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 March 31, 2009.
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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.
----------------------------------
(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.
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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.
[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 (ss.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 ReportingCompany [ ]
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 May 13, 2009: 40,000.
PUBLIC STORAGE PROPERTIES IV, LTD.
INDEX
Pages
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PART I. FINANCIAL INFORMATION (Item 3 not applicable)
---------------------
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets at March 31, 2009
and December 31, 2008 1
Condensed Statements of Income for the
Three Months Ended March 31, 2009 and 2008 2
Condensed Statement of Partners' Equity for the
Three Months Ended March 31, 2009 3
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 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 - 14
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION (Items 2 - 5 not applicable)
-----------------
Item 1. Legal Proceedings 16
Item 1A. Risk Factors 16
Item 6. Exhibits 16
[PG NUMBER]
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED BALANCE SHEETS
March 31, December 31,
2009 2008
---------------- ----------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 1,187,000 $ 1,139,000
Rent and other receivables 78,000 74,000
Real estate facilities, at cost:
Buildings and equipment 20,381,000 20,358,000
Land 5,021,000 5,021,000
---------------- ----------------
25,402,000 25,379,000
Less accumulated depreciation (18,741,000) (18,642,000)
---------------- ----------------
6,661,000 6,737,000
Other assets 111,000 124,000
---------------- ----------------
Total assets $ 8,037,000 $ 8,074,000
================ ================
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Accounts payable and accrued liabilities $ 428,000 $ 270,000
Deferred revenue 303,000 297,000
---------------- ----------------
Total liabilities 731,000 567,000
Commitments and contingencies (Note 6)
Partners' equity:
Limited partners' equity, $500 per unit, 40,000 units
authorized, issued and outstanding 5,425,000 5,574,000
General partners' equity 1,881,000 1,933,000
---------------- ----------------
Total partners' equity 7,306,000 7,507,000
---------------- ----------------
Total liabilities and partners' equity $ 8,037,000 $ 8,074,000
================ ================
See accompanying notes.
1
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------------
2009 2008
---------------- ----------------
REVENUES:
Rental income $ 2,786,000 $ 2,804,000
Other income 81,000 98,000
Revenues from affiliate under
performance agreement 330,000 314,000
--------------- ---------------
3,197,000 3,216,000
--------------- ---------------
COSTS AND EXPENSES:
Cost of operations 735,000 740,000
Management fees paid to affiliate 167,000 168,000
Depreciation 99,000 96,000
Administrative 27,000 28,000
--------------- ---------------
1,028,000 1,032,000
--------------- ---------------
NET INCOME $ 2,169,000 $ 2,184,000
=============== ===============
Limited partners' share of net income $ 1,560,000 $ 1,642,000
General partners' share of net income 609,000 542,000
--------------- ---------------
$ 2,169,000 $ 2,184,000
=============== ===============
Limited partners' share of net income per unit
(40,000 units outstanding) $ 39.00 $ 41.05
=============== ===============
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Limited General Total Partners'
Partners' Partners' Equity
---------------- ---------------- ----------------
Balance at December 31, 2008 $ 5,574,000 $ 1,933,000 $ 7,507,000
Net income 1,560,000 609,000 2,169,000
Cash distributions (1,760,000) (610,000) (2,370,000)
Equity transfer 51,000 (51,000) -
---------------- ---------------- ----------------
Balance at March 31, 2009 $ 5,425,000 $ 1,881,000 $ 7,306,000
================ ================ ================
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------
2009 2008
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Cash flows from operating activities:
Net income $ 2,169,000 $ 2,184,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 99,000 96,000
(Increase) decrease in rent and other receivables (4,000) 26,000
Decrease in other assets 13,000 14,000
Increase in accounts payable and accrued liabilities 158,000 91,000
Increase in deferred revenue 6,000 -
------------ ------------
Total adjustments 272,000 227,000
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Net cash provided by operating activities 2,441,000 2,411,000
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Cash flows from investing activities:
Additions to real estate facilities (23,000) (12,000)
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Net cash used in investing activities (23,000) (12,000)
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Cash flows from financing activities:
Distributions paid to partners (2,370,000) (2,101,000)
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Net cash used in financing activities (2,370,000) (2,101,000)
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Net increase in cash and cash equivalents 48,000 298,000
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 $ 1,187,000 $ 1,085,000
============ ============
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
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 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.
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.
5
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Per unit data is based on the weighted average number of the limited
partnership units (40,000) outstanding during the period.
Cash and Cash Equivalents:
--------------------------
For financial statement purposes, the Partnership considers all highly
liquid financial instruments such as short-term treasury securities or
investment grade short-term commercial paper with remaining maturities of
three months or less at the date of acquisition to be cash equivalents.
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 March 31, 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 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, 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 March 31, 2009.
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.
Accounting for Casualty Losses:
-------------------------------
Our policy is to record casualty losses or gains in the period the
casualty occurs equal to the differential between (a) the book value of
assets destroyed and (b) insurance proceeds, if any, that we expect to
receive in accordance with our insurance contracts. Potential insurance
proceeds that are subject to uncertainties, such as interpretation of
deductible provisions of the governing agreements or the estimation of
costs of restoration, are treated as contingent proceeds in accordance with
Statement of Financial Accounting Standards No. 5 ("SFAS 5"), and not
recorded until the uncertainties are satisfied.
Deferred Revenue:
-----------------
Deferred revenue totaling $303,000 at March 31, 2009 ($297,000 at
December 31, 2008), consists of prepaid rents, which are recognized as
rental income when earned.
6
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 May 14, 2009, there have been no recent accounting
pronouncements and guidance, which were not effective for implementation
prior to March 31, 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 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. During the three months ended March 31, 2009, we paid cash
distributions to the limited and general partners totaling $1,760,000
($44.00 per unit) and $610,000, respectively. During the three months ended
March 31, 2008, we paid cash distributions to the limited and general
partners totaling $1,560,000 ($39.00 per unit) and $541,000, 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. 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.
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.
7
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 March 31, 2009 and 2008, the
Partnership paid PS $167,000 and $168,000, 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 $497,000 and $484,000 in the three months ended March
31, 2009 and 2008, respectively, and incurred operating expenses of
$181,000 for each of the three month periods ended March 31, 2009 and 2008,
respectively, with respect to the operation of the Azusa Property. Capital
expenditures for the Azusa Property totaled $4,000 and $10,000, in the
three months ended March 31, 2009 and 2008, respectively. Average occupancy
of the Azusa Property was 88.7% and 76.5% during the three months ended
March 31, 2009 and 2008, respectively. The lower average occupancy during
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.
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 $453,000 and $452,000 for the
three months ended March 31, 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.
8
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 March
31, 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 three months ended
March 31, 2009.
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 Insurance Company - Hawaii, Ltd. ("PSIC"), a corporation that
reinsures policies against losses to goods stored by tenants in the
Partnership's and PS' storage facilities. PSIC receives the premiums and
bears the risks associated with the re-insurance. The Partnership receives
a fee (an "Access Fee") from PSIC 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 $76,000 and $85,000 for the three months
ended March 31, 2009 and 2008, respectively.
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.
9
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 Quarterly Report on Form 10-Q
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:
o general risks associated with the ownership and operation of real
estate including changes in demand, potential liability for
environmental contamination, adverse changes in tax, real estate and
zoning laws and regulations, and the impact of natural disasters;
o risks associated with downturns in the local economies in the markets
in which we operate, including risks related to the current global
fiscal crisis;
o the impact of competition from new and existing self-storage and
commercial facilities and other storage alternatives;
o the impact of the regulatory environment as well as national, state,
and local laws and regulations;
o disruptions or shutdowns of our automated processes and systems; and
o 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.
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 March 31, 2009 condensed financial
11
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 critical accounting policies the
application of which has 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 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 March 31, 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 March 31, 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.
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.
12
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 rather than increases in occupancy, although there can be no
assurance.
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED MARCH 31, 2009 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 2008:
The Partnership's net income for the three months ended March 31, 2009
was $2,169,000, as compared to $2,184,000 for the same period in 2008,
representing a decrease of $15,000 or 0.7%. Property net operating income
(rental income less cost of operations, management fees paid to an
affiliate and depreciation expense) decreased $15,000 or 0.8% from
$1,800,000 for the three months ended March 31, 2008 to $1,785,000 for the
three months ended March 31, 2009.
Rental income for the three months ended March 31, 2009 was $2,786,000
as compared to $2,804,000 for the three months ended March 31, 2008,
representing a decrease of $18,000 or 0.6%. The decrease in rental income
is attributable primarily to a decrease in annualized realized rent for the
three months ended March 31, 2009 to $15.22 per occupied square foot, as
compared to $15.41 per occupied square foot for the same period in 2008,
offset by a slight increase in the weighted average occupancy levels at the
self-storage facilities from 89.5% for the three months ended March 31,
2008 to 89.6% for the same period in 2009. 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 March
31, 2009 condensed financial statements for additional information.
We believe that demand for self-storage space has been negatively
impacted by general economic conditions, the slow down in housing sales and
moving activity, as well as increased competition. It is unclear to us how
much we have been negatively impacted by these factors, and how much these
factors may impact us going forward.
Other income was $81,000 for the three months ended March 31, 2009, as
compared to $98,000 for the three months ended March 31, 2008, representing
a decrease of $17,000 or 17.3%. 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 March 31, 2009
condensed financial statements), totaling $76,000 and $85,000 for the three
months ended March 31, 2009 and 2008, respectively. Included in other
income for the three months ended March 31, 2008 are access fees totaling
$27,000, which represent changes in accounting estimates recorded in 2008
with respect to fees that were earned in 2007. Additional similar
adjustments were made in later periods in 2008 as the 2007 fees continued
to be evaluated. Amounts recorded in the three months ended March 31, 2009
reflect the current ongoing level of access fees based upon current
activity levels. Other income for the three months ended March 31, 2009 as
compared to the same period in 2008 reflects a decline in interest income
on cash balances. While the Partnership had higher average cash balances,
interest rates were significantly lower in the three months ended March 31,
2009 as compared to the same period in 2008. The Partnership has $1,187,000
in cash on hand at March 31, 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
$16,000 or 5.1% to $330,000 for the three months ended March 31, 2009 from
$314,000 for the three months ended March 31, 2008. See Note 5 to the
Partnership's March 31, 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 March 31, 2009 condensed financial
statements) for the three months ended March 31, 2009 was $902,000 compared
to $908,000 for the three months ended March 31, 2008, representing a
decrease of $6,000, as reductions in repairs and maintenance, payroll and
eviction costs, were mostly offset by increases in advertising and
promotion, property tax and utilities expenses.
13
Depreciation expense was $99,000 and $96,000 for the three months
ended March 31, 2009 and 2008, respectively, representing an increase of
$3,000.
Administrative expense was $27,000 and $28,000 in the three months
ended March 31, 2009 and 2008, respectively, representing a decrease of
$1,000 or 3.6%. This decrease is due to lower allocated expenses.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash generated from operations ($2,441,000 for the three months ended
March 31, 2009) has been sufficient to meet all current obligations of the
Partnership. Capital improvements totaled $23,000 and $12,000 in the three
months ended March 31, 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 March 31, 2009, we paid cash
distributions to the limited and general partners totaling $1,760,000
($44.00 per unit) and $610,000, respectively. During the three months ended
March 31, 2008, we paid cash distributions to the limited and general
partners totaling $1,560,000 ($39.00 per unit) and $541,000, respectively.
Future distribution rates will be adjusted to levels which are supported by
operating cash flow after capital improvements and any other necessary
obligations.
14
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.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The information set forth under the heading "Legal Proceedings" in
Note 6 to the Partnership's March 31, 2009 condensed financial statements
in this Form 10-Q is incorporated by reference in this Item 1.
ITEM 1A. RISK FACTORS
------------
As of March 31, 2009, no material changes had occurred in our risk
factors as discussed in Item 1A of the Public Storage Properties IV, Ltd.
Annual Report on Form 10-K for the year ended December 31, 2008.
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.
16
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 14, 2009
PUBLIC STORAGE PROPERTIES IV, LTD.
BY: Public Storage
General Partner
BY: /s/ John Reyes
------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
17
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.
18
Exhibit 31.1
RULE 13a - 14(a) CERTIFICATION
I, Ronald L. Havner, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Public Storage
Properties IV, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or person performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Ronald L. Havner, Jr.
- ------------------------------------
Name: Ronald L. Havner, Jr.
Title: Chief Executive Officer of Public Storage, Corporate General Partner
Date: May 14, 2009