Exhibit 99.1
News Release
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www. publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: November 6, 2003
Contact: Mr. Harvey Lenkin
(818) 244-8080
Glendale, California - Harvey Lenkin, President of Public Storage, Inc. (NYSE
and PCX:PSA), announced today operating results for the third quarter ending
September 30, 2003.
Operating Results for the Quarter Ended September 30, 2003:
- -----------------------------------------------------------
Net income for the three months ended September 30, 2003 was $89,747,000
compared to $83,351,000 for the same period in 2002, representing an increase of
$6,396,000 or 7.7%. This increase is primarily due to the reduction in losses
from discontinued operations combined with increased operations from our newly
developed self-storage facilities and containerized storage business. These
effects were partially offset by a reduction in our Same Store operating results
(as discussed below) and increased depreciation expense resulting primarily from
new property additions.
Net income allocable to our regular common shareholders (after allocating net
income to our preferred and equity shareholders) was $49,179,000 or $0.39 per
common share on a diluted basis (based on 126,802,000 weighted average diluted
common equivalent shares) for the three months ended September 30, 2003 compared
to $33,160,000 (as restated for the application of EITF Topic D-42) or $0.27 per
common share (as restated) on a diluted basis (based on 124,784,000 weighted
average diluted common equivalent shares) for the same period in 2002,
representing an increase of 44.4% on a per share basis. The increase in net
income allocable to common shareholders and earnings per common diluted share is
due to the impact of the factors described above with respect to net income,
combined with a reduction in the amount of income allocated to our preferred
shareholders.
During the three months ended September 30, 2003 and 2002, we allocated
$35,193,000 and $37,928,000 of our net income, respectively, to our preferred
shareholders based on actual distributions paid. In addition, during the third
quarter of 2003, we implemented the Securities and Exchange Commission's
clarification of Emerging Issues Task Force ("EITF") Topic D-42, "The Effect on
the Calculation of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock". This implementation resulted in an additional allocation of
net income to our preferred shareholders for the third quarter of 2002 and a
corresponding reduction of net income allocation to our common shareholders
totaling $6,888,000. Prior year allocations of net income have been restated to
reflect this change. The $6,888,000 additional allocation of net income to our
preferred shareholders represents the excess of the redemption amount over the
carrying amount of the preferred stock securities that we redeemed during the
period.
EITF Topic D-42 provides, among other things, that any excess of (1) the fair
value of the consideration transferred to the holders of preferred stock
redeemed over (2) the carrying amount of the preferred stock should be
subtracted from net earnings to determine net earnings available to common
stockholders in the calculation of earnings per share. During 2001, 2002 and for
the nine months ended September 30, 2003, we redeemed various series of our
perpetual preferred stock. Our interpretation of EITF Topic D-42 was that the
carrying amount of our preferred stock was equivalent to the liquidation
preference as recorded on our balance sheet. Each of the series of preferred
stock that were redeemed, were redeemed at the liquidation preference.
Accordingly, based upon our interpretation, the fair value of the consideration
given at redemption was equivalent to the carrying amount on our balance sheet
resulting in no impact to net earnings available to common stockholders in the
calculation of earnings per share.
At the July 31, 2003 meeting of the EITF, the Securities and Exchange Commission
Observer clarified that for the purposes of applying EITF Topic D-42, the
carrying amount of the preferred stock should be reduced by the issuance costs
of the preferred stock, regardless of where in the stockholders' equity section
those costs were initially classified on issuance. In the case of the Company,
issuance costs were recorded as a reduction to Paid-in Capital on our balance
sheet at the time the related securities were issued and were not considered as
a reduction to the carrying value of the preferred stock at the time of
redemption. As indicated above, the clarification and resulting implementation
resulted in a $6,888,000 reduction to our reported net income allocable to our
common shareholders for the three months ended September 30, 2002.
1
In addition, during each of the three months ended September 30, 2003 and 2002,
we allocated $5,375,000 of our net income to our Equity Stock, Series A
shareholders.
Operating Results for the Nine Months Ended September 30, 2003:
- ---------------------------------------------------------------
Net income for the nine months ended September 30, 2003 was $250,683,000
compared to $251,524,000 for the same period in 2002, representing a decrease of
$841,000 or 0.3%. This decrease in net income is primarily a result of a
reduction in our Same Store operating results (as discussed below), increased
depreciation expense resulting primarily from new property additions, and a
decrease in equity in earnings of real estate entities. The decrease in equity
in earnings of real estate entities is primarily due to a reduction in our pro
rata share of the earnings of PS Business Parks, Inc. ("PSB"), caused primarily
by the net impact of a gain on sale offset by an asset impairment charge with
respect to impending real estate sales recorded by PSB in the nine months ended
September 30, 2003, as compared to a gain on sale recorded by PSB in the nine
months ended September 30, 2002. Our net pro rata share of such items recorded
by PSB for the nine months ended September 30, 2003 was $453,000 as compared to
$2,724,000 in the same period in 2002, representing a decrease of $2,271,000.
These decreases were offset partially by improved results of our containerized
storage operations, a reduction in losses from discontinued operations, the
impact of a loss on sale of real estate assets recorded in the nine months ended
September 30, 2002 and lower interest expense resulting primarily from lower
average debt balances.
Net income allocable to our regular common shareholders (after allocating net
income to our preferred and equity shareholders), was $123,246,000 or $0.98 per
common share on a diluted basis (based on 125,987,000 weighted average diluted
common equivalent shares) for the nine months ended September 30, 2003 compared
to $116,806,000 (as restated for the aforementioned application of EITF Topic
D-42) or $0.94 per common share (as restated) on a diluted basis (based on
124,539,000 weighted average diluted common equivalent shares) for the same
period in 2002, representing an increase of 4.3% on a per share basis. The
increase in net income allocable to common shareholders and diluted earnings per
share is due to a reduction in income allocated to our preferred shareholders,
as described below, offset partially by a reduction in net income as described
above.
During the nine months ended September 30, 2003 and 2002, we allocated
$107,914,000 and $111,704,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing a decrease of 3.4%.
This decrease is due to the redemption of several series of our higher coupon
preferred stock in 2002 and 2003, offset partially by the issuance of additional
preferred securities throughout 2002. In addition, for the nine months ended
September 30, 2003 and 2002, we allocated an additional $3,397,000 and
$6,888,000, respectively, in net income to our preferred shareholders relating
to the application of EITF Topic D-42. This allocation of net income to our
preferred and common shareholders for the nine month periods have been restated
to reflect the application of EITF Topic D-42 during the third quarter of 2003.
In addition, during each of the nine months ended September 30, 2003 and 2002,
we allocated $16,126,000 of our net income to our Equity Stock, Series A
shareholders.
Funds from Operations:
- ----------------------
Funds from operations was $0.79 per common share on a diluted basis for the
three months ended September 30, 2003 as compared to $0.65 (as restated for the
application of EITF Topic D-42) for the same period in 2002. Funds from
operations was $2.14 per common share on a diluted basis for the nine months
ended September 30, 2003 as compared to $2.08 (as restated for the application
of EITF Topic D-42) for the same period in 2002.
The application of EITF Topic D-42 during the third quarter of 2003, resulted in
a reduction in funds from operations per common share on a diluted basis of
$0.06 for both the three and nine months ended September 30, 2002 and a
reduction of $0.03 for the nine months ended September 30, 2003 (there was no
impact for the three months ended September 30, 2003).
During the third quarter of 2003, based on recent Securities and Exchange
Commission guidance, we no longer add back to our net income asset impairment
charges relating to our real estate assets as well as our pro-rata share of
impairment charges recorded by PS Business Parks, Inc. with respect to its real
estate assets in computing funds from operations. This change resulted in a
reduction in our funds from operations of $396,000 ($0.00 per common share) for
both the three and nine months ended September 30, 2002 and $3,349,000 ($0.02
per common share) for the nine months ended September 30, 2003. There was no
impact for the three months ended September 30, 2003 as a result of this change.
2
The following table provides a summary of the impact of the above-mentioned
changes that have occurred during the third quarter of 2003:
Three months ended Nine months ended
September 30, September 30,
---------------------------------- ---------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
---------- ---------- ---------- --------- --------- ----------
Funds from operations per common share prior to
adjustments for the following items........ $ 0.79 $ 0.71 11.3% $ 2.19 $ 2.14 2.3%
Application of EITF Topic D-42................. - (0.06) 100.0% (0.03) (0.06) 50.0%
Real estate asset impairment charges........... - - - (0.02) - -
---------- ---------- ---------- --------- --------- ----------
Funds from operations per common share, as
reported................................... $ 0.79 $ 0.65 21.5% $ 2.14 $ 2.08 2.9%
========== ========== ========== ========= ========= ==========
Funds from operations per common share for each of the periods were also
negatively impacted by charges relating to the closure of certain containerized
storage facilities, as discussed below. These charges resulted in a reduction of
funds from operations per common share of $0.01 for both the three and nine
months ended September 30, 2003 compared to $0.04 for both the three and nine
months ended September 30, 2002.
Funds from operations is a term defined by the National Association of Real
Estate Investment Trusts by which real estate investment trusts ("REITs") may be
compared. Funds from operations is a supplemental disclosure and it is generally
defined as net income before depreciation and extraordinary items and, in the
case of the Company, does not include gains or losses on the disposition of real
estate assets. See the attached reconciliation of net income to funds from
operations included in the selected financial data attached to this press
release.
Property Operations:
- --------------------
The Company derives substantially all of its revenues from the ownership and
management of self-storage facilities. In order to evaluate the performance of
the Company's overall self-storage portfolio, management analyzes the operating
performance of a consistent group of self-storage facilities.
These facilities consist of 1,257 self-storage facilities, representing
approximately 89% of the 1,411 self-storage facilities in which the Company has
an ownership interest (the 1,257 self-storage facilities herein referred to as
the "Same Store" facilities). The Same Store facilities have been operated on a
stabilized basis under the "Public Storage" name since January 1, 2000 and
include 1,225 facilities which are consolidated by the Company and 32 facilities
owned by unconsolidated entities in which the Company has an investment.
The following table summarizes the pre-depreciation historical operating results
of the Same Store facilities:
3
Selected Operating Data for the Same Store Three months ended Nine months ended
- ------------------------------------------- September 30, September 30,
Facilities (1,257 Facilities): ---------------------------------- ---------------------------
- ------------------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
----------- ---------- ---------- ------------ ---------- ----------
(Dollar amounts in thousands, except weighted average data)
Rental income:
Base rental income............................. $ 195,291 $ 183,032 6.7% $ 565,422 $ 537,811 5.1%
Promotional discounts.......................... (12,980) (5,152) 151.9% (38,291) (12,150) 215.2%
----------- ---------- ---------- ------------ ---------- ----------
Adjusted base rental income ................... 182,311 177,880 2.5% 527,131 525,661 0.3%
Late charges and administrative fees collected. 7,503 6,119 22.6% 21,726 17,338 25.3%
----------- ---------- ---------- ------------ ---------- ----------
Total rental income (a)........................ 189,814 183,999 3.2% 548,857 542,999 1.1%
Cost of operations:
Property taxes............................... 17,156 16,425 4.5% 51,038 48,777 4.6%
Direct property payroll...................... 15,557 13,790 12.8% 46,624 40,733 14.5%
Cost of managing facilities.................. 5,728 5,005 14.4% 16,549 15,458 7.1%
Advertising and promotion.................... 6,199 4,530 36.8% 16,362 11,877 37.8%
Utilities.................................... 4,553 4,472 1.8% 12,992 12,558 3.5%
Repairs and maintenance...................... 4,864 4,127 17.9% 13,735 11,691 17.5%
Telephone reservation center................. 2,801 2,711 3.3% 7,815 7,534 3.7%
Property insurance .......................... 2,230 1,461 52.6% 6,405 4,665 37.3%
Other........................................ 4,708 4,231 11.3% 13,796 12,228 12.8%
----------- ---------- ---------- ------------ ---------- ----------
Total cost of operations....................... 63,796 56,752 12.4% 185,316 165,521 12.0%
----------- ---------- ---------- ------------ ---------- ----------
Net operating income.............................. $ 126,018 $ 127,247 (1.0)% $ 363,541 $ 377,478 (3.7)%
=========== ========== ========== ============ ========== ==========
Gross margin...................................... 66.4% 69.2% (4.0)% 66.2% 69.5% (4.7)%
Weighted average for the period:
Square foot occupancy (b)...................... 91.9% 85.8% 7.1% 88.6% 85.3% 3.9%
Realized annual rent per occupied square foot(c) $ 10.88 $ 11.37 (4.3)% $ 10.88 $ 11.27 (3.5)%
REVPAR (d)..................................... $ 10.00 $ 9.76 2.5% $ 9.64 $ 9.61 0.3%
Weighted average at September 30:
Square foot occupancy.......................... 91.9% 85.8% 7.1%
In place annual rent per occupied square foot(e) $ 11.77 $ 11.84 (0.6)%
Posted annual rent per square foot (f)......... $ 12.22 $ 11.78 3.7%
Total net rentable square feet (in thousands)..... 72,912 72,912 0.0%
a) See attached reconciliation of these amounts to the Company's
consolidated self-storage revenues and operating expenses.
b) Square foot occupancies represent weighted average levels over the
entire period.
c) Realized annual rent per occupied square foot is computed by
dividing annualized adjusted base rental income by the weighted
average occupied square footage for the period. Realized rents per
square foot takes into consideration promotional discounts, bad
debt costs, credit card fees and other costs which reduce rental
income from the contractual amounts due.
d) Annualized revenue per available square foot ("REVPAR") represents
annualized adjusted base rental income divided by total available
net rentable square feet.
e) In place annual rent per occupied square foot represents
contractual rents per occupied square foot without reductions for
promotional discounts.
f) Posted annual rent per square foot represents the rents charged to
new tenants without reductions for any promotional discounts.
4
Same Store results for the three months ended September 30, 2003
- ----------------------------------------------------------------
During the third quarter of 2003, net operating income for the Same Store
facilities decreased 1.0% as compared to the same period in 2002, due to the
following:
o Total operating expenses increased 12.4%. This increase is
primarily due to increases in direct property payroll, advertising
and promotion, property taxes, repairs and maintenance, and
property insurance costs. Direct property payroll increased
primarily due to increased incentives to property operating
personnel as well as increased hours worked. Advertising and
promotion increased 36.8% primarily due to an increase in
television advertising from $2,152,000 in the third quarter of
2002 to $3,112,000 for the third quarter of 2003.
o The impact of the increase in operating expenses was partially
offset by a 2.5% increase in REVPAR from $9.76 per square foot in
the third quarter of 2002 to $10.00 for the third quarter of 2003.
This was attributable to a 7.1% increase in weighted average
occupancy levels from 85.8% in the third quarter of 2002 to 91.9%
in the third quarter of 2003, partially offset by a 4.3% decrease
in realized annual rent per occupied square foot from $11.37 in
the third quarter of 2002 to $10.88 in the third quarter of 2003.
The decrease in realized annual rents per occupied square foot is
attributable primarily to a significant increase in promotional
discounts given to incoming tenants from $5,152,000 for the third
quarter of 2002 to $12,980,000 for the third quarter of 2003.
o Net operating income also benefited from a 22.6% increase in late
charges and administrative fees collected from $6,119,000 in the
third quarter of 2002 to $7,503,000 in the third quarter of 2003.
Same-Store results for the nine months ended September 30, 2003
- ---------------------------------------------------------------
During the nine months ended September 30, 2003, net operating income for the
Same Store facilities decreased 3.7% as compared to the same period in 2002, due
to the following:
o Total operating expenses increased 12.0%. This increase is
primarily due to increases in direct property payroll, property
taxes, advertising and promotion, repairs and maintenance, and
property insurance costs. Direct property payroll increased
primarily due to increased incentives to property operating
personnel as well as increased hours worked. The increase in
repairs and maintenance includes a $796,000 increase in snow
removal expenses. Property insurance costs increased primarily due
to an increase in the company's self-insured portion of its risks.
o The impact of the increase in operating expenses was partially
offset by a 0.3% increase in REVPAR from $9.61 per square foot in
the nine months ended 2002 to $9.64 in the same period in 2003.
This was attributable to a 3.9% increase in weighted average
occupancy levels from 85.3% in the nine months ended 2002 to 88.6%
in the same period in 2003, partially offset by a 3.5% decrease in
realized annual rent per occupied square foot from $11.27 in the
nine months ended 2002 to $10.88 in the same period in 2003. The
decrease in realized annual rents per occupied square foot is
attributable primarily to a significant increase in promotional
discounts given to incoming tenants from $12,150,000 for the nine
months ended 2002 to $38,291,000 for the same period in 2003.
o Net operating income benefited from a 25.3% increase in late
charges and administrative fees collected from $17,338,000 in the
nine months ended September 30, 2002 to $21,726,000 in the same
period in 2003.
Outlook:
- --------
We expect to continue promotional discounting and television advertising at
least during the remainder of 2003, though the level of such activities cannot
be estimated at this time. The up front costs of these marketing activities, and
the increases in discounts, are expected to continue to adversely impact our net
operating income during 2003. The following table summarizes additional selected
financial data with respect to our Same Store facilities:
5
For the three months ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Full Year
------------- ----------- ------------ ---------- ----------
Promotional Discounts (in 000's):
2002............................... $ 1,116 $ 5,882 $ 5,152 $ 7,990 $ 20,140
2003............................... $ 11,068 $ 14,243 $ 12,980
Television advertising expense (in 000's):
2002............................... $ 544 $ 1,525 $ 2,152 $ 4,258 $ 8,479
2003............................... $ 1,699 $ 2,928 $ 3,112
REVPAR:
2002............................... $9.60 $9.48 $9.76 $9.34 $9.55
2003............................... $9.31 $9.61 $10.00
Weighted average realized annual rent per occupied square foot for the period:
2002............................... $11.48 $10.98 $11.37 $10.98 $11.20
2003............................... $10.96 $10.77 $10.88
Weighted average occupancy levels for the period:
2002............................... 83.6% 86.4% 85.8% 85.1% 85.2%
2003............................... 84.9% 89.2% 91.9%
Weighted average occupancy at October 31,
2002............................... 85.7%
2003............................... 91.7%
Total Promotional discounts during the month of October (in 000's):
2002............................... $2,733
2003............................... $5,111
As indicated in the above table, the weighted average occupancy level for our
Same Store facilities was 91.7% at October 31, 2003 as compared to 85.7% at
October 31, 2002, representing an increase of 7.0%. This increase, however, has
come at a significant cost; as promotional discounts are expected to be higher
in the fourth quarter of 2003 as compared to the fourth quarter of 2002.
Property Development and Acquisitions:
- --------------------------------------
During the third quarter of 2003, we opened four newly developed self-storage
facilities (263,000 net rentable square feet), at a total cost of approximately
$23.8 million.
At September 30, 2003, there are 44 projects that are in construction or are
expected to begin construction generally by December 31, 2003, which includes
new developments, expansions to existing self-storage facilities and remodeling
projects primarily to improve the visual appeal of certain properties. These 44
projects, which will be fully funded by the Company, have total estimated costs
of approximately $167.3 million, of which $90.1 million had been spent through
September 30, 2003, with opening dates estimated through the next 12 - 24
months. The development of these facilities is subject to contingencies.
No facilities were acquired from third parties during the third quarter of 2003.
Update on Property Dispositions:
- --------------------------------
As previously reported, in the first quarter of 2003, management adopted a plan
to exit the Knoxville, Tennessee market, a market that the Company does not deem
to be strategic. The four self-storage facilities the Company owns in this
market were disposed of on July 25, 2003 for aggregate gross proceeds of $11.0
million in transactions intended to qualify as like-kind exchanges for tax
purposes. Because the Company financed a substantial part of the buyer's
consideration in exchange for a note receivable from the buyer, the sale of
these facilities and the corresponding gain on sale of approximately $4.5
million will not be recognized in the Company's financial statements until the
buyer has repaid the note receivable. The note receivable was repaid on October
20, 2003 and the Company will recognize the gain in the fourth quarter of 2003.
On October 16, 2003, we sold a self-storage facility located in Perrysburg, Ohio
for $2.3 million. A gain of approximately $1.1 million will be recognized from
the sale of this property in the fourth quarter of 2003.
6
The operating results of these facilities, as well as for a commercial facility
that was sold in the fourth quarter of 2002, for previous and current periods
are reflected in the line item "Discontinued Operations - commercial and
self-storage operations" on the Company's income statement.
Containerized Storage Business:
- -------------------------------
As previously announced, management adopted a business plan in 2002 that
included the closure of 22 non-strategic containerized storage facilities.
Impairment charges and closure reserves amounting to $4,791,000 were recorded
for the three and nine months ended September 30, 2002 relating to these
closures. During 2003, an additional six facilities were identified as
non-strategic and scheduled for closure (collectively, these 28 facilities are
referred to as the "Closed Facilities") and, accordingly, an asset impairment
charge was recorded in the amount of $1,274,000, for the three months ended
September 30, 2003. The operations, impairment charges and closure reserves with
respect to these Closed Facilities for current and prior periods are included in
the Company's income statement in the line-item, "Discontinued Operations -
Containerized Storage." As of October 31, 2003, five of the Closed Facilities
remained open, however, these facilities are in the process of closing which may
take until the early part of the first quarter of 2004 to close.
As previously announced, during 2003 we started to reposition the containerized
storage product vis-a-vis our self-storage product. As part of this
repositioning, we significantly increased rental rates per customer and delivery
rates. The ultimate impact of these actions on our containerized storage
occupancies, revenues, and net operating income is uncertain at this time.
Issuance of Preferred Equity:
- -----------------------------
As previously announced, in October, 2003, we issued 5,300,000 shares ($132.5
million) of our 6.5% Cumulative Preferred Stock, Series W (NYSE:PSAPrW) at an
issuance price of $25.00 per share.
Distributions Declared:
- -----------------------
On November 6, 2003, the Board of Directors declared a quarterly distribution of
$0.45 per regular common share and $0.6125 per share on the depositary shares
each representing 1/1,000 of a share of Equity Stock, Series A. Distributions
were also declared with respect to the Company's various series of preferred
stock. All of the distributions are payable on December 31, 2003 to shareholders
of record as of December 15, 2003.
Third Quarter Conference Call:
- ------------------------------
A conference call is scheduled for Friday, November 7, 2003, at 9:00 a.m. (PST)
to discuss these results. The participant toll free number is (877) 516-1540
(conference ID number 3042226). A simultaneous audio web cast may be accessed by
using the link at www.publicstorage.com under "Investor Relations" (conference
ID number 3042226). An instant replay of the conference call may be accessed
through November 14, 2003 by calling (800) 642-1687 and through December 5, 2003
by using the link at www.publicstorage.com under "Investor Relations." Both
forms of replay utilize conference ID number 3042226.
Public Storage, Inc. is a fully integrated, self-administered and self-managed
real estate investment trust that primarily acquires, develops, owns and
operates self-storage facilities. The Company's headquarters is located in
Glendale, California. The Company's self-storage properties are located in 37
states. At September 30, 2003, the Company had interests in 1,411 storage
facilities.
7
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 Company to be materially
different from those expressed or implied in the forward looking statements.
Such factors are described in Item 1A to the Company's Annual Report on Form
10-K for the year ended December 31, 2002, "Risk Factors," and include changes
in general economic conditions and in the markets in which the Company operates
and the impact of competition from new and existing storage and commercial
facilities and other storage alternatives, which could impact rents and
occupancy levels at the Company's facilities; difficulties in the Company's
ability to evaluate, finance and integrate acquired and developed properties
into the Company's existing operations and to fill up those properties, which
could adversely affect the Company's profitability; the impact of the regulatory
environment as well as national, state, and local laws and regulations
including, without limitation, those governing Real Estate Investment Trusts,
which could increase the Company's expense and reduce the Company's cash
available for distribution; consumers' failure to accept the containerized
storage concept which would reduce the Company's profitability; difficulties in
raising capital at reasonable rates, which would impede the Company's ability to
grow; delays in the development process, which could adversely affect the
Company's profitability; and economic uncertainty due to the impact of war or
terrorism could adversely affect our business plan. We disclaim any obligation
to publicly release the results of any revisions to these forward-looking
statements reflecting new estimates, events or circumstances after the date of
this report.
More information about Public Storage, Inc. is available on the Internet. The
Company's Form 10-Q for the quarter ended September 30, 2003, which will be
certified by the Company's CEO, President, and Chief Financial Officer, will be
posted to our website, www.publicstorage.com, when it is filed with the
Securities and Exchange Commission.
Additional financial data attached.
8
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
(unaudited)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
--------------- ------------- -------------- -------------
(in thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities (a)................... $ 206,856 $ 195,907 $ 593,345 $ 572,588
Commercial properties (a)..................... 2,812 2,894 8,601 8,917
Containerized storage facilities (a).......... 10,355 8,935 27,713 23,351
Tenant reinsurance............................ 5,755 5,112 16,551 14,843
Interest and other income.......................... 2,847 2,538 7,425 7,005
--------------- ------------- -------------- -------------
228,625 215,386 653,635 626,704
--------------- ------------- -------------- -------------
Expenses:
Cost of operations:
Self-storage facilities (a)................... 70,981 62,734 206,655 180,898
Commercial properties (a)..................... 1,253 1,074 3,491 3,272
Containerized storage facilities (a).......... 6,197 7,043 17,201 16,756
Tenant reinsurance............................ 2,917 2,387 8,631 7,203
Depreciation and amortization..................... 46,041 44,732 137,657 133,186
General and administrative........................ 4,642 3,968 13,321 12,273
Interest expense.................................. 296 969 1,121 3,284
--------------- ------------- -------------- -------------
132,327 122,907 388,077 356,872
--------------- ------------- -------------- -------------
Income before minority interest in income, equity in
earnings of real estate entities, discontinued
operations, and gain on disposition of real estate 96,298 92,479 265,558 269,832
--------------- ------------- -------------- -------------
Equity in earnings of real estate entities (b)....... 5,770 7,483 19,456 23,739
Minority interest in income:
Preferred partnership interests................... (6,726) (6,726) (20,179) (20,179)
Other partnership interests....................... (4,418) (4,782) (12,403) (13,284)
--------------- ------------- -------------- -------------
Income before discontinued operations and gain on
disposition of real estate..................... 90,924 88,454 252,432 260,108
Discontinued operations - containerized storage (a) (1,377) (5,248) (2,977) (7,308)
Discontinued operations - commercial and
self-storage property operations (a)........... 153 145 421 563
Gain (loss) on disposition of real estate assets.. 47 - 807 (1,839)
--------------- ------------- -------------- -------------
Net income........................................... $ 89,747 $ 83,351 $ 250,683 $ 251,524
=============== ============= ============== =============
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distributions paid..................... $ 35,193 $ 37,928 $ 107,914 $ 111,704
Based on redemptions of preferred stock......... - 6,888 3,397 6,888
Allocable to equity shareholders, Series A......... 5,375 5,375 16,126 16,126
Allocable to common shareholders................... 49,179 33,160 123,246 116,806
--------------- ------------- -------------- -------------
$ 89,747 $ 83,351 $ 250,683 $ 251,524
=============== ============= ============== =============
Per common share:
Net income per share - Basic....................... $0.39 $0.27 $0.99 $0.95
=============== ============= ============== =============
Net income per share - Diluted..................... $0.39 $0.27 $0.98 $0.94
=============== ============= ============== =============
Weighted average common shares - Basic (c)......... 125,528 123,341 124,740 122,707
=============== ============= ============== =============
Weighted average common shares - Diluted........... 126,802 124,784 125,987 124,539
=============== ============= ============== =============
9
(a) The historical operations of a commercial facility that the Company
disposed of in the fourth quarter of 2002, four self-storage facilities
that the Company entered into a plan to sell in the first quarter of 2003,
an additional self-storage facility that the Company entered into a plan to
sell in the third quarter of 2003 and 28 containerized storage facilities
that the Company has closed or is in the process of closing are classified
as Discontinued Operations. Included in Discontinued Operations -
Containerized Storage is a $750,000 impairment charge recorded in the
second quarter of 2003 with respect to a real estate facility held for sale
at September 30, 2003, which was previously used by the discontinued
containerized storage operations, as well as $1,274,000 and $4,791,000 in
asset impairment and closure liability accruals recorded in the three
months ended September 30, 2003 and 2002, respectively.
(b) Included in equity in earnings for the nine months ended September 30, 2003
and 2002 is our net pro rata share of gains on sales of real estate assets
and impairment charges. Our net pro rata share of such items recorded by
PSB for the nine months ended September 30, 2003 was $453,000 as compared
to $2,724,000 in the same period in 2002, representing a decrease of
$2,271,000.
(c) The increase in weighted average common shares - basic was due primarily to
the net issuance of 1,518,467 shares during 2002 and 2003 in connection
with the acquisition of the remaining partnership interests in three
entities in which the Company held a partial equity interest, as well as
the issuance of an aggregate of 2,678,936 shares during 2002 and 2003 in
connection with the exercise of employee stock options.
10
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
September 30, December 31,
2003 2002
------------------ ---------------
(Unaudited)
(in thousands, except share
ASSETS and per share data)
------
Cash and cash equivalents....................................................... $ 45,303 $ 103,124
Operating real estate facilities:
Land and buildings, at cost.................................................. 5,063,602 4,988,526
Accumulated depreciation..................................................... (1,107,744) (987,546)
------------------ ---------------
3,955,858 4,000,980
Construction in process........................................................ 90,094 87,516
Land and buildings held for sale, net of accumulated depreciation............... 15,829 -
Land held for development or sale............................................... 12,236 17,807
------------------ ---------------
4,074,017 4,106,303
Investment in real estate entities.............................................. 335,972 329,679
Goodwill........................................................................ 78,204 78,204
Intangible assets, net.......................................................... 112,940 117,893
Mortgage notes receivable, including amounts from affiliates.................... 914 24,324
Other assets.................................................................... 94,895 84,135
------------------ ---------------
Total assets........................................................... $ 4,742,245 $ 4,843,662
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................................... $ 82,032 $ 115,867
Accrued and other liabilities................................................... 151,992 129,327
------------------ ---------------
Total liabilities...................................................... 234,024 245,194
Minority interest - preferred................................................... 285,000 285,000
Minority interest - other....................................................... 143,262 154,499
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized, 5,758,486
shares issued (in series) and outstanding (9,258,486 at December 31, 2002),
at liquidation preference:
Cumulative Preferred Stock, issued in series........................... 1,729,525 1,817,025
Common Stock, $0.10 par value, 200,000,000 shares authorized, 125,973,318
shares issued and outstanding (116,991,455 at December 31, 2002)........... 12,597 11,699
Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
8,776.102 shares issued and outstanding at September 30, 2003 and December
31, 2002................................................................... - -
Class B Common Stock, $0.10 par value, 7,000,000 shares authorized, no shares
issued and outstanding (7,000,000 at December 31, 2002).................... - 700
Paid-in capital.............................................................. 2,421,624 2,371,194
Cumulative net income........................................................ 2,280,690 2,030,007
Cumulative distributions paid................................................ (2,364,477) (2,071,656)
------------------ ---------------
Total shareholders' equity............................................. 4,079,959 4,158,969
------------------ ---------------
Total liabilities and shareholders' equity........................ $ 4,742,245 $ 4,843,662
================== ===============
11
Public Storage, Inc.
Selected Financial Data
Computation of Funds from Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
2003 2002 2003 2002
------------- ----------- ----------- -----------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common and Class B
Common Stock
Net income............................................................ $ 89,747 $ 83,351 $ 250,683 $ 251,524
Depreciation and amortization..................................... 46,041 44,732 137,657 133,186
Depreciation and amortization included in Discontinued Operations. 432 819 1,292 2,414
Less - Depreciation with respect to non-real estate assets........ (1,530) (1,496) (4,852) (4,723)
Depreciation from equity investments.............................. 7,215 6,821 20,353 19,717
Less - our share of PS Business Parks, Inc.'s gain on sale of
real estate.................................................... - (879) (3,052) (3,120)
(Gain) loss on sale of real estate assets......................... (47) - (807) 1839
Minority interest in income....................................... 11,144 11,508 32,582 33,463
------------- ----------- ----------- -----------
Consolidated FFO...................................................... 153,002 144,856 433,856 434,300
Allocable to minority interests - preferred partnership interests..... (6,726) (6,726) (20,179) (20,179)
Allocable to minority interest - other partnership interests ......... (5,925) (6,542) (17,143) (19,582)
------------- ----------- ----------- -----------
FFO allocable to our shareholders..................................... 140,351 131,588 396,534 394,539
Senior Preferred distributions.................................... (35,193) (37,928) (107,914) (111,704)
Original issue discount on redeemed preferred shares (d).......... - (6,888) (3,397) (6,888)
Equity Stock, Series A distributions.............................. (5,375) (5,375) (16,126) (16,126)
------------- ----------- ----------- -----------
Less: allocations to preferred and equity stock shareholders.......... (40,568) (50,191) (127,437) (134,718)
------------- ----------- ----------- -----------
FFO allocable to Common and Class B Common Stock (a)(d)............... $ 99,783 $ 81,397 $ 269,097 $ 259,821
============= =========== =========== ===========
Weighted average shares:
Regular common shares.............................................. 125,528 116,341 124,740 115,777
Class B common stock............................................... - 7,000 - 7,000
Stock option dilution (b).......................................... 1,274 1,443 1,247 1,832
------------- ----------- ----------- -----------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share................................ 126,802 124,784 125,987 124,609
============= =========== =========== ===========
FFO per common share (c) (d).......................................... $ 0.79 $ 0.65 $ 2.14 $ 2.08
============= =========== =========== ===========
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT") by which real estate investment
trusts ("REITs") may be compared. It is generally defined as net income
before depreciation and extraordinary items. FFO computations do not factor
out the REIT's requirement to make either capital expenditures or principal
payments on debt.
(b) The impact of employee options outstanding has decreased in the three and
nine months ended September 30, 2003 as compared to the same periods in
2002 due to a decrease in the Company's average stock price (the Company
determines the dilutive impact of stock options based upon the treasury
stock method), combined with the exercise of employee stock options.
(c) FFO per share was negatively affected by dilution relating to the 76 newly
developed facilities opened by the Company or the Consolidated Development
Joint Venture since January 1, 1999. Based upon an average cost of capital
of 8%, this dilution amounted to approximately $0.03 and $0.04 for the
three months ended September 30, 2003 and 2002, respectively, and $0.11 and
$0.12 for each of the nine months ended September 30, 2003 and 2002,
respectively.
(d) FFO allocable to Common and Class B Common Stock and FFO per common share
for the three and nine months ended September 30, 2002 have been restated
to reflect the application of the Securities and Exchange Commission's
clarification of Emerging Issues Task Force ("EITF") Topic D-42, "The
Effect on the Calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock".
12
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------ ------------ ------------
(Amounts in thousands, except per share data)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common and Class B Common Stock (a)............ $ 99,783 $ 81,397 $ 269,097 $ 259,821
Add: Stock option expense....................................... 95 39 294 97
Restricted stock expense............................... 371 - 371 -
Impact of application of EITF Topic D-42............... - 6,888 3,397 6,888
Real estate impairment charges......................... - - 750 -
Pro rata share of real estate impairment charges from
PSB.................................................... - 396 2,599 396
Less: Capital expenditures to maintain facilities............... (10,655) (10,884) (20,469) (23,410)
------------- ------------ ------------ ------------
Funds available for distribution ("FAD") (b).................... $ 89,594 $ 77,836 $ 256,039 $ 243,792
============= ============ ============ ============
Distributions to common and Class B Common shareholders......... $ 56,644 $ 55,564 $ 168,781 $ 165,687
============= ============ ============ ============
Distribution payout ratio (b).................................. 63.2% 71.4% 65.9% 68.0%
============= ============ ============ ============
- ---------------------------------
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT") by which real estate investment
trusts ("REITs") may be compared. It is generally defined as net income
before depreciation and extraordinary items. FFO computations do not factor
out the REIT's requirement to make either capital expenditures or principal
payments on debt.
(b) Funds available for distribution ("FAD") represents Funds from Operations,
plus 1) impairment charges with respect to real estate assets, 2) stock
option expense, 3) restricted stock expense, 4) income allocated to
preferred shareholders for preferred stock redemptions in accordance with
EITF Topic D-42, less capital expenditures. Distribution payout ratio is
computed by dividing the quarter's distribution paid by FAD. FAD is an
analytical measure by which REITs may be compared.
13
Public Storage, Inc.
Selected Financial Data
Reconciliation of Same Store Rental Income and Cost of Operations
To Consolidated Rental Income and Cost of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2003 2002 2003 2002
------------- ----------- ------------ ------------
(Amounts in thousands)
Rental income for the 1,257 Same Store facilities....... $ 189,814 $ 183,999 $ 548,857 $ 542,999
Less - rental income for Same Store facilities
accounted for on the equity method of accounting
(a)................................................ (5,779) (5,497) (16,720) (17,562)
Less - rental income for five Same Store facilities
included in discontinued operations (b)............ (504) (479) (1,448) (1,392)
Add: rental income for other non Same Store facilities
(c)................................................ 23,325 17,884 62,656 48,543
------------- ----------- ------------ ------------
Consolidated self-storage rental income.............. $ 206,856 $ 195,907 $ 593,345 $ 572,588
============= =========== ============ ============
Cost of operations for the 1,257 Same Store facilities.. $ 63,796 $ 56,752 $ 185,316 $ 165,521
Less - cost of operations for Same Store facilities
accounted for on the equity method of accounting (1,656) (1,483) (4,883) (4,709)
(a) ...............................................
Less - cost of operations for five Same Store
facilities included in discontinued operations (209) (185) (603) (521)
(b) ..............................................
Add: cost of operations for other non Same Store
facilities (c).................................... 9,050 7,650 26,825 20,607
------------- ---------- ------------ ------------
Consolidated self-storage cost of operations........ $ 70,981 $ 62,734 $ 206,655 $ 180,898
============= =========== ============ ============
- --------------------
(a) At September 30, 2003, the Company has a noncontrolling ownership interest
in 32 of the Same Store facilities, and until January 14, 2002, when the
Company acquired the remaining interest it did not own in these facilities,
the Company had a noncontrolling ownership interest in 26 of the Same Store
facilities. The revenues and cost of operations earned while the Company
does not have a controlling ownership interest are not included in the
Company's consolidated self-storage rental income and cost of operations.
Instead, the Company records its share of the net operating results for
these periods in its income statements as "equity in earnings of real
estate entities."
(b) The Company sold five of the Same Store facilities. Accordingly, the net
operating results of these facilities are included in the Company's income
statements as "discontinued operations."
(c) The Company consolidates the operating results of additional self-storage
facilities that are not Same Store facilities. Such facilities are not
included in the Same Store pool either because they were not stabilized for
the entire period from January 1, 2000 through September 30, 2003, or
because the Company acquired these facilities from third parties after
January 1, 2000.
14