SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 2003 or
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
----------------- -----------------
Commission File Number: 0-9208
PUBLIC STORAGE PROPERTIES V, LTD.
(Exact name of Registrant as specified in its charter)
California 95-3292068
----------------------------------------- ----------------------
(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.
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
-------------------------------------
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [ ] No [ X ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant as of June 30, 2003:
Limited Partner Units, $500.00 Par Value - $20,382,000 (computed on the basis of
$1,203.60 per unit which was the highest reported sale price during the quarter
ended June 30, 2003).
The number of units outstanding of the registrant's classes of common equity as
of March 25, 2004:
Units of Limited Partnership Interest, $500.00 Par Value - 44,000 units
DOCUMENTS INCORPORATED BY REFERENCE
NONE
1
PART I
ITEM 1. Business
Forward Looking Statements
- --------------------------
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 Item 1A, "Risk Factors" and include changes in
general economic conditions and in the markets in which the Partnership operates
and the impact of competition from new and existing storage and commercial
facilities and other storage alternatives, which could impact rents and
occupancy levels at the Partnership's facilities; the impact of the regulatory
environment as well as national, state, and local laws and regulations, which
could increase the Partnership's expense and reduce the Partnership's cash
available for distribution; and economic uncertainty due to the impact of war or
terrorism could adversely affect our business plan. We disclaim any obligation
to publicly release the results of any revisions to these forward-looking
statements reflecting new estimates, events or circumstances after the date of
this report.
General
- -------
Public Storage Properties V, Ltd. (the "Partnership") is a publicly
held limited partnership formed under the California Uniform Limited Partnership
Act in May 1978. The Partnership raised $22,000,000 in gross proceeds by selling
44,000 units of limited partnership interests ("Units") in an interstate
offering, which commenced in March 1979 and completed in October 1979. The
Partnership was formed to engage in the business of developing and operating
self-storage facilities offering storage space for personal and business use.
The Partnership has reported annually to the Securities and Exchange
Commission ("SEC") on form 10-K which includes financial statements certified by
independent public accountants. The Partnership has also reported quarterly to
the Securities and Exchange Commission on Form 10-Q and includes unaudited
financial statements with such filings. The Partnership expects to continue such
reporting. On an annual basis, the Partnership mails the audited financial
statements and related footnotes, to all limited partners.
The public may read and copy any materials this Partnership files with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-732-0330. The partnership does not
maintain a website. However, the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov.
In 1995, there were a series of mergers among Public Storage
Management, Inc. (which was the Partnership's self-storage facilities operator),
Public Storage, Inc. (which was one of the Partnership's general partners) and
their affiliates (collectively, "PSMI"), culminating in the November 16, 1995
merger (the "PSMI Merger") of PSMI into Storage Equities, Inc., a real estate
investment trust ("REIT") organized as a California corporation. In the PSMI
Merger, Storage Equities, Inc. was renamed Public Storage, Inc. ("PSI") and PSI
acquired substantially all of PSMI's United States real estate operations and
became a co-general partner of the Partnership and the operator of the
Partnership's self-storage facilities.
The Partnership's general partners are PSI and B. Wayne Hughes
("Hughes") (collectively referred to as the "General Partners"). Hughes has been
a general partner of the Partnership since its inception. Hughes is chairman of
the board of PSI, was chief executive officer of PSI through November 7, 2002,
and Hughes and members of his family (the "Hughes Family") are the major
shareholders of PSI.
The Partnership is managed and its investment decisions are made by
Hughes and the executive officers and directors of PSI. The limited partners of
the Partnership have no right to participate in the operation or conduct of its
business and affairs.
2
The Partnership's objectives are to (i) maximize the potential for
appreciation in value of the Partnership's properties and (ii) generate
sufficient cash flow from operations to pay all expenses, including the payment
of interest to Noteholders. All of the properties were financed in 1989.
The term of the Partnership is until all properties have been sold and
in any event, not later than December 31, 2038.
Investment Objectives and Policies
- ----------------------------------
The Partnership's objectives are to (i) preserve and protect invested
capital, (ii) maximize the potential for appreciation in value of its
investments, (iii) provide Federal income tax deductions so that during the
early years of property operations a portion of cash distributions may be
treated as a return of capital for tax purposes, and therefore, may not
represent taxable income to the limited partners, and (iv) provide for cash
distributions from operations.
Following are the Partnership's investment practices and policies. The
Partnership does not anticipate making any additional investments other than
maintenance capital expenditures and does not anticipate liquidating the
investments it now holds. While a vote of the limited partners is generally
required to change the Partnership's investment policies, the General Partners
hold a majority of the limited partnership units, and as a result, the General
Partners could change these policies through their vote.
o Our investments consist of (i) 14 self-storage facilities, (ii) a
parcel of vacant land, (iii) 533,334 shares of Public Storage, Inc.
common stock and (iv) 17,331 shares of Public Storage, Inc. Series A,
Equity Stock. All of these investments are in real estate or real
estate entities holding real estate located in the United States. See
"Self-storage Facilities" and Item 2 "Properties" for further
information. These investments were acquired both for income and
capital gains.
o There is no limitation on the amount or percentage of assets, which can
be invested in any specific person.
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 to distribute to partners.
Self-storage Facilities
- -----------------------
Self-storage facilities are designed to offer accessible storage space
for personal and business use at a relatively low cost. A user rents a fully
enclosed space which is for the user's exclusive use and to which only the user
has access on an unrestricted basis during business hours. On-site operation is
the responsibility of property managers who are supervised by district managers.
Some self-storage facilities also include rentable uncovered parking areas for
vehicle storage. Leases for self-storage space may be on a long-term or
short-term basis, although typically spaces are rented on a month-to-month
basis. Rental rates vary according to the location of the property and the size
of the storage space.
Users of space in self-storage facilities include both individuals and
large and small businesses. Individuals usually employ this space for storage
of, among other things, furniture, household appliances, personal belongings,
motor vehicles, boats, campers, motorcycles and other household goods.
Businesses normally employ this space for storage of excess inventory, business
records, seasonal goods, equipment and fixtures.
Self-storage facilities in which the Partnership has invested generally
consist of three to seven buildings containing an aggregate of between 350 to
750 storage spaces, most of which have between 25 and 400 square feet and an
interior height of approximately 8 to 12 feet.
The Partnership experiences minor seasonal fluctuations in the
occupancy levels of self-storage facilities with occupancies higher in the
summer months than in the winter months. The Partnership believes that these
fluctuations result in part from increased moving activity during the summer.
3
The Partnership's self-storage facilities are geographically
diversified and are generally located in heavily populated areas and close to
concentrations of apartment complexes, single family residences and commercial
developments. However, there may be circumstances in which it may be appropriate
to own a property in a less populated area, for example, in an area that is
highly visible from a major thoroughfare and close to, although not in, a
heavily populated area. Moreover, in certain population centers, land costs and
zoning restrictions may create a demand for space in nearby less populated
areas.
As with most other types of real estate, the conversion of self-storage
facilities to alternative uses in connection with a sale or otherwise would
generally require substantial capital expenditures. However, the Partnership
does not intend to convert its self-storage facilities to other uses.
Commercial Property
- -------------------
The Partnership owns one commercial property, a business park located
in San Francisco, California, on the same parcel of land as the Partnership's
self-storage facility. The commercial property represents less than 4% of the
Partnership's revenues and less than 1% of the Partnership's assets based on
original cost.
Operating Strategies
- --------------------
The Partnership's self-storage facilities are operated by PSI under the
"Public Storage" name, which the Partnership believes is the most recognized
name in the self-storage industry. The major elements of the Partnership's
operating strategies are as follows:
o Capitalize on "Public Storage's" name recognition. PSI, together with its
predecessor, has more than 20 years of operating experience in the
self-storage business. PSI has informed the Partnership that it is the
largest self-storage facility operator in the United States in terms of
both number of facilities and rentable space operated. PSI believes that
its marketing and advertising programs improve its competitive position in
the market. PSI's in-house Yellow Pages staff designs and places
advertisements in approximately 700 directories. Customers calling either
PSI's toll-free telephone referral system, (800) 44-STORE, or a
self-storage facility are directed to PSI's reservation system where a
trained representative discusses with the customer space requirements,
price and location preferences and also informs the customer of other
products and services provided by PSI. The telephone reservation system
supports rental activity at all of the Partnership's properties.
o Maintain high occupancy levels and increase annual realized rents. Subject
to market conditions, the Partnership generally seeks to achieve average
occupancy levels in excess of 90% and to eliminate promotions prior to
increasing rental rates. Average occupancy for the Partnership's
self-storage facilities was 90% and 88% in 2003 and 2002, respectively.
Annual realized rents per occupied square foot decreased from $12.85 in
2002 to $12.32 in 2003.
o Systems and controls. PSI has an organizational structure and a property
operation system, "CHAMP" (Computerized Help and Management Program), which
links its corporate office with each self-storage facility. This enables
PSI to obtain daily information from each facility and to achieve
efficiencies in operations and maintain control over its space inventory,
rental rates, promotional discounts and delinquencies. Expense management
is achieved through centralized payroll and accounts payable systems and a
comprehensive property tax appeals department, and PSI has an extensive
internal audit program designed to ensure proper handling of cash
collections.
o Professional property operation. There are approximately 4,500 persons who
render services for the Public Storage system, primarily personnel engaged
in property operations, substantially all of whom are employed by a
clearing company that provides certain administrative and cost-sharing
services to PSI and others owners of properties operated by PSI.
Property Operator
- -----------------
The Partnership's self-storage facilities are managed by PSI (as
successor to PSMI) pursuant to a Management Agreement. The Partnership's
commercial property is managed by PS Business Parks, L.P. ("PSBP"), pursuant to
a Management Agreement. PSBP is an operating partnership formed to own and
operate business parks in which PSI has a significant economic interest. The
general partner of PSBP is PS Business Parks, Inc., a REIT traded on the
American Stock Exchange.
4
Under the supervision of the Partnership, PSI and PSBP coordinate the
operation of the facilities, establish rental policies and rates, direct
marketing activity and direct the purchase of equipment and supplies,
maintenance activity and the selection and engagement of all vendors, supplies
and independent contractors.
PSI and PSBP engage, at the expense of the Partnership, employees for
the operation of the Partnership's facilities, including property managers,
assistant managers, relief managers, and billing and maintenance personnel. Some
or all of these employees may be employed on a part-time basis and may also be
employed by other persons, partnerships, real estate investment trusts or other
entities owning facilities operated by PSI and PSBP.
In the purchasing of services such as advertising (including broadcast
media advertising) and insurance, PSI and PSBP attempt, to achieve economies by
combining the resources of the various facilities that it operates. Facilities
operated by PSI have historically carried comprehensive insurance, including
fire, earthquake, liability and extended coverage.
PSI and PSBP have developed systems for managing space inventories,
accounting and handling delinquent accounts, including a computerized network
linking PSI operated facilities. Each project manager is furnished with detailed
operating procedures and typically receives facilities management training from
PSI. Form letters covering a variety of circumstances are also supplied to the
project managers. A record of actions taken by the project managers when
delinquencies occur is maintained.
The Partnership's facilities are typically advertised via signage,
yellow pages, flyers and broadcast media advertising (television and radio) in
geographic areas in which many of the Partnership's facilities are located.
Broadcast media and other advertising costs are charged to the Partnership's
facilities located in geographic areas affected by the advertising. From time to
time, PSI and PSBP adopt promotional programs, such as temporary rent
reductions, in selected areas or for individual facilities.
For as long as the Management Agreement between the Partnership and PSI
is in effect, PSI has granted the Partnership a non-exclusive license to use two
PSI service marks and related designs including the "Public Storage" name in
conjunction with rental and operation of facilities managed pursuant to the
Management Agreement. Upon termination of the Management Agreement, the
Partnership would no longer have the right to use the service marks and related
designs. The General Partners believe that the loss of the right to use the
service marks and related designs could have a material adverse effect on the
Partnership's business.
The Management Agreement between the Partnership and PSI provides that
the Management Agreement may be terminated without cause upon 60 days written
notice by the Partnership or six months notice by PSI. The Management Agreement
between the Partnership and PSBP provides that the Management Agreement may be
terminated (i) without cause upon 60 days written notice by the Partnership and
upon seven years notice by PSBP and (ii) at any time by either party for cause.
Competition
- -----------
Most of the Partnership's properties are self-storage facilities, which
generated 96% of the Partnership's rental income during 2003. Local market
conditions play a significant role in how competition will affect the
Partnership's operations. Competition from other self-storage and other storage
alternatives in the market areas in which the Partnership operates is
significant and has affected the occupancy levels, rental rates and operating
expenses of certain of the Partnership's facilities. 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 the market areas in which the
Partnership operates. In addition to competition from self-storage facilities
operated by PSI, there are three other national firms and numerous regional and
local operators. The Partnership believes that the significant operating and
financial experience of PSI and the "Public Storage" name recognition should
enable the Partnership to continue to compete effectively with other entities.
Other Business Activities
- -------------------------
A corporation that reinsures policies against losses to goods stored by
tenants in PSI's storage facilities was purchased by PSI from Mr. Hughes and
members of his family (the "Hughes Family") on December 31, 2001. We believe
that the availability of insurance reduces our potential liability to tenants
for losses to their goods from theft or destruction. This corporation receives
the premiums and bears the risks associated with the re-insurance.
5
A subsidiary of PSI sells locks and boxes and rents trucks to the
general public and tenants to be used in securing their spaces and moving their
goods. We believe that the availability of locks and boxes for sale and the
rental of trucks promote the rental of self-storage spaces.
Federal Income Tax
- ------------------
Public Storage Properties V, Ltd. is treated as a partnership for
Federal income tax purposes with the taxable income of the entity allocated to
each partner in accordance with the partnership agreement.
Employees
- ---------
There are 19 persons who render services on behalf of the Partnership.
These persons include property managers, assistant managers, relief managers,
district managers, and administrative personnel. Some employees may be employed
on a part-time basis and may be employed by other persons, partnerships, REITs
or other entities owning facilities operated by PSI.
ITEM 1A. Risk Factors
In addition to the other information in our Form 10-K, you should
consider the following factors in evaluating the Partnership:
THE GENERAL PARTNERS HAVE A SIGNIFICANT DEGREE OF CONTROL OVER THE
PARTNERSHIP.
Public Storage is general partner and owns approximately 33.5% of our
outstanding limited partnership units. In addition, B. Wayne Hughes, General
Partner of the Partnership, and Chairman of PSI and members of his family own
28.2% of the Limited Partnership units. As a result, the General Partners have a
significant degree of control over matters submitted to a vote of our
unitholders, including amending our organizational documents, dissolving the
Partnership and other such 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 terrorists attacks;
o the impact of environmental protection laws;
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.
6
THERE IS SIGNIFICANT COMPETITION AMONG SELF-STORAGE FACILITIES AND
FROM OTHER STORAGE ALTERNATIVES. With the exception of the commercial property
and the parcel of land, all of our real estate properties are self-storage
facilities, which generated 96% of our rental revenues during 2003. Local market
conditions will play a significant part in how competition will affect us.
Competition in the market areas in which many of our properties are located from
other self-storage facilities and other storage alternatives 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 the 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 the
properties in which the Partnership has an interest 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 environmental assessments, we believe
that 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.
There has been an increasing number of claims and litigation against
owners and managers of rental properties relating to moisture infiltration,
which can result in mold or other property damage. When we receive a complaint
concerning moisture infiltration, condensation or mold problems and/or become
aware that an air quality concern exists, we implement corrective measures in
accordance with guidelines and protocols we have developed with the assistance
of outside experts. We seek to work proactively with our tenants to resolve
moisture infiltration and mold-related issues, subject to our contractual
limitations on liability for such claims. However, we can provide no assurance
that material legal claims relating to moisture infiltration and the presence
of, or exposure to, mold will not arise in the future.
PROPERTY TAXES CAN INCREASE AND CAUSE A DECLINE IN YIELDS ON
INVESTMENTS. Each of our properties is subject to real property taxes. These
real property taxes may increase in the future as property tax rates change and
as our properties are assessed or reassessed by tax authorities. Such increases
could adversely impact the Partnership's profitability.
WE MUST COMPLY WITH THE AMERICANS WITH DISABILITIES ACT AND FIRE AND
SAFETY REGULATIONS, WHICH CAN REQUIRE SIGNIFICANT EXPENDITURES. All our
properties must comply with the Americans with Disabilities Act and with related
regulations (the "ADA"). The ADA has separate compliance requirements for
"public accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to persons with disabilities. Various state laws
impose similar requirements. A failure to comply with the ADA or similar state
laws could result in government imposed fines on us and the award of damages to
individuals affected by the failure. In addition, we must operate our properties
in compliance with numerous local fire and safety regulations, building codes,
and other land use regulations. Compliance with these requirements can require
us to spend substantial amounts of money, which would reduce cash otherwise
available for distribution to Partners. Failure to comply with these
requirements could also affect the marketability of our real estate facilities.
TERRORIST ATTACKS AND THE POSSIBILITY OF WIDER ARMED CONFLICT MAY HAVE
AN ADVERSE IMPACT ON OUR BUSINESS AND OPERATING RESULTS AND COULD DECREASE THE
VALUE OF OUR ASSETS.
Terrorist attacks and other acts of violence or war, such as those that
took place on September 11, 2001, could have a material adverse impact on our
business and operating results. There can be no assurance that there will not be
further terrorist attacks against the United States or its businesses or
interests. Attacks or armed conflicts that directly impact one or more of our
properties could significantly affect our ability to operate those properties
and thereby impair our operating results.
7
Further, we may not have insurance coverage for losses caused by a terrorist
attack. Such insurance may not be available, or if it is available and we decide
to obtain such terrorist coverage, the cost for the insurance may be significant
in relationship to the risk overall. In addition, the adverse effects that such
violent acts and threats of future attacks could have on the U.S. economy could
similarly have a material adverse effect on our business and results of
operations. Finally, further terrorist acts could cause the United States to
enter into a wider armed conflict, which could further impact our business and
operating results.
DEVELOPMENTS IN CALIFORNIA MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS
AND OPERATING RESULTS AND COULD DECREASE THE VALUE OF OUR ASSETS.
Approximately 70% of the Partnership's properties are located in
California. California is facing serious budgetary problems. Action that may be
taken in response to these problems, such as an increase in property taxes on
commercial properties, could adversely impact our business and results of
operations. In addition, the Partnership could be adversely impacted by the
recently enacted legislation mandating, beginning in 2006, medical insurance for
employees of California businesses and members of their families.
OUR OWNERSHIP INTEREST IN STOR-RE MAY LOSE VALUE OR BECOME A
LIABILITY.
The Partnership has a 1.4% 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 PSI. STOR-Re provides limited
property and liability insurance coverage to the Partnership, PSI, and
affiliates of PSI. 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 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, which may result in a reduction in the value of
the Partnership's investment or could result in future payments to STOR-Re if
its reserves were determined to be inadequate. Financial data with respect to
STOR-Re is included in Note 5 to the Partnership's December 31, 2003 financial
statements.
8
ITEM 2. Properties
The following table sets forth information as of December 31, 2003
about properties owned by the Partnership:
Size of Net Rentable Numbers of
Location Parcel Area Spaces Date of Purchase Completion Date
-------- ---------- ------------- ---------- ---------------- ---------------
California
Belmont 2.74 acres 46,000 sq. ft 451 May 14, 1979 Dec. 1979
Carson
Carson Street 2.30 acres 43,000 sq. ft 389 Oct. 9, 1979 Jan. 1980
Palmdale 3.48 acres 56,000 sq. ft. 461 July 31, 1979 Jan. 1980
Pasadena
Fair Oaks 2.17 acres 71,000 sq. ft 814 Aug. 24, 1979 Mar. 1980
Sacramento
Carmichael 3.12 acres 45,000 sq. ft 451 Dec. 7, 1979 July 1980
Sacramento
Florin 3.99 acres 70,000 sq. ft 580 Mar. 30, 1979 June 1980
San Jose Capitol Quimby 2.24 acres 36,000 sq. ft. 331 Nov. 21, 1979 July 1980
San Jose
Felipe 1.60 acres 52,000 sq. ft. 453 Oct. 9, 1979 Dec. 1980
So. San Francisco
Spruce 3.03 acres 44,000 sq. ft. 370 June 27, 1979 Nov. 1980
Florida
Miami
Perrine 1.71 acres - - May 31, 1979 Jan. 1980
Miami
27th Ave. 3.07 acres 63,000 sq. ft. 624 Oct. 11, 1979 May 1980
Miami
29th 1.82 acres 35,000 sq. ft. 323 May 1, 1979 Oct. 1979
Georgia
Atlanta
Montreal Road 3.14 acres 57,000 sq. ft. 462 July 9, 1979 June 1980
Atlanta
Mountain Industrial Blvd. 3.10 acres 51,000 sq. ft. 458 Oct. 30, 1979 Sept. 1980
Marietta-
Cobb Parkway 3.61 acres 68,000 sq. ft. 554 Apr. 20, 1979 Oct. 1979
The weighted average occupancy for the self-storage facilities was 90%
and 88% during 2002 and 2003, respectively.
9
In August 1992, the buildings at a self-storage facility located in
Miami, Florida were completely destroyed by Hurricane Andrew. The Partnership
received insurance proceeds totaling $2,881,000, which included an amount for
the replacement cost of the destroyed buildings as well as for business
interruption. In 1993, the General Partners decided that it would be more
beneficial to the Partnership, given the condition of the market area of the
self-storage, to cease operations at this location and therefore, decided not to
reconstruct the buildings. Accordingly, in 1993 the Partnership reduced real
estate facilities by the net book value of the destroyed buildings, resulting in
a gain of $1,369,000. In June 1996, the Partnership sold approximately 61% of
the Miami, Florida land for a net price of $376,000 ($400,000 less $24,000 of
selling cost), resulting in a $13,000 gain on the sale. The remaining is listed
for sale.
As of December 31, 2003, the properties were not encumbered. See Note 7
to the Financial Statements included in Item 15(a).
Other than the Partnership's listing to sell the vacant land in Miami,
Florida as described above, the Partnership does not have any agreements to buy
or sell any real estate nor does it expect to further develop any of its
facilities except for capital improvements.
ITEM 3. Legal Proceedings
Serrao v. Public Storage, Inc. (filed April 2003) (Superior Court - Orange
---------------------------------------------------------------------------
County)
- -------
The plaintiff in this case filed a suit against Public Storage on
behalf of a putative class of renters who rented self-storage units from Public
Storage. Plaintiff alleges that Public Storage misrepresented the size of its
storage units, has brought claims under California statutory and common law
relating to consumer protection, fraud, unfair competition, and negligent
misrepresentation, and is seeking monetary damages, restitution, and declaratory
and injunctive relief.
The claim in this case is substantially similar to those in Henriquez
v. Public Storage, Inc., which was disclosed in prior reports. In January 2003,
the plaintiff caused the Henriquez action to be dismissed. Based upon the
uncertainty inherent in any putative class action, Public Storage cannot
presently determine the potential damages, if any, or the ultimate outcome of
this litigation. On November 3, 2003, the court granted Public Storage motion to
strike the plaintiff's nationwide class allegations and to limit any putative
class to California residents only. Public Storage is vigorously contesting the
claims upon which this lawsuit is based including class certification efforts.
Salaam, et al v. Public Storage, Inc. (filed February 2000) (Superior Court
---------------------------------------------------------------------------
- - Los Angeles County)
- ---------------------
The plaintiffs in this case are suing Public Storage on behalf of a
putative class of California resident property managers who claim that they were
not compensated for all the hours they worked. The named plaintiffs have
indicated that their claims total less than $20,000 in aggregate. On December 1,
2003, the California Court of Appeals affirmed the Supreme Court's 2002 denial
of plaintiff's motion for class certification. The maximum potential liability
cannot be estimated, but can only be increased if claims are permitted to be
brought on behalf of others under the California Unfair Business Practices Act.
The affirmation of denial of class certification does not address the claim
under the California Unfair Business Practices Act.
Public Storage is continuing to vigorously contest the claims in this
case and intends to resist any expansion beyond the named plaintiffs, including
by opposing claims on behalf of others under the California Unfair Business
Practices Act. Public Storage cannot presently determine the potential damages,
if any, or the ultimate outcome of this litigation.
Other Items
-----------
Public Storage 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 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of 2003.
PART II
ITEM 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
The Partnership has no common stock.
The Units are not listed on any national securities exchange or quoted
on the NASDAQ System and there is no established public trading market for the
Units. Secondary sales activity for the Units has been limited and sporadic. The
General Partners monitor transfers of the Units (a) because the admission of the
transferee as a substitute limited partner requires the consent of the General
Partners under the Partnership's Amended and Restated Certificate and Agreement
of Limited Partnership, (b) in order to ensure compliance with safe harbor
provisions to avoid treatment as a "publicly traded partnership" for tax
purposes, and (c) because the General Partners (and their affiliates) have
purchased Units. However, the General Partners do not have information regarding
the prices at which all secondary sale transactions in the Units have been
effectuated. Various organizations offer to purchase and sell limited
partnership interests (including securities of the type such as the Units) in
secondary sales transactions. Various publications such as The Stanger Report
summarize and report information (on a monthly, bimonthly or less frequent
basis) regarding secondary sales transactions in limited partnership interests
(including the Units), including the prices at which such secondary sales
transactions are effectuated.
Exclusive of the General Partners' interest in the Partnership, as of
December 31, 2003, there were approximately 1,079 recorded Unitholders.
Distributions to the general and limited partners of all cash available
for distribution (as defined) are made quarterly. Cash available for
distribution is generally funds from operations of the Partnership, without
deduction for depreciation, but after deducting funds to pay or establish
reserves for all other expenses (other than incentive distributions to the
general partner) and capital improvements, plus net proceeds from any sale or
financing of the Partnership's properties.
Reference is made to Item 6 and 7 hereof for information on the amount
of such distributions.
11
ITEM 6. Selected Financial Data
For the Year
Ended December 31, 2003 2002 2001 2000 1999
- ------------------ -------------- --------------- -------------- -------------- --------------
Revenues $ 9,931,000 $ 9,777,000 $ 9,820,000 $ 8,962,000 $ 8,635,000
Depreciation and
Amortization 940,000 931,000 978,000 954,000 956,000
Interest expense - 4,000 381,000 643,000 1,324,000
Net income 6,084,000 6,166,000 5,831,000 4,790,000 3,931,000
Limited partners' share 4,322,000 5,004,000 5,773,000 4,742,000 3,892,000
General partners' share 1,762,000 1,162,000 58,000 48,000 39,000
Limited partners' per unit data (1)
Net income $98.23 $113.73 $131.20 $107.77 $88.45
Cash Distributions $116.00 $75.00 - - -
- --------------------------------------
Cash and cash equivalents $ 1,367,000 $ 1,439,000 $ 449,000 $ 410,000 $ 302,000
Total assets $ 32,064,000 $ 26,864,000 $ 27,192,000 $ 22,597,000 $ 22,118,000
Note Payable to commercial bank $ - $ - $ 1,550,000 $ 7,600,000 $ 12,825,000
(1) Per unit data is based on the weighted average number of the limited
partnership units (44,000) outstanding during the period.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Partnership's
financial statements and notes thereto.
FORWARD LOOKING STATEMENTS: 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 Item 1A, "Risk
Factors" and include changes in general economic conditions and in the markets
in which the Partnership operates and the impact of competition from new and
existing storage and commercial facilities and other storage alternatives, which
could impact rents and occupancy levels at the Partnership's facilities; the
impact of the regulatory environment as well as national, state, and local laws
and regulations, which could increase the Partnership's expense and reduce the
Partnership's cash available for distribution; and economic uncertainty due to
the impact of war or terrorism could adversely affect our business plan. We
disclaim any obligation to publicly release the results of any revisions to
these forward-looking statements reflecting new estimates, events or
circumstances after the date of this report.
12
Critical Accounting Policies
- ----------------------------
IMPAIRMENT OF REAL ESTATE
Substantially all of our assets consist of real estate. On a quarterly
basis, we evaluate our real estate for impairment. The evaluation of real estate
for impairment requires determining whether indicators of impairment exist,
which is a subjective process. When any indicators of impairment are found, the
evaluation then entails projections of future operating cash flows, which also
involves significant judgment. We identified no such impairments at December 31,
2003. However, future events, or facts and circumstances that currently exist
that we have not yet identified, could cause us to conclude in the future that
our real estate is impaired. Any resulting impairment loss could have a
material, adverse impact on our financial condition and results of operations.
ESTIMATED USEFUL LIVES OF LONG-LIVED ASSETS
Substantially all of our assets consist of depreciable, long-lived
assets. We record depreciation expense with respect to these assets based upon
their estimated useful lives. Any change in the estimated useful lives of those
assets, caused by functional or economic obsolescence or other factors, could
have a material, adverse impact on our financial condition or results of
operations.
ACCRUALS FOR CONTINGENCIES
We are exposed to business and legal liability risks with respect to
events that have occurred, but in accordance with generally accepted accounting
principles in the United States, 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 9 to the Partnership's 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.
Results of Operations
- ---------------------
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002:
The Partnership's net income was $6,084,000 in 2003 compared to
$6,166,000 in 2002, representing a decrease of $82,000.
During 2003, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense) was
$5,125,000 in 2003 compared to $5,185,000 in 2002, representing a decrease of
$60,000 or 1%. This decrease is attributable to an increase in cost of
operations and depreciation expense at the Partnership's self-storage facilities
and the San Francisco business park facility, partially offset by an increase in
rental income.
Rental income was $8,857,000 in 2003 compared to $8,697,000 in 2002,
representing an increase of $160,000 or 2%. The increase is attributable to a
increase in average occupancy at the Partnership's self-storage facilities. The
weighted average occupancy level of the self-storage facilities was 90% in 2003
compared to 88% in 2002. The annual realized rent per occupied square foot for
the self-storage facilities was $12.32 in 2003 compared to $12.85 in 2002.
Dividend income from marketable securities of affiliate remained stable
at $1,002,000 for 2003 and 2002.
Cost of operations (including management fees paid to affiliates)
increased $211,000 or 8% to $2,792,000 in 2003 from $2,581,000 in 2002. This
increase is primarily attributable to increases in payroll, property taxes,
advertising and property insurance expenses.
13
Interest expense was $4,000 in 2002 none for 2003. The loan was paid in
full during the first quarter of 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001:
The Partnership's net income was $6,166,000 in 2002 compared to
$5,831,000 in 2001, representing an increase of $335,000. The increase is
primarily attributable to the significant reduction in interest expense related
to the note payable which was paid off in the first quarter of 2002.
During 2002, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense) was
$5,185,000 in 2002 compared to $5,309,000 in 2001, representing a decrease of
$124,000 or 2%. This decrease is attributable to a decrease in rental income at
the Partnership's self-storage facilities and the San Francisco business park
facility.
Rental income was $8,697,000 in 2002 compared to $8,823,000 in 2001,
representing a decrease of $126,000 or 1%. The decrease is attributable to a
decrease in average occupancy at the Partnership's self-storage facilities. The
weighted average occupancy level for the self-storage facilities was 88% in 2002
compared to 92% in 2001. The annual realized rent per occupied square foot for
the self-storage facilities was $12.85 in 2002 compared to $12.48 in 2001.
Dividend income from marketable securities of affiliate increased
$58,000 in 2002 compared to 2001. This increase is due to increased dividends on
the marketable securities of affiliate on shares owned in 2002 compared to 2001.
Cost of operations (including management fees paid to affiliates)
increased $45,000 or 2% to $2,581,000 in 2002 from $2,536,000 in 2001. This
increase is attributable to increases in payroll expenses.
Interest expense was $4,000 and $381,000 in 2002 and 2001,
respectively, representing a decrease of $377,000 or 99%. The decrease results
from a lower average outstanding loan balance in 2002 compared to 2001. The loan
was paid in full during the first quarter of 2002.
Liquidity and Capital Resources
- -------------------------------
Cash flows from operating activities ($7,116,000 for the year ended
December 31, 2003) have been sufficient to meet all current obligations of the
Partnership. During 2004, the Partnership anticipates approximately $350,000 of
capital improvements compared to $314,000 in 2003 and $364,000 in 2002. Such
enhancements will include new signs, exterior color schemes, and improvements to
the rental offices.
At December 31, 2003, the Partnership held 533,334 shares of common
stock and 17,331 shares of Equity Stock, Series A (marketable securities) with a
fair value totaling $23,660,000 (cost of $8,181,000 at December 31, 2003) in
Public Storage, Inc. The Partnership recognized $1,002,000 in dividend income
during 2003 and 2002.
On April 1, 1999, the partnership borrowed $17,000,000 from a
commercial bank. The proceeds of the loan were used to repay the Partnership's
mortgage debt. The loan was unsecured and bore interest at the London Interbank
Offering Rate ("LIBOR") plus 0.60% to 1.20% depending on the Partnership's
interest coverage ratio. The loan required monthly payments of interest and was
to mature in April 2003. However, during the first quarter of 2002, the
Partnership repaid the loan in full without penalty. The Partnership may borrow
in the future with the intent of using the proceeds to finance distributions to
the limited and general partners.
In June 1996, the Partnership sold approximately 61% of the Miami,
Florida land for a net price of $376,000 ($400,000 less $24,000 of selling
costs), resulting in a $13,000 gain on the sale. The remaining land is listed
for sale. The Partnership does not intend on selling or acquiring any
properties, except for intended sale of the parcel of land in Miami, Florida.
14
DISTRIBUTIONS
Distributions to the limited and general partners for the years
1978-1991 aggregated $54,915,000 including $24,356,000 distributed to the
partners in 1989 in connection with a financing of the properties. Quarterly
distributions were discontinued in 1991. The Partnership resumed with quarterly
distributions beginning in the second quarter of 2002. During 2002, we paid
distributions to the limited and general partners totaling $3,300,000 ($75.00
per unit) and $1,144,000, respectively. In 2003, we paid distributions to the
limited and general partners totaling $5,104,000 ($116 per unit) and $1,770,000,
respectively. Future distribution rates may be adjusted to levels which are
supported by operating cash flow after capital improvements and other
obligations.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
As of December 31, 2003, the Partnership had no outstanding debt.
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Financial Statements and Financial Statement
Schedule in Item 15(a).
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
ITEM 9A. Controls and Procedures
-----------------------
Public Storage, Inc. maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in reports the
Partnership files and submits under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in accordance with SEC
guidelines and that such information is communicated to the Partnership's
management, including its Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure based on the definition
of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act.
In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives.
At the end of the period covered by this report, Public Storage, Inc.
carried out an evaluation, under the supervision and with the participation of
the Partnership's management, including Public Storage, Inc.'s Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Partnership's disclosure controls and procedures were
effective. During the fourth quarter of 2003, there were no significant changes
in the Partnership's internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect, the
Partnership's internal control over financial reporting.
15
PART III
ITEM 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The Partnership has no directors or executive officers.
The Partnership's General Partners are PSI and B. Wayne Hughes. PSI,
acting through its directors and executive officers, and Mr. Hughes manage and
make investment decisions for the Partnership. The Self-storage Facilities are
managed by PSI pursuant to a Management Agreement.
The names of all directors and executive officers of PSI, the offices
held by each of them with PSI, and their ages and business experience during the
past five years are as follows:
Name Positions with PSI
- --------------------- -------------------------------------------------------
B. Wayne Hughes Chairman of the Board
Ronald L. Havner, Jr. Chief Executive Officer and Vice Chairman of the Board
Harvey Lenkin President and Director
John Reyes Senior Vice President and Chief Financial Officer
John S. Baumann Senior Vice President and Chief Legal Officer
B. Wayne Hughes, Jr. Director
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
John T. Evans Director
Uri P. Harkham Director
Daniel C. Staton Director
B. Wayne Hughes, age 70, a general partner of the Partnership, has been
a director of PSI since its organization in 1980 and was President and Co-Chief
Executive Officer from 1980 until November 1991 when he became Chairman of the
Board and sole Chief Executive Officer. On November 7, 2002, Mr. Hughes resigned
as Chief Executive Officer of PSI. He remains as chairman of the board of
directors, and intends to focus on strategic and marketing initiatives. Mr.
Hughes has been active in the real estate investment field for over 30 years. He
is the father of B. Wayne Hughes, Jr.
Ronald L. Havner, Jr., age 46, was appointed Vice Chairman and Chief
Executive Officer of PSI on November 7, 2002. Mr. Havner has been employed by
PSI in various accounting and operational capacities since 1986 and served as
Senior Vice President and Chief Financial Officer from November 1991 until
December 1996 when be became Chairman, President and Chief Executive Officer of
PS Business Parks, Inc. (AMEX: symbol PSB) an affiliate of the PSI. He is a
member of the National Association of Real Estate Investment Trusts (NAREIT) and
the Urban Land Institute (ULI) and a Director of Business Machine Security, Inc.
and Mobile Storage Group, Inc. Mr. Havner earned a Bachelor of Arts degree in
Economics from the University of California, Los Angeles.
Harvey Lenkin, age 67, has been employed by PSI for 26 years and became
President and a director of PSI in November 1991. Mr. Lenkin has been a director
of PS Business Parks, Inc. ("PSBP"), an affiliated REIT, since March 16, 1998
and was President of PSBP (formerly Public Storage Properties XI, Inc.) from
1990 until March 16, 1998. He is a director of Paladin Realty Income Properties
I, Inc. and a member of the Board of Governors of the National Association of
Real Estate Investment Trusts (NAREIT).
John Reyes, age 43, a certified public accountant, joined PSI in 1990
and was Controller of PSI from 1992 until December 1996 when he became Chief
Financial Officer. He became a Vice President of PSI in November 1995 and a
Senior Vice President of PSI in December 1996. From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.
John S. Baumann, age 43, became Senior Vice President and Chief Legal
Officer of PSI in June 2003. From 1998 to 2002, Mr. Baumann was Senior Vice
President and General Counsel of Syncor International Corporation, an
international high technology health care services company. From 1995 to 1998,
he was Associate General Counsel of KPMG LLP, an international accounting, tax
and consulting firm.
16
B. Wayne Hughes, Jr., age 44 became director of PSI in January 1998. He
has been employed by PSI from 1989 to 2002 serving as Vice President -
Acquisitions of PSI from 1992 to 2002. Mr. Hughes, Jr. is the president of a
firm that manufactures and distributes sweets. He is the son of B. Wayne Hughes.
Robert J. Abernethy, age 64, has been President of American Standard
Development Company and of Self-Storage Management Company, which develop and
operate self-storage facilities, since 1976 and 1977, respectively. Mr.
Abernethy has been a director of PSI since its organization in 1980. He is a
member of the board of trustees of Johns Hopkins University, a director of
Marathon National Bank and a California Transportation Commissioner. Mr.
Abernethy is a former member of the board of directors of the Los Angeles County
Metropolitan Transportation Authority and the Metropolitan Water District of
Southern California and a former Planning Commissioner and Telecommunications
Commissioner and former Vice-Chairman of the Economic Development Commission of
the City of Los Angeles.
Dann V. Angeloff, age 68, has been President of the Angeloff Company, a
corporate financial advisory firm, since 1976. Mr. Angeloff is the general
partner of a limited partnership that owns a self-storage facility operated by
PSI and which secures a note owned by PSI. Mr. Angeloff has been a director of
PSI since its organization in 1980. He is a director of AremisSoft Corporation,
Balboa Capital Corporation, Nicholas/Applegate Growth Equity Fund, ReadyPac
Produce, Inc., Royce Medical Company and xDimentional Technologies, Inc. He was
a director of SPI from 1989 until June 1996.
William C. Baker, age 70, became a director of PSI in November 1991.
Since 1970, Mr. Baker has been a partner in Baker & Simpson, a private
investment entity. From August 1998 through April 2000, he was President and
Treasurer of Meditrust Operating Company, a real estate investment trust. From
April 1996 to December 1998, Mr. Baker was Chief Executive Officer of Santa
Anita Companies which then operated the Santa Anita Racetrack. From April 1993
through May 1995, Mr. Baker was President of Red Robin International, Inc., an
operator and franchiser of casual dining restaurants in the United States and
Canada. From January 1992 through December 1995 he was Chairman and Chief
Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red
Robin International, Inc. From 1991 to 1999, he was Chairman of the Board of
Coast Newport Properties, a real estate brokerage company. From 1976 to 1988, he
was a principal shareholder and Chairman and Chief Executive Officer of Del
Taco, Inc., an operator and franchiser of fast food restaurants in California.
Mr. Baker is a director of Callaway Golf Company, Meditrust Operating Company
and Meditrust Corporation.
John T. Evans, age 65, a member of the Audit Committee, became a
director of PSI in August 2003. Mr. Evans has been a partner in the law firm of
Osler, Hoskin & Harcourt LLP, Toronto, Canada from April 1993 to the present and
in the law firm of Blake, Cassels & Graydon LLP, Toronto, Canada from April 1966
to April 1993. Mr. Evans specializes in business law matters, securities,
restructurings, mergers and acquisitions and advising on corporate governance.
Mr. Evans is a director of Apollo Gas Administration Inc., Cara Operations Inc.
and Kubota Metal Corporation. Until August 2003, Mr. Evans was a director of
Canadian Mini-Warehouse Properties Ltd., a Canadian corporation owned by B.
Wayne Hughes and members of his family.
Uri P. Harkham, age 55, became a director of PSI in March 1993. Mr.
Harkham has been the President and Chief Executive Officer of the Jonathan
Martin Fashion Group, which specializes in designing, manufacturing and
marketing women's clothing, since its organization in 1976. Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties, a real estate
firm specializing in buying and managing fashion warehouses in Los Angeles.
Daniel C. Staton, age 51, became a director of PSI on March 12, 1999 in
connection with the merger of Storage Trust Realty, a real estate investment
trust, with PSI. Mr. Staton was Chairman of the Board of Trustees of Storage
Trust Realty from February 1998 until March 12, 1999 and a Trustee of Storage
Trust Realty from November 1994 until March 12, 1999. He is President of Walnut
Capital Partners, an investment and venture capital company. Mr. Staton was the
Chief Operating Officer and Executive Vice President of Duke Realty Investments,
Inc. from 1993 to 1997 and a director of Duke Realty Investments, Inc. from 1993
until August 1999. From 1981 to 1983, Mr. Staton was a principal owner of Duke
Associates, the predecessor of Duke Realty Investments, Inc. Prior to joining
Duke Associates in 1981, he was a partner and general manager of his own moving
company, Gateway Van & Storage, Inc. in St. Louis, Missouri. Form 1986 to 1988,
Mr. Staton served as president of the Greater Cincinnati Chapter of the National
Association of Industrial and Office Parks.
17
Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate
and Agreement of Limited Partnership (the "Partnership Agreement"), a copy of
which is included in the Partnership's prospectus included in the Partnership's
Registration Statement, File No. 2-92009, each of the General Partners continues
to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of the other general partner and a majority vote of
the limited partners, or (iii) removal by a majority vote of the limited
partners.
Each director of PSI serves until he resigns or is removed from office
by PSI, and may resign or be removed from office at any time with or without
cause. Each officer of PSI serves until he resigns or is removed by the board of
directors of PSI. Any such officer may resign or be removed from office at any
time with or without cause.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability of any director or executive officer of PSI during the past five years.
ITEM 11. Executive Compensation
----------------------
The Partnership has no subsidiaries, directors or officers. See Item 13
for a description of certain transactions between the Partnership and its
General Partners and their affiliates.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
-------------------------------------------------------------------
Related Stockholder Matters
---------------------------
(a) At March 25, 2004, the following beneficially owned more than 5% of
the Units:
Title Name and Address Beneficial Percent
of Class of Beneficial Owner Ownership of Class
- -------------------- -------------------------------------------- ---------------- ----------
Units of Limited Public Storage, Inc. 14,740 Units (1) 33.5%
Partnership Interest 701 Western Avenue
Glendale, California 91201
Units of Limited B. Wayne Hughes, Tamara Hughes Gustavson, PS 12,398 Units (2) 28.2%
Partnership Interest Orangeco Partnerships, Inc.
701 Western Avenue
Glendale, California 91201
(1) Includes (i) 14,609 Units owned by PSI as to which PSI has sole voting
and dispositive power, and (ii) 131 Units which PSI has an option to
acquire from Tamara Hughes Gustavson, an adult daughter of Hughes.
(2) Includes (i) 4,852 Units owned by BWH Marina Corporation II, a
corporation wholly-owned by Hughes, as to which Hughes has sole voting
and dispositive power, (ii) 131 Units owned by Tamara Hughes Gustavson
as to which Tamara Hughes Gustavson has sole voting and dispositive
power; PSI has an option to acquire these 131 Units, and (iii) 7,415
Units owned by PS Orangeco Partnerships, Inc., a corporation in which
Hughes and members of his family own approximately 48% of the voting
stock, PSI owns 46% and members of PSI's management and related
individuals own approximately 6%.
(b) The Partnership has no officers and directors. The General Partners
have contributed $222,222 to the capital of the Partnership and as a result
participate in the distributions to the limited partners and in the
Partnership's profits and losses in the same proportion that the General
Partners' capital contribution bears to the total capital contribution
(approximately $177,778 was contributed by PSI and $44,444 was contributed by
Mr. Hughes). In 1995, Mr. Hughes contributed his ownership and rights to
distributions from the Partnership to BWH Marina Corporation II, a corporation
wholly-owned by Mr. Hughes. As such, Mr. Hughes continues to act as a general
partner but receives no direct compensation or other consideration from the
Partnership. Information regarding ownership of Units by PSI and Hughes, the
General Partners, is set forth under section (a) above. Dann V. Angeloff, a
director of PSI, beneficially owns 27 Units (0.06% of the Units). The directors
and executive officers of PSI (including Hughes), as a group (17 persons),
beneficially own an aggregate of 12,299 Units, representing 28.0% of the Units
(including the 4,852 Units owned by Hughes and the 7,415 Units owned by PS
Orangeco Partnerships, Inc.).
18
(c) The Partnership knows of no contractual arrangements, the
operation of the terms of which may at a subsequent date result in a change in
control of the Partnership, except for articles 16, 17 and 21.1 of the
Partnership's Amended Certificate and Agreement of Limited Partnership (the
"Partnership Agreement"), a copy of which is included in the Partnership's
prospectus included in the Partnership's Registration Statement File No.
2-63247. Those articles provide, in substance, that the limited partners shall
have the right, by majority vote, to remove a general partner and that a general
partner may designate a successor with the consent of the other general partner
and a majority of the limited partners.
ITEM 13. Certain Relationships and Related Transactions
----------------------------------------------
The Partnership Agreement provides that the General Partners will be
entitled to cash incentive distributions in an amount equal to (i) 8% of
distributions of cash flow from operations until the distributions to all
partners from all sources equal their capital contributions; thereafter, 25% of
distributions of cash flow from operations, and (ii) 25% of distributions from
net proceeds from sale and financing of the Partnership's properties remaining
after distribution to all partners of any portion thereof required to cause
distributions to partners from all sources to equal their capital contributions.
The partners received distributions equal to their capital contributions in
1987. Mr. Hughes has assigned his ownership and distribution rights in the
Partnership to BWH Marina Corporation II ("BWH Marinas"). In addition to their
distribution rights with respect to their general partner's interests, PSI and
BWH Marinas own 14,609 and 4,852 Units, respectively. During 2003, PSI and BWH
Marinas received $1,416,000 and $354,000 in distributions related to their
general partner ownership interests.
The Partnership has a Management Agreement with PSI pursuant to which
the Partnership pays PSI a fee of 6% of the gross revenues of the self-storage
facilities operated for the Partnership. For as long as the Management Agreement
is in effect, PSI has granted the Partnership a non-exclusive license to use two
PSI service marks and related designs, including the "Public Storage" name, in
conjunction with rental and operation of facilities managed pursuant to the
Management Agreement. Upon termination of the Management Agreement, the
Partnership would no longer have the right to use the service marks and related
designs. The General Partners believe that the loss of the right to use the
service marks and related designs could have a material adverse effect on the
Partnership's business. The Management Agreement with PSI provides that the
Management Agreement may be terminated without cause upon 60 days written notice
by the Partnership or 6 months notice by PSI. During 2003, 2002 and 2001, the
Partnership paid fees of $513,000, $494,000 and $509,000, respectively, to PSI
pursuant to the Management Agreement.
In January 1997, PSBP became the operator of the Partnership's
commercial property pursuant to the Management Agreement. PSBP is an operating
partnership formed to own and operate business parks in which PSI has a
significant economic interest. The general partner of PSBP is PS Business Parks,
Inc., an AMEX listed real estate investment trust. The Partnership's commercial
property is managed by PS Business Parks, LP ("PSBP") pursuant to a Management
Agreement which provides for the payment of a fee by the Partnership of 5% of
the gross revenues of the commercial property operated for the Partnership.
During 2003, 2002 and 2001, the Partnership paid $18,000, $20,000 and $16,000,
respectively, to PSBP pursuant to the Management Agreement.
In addition, the Partnership combines its insurance purchasing power
with PSI through a captive insurance company controlled by PSI, STOR-Re Mutual
Insurance Corporation ("STOR-Re"). STOR-Re provides limited property and
liability insurance to the Partnership at commercially competitive rates. The
Partnership and PSI also utilize unaffiliated insurance carriers to provide
property and liability insurance in excess of STOR-Re's limitations.
ITEM 14. Principal Accountant Fees and Services
--------------------------------------
Fees billed to the Partnership by Ernst & Young LLP for 2002 and 2003
as are follows:
Audit Fees: Audit fees billed (or expected to be billed) to the
Partnership by Ernst & Young LLP for the audit of the Partnership's
annual financial statements and reviews of the quarterly financial
statements included in the Partnership's quarterly reports on Form 10-Q
totaled $8,000 for 2002 and $9,000 in 2003.
Tax Fees: Tax fees billed (or expected to be billed) to the Partnership
by Ernst & Young LLP for tax services (primarily federal and state
income tax preparation) totaled $8,000 in 2002 and $7,000 in 2003.
Audit Related Fees and Other Fees: During 2002 and 2003 Ernst & Young
LLP did not bill the Partnership for audit related services or any
other services, except audit services and tax services denoted above.
The Audit Committee of PSI pre-approves all services performed by Ernst
& Young LLP, including those listed above. At this time, the Audit Committee has
not delegated pre-approval authority to any member or members of the Audit
Committee.
19
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements. See Index to Financial Statements and
Financial Statement Schedule.
2. Financial Statement Schedules. See Index to Financial Statements and
Financial Statement Schedule.
3. Exhibits: See Exhibit Index contained below.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during 2003.
(c) Exhibits: See Exhibit Index contained below.
20
PUBLIC STORAGE PROPERTIES V, LTD.
EXHIBIT INDEX
(Item 15 (c))
3.1 Amended Certificate and Agreement of Limited Partnership. Previously
filed with the Securities and Exchange Commission as Exhibit A to the
Registrant's Prospectus included in Registration Statement No. 2-63247
and incorporated herein by reference.
10.1 Second Amended and Restated Management Agreement dated November 16,
1995 between the Partnership and Public Storage, Inc. Previously filed
with the Securities and Exchange Commission as an exhibit to PS
Partners, Ltd.'s Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.
10.2 Amended Management Agreement dated February 21, 1995 between Storage
Equities, Inc. and Public Storage Commercial Properties Group, Inc.
Previously filed with the Securities and Exchange Commission as an
exhibit to Storage Equities, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference.
10.3 Credit Agreement dated April 1, 1999 by and between Public Storage
Properties V, Ltd. and Wells Fargo Bank, National Association.
Previously filed with the Securities and Exchange Commission as an
exhibit to the Registrant's Quarterly report filed on form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by reference.
14 Code of Ethics for the Senior Financial Officers of Public Storage,
Inc. Filed herewith.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
signed and dated by Ronald L. Havner Jr. Filed herewith.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
signed and dated by John Reyes. Filed herewith.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Furnished herewith.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PUBLIC STORAGE PROPERTIES V, LTD.
a California Limited Partnership
Dated: March 29, 2004 By: Public Storage, Inc., General Partner
By:
Ronald L Havner, Jr., Vice Chairman of the
Board and Chief Executive Officer of
Public Storage, Inc. and Corporate General
Partner
By:
B. Wayne Hughes,
Chairman of the Board of Public Storage,
Inc. and General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Partnership in the capacities and on the dates indicated.
Signature Capacity Date
- ---------------------------------- ------------------------------------------------- ---------------
/s/ Ronald L. Havner, Jr. Vice Chairman of the Board and Chief Executive March 29, 2004
- ----------------------------------
Ronald L. Havner, Jr. Officer of Public Storage, Inc.
/s/ B. Wayne Hughes Chairman of the Board of Public Storage, Inc. and March 29, 2004
- ----------------------------------
B. Wayne Hughes General Partner
/s/ Harvey Lenkin President and Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
Harvey Lenkin
/s/ John Reyes Senior Vice President and Chief Financial Officer March 29, 2004
- ----------------------------------
John Reyes of Public Storage, Inc. (principal financial
officer
and principal accounting officer)
/s/ B. Wayne Hughes, Jr. Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
B. Wayne Hughes, Jr.
/s/ Robert J. Abernethy Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
Robert J. Abernethy
/s/ Dann V. Angeloff Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
Dann V. Angeloff
/s/ William C. Baker Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
William C. Baker
/s/ John T. Evans Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
John T. Evans
/s/ Uri P. Harkham Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
Uri P. Harkham
/s/ Daniel C. Staton Director of Public Storage, Inc. March 29, 2004
- ----------------------------------
Daniel C. Staton
22
PUBLIC STORAGE PROPERTIES V, LTD.
INDEX TO
FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
(Item 15 (a))
Page
References
----------------
Report of Independent Auditors F-1
Financial Statements and Schedule:
Balance Sheets as of December 31, 2003 and 2002 F-2
For the years ended December 31, 2003, 2002 and 2001:
Statements of Income F-3
Statements of Partners' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-12
Schedule:
III - Real Estate and Accumulated Depreciation F-13 - F-14
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
Report of Independent Auditors
The Partners
Public Storage Properties V, Ltd.
We have audited the accompanying balance sheets of Public Storage Properties V,
Ltd. (the "Partnership") as of December 31, 2003 and 2002, and the related
statements of income, partners' equity and cash flows for each of the three
years in the period ended December 31, 2003. Our audits also included the
schedule listed in the index at item 15(a). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Storage Properties V,
Ltd. at December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
March 25, 2004
Los Angeles, California
F-1
PUBLIC STORAGE PROPERTIES V, LTD.
BALANCE SHEETS
December 31, 2003 and 2002
2003 2002
---------------- ----------------
ASSETS
Cash and cash equivalents $ 1,367,000 $ 1,439,000
Marketable securities of affiliate (cost of $8,181,000 as of December
31, 2003 and 2002) 23,660,000 17,695,000
Rent and other receivables 191,000 227,000
Real estate facilities, at cost:
Buildings and equipment 17,564,000 17,250,000
Land 4,714,000 4,714,000
---------------- ----------------
22,278,000 21,964,000
Less accumulated depreciation (15,510,000) (14,570,000)
---------------- ----------------
6,768,000 7,394,000
Other assets 78,000 109,000
---------------- ----------------
Total assets $ 32,064,000 $ 26,864,000
================ ================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 170,000 $ 183,000
Deferred revenue 239,000 201,000
Partners' equity
Limited partners' equity, $500 per
unit, 44,000 units authorized, issued and outstanding 12,011,000 12,597,000
General partners' equity 4,165,000 4,369,000
Other comprehensive income 15,479,000 9,514,000
---------------- ----------------
Total partners' equity 31,655,000 26,480,000
---------------- ----------------
Total liabilities and partners' equity $ 32,064,000 $ 26,864,000
================ ================
See accompanying notes.
F-2
PUBLIC STORAGE PROPERTIES V, LTD.
STATEMENTS OF INCOME
For the years ended December 31, 2003, 2002 and 2001
2003 2002 2001
---------------- ---------------- ----------------
REVENUES:
Rental income $ 8,857,000 $ 8,697,000 $ 8,823,000
Dividends from marketable securities of affiliate 1,002,000 1,002,000 944,000
Other income 72,000 78,000 53,000
---------------- ---------------- ----------------
9,931,000 9,777,000 9,820,000
---------------- ---------------- ----------------
COSTS AND EXPENSES:
Cost of operations 2,261,000 2,067,000 2,011,000
Management fees paid to affiliates 531,000 514,000 525,000
Depreciation and amortization 940,000 931,000 978,000
Administrative 115,000 95,000 94,000
Interest expense - 4,000 381,000
---------------- ---------------- ----------------
3,847,000 3,611,000 3,989,000
---------------- ---------------- ----------------
NET INCOME $ 6,084,000 $ 6,166,000 $ 5,831,000
================ ================ ================
Limited partners' share of net income ($98.23 per unit
in 2002, $113.73 per unit in 2002 and $131.20 per
unit in 2001) $ 4,322,000 $ 5,004,000 $ 5,773,000
General partners' share of net income 1,762,000 1,162,000 58,000
---------------- ---------------- ----------------
$ 6,084,000 $ 6,166,000 $ 5,831,000
================ ================ ================
COMPREHENSIVE INCOME:
Net income $ 6,084,000 $ 6,166,000 $ 5,831,000
Other comprehensive income (change in unrealized
gain (loss) of marketable equity securities) 5,965,000 (590,000) 4,928,000
---------------- ---------------- ----------------
$ 12,049,000 $ 5,576,000 $ 10,759,000
================ ================ ================
See accompanying notes.
F-3
PUBLIC STORAGE PROPERTIES V, LTD.
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 2003, 2002 and 2001
Other Comprehensive Total Partners'
Limited Partners General Partners Income Equity
---------------- ---------------- ------------------ ---------------
Balance at December 31, 2000 $ 6,989,000 $ 2,424,000 $ 5,176,000 $ 14,589,000
Change in unrealized gain on
marketable equity securities - - 4,928,000 4,928,000
Net income 5,773,000 58,000 - 5,831,000
Equity transfer (1,443,000) 1,443,000 - -
---------------- ---------------- ------------------ ---------------
Balance at December 31, 2001 11,319,000 3,925,000 10,104,000 25,348,000
Change in unrealized gain on
marketable equity securities - - (590,000) (590,000)
Net income 5,004,000 1,162,000 - 6,166,000
Distributions paid to partners (3,300,000) (1,144,000) - (4,444,000)
Equity transfer (426,000) 426,000 - -
---------------- ---------------- ------------------ ---------------
Balance at December 31, 2002 12,597,000 4,369,000 9,514,000 26,480,000
Change in unrealized gain on
marketable equity securities - - 5,965,000 5,965,000
Net income 4,322,000 1,762,000 - 6,084,000
Distributions paid to partners (5,104,000) (1,770,000) - (6,874,000)
Equity transfer 196,000 (196,000) - -
---------------- ---------------- ------------------ ---------------
Balance at December 31, 2003 $ 12,011,000 $ 4,165,000 $ 15,479,000 $ 31,655,000
================ ================ ================== ===============
See accompanying notes.
F-4
PUBLIC STORAGE PROPERTIES V, LTD.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003, 2002 and 2001
2003 2002 2001
------------------ ------------------ ------------------
Cash flows from operating activities:
Net income $ 6,084,000 $ 6,166,000 $ 5,831,000
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 940,000 931,000 978,000
Decrease (increase) in rent and other receivables 36,000 188,000 (279,000)
Amortization of prepaid loan fees - - 11,000
Decrease (Increase) in other assets 31,000 (27,000) 2,000
(Decrease) Increase in accounts payable (13,000) 77,000 (70,000)
Increase (decrease) in deferred revenue 38,000 13,000 (44,000)
------------------ ------------------ ------------------
Total adjustments 1,032,000 1,182,000 598,000
------------------ ------------------ ------------------
Net cash provided by operating activities 7,116,000 7,348,000 6,429,000
------------------ ------------------ ------------------
Cash flow from investing activities:
Additions to real estate facilities (314,000) (364,000) (340,000)
------------------ ------------------ ------------------
Net cash used in investing activities (314,000) (364,000) (340,000)
------------------ ------------------ ------------------
Cash flows from financing activities:
Distributions paid to partners (6,874,000) (4,444,000) -
Principal payments on note to commercial bank - (1,550,000) (6,050,000)
------------------ ------------------ ------------------
Net cash used in financing activities (6,874,000) (5,994,000) (6,050,000)
------------------ ------------------ ------------------
Net (decrease) increase in cash and cash equivalents (72,000) 990,000 39,000
Cash and cash equivalents at the beginning of the year 1,439,000 449,000 410,000
------------------ ------------------ ------------------
Cash and cash equivalents at the end of the year $ 1,367,000 $ 1,439,000 $ 449,000
================== ================== ==================
Supplemental schedule of non-cash investing and financing
activities:
Increase (decrease) in fair value of marketable securities:
Marketable securities $ 5,965,000 $ (590,000) $ 4,928,000
================== ================== ==================
Other comprehensive income $ 5,965,000 $ (590,000) $ 4,928,000
================== ================== ==================
See accompanying notes.
F-5
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
1. Description of Partnership
Public Storage Properties V, Ltd. (the "Partnership") was
formed with the proceeds of a public offering. The general partners in
the Partnership are Public Storage, Inc. ("PSI") and B. Wayne Hughes
("Hughes"). The Partnership owns fourteen operating facilities located
in three states and a parcel of land in Florida.
2. Summary of Significant Accounting Policies and Partnership Matters
Real Estate Facilities:
-----------------------
Cost of land includes appraisal fees and legal fees related to
acquisition and closing costs. Buildings and equipment reflect costs
incurred through December 31, 2003 and 2002 to develop self-storage
facilities and to a lesser extent, a business park property. The
self-storage facilities provide self-service storage spaces for lease,
usually on a month-to-month basis, to the general public. The buildings
and equipment are generally depreciated on a straight-line basis over
estimated useful lives of 25 and 5 years, respectively.
In August 1992, the building at a self-storage facility
located in Miami, Florida was completely destroyed by Hurricane Andrew.
In 1993, the General Partners decided that it would be more beneficial
to the Partnership, given the condition of the market area of the
self-storage facility, to cease operations at this location and
therefore, decided not to reconstruct the buildings. In June 1996, the
Partnership sold approximately 61% of the Miami, Florida land. The
remaining land is listed for sale.
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
rental income when collected. Interest income is recognized as earned.
We accrue for property tax expenses 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,
interest expense, as well as television, yellow page and other
advertising expenditures are expensed as incurred. Television, yellow
page, and other advertising expenditures totaled $327,000, $294,000 and
$315,000 for the years ended December 31, 2003, 2002 and 2001,
respectively.
Allocation of Net Income:
-------------------------
The general partners' share of net income consists of amounts
attributable to their 1% capital contribution and an additional
percentage of cash flow (as defined) which relates to the general
partners' share of cash distributions as set forth in the Partnership
Agreement (Note 4). All remaining net income is allocated to the
limited partners.
Per unit data is based on the weighted average number of the
limited partnership units (44,000) outstanding during the period.
Cash and Cash Equivalents:
--------------------------
For financial statement purposes, the Partnership considers
all highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
F-6
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
2. Summary of Significant Accounting Policies and Partnership Matters
(Continued)
Marketable Securities:
----------------------
Marketable securities at December 31, 2003 consist of 533,334
shares of common stock and 17,331 shares of Equity Stock, Series A of
Public Storage, Inc. The Partnership has designated its portfolio of
marketable securities as being available for sale. Accordingly, at
December 31, 2003, the Partnership has recorded the marketable
securities at fair value, based upon the closing quoted price of the
securities at December 31, 2003, and has recorded a corresponding
unrealized gain (loss) totaling $5,965,000, $(590,000) and $4,928,000
for the years ended December 31, 2003, 2002 and 2001, respectively, as
a increase (decrease) to Partnership equity. The Partnership recognized
dividends of $1,002,000, $1,002,000 and $944,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.
Comprehensive Income:
---------------------
As of January 1, 1998, the Partnership adopted Statement 130,
Reporting Comprehensive Income. Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the
Partnership's net income or shareholders' equity. Statement 130
requires unrealized gains or losses on the Partnership's
available-for-sale securities, which prior to adoption were reported
separately in shareholders' equity, to be included in other
comprehensive income. The primary impact of this statement for the
Partnership is to recharacterize unrealized gains or losses in
shareholders' equity as "other comprehensive income."
Use of Estimates:
-----------------
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States 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.
Impairment of Real Estate:
--------------------------
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
construction of the real estate, or e) a current-period operating or
cash flow loss combined with a history of operating or cash flow losses
or a projection or forecast that demonstrates continuing losses
associated with the use of the real estate. When any such indicators of
impairment are noted, we compare the carrying value of the real estate
to the future estimated undiscounted cash flows attributable to the
real estate. If the real estate's recoverable amount is less than the
carrying value of the asset, then an impairment charge is booked for
the excess of carrying value over the real estate's fair value. Our
evaluations have identified no such impairments at December 31, 2003.
Any long-lived assets which we expect to sell or dispose of prior
to their previously estimated useful life are stated at the lower of
their estimated net realizable value (less cost to sell) or their
carrying value.
F-7
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
2. Summary of Significant Accounting Policies and Partnership Matters
(Continued)
Environmental Cost:
-------------------
Substantially all of the Partnership's facilities were
acquired prior to the time that it was customary to conduct
environmental investigations in connection with property acquisitions.
Based on the assessments, the Partnership expensed $27,000 in 1995 for
known environmental remediation requirements. Although there can be no
assurance, the Partnership is not aware of any environmental
contamination of any of its property sites which individually or in the
aggregate would be material to the Partnership's overall business,
financial condition, or results of operations.
Recent Accounting Pronouncements and Guidance
---------------------------------------------
As of March 25, 2003, there have been no recent accounting
pronouncements and guidance, which were not effective for
implementation prior to December 31, 2003, 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 improvement) needs to be distributed at least
quarterly. In June 1989, the Partnership financed its properties and
distributed approximately $24,356,000 to its partners. Quarterly
distributions were discontinued in 1991. The Partnership resumed with
quarterly distributions beginning in the second quarter of 2002. We
paid distributions during 2002 to the limited and general partners
totaling $3,300,000 ($75.00 per unit) and $1,144,000, respectively.
During 2003, we paid distributions to the limited and general partners
totaling $5,104,000 ($116 per unit) and $1,770,000, respectively.
Future distribution rates may be adjusted to levels which are supported
by operating cash flow after capital improvements and other
obligations.
4. Partners' Equity
PSI 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 1987, 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 results of
operations or distributions to partners.
F-8
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
5. Related Party Transactions
Management Agreements and Shared Expenses with PSI
--------------------------------------------------
The Partnership has a management agreement with PSI pursuant
to which PSI operates the Partnership's self-storage facilities for a
fee equal to 6% of the facilities' gross revenue (as defined). The
Partnership's business parks are managed by PS Business Parks, L.P.
("PSBP") pursuant to a management contract. PSBP, an affiliate of PSI
operates the Partnership's business parks for a fee equal to 5% of the
facilities gross income. For 2003, 2002 and 2001, the Partnership paid
$531,000, $514,000 and $525,000, respectively, pursuant to these
management agreements.
The Management Agreement between the Partnership and PSI
provides that the Management Agreement may be terminated without cause
upon 60 days written notice by the Partnership or six months notice by
PSI. The Management Agreement between the Partnership and PSBP provides
that the Management Agreement may be terminated (i) without cause upon
60 days written notice by the Partnership and upon seven years notice
by PSBP and (ii) at any time by either party for cause.
The Partnership's facilities, along with facilities owned by
PSI and its affiliates, are managed jointly by PSI in order to take
advantage of scale and other efficiencies. Joint costs are allocated on
a methodology meant to fairly allocate such costs. Such joint costs
include supervisory, relief, and administrative personnel costs,
television advertising expenses, yellow page advertising, data
processing, and insurance. The total of such expenses, which are
included in Cost of Operations, amounted to $890,000, $761,000, and
$720,000 for the years ended December 31, 2003, 2002, and 2001,
respectively.
Ownership Interest by the General Partners
------------------------------------------
In addition, B. Wayne Hughes, General Partner of the
"Partnership", and Chairman of PSI and members of his family own 28.2%
of the Limited Partnership units. PSI and its affiliates own 33.5% of
the Limited Partnership units.
Ownership in STOR-Re
--------------------
The Partnership has a 1.4% 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 PSI. The
Partnership accounts for its investment in STOR-Re, which is included
in other assets, on the cost method, and has received no distributions
during the three years ended December 31, 2003.
STOR-Re provides limited property and liability insurance
coverage to the Partnership, PSI, and affiliates. 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 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
continually reviewed.
The following table sets forth certain condensed consolidated
financial information with respect to STOR-Re (representing 100% of
this entity's operations and not the Partnership's pro-rata share):
F-9
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
2003 2002
------------------- -----------------
(Amount in thousands)
For the year ended December 31,
Premiums earned................................. $ 14,766 $ 12,043
Net investment income........................... 721 784
Loss and loss adjustment expense................ (14,731) (14,509)
Other expenses.................................. (298) (263)
------------------- -----------------
Net income (loss)............................ $ 458 $ (1,945)
=================== =================
At December 31,
Total assets (primarily cash and other $ 41,778 $ 30,749
investments).................................
Liabilities for losses and loss adjustment 29,634 23,335
expenses.....................................
Other liabilities............................... 4,053 3,171
Member's surplus................................ 8,091 4,243
6. Taxes Based on Income
Taxes based on income are the responsibility of the individual
partners and, accordingly, the Partnership's financial statements do
not reflect a provision for such taxes.
Unaudited taxable net income was $6,264,000, $6,357,000 and
$5,996,000 for the years ended December 31, 2003, 2002 and 2001,
respectively. The difference between taxable net income and net income
is primarily related to depreciation expense resulting from differences
in book and tax depreciation methods.
7. Notes Payable
On April 1, 1999, the partnership borrowed $17,000,000 from a
commercial bank. The proceeds of the loan were used to repay the
Partnership's mortgage debt. The loan was unsecured and bore interest
at the London Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20%
depending on the Partnership's interest coverage ratio. The loan
requires monthly payments of interest and matures April 2003. During
the first quarter of 2002, the Partnership paid the loan in full
without penalty.
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
$5,000,000 of debt through April, 2002 effectively changes the interest
rate exposure from floating rate to a fixed rate of 5.64% plus 0.60% to
1.20% based on the Partnership's interest coverage ratio. Market gains
and losses on the value of the swap are deferred and included in income
over the life of the contract. The Partnership recorded the differences
paid or received on the interest rate swap in interest expense as
payments were made or received. During December 2001, the Partnership
terminated this agreement at a cost of approximately $75,000.
Interest paid during 2003, 2002 and 2001 was $0, $8,000 and
$376,000, respectively.
F-10
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
8. Supplementary Quarterly Financial Data (Unaudited)
Three Months Ended
--------------------------------------------------------------------------------
March 31, 2003 June 30, 2003 September 30, 2003 December 31, 2003
----------------- --------------- ------------------ ------------------
Rental Income $ 2,157,000 $ 2,176,000 $ 2,272,000 $ 2,252,000
Cost of Operations (including
management fees and depreciation) $ 900,000 $ 951,000 $ 928,000 $ 953,000
Net Income $ 1,494,000 $ 1,463,000 $ 1,589,000 $ 1,538,000
Net Income Per Unit $ 23.95 $ 23.25 $ 26.10 $ 24.93
Distributions $ 1,719,000 $ 1,719,000 $ 1,719,000 $ 1,717,000
Three Months Ended
--------------------------------------------------------------------------------
March 31, 2002 June 30, 2002 September 30, 2002 December 31, 2002
----------------- --------------- ------------------ ------------------
Rental Income $ 2,179,000 $ 2,144,000 $ 2,201,000 $ 2,173,000
Cost of Operations (including
management fees and depreciation) $ 833,000 $ 856,000 $ 901,000 $ 922,000
Net Income $ 1,583,000 $ 1,516,000 $ 1,562,000 $ 1,505,000
Net Income Per Unit $ 35.98 $ 34.45 $ 35.50 $ 34.20
Distributions $ - $ 1,185,000 $ 1,541,000 $ 1,718,000
9. Commitments and Contingencies
Serrao v. Public Storage, Inc. (filed April 2003)
-------------------------------------------------
(Superior Court - Orange County)
--------------------------------
The plaintiff in this case filed a suit against Public Storage on
behalf of a putative class of renters who rented self-storage units from Public
Storage. Plaintiff alleges that Public Storage misrepresented the size of its
storage units, has brought claims under California statutory and common law
relating to consumer protection, fraud, unfair competition, and negligent
misrepresentation, and is seeking monetary damages, restitution, and declaratory
and injunctive relief.
The claim in this case is substantially similar to those in Henriquez
v. Public Storage, Inc., which was disclosed in prior reports. In January 2003,
the plaintiff caused the Henriquez action to be dismissed. Based upon the
uncertainty inherent in any putative class action, Public Storage cannot
presently determine the potential damages, if any, or the ultimate outcome of
this litigation. On November 3, 2003, the court granted Public Storage motion to
strike the plaintiff's nationwide class allegations and to limit any putative
class to California residents only. Public Storage is vigorously contesting the
claims upon which this lawsuit is based including class certification efforts.
Salaam, et al v. Public Storage, Inc. (filed February 2000)
-----------------------------------------------------------
(Superior Court - Los Angeles County)
-------------------------------------
The plaintiffs in this case are suing Public Storage on behalf of a
putative class of California resident property managers who claim that they were
not compensated for all the hours they worked. The named plaintiffs have
indicated that their claims total less than $20,000 in aggregate. On December 1,
2003, the California Court of Appeals affirmed the Supreme Court's 2002 denial
of plaintiff's motion for class certification. The maximum potential liability
cannot be estimated, but can only be increased if claims are permitted to be
brought on behalf of others under the California Unfair Business Practices Act.
The affirmation of denial of class certification does not address the claim
under the California Unfair Business Practices Act.
Public Storage is continuing to vigorously contest the claims in this
case and intends to resist any expansion beyond the named plaintiffs, including
by opposing claims on behalf of others under the California Unfair Business
Practices Act. Public Storage cannot presently determine the potential damages,
if any, or the ultimate outcome of this litigation.
F-11
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
Other Items
-----------
Public Storage, Inc. and the Partnership are parties 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.
F-12
Public Storage Properties V, Ltd.
Schedule III - Real Estate and Accumulated Depreciation
For the year ended December 31, 2003
Initial Cost
-----------------------------
Costs Subsequent
Building, Land to construction
Description Land Imp & Equipment (Improvements)
- ------------------------ ------------ --------------- ----------------
California
Belmont $478,000 $811,000 $268,000
Carson Street 265,000 563,000 204,000
Palmdale 114,000 721,000 383,000
Pasadena Fair Oaks 686,000 1,219,000 402,000
Sacramento Carmichael 305,000 850,000 355,000
Sacramento Florin 326,000 1,063,000 418,000
San Jose Capitol Quimby 209,000 742,000 265,000
San Jose Felipe 270,000 935,000 331,000
So. San Francisco
Spruce (1) 532,000 1,488,000 624,000
Florida
Miami Perrine (2) 230,000 -
Miami 27th Avenue 142,000 878,000 467,000
Miami 29th 270,000 520,000 277,000
Georgia
Atlanta Montreal Road 397,000 888,000 369,000
Atlanta Mountain
Industrial Blvd. 271,000 725,000 477,000
Marietta-Cobb Parkway 219,000 914,000 407,000
------------ --------------- ----------------
$4,714,000 $12,317,000 $5,247,000
============ =============== ================
Gross Carrying Amount
at December 31, 2003
-----------------------------------------------
Building, Land Accumulated Date
Description Land Imp & Equipment Total Depreciation Completed
- ------------------------ ------------- --------------- ------------ -------------- ---------------
California
Belmont $478,000 $1,079,000 $1,557,000 $983,000 12/79
Carson Street 265,000 767,000 1,032,000 669,000 01/80
Palmdale 114,000 1,104,000 1,218,000 1,020,000 01/80
Pasadena Fair Oaks 686,000 1,621,000 2,307,000 1,481,000 03/80
Sacramento Carmichael 305,000 1,205,000 1,510,000 1,081,000 07/80
Sacramento Florin 326,000 1,481,000 1,807,000 1,288,000 06/80
San Jose Capitol Quimby 209,000 1,007,000 1,216,000 891,000 07/80
San Jose Felipe 270,000 1,266,000 1,536,000 1,107,000 12/80
So. San Francisco
Spruce (1) 532,000 2,112,000 2,644,000 1,760,000 11/80
Florida
Miami Perrine (2) 230,000 0 230,000 0 01/80
Miami 27th Avenue 142,000 1,345,000 1,487,000 1,180,000 05/80
Miami 29th 270,000 797,000 1,067,000 732,000 10/79
Georgia
Atlanta Montreal Road 397,000 1,257,000 1,654,000 1,111,000 06/80
Atlanta Mountain
Industrial Blvd. 271,000 1,202,000 1,473,000 1,031,000 09/80
Marietta-Cobb Parkway 219,000 1,321,000 1,540,000 1,176,000 10/79
------------- --------------- ------------ --------------
$4,714,000 $17,564,000 $22,278,000 $15,510,000
============= =============== ============ ==============
(1) A portion of the property has been developed as a business park.
(2) The property is listed for sale. In 1996, the Partnership sold
approximately 61% of the Miami/Perrine property.
F-13
Public Storage Properties V, Ltd.
Schedule III - Real Estate and Accumulated Depreciation
(Continued)
Reconciliation of Real Estate and Accumulated Depreciation
2003 2002
------------------ ------------------
Investment in Real estate
Balance at the beginning of the year $ 21,964,000 $ 21,600,000
Additions through cash expenditures 314,000 364,000
------------------ ------------------
Balance at the end of the year $ 22,278,000 $ 21,964,000
================== ==================
Accumulated Depreciation
Balance at the beginning of the year $ 14,570,000 $ 13,639,000
Additions charged to costs and expenses 940,000 931,000
------------------ ------------------
Balance at the end of the year $ 15,510,000 $ 14,570,000
================== ==================
(a) The aggregate depreciable cost of real estate (excluding land) for Federal
income tax purposes is $17,037,000 (unaudited).
F-14