Interest expense decreased $131,000 to $817,000 for the nine months ended
September 30, 1998 from $948,000 for the same period in 1997. This decrease is
mainly attributable to lower outstanding principal balances and lower interest
rates on the Partnership's indebtedness. See Liquidity and Capital Resources for
a discussion of the refinancing of the Partnership's indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash generated from operations ($1,741,000 for the nine months ended
September 30, 1998) has been sufficient to meet all current obligations of the
Partnership.
In the fourth quarter of 1990, quarterly distributions were discontinued to
enable the Partnership to increase its cash reserves for principal payments that
commenced in 1993.
On June 1, 1998, the Partnership paid down its mortgage note with a third
party lender by $11,641,000. The payment was made from cash reserves and an
$11,000,000 loan from Public Storage, Inc. The loan from Public Storage, Inc.
bears interest at the fixed rate of 7.3% and matures June 1999. The loan calls
for monthly payments of interest only. Principal may be paid at anytime without
penalty. Public Storage, Inc. has also provided the Partnership with options to
extend the loan term through June 2003. Interest paid to Public Storage, Inc. in
1998 was $317,000.
During October 1998, the Partnership borrowed $12,400,000 from a commercial
bank to payoff the loan from Public storage, Inc. and the mortgage note with a
third party. The loan is unsecured and bears interest at the London Interbank
Offering Rate ("LIBOR") plus 0.55% (5.77% as of November 9, 1998). The loan
requires monthly payments of interest and mature October 2002. Principal may be
paid, in whole or in part, at any time without penalty or premium. The loan
proceeds were used to pay off the Partnership's existing indebtedness.
The Partnership also entered into interest rate swap agreements to reduce
the impact of changes in interest rates on a portion of its floating rate debt.
The agreement, which covers $5,000,000 of debt through October 2000, effectively
changes the interest rate exposure from floating rate to a fixed rate of 5.205%.
The second agreement, which covers $2,500,000 of debt through October 2001and
effectively changes the interest rate exposure from floating rate to a fixed
rate of 5.33%. Market gains and losses on the value of the swap are deferred and
included in income over the life of the contract. The Partnership records the
differences paid or received on the interest rate swap in interest expense as
payments are made or received.
9
IMPACT ON THE YEAR 2000 ISSUE
- -----------------------------
Public Storage, Inc. ("PSI"), the general partner and property manager, has
completed an assessment of all of its hardware and software applications to
identify susceptibility to what is commonly referred to as the "Y2K Issue"
whereby certain computer programs have been written using two digits rather than
four to define the applicable year. Any of PSI's computer programs or hardware
with the Y2K Issue that have date-sensitive applications or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in miscalculations or system failure causing disruptions of
operations.
Many of PSI's critical applications, relative to the direct management of
properties, have recently been replaced and PSI believes they are already Year
2000 compliant. PSI has an implementation in process on the remaining critical
applications, including its general ledger and related systems, that are
believed to have Y2K Issues. PSI expects the implementation to be complete by
June 1999. Contingency plans have been developed for use in case PSI's
implementations are not completed on a timely basis. While PSI presently
believes that the impact of the Y2K Issue on its systems can be mitigated, if
the plan for ensuring Year 2000 compliance and the related contingency plans
were to fail, be insufficient, or not be implemented on a timely basis,
operations of the Partnership could be materially impacted.
Certain of PSI's other non-computer related systems that may be impacted by
the Y2K Issue, such as security systems, are currently being evaluated, and PSI
expects the evaluation to be completed by June 1999. PSI expects the
implementation of any required solutions to be complete in advance of December
31, 1999. PSI has not fully evaluated the impact of lack of Year 2000 compliance
on these systems, but has no reason to believe that lack of compliance would
materially impact the operations of the Partnership.
The Partnership exchanges electronic data with certain outside vendors in
the banking and payroll processing areas. PSI has been advised by these vendors
that their systems are or will be Year 2000 compliant, but has requested a Year
2000 compliance certification from these entities. PSI is not aware of any other
vendors, suppliers, or other external agents with a Y2K Issue that would
materially impact the Partnership's resuls of operations, liquidity, or capital
resources. However, PSI has no means of ensuring that external agents will be
Year 2000 compliant, and there can be no assurance that the Partnership has
identified all such external agents. The inability of external agents to
complete their Year 2000 compliance process in a timely fashion could materially
impact the Partnership. The effect of non-compliance by external agents is not
determinable.
The total cost of PSI's Year 2000 compliance activities (which primarily
consists of the costs of new systems) will be allocated to all entities that use
the PSI computer systems. The amount to be allocated to the Partnership is
estimated at approximately $36,000. These costs are capitalized.
The costs of the projects and the date on which PSI believes that it will
be Year 2000 compliant are based upon management's best estimates, and were
derived utilizing numerous assumptions of future events. There can be no
10
assurance that these estimates will be achieved, and actual results could differ
materially from those anticipated. There can be no assurance that PSI has
identified all potential Y2K Issue either within PSI and the Partnership or at
external agents. In addition, the impact of the Y2K Issue on governmental
entities and utility providers and the resultant impact on the Partnership, as
well as disruptions in the general economy, may be material but cannot be
reasonably determined or quantified.
11
PART II. OTHER INFORMATION
ITEMS 1 through 5 are inapplicable.
ITEM 6 Exhibits and Reports on Form 8-K
(a) The following Exhibits are included herein:
10.1 Credit Agreement dated October 23, 1998 between Public
Storage Properties, Ltd. and First Union National Bank
10.2 Interest Rate Swap Confirmation dated October 26, 1998
by and between Public Storage Properties, Ltd. and First
Union National Bank expires on October 23, 2001
10.3 Interest Rate Swap Confirmation dated October 27, 1998
by and between Public Storage Properties, Ltd. and First
Union National Bank expires on October 23, 2000
(27) Financial Data Schedule
(b) Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 13, 1998
PUBLIC STORAGE PROPERTIES, LTD.
BY: Public Storage, Inc.
General Partner
BY /s/ John Reyes
-------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
12