UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1995 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 0-8908 ------ PUBLIC STORAGE PROPERTIES IV, LTD. ----------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3192402 - ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 600 N. Brand Boulevard Glendale, California 91203 - ---------------------------------------- ---------------------- (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. Yes X No ----- ----- INDEX Page ---- PART I. FINANCIAL INFORMATION Condensed balance sheets at September 30, 1995 and December 31, 1994 2 Condensed statements of operations for the three and nine months ended September 30, 1995 and 1994 3 Condensed statement of partners' deficit for the nine months ended September 30, 1995 4 Condensed statements of cash flows for the nine months ended September 30, 1995 and 1994 5 Notes to condensed financial statements 6-8 Management's discussion and analysis of financial condition and results of operations 9-11 PART II. OTHER INFORMATION 12-13 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED BALANCE SHEETS September 30, December 31, 1995 1994 ------------- ------------ (Unaudited) ASSETS ------ Cash and cash equivalents $ 1,416,000 $ 551,000 Marketable securities of affiliate (cost of $3,392,000) 5,116,000 3,948,000 Rent and other receivables 109,000 88,000 Real estate facilities at cost: Buildings and equipment 14,991,000 14,703,000 Land 5,256,000 5,256,000 ----------- ------------ 20,247,000 19,959,000 Less accumulated depreciation (9,010,000) (8,461,000) ----------- ------------ 11,237,000 11,498,000 ----------- ------------ Other assets 353,000 420,000 ----------- ------------ Total assets $18,231,000 $ 16,505,000 =========== ============ LIABILITIES AND PARTNERS' DEFICIT --------------------------------- Accounts payable $ 200,000 $ 48,000 Advances to reconstruct real estate facility - 237,000 Deferred revenue 239,000 292,000 Mortgage note payable 27,538,000 28,086,000 Partners' deficit: Limited partners' deficit, $500 per unit, 40,000 units authorized, issued and outstanding (8,508,000) (9,430,000) General partners' deficit (2,962,000) (3,284,000) Unrealized gain on marketable securities 1,724,000 556,000 ----------- ------------ Total partners' deficit (9,746,000) (12,158,000) ----------- ------------ Total liabilities and partners' deficit $18,231,000 $ 16,505,000 =========== ============ See accompanying notes. 2 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1995 1994 1995 1994 ----------- ---------- ----------- ---------- REVENUES: Rental income $1,798,000 $1,699,000 $5,257,000 $4,937,000 Dividends from marketable securities of affiliate 60,000 39,000 181,000 116,000 Other income 16,000 73,000 320,000 220,000 ---------- ---------- ---------- ---------- 1,874,000 1,811,000 5,758,000 5,273,000 ---------- ---------- ---------- ---------- COSTS AND EXPENSES: Cost of operations 429,000 397,000 1,315,000 1,199,000 Management fees paid to affiliate 108,000 111,000 316,000 306,000 Depreciation and amortization 187,000 175,000 548,000 513,000 Administrative 20,000 20,000 80,000 50,000 Interest expense 747,000 766,000 2,255,000 2,310,000 ---------- ---------- ---------- ---------- 1,491,000 1,469,000 4,514,000 4,378,000 ---------- ---------- ---------- ---------- NET INCOME $ 383,000 $ 342,000 $1,244,000 $ 895,000 ---------- ---------- ---------- ---------- Limited partners' share of net income ($30.75 per unit in 1995 and $22.13 per unit in 1994) $1,230,000 $ 885,000 General partners' share of net income 14,000 10,000 ---------- ---------- $1,244,000 $ 895,000 ========== ========== See accompanying notes. 3 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED STATEMENT OF PARTNERS' DEFICIT (UNAUDITED) Unrealized Gain on Total Limited General Marketable Partners' Partners Partners Securities Deficit ------------- ------------- ---------- -------------- Balance at December 31, 1994 $(9,430,000) $(3,284,000) $ 556,000 $(12,158,000) Change in unrealized gain on marketable securities - - 1,168,000 1,168,000 Net income 1,230,000 14,000 - 1,244,000 Equity transfer (308,000) 308,000 - - ----------- ----------- ---------- ------------ Balance at September 30, 1995 $(8,508,000) $(2,962,000) $1,724,000 $ (9,746,000) ----------- ----------- ---------- ------------ See accompanying notes. 4 PUBLIC STORAGE PROPERTIES IV, LTD. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, ----------------------------------- 1995 1994 ------------ ------------ Cash flows from operating activities: Net income $ 1,244,000 $ 895,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 549,000 513,000 Decrease in advances to reconstruct real estate facility (236,000) - (Increase) decrease in rent and other receivables (21,000) 50,000 Decrease in other assets 67,000 66,000 Increase (decrease) in accounts payable 152,000 (242,000) Decrease in deferred revenue (53,000) (293,000) ----------- ----------- Total adjustments 458,000 94,000 ----------- ----------- Net cash provided by operating activities 1,702,000 989,000 ----------- ----------- Cash flows from investing activities: Insurance proceeds relating to damaged real estate facility - 837,000 Purchase of marketable securities - (693,000) Expenditures to reconstruct damaged real estate facility (1,000) (1,282,000) Additions to real estate facilities (288,000) (263,000) ----------- ----------- Net cash used in investing activities (289,000) (1,401,000) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage note payable (548,000) (494,000) ----------- ----------- Net cash used in financing activities (548,000) (494,000) ----------- ----------- Net increase (decrease) in cash and cash equivalents 865,000 (906,000) Cash and cash equivalents at the beginning of the period 551,000 2,807,000 ----------- ----------- Cash and cash equivalents at the end of the period $ 1,416,000 $ 1,901,000 =========== =========== Supplemental schedule of non-cash investing and financing activities: Increase in fair value of marketable securities $(1,168,000) $ (592,000) =========== =========== Unrealized gain on marketable securities $ 1,168,000 $ 592,000 =========== =========== See accompanying notes. 5 PUBLIC STORAGE PROPERTIES IV, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures contained herein are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes appearing in the Partnership's Form 10-K for the year ended December 31, 1994. 2. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal accruals, necessary to present fairly the Partnership's financial position at September 30, 1995, the results of its operations for the three and nine months ended September 30, 1995 and 1994 and its cash flows for the nine months then ended. 3. The results of operations for the three and nine months ended September 30, 1995 are not necessarily indicative of the results expected for the full year. 4. Marketable securities at September 30, 1995 consist of 274,675 common shares of Storage Equities, Inc. ("SEI"), a publicly traded real estate investment trust whose investment advisor is an affiliate of Public Storage, Inc. ("PSI"), a general partner of the Partnership. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" requires marketable securities to be classified as trading or available for sale. The Partnership has designated its portfolio of marketable securities as available for sale. Accordingly, at September 30, 1995, the Partnership has recorded the marketable securities at fair value, based upon the closing quoted prices of the securities at September 30, 1995, and a corresponding unrealized gain totaling $1,724,000 as a credit to Partnership equity. 6 5. Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the six month period ended June 30, 1995, the Partnership completed environmental assessments on its properties. Those assessments indicate that the Partnership's property sites do not have any significant environmental issues which would have a materially adverse effect on the Partnership's financial position. Included in administrative expenses on the statement of operations for the nine months ended September 30, 1995 is approximately $25,000 incurred in connection with the environmental assessments. 6. In 1993, the Partnership reached a settlement with its insurance carrier for damage sustained to the property located in Miami, Florida from Hurricane Andrew in August 1992 and for business interruption while the facility was being reconstructed. The settlement provided for the payment of $2,987,000 consisting of (i) reconstruction and related costs of the facility and (ii) business interruption. The insurance proceeds received with respect to reconstruction were recorded on the balance sheet as "Advances to reconstruct real estate facility" and has been reduced by the amount of actual costs paid with respect to the reconstruction of the facility. The facility recommenced operations in October 1994 and the reconstruction of the facility was completed in the second quarter of 1995. The balance of $236,000 in Advances to Reconstruct Real Estate Facility was recognized as income during the second quarter of 1995 and is included in Other income on the Condensed Statements of Operations. 7. PSI, a general partner of the Partnership, and Public Storage Management, Inc. ("PSMI"), the Partnership's mini-warehouse property manager, have entered into an Agreement and Plan of Reorganization by and among PSI, PSMI and SEI, dated as of June 30, 1995, pursuant to which PSMI would be merged into SEI. Prior to the merger, substantially all of the United States real estate interests of PSI, together with Public Storage Commercial Properties Group, Inc. and Public Storage Advisers, Inc. (SEI's investment adviser), will be combined with PSMI. Upon completion of the merger, which is scheduled to occur in November 1995, SEI would replace PSI as a general partner of the Partnership. After the merger, B. Wayne Hughes would continue as a general partner of the Partnership. The merger is subject to a number of conditions. 7 In November 1995, the Management Agreement with PSMI was amended to provide that upon demand from PSMI or SEI made prior to December 15, 1995, the Partnership agrees to prepay (within 15 days after such demand) up to 12 months of management fees (based on the management fees for the calendar year immediately preceding such prepayment) discounted at the rate of 14% per year to compensate for early payment. 8 PUBLIC STORAGE PROPERTIES IV, LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994: The Partnership's net income for the nine months ended September 30, 1995 and 1994 was $1,244,000 and $895,000, respectively, representing an increase of $349,000 or 39%. Net income for the three months ended September 30, 1995 and 1994 was $383,000 and $342,000, respectively, representing an increase of $41,000 or 12%. The increase for the nine months ended September 30, 1995 is primarily attributed to $236,000 of income recognized as a result of actual cost being lower than amounts received from insurance proceeds to reconstruct a real estate facility located in Miami, Florida which was damaged by Hurricane Andrew in August 1992 (see Note 6 in the Notes to Condensed Financial Statements). Also contributing to the increase in net income for both the three and nine months ended September 30, 1995 is an increase in operating results at the Partnership's mini-warehouse facilities combined with decreased interest expense. Rental income was $5,257,000 compared to $4,937,000 for the nine months ended September 30, 1995 and 1994, respectively, representing an increase of $320,000 or 6%. Rental income was $1,798,000 compared to $1,699,000 for the three months ended September 30, 1995 and 1994, respectively, representing an increase of $99,000 or 6%. These increases are primarily attributable to an increase in rental rates at the Partnership's mini-warehouse facilities offset by a slight decrease in occupancy levels. The weighted average occupancy levels at the mini-warehouse facilities were 85% and 86% for the nine months ended September 30, 1995 and 1994, respectively. Other income increased $100,000 for the nine months ended September 30, 1995 compared to the same period in 1994. Other income decreased $57,000 for the three months ended September 30, 1995 compared to the same period in 1994. The increase for the nine months ended September 30, 1995 is attributable to the recognition of $236,000 in income from unused insurance proceeds, as discussed above, offset by a lower amount of business interruption income recognized in 1995 over 1994. Included in Other income for the nine months ended September 30, 1995 and 1994 are $49,000 and $188,000, respectively, of business interruption income. The decrease for the three months ended September 30, 1995 over 1994 is 9 primarily due to the recognition of $57,000 in business interruption income in the third quarter of 1994. No business interruption income was recognized in the third quarter of 1995. Dividend income from marketable securities of affiliate increased $65,000 and $21,000 for the nine and three month periods ended September 30, 1995, respectively, compared to the same periods in 1994. These increases are attributable to an increase in the number of shares owned in 1995 compared to the same periods in 1994 and an increase in the dividend rate from $.21 to $.22 per quarter per share. Cost of operations (including management fees paid to affiliate) increased $126,000 to $1,631,000 from $1,505,000 for the nine months ended September 30, 1995 and 1994, respectively. Cost of operations increased $29,000 to $537,000 from $508,000 for the three months ended September 30, 1995 and 1994, respectively. These increases are mainly attributable to increases in payroll, utilities and repairs and maintenance costs. Administrative expenses increased $30,000 for the nine months ended September 30, 1995 compared to the same period in 1994 primarily as a result of cost incurred on environmental assessments on the Partnership's properties. Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the first quarter of 1995, the Partnership commenced environmental assessments on its properties and incurred $25,000 in connection with those assessments. Those assessments indicate that the Partnership's property sites do not have any significant environmental issues which would have a materially adverse effect on the Partnership's financial position. Interest expense decreased $55,000 for the nine months ended September 30, 1995 compared to the same period in 1994 due primarily to a lower outstanding loan balance in 1995 over 1994. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flows from operating activities ($1,702,000 for the nine months ended September 30, 1995) have been sufficient to meet all current obligations of the Partnership. During 1995, the Partnership anticipates approximately $348,000 of capital improvements, of which $288,000 has been incurred through September 30, 1995. At September 30, 1995, the Partnership held 274,675 shares of common stock (marketable securities) with a fair value totaling $5,116,000 (cost basis of $3,392,000 at September 30, 1995) in Storage Equities, 10 Inc. ("SEI"), a real estate investment trust whose investment advisor is an affiliate of Public Storage, Inc. (a general partner of the Partnership). The Partnership recognized $181,000 in dividends for the nine months ended September 30, 1995. SEI's stock price per share, as of September 30, 1995, has increased $6.30 over the Partnership's cost resulting in a $1,724,000 increase in the aggregate value of the securities. In the third quarter of 1991, quarterly distributions were discontinued to enable the Partnership to make principal payments that commenced in 1990 and to increase cash reserves in subsequent years through 1998, at which time the remaining principal balance is due. 11 PART II. OTHER INFORMATION Items 1 through 5 are inapplicable. Item 6 Exhibits and Reports on Form 8-K. --------------------------------- (a) The following exhibits are included herein: (10) Amendment to Management Agreement among Public Storage Management, Inc., Storage Equities, Inc. and the Partnership, dated as of November 13, 1995. (27) Financial Data Schedule (b) Form 8-K None 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: November 13, 1995 PUBLIC STORAGE PROPERTIES IV, LTD. BY: Public Storage, Inc. General Partner BY: /s/ Ronald L. Havner, Jr. ---------------------------- Ronald L. Havner, Jr. Vice President and Chief Financial Officer (principal accounting and financial officer) 13