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 quarterly period ended March 31, 2009.
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
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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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
[ ] 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]
Smaller Reporting Company [ ]
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 May 13, 2009: 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 March 31, 2009
and December 31, 2008 1
Condensed Statements of Income for the
Three Months Ended March 31, 2009 and 2008 2
Condensed Statement of Partners' Equity for the
Three Months Ended March 31, 2009 3
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2009 and 2008 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 15
PART II. OTHER INFORMATION (Items 2 - 5 not applicable)
-----------------
Item 1. Legal Proceedings 16
Item 1A. Risk Factors 16
Item 6. Exhibits 16
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED BALANCE SHEETS
March 31, December 31,
2009 2008
-------------- --------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 951,000 $ 1,002,000
Rent and other receivables 54,000 56,000
Real estate facilities, at cost:
Buildings and equipment 19,661,000 19,410,000
Land 4,484,000 4,484,000
-------------- --------------
24,145,000 23,894,000
Less accumulated depreciation (17,962,000) (17,867,000)
-------------- --------------
6,183,000 6,027,000
Other assets 107,000 110,000
-------------- --------------
Total assets $ 7,295,000 $ 7,195,000
============== ==============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities $ 388,000 $ 238,000
Deferred revenue 216,000 205,000
-------------- --------------
Total liabilities 604,000 443,000
Commitments and contingencies (Note 6)
Partners' equity:
Limited partners' equity, $500 per unit, 44,000 units
authorized, issued and outstanding 4,968,000 5,013,000
General partners' equity 1,723,000 1,739,000
-------------- --------------
Total partners' equity 6,691,000 6,752,000
-------------- --------------
Total liabilities and partners' equity $ 7,295,000 $ 7,195,000
============== ==============
See accompanying notes.
1
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
-----------------------------
2009 2008
------------- -------------
REVENUES:
Rental income $ 2,488,000 $ 2,543,000
Other income 64,000 77,000
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2,552,000 2,620,000
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COSTS AND EXPENSES:
Cost of operations 684,000 672,000
Management fees paid to affiliates 148,000 152,000
Depreciation 95,000 83,000
Administrative 27,000 28,000
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954,000 935,000
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NET INCOME $ 1,598,000 $ 1,685,000
============= =============
Limited partners' share of net income $ 1,171,000 $ 1,272,000
General partners' share of net income 427,000 413,000
------------- -------------
$ 1,598,000 $ 1,685,000
============= =============
Limited partners' share of net income per unit
(44,000 units outstanding) $ 26.61 $ 28.91
============= =============
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, 2008 $ 5,013,000 $ 1,739,000 $ 6,752,000
Net income 1,171,000 427,000 1,598,000
Cash distributions (1,232,000) (427,000) (1,659,000)
Equity transfer 16,000 (16,000) -
------------- ------------- ---------------
Balance at March 31, 2009 $ 4,968,000 $ 1,723,000 $ 6,691,000
============= ============= ===============
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------------
2009 2008
------------- --------------
Cash flows from operating activities:
Net income $ 1,598,000 $ 1,685,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 95,000 83,000
Decrease in rent and other receivables 2,000 74,000
Decrease in other assets 3,000 16,000
Increase in accounts payable and accrued liabilities 150,000 23,000
Increase (decrease) in deferred revenue 11,000 (8,000)
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Total adjustments 261,000 188,000
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Net cash provided by operating activities 1,859,000 1,873,000
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Cash flows from investing activities:
Additions to real estate facilities (251,000) (26,000)
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Net cash used in investing activities (251,000) (26,000)
------------- --------------
Cash flows from financing activities:
Distributions paid to partners (1,659,000) (1,600,000)
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Net cash used in financing activities (1,659,000) (1,600,000)
------------- --------------
Net (decrease) increase in cash and cash equivalents (51,000) 247,000
Cash and cash equivalents at the beginning of the period 1,002,000 718,000
------------- --------------
Cash and cash equivalents at the end of the period $ 951,000 $ 965,000
============= ==============
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).
The accompanying unaudited condensed financial statements have
been prepared by us pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") on the same basis as our
audited annual financial statements and, in our opinion reflect all
adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the financial information set forth therein. Certain
information and note disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although we believe that the following
disclosures, when read in conjunction with the audited financial
statements and notes thereto as of December 31, 2008, are adequate to
make the information presented not misleading.
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.
5
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 with
remaining maturities of three months or less at the date of acquisition
to be cash equivalents.
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. At March 31, 2009, all of the real estate facilities have been
in service longer than 25 years, and accordingly the original
development costs of such buildings are fully depreciated.
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
related carrying value, 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 March 31, 2009.
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 Casualty Losses:
-------------------------------
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 contingent
proceeds in accordance with Statement of Financial Accounting Standards
No. 5 ("SFAS 5"), and not recorded until the uncertainties are
satisfied.
Deferred Revenue:
-----------------
Deferred revenue totaling $216,000 at March 31, 2009 ($205,000
at December 31, 2008), consists of prepaid rents, which are recognized
as rental income when earned.
6
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 tax expense is recorded by the
Partnership.
Recent Accounting Pronouncements and Guidance:
----------------------------------------------
As of May 14, 2009, there have been no recent accounting
pronouncements and guidance, which were not effective for
implementation prior to March 31, 2009, 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) be distributed at least quarterly.
During the three months ended March 31, 2009, we paid distributions to
the limited and general partners totaling $1,232,000 ($28.00 per unit)
and $427,000, respectively. During the three months ended March 31,
2008, we paid distributions to the limited and general partners
totaling $1,188,000 ($27.00 per unit) and $412,000, respectively.
Future distribution rates may be adjusted to levels which are supported
by operating cash flow after capital improvements and other
obligations.
4. PARTNERS' EQUITY
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.
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.
7
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. RELATED PARTY TRANSACTIONS
Management Agreements and Shared Expenses with Affiliates
---------------------------------------------------------
The Partnership has a management agreement (the "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 park is managed by PS
Business Parks, L.P. ("PSBP") pursuant to a management contract, (the
"PSBP Management Agreement"). The PSBP 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. PSBP, an affiliate of PS operates the
Partnership's business park for a fee equal to 5% of the facility's
gross income. For the three months ended March 31, 2009 and 2008, the
Partnership paid $148,000 and $152,000, 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 Partnership's facilities, along with facilities owned by PS and
its affiliates, are managed and marketed 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 based upon the
related activities. 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 our accompanying condensed
statements of income, amounted to $303,000 and $284,000 for the three
months ended March 31, 2009 and 2008, respectively.
Ownership Interest by the General Partners
------------------------------------------
In addition to the general partnership interests outlined in
Note 4, PS owns 14,740 Limited Partnership Units ("Units"), as to which
PS has sole voting and dispositive power.
At December 31, 2008, Hughes and members of his family (the
"Hughes Family") owned 4,983 Units. Hughes owned 4,852 Units, as to
which Hughes had sole voting and dispositive power, through a
wholly-owned corporation and Tamara Hughes Gustavson, an adult daughter
of Hughes, owned 131 Units as to which Tamara Hughes Gustavson had sole
voting and dispositive power. On January 1, 2009, PS exercised its
option to acquire the 131 Units held by Tamara Hughes Gustavson for a
cost of approximately $60,000. At March 31, 2009, Hughes owns 4,852
Units.
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
management and related individuals own approximately 6%.
Captive Insurance Activities with PS
------------------------------------
The Partnership has a 1.5% 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 our accompanying condensed balance sheets, on the
cost method, and has received no distributions during the three months
ended March 31, 2009.
8
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 Insurance Company - Hawaii, Ltd. ("PSIC") owns a
corporation that reinsures policies against losses to goods stored by
tenants in the Partnership's and PS' storage facilities. PSIC receives
the premiums and bears the risks associated with the re-insurance. The
Partnership receives a fee (an "Access Fee") from PSIC in return for
providing tenant listings. This Access Fee is based on the number of
spaces the Partnership has to rent. Included in other income on our
accompanying condensed statements of income for these Access Fees are
$60,000 and $46,000 for the three months ended March 31, 2009 and 2008,
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:
------------------
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. The plaintiff has filed an appeal to
the Court's June 22, 2007 summary judgment ruling. On October 28, 2008,
the Court of Appeals sustained the trial court's ruling. The plaintiff
filed a petition for review with the California Supreme Court, which
was granted but further action in this matter was deferred pending
consideration and disposition of a related issue in Brinker Restaurant
Corp. v. Superior Court which is currently pending before the
California Supreme Court.
9
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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: This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of the federal securities laws.
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 involve
known and unknown risks and uncertainties, which may cause Public Storage
Properties V, Ltd.'s (the "Partnership") 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 any forward-looking statements
in this report, or which management may make orally or in writing from time to
time, as predictions of future events nor guarantees of future performance. 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 expressly disclaim
any 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. Accordingly, you should use caution in relying on
past forward-looking statements to anticipate future results.
Factors and risks that may impact our future results and performance
include, but are not limited to, those described in Item 1A, "Risk Factors" in
the Public Storage Properties V, Ltd. Annual Report on Form 10-K for the year
ended December 31, 2008 and in our other filings with the Securities and
Exchange Commission ("SEC"). These risks include, among others, the following:
o general risks associated with the ownership and operation of real estate
including changes in demand, potential liability for environmental
contamination, adverse changes in tax, real estate and zoning laws and
regulations, and the impact of natural disasters;
o risks associated with downturns in the local economies in the markets in
which we operate, including risks related to the current global fiscal
crisis;
o the impact of competition from new and existing self-storage and
commercial facilities and other storage alternatives;
o the impact of the regulatory environment as well as national, state, and
local laws and regulations;
o disruptions or shutdowns of our automated processes and systems; and
o economic uncertainty due to the impact of war or terrorism.
The risks included here are not exhaustive as it is not possible for
management to predict all possible risk factors that may exist or emerge from
time to time. Investors should refer to our future reports and other information
filed from time to time with the SEC for additional information.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses our financial statements, which have been prepared in
accordance with United States ("U.S.") generally accepted accounting principles
("GAAP"). The preparation of our financial statements and related disclosures in
conformity with GAAP and our discussion and analysis of our financial condition
and results of operations requires management to make judgments, assumptions and
11
estimates that affect the amounts reported in our condensed financial statements
and accompanying notes. The notes to the Partnership's March 31, 2009 condensed
financial statements, primarily Note 2, summarize the significant accounting
policies and methods used in the preparation of our condensed financial
statements and related disclosures.
Management believes the following are critical accounting policies the
application of which has a material impact on the Partnership's 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 REAL ESTATE: Substantially all of our assets consist of
real estate. On a quarterly basis, we evaluate our real estate for impairment.
The evaluation of real estate for impairment includes 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 March 31, 2009. 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 the
Partnership's 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 GAAP, 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 March 31, 2009 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, our expenses could be misstated.
OVERVIEW OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------
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
U.S. All of the PS facilities in the U.S. 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 competitors of PS, as well as more
substantial, well-placed yellow page advertisements than can many of its
competitors.
The self-storage industry is not immune to the recessionary pressures
in the general economic environment. Demand for self-storage space in the U.S.
has softened and, as a result, the Partnership is experiencing downward pressure
on occupancy levels, rental rates and revenue growth.
12
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 rather than increases in
occupancy, although there can be no assurance.
RESULTS OF OPERATIONS
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THREE MONTHS ENDED MARCH 31, 2009 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 2008:
The Partnership's net income for the three months ended March 31, 2009
was $1,598,000, as compared to $1,678,000 for the same period in 2008,
representing a decrease of $80,000 or 4.8%. Property net operating income
(rental income less cost of operations, management fees paid to an affiliate and
depreciation expense) decreased $75,000 or 4.6% from $1,636,000 for the three
months ended March 31, 2008 to $1,561,000 for the three months ended March 31,
2009.
Rental income for the three months ended March, 31, 2009 was
$2,488,000, as compared to $2,543,000 for the three months ended March 31, 2008,
representing a decrease of $55,000 or 2.2%. The decrease in rental income is
attributable to the decrease in the weighted average occupancy levels of 86.9%
for the three months ended March 31, 2009, as compared to 88.8% for the same
period in 2008. This decrease was partially offset by a slight increase in
realized rent per square foot to $14.31 per occupied square foot for the three
months ended March 31, 2009, as compared to $14.29 per occupied square foot for
the three months ended March 31, 2008.
We believe that demand for self-storage space has been negatively
impacted by general economic conditions, the slow down in housing sales and
moving activity, as well as increased competition. It is unclear to us how much
we have been negatively impacted by these factors, and how much these factors
may impact us going forward.
Other income was $64,000 for the three months ended March 31, 2009, as
compared to $77,000 for the three months ended March 31, 2008, representing a
decrease of $13,000 or 16.9%. Included in other income are access fees paid by
PS Insurance Company - Hawaii, Ltd. ("PSICH"), a corporation owned by PS
(described more fully in Note 5 to the Partnership's March 31, 2009 condensed
financial statements), totaling $60,000 and $67,000 for the three months ended
March 31, 2009 and 2008, respectively. Included in other income for the three
months ended March 31, 2008 are access fees totaling $21,000, which represent
changes in accounting estimates recorded in 2008 with respect to fees that were
earned in 2007. Additional similar adjustments were made in later periods in
2008 as the 2007 fees continued to be evaluated. Amounts recorded in the three
months ended March 31, 2009 reflect the current ongoing level of access fees
based upon current activity levels. Other income for the three months ended
March 31, 2009 as compared to the same period in 2008 reflects a decline in
interest income on cash balances. While the Partnership had higher average cash
balances, interest rates were significantly lower in the three months ended
March 31, 2009 as compared to the same period in 2008. The Partnership has
$951,000 in cash on hand at March 31, 2009 invested primarily in money-market
funds, which earn nominal rates of interest in the current interest rate
environment.
Cost of operations, including management fees paid to an affiliate,
(see Note 5 to the Partnership's March 31, 2009 condensed financial statements)
for the three months ended March 31, 2009 was $832,000 compared to $824,000 for
the three months ended March 31, 2008, representing an increase of $8,000, as
increases in advertising and promotion, property tax and payroll expenses, were
mostly offset by reductions in eviction costs, insurance, management overhead
costs and office expenses.
Depreciation expense was $95,000 and $83,000 for the three months ended
March 31, 2009 and 2008, respectively, representing an increase of $12,000 or
14.6%. The increase in depreciation expense is primarily related to additional
capital improvements on the buildings for the Partnership's self-storage
facilities.
Administrative expense was $27,000 and $28,000 for the three months
ended March 31, 2009 and 2008, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
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Cash generated from operations ($1,859,000 for the three months ended
March 31, 2009) has been sufficient to meet all current obligations of the
Partnership. Capital improvements totaled $251,000 and $26,000 in the three
months ended March 31, 2009 and 2008, respectively. Capital improvements are
budgeted at $382,000 for the year ending December 31, 2009.
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. As the capital and credit
markets are currently constrained and in flux, there can be no assurance that
the Partnership would be able to access any such borrowings in order to do so,
if such a course of action were otherwise deemed necessary.
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. We paid distributions to
the limited and general partners totaling $1,232,000 ($28.00 per unit) and
$427,000, respectively, for the three months ended March 31, 2009. We paid
distributions to the limited and general partners totaling $1,188,000 ($27.00
per unit) and $412,000, respectively, for the three months ended March 31, 2008.
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 PS files
and submits under the Securities Exchange Act of 1934, as amended, ("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 Rules 13a-15(e) and 15d-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.
As of the end of the fiscal quarter 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 (as
such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based
on that evaluation, Public Storage's 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 quarter to which this report relates that have
materially affected, or are reasonable 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 Proceedings" in Note
6 to the Partnership's March 31, 2009 condensed financial statements in this
Form 10-Q is incorporated by reference in this Item 1.
ITEM 1A. RISK FACTORS
As of March 31, 2009, no material changes had occurred in our risk
factors as discussed in Item 1A of the Public Storage Properties V, Ltd. Annual
Report on Form 10-K for the year ended December 31, 2008.
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: May 14, 2009
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) Certification. Filed herewith.
31.2 Rule 13a-14(a) Certification. Filed herewith.
32 Section 1350 Certifications. Filed herewith.
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