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 March 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 0-8908
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PUBLIC STORAGE PROPERTIES IV, LTD.
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(Exact name of registrant as specified in its charter)
California 95-3192402
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed balance sheets at March 31, 2002
and December 31, 2001 2
Condensed statements of income for the three
months ended March 31, 2002 and 2001 3
Condensed statement of partners' equity for the
three months ended March 31, 2002 4
Condensed statements of cash flows for the
three months ended March 31, 2002 and 2001 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 IV, LTD.
CONDENSED BALANCE SHEETS
March 31, December 31,
2002 2001
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(Unaudited)
ASSETS
Cash and cash equivalents $ 1,174,000 $ 434,000
Marketable securities of affiliate (cost of $6,340,000) 14,474,000 13,096,000
Rent and other receivables 394,000 495,000
Real estate facilities, at cost:
Buildings and equipment 17,627,000 17,570,000
Land 5,021,000 5,021,000
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22,648,000 22,591,000
Less accumulated depreciation (14,987,000) (14,750,000)
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7,661,000 7,841,000
Other assets 77,000 62,000
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Total assets $ 23,780,000 $ 21,928,000
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LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 499,000 $ 354,000
Deferred revenue 270,000 224,000
Partners' equity:
Limited partners' equity, $500 per unit, 40,000 units
authorized, issued and outstanding 11,035,000 10,825,000
General partners' equity 3,842,000 3,769,000
Other comprehensive income 8,134,000 6,756,000
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Total partners' equity 23,011,000 21,350,000
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Total liabilities and partners' equity $ 23,780,000 $ 21,928,000
================= =================
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
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2002 2001
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REVENUES:
Rental income $ 2,809,000 $ 2,566,000
Dividends from marketable securities of affiliate 180,000 92,000
Other income 19,000 11,000
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3,008,000 2,669,000
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COSTS AND EXPENSES:
Cost of operations 683,000 552,000
Management fees paid to affiliate 165,000 154,000
Depreciation 237,000 240,000
Administrative 22,000 33,000
Interest expense - 115,000
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1,107,000 1,094,000
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NET INCOME $ 1,901,000 $ 1,575,000
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Limited partners' share of net income ($37.00 per unit
in 2002 and $38.95 per unit in 2001) $ 1,480,000 $ 1,558,000
General partners' share of net income 421,000 17,000
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$ 1,901,000 $ 1,575,000
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COMPREHENSIVE INCOME:
Net income $ 1,901,000 $ 1,575,000
Other comprehensive income (change in unrealized
gain of marketable equity securities) 1,378,000 769,000
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$ 3,279,000 $ 2,344,000
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See accompanying notes.
3
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Other
Limited General Comprehensive Total Partners'
Partners Partners Income Equity
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Balance at December 31, 2001 $ 10,825,000 $ 3,769,000 $ 6,756,000 $ 21,350,000
Change in unrealized gain of marketable
equity securities - - 1,378,000 1,378,000
Net income 1,480,000 421,000 - 1,901,000
Distributions (1,200,000) (418,000) - (1,618,000)
Equity transfer (70,000) 70,000 - -
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Balance at March 31, 2002 $ 11,035,000 $ 3,842,000 $ 8,134,000 $ 23,011,000
================= ================= ================= =================
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
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2002 2001
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Cash flows from operating activities:
Net income $ 1,901,000 $ 1,575,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 237,000 240,000
Decrease in rent and other receivables 101,000 1,000
(Increase) decrease in other assets (15,000) 4,000
Increase in accounts payable 145,000 36,000
Increase in deferred revenue 46,000 57,000
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Total adjustments 514,000 338,000
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Net cash provided by operating activities 2,415,000 1,913,000
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Cash flows from investing activities:
Additions to real estate facilities (57,000) (24,000)
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Net cash used in investing activities (57,000) (24,000)
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Cash flows from financing activities:
Distributions paid to partners (1,618,000) -
Principal payments on note payable to commercial bank - (1,750,000)
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Net cash used in financing activities (1,618,000) (1,750,000)
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Net increase in cash and cash equivalents 740,000 139,000
Cash and cash equivalents at beginning of period 434,000 525,000
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Cash and cash equivalents at end of period $ 1,174,000 $ 664,000
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Supplemental schedule of non-cash activities:
Increase in fair market value of marketable securities:
Marketable securities $ 1,378,000 $ 769,000
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Other comprehensive income $ 1,378,000 $ 769,000
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See accompanying notes.
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PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes
that the disclosures contained herein are adequate to make the
information presented not misleading. These unaudited condensed
financial statements should be read in conjunction with the financial
statements and related notes appearing in the Partnership's Form 10-K
for the year ended December 31, 2001.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Partnership's financial
position at March 31, 2002, the results of its operations for the three
months ended March 31, 2002 and 2001 and its cash flows for the three
months then ended.
3. The results of operations for the three months ended March 31, 2002 are
not necessarily indicative of the results expected for the full year.
4. Marketable securities at March 31, 2002 consist of 381,980 shares of
common stock and 12,412 shares of Equity Stock, Series A of Public
Storage, Inc., a publicly traded real estate investment trust and a
general partner of the Partnership. We have designated our portfolio of
marketable securities as available for sale. Accordingly, at March 31,
2002, we have recorded the marketable securities at fair value, based
upon the closing quoted prices of the securities at March 29, 2002.
Changes in market value of marketable securities are reflected as
unrealized gains or losses directly in Partners' Equity and accordingly
have no effect on net income.
5. During September 1998, the Partnership borrowed $21,000,000 from a
commercial bank. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20%. The loan
requires monthly payments of interest and matures September 2002.
Principal may be paid, in whole or in part, at any time without penalty
or premium. During December 2001, the Partnership paid the loan in
full.
6. The Partnership recommenced distributions to partners in the first
quarter of 2002. Distributions of $30.00 per limited partnership unit
were paid on March 15, 2002. Also, distributions in the amount of
$418,000 were paid to the general partners (equal to 25% of the total
distribution) in accordance with the provisions of the partnership
agreement.
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7. In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 141, "Business
Combinations," ("SFAS 141") which sets forth revised accounting
guidance with respect to accounting for acquisitions of business
enterprises. In accordance with the transition provisions of SFAS 141,
the Partnership adopted the disclosure and accounting provisions of
SFAS 141 on June 30, 2001 and the adoption had no effect on the
Partnership's financial statements.
8. In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." In June 2001, the FASB issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible
Assets," ("SFAS 142"). We adopted these statements effective January 1,
2002.
We evaluate our long-lived assets on a quarterly basis for indicators
of impairment. When indicators of impairment are detected, we evaluate
the recoverability of such long-lived assets. To the extent that the
estimated future undiscounted cash flows are less than the respective
book value, an impairment charge is recorded. The Partnership has
determined at March 31, 2002 that no such impairments existed and,
accordingly, no impairment charges have been recorded.
9. Statement No. 144 also addresses the accounting for long-lived assets
that are likely to be disposed of before the end of their previously
estimated useful life. Such assets are to be reported at the lower of
their carrying amount or fair value, less cost to sell. Our evaluations
have determined that there are no such impairments at March 31, 2002.
10. As of January 1, 1998, the Partnership adopted Statement 130, Reporting
Comprehensive Income. Statement 130 requires unrealized gains or losses
on the Partnership's available-for- sale securities to be included in
other comprehensive income.
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PUBLIC STORAGE PROPERTIES IV, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
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When used within this document, the words "expects," "believes,"
"anticipates," "should," "estimates," and similar expressions are intended to
identify "forward-looking statements" within the meaning of that term in Section
27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of
the Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors, which may
cause the actual results and performance of the Partnership to be materially
different from those expressed or implied in the forward looking statements.
Such factors are described in "Risk Factors" (page 10), and include the impact
of competition from new and existing real estate facilities which could impact
rents and occupancy levels at the real estate facilities that the Partnership's
has an interest in; the risk of terrorist attacks; the Partnership's ability to
effectively compete in the markets that it does business in; the impact of the
regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Partnerships; and the
impact of general economic conditions upon rental rates and occupancy levels at
the real estate facilities that the Partnership has an interest in.
CRITICAL ACCOUNTING POLICIES
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IMPAIRMENT OF LONG LIVED ASSETS
Substantially all of the Partnership's assets consist of long-lived
assets, primarily real estate. We evaluate our long-lived assets on a quartelry
basis for indicators of impairment. When indicators of impairment are detected,
we evaluate the recoverability of such long-lived assets. To the extent that the
estimated future undiscounted cash flows are less than the respective book
value, an impairment charge is recorded. The Partnership has determined at March
31, 2002 that no such impairments existed and, accordingly, no impairment
charges have been recorded.
Future events could cause us to conclude that our long-lived assets are
impaired. Any resulting impairment loss could have a material adverse impact on
our financial condition and results of operations.
ESTIMATED USEFUL LIVES OF LONG-LIVED ASSETS
Substantially all of the Partnership's assets consist of depreciable,
long-lived assets. We record depreciation expense with respect to these assets
based upon their estimated useful lives. Any change in the estimated useful
lives of those assets, caused by functional or economic obsolescense or other
factors, could have a material adverse impact on our financial condition or
results of operations.
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RESULTS OF OPERATIONS
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THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH
31, 2001:
Our net income for the three months ended March 31, 2002 was $1,901,000
compared to $1,575,000 for the three months ended March 31, 2001, representing
an increase of $326,000 or 21%. The increase is primarily a result of increased
operating results at our real estate facilities and a decrease in interest
expense.
Rental income for the three months ended March 31, 2002 was $2,809,000
compared to $2,566,000 for the three months ended March 31, 2001, representing
an increase of $243,000 or 9%. The increase is attributable to higher rental
rates. Annual realized rent for the three months ended March 31, 2002 increased
to $14.97 per occupied square foot from $13.01 per occupied square foot for the
three months ended March 31, 2001, a 15% increase. The weighted average
occupancy levels at the mini-warehouse facilities were 86% and 92% for each of
the three months ended March 31, 2002 and 2001, respectively.
Cost of operations (including management fees paid to affiliate) for
the three months ended March 31, 2002 was $848,000 compared to $706,000 for the
three months ended March 31, 2001, representing a increase of $142,000 or 20%.
During 2001, we began offering containerized storage at one of our
facilities. As a result, we have experienced an increase in both rental income
and cost of operations, however, there has been no material impact to net
operating income from this property.
LIQUIDITY AND CAPITAL RESOURCES
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Cash flows from operating activities ($2,415,000 for the three months
ended March 31, 2002) have been sufficient to meet all current obligations of
the Partnership.
During September 1998, the Partnership borrowed $21,000,000 from a
commercial bank. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20%. The loan requires monthly
payments of interest and matures September 2002. Principal may be paid, in whole
or in part, at any time without penalty or premium. During December 2001, the
Partnership paid the loan in full.
9
Distributions to the limited and general partners for the years
1978-1991 aggregated $62,032,000 including $29,360,000 distributed to the
partners in 1988 in connection with a financing of the properties. In the third
quarter of 1991, quarterly distributions were discontinued to enable the
Partnership to increase its funds available for debt principal payments. As all
debt service has been repaid as of December 31, 2001, the Partnership resumed
with quarterly distributions beginning in the first quarter of 2002. We paid
distributions to the limited and general partners totaling $1,200,000 ($30.00
per unit) and $418,000, respectively, during the first three months of 2002.
Future distribution rates may be adjusted to levels which are supported by
operating cash flow after capital improvements and any other necessary
obligations.
RISK FACTORS
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In addition to the other information in our Form 10-Q, you should
consider the following factors in evaluating the Partnership:
PUBLIC STORAGE HAS A SIGNIFICANT DEGREE OF CONTROL OVER THE
PARTNERSHIP.
Public Storage is general partner and owns approximately 33.2% of our
outstanding limited partnership units. In addition, PS Orangeco Partnerships,
Inc., an affiliate of Public Storage, owns 18.2% of our outstanding limited
partnership units. As a result, Public Storage has a significant degree of
control over matters submitted to a vote of our unitholders, including amending
our organizational documents, dissolving the Partnership and approving other
extraordinary transactions.
SINCE OUR BUSINESS CONSISTS PRIMARILY OF ACQUIRING AND OPERATING REAL
ESTATE, WE ARE SUBJECT TO REAL ESTATE OPERATING RISKS.
The value of our investments may be reduced by general risks of real
estate ownership. Since we derive substantially all of our income from real
estate operations, we are subject to the general risks of owning real
estate-related assets, including:
o lack of demand for rental spaces or units in a locale;
o changes in general economic or local conditions;
o changes in supply of or demand for similar or competing facilities
in an area;
o potential terrorist attacks;
o the impact of environmental protection laws;
10
o changes in interest rates and availability of permanent mortgage
funds which may render the sale or financing of a property
difficult or unattractive; and
o changes in tax, real estate and zoning laws.
There is significant competition among self-storage facilities. Most of
the properties the Partnership has an interest in are self-storage facilities.
Competition in the market areas in which many of our properties are located is
significant and has affected the occupancy levels, rental rates and operating
expenses of some of our properties. Any increase in availability of funds for
investment in real estate may accelerate competition. Further development of
self-storage facilities may intensify competition among operators of
self-storage facilities in certain market areas in which we operate.
We may incur significant environmental costs and liabilities. As an
owner of real properties, under various federal, state and local environmental
laws, we are required to clean up spills or other releases of hazardous or toxic
substances on or from our properties. Certain environmental laws impose
liability whether or not the owner knew of, or was responsible for, the presence
of the hazardous or toxic substances. In some cases, liability may not be
limited to the value of the property. The presence of these substances, or the
failure to properly remediate any resulting contamination, also may adversely
affect the owner's or operator's ability to sell, lease or operate its property
or to borrow using its property as collateral.
We have conducted preliminary environmental assessments on most of the
properties the Partnership has an interest in to evaluate the environmental
condition of, and potential environmental liabilities associated with, our
properties. These assessments generally consist of an investigation of
environmental conditions at the property (not including soil or groundwater
sampling or analysis), as well as a review of available information regarding
the site and publicly available data regarding conditions at other sites in the
vicinity. In connection with these property assessments, we have become aware
that prior operations or activities at some facilities or from nearby locations
have or may have resulted in contamination to the soil or groundwater at these
facilities. In this regard, some of our facilities are or may be the subject of
federal or state environment investigations or remedial actions. Although we
cannot provide any assurance, based on the preliminary environmental
assessments, we believe we have funds available to cover any liability from
environmental contamination or potential contamination and we are not aware of
any environmental contamination of our facilities material to our overall
business, financial condition or results of operation.
11
PART II. OTHER INFORMATION
Items 1 through 5 are inapplicable.
Item 6 Exhibits and Reports on Form 8-K.
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(a) The following exhibits are included herein:
None
(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: May 15, 2002
PUBLIC STORAGE PROPERTIES IV, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
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John Reyes
Senior Vice President and
Chief Financial Officer
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