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, 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 November 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 September 30, 2007
and December 31, 2006 1
Condensed Statements of Income and Comprehensive Income
for the Three and Nine Months Ended September 30, 2007 and 2006 2
Condensed Statement of Partners' Equity for the
Nine Months Ended September 30, 2007 3
Condensed Statements of Cash Flows for the
Nine Months Ended September 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 - 14
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
September 30, December 31,
2007 2006
----------------- ---------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 975,000 $ 2,495,000
Rent and other receivables 50,000 60,000
Real estate facilities, at cost:
Buildings and equipment 18,918,000 18,760,000
Land 4,484,000 4,484,000
--------------- ----------------
23,402,000 23,244,000
Less accumulated depreciation (17,415,000) (17,155,000)
--------------- ----------------
5,987,000 6,089,000
Other assets 132,000 147,000
--------------- ----------------
Total assets $ 7,144,000 $ 8,791,000
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities $ 444,000 $ 297,000
Deferred revenue 196,000 244,000
--------------- ----------------
Total liabilities 640,000 541,000
Commitments and contingencies (Note 6)
Partners' equity:
Limited partners' equity, $500 per unit, 44,000 units
authorized, issued and outstanding
4,829,000 6,126,000
General partners' equity 1,675,000 2,124,000
--------------- ----------------
Total partners' equity 6,504,000 8,250,000
--------------- ----------------
Total liabilities and partners' equity $ 7,144,000 $ 8,791,000
=============== ===============
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,
------------------------------------- ------------------------------------
2007 2006 2007 2006
----------------- -------------- ---------------- ---------------
REVENUES:
Rental income $ 2,565,000 $ 2,581,000 $ 7,624,000 $ 7,547,000
Dividends from marketable securities of affiliate - 13,000 - 34,000
Other income 42,000 62,000 167,000 172,000
------------- ------------- ------------- -------------
2,607,000 2,656,000 7,791,000 7,753,000
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of operations 644,000 627,000 1,980,000 1,906,000
Management fees paid to affiliates 153,000 154,000 455,000 450,000
Depreciation 85,000 85,000 260,000 234,000
Administrative 15,000 33,000 86,000 118,000
------------- ------------- ------------- -------------
897,000 899,000 2,781,000 2,708,000
------------- ------------- ------------- -------------
NET INCOME: $ 1,710,000 $ 1,757,000 $ 5,010,000 $ 5,045,000
============= ============= ============= =============
Limited partners' share of net income $ 1,254,000 $ 1,357,000 $ 3,288,000 $ 3,850,000
General partners' share of net income 456,000 400,000 1,722,000 1,195,000
------------- ------------- ------------- -------------
$ 1,710,000 $ 1,757,000 $ 5,010,000 $ 5,045,000
============= ============= ============= =============
COMPREHENSIVE INCOME:
Net income $ 1,710,000 $ 1,757,000 $ 5,010,000 $ 5,045,000
Other comprehensive income:
Change in unrealized gain (loss) on marketable
equity securities of affiliate - 12,000 - (5,000)
------------- ------------- ------------- -------------
$ 1,710,000 $ 1,769,000 $ 5,010,000 $ 5,040,000
============= ============= ============= =============
Limited partners' share of net income per unit
(44,000 units outstanding) $ 28.50 $ 30.84 $ 74.73 $ 87.50
============= ============= ============= =============
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 3,288,000 1,722,000 5,010,000
Cash distributions (5,016,000) (1,740,000) (6,756,000)
Equity transfer 431,000 (431,000) -
---------------- ---------------- ----------------
Balance at September 30, 2007 $ 4,829,000 $ 1,675,000 $ 6,504,000
================ ================ ================
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
-----------------------------------
2007 2006
-------------- --------------
Cash flows from operating activities:
Net income $ 5,010,000 $ 5,045,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 260,000 234,000
Decrease in rent and other receivables 10,000 10,000
Decrease (increase) in other assets 15,000 (33,000)
Increase in accounts payable and accrued liabilities 147,000 280,000
(Decrease) increase in deferred revenue (48,000) 9,000
Total adjustments 384,000 500,000
-------------- --------------
Net cash provided by operating activities 5,394,000 5,545,000
-------------- --------------
Cash flows from investing activities:
Additions to real estate facilities (158,000) (406,000)
-------------- --------------
Net cash used in investing activities (158,000) (406,000)
-------------- --------------
Cash flows from financing activities:
Distributions paid to partners (6,756,000) (4,622,000)
-------------- --------------
Net cash used in financing activities (6,756,000) (4,622,000)
-------------- --------------
Net (decrease) increase in cash and cash equivalents (1,520,000) 517,000
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 $ 975,000 $ 2,887,000
============== ==============
Supplemental schedule of non-cash activities:
Change in fair market value of marketable securities
Marketable securities $ - $ 5,000
Other comprehensive income $ - $ (5,000)
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 gains of $5,000 in
the nine months ended September 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 September 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 September 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 $196,000 for at September 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 November 13, 2007, there have been no recent accounting
pronouncements and guidance, which were not effective for
implementation prior to September 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 $1,320,000 ($30.00 per unit) and $458,000, respectively for
the three months ended September 30, 2007. We paid distributions to
the limited and general partners totaling $5,016,000 ($114.00 per
unit) and $1,740,000, respectively for the nine months ended September
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 September 30, 2007
and 2006, the Partnership paid $153,000 and $154,000, respectively,
pursuant to these management agreements. For the nine months ended
September 30, 2007 and 2006, the Partnership paid $455,000 and
$450,000, 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 nine 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 $240,000
and $259,000 for the three months ended September 30, 2007 and 2006,
respectively, and $861,000 and $857,000 for the nine months ended
September 30, 2007 and 2006, respectively.
Ownership Interest by the General Partners
------------------------------------------
In addition to the general partnership interests outlined in Note
4, 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 the 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
September 30, 2007 and 2006, respectively, ($66,000 for each of the
nine month periods ended September 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 the
Company. 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.
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
9
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 subclasses certified and dismissed those claims. The
only surviving claims are those relating to the named plaintiff only.
The plaintiff has filed an appeal to the Court's June 22, 2007 summary
judgment ruling.
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
September 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, general and
administrative expense, as well as television, yellow page, and other
advertising expenditures are expensed as incurred.
RESULTS OF OPERATIONS
Three months ended September 30, 2007 compared to three months
-----------------------------------------------------------------
ended September 30, 2006:
-------------------------
Our net income for the three months ended September 30, 2007 was
$1,710,000 compared to $1,757,000 for the three months ended September
30, 2006, representing a decrease of $47,000 or 2.7%.
Rental income for the three months ended September 30, 2007 was
$2,565,000 compared to $2,581,000 for the three months ended September
30, 2006, representing a decrease of $16,000 or 0.6%. The decrease in
rental income is attributable to the slight decrease in weighted
average occupancy of 90% for the three months ended September 30,
2007, compared to 91% for the same period in 2006 and was mostly
offset by an increase in annualized realized rent per square foot to
$14.36 per occupied square foot for the three months ended September
30, 2007, compared to $14.32 per occupied square foot for the same
period in 2006.
Dividend income for the three months ended September 30, 2006 was
$13,000. 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
September 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 September 30, 2007 was $797,000 compared to
$781,000 for the three months ended September 30, 2006, representing
an increase of $16,000 or 2.1%. The increase in cost of operations was
primarily due to increases in advertising and promotion, and property
tax expenses, partially offset by reductions in payroll, property
insurance and repair and maintenance expenses.
Depreciation expense was $85,000 for each of the three month
periods ended September 30, 2007 and 2006.
Nine months ended September 30, 2007 compared to nine months
-----------------------------------------------------------------
ended September 30, 2006:
-------------------------
Our net income for the nine months ended September 30, 2007 was
$5,010,000 compared to $5,045,000 for the nine months ended September
30, 2006, representing a decrease of $35,000 or 1%.
Rental income for the nine months ended September 30, 2007 was
$7,624,000 compared to $7,547,000 for the nine months ended September
30, 2006, representing an increase of $77,000 or 1%. 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 nine months ended September 30, 2007 increased to
$14.13 per occupied square foot from $13.94 per occupied square foot
for the nine months ended September 30, 2006. Weighted average square
foot occupancy levels at the self-storage facilities were 90% and 91%
for the nine months ended September 30, 2007 and 2006, respectively.
Dividend income for the nine months ended September 30, 2006 was
$34,000. 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 nine months ended September 30, 2007.
Cost of operations (including management fees paid to
affiliates-see Note 5 to the condensed financial statements) for the
nine months ended September 30, 2007 was $2,435,000 compared to
$2,356,000 for the nine months ended September 30, 2006, representing
an increase of $79,000 or 3.3%. The increase in cost of operations was
primarily due to increases in property tax expenses, data processing,
and professional fees, partially offset by a reduction in payroll
expense.
Depreciation expense was $260,000 for the nine months ended
September 30, 2007 compared to $234,000 for the same period in 2006,
an increase of $26,000 or 11.1% due to depreciation of additional
capital expenditures. Capital improvements totaled $158,000 and
$406,000 for the nine months ended September 30, 2007 and 2006,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations ($5,394,000 for the nine months
ended September 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 $1,320,000 ($30.00 per unit) and $458,000, respectively, for
the three months ended September 30, 2007. We paid distributions to
the limited and general partners totaling $5,016,000 ($114.00 per
unit) and $1,740,000, respectively, for the nine months ended
September 30, 2007. During 2007, we have paid more in distributions
than what was generated from operating activities less capital
expenditures. Future distribution rates will be adjusted to levels
which are supported by operating cash flow after capital improvements
13
and any other necessary obligations. As a result, we expect future
distributions to be less than the amounts paid during 2007.
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 third 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.
14
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 September 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.
15
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 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
16
Exhibit Index
Exhibit No.
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