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 June 30, 2009
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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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.
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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 August 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 June 30, 2009
and December 31, 2008 1
Condensed Statements of Income for the
Three and Six Months Ended June 30, 2009 and 2008 2
Condensed Statement of Partners' Equity for the
Six Months Ended June 30, 2009 3
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 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 - 15
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION (Items 2 - 5 not applicable)
-----------------
Item 1. Legal Proceedings 17
Item 1A. Risk Factors 17
Item 6. Exhibits 17
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED BALANCE SHEETS
June 30, December 31,
2009 2008
--------------- ---------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 1,006,000 $ 1,002,000
Rent and other receivables 59,000 56,000
Real estate facilities, at cost:
Buildings and equipment 19,974,000 19,410,000
Land 4,484,000 4,484,000
--------------- ---------------
24,458,000 23,894,000
Less accumulated depreciation (18,078,000) (17,867,000)
--------------- ---------------
6,380,000 6,027,000
Other assets 95,000 110,000
--------------- ---------------
Total assets $ 7,540,000 $ 7,195,000
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Accounts payable and accrued liabilities $ 332,000 $ 238,000
Deferred revenue 195,000 205,000
--------------- ---------------
Total liabilities 527,000 443,000
Commitments and contingencies (Note 6)
Partners' equity:
Limited partners' equity, $500 per unit, 44,000 units
authorized, issued and outstanding 5,207,000 5,013,000
General partners' equity 1,806,000 1,739,000
--------------- ---------------
Total partners' equity 7,013,000 6,752,000
--------------- ---------------
Total liabilities and partners' equity $ 7,540,000 $ 7,195,000
=============== ===============
See accompanying notes.
1
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2009 2008 2009 2008
-------------- -------------- -------------- --------------
REVENUES:
Rental income $ 2,464,000 $ 2,596,000 $ 4,952,000 $ 5,139,000
Other income 65,000 54,000 129,000 131,000
-------------- -------------- -------------- --------------
2,529,000 2,650,000 5,081,000 5,270,000
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Cost of operations 654,000 681,000 1,338,000 1,353,000
Management fees paid to affiliates 147,000 154,000 295,000 306,000
Depreciation 116,000 93,000 211,000 176,000
Administrative 45,000 43,000 72,000 71,000
-------------- -------------- -------------- --------------
962,000 971,000 1,916,000 1,906,000
-------------- -------------- -------------- --------------
NET INCOME $ 1,567,000 $ 1,679,000 $ 3,165,000 $ 3,364,000
============= ============= ============= =============
Limited partners' share of net income $ 1,244,000 $ 1,266,000 $ 2,415,000 $ 2,538,000
General partners' share of net income 323,000 413,000 750,000 826,000
-------------- -------------- -------------- --------------
$ 1,567,000 $ 1,679,000 $ 3,165,000 $ 3,364,000
============= ============= ============= =============
Limited partners' share of net income per unit
(44,000 units outstanding) $ 28.27 $ 28.77 $ 54.89 $ 57.68
============= ============= ============= =============
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 2,415,000 750,000 3,165,000
Cash distributions (2,156,000) (748,000) (2,904,000)
Equity transfer (65,000) 65,000 -
---------------- ---------------- ----------------
Balance at June 30, 2009 $ 5,207,000 $ 1,806,000 $ 7,013,000
================ ================ ================
See accompanying notes.
3
PUBLIC STORAGE PROPERTIES V, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
--------------------------------------
2009 2008
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Cash flows from operating activities:
Net income $ 3,165,000 $ 3,364,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 211,000 176,000
(Increase) decrease in rent and other receivables (3,000) 72,000
Decrease in other assets 15,000 20,000
Increase in accounts payable and accrued liabilities 94,000 138,000
Decrease in deferred revenue (10,000) (35,000)
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Total adjustments 307,000 371,000
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Net cash provided by operating activities 3,472,000 3,735,000
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Cash flows from investing activities:
Additions to real estate facilities (564,000) (173,000)
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Net cash used in investing activities (564,000) (173,000)
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Cash flows from financing activities:
Distributions paid to partners (2,904,000) (3,200,000)
--------------- ---------------
Net cash used in financing activities (2,904,000) (3,200,000)
--------------- ---------------
Net increase in cash and cash equivalents 4,000 362,000
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 $ 1,006,000 $ 1,080,000
=============== ===============
See accompanying notes.
4
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
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. The Partnership has evaluated subsequent events through August 13,
2009, which represents the filing date of this Form 10-Q with the SEC. As of
August 13, 2009, there were no subsequent events which required recognition or
disclosure.
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. Casualty losses or gains are recognized in the period the casualty
occurs, based upon the differential between the book value of assets destroyed,
and estimated insurance proceeds, if any, that we expect to receive in
accordance with our insurance contracts.
5
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Financial Instruments:
----------------------
The Partnership has estimated the fair value of its financial instruments
using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of market value. Accordingly, estimated fair values are not
necessarily indicative of the amounts that could be realized in current market
exchanges.
For purposes of financial statement presentation, the Partnership considers
all highly liquid financial instruments such as short-term treasury securities,
money market funds with daily liquidity and a rating in excess of AAA by
Standard and Poor's, or investment grade short-term commercial paper with
remaining maturities of three months or less at the date of acquisition to be
cash equivalents.
Due to the short period to maturity and the underlying characteristics of
our cash and cash equivalents, other assets, and accrued and other liabilities,
the Partnership believes the carrying values as presented on the condensed
balance sheets are reasonable estimates of fair value.
Financial assets that are exposed to credit risk consist primarily of cash
and cash equivalents as well as rent and other receivables.
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 June 30, 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, and 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 June
30, 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.
6
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Deferred Revenue:
-----------------
Deferred revenue totaling $195,000 at June 30, 2009 ($205,000 at December
31, 2008), consists of prepaid rents, which are recognized as rental income 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 tax expense is recorded by the Partnership.
Recent Accounting Pronouncements and Guidance:
----------------------------------------------
As of August 13, 2009, there have been no recent accounting pronouncements
and guidance, which were not effective for implementation prior to June 30,
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
June 30, 2009, we paid distributions to the limited and general partners
totaling $924,000 ($21.00 per unit) and $321,000, respectively, as compared to
$1,188,000 ($27.00 per unit) and $412,000, respectively, for the same period in
2008. During the six months ended June 30, 2009, we paid distributions to the
limited and general partners totaling $2,156,000 ($49.00 per unit) and $748,000,
respectively, as compared to $2,376,000 ($54.00 per unit) and $824,000,
respectively, for the same period in 2008. 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 (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 and six months ended June 30, 2009, the Partnership paid
$147,000 and $295,000, respectively, and $154,000 and $306,000 for the same
periods in 2008, 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 $298,000 and
$327,000 for the three months ended June 30, 2009 and 2008, respectively, and
$601,000 and $611,000 for the six months ended June 30, 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 June 30, 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%.
8
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 six months ended June 30, 2009 or 2008.
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. ("PSICH") owns a corporation that
reinsures policies against losses to goods stored by tenants in the
Partnership's and PS' storage facilities. PSICH receives the premiums and bears
the risks associated with the re-insurance. The Partnership receives a fee (an
"Access Fee") from PSICH 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 June 30, 2009 and 2008,
respectively, and $121,000 and $92,000 for the six months ended June 30, 2009
and 2008, respectively.
A subsidiary of PS sells locks and boxes 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 the 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
9
PUBLIC STORAGE PROPERTIES V, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 document 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, including
property 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 current economic
conditions;
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 including, without limitation, those
governing environmental, tax and tenant insurance matters, and risks
related to the impact of new laws and regulations;
o disruptions or shutdowns of our automated processes and systems or
breaches of our data security; 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
estimates that affect the amounts reported in our condensed financial statements
11
and accompanying notes. The notes to the Partnership's June 30, 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 June 30, 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 June 30, 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
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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.
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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 any potential future increases in rental income to
come primarily from increases in realized rent rather than increases in
occupancy, although there can be no assurance that we will experience such
increases.
RESULTS OF OPERATIONS
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THREE MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THREE MONTHS ENDED JUNE 30,
2008:
The Partnership's net income for the three months ended June 30, 2009 was
$1,567,000, as compared to $1,679,000 for the same period in 2008, representing
a decrease of $112,000 or 6.7%. Property net operating income (rental income
less cost of operations, management fees paid to an affiliate and depreciation
expense) decreased $121,000 or 7.3% from $1,668,000 for the three months ended
June 30, 2008 to $1,547,000 for the three months ended June 30, 2009.
Rental income for the three months ended June 30, 2009 was $2,464,000, as
compared to $2,596,000 for the three months ended June 30, 2008, representing a
decrease of $132,000 or 5.1%. The decrease in rental income is attributable to
the decreases in the realized rent per square foot and weighted average
occupancy levels. Annualized realized rent per square foot decreased 3.3% to
$13.87 per occupied square foot for the three months ended June 30, 2009, as
compared to $14.34 per occupied square foot for the three months ended June 30,
2008. Weighted average occupancy levels at the self-storage facilities decreased
2.1% to 88.7% for the three months ended June 30, 2009, as compared to 90.6% for
the same period in 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. Based upon certain comparative June
30, 2009 key operating metrics for the Partnership's self-storage facilities - a
2.1% decline in square foot occupancy from 89.7% at June 30, 2008 to 87.8% at
June 30, 2009, and 5.2% lower in place annual rent per occupied square foot from
$16.30 at June 30, 2008 to $15.45 at June 30, 2009, we expect that the revenue
decline for the Partnership's facilities for the three months ending September
30, 2009, as compared to the same period in 2008 will approximate 8%. The
Partnership's operating strategy will be to continue to focus on maintaining
occupancy levels by adjusting rental rates, promotional discounts and marketing
activities. It is unclear to us how much the above mentioned factors will impact
our revenues beyond the third quarter of 2009.
Other income was $65,000 for the three months ended June 30, 2009, as
compared to $54,000 for the three months ended June 30, 2008, representing an
increase of $11,000 or 20.4%. 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 June 30, 2009 condensed
financial statements), totaling $60,000 and $46,000 for the three months ended
June 30, 2009 and 2008, respectively. Other income for the three months ended
June 30, 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 June
30, 2009 as compared to the same period in 2008. The Partnership has $1,006,000
in cash on hand at June 30, 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 June 30, 2009 condensed financial statements) for
the three months ended June 30, 2009 was $801,000 compared to $835,000 for the
three months ended June 30, 2008, representing a decrease of $34,000 or 4.1%, as
decreases in advertising and promotion, eviction costs, payroll and management
fees expenses, were partially offset by higher property tax and utilities
expenses.
Depreciation expense was $116,000 and $93,000 for the three months ended
June 30, 2009 and 2008, respectively, representing an increase of $23,000 or
24.7%. The increase in depreciation expense is primarily related to additional
capital improvements on the buildings for the Partnership's self-storage
facilities.
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Administrative expense was $45,000 and $43,000 for the three months ended
June 30, 2009 and 2008, respectively.
SIX MONTHS ENDED JUNE 30, 2009 AS COMPARED TO SIX MONTHS ENDED JUNE 30,
2008:
The Partnership's net income for the six months ended June 30, 2009 was
$3,165,000, as compared to $3,364,000 for the same period in 2008, representing
a decrease of $199,000 or 5.9%. Property net operating income (rental income
less cost of operations, management fees paid to an affiliate and depreciation
expense) decreased $196,000 or 5.9% from $3,304,000 for the six months ended
June 30, 2008 to $3,108,000 for the six months ended June 30, 2009.
Rental income for the six months ended June 30, 2009 was $4,952,000, as
compared to $5,139,000 for the six months ended June 30, 2008, representing a
decrease of $187,000 or 3.6%. The decrease in rental income is attributable to a
2.1% decrease in the weighted average occupancy levels of 87.8% for the six
months ended June 30, 2009, as compared to 89.7% for the same period in 2008.
Additionally, realized rent per square foot decreased 1.6% to $14.09 per
occupied square foot for the six months ended June 30, 2009, as compared to
$14.32 per occupied square foot for the same period in 2008.
Other income was $129,000 for the six months ended June 30, 2009, as
compared to $131,000 for the six months ended June 30, 2008, representing a
decrease of $2,000 or 3.6%. Included in other income are access fees paid by
PSICH, totaling $120,000 and $92,000 for the six months ended June 30, 2009 and
2008, respectively. Other income for the six months ended June 30, 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 six months ended June 30, 2009 as compared
to the same period in 2008. The Partnership has $1,006,000 in cash on hand at
June 30, 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 June 30, 2009 condensed financial statements) for
the six months ended June 30, 2009 was $1,633,000 compared to $1,659,000 for the
six months ended June 30, 2008, representing a decrease of $26,000 or 1.6%, as
decreases in eviction costs, insurance, management fees, repairs and maintenance
and payroll expenses, were partially offset by higher property tax and
commercial expenses.
Depreciation expense was $211,000 and $176,000 for the six months ended
June 30, 2009 and 2008, respectively, representing an increase of $35,000 or
19.9%. 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 $72,000 and $71,000 for the six months ended
June 30, 2009 and 2008, respectively.
LIQUIDITY AND CAPITAL RESOURCES
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At June 30, 2009, the Partnership had cash of $1,006,000 as compared to
total liabilities of $527,000. Cash generated from operations ($3,472,000 for
the six months ended June 30, 2009) has been sufficient to meet all current
obligations of the Partnership. Capital improvements totaled $564,000 and
$173,000 in the six months ended June 30, 2009 and 2008, respectively. Included
in capital improvements for the six months ended June 30, 2009 is $320,000, and
included in the aggregate capital improvement budget for the Partnership is
$368,000, related to one of the Partnership's facilities in Sacramento,
California. Capital improvements are budgeted at $750,000 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
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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
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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. During the three months
ended June 30, 2009, we paid distributions to the limited and general partners
totaling $924,000 ($21.00 per unit) and $321,000, respectively, and $1,188,000
($27.00 per unit) and $412,000, respectively, for the same period in 2008.
During the six months ended June 30, 2008, we paid distributions to the limited
and general partners totaling $2,156,000 ($49.00 per unit) and $748,000,
respectively, and $2,376,000 ($54.00 per unit) and $824,000, respectively, for
the same period 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
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The information set forth under the heading "Legal Proceedings" in Note 6
to the Partnership's June 30, 2009 condensed financial statements in this Form
10-Q is incorporated by reference in this Item 1.
ITEM 1A. RISK FACTORS
------------
The risk factors set forth below update the corresponding risk factor in
Part I, "Item 1A. Risk Factors" in the Public Storage Properties V, Ltd. Annual
Report on Form 10-K for the year ended December 31, 2008. In addition to the
risk factor below, you should carefully consider the other risk factors
discussed in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2008, which could materially affect the Partnership's business,
financial position and results of operations.
THE PARTNERSHIP IS SUBJECT TO GOVERNMENTAL REGULATIONS AND ACTIONS THAT AFFECT
ITS OPERATING RESULTS AND FINANCIAL CONDITION.
The Partnership's business is subject to regulation under a wide variety of
U.S. federal, state and local laws, regulations and policies. There can be no
assurance that, in response to current economic conditions or the current
political environment or otherwise, laws and regulations will not be implemented
or changed in ways that adversely affect the Partnership's operating results and
financial condition, such as current federal legislative proposals to expand
health care coverage costs or facilitate union activity or otherwise increase
operating costs.
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, 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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