10-Q 1 q202part6.txt PS PARTNERS 6, LTD. 10-Q 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 June 30, 2002 ------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to -------------- -------------- Commission File Number 0-14477 ------- PS PARTNERS VI, LTD. -------------------- (Exact name of registrant as specified in its charter) California 95-3950440 ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 701 Western Avenue Glendale, California 91201-2394 ---------------------------------------- ---------------------- (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 PART I. FINANCIAL INFORMATION Condensed balance sheets at June 30, 2002 and December 31, 2001 2 Condensed statements of income for the three and six months ended June 30, 2002 and 2001 3 Condensed statements of cash flows for the six months ended June 30, 2002 and 2001 4 Notes to condensed financial statements 5-6 Management's discussion and analysis of financial condition and results of operations 7-10 Risk Factors 10-11 PART II. OTHER INFORMATION (Items 1 through 4 are not applicable) Item 5 - Other Events 12 Item 6 - Exhibits and Reports on Form 8-K 12 Item 7 - Financial Statements and Exhibits 12 PS PARTNERS VI, LTD. CONDENSED BALANCE SHEETS

See accompanying notes. 2 PS PARTNERS VI, LTD. CONDENSED STATEMENTS OF INCOME (UNAUDITED)

See accompanying notes. 3 PS PARTNERS VI, LTD. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes. 4 PS PARTNERS VI, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2002 (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, 2001. 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 June 30, 2002, the results of operations for the three and six months ended June 30, 2002 and 2001 and cash flows for the six months then ended. 3. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. 4. In October 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In June 2001, the FASB issued Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets," ("SFAS 142"). We adopted these statements effective January 1, 2002. We evaluate our long-lived assets on a quarterly basis for indicators of impairment. When indicators of impairment are detected, we evaluate the recoverability of such long-lived assets. To the extent that the estimated future undiscounted cash flows are less than the respective book value, an impairment charge is recorded. The Partnership has determined at June 30, 2002 that no such impairments existed and, accordingly, no impairment charges have been recorded. Statement No. 144 also addresses the accounting for long-lived assets that are likely to be disposed of before the end of their previously estimated useful life. Such assets are to be reported at the lower of their carrying amount or fair value, less cost to sell. Our evaluations have determined that there are no such impairments at June 30, 2002. 5. Summarized combined financial data with respect to the Real Estate Entities is as follows: Six Months Ended June 30, -------------------------------------- 2002 2001 ------------- ------------- Total revenues.................... $109,394,000 $87,397,000 Minority interest in income....... 16,488,000 13,152,000 Net income........................ 33,166,000 27,230,000 5 6. The Partnership has entered into an Agreement and Plan of Reorganization by and among PSI, PS Partners VI Merger Co., Inc. and the Partnership, dated as of April 12, 2002 (the "Agreement and Plan of Reorganization"). Under the Agreement and Plan of Reorganization, each of the Partnership units held by the public limited partners will be converted into the right to receive a value of $546 in PSI common stock or, at the limited partner's election, in cash. The Agreement and Plan of Reorganization is subject to certain conditions and was filed with the Partnership's Current Report on Form 8-K dated April 15, 2002, and is referenced as Exhibit 1 hereto and is incorporated herein by this reference. Assuming satisfaction or waiver of the conditions to closing, the transaction would close in the third quarter. 6 PS PARTNERS VI, 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. 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 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. CRITICAL ACCOUNTING POLICIES ---------------------------- IMPAIRMENT OF LONG LIVED ASSETS Substantially all of the Partnership's assets consist of long-lived assets, primarily real estate. We evaluate our long-lived assets on a quarterly basis for indicators of impairment. When indicators of impairment are detected, we evaluate the recoverability of such long-lived assets. To the extent that the estimated future undiscounted cash flows are less than the respective book value, an impairment charge is recorded. The Partnership has determined at June 30, 2002 that no such impairments existed and, accordingly, no impairment charges have been recorded. Future events could cause us to conclude that our long-lived assets are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. ESTIMATED USEFUL LIVES OF LONG-LIVED ASSETS Substantially all of the Partnership's 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 obsolescense or other factors, could have a material adverse impact on our financial condition or results of operations. RESULTS OF OPERATIONS --------------------- THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001: Our net income for the three months ended June 30, 2002 was $895,000 compared to $971,000 for the three months ended June 30, 2001, representing a decrease of $76,000, or 7.8%. The decrease is primarily due to our share of lower property operations at the Mini Warehouse Properties. Property Operations ------------------- Rental income for our wholly-owned mini-warehouse property was $159,000 compared to $166,000 for the three months ended June 30, 2002 and 2001, respectively, representing a decrease of $7,000 or 4.2%. Cost of operations (including management fees) increased by $1,000 or 1.7%, to $61,000 from $60,000 for the three months ended June 30, 2002 and 2001, respectively. Accordingly, for our wholly-owned mini-warehouse property, property net operating income decreased by $8,000 or 7.5%, from $106,000 to $98,000 for the three months ended June 30, 2001 and 2002, respectively. 7 Equity in Earnings of Real Estate Entities ------------------------------------------ Equity in earnings of real estate entities was $840,000 in the three months ended June 30, 2002 as compared to $929,000 during the three months ended June 30, 2001, representing a decrease of $89,000 or 9.6%. The decrease is primarily due to our share of lower property operations at the real estate facilities that we have an interest in. Interest Income --------------- Interest income increased by $2,000 or 5.0%, from $40,000 for the three months ended June 30, 2001 to $42,000 for the three months ended June 30, 2002. Depreciation and Amortization ----------------------------- Depreciation and amortization remained stable at $36,000 for the three months ended June 30, 2001 and 2002, respectively. Administrative -------------- Administrative expense decreased by $19,000 or 27.9%, from $68,000 for the three months ended June 30, 2001 to $49,000 for the three months ended June 30, 2002. SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001: Our net income for the six months ended June 30, 2002 was $1,988,000 compared to $1,927,000 for the six months ended June 30, 2001, representing an increase of $61,000 or 3.2%. The increase is primarily due to the Partnership's share ($120,000) of a gain on disposition of real estate recorded by PS Business Parks, partially offset by our share of lower property operations at the Mini Warehouse Properties. Property Operations ------------------- Rental income for our wholly-owned mini-warehouse property was $320,000 compared to $325,000 for the six months ended June 30, 2002 and 2001, respectively, representing an decrease of $5,000 or 1.5%. Cost of operations (including management fees) increased by $1,000 or 0.8%, to $125,000 from $124,000 for the six months ended June 30, 2002 and 2001, respectively. Accordingly, for our wholly-owned mini-warehouse property, property net operating income decreased by $6,000, or 3.0%, from $201,000 to $195,000 for the six months ended June 30, 2001 and 2002, respectively. Equity in Earnings of Real Estate Entities ------------------------------------------ Equity in earnings of real estate entities was $1,891,000 in the six months ended June 30, 2002 as compared to $1,807,000 during the six months ended June 30, 2001, representing an increase of $84,000 or 4.6%. The increase is primarily due to the Partnership's share ($120,000) of a gain on disposition of real estate recorded by PS Business Parks, partially offset by our share of lower property operations at the real estate facilities that we have an interest in. 8 Interest Income --------------- Interest income decreased by $12,000, or 13.8%, from $87,000 for the six months ended June 30, 2001 to $75,000 for the six months ended June 30, 2002. Depreciation and Amortization ----------------------------- Depreciation and amortization decreased by $1,000, or 1.4%, from $72,000 to $71,000 for the six months ended June 30, 2001 and 2002, respectively. Administrative -------------- Administrative expense increased by $6,000 or 6.3%, from $96,000 for the six months ended June 30, 2001 to $102,000 for the six months ended June 30, 2002. SUPPLEMENTAL PROPERTY DATA -------------------------- Most of our net income is from our share of the operating results of the Mini-Warehouse Properties. Therefore, in order to evaluate our operating results, the General Partners analyze the operating performance of the Mini-Warehouse Properties. THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001: Rental income for the Mini-Warehouse Properties was $3,160,000 compared to $3,295,000 for the three months ended June 30, 2002 and 2001, respectively, representing an decrease of $135,000 or 4.1%. The decrease in rental income is primarily attributable to a decrease in average occupancy rates at the Mini-Warehouse Properties. The annual average realized rent per square foot for the Mini-Warehouse Properties was $8.90 compared to $8.76 for the three months ended June 30, 2002 and 2001, respectively. The weighted average occupancy levels at the Mini-Warehouse Properties decreased from 89% to 85% for the three months ended June 30, 2001 and 2002, respectively. Cost of operations (including management fees) increased by $23,000 or 1.8%, to $1,300,000 from $1,277,000 for the three months ended June 30, 2002 and 2001, respectively. Accordingly, for the Mini-Warehouse Properties, property net operating income decreased by $158,000 or 7.8%, from $2,018,000 to $1,860,000 for the three months ended June 30, 2001 and 2002, respectively. SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001: Rental income for the Mini-Warehouse Properties was $6,371,000 compared to $6,473,000 for the six months ended June 30, 2002 and 2001, respectively, representing a decrease of $102,000 or 1.6%. The decrease in rental income is primarily attributable to a decrease in average occupancy rates at the Mini-Warehouse Properties. The annual average realized rent per square foot for the Mini-Warehouse Properties was $9.05 compared to $8.69 for the six months ended June 30, 2002 and 2001, respectively. The weighted average occupancy levels at the Mini-Warehouse Properties decreased from 89% to 84% for the six months ended June 30, 2001 and 2002, respectively. Cost of operations (including management fees) increased by $16,000 or 0.6%, to $2,526,000 from $2,510,000 for the six months ended June 30, 2002 and 2001, respectively. Accordingly, for the Mini-Warehouse Properties, property net operating income decreased by $118,000, or 3.0%, from $3,963,000 to $3,845,000 for the six months ended June 30, 2001 and 2002, respectively. 9 Liquidity and Capital Resources ------------------------------- We have adequate sources of cash to finance operations, both on a short-term and long-term basis, primarily from internally generated cash from property operations and cash reserves. Cash generated from operations and distributions from real estate entities ($2,373,000 for the six months ended June 30, 2002) has been sufficient to meet all our current obligations. During 2002, we do not anticipate incurring significant costs for capital improvements for our wholly-owned property. Total capital improvements for the six months ended June 30, 2002 with respect to this property was $19,000. We paid distributions to the limited and general partners totaling $2,140,000 ($14.27 per unit) and $262,000, respectively, during the first six months of 2002. Future distribution rates may be adjusted to levels which are supported by operating cash flow after capital improvements and any other necessary obligations. RISK FACTORS ------------ In addition to the other information in our Form 10-Q, you should consider the following factors in evaluating the Partnership: PUBLIC STORAGE CONTROLS US. Public Storage owns approximately 63.1% of our outstanding limited partnership units and is our general partner. Consequently, Public Storage controls matters submitted to a vote of our unitholders, including amending our organizational documents, dissolving the Partnership and approving other extraordinary transactions. SINCE OUR BUSINESS CONSISTS PRIMARILY OF ACQUIRING AND OPERATING REAL ESTATE, WE ARE SUBJECT TO REAL ESTATE OPERATING RISKS. THE VALUE OF OUR INVESTMENTS MAY BE REDUCED BY GENERAL RISKS OF REAL ESTATE OWNERSHIP. Since we derive substantially all of our income from real estate operations, we are subject to the general risks of owning real estate-related assets, including: o lack of demand for rental spaces or units in a locale; o changes in general economic or local conditions; o changes in supply of or demand for similar or competing facilities in an area; o potential terrorist attacks; o the impact of environmental protection laws; o changes in interest rates and availability of permanent mortgage funds which may render the sale or financing of a property difficult or unattractive; and o changes in tax, real estate and zoning laws. 10 THERE IS SIGNIFICANT COMPETITION AMONG SELF-STORAGE FACILITIES. All of the properties the Partnership has an interest in are self-storage facilities. Competition in the market areas in which many of our properties are located is significant and has affected the occupancy levels, rental rates and operating expenses of some of our properties. Any increase in availability of funds for investment in real estate may accelerate competition. Further development of self-storage facilities may intensify competition among operators of self-storage facilities in certain market areas in which we operate. WE MAY INCUR SIGNIFICANT ENVIRONMENTAL COSTS AND LIABILITIES. As an owner of real properties, under various federal, state and local environmental laws, we are required to clean up spills or other releases of hazardous or toxic substances on or from our properties. Certain environmental laws impose liability whether or not the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. In some cases, liability may not be limited to the value of the property. The presence of these substances, or the failure to properly remediate any resulting contamination, also may adversely affect the owner's or operator's ability to sell, lease or operate its property or to borrow using its property as collateral. We have conducted preliminary environmental assessments on the properties the Partnership has an interest in to evaluate the environmental condition of, and potential environmental liabilities associated with, our properties. These assessments generally consist of an investigation of environmental conditions at the property (not including soil or groundwater sampling or analysis), as well as a review of available information regarding the site and publicly available data regarding conditions at other sites in the vicinity. In connection with these property assessments, we have become aware that prior operations or activities at some facilities or from nearby locations have or may have resulted in contamination to the soil or groundwater at these facilities. In this regard, some of our facilities are or may be the subject of federal or state environment investigations or remedial actions. Although we cannot provide any assurance, based on the preliminary environmental assessments, we believe we have funds available to cover any liability from environmental contamination or potential contamination and we are not aware of any environmental contamination of our facilities material to our overall business, financial condition or results of operation. 11 PART II. OTHER INFORMATION Items 1 through 4 are not applicable. Item 5 Other Events ------------ The Partnership has entered into an Agreement and Plan of Reorganization by and among PSI, PS Partners VI Merger Co., Inc. and the Partnership, dated as of April 12, 2002 (the "Agreement and Plan of Reorganization"). Under the Agreement and Plan of Reorganization, each of the Partnership units held by the public limited partners will be converted into the right to receive a value of $546 in PSI common stock or, at the limited partner's election, in cash. The Agreement and Plan of Reorganization is referenced as Exhibit 1 hereto and is incorporated herein by this reference. Item 6 Exhibits and Reports on Form 8-K -------------------------------- (a) The following Exhibits are included herein: (1) Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None Item 7 Financial Statements and Exhibits --------------------------------- (c) Exhibits. (1) Agreement and Plan of Reorganization by and among Public Storage, Inc., PS Partners VI Merger Co., Inc. and PS Partners VI, Ltd., a California Limited Partnership. Dated as of April 12, 2002. Filed with the Partnership's Current Report on Form 8-K dated April 15, 2002 and incorporated herein by reference. 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: August 14, 2002 PS PARTNERS VI, LTD. BY: Public Storage, Inc. General Partner BY: /s/ John Reyes -------------------------------------------- John Reyes Senior Vice President and Chief Financial Officer of Public Storage, Inc. (principal financial and accounting officer) 13

PS PARTNERS VI LTD 10-Q