UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 2005
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.
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
The Registrant is a limited partnership and issues units representing ownership
of limited partner interests with a par value of $500.00 per unit. Number of
units outstanding at November 14, 2005: 44,000.
PUBLIC STORAGE PROPERTIES V, LTD.
INDEX
Pages
PART I. FINANCIAL INFORMATION (Item 3 not applicable)
---------------------
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2005
and December 31, 2004 1
Condensed Statements of Income and Comprehensive
Income for the Three and Nine Months Ended
September 30, 2005 and 2004 2
Condensed Statement of Partners' Equity for the
Nine Months Ended September 30, 2005 3
Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 2005 and 2004 4
Notes to Condensed Financial Statements 5-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
Item 2A. Risk Factors 13-16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION (Items 2 - 5 not applicable)
-----------------
Item 1. Legal Proceedings 17
Item 6. Exhibits 17
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED BALANCE SHEETS
September 30, December 31,
2005 2004
------------------ -------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,985,000 $ 1,359,000
Marketable securities of affiliate (cost of $347,000 at September 30,
2005 and $8,181,000 at December 31, 2004) 491,000 30,221,000
Rent and other receivables 65,000 103,000
Real estate facilities, at cost:
Buildings and equipment 17,978,000 17,917,000
Land 4,714,000 4,714,000
------------------ -------------------
22,692,000 22,631,000
Less accumulated depreciation (16,762,000) (16,313,000)
------------------ -------------------
5,930,000 6,318,000
Other assets 122,000 110,000
------------------ -------------------
Total assets $ 8,593,000 $ 38,111,000
================== ===================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities $ 388,000 $ 175,000
Deferred revenue 216,000 246,000
Commitments and contingencies (Note 5) - -
Partners' equity:
Limited partners' equity, $500 per unit, 44,000 units
authorized, issued and outstanding 5,825,000 11,620,000
General partners' equity 2,020,000 4,030,000
Other comprehensive income 144,000 22,040,000
------------------ -------------------
Total partners' equity 7,989,000 37,690,000
------------------ -------------------
Total liabilities and partners' equity $ 8,593,000 $ 38,111,000
================== ===================
See accompanying notes.
1
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- -----------------------------------
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
REVENUES:
Rental income $ 2,432,000 $ 2,281,000 $ 7,130,000 $ 6,786,000
Dividends from marketable securities of affiliate 10,000 251,000 272,000 752,000
Other income 29,000 19,000 86,000 60,000
--------------- --------------- --------------- ---------------
2,471,000 2,551,000 7,488,000 7,598,000
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Cost of operations 595,000 584,000 1,798,000 1,777,000
Management fees paid to affiliates 144,000 136,000 426,000 405,000
Depreciation 119,000 267,000 449,000 721,000
Administrative 35,000 26,000 105,000 90,000
--------------- --------------- --------------- ---------------
893,000 1,013,000 2,778,000 2,993,000
--------------- --------------- --------------- ---------------
Net income before gain 1,578,000 1,538,000 4,710,000 4,605,000
Gain on disposition of marketable securities of affiliate - - 22,534,000 -
--------------- --------------- --------------- ---------------
NET INCOME: $ 1,578,000 $ 1,538,000 $ 27,244,000 $ 4,605,000
=============== =============== =============== ===============
Limited partners' share of net income ($415.84 per
unit in 2005 and $74.61 per unit in 2004) $ 18,297,000 $ 3,283,000
General partners' share of net income 8,947,000 1,322,000
--------------- --------------
$ 27,244,000 $ 4,605,000
=============== ==============
COMPREHENSIVE INCOME:
Net income $ 27,244,000 $ 4,605,000
Other comprehensive income:
Change in unrealized gain on marketable equity
securities of affiliate 638,000 3,256,000
Realized gain on disposition of marketable
securities of affiliate (22,534,000) -
--------------- --------------
$ 5,348,000 $ 7,861,000
=============== ==============
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Other
Limited General Comprehensive Total Partners'
Partners' Partners' Income Equity
----------------- ----------------- ------------------ ----------------
Balance at December 31, 2004 $ 11,620,000 $ 4,030,000 $ 22,040,000 $ 37,690,000
Change in unrealized gain on marketable
securities of affiliate - - 638,000 638,000
Realized gain on disposition of marketable
securities of affiliate - - (22,534,000) (22,534,000)
Net income 18,297,000 8,947,000 - 27,244,000
Cash Distributions (3,476,000) (1,205,000) - (4,681,000)
Distribution of marketable securities of
affiliate (22,548,000) (7,820,000) - (30,368,000)
Equity transfer 1,932,000 (1,932,000) - -
----------------- ----------------- ------------------ ----------------
Balance at September 30, 2005 $ 5,825,000 $ 2,020,000 $ 144,000 $ 7,989,000
================= ================= ================== ================
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------------------
2005 2004
---------------- ----------------
Cash flows from operating activities:
Net income $ 27,244,000 $ 4,605,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 449,000 721,000
Decrease in rent and other receivables 38,000 84,000
Increase in other assets (12,000) (44,000)
Gain on disposition of marketable securities of affiliate (22,534,000) -
Increase in accounts payable and accrued liabilities 213,000 190,000
Decrease in deferred revenue (30,000) (22,000)
---------------- ----------------
Total adjustments (21,876,000) 929,000
---------------- ----------------
Net cash provided by operating activities 5,368,000 5,534,000
---------------- ----------------
Cash flow from investing activities:
Additions to real estate facilities (61,000) (263,000)
---------------- ----------------
Net cash used in investing activities (61,000) (263,000)
---------------- ----------------
Cash flow from financing activities:
Distributions paid to partners (4,681,000) (5,156,000)
---------------- ----------------
Net cash used in financing activities (4,681,000) (5,156,000)
---------------- ----------------
Net increase in cash and cash equivalents 626,000 115,000
Cash and cash equivalents at beginning of period 1,359,000 1,367,000
---------------- ----------------
Cash and cash equivalents at end of period $ 1,985,000 $ 1,482,000
================ ================
Supplemental schedule of non-cash activities:
Change in fair market value of marketable securities
Marketable securities $ 638,000 $ 3,256,000
================ ================
Other comprehensive income $ 638,000 $ 3,256,000
================ ================
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
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 general partners in the Partnership are
Public Storage, Inc. ("PSI") and B. Wayne Hughes ("Hughes").
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 owns 14 operating facilities located
in three states. A portion of one of the operating facilities was
developed as a business park and is operated, pursuant to a management
agreement, by PS Business Parks, L.P. (see Note 4). The Partnership
also owned a parcel of land in Florida that was sold on October 6, 2005
(see Note 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
----------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal, recurring accruals) necessary for a fair
presentation have been included. The results of operations for the
three and nine months ended September 30, 2005 are not necessarily
indicative of the results expected for the full year. These unaudited
condensed financial statements should be read in conjunction with the
financial statements and related notes appearing in the Partnership's
Form 10-K for the year ended December 31, 2004.
Use of Estimates:
-----------------
The preparation of the condensed 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 condensed financial statements and accompanying
notes. Actual results could differ from those estimates.
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 (See "Ownership Interest by the General Partners" under 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 financial instruments such as short-term treasury securities or
investment grade short-term commercial paper to be cash equivalents.
5
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Marketable Securities:
----------------------
Marketable securities consisted of 533,334 shares of common stock at
December 31, 2004 and 17,331 depositary shares of Equity Stock, Series
A, of Public Storage, Inc., at December 31, 2004 and September 30,
2005. The Partnership has designated its portfolio of marketable
securities as being available-for-sale. In accordance with the
Financial Accounting Standard Board's Statement No. 130, "Reporting
Comprehensive Income", the Partnership records the marketable
securities at fair value at each balance sheet date, and records a
corresponding unrealized gain for the excess of the market value over
the cost of the marketable securities, with a corresponding increase to
Partnership equity.
On March 31, 2005, the Partnership distributed all of its holdings in
Public Storage, Inc. common stock on a pro rata basis to unitholders of
record as of January 1, 2005. As a result of the disposition of its
holdings of Public Storage, Inc. common stock, the Partnership recorded
a gain of $22,534,000 during the first quarter of 2005, representing
the difference between the March 31, 2005 market value of the
marketable securities and the weighted average historical cost.
Income Taxes:
-------------
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.
Accordingly, no Federal income tax expense is recorded by the
Partnership.
Real Estate Facilities and Evaluation of Asset Impairment:
----------------------------------------------------------
Real estate facilities are recorded at cost. Costs associated with the
development, construction, renovation and improvement of properties are
capitalized. Interest, property taxes, and other costs associated with
the development incurred during the construction period are capitalized
as building cost. Expenditures for repairs and maintenance are charged
to expense as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the buildings
and improvements, which are generally between 5 and 25 years. Certain
real estate facilities have been in service longer than 25 years and
accordingly the original development cost of such buildings are fully
depreciated at September 30, 2005.
We evaluate our real estate for impairment on a quarterly basis. We
first evaluate these assets for indicators of impairment such as a) a
significant decrease in the market price of real estate, b) a
significant adverse change in the extent or manner in which real estate
is being used or in its physical condition, c) a significant adverse
change in legal factors or the business climate that could affect the
value of the real estate, d) an accumulation of costs significantly in
excess of the amount originally projected for the acquisition of or
construction of the real estate, or e) a current-period operating or
cash flow loss combined with a history of operating or cash flow losses
or a projection or forecast that demonstrates continuing losses
associated with the use of the real estate. When any such indicators of
impairment are noted, we compare the carrying value of the real estate
to the future estimated undiscounted cash flows attributable to the
real estate. If the real estate's recoverable amount is less than the
carrying value 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 September 30, 2005.
Any real estate which we expect to sell or dispose of prior to its
previously estimated useful life is stated at the lower of its
estimated net realizable value, less cost to sell, or its carrying
value.
6
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Property taxes are accrued based upon estimates and historical trends.
If these estimates are incorrect, the timing of expense recognition
could be affected.
Cost of operations, general and administrative expense as well as
television, yellow page and other advertising expenditures are expensed
as incurred. Accordingly, the amounts incurred in an interim period may
not be indicative of amounts to be incurred during a full year. Total
advertising expenses were $68,000 and $235,000 for the three and nine
months ended September 30, 2005, respectively, compared to $73,000 and
$253,000, respectively, for the same periods in 2004.
Environmental Costs:
--------------------
The Partnership's policy is to accrue environmental assessments and/or
remediation costs when it is probable that such efforts will be
required and the related costs can be reasonably estimated. Although
there can be no assurance, we are not aware of any environmental
contamination at any of our facilities, which, individually or in the
aggregate, would be material to our overall business, financial
condition or results of operations.
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) be distributed at least quarterly. The
Partnership paid distributions to the limited and general partners
totaling $3,476,000 ($79.00 per unit) and $1,205,000, respectively for
the nine months ended September 30, 2005. Future distribution rates
will be adjusted to levels, which are supported by operating cash flow
after capital improvements and any other necessary obligations.
4. RELATED PARTY TRANSACTIONS
Management Agreements and Shared Expenses with Public Storage, Inc.:
--------------------------------------------------------------------
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 park is managed by PS Business Parks, L.P. ("PSBP") pursuant
to a management agreement. PSBP, an affiliate of PSI, operates the
Partnership's business park for a fee equal to 5% of the facility's
gross income. The Partnership paid $144,000 and $136,000 for the three
months ended September 30, 2005 and 2004, respectively, pursuant to the
management agreements. For the nine months ended September 30, 2005 and
2004, the Partnership paid $426,000 and $405,000, respectively,
pursuant to these management agreements.
The management agreement between the Partnership and PSI may be
terminated without cause upon 60 days written notice by the Partnership
or six months notice by PSI. The management agreement between the
7
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Partnership and PSBP 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 are
principally comprised of i) payroll costs relating to supervisory,
relief, and administrative personnel, ii) centralized corporate
services such as the telephone reservation center and customer service
iii) advertising expenditures including media advertising and yellow
page costs, and iv) insurance including workers compensation, property,
casualty, liability, and employee health coverage. The total of such
expenses, which are primarily included in cost of operations, amounted
to $241,000 and $787,000 for the three and nine months ended September
30, 2005, respectively, and $256,000 and $865,000 for the same periods
in 2004, respectively.
Ownership in Public Storage Stock:
----------------------------------
Marketable securities at September 30, 2005 consist of 17,331
depositary shares of Equity Stock, Series A, of Public Storage, Inc., a
publicly traded real estate investment trust and a general partner with
a significant ownership interest in the Partnership.
Ownership Interests by the General Partners:
--------------------------------------------
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. Hughes continues to act as a general partner of 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 initial 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.
As of September 30, 2005, Hughes and members of his family own
approximately 11% of the limited partnership units. PSI owns
approximately 33% of the limited partnership units. Approximately 17%
of the limited partnership units are 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%.
Based on their pro rata ownership interests, PSI and its affiliates
received 308,083 shares of common stock and Hughes received 71,134
shares of common stock in connection with the distribution of common
stock described in Note 2.
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
8
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Partnership accounts for its investment in STOR-Re, which is included
in other assets, using the cost method, and has not received any
distributions during 2004 or for the nine months ended September 30,
2005.
STOR-Re provides limited property and liability insurance coverage to
the Partnership, PSI, and affiliates for losses occurring before April
1, 2004. STOR-Re was succeeded with respect to these activities for
losses occurring after March 31, 2004 by a wholly owned subsidiary of
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 that is a member of
the American Academy of Actuaries, using a frequency and severity
method, for losses incurred but not reported. Determining the liability
for unpaid losses and loss adjustment expense is based upon estimates
and while we believe that the amount is adequate, the ultimate loss may
be in excess of or less than the amounts provided. The methods for
making such estimates and for establishing the resulting liability are
continually reviewed. Other Business Activities
A corporation that reinsures policies against losses to goods stored by
tenants in the Partnership's storage facilities is owned by PSI. 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 of tenant goods.
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. The subsidiary receives the revenues and bears the
cost of the activities. We believe that the availability of locks and
boxes for sale and the rental of trucks promote the rental of spaces.
5. COMMITMENTS AND CONTINGENCIES
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, Inc. on
behalf of a putative class of renters who rented self-storage units
from Public Storage, Inc. Plaintiff alleges that Public Storage, Inc.
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, Inc. cannot presently determine the potential damages,
if any, or the ultimate outcome of this litigation. On November 3,
2003, the court granted Public Storage, Inc.'s motion to strike the
plaintiff's nationwide class allegations and to limit any putative
class to California residents only. In August 2005, Public Storage,
Inc. filed a motion to remove the case to federal court. There can be
no assurance that this motion will be granted. Public Storage, Inc. is
9
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
vigorously contesting the claims upon which this lawsuit is based
including class certification efforts.
Brinkley et al v. Public Storage, Inc. (filed April, 2005) (Superior
-----------------------------------------------------------------------
court of California - Los Angeles County)
-----------------------------------------
The Brinkley plaintiffs are suing Public Storage, Inc. on behalf of a
purported class of California property managers who claim that they
were not compensated for all the hours they worked. The Brinkley suit
is based upon California wage and hour laws. The maximum potential
liability cannot be estimated, but would be increased if a class or
classes are certified or, if claims are permitted to be brought on
behalf of others under the California Unfair Business Practices Act.
Public Storage, Inc. is vigorously contesting the claims and intends to
resist any expansion beyond the named plaintiffs on the grounds of lack
of commonality of claims. Public Storage, Inc. does not believe that
this matter will have any material adverse effect on the results of
operations of the Partnership.
Inhan et al v. Public Storage, Inc (filed May, 2005) (United States
-----------------------------------------------------------------------
District Court - Southern District of Florida)
----------------------------------------------
Inhan and a co-plaintiff are suing Public Storage, Inc. in Florida
claiming they were not compensated for all hours worked under the
Federal Fair Labor Standards Act. The suit is brought as a putative
class action. The time to add additional parties in this action has
expired and no additional parties have been added. Public Storage, Inc.
vigorously contests the claims and although the maximum potential
liability cannot be estimated, the fact that the time to add additional
parties in this action has expired limits the maximum potential
liability. As a result, we believe this matter is no longer potentially
material and therefore will no longer report on it.
Other Items
-----------
PSI 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 impact upon the operations or financial position of
the Partnership.
6. SUBSEQUENT EVENTS
On October 24, 2005, Hurricane Wilma struck southern Florida, where we
have two self-storage facilities in the Miami area. As a result of
damage sustained and lack of electrical power, these facilities were
not operational and therefore could not process move-ins or move-outs
for a period of time. Currently both of the self-storage facilities are
operational. We do not anticipate any significant adverse impact to our
earnings going forward as a result of damages sustained to the
properties from the hurricane.
Our current estimate of costs to restore the facilities from physical
damage is approximately $62,000. We have insurance that covers physical
damage and business interruption, subject to certain limitations. The
amount of insurance proceeds that we would expect to recover is
currently not determinable.
On October 6, 2005 we sold a vacant parcel of land located in Miami,
Florida. We received gross proceeds of $1,120,000 and expect to record
a gain of approximately $780,000, subject to additional selling costs,
during the fourth quarter of 2005.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Partnership's
condensed financial statements and notes thereto.
FORWARD LOOKING STATEMENTS: When used within this document, the words
"expects," "believes," "anticipates," "may," "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 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors, which may cause the actual results and performance of the
Partnership to be materially different from those expressed or implied in the
forward looking statements. Such factors are described in "Risk Factors" (as
discussed below) 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.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of financial statements and related disclosures in conformity with
United States generally accepted accounting principles and our discussion and
analysis of our financial condition and results of operations requires
management to make judgments, assumptions and estimates that affect the amounts
reported in our consolidated financial statements and accompanying notes. Note 2
to our consolidated financial statements summarize the significant accounting
policies and methods used in the preparation of our consolidated financial
statements and related disclosures.
Management believes the following are critical accounting policies
whose application has a material impact on our financial presentation. That is,
they are both important to the portrayal of our financial condition and results,
and they require management to make judgments and estimates about matters that
are inherently uncertain.
IMPAIRMENT OF LONG-LIVED ASSETS: 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 have
identified no such impairments at September 30, 2005. 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 accounting principles generally accepted in the United States, we have not
accrued for such potential liabilities because the loss is either not probable
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or not estimable or because we are not aware of the event. Future events and the
outcome 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 of
which we are aware are described in Note 5 to the Partnership's financial
statements at September 30, 2005.
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. Cost
of operations, general and administrative expense, as well as television, yellow
page, and other advertising expenditures are expensed as incurred. Accordingly,
the amounts incurred in an interim period may not be indicative of the amounts
to be incurred in a full year.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004:
Our net income for the three months ended September 30, 2005 was
$1,578,000 compared to $1,538,000 for the three months ended September 30, 2004,
representing an increase of $40,000.
Rental income for the three months ended September 30, 2005 was
$2,432,000 compared to $2,281,000 for the three months ended September 30, 2004,
representing an increase of $151,000 or 7%. The increase in rental income is
attributable to increases in annualized realized rent per square foot and
weighted average square foot occupancy at the Partnership's self-storage
facilities. Annualized realized rent per square foot at the self-storage
facilities for the three months ended September 30, 2005 increased to $13.32 per
occupied square foot from $12.70 per occupied square foot for the three months
ended September 30, 2004. Weighted average square foot occupancy levels at the
self-storage facilities were 91% and 90% for the three months ended September
30, 2005 and 2004, respectively.
Dividend income for the three months ended September 30, 2005 was
$10,000 compared to $251,000 for the three months ended September 30, 2004. At
March 31, 2005, we distributed all of our holdings of Public Storage, Inc.
common stock to unitholders of record as of January 1, 2005. Accordingly, the
Partnership's dividend income with respect to those securities that were
distributed to unitholders ceased on April 1, 2005.
Cost of operations (including management fees paid to affiliates-see
Note 4 to the condensed financial statements) for the three months ended
September 30, 2005 was $739,000 compared to $720,000 for the three months ended
September 30, 2004, representing an increase of $19,000 or 3%. The increase in
cost of operations was primarily due to increases in repairs and maintenance and
property taxes and management fees partially offset by decreases in payroll and
advertising expenses.
Depreciation expense was $119,000 for the three months ended September
30, 2005 compared to $267,000 for the same period in 2004, a decrease of
$148,000 or 55%. Beginning with the first quarter of 2005, certain buildings
have become fully depreciated and, accordingly, depreciation expense declined
during the three months ended September 30, 2005 as compared to the same period
in 2004.
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004:
Our net income for the nine months ended September 30, 2005 was
$27,244,000 compared to $4,605,000 for the nine months ended September 30, 2004,
representing an increase of $22,639,000. Net income increased primarily due to a
gain on disposition of marketable securities of an affiliate totaling
$22,534,000.
Rental income for the nine months ended September 30, 2005 was
$7,130,000 compared to $6,786,000 for the nine months ended September 30, 2004,
representing an increase of $344,000 or 5%. The increase in rental income is
attributable to increases in annualized realized rent per square foot and
weighted average square foot occupancy at the Partnership's self-storage
facilities. Annualized realized rent per square foot at the self-storage
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facilities for the nine months ended September 30, 2005 increased to $13.08 per
occupied square foot from $12.74 per occupied square foot for the nine months
ended September 30, 2004. Weighted average square foot occupancy levels at the
self-storage facilities were 91% and 89% for the nine months ended September 30,
2005 and 2004, respectively.
Dividend income for the nine months ended September 30, 2005 was
$272,000 compared to $752,000 for the nine months ended September 30, 2004. At
March 31, 2005, we distributed all of our holdings of Public Storage, Inc.
common stock to unitholders of record as of January 1, 2005. Accordingly, the
Partnership's dividend income with respect to those securities that were
distributed to unitholders ceased on April 1, 2005.
Cost of operations (including management fees paid to affiliates-see
Note 4 to the condensed financial statements) for the nine months ended
September 30, 2005 was $2,224,000 compared to $2,182,000 for the nine months
ended September 30, 2004, representing an increase of $42,000 or 2%. The
increase in cost of operations was primarily due to increases in repairs and
maintenance, property taxes and management fees partially offset by a decrease
in advertising expense.
Depreciation expense was $449,000 for the nine months ended September
30, 2005 compared to $721,000 for the same period in 2004, a decrease of
$272,000 or 38%. Beginning with the first quarter of 2005, certain buildings
have become fully depreciated and, accordingly, depreciation expense declined
during the nine months ended September 30, 2005 as compared to the same period
in 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations ($5,368,000 for the nine months ended
September 30, 2005) have been sufficient to meet all current obligations of the
Partnership.
The Partnership Agreement requires that cash available for distribution
(cash flow from all sources less cash necessary for any obligations or capital
improvement needs) be distributed at least quarterly. We paid distributions to
the limited and general partners totaling $3,476,000 ($79.00 per unit) and
$1,205,000, respectively, for the nine months ended September 30, 2005. Future
distribution rates will be adjusted to levels, which are supported by operating
cash flow after capital improvements and any other necessary obligations.
The Partnership may borrow in the future with the intent of using the
proceeds to finance distributions to the limited and general partners.
ITEM 2A. RISK FACTORS
In addition to the other information in our Form 10-Q and Annual Report
on Form 10-K for the year ended December 31, 2004, you should consider the
following factors in evaluating the Partnership:
THE GENERAL PARTNERS HAVE A SIGNIFICANT DEGREE OF CONTROL OVER THE
PARTNERSHIP AND COULD TAKE ACTIONS ADVERSE TO OTHER UNITHOLDERS.
As of September 30, 2005, Hughes and members of his family own
approximately 11% of the limited partnership units. PSI owns approximately 33%
of the limited partnership units. An additional 17% of the limited partnership
units are 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%. 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 approving other
extraordinary transactions, and could take actions adverse to other unitholders.
INCREASES IN INTEREST RATES MAY ADVERSELY AFFECT THE VALUE OF
PARTNERSHIP UNITS.
One of the factors that influence the value of our partnership units is
the annual rate of distributions that we pay as compared with interest rates. An
increase in interest rates may lead purchasers of real estate partnership units
to demand higher annual distribution rates, which could adversely affect the
market price of our partnership units.
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DEVELOPMENTS IN CALIFORNIA MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
Most of our 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, we could
be adversely impacted by efforts to reenact legislation mandating medical
insurance for employees of California businesses and members of their families.
WE HAVE BECOME INCREASINGLY DEPENDENT UPON AUTOMATED PROCESSES AND THE
INTERNET AND ARE FACED WITH SECURITY SYSTEM RISKS.
We have become increasingly centralized and dependent upon automated
information technology processes. As a result, we could be severely impacted by
a catastrophic occurrence, such as a natural disaster or a terrorist attack. In
addition, a portion of our business operations are conducted over the internet,
increasing the risk of viruses that could cause system failures and disruptions
of operations. Experienced computer programmers may be able to penetrate our
network security and misappropriate our confidential information, create system
disruptions or cause shutdowns.
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 natural disasters, such as earthquakes;
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.
There is significant competition among self-storage facilities and from
other storage alternatives. Most of our properties are self-storage facilities.
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
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environmental assessments on the properties the Partnership has an interest in
to evaluate the environmental condition of, and potential environmental
liabilities associated with, our properties. These assessments generally consist
of an investigation of environmental conditions at the property (not including
soil or groundwater sampling or analysis), as well as a review of available
information regarding the site and publicly available data regarding conditions
at other sites in the vicinity. In connection with these property assessments,
we have become aware that prior operations or activities at some facilities or
from nearby locations have or may have resulted in contamination to the soil or
groundwater at these facilities. In this regard, some of our facilities are or
may be the subject of federal or state environment investigations or remedial
actions. Although we cannot provide any assurance, based on the preliminary
environmental assessments, we believe we have funds available to cover any
liability from environmental contamination or potential contamination and we are
not aware of any environmental contamination of our facilities material to our
overall business, financial condition or results of operation.
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 with our tenants to resolve moisture
infiltration and mold-related issues, subject to our contractual limitations on
liability for such claims. However, we can make 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. 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.
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OUR OWNERSHIP 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 coverage to the Partnership, PSI and affiliates of PSI
for losses occurring before April 1, 2004. Liabilities for losses and loss
adjustment expenses include an amount determined from loss reports and
individual cases and an amount, based on recommendations from an outside actuary
that is a member of the American Academy of Actuaries, using a frequency and
severity method, for losses incurred but not reported. Determining the liability
for unpaid losses and loss adjustment expense is based upon estimates and while
we believe that the amount is adequate, the ultimate loss may be in excess of or
less than the amount 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.
ITEM 4. 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 Public Storage, Inc.'s Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure based
on the definition of "disclosure controls and procedures" in 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 and management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures in reaching that level of reasonable assurance.
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.
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that has
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under the heading "Legal Matters" in Note 5 to the
unaudited condensed financial statements in this Form 10-Q is incorporated by
reference in this Item 1.
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K are filed herewith or
incorporated herein by reference and are listed in the attached Exhibit Index.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 14, 2005
PUBLIC STORAGE PROPERTIES V, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
--------------
John Reyes
Senior Vice President and
Chief Financial Officer
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EXHIBIT NO. EXHIBIT INDEX
- ----------- --------------------------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Filed herewith.
32 Section 1350 Certification of Chief Executive Officer and Chief
Financial Officer. Filed herewith.
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