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 June 30, 2007
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 a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ X ]
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 August 13, 2007: 44,000.
PUBLIC STORAGE PROPERTIES V, LTD.
INDEX
Pages
PART I. FINANCIAL INFORMATION (Item 3 not applicable)
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets at June 30, 2007
and December 31, 2006 1
Condensed Statements of Income and Comprehensive Income
for the Three and Six Months Ended June 30, 2007 and 2006 2
Condensed Statement of Partners' Equity for the
Six Months Ended June 30, 2007 3
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2007 and 2006 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 4. Controls and Procedures 14
PART II. OTHER INFORMATION (Items 2 - 5 not applicable)
Item 1. Legal Proceedings 15
Item 1A. Risk Factors 15
Item 6. Exhibits 15
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED BALANCE SHEETS
June 30, December 31,
2007 2006
------------------ -------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,045,000 $ 2,495,000
Rent and other receivables 56,000 60,000
Real estate facilities, at cost:
Buildings and equipment 18,865,000 18,760,000
Land 4,484,000 4,484,000
------------------ -------------------
23,349,000 23,244,000
Less accumulated depreciation (17,330,000) (17,155,000)
------------------ -------------------
6,019,000 6,089,000
Other assets 132,000 147,000
------------------ -------------------
Total assets $ 7,252,000 $ 8,791,000
================== ===================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities $ 440,000 $ 297,000
Deferred revenue 240,000 244,000
------------------ -------------------
Total liabilities 680,000 541,000
Commitments and contingencies (Note 6)
Partners' equity:
Limited partners' equity, $500 per unit, 44,000 units
authorized, issued and outstanding 4,880,000 6,126,000
General partners' equity 1,692,000 2,124,000
------------------ -------------------
Total partners' equity 6,572,000 8,250,000
------------------ -------------------
Total liabilities and partners' equity $ 7,252,000 $ 8,791,000
================== ===================
See accompanying notes.
1
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2007 2006 2007 2006
--------------- -------------- --------------- ---------------
REVENUES:
Rental income $ 2,545,000 $ 2,528,000 $ 5,059,000 $ 4,966,000
Dividends from marketable securities of affiliate - 11,000 - 21,000
Other income 65,000 57,000 125,000 110,000
--------------- -------------- --------------- ---------------
2,610,000 2,596,000 5,184,000 5,097,000
--------------- -------------- --------------- ---------------
COSTS AND EXPENSES:
Cost of operations 651,000 641,000 1,336,000 1,279,000
Management fees paid to affiliates 152,000 151,000 302,000 296,000
Depreciation 87,000 75,000 175,000 149,000
Administrative 44,000 42,000 71,000 85,000
--------------- -------------- --------------- ---------------
934,000 909,000 1,884,000 1,809,000
--------------- -------------- --------------- ---------------
NET INCOME: $ 1,676,000 $ 1,687,000 $ 3,300,000 $ 3,288,000
================ ============== ================ ===============
Limited partners' share of net income $ 807,000 $ 1,289,000 $ 2,034,000 $ 2,493,000
General partners' share of net income 869,000 398,000 1,266,000 795,000
--------------- -------------- --------------- ---------------
$ 1,676,000 $ 1,687,000 $ 3,300,000 $ 3,288,000
================ ============== ================ ===============
COMPREHENSIVE INCOME:
Net income $ 1,676,000 $ 1,687,000 $ 3,300,000 $ 3,288,000
Other comprehensive income:
Change in unrealized gain on marketable equity
securities of affiliate - (8,000) - (17,000)
--------------- -------------- --------------- ---------------
$ 1,676,000 $ 1,679,000 $ 3,300,000 $ 3,271,000
================ ============== ================ ===============
Limited partners' share of net income per unit
(44,000 units outstanding) $ 18.34 $ 29.30 $ 46.23 $ 56.66
================ ============== ================ ===============
See accompanying notes.
2
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Limited General Total Partners'
Partners' Partners' Equity
-------------- -------------- ----------------
Balance at December 31, 2006 $ 6,126,000 $ 2,124,000 $ 8,250,000
Net income 2,034,000 1,266,000 3,300,000
Cash distributions (3,696,000) (1,282,000) (4,978,000)
Equity transfer 416,000 (416,000) -
-------------- -------------- ----------------
Balance at June 30, 2007 $ 4,880,000 $ 1,692,000 $ 6,572,000
============== ============== ================
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
-------------------------------------
2007 2006
----------------- ----------------
Cash flows from operating activities:
Net income $ 3,300,000 $ 3,288,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 175,000 149,000
Decrease in rent and other receivables 4,000 32,000
Decrease (increase) in other assets 15,000 (33,000)
Increase in accounts payable and accrued liabilities 143,000 151,000
(Decrease) increase in deferred revenue (4,000) 18,000
----------------- ----------------
Total adjustments 333,000 317,000
----------------- ----------------
Net cash provided by operating activities 3,633,000 3,605,000
Cash flows from investing activities:
Additions to real estate facilities (105,000) (230,000)
----------------- ----------------
Net cash used in investing activities (105,000) (230,000)
----------------- ----------------
Cash flows from financing activities:
Distributions paid to partners (4,978,000) (3,081,000)
----------------- ----------------
Net cash used in financing activities (4,978,000) (3,081,000)
----------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,450,000) 294,000
Cash and cash equivalents at the beginning of the year 2,495,000 2,370,000
----------------- ----------------
Cash and cash equivalents at the end of the period $ 1,045,000 $ 2,664,000
================= ================
Supplemental schedule of non-cash activities:
Change in fair market value of marketable securities
Marketable securities $ - $ 17,000
Other comprehensive income $ - $ (17,000)
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, formerly Public Storage, Inc., ("PS")
and B. Wayne Hughes ("Hughes").
The Partnership was formed to engage in the business of developing
and operating self-storage facilities 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 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PARTNERSHIP MATTERS
Use of Estimates:
-----------------
The preparation of the financial statements in conformity with
U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Revenue and Expense Recognition:
--------------------------------
Rental income, which is generally earned pursuant to
month-to-month leases for storage space, is recognized as earned.
Promotional discounts are recognized as a reduction to rental income
over the promotional period, which is generally during the first month
of occupancy. Late charges and administrative fees are recognized as
income when collected. Interest income is recognized as earned.
We accrue for property tax 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, as well as
television, yellow page and other advertising expenditures are expensed
as incurred.
Allocation of Net Income:
-------------------------
The general partners' share of net income consists of amounts
attributable to their 1% capital contribution and an additional
percentage of cash flow (as defined) which relates to the general
partners' share of cash distributions as set forth in the Partnership
Agreement (Note 4). All remaining net income is allocated to the
limited partners.
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:
----------------------
In accordance with the Financial Accounting Standards Board's
Statement No. 130, "Recording Comprehensive Income," at each balance
sheet date, the Partnership reflects its marketable securities at
market value (based upon their closing price on the balance sheet
date), with the difference between the market value and historical cost
shown as "Other Comprehensive Income" in Partners' Equity. Adjustments
to market value are reflected as "Change in Unrealized Gain on
Marketable Equity Securities" on the Statement of Comprehensive Income.
When marketable securities are disposed of, comprehensive income is
adjusted to reflect the change in market value through the disposition
date. The realized gain is then reflected in net income, and as a
reduction to Other Comprehensive Income.
In accordance with this policy, the Partnership has reflected an
adjustment to unrealized gains for the change in market price,
representing a decrease in cumulative unrealized gain of $17,000 in the
quarter ended June 30, 2006.
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 June 30, 2007.
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. Except
as noted below under "Accounting for Casualties," our evaluations have
identified no such impairments at June 30, 2007.
Any real estate facility, which we expect to sell or dispose of
prior to its previously estimated useful life is stated at the lower of
its estimated net realizable value, less cost to sell, or its carrying
value.
Accounting for Casualties:
--------------------------
Our policy is to record casualty losses or gains in the period the
casualty occurs equal to the differential between (a) the book value of
assets destroyed and (b) insurance proceeds, if any, that we expect to
receive in accordance with our insurance contracts. Potential insurance
proceeds that are subject to uncertainties, such as interpretation of
deductible provisions of the governing agreements or the estimation of
costs of restoration, are treated as a contingent proceeds in
accordance with Statement of Financial Accounting Standards No. 5
("SFAS 5"), and not recorded until the uncertainties are satisfied.
6
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
During 2005, we sustained physical damage to our facilities as a
result of Hurricane Wilma, which occurred in the fourth quarter of
2005. We expect to receive no insurance proceeds and the net book value
of the destroyed assets was zero; therefore, no gain or loss was
recorded. Repairs to these facilities were completed during 2006 for a
total cost of $33,000.
Deferred revenue:
-----------------
Deferred revenue totaling $240,000 for at June 30, 2007 ($244,000
at December 31, 2006), consists of prepaid rents, which are recognized
when earned.
Environmental Cost:
-------------------
The Partnership's policy is to accrue environmental assessments
and/or remediation costs when it is probable that such efforts will be
required and the related costs can be reasonably estimated. Although
there can be no assurance, we are not aware of any environmental
contamination at any of our facilities, which, individually or in the
aggregate, would be material to our overall business, financial
condition or results of operations.
Income Taxes:
-------------
Public Storage Properties V, Ltd. is treated as a partnership for
Federal and state income tax purposes with the taxable income of the
entity allocated to each partner in accordance with the partnership
agreement. Accordingly no Federal or state income tax expense is
recorded by the Partnership.
Recent Accounting Pronouncements and Guidance:
----------------------------------------------
As of August 14, 2007, there have been no recent accounting
pronouncements and guidance, which were not effective for
implementation prior to June 30, 2007, that would have a material
impact upon reporting the operations or financial position of the
Partnership.
Segment Reporting:
------------------
The Partnership only has one reportable segment as defined within
Statement of Financial Accounting Standards No. 131.
3. CASH DISTRIBUTIONS
The Partnership Agreement requires that cash available for
distribution (cash flow from all sources less cash necessary for any
obligations or capital improvements) needs to be distributed at least
quarterly. We paid distributions to the limited and general partners
totaling $2,552,000 ($58.00 per unit) and $885,000, respectively for
the three months ended June 30, 2007. We paid distributions to the
limited and general partners totaling $3,696,000 ($84.00 per unit) and
$1,282,000, respectively for the six months ended June 30, 2007. Future
distribution rates may be adjusted to levels which are supported by
operating cash flow after capital improvements and other obligations.
4. PARTNERS' EQUITY
PS and Hughes are general partners of the Partnership. In 1995,
Hughes contributed his ownership and rights to distributions from the
Partnership to BWH Marina Corporation II, a corporation wholly-owned by
Hughes. As such, Hughes continues to act as a general partner of the
Partnership but does not directly receive any compensation,
distributions or other consideration from the Partnership.
7
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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.
5. RELATED PARTY TRANSACTIONS
Management Agreements and Shared Expenses with Affiliates
---------------------------------------------------------
The Partnership has a management agreement with PS pursuant to
which PS 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 PS
operates the Partnership's business parks for a fee equal to 5% of the
facilities gross income. For the three months ended June 30, 2007 and
2006, the Partnership paid $152,000 and $151,000, respectively,
pursuant to these management agreements. For the six months ended June
30, 2007 and 2006, the Partnership paid $302,000 and $296,000,
respectively, pursuant to these management agreements.
The Management Agreement between the Partnership and PS provides
that the Management Agreement may be terminated without cause upon 60
days written notice by the Partnership or six months notice by PS. 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 PS
and its affiliates, are managed jointly by PS in order to take
advantage of scale and other efficiencies. Joint costs are allocated on
a methodology meant to fairly allocate such costs. As a result,
significant components of cost of operations, such as payroll costs,
advertising and promotion, data processing and insurance expenses are
shared and allocated among the properties using methodologies meant to
fairly allocate such costs based upon the related activities. The total
of such expenses, which are included in cost of operations on the
accompanying condensed statements of income, amounted to $316,000 and
$279,000 for the three months ended June 30, 2007 and 2006,
respectively, and $621,000 and $598,000 for the six months ended June
30, 2007 and 2006, respectively.
Ownership Interest by the General Partners
------------------------------------------
PS owns 14,609 Limited Partnership Units ("Units"), as to which PS
has sole voting and dispositive power.
Hughes and members of his family (the "Hughes Family") own 4,983
Units. Hughes owns 4,852 Units, as to which Hughes has sole voting and
dispositive power, through a wholly-owned corporation and Tamara Hughes
Gustavson, an adult daughter of Hughes, owns 131 Units as to which
Tamara Hughes Gustavson has sole voting and dispositive power; PS has
an option to acquire these 131 Units.
8
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In addition, there are 7,415 Units owned by PS Orangeco
Partnerships, Inc., a corporation in which Hughes Family owns
approximately 48% of the voting stock, PS owns 46% and members of PS's
management and related individuals own approximately 6%.
Captive Insurance Activities with PS
------------------------------------
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 PS. The
Partnership accounts for its investment in STOR-Re, which is included
in other assets, on the cost method.
STOR-Re provides limited property and liability insurance coverage
to the Partnership, PS, and affiliates for losses occurring before
April 1, 2004. STOR-Re was succeeded with respect to these activities
for losses occurring after March 31, 2004 by a wholly owned subsidiary
of PS (collectively, this entity and STOR-Re are referred to as the
"Captive Entities"). Liabilities for losses and loss adjustment
expenses include an amount determined from loss reports and individual
cases and an amount, based on recommendations from an outside actuary
that is a member of the American Academy of Actuaries, using a
frequency and severity method, for losses incurred but not reported.
Determining the liability for unpaid losses and loss adjustment expense
is based upon estimates and while we believe that the amount is
adequate, the ultimate loss may be in excess of or less than the
amounts provided. The methods for making such estimates and for
establishing the resulting liability are reviewed quarterly.
Other Activities with PS
------------------------
PS owns a corporation that reinsures policies against losses to
goods stored by tenants in the Partnership's and PS's storage
facilities. This corporation receives the premiums and bears the risks
associated with the re-insurance. The Partnership receives an access
fee from this corporation in return for providing tenant listings. This
fee is based on number of spaces the Partnership has to rent. Included
in other income on our accompanying statements of income for these fees
are $22,000 for each of the three month periods ended June 30, 2007 and
2006, respectively, ($44,000 for each of the six month periods ended
June 30, 2007 and 2006, respectively).
A subsidiary of PS sells locks and boxes and rents trucks to the
general public and tenants to be used in securing their spaces and
moving their goods. The subsidiary of PS receives the revenues and
bears the cost of the activities.
6. COMMITMENTS AND CONTINGENCIES
Legal Proceedings:
------------------
Serrao v. Public Storage, Inc. (filed April 2003) (Superior Court
------------------------------------------------------------------
of California - Orange County)
------------------------------
The plaintiff in this case filed a suit against PS on behalf of a
putative class of renters who rented self-storage units from PS.
Plaintiff alleges that PS 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.
9
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Based upon the uncertainty inherent in any putative class action,
PS cannot presently determine the potential damages, if any, or the
ultimate outcome of this litigation. On November 3, 2003, the court
granted our motion to strike the plaintiff's nationwide class
allegations and to limit any putative class to California residents
only. In August 2005, PS filed a motion to remove the case to federal
court, but the case has been remanded to the Superior Court. PS is
vigorously contesting the claims upon which this lawsuit is based,
including class certification efforts.
Brinkley v. Public Storage, Inc. (filed April, 2005) (Superior
------------------------------------------------------------------
Court of California - Los Angeles County)
-----------------------------------------
The plaintiff sued PS on behalf of a purported class of California
non-exempt employees based on various California wage and hour laws and
seeking monetary damages and injunctive relief. In May 2006, a motion
for class certification was filed seeking to certify five subclasses.
Plaintiff sought certification for alleged meal period violations, rest
period violations, failure to pay for travel time, failure to pay for
mileage reimbursement, and for wage statement violations. In October
2006, the Court declined to certify three out of the five subclasses.
The Court did, however, certify subclasses based on alleged meal period
and wage statement violations. Subsequently, PS filed a motion for
summary judgment seeking to dismiss the matter in its entirety. On June
22, 2007, the Court granted PS' summary judgment motion as to the
causes of action relating to the subclass certified and dismissed those
claims. They only surviving claims are those relating to the named
plaintiff only.
Other Items
-----------
PS and the Partnership are a party to various claims, complaints,
and other legal actions that have arisen in the normal course of
business from time to time, that are not described above. We believe
that it is unlikely that the outcome of these other pending legal
proceedings including employment and tenant claims, in the aggregate,
will have a material adverse effect upon the operations or financial
position of the Partnership.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Partnership's
condensed financial statements and notes thereto.
FORWARD LOOKING STATEMENTS: All statements in this document, other than
statements of historical fact, are forward-looking statements which may be
identified by the use of the words "expects," "believes," "anticipates,"
"plans", "would", "should," "may", "estimates" and similar expressions. These
forward-looking statements are made pursuant to the safe-harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. These forward-looking statements
involve known and unknown risks and uncertainties, which may cause the
Partnership's actual results and performance to be materially different from
those expressed or implied in the forward-looking statements. As a result, you
should not rely on these forward-looking statements as predictions of future
events.
Factors and risks that may impact future results and performance
include, but are not limited to, those described in Item 1A, "Risk Factors" in
the Partnership's Annual Report on Form 10-K for the year ended December 31,
2006 and in our other filings with the Securities and Exchange Commission. These
risks include the following: 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 caution you not to place undue reliance on forward-looking
statements, which speak only as the date of this report or as of the dates
indicated in the statements. All of our forward looking statements, including
those in this report, are qualified in their entirely by this statement. We
assume no obligation to update publicly or otherwise revise any forward-looking
statements, whether as a result of new information, new estimates, or other
factors, events or circumstances after the date of this document, except where
expressly required by law.
OVERVIEW
- --------
The self-storage industry is highly fragmented and is composed
predominantly of numerous local and regional operators. Competition in the
markets in which we operate is significant and has increased over the past
several years due to additional development of self-storage facilities. We
believe that the increase in competition has had a negative impact to the
Partnership's occupancy levels and rental rates in many markets. However, we
believe that the Partnership's affiliation with Public Storage ("PS") provides
several distinguishing characteristics that enable the Partnership to compete
effectively with other owners and operators.
PS is the largest owner and operator of self-storage facilities in the
United States. All of PS' facilities in the United States are operated under the
"Public Storage" brand name, which we believe is the most recognized and
established name in the self-storage industry. Market concentration establishes
PS as one of the dominant providers of self-storage space in most markets in
which PS operates and enables PS to use a variety of promotional activities,
such as television advertising as well as targeted discounting and referrals,
which are generally not economically viable to most of PS' competitors.
We will continue to focus our growth strategies on improving the
operating performance of our existing self-storage properties primarily through
increases in revenues achieved through the telephone reservation center and
associated marketing efforts. We expect future increases in rental income to
come primarily from increases in realized rent, although there can be no
assurance.
11
CRITICAL ACCOUNTING POLICIES
- ----------------------------
IMPAIRMENT 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 June 30, 2007. 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 U.S. generally accepted
accounting principles, we have not accrued for such potential liabilities
because the loss is either not probable or not estimable or because we are not
aware of the event. Future events and the result of pending litigation could
result in such potential losses becoming probable and estimable, which could
have a material, adverse impact on our financial condition or results of
operations. Some of these potential losses, which we are aware of, are described
in Notes 5 and 6 to the Partnership's condensed financial statements.
ACCRUALS FOR OPERATING EXPENSES
We accrue for property tax expense and other operating expenses based
upon estimates and historical trends and current and anticipated local and state
government rules and regulations. If these estimates and assumptions are
incorrect, the timing of the recognition of our expenses could be incorrect.
Cost of operations, interest expense, general and administrative expense, as
well as television, yellow page, and other advertising expenditures are expensed
as incurred.
RESULTS OF OPERATIONS
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THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006:
Our net income for the three months ended June 30, 2007 was $1,676,000
compared to $1,687,000 for the three months ended June 30, 2006, representing a
decrease of $11,000 or 0.7%.
Rental income for the three months ended June 30, 2007 was $2,545,000
compared to $2,528,000 for the three months ended June 30, 2006, representing an
increase of $17,000 or 0.7%. The increase in rental income is attributable to
increases in annualized realized rent per square foot at the Partnership's
self-storage facilities. Annualized realized rent per square foot at the
self-storage facilities for the three months ended June 30, 2007 increased to
$13.99 per occupied square foot from $13.87 per occupied square foot for the
three months ended June 30, 2006. Weighted average square foot occupancy levels
at the self-storage facilities were 91% for the three months ended June 30, 2007
and 92% for the three months ended June 30, 2006.
Dividend income for the three months ended June 30, 2006 was $11,000.
In December 2006, we sold all the remaining 17,331 shares of PSI Equity Stock,
Series A which we owned. Accordingly, the Partnership had no dividend income for
the three months ended June 30, 2007.
12
Cost of operations (including management fees paid to affiliates-see
Note 5 to the condensed financial statements) for the three months ended June
30, 2007 was $803,000 compared to $792,000 for the three months ended June 30,
2006, representing an increase of $11,000 or 1.4%. The increase in cost of
operations was primarily due to increases in data processing, advertising and
promotion, and property tax expenses, partially offset by reductions in payroll,
property insurance and utilities expenses.
Depreciation expense was $87,000 for the three months ended June 30,
2007 compared to $75,000 for the same period in 2006, an increase of $12,000 or
16%.
SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JUNE 30, 2006:
Our net income for the six months ended June 30, 2007 was $3,300,000
compared to $3,288,000 for the six months ended June 30, 2006, representing an
increase of $12,000.
Rental income for the six months ended June 30, 2007 was $5,059,000
compared to $4,966,000 for the six months ended June 30, 2006, representing an
increase of $93,000 or 1.9%. The increase in rental income is attributable to
increases in annualized realized rent per square foot at the Partnership's
self-storage facilities. Annualized realized rent per square foot at the
self-storage facilities for the six months ended June 30, 2007 increased to
$14.01 per occupied square foot from $13.75 per occupied square foot for the six
months ended June 30, 2006. Weighted average square foot occupancy levels at the
self-storage facilities were 90% and 91% for the six months ended June 30, 2007
and 2006, respectively.
Dividend income for the six months ended June 30, 2006 was $21,000. In
December 2006, we sold all the remaining 17,331 shares of PSI Equity Stock,
Series A. Accordingly, the Partnership had no dividend income for the six months
ended June 30, 2007.
Cost of operations (including management fees paid to affiliates-see
Note 5 to the condensed financial statements) for the six months ended June 30,
2007 was $1,638,000 compared to $1,575,000 for the six months ended June 30,
2006, representing an increase of $63,000 or 4.0%. The increase in cost of
operations was primarily due to increases in property tax expenses, data
processing and professional fees.
Depreciation expense was $175,000 for the six months ended June 30,
2007 compared to $149,000 for the same period in 2006, an increase of $26,000 or
17.4%. Capital improvements totaled $105,000 and $230,000 for the six months
ended June 30, 2007 and 2006, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash generated from operations ($3,633,000 for the six months ended
June 30, 2007) has been sufficient to meet all current obligations of the
Partnership.
The Partnership does not anticipate issuing senior securities, making
loans to other persons, investing in the securities of other issuers for the
purpose of exercising control, underwriting the securities of other issuers,
engaging in the purchase and sale of investments, offering securities in
exchange for property, or repurchasing or otherwise reacquiring its outstanding
securities. The partnership may consider borrowing money with the intent of
using the proceeds for distribution to partners.
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 $2,552,000 ($58.00 per unit) and
$885,000, respectively, for the three months ended June 30, 2007. We paid
distributions to the limited and general partners totaling $3,696,000 ($84.00
per unit) and $1,282,000, respectively, for the six months ended June 30, 2007.
Future distribution rates will be adjusted to levels which are supported by
operating cash flow after capital improvements and any other necessary
obligations.
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ITEM 4. CONTROLS AND PROCEDURES
Public Storage maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in reports the
Partnership files and submits under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in accordance with SEC
guidelines and that such information is communicated to the Partnership's
management, including Public Storage's Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure based
on the definition of "disclosure controls and procedures" in 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 carried
out an evaluation, under the supervision and with the participation of the
Partnership's management, including Public Storage's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures. 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
second quarter of 2007, 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under the heading "Legal Matters" in Note 6
to our condensed financial statements in this Form 10-Q is incorporated by
reference in this Item 1.
ITEM 1A. RISK FACTORS
As of June 30, 2007, no material changes had occurred in our risk
factors as discussed in Item 1A of our Form 10K for the year ended December 31,
2006.
ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-K are listed in the
attached Exhibit Index, and are filed herewith or incorporated herein by
reference.
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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: August 13, 2007
PUBLIC STORAGE PROPERTIES V, LTD.
BY: Public Storage
General Partner
BY: /s/ John Reyes
-------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
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Exhibit No. Exhibit Index
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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.
17