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, 1999
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
- ----------------------------------------- -----------------------
(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
-----------------------
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, 1999
and December 31, 1998 2
Condensed statements of income for the three and
nine months ended September 30, 1999 and 1998 3
Condensed statement of partners' equity for the
nine months ended September 30, 1999 4
Condensed statements of cash flows for the
nine months ended September 30, 1999 and 1998 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
September 30, December 31,
1999 1998
---------------- -----------------
(Unaudited)
ASSETS
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Cash and cash equivalents $ 108,000 $ 433,000
Marketable securities of affiliate (cost of $6,091,000) 9,621,000 10,337,000
Rent and other receivables 134,000 136,000
Real estate facilities, at cost:
Buildings and equipment 16,753,000 16,424,000
Land 5,244,000 5,244,000
---------------- -----------------
21,997,000 21,668,000
Less accumulated depreciation (12,565,000) (11,824,000)
---------------- -----------------
9,432,000 9,844,000
Other assets 116,000 126,000
---------------- -----------------
Total assets $ 19,411,000 $ 20,876,000
================ =================
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Accounts payable $ 341,000 $ 249,000
Deferred revenue 234,000 235,000
Note payable to commercial bank 15,210,000 19,650,000
Partners' equity:
Limited partners' equity (deficit), $500 per unit, 40,000 units
authorized, issued and outstanding 71,000 (2,599,000)
General partners' equity (deficit) 25,000 (905,000)
Other comprehensive income 3,530,000 4,246,000
---------------- -----------------
Total partners' equity 3,626,000 742,000
---------------- -----------------
Total liabilities and partners' equity $ 19,411,000 $ 20,876,000
================ =================
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
Septmeber 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
REVENUES:
Rental income $ 2,403,000 $ 2,255,000 $ 6,937,000 $ 6,559,000
Dividends from marketable securities of affiliate 84,000 84,000 252,000 252,000
Other income 1,000 11,000 5,000 82,000
------------- ------------- ------------- -------------
2,488,000 2,350,000 7,194,000 6,893,000
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of operations 525,000 508,000 1,579,000 1,545,000
Management fees paid to affiliate 144,000 134,000 416,000 394,000
Depreciation 248,000 231,000 741,000 691,000
Administrative 15,000 15,000 61,000 56,000
Interest expense 243,000 405,000 797,000 1,774,000
------------- ------------- ------------- -------------
1,175,000 1,293,000 3,594,000 4,460,000
------------- ------------- ------------- -------------
NET INCOME $ 1,313,000 $ 1,057,000 $ 3,600,000 $ 2,433,000
============= ============= ============= =============
Limited partners' share of net income ($89.00 per
unit in 1999 and $60.15 per unit in 1998) $ 3,560,000 $ 2,406,000
General partners' share of net income 40,000 27,000
------------- -------------
$ 3,600,000 $ 2,433,000
============= =============
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
----------------- ----------------- ----------------- -----------------
Balance at December 31, 1998 $ (2,599,000) $ (905,000) $ 4,246,000 $ 742,000
Change in unrealized gain of marketable
equity securities - - (716,000) (716,000)
Net income 3,560,000 40,000 - 3,600,000
Equity transfer (890,000) 890,000 - -
----------------- ----------------- ----------------- -----------------
Balance at September 30, 1999 $ 71,000 $ 25,000 $ 3,530,000 $ 3,626,000
================= ================= ================= =================
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------------
1999 1998
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Cash flows from operating activities:
Net income $ 3,600,000 $ 2,433,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 741,000 691,000
Decrease in rent and other receivables 2,000 16,000
Amortization of prepaid loan fees - 69,000
Decrease (increase) in other assets 10,000 (54,000)
Increase in accounts payable 92,000 220,000
(Decrease) increase in deferred revenue (1,000) 6,000
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Total adjustments 844,000 948,000
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Net cash provided by operating activities 4,444,000 3,381,000
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Cash flows from investing activities:
Additions to real estate facilities (329,000) (247,000)
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Net cash used in investing activities (329,000) (247,000)
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Cash flows from financing activities:
Principal payments on mortgage note payable - (25,405,000)
Proceeds from note payable to general partner - 22,000,000
Principal payments on note payable to general partner - (22,000,000)
Proceeds from note payable to commercial bank - 21,000,000
Principal payments on note payable to commercial bank (4,440,000) -
------------- -------------
Net cash used in financing activities (4,440,000) (4,405,000)
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Net decrease in cash and cash equivalents (325,000) (1,271,000)
Cash and cash equivalents at beginning of period 433,000 1,911,000
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Cash and cash equivalents at end of period $ 108,000 $ 640,000
============= =============
Supplemental schedule of non-cash investing and financing activities:
Decrease in fair market value of marketable securities $ 716,000 $ 978,000
============= =============
Other comprehensive income $ (716,000) $ (978,000)
============= =============
See accompanying notes.
5
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, 1998.
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, 1999, the results of its operations for the
three and nine months ended September 30, 1999 and 1998 and its cash
flows for the nine months then ended.
3. The results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results expected for the
full year.
4. Marketable securities at September 30, 1999 consist of 381,980 shares
of common stock of Public Storage, Inc., a publicly traded real estate
investment trust and a general partner of the Partnership. The
Partnership has designated its portfolio of marketable securities as
available for sale. Accordingly, at September 30, 1999, the Partnership
has recorded the marketable securities at fair value, based upon the
closing quoted prices of the securities at September 30, 1999. 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. On July 1, 1998, the Partnership paid off the mortgage note payable
with cash reserves and with the proceeds of a $22,000,000 loan from
Public Storage, Inc., a general partner of the Partnership. The loan
from Public Storage, Inc. required monthly payments of interest only at
the fixed rate of 7.2% and was scheduled to mature June 30, 1999. The
loan to PSI was paid off in September 1998 with the proceeds of a loan
from a commercial bank (see note 6).
6. 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") rounded up to the nearest .125% plus
0.60% to 1.20% depending on the Partnership's interest coverage ratio
(6.10% at September 30, 1999). The loan requires monthly payments of
interest and mature September 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 note payable to Public Storage, Inc.
6
6. (continued)
The Partnership has entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on a portion of its
floating rate debt. The agreement, which covers $11,500,000 of debt
through March 2000 and $4,000,000 from March 2000 through September
2000, effectively changes the interest rate exposure from floating rate
to a fixed rate of 5.22% plus 0.60% to 1.20% based on the Partnership's
interest coverage ratio (5.82% as of September 30, 1999). 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. As of September 30, 1999, the unrealized
gain on the interest rate swap, if required to be liquidated, was
approximately $75,000.
7
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 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 has an interest in; 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.
RESULTS OF OPERATIONS
- ---------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1998:
The Partnership's net income for the nine months ended September 30,
1999 was $3,600,000 compared to $2,433,000 for the nine months ended September
30, 1998, representing an increase of $1,167,000 or 48%. The Partnership's net
income for the three months ended September 30, 1999 was $1,313,000 compared to
$1,057,000 for the three months ended September 30, 1998, representing an
increase of $256,000 or 24%. These increases are primarily a result of increased
operating results at the Partnership's real estate facilities and a decrease in
interest expense resulting from the Partnership refinancing its outstanding
debt.
Rental income for the nine months ended September 30, 1999 was
$6,937,000 compared to $6,559,000 for the nine months ended September 30, 1998,
representing an increase of $378,000 or 6%. Rental income for the three months
ended September 30, 1999 was $2,403,000 compared to $2,255,000 for the three
months ended September 30, 1998, representing an increase of $148,000 or 7%.
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% for each of the nine months ended
September 30, 1999 and 1998. Average annualized realized rent for the nine
months September 30, 1999 increased to $11.23 per occupied square foot from
$10.57 per occupied square foot for the nine months ended September 30, 1999.
8
Interest and other income decreased $77,000 for the nine months ended
September 30, 1999 compared to the same period in 1998. This decrease is
primarily a result of the pay off of the mortgage note payable with cash
reserves, which resulted in lower cash balances and consequently less interest
earned.
Dividend income from marketable securities of affiliate remained stable
for the six months ended September 30, 1999 compared to the same period in 1998.
Cost of operations (including management fees paid to affiliate) for
the nine months ended September 30, 1999 was $1,995,000 compared to $1,939,000
for the nine months ended September 30, 1999, representing an increase of
$56,000 or 3%. Cost of operations (including management fees paid to affiliate)
for the three months ended September 30, 1999 was $669,000 compared to $642,000
for the three months ended September 30, 1998, representing an increase of
$27,000 or 4%. This increase is mainly attributable to increases in management
fees, and advertising and promotion expenses.
Interest expense decreased $977,000 to $797,000 in the nine months
ended September 30, 1999 from $1,774,000 in the same period in 1998. This
decrease is mainly attributable to a lower outstanding principal balance and
reduced interest rates on the Partnership's debt resulting from a refinancing of
the Partnership's debt. See Liquidity and Capital Resources for a discussion of
the refinancing of the Partnership's indebtedness in the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operating activities ($4,444,000 for the nine months
ended September 30, 1999) have been sufficient to meet all current obligations
of the Partnership.
On July 1, 1998, the Partnership paid off the mortgage note payable
with cash reserves and with the proceeds of a $22,000,000 loan from Public
Storage, Inc., a general partner of the Partnership. The loan from Public
Storage, Inc. required monthly payments of interest only at the fixed rate of
7.2% and was scheduled to mature June 30, 1999. The loan to PSI was paid off in
September 1998 with the proceeds of a loan from a commercial bank.
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") rounded up to the nearest .125% plus 0.60% to
1.20% depending on the Partnership's interest coverage ratio (6.10% at September
30, 1999). The loan requires monthly payments of interest and mature September
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 note to Public
Storage, Inc.
The Partnership has entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on a portion of its floating rate
debt. The agreement, which covers $11,500,000 of debt through March 2000 and
$4,000,000 from March 2000 through September 2000, effectively changes the
interest rate exposure from floating rate to a fixed rate of 5.22% plus 0.60% to
1.20% based on the Partnership's interest coverage ratio (5.82% as of September
9
30, 1999). 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. As of September 30, 1999, the unrealized gain on
the interest rate swap, if required to be liquidated, was approximately $75,000.
Year 2000 System Issues
- -----------------------
The Partnership utilizes Public Storage, Inc.'s ("PSI") information
systems in connection with a cost sharing and administrative services agreement.
PSI 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 the 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.
PSI has two phases in its process with respect to each of its systems;
i) assessment, whereby PSI evaluates whether the system is Y2K compliant and
identifies the plan of action with respect to remediating any Y2K issues
identified and ii) implementation, whereby PSI completes the plan of action
prepared in the assessment phase and verifies that Y2K compliance has been
achieved.
Implementations have been completed on PSI's critical applications that
impact the Partnership, such as the general ledger, property operations, and
related systems. Contingency plans have been developed for use in case PSI's
assessment did not identify all Y2K issues, or if the implementation were
subsequently determined to not fully remediate Y2K issues that were identified.
While PSI presently believes that the impact of the Y2K Issue on its systems can
be mitigated, if PSI's plan for ensuring Year 2000 compliance and the related
contingency plans were to fail, be insufficient, or not be implemented on a
timely basis, Partnership operations 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, have been evaluated. Based
upon its evaluation, PSI has no reason to believe that lack of compliance or
failure of required solutions would materially impact the Partnership's
operations.
The Partnership exchanges electronic data with certain outside vendors
in the banking and payroll processing areas. The Partnership has been advised by
these vendors that their systems are Year 2000 compliant. The Partnership is not
aware of any other vendors, suppliers, or other external agents with a Y2K Issue
that would materially impact the Partnership's results of operations, liquidity,
or capital resources. However, the Partnership has no means of ensuring that
external agents will be Year 2000 compliant, and there can be no assurance that
PSI has identified all such external agents. The inability of external agents to
10
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 cost of PSI's year 2000 compliance activities (which primarily
consists of the costs of new systems) to be allocated to the Partnership is
estimated at approximately $76,143. These costs are capitalized. PSI's year 2000
compliance efforts have not resulted in any significant deferrals in other
information system projects.
The costs of the projects and the date on which PSI expects to achieve
Year 2000 Compliance are based upon management's best estimates, and were
derived utilizing numerous assumptions of future events. There can be no
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 Issues either within the Partnership, at PSI 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:
(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 9, 1999
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
12