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 March 31, 1999
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)
701 Western Avenue
Glendale, California 91201
- --------------------------------------------- ----------------------
(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
--- ---
<PAGE>
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Condensed balance sheets at March 31, 1999
and December 31, 1998 2
Condensed statements of income for the three
months ended March 31, 1999 and 1998 3
Condensed statement of partners' deficit for the
three months ended March 31, 1999 4
Condensed statements of cash flows for the
three months ended March 31, 1999 and 1998 5
Notes to condensed financial statements 6-7
Management's discussion and analysis of
financial condition and results of operations 8-11
PART II. OTHER INFORMATION 12
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 217,000 $ 433,000
Marketable securities of affiliate (cost of $6,091,000) 9,549,000 10,337,000
Rent and other receivables 119,000 136,000
Real estate facilities, at cost:
Buildings and equipment 16,479,000 16,424,000
Land 5,244,000 5,244,000
----------------- -----------------
21,723,000 21,668,000
Less accumulated depreciation (12,070,000) (11,824,000)
----------------- -----------------
9,653,000 9,844,000
Other assets 126,000 126,000
----------------- -----------------
Total assets $ 19,664,000 $ 20,876,000
================= =================
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Accounts payable $ 193,000 $ 249,000
Deferred revenue 269,000 235,000
Note payable to commercial bank 18,150,000 19,650,000
Partners' equity:
Limited partners' deficit, $500 per unit, 40,000 units
Authorized, issued and outstanding (1,785,000) (2,599,000)
General partners' deficit (621,000) (905,000)
Other comprehensive income 3,458,000 4,246,000
----------------- -----------------
Total partners' equity 1,052,000 742,000
----------------- -----------------
Total liabilities and partners' equity $ 19,664,000 $ 20,876,000
================= =================
</TABLE>
See accompanying notes.
2
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1999 1998
-------------- --------------
REVENUES:
<S> <C> <C>
Rental income $ 2,239,000 $ 2,110,000
Dividends from marketable securities of affiliate 84,000 84,000
Interest and other income 3,000 30,000
-------------- --------------
2,326,000 2,224,000
-------------- --------------
COSTS AND EXPENSES:
Cost of operations 537,000 522,000
Management fees paid to affiliate 134,000 127,000
Depreciation 246,000 230,000
Administrative 27,000 15,000
Interest expense 284,000 686,000
-------------- --------------
1,228,000 1,580,000
-------------- --------------
NET INCOME $ 1,098,000 $ 644,000
============== ==============
Limited partners' share of net income ($27.15 per unit
in 1999 and $15.93 per unit in 1998) $ 1,086,000 $ 637,000
General partners' share of net income 12,000 7,000
-------------- --------------
$ 1,098,000 $ 644,000
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Other Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ (2,599,000) $ (905,000) $ 4,246,000 $ 742,000
Unrealized loss marketable securities - - (788,000) (788,000)
Net income 1,086,000 12,000 - 1,098,000
Equity transfer (272,000) 272,000 - -
--------------- --------------- --------------- ---------------
Balance at March 31, 1999 $ (1,785,000) $ (621,000) $ 3,458,000 $ 1,052,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes.
4
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1999 1998
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,098,000 $ 644,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 246,000 230,000
Decrease in rent and other receivables 17,000 6,000
Amortization of prepaid loan fees - 23,000
Increase in other assets - (3,000)
(Decrease) increase in accounts payable (56,000) 52,000
Increase in deferred revenue 34,000 48,000
--------------- ---------------
Total adjustments 241,000 356,000
--------------- ---------------
Net cash provided by operating activities 1,339,000 1,000,000
--------------- ---------------
Cash flows from investing activities:
Additions to real estate facilities (55,000) (32,000)
--------------- ---------------
Net cash used in investing activities (55,000) (32,000)
--------------- ---------------
Cash flows from financing activities:
Principal payments on note payable to commercial bank (1,500,000) -
Principal payments on mortgage note payable - (249,000)
--------------- ---------------
Net cash used in financing activities (1,500,000) (249,000)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (216,000) 719,000
Cash and cash equivalents at beginning of period 433,000 1,911,000
--------------- ---------------
Cash and cash equivalents at end of period $ 217,000 $ 2,630,000
=============== ===============
Supplemental schedule of non-cash investing
and financing activities:
Decrease (increase) in fair market value of marketable securities $ 788,000 $ (573,000)
=============== ===============
Unrealized (loss) gain on marketable securities $ (788,000) $ 573,000
=============== ===============
</TABLE>
See accompanying notes.
5
<PAGE>
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, 1998.
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 March 31, 1999, the results of its operations for the three
months ended March 31, 1999 and 1998 and its cash flows for the three
months then ended.
3. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results expected for the full year.
4. Marketable securities at March 31, 1999 consist of 381,980 shares of
common stock of Public Storage, Inc., a publicly traded real estate
investment trust and a general partner of the Partnership. The
Partnership has designated its portfolio of marketable securities as
available for sale. Accordingly, at March 31, 1999, the Partnership has
recorded the marketable securities at fair value, based upon the
closing quoted prices of the securities at March 31, 1999. Changes in
market value of marketable securities are reflected as unrealized gains
or losses directly in Partners' Equity and accordingly have no effect
on net income.
5. On July 1, 1998, the Partnership paid off the mortgage note payable
with cash reserves and with the proceeds of a $22,000,000 loan from
Public Storage, Inc., a general partner of the Partnership. The loan
from Public Storage, Inc. required for monthly payments of interest
only at the fixed rate of 7.2% and matures June 30, 1999. The loan to
PSI was paid off in September 1998 with the proceeds of a loan from a
commercial bank (see note 6).
6
<PAGE>
6. During September 1998, the Partnership borrowed $21,000,000 from a
commercial bank. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20% depending on the
Partnership's interest coverage ratio (5.60% at March 31, 1999). The
loan requires monthly payments of interest and matures September 2002.
Principal may be paid, in whole or in part, at any time without penalty
or premium. The loan proceeds were used to pay off the Partnership's
note payable to Public Storage, Inc.
The Partnership has entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on a portion of its
floating rate debt. The agreement, which covers $11,500,000 of debt
through March 2000 and $7,500,000 from March 2000 through September
2000, effectively changes the interest rate exposure from floating rate
to a fixed rate of 5.22% plus 0.60% to 1.20% based on the Partnership's
interest coverage ratio (5.82% as of March 31, 1999). Market gains and
losses on the value of the swap are deferred and included in income
over the life of the contract. The Partnership records the differences
paid or received on the interest rate swap in interest expense as
payments are made or received. As of March 31, 1999, the unrealized
loss on the interest rate swap, if required to be liquidated, was
approximately $5,000.
7
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
- --------------------------
When used within this document, the words "expects," "believes,"
"anticipates," "should," "estimates," and similar expressions are intended to
identify "forward-looking statements" within the meaning of that term in Section
27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of
the Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors, which may
cause the actual results and performance of the Partnership to be materially
different from those expressed or implied in the forward looking statements.
Such factors include the impact of competition from new and existing real estate
facilities which could impact rents and occupancy levels at the real estate
facilities that the Partnership's has an interest in; the Partnership's ability
to effectively compete in the markets that it does business in; the impact of
the regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Partnerships; and the
impact of general economic conditions upon rental rates and occupancy levels at
the real estate facilities that the Partnership has an interest in.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH
31, 1998:
The Partnership's net income for the three months ended March 31, 1999
was $1,098,000 compared to $644,000 for the three months ended March 31, 1998,
representing an increase of $454,000 or 70%. The increase is primarily a result
of increased operating results at the Partnership's mini-warehouse facilities
combined with decreased interest expense.
Rental income for the three months ended March 31, 1999 was $2,239,000
compared to $2,110,000 for the three months ended March 31, 1998, representing
an increase of $129,000 or 6%. This increase is primarily attributable to
increased rental rates at the Partnership's mini-warehouse facilities. The
weighted average occupancy levels at the mini-warehouse facilities were 93% and
94% for the three months ended March 31, 1999 and 1998, respectively. Average
monthly realized rent per occupied square foot increased from $.85 for the three
months ended March 31, 1998 to $.91 for the three months ended March 31, 1999.
Interest and other income decreased $27,000 for the three months ended
March 31, 1999 compared to the same period in 1998. The decrease is primarily a
result of the increase in the pay down of the Partnership note payable, which
resulted in lower cash balances and consequently less interest earned.
8
<PAGE>
Dividend income from marketable securities of affiliate remained stable
for the three months ended March 31, 1999 compared to the same period in 1998.
Cost of operations (including management fees paid to affiliate) for
the three months ended March 31, 1999 was $671,000 compared to $649,000 for the
three months ended March 31, 1998, representing an increase of $22,000 or 3%.
This increase is mainly attributable to increases in advertising and promotion
expenses.
Interest expense was $284,000 in the three months ended March 31, 1999
from $686,000 in the same period in 1998, a $402,000 or 58.6% decrease. This
decrease is mainly attributable to a lower outstanding principal balance and
reduced interest rates on the Partnership's debt resulting from a refinancing of
the Partnership's debt. See Liquidity and Capital Resources for a discussion of
the refinancing of the Partnership's indebtedness in the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operating activities ($1,339,000 for the three months
ended March 31, 1999) have been sufficient to meet all current obligations of
the Partnership.
At March 31, 1999, the Partnership held 381,980 shares of common stock
with a fair value totaling $9,549,000 (cost basis of $6,091,000 at March 31,
1999) in Public Storage, Inc. The Partnership recognized $84,000 in dividends
for the three months ended March 31, 1999.
On July 1, 1998, the Partnership paid off the mortgage note payable
with cash reserves and with the proceeds of a $22,000,000 loan from Public
Storage, Inc., a general partner of the Partnership. The loan from Public
Storage, Inc. required for monthly payments of interest only at the fixed rate
of 7.2% and matures June 30, 1999. The loan to PSI was paid off in September
1998 with the proceeds of a loan from a commercial bank (see note 6).
During September 1998, the Partnership borrowed $21,000,000 from a
commercial bank. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20% depending on the
Partnership's interest coverage ratio (5.60% at March 31, 1999). The loan
requires monthly payments of interest and mature September 2002. Principal may
be paid, in whole or in part, at any time without penalty or premium. The loan
proceeds were used to pay off the Partnership's note to Public Storage, Inc.
The Partnership has entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on a portion of its floating rate
debt. The agreement, which covers $11,500,000 of debt through March 2000 and
$7,500,000 from March 2000 through September 2000, effectively changes the
interest rate exposure from floating rate to a fixed rate of 5.22% plus 0.60% to
9
<PAGE>
1.20% based on the Partnership's interest coverage ratio (5.82% as of March 31,
1999). Market gains and losses on the value of the swap are deferred and
included in income over the life of the contract. The Partnership records the
differences paid or received on the interest rate swap in interest expense as
payments are made or received. As of March 31, 1999, the unrealized loss on the
interest rate swap, if required to be liquidated, was approximately $5,000.
Year 2000 System Issues
- -----------------------
The Partnership utilizes PSI's information systems in connection with a
cost sharing and administrative services agreement. PSI has completed an
assessment of all of its hardware and software applications to identify
susceptibility to what is commonly referred to as the "Y2K Issue" whereby
certain computer programs have been written using two digits rather than four to
define the applicable year. Any of PSI's computer programs or hardware with the
Y2K Issue that have date-sensitive applications or embedded chips may recognize
a date using "00" as the year 1900 rather than the year 2000, resulting in
miscalculations or system failure causing disruptions of operations.
PSI has two phases in its process with respect to each of its systems;
i) assessment, whereby PSI evaluates whether the system is Y2K compliant and
identifies the plan of action with respect to remediating any Y2K issues
identified and ii) implementation, whereby PSI completes the plan of action
prepared in the assessment phase and verifies that Y2K compliance has been
achieved.
Many of PSI's critical applications, relative to the direct management
of properties, have recently been replaced and PSI believes they are already
Year 2000 compliant. PSI has an implementation in process on the remaining
critical applications, including its general ledger and related systems that are
believed to have Y2K issues. PSI expects the implementation to be complete by
June 1999. Contingency plans have been developed for use in case PSI's
implementations are not completed on a timely basis. While PSI presently
believes that the impact of the Y2K Issue on its systems can be mitigated, if
PSI's plan for ensuring Year 2000 Compliance and the related contingency plans
were to fail, be insufficient, or not be implemented on a timely basis,
Partnership operations could be materially impacted.
Certain of PSI's other non-computer related systems that may be
impacted by the Y2K Issue, such as security systems, are currently being
evaluated, and PSI expects the evaluation to be complete by June 1999. PSI
expects the implementation of any required solutions to be complete in advance
of December 31, 1999. PSI has not fully evaluated the impact of lack of Year
2000 compliance on these systems, but has no reason to believe that lack of
compliance would materially impact the Partnership's operations.
10
<PAGE>
The Partnership exchanges electronic data with certain outside vendors
in the banking and payroll processing areas. The Partnership has been advised by
these vendors that their systems are or will be Year 2000 compliant, but has
requested a Year 2000 compliance certification from these entities. The
Partnership is not aware of any other vendors, suppliers, or other external
agents with a Y2K Issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Partnership has no
means of ensuring that external agents will be Year 2000 compliant, and there
can be no assurance that the Company has identified all such external agents.
The inability of external agents to complete their Year 2000 compliance process
in a timely fashion could materially impact the Partnership. The effect of
non-compliance by external agents is not determinable.
The cost of the PSI's Year 2000 compliance activities (which primarily
consists of the costs of new systems) to be allocated to the Partnership is
estimated at approximately $76,143. These costs are capitalized. PSI's Year 2000
compliance efforts have not resulted in any significant deferrals in other
information system projects.
The costs of the projects and the date on which PSI and the Partnership
expect to achieve Year 2000 Compliance are based upon management's best
estimates, and were derived utilizing numerous assumptions of future events.
There can be no assurance that these estimates will be achieved, and actual
results could differ materially from those anticipated. There can be no
assurance that the Partnership or PSI has identified all potential Y2K Issues
either within the Partnership, at PSI, or at external agents. In addition, the
impact of the Y2K issue on governmental entities and utility providers and the
resultant impact on the Partnership, as well as disruptions in the general
economy, may be material but cannot be reasonably determined or quantified.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5 are inapplicable.
Item 6 Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following exhibit is included herein:
(27) Financial Data Schedule
(b) Form 8-K
None
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, 1999
PUBLIC STORAGE PROPERTIES IV, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
--------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225775
<NAME> Public Storage Properties IV, Ltd.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<CASH> 217,000
<SECURITIES> 9,549,000
<RECEIVABLES> 119,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,011,000
<PP&E> 21,723,000
<DEPRECIATION> (12,070,000)
<TOTAL-ASSETS> 19,664,000
<CURRENT-LIABILITIES> 462,000
<BONDS> 0
18,150,000
0
<COMMON> 0
<OTHER-SE> 1,052,000
<TOTAL-LIABILITY-AND-EQUITY> 19,664,000
<SALES> 0
<TOTAL-REVENUES> 2,326,000
<CGS> 0
<TOTAL-COSTS> 671,000
<OTHER-EXPENSES> 273,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284,000
<INCOME-PRETAX> 1,098,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,098,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,098,000
<EPS-PRIMARY> 27.15
<EPS-DILUTED> 27.15
</TABLE>
