Exhibit 99.1
News Release
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: February 26, 2004
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 fourth quarter and year
ending December 31, 2003.
Operating Results for the Quarter Ended December 31, 2003:
- ----------------------------------------------------------
Net income for the three months ended December 31, 2003 was $85,970,000 compared
to $67,214,000 for the same period in 2002, representing an increase of
$18,756,000 or 27.9%. This increase is primarily due to improved operations of
our Same Store self-storage facilities (as discussed below), gains on sales of
real estate assets and a reduction in losses from discontinued operations and
increased net income from our newly developed self-storage facilities. These
effects were partially offset by an increase in depreciation expense
attributable to newly developed facilities.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $38,590,000 or $0.30 per common share
on a diluted basis (based on 127,825,000 weighted average diluted common
equivalent shares) for the three months ended December 31, 2003 compared to
$24,617,000 or $0.20 per common share on a diluted basis (based on 124,984,000
weighted average diluted common equivalent shares) for the same period in 2002,
representing an increase of 50.0% 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,
partially offset by an increase in the amount of income allocated to our
preferred shareholders and increased stock based compensation to our employees.
During the three months ended December 31, 2003 and 2002, we allocated
$38,282,000 and $37,222,000 of our net income, respectively, to our preferred
shareholders based on actual distributions paid. Included in the distributions
paid during the three months ended December 31, 2003, is approximately
$3,089,000 paid to our Series W and Series X Preferred shareholders. These two
series of preferred stock were issued during the fourth quarter of 2003, raising
aggregate gross proceeds of approximately $252.5 million. Our intended use of
the net proceeds from these issuances is to fund the redemption of two series of
preferred stock (our Series K and Series L) that will occur during the first
quarter of 2004. In the interim, the net proceeds from these issuances earned
nominal interest income during the quarter relative to the corresponding
dividend requirement. This difference resulted in an estimated reduction to
earnings per common share of approximately $0.02 per share during the three
months ended December 31, 2003.
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 three
months ended December 31, 2003 (none for the corresponding period in 2002) and a
corresponding reduction of net income allocation to our common shareholders of
$3,723,000 or $0.03 per common share. The $3,723,000 additional allocation of
net income to our preferred shareholders represents the excess of the redemption
amount over the carrying amount of our Series K Preferred Stock that we called
for redemption during the period and subsequently redeemed in January 2004.
During January 2004, we also called for redemption our Series L Preferred Stock
that will be redeemed in March 2004, and as a result, an additional allocation
of income during the first quarter of 2004 will be allocated to our preferred
shareholders in the amount of approximately $3.7 million.
During the three months ended December 31, 2003 and 2002, we incurred stock
based compensation expense of approximately $1,426,000 and $85,000,
respectively. In addition, the increase in our average common share price during
the fourth quarter of 2003, as compared to the same period in 2002, resulted in
an increase in the weighted average shares outstanding from stock options when
applying the treasury method. This increase in average stock price, combined
with the actual issuance of common stock in connection with the exercise of
employee stock options during the period resulted in a year-over-year increase
of approximately 2,414,000 weighted average shares outstanding for the purpose
of computing earnings per common share. The combination of increased
compensation expense and weighted average shares outstanding had the impact of
reducing earnings per common share by approximately $0.02 per share for the
three months ended December 31, 2003 as compared to the same period in 2002.
1
Operating Results for the Year Ended December 31, 2003:
- -------------------------------------------------------
Net income for the year ended December 31, 2003 was $336,653,000 compared to
$318,738,000 for the same period in 2002, representing an increase of
$17,915,000 or 5.6%. This increase in net income is primarily a result of an
increase in the operations of our newly developed and expansion self-storage
facilities, reduced losses from discontinued containerized storage operations,
improved operations of our continuing containerized storage business, a net gain
from the sale of real estate assets versus a net loss recorded in 2002 and lower
interest expense resulting primarily from lower average debt balances. The
effect of these increases were partially offset by 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 by the impact of gains on sale of real
estate and asset impairment charges during 2003 and 2002.
Net income allocable to our regular common shareholders (after allocating net
income to our preferred and equity shareholders), was $161,836,000 or $1.28 per
common share on a diluted basis (based on 126,517,000 weighted average diluted
common equivalent shares) for the year ended December 31, 2003 compared to
$141,423,000 (as restated for the aforementioned application of EITF Topic D-42)
or $1.14 per common share (as restated for the aforementioned application of
EITF Topic D-42) on a diluted basis (based on 124,571,000 weighted average
diluted common equivalent shares) for the same period in 2002, representing an
increase of 12.3% on a per share basis. The increase in net income allocable to
common shareholders and diluted earnings per share is due to an increase in net
income as described above, partially offset by an increase in income allocated
to our preferred shareholders, as described below.
During the year ended December 31, 2003 and 2002, we allocated $146,196,000 and
$148,926,000 of our net income (based on distributions paid), respectively, to
our preferred shareholders, representing a decrease of 1.8%. 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 in 2002 and 2003.
In addition, for the years ended December 31, 2003 and 2002, we allocated an
additional $7,120,000 and $6,888,000, respectively, in net income to our
preferred shareholders, relating to the application of the Securities and
Exchange Commission's clarification of EITF Topic D-42.
Stock based compensation expense for the year ended December 31, 2003 and 2002
was approximately $2,685,000 and $543,000, respectively, representing a
year-over-year increase of $2,142,000 or approximately $0.02 per common share.
Funds from Operations:
- ----------------------
For the three months ended December 31, 2003, funds from operations increased to
$0.68 per common share on a diluted basis as compared to $0.60 for the same
period in 2002, representing an increase of 13.3%. Funds from operations for the
three months ended December 31, 2003 has been reduced by $0.03 per common share
(none during the corresponding period in 2002) reflecting the application of the
Securities and Exchange Commission's clarification of EITF Topic D-42 with
respect to our Series K Preferred Stock that we called for redemption during the
period and subsequently redeemed in January 2004.
As discussed above, FFO was also negatively impacted by the uninvested net
proceeds from the issuance of our Series W and Series X Preferred Stock ($0.02
per share) and stock-based compensation ($0.02 per share) for the three months
ended December 31, 2003.
For the year ended December 31, 2003, funds from operations increased to $2.81
per common share on a diluted basis as compared to $2.68 for the same period in
2002, representing an increase of 4.9%. Funds from operations for each year have
been reduced by $0.06 per common share reflecting the application of the
Securities and Exchange Commission's clarification of EITF Topic D-42.
As reported in the third quarter of 2003, based on 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 $3,349,000 ($0.03 per common share)
for the year ended December 31, 2003 and $396,000 ($0.00 per common share) for
the corresponding period in 2002.
2
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 non-GAAP financial disclosure
and it is generally defined as net income before depreciation and does not
include gains or losses on the disposition of real estate assets. FFO
computations do not consider scheduled principal payments on debt, capital
improvements, distribution, and other obligations of the Company. FFO is not a
substitute for the Company's cashflow or net income as a measure of the
Company's liquidity or operating performance or its ability to pay dividends.
See the attached reconciliation of net income to funds from operations included
in the selected financial data attached to this press release.
Property Operations:
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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 1,252 self-storage facilities, representing
approximately 89% of the 1,410 self-storage facilities in which the Company has
an ownership interest (the 1,252 self-storage facilities are hereinafter
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 1,220 facilities that 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:
Selected Operating Data for the Same Store
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Facilities (1,252 Facilities):
- ------------------------------
Three months ended December 31, Year ended December 31,
------------------------------------ ---------------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
------------ ----------- ----------- ----------- ----------- ----------
(Dollar amounts in thousands, except weighted average data)
Rental income:
Base rental income............................. $ 192,798 $ 177,867 8.4% $ 756,467 $ 714,286 5.9%
Promotional discounts.......................... (12,992) (7,972) 63.0% (51,226) (20,086) 155.0%
------------ ----------- ----------- ----------- ----------- ----------
Adjusted base rental income ................... 179,806 169,895 5.8% 705,241 694,200 1.6%
Late charges and administrative fees collected. 7,287 6,319 15.3% 29,262 23,611 23.9%
------------ ----------- ----------- ----------- ----------- ----------
Total rental income (a)........................ 187,093 176,214 6.2% 734,503 717,811 2.3%
Cost of operations:
Property taxes............................... 17,414 16,649 4.6% 68,310 65,288 4.6%
Direct property payroll...................... 15,796 14,507 8.9% 62,244 55,086 13.0%
Cost of managing facilities.................. 6,319 5,690 11.1% 22,789 21,087 8.1%
Advertising and promotion.................... 4,787 7,824 (38.8)% 21,115 19,674 7.3%
Utilities.................................... 4,661 4,380 6.4% 17,612 16,908 4.2%
Repairs and maintenance...................... 7,180 4,964 44.6% 20,868 16,623 25.5%
Telephone reservation center................. 2,966 2,368 25.3% 10,751 9,873 8.9%
Property insurance .......................... 2,251 1,458 54.4% 8,635 6,108 41.4%
Other........................................ 5,091 4,446 14.5% 18,836 16,642 13.2%
------------ ----------- ----------- ----------- ----------- ----------
Total cost of operations....................... 66,465 62,286 6.7% 251,160 227,289 10.5%
------------ ----------- ----------- ----------- ----------- ----------
Net operating income.............................. $ 120,628 $ 113,928 5.9% $ 483,343 $ 490,522 (1.5)%
============ =========== =========== =========== =========== ==========
Gross margin...................................... 64.5% 64.7% (0.3)% 65.8% 68.3% (3.7)%
Weighted average for the period:
Square foot occupancy (b)...................... 90.6% 85.1% 6.5% 89.1% 85.2% 4.6%
Realized annual rent per occupied square foot $ 10.94 $ 11.01 (0.6)% $ 10.91 $ 11.23 (2.8)%
(c)...............................................
REVPAR (d)..................................... $ 9.91 $ 9.37 5.8% $ 9.72 $ 9.57 1.6%
Weighted average at December 31:
Square foot occupancy.......................... 89.6% 84.4% 6.2%
In place annual rent per occupied square foot $ 11.92 $ 11.84 0.7%
(e)............................................
Posted annual rent per square foot (f)......... $ 12.60 $ 11.88 6.1%
Total available net rentable square feet (in
thousands)........................................ 72,565 72,565 0.0%
3
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.
Same Store results for the three months ended December 31, 2003
- ---------------------------------------------------------------
During the fourth quarter of 2003, net operating income for the Same Store
facilities increased 5.9% as compared to the same period in 2002, due to the
following:
o REVPAR increased 5.8% from $9.37 per square foot in the fourth
quarter of 2002 to $9.91 in the fourth quarter of 2003. This was
attributable to a 6.5% increase in weighted average occupancy
levels from 85.1% in the fourth quarter of 2002 to 90.6% in the
fourth quarter of 2003, partially offset by a 0.6% decrease in
realized annual rent per occupied square foot from $11.01 in the
fourth quarter of 2002 to $10.94 in the fourth 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 $7,972,000 for the
fourth quarter of 2002 to $12,992,000 for the fourth quarter of
2003.
o The impact of the increase in REVPAR was partially offset by a
6.7% increase in operating expenses from $62,286,000 in the
fourth quarter of 2002 to $66,465,000 in the fourth quarter of
2003. This increase is primarily due to higher costs of repairs
and maintenance, direct property payroll, property taxes,
telephone reservation center and property insurance. These
increases were partially offset by a 38.8% reduction in
advertising and promotion primarily due to a decrease in
television advertising from $4,251,000 in the fourth quarter of
2002 to $1,122,000 in the fourth quarter of 2003, partially
offset by an increase in yellow page advertising from $2,258,000
in fourth quarter 2002 to $3,171,000 in the fourth quarter of
2003.
o Net operating income also benefited from a 15.3% increase in late
charges and administrative fees collected from $6,319,000 in the
fourth quarter of 2002 to $7,287,000 in the fourth quarter of
2003.
Same-Store results for the year ended December 31, 2003
- -------------------------------------------------------
During the year ended December 31, 2003, net operating income for the Same Store
facilities decreased 1.5% as compared to the same period in 2002, due to the
following:
o Total operating expenses increased 10.5%. This increase is
primarily due to increases in direct property payroll, repairs
and maintenance, property taxes, advertising and promotion, and
property insurance costs. Direct property payroll increased
primarily due to increased incentives to property operating
personnel as well as increased hours worked. Property insurance
costs increased primarily due to an increase in the company's
self-insured portion of its risks.
4
o The impact of the increase in operating expenses was partially
offset by a 1.6% increase in REVPAR from $9.57 per square foot in
the year ended 2002 to $9.72 in the same period in 2003. This was
attributable to a 4.6% increase in weighted average occupancy
levels from 85.2% in the year ended 2002 to 89.1% in the same
period in 2003, partially offset by a 2.8% decrease in realized
annual rent per occupied square foot from $11.23 in the year
ended 2002 to $10.91 in the same period in 2003. The decrease in
realized annual rent per occupied square foot is attributable
primarily to a significant increase in promotional discounts
given to incoming tenants from $20,086,000 for the year ended
2002 to $51,226,000 for the same period in 2003.
o Net operating income benefited from a 23.9% increase in late
charges and administrative fees collected from $23,611,000 in the
year ended December 31, 2002 to $29,262,000 in the same period in
2003. Increased fees were primarily the result of increased a
20.1% increase in move-in activity.
Outlook:
- --------
We expect to continue promotional discounting and television advertising at
least in the first quarter of 2004. The level of such activities cannot be
estimated at this time, but we expect that they will be higher than for the same
period in 2003. The up front costs of these marketing activities, and the
increases in promotional discounts, are expected to continue to adversely impact
our net operating income in 2004. The following table summarizes additional
selected financial data with respect to our Same Store facilities:
For the three months ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Full Year
------------- ----------- ------------------------ ----------
Promotional Discounts (in 000's):
2002............................... $ 1,112 $ 5,862 $ 5,140 $ 7,972 $ 20,086
2003............................... $ 11,043 $ 14,206 $ 12,985 $12,992 $ 51,226
Television advertising expense (in 000's):
2002............................... $ 543 $ 1,521 $ 2,150 $ 4,251 $ 8,465
2003............................... $ 1,699 $ 2,928 $ 3,321 $ 1,122 $ 9,070
REVPAR:
2002............................... $ 9.62 $ 9.50 $ 9.78 $ 9.37 $ 9.57
2003............................... $ 9.33 $ 9.63 $ 10.01 $ 9.91 $ 9.72
Weighted average realized annual rent per
occupied square foot for the period:
2002............................... $ 11.50 $ 11.00 $ 11.40 $ 11.01 $ 11.23
2003............................... $ 10.98 $ 10.80 $ 10.89 $ 10.94 $ 10.91
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% 90.6% 89.1%
Weighted average occupancy at January 31,
2003............................... 85.0%
2004............................... 89.7%
Total Promotional discounts during the month of January (in 000's):
2003............................... $ 3,512
2004............................... $ 4,504
Television advertising expense during the month of January (in 000's):
2003............................... $ 461
2004............................... $ 1,141
Property Development and Acquisitions:
- --------------------------------------
During the fourth quarter of 2003, we opened four newly developed self-storage
facilities (312,000 net rentable square feet), at a total cost of approximately
$39.5 million.
5
At December 31, 2003, there are 38 projects that are in construction or are
expected to begin construction generally by December 31, 2004, which includes
new developments, expansions to existing self-storage facilities and remodeling
projects primarily to improve the visual appeal of certain properties. These
projects, which will be fully funded by the Company, are expected to have total
net rentable square feet of approximately 1,930,000 and have total estimated
costs of approximately $156.3 million, of which $69.6 million had been spent
through December 31, 2003. Opening dates for these facilities are estimated
through the next 12 to 24 months. The development of these facilities is subject
to contingencies.
No facilities were acquired from third parties during the fourth quarter of
2003.
New Joint Venture
- -----------------
In January 2004, we entered into a joint venture with an institutional investor
for the purpose of acquiring up to $125.0 million of existing self-storage
properties in the U.S. from third parties. The venture will be funded entirely
with equity consisting of 30% from the Company and 70% from the institutional
investor. The venture has a nine-month investment period (through September
2004) to identify and acquire facilities. To date no facilities have been
acquired by the venture.
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 $4.4
million was not recognized in the Company's financial statements until the buyer
repaid the note receivable on October 20, 2003.
On October 16, 2003, we sold a self-storage facility located in Perrysburg, Ohio
for $2.3 million resulting in a gain of approximately $1.1 million.
The operating results of these facilities and the related gains on sale, as well
as the operations 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 property operations" on
the Company's income statement.
Containerized Storage Business:
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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 $3,843,000 ($0.03 per
common share) and $8,634,000 ($0.07 per common share) were recorded for the
three months and year ended December 31, 2002, respectively, for these 22 closed
facilities. During 2003, an additional nine facilities were identified as
non-strategic and scheduled for closure (collectively, these 31 facilities are
referred to as the "Closed Facilities") and, accordingly, an asset impairment
charge was recorded in the amount of $1,205,000 ($0.01 per common share) and
$2,479,000 ($0.02 per common share), for the three months and year ended
December 31, 2003, respectively. 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 December 31, 2003, six of the Closed
Facilities were still in operation, however, these facilities are in the process
of closing which may take until the end of the second quarter of 2004 to close.
6
Issuance and Redemption of Preferred Equity:
- --------------------------------------------
On October 6, 2003, we issued 5,300,000 depositary shares ($132.5 million)
representing interests in our 6.5% Cumulative Preferred Stock, Series W
(NYSE:PSAPrW) at an issuance price of $25.00 per share. On November 13, 2003, we
issued 4,800,000 depositary shares ($120.0 million) of our 6.45% Cumulative
Preferred Stock, Series X (NYSE:PSAPrX) at an issuance price of $25.00 per
share. On January 2, 2004, we issued 1,600,000 depositary shares ($40.0 million)
representing interests in our 6.85% Cumulative Preferred Stock, Series Y
(NYSE:PSAPrY) at an issuance price of $25.00 per share in a direct placement to
an institutional investor. The net proceeds from these issuances are expected to
be used primarily for the redemption of existing series of preferred stock and
for working capital purposes.
On January 20, 2004, we redeemed all 4,600,000 depositary shares of our 8.25%
Series K ($115.0 million) at a redemption price of $25 per share, plus a sum
equal to all accrued and unpaid dividends from December 31, 2003 through the
redemption date. In January 2004, we called for redemption our 8.25% Series L
($115.0 million) which will be redeemed on March 10, 2004 at a redemption price
of $25 per share, plus a sum equal to all accrued and unpaid dividends from
December 31, 2003 through the redemption date.
Distributions Declared:
- -----------------------
On February 26, 2004, 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 March 31, 2004 to shareholders of
record as of March 15, 2004.
Loan to PS Business Parks, Inc.:
- --------------------------------
On December 29, 2003, we loaned PS Business Parks, Inc. $100.0 million. PS
Business Parks, Inc. is an unconsolidated affiliate in which we have an
approximate 44% ownership interest. The loan bears interest at 1.4% per annum
and matures on March 9, 2004. PS Business Parks, Inc. has since repaid $95.0
million of the outstanding balance.
Fourth Quarter Conference Call:
- -------------------------------
A conference call is scheduled for Friday, February 27, 2004, at 1:00 p.m. (PST)
to discuss these results. The participant toll free number is (877) 516-1540
(conference ID number 5036292). A simultaneous audio web cast may be accessed by
using the link at www.publicstorage.com under "Investor Relations" (conference
ID number 5036292). An instant replay of the conference call may be accessed
through March 5, 2004 by calling (800) 642-1687 and through March 12, 2004 by
using the link at www.publicstorage.com under "Investor Relations." Both forms
of replay utilize conference ID number 5036292.
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 December 31, 2003, the Company had interests in 1,410 storage
facilities with approximately 85.2 million net rentable square feet and 787,000
rentable units.
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-K for the year ended December 31, 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
For the three months ended For the year ended
December 31, December 31,
-------------------------------- --------------------------------
2003 2002 2003 2002
-------------- ------------- -------------- -------------
(in thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities (a)................... $ 205,239 $ 188,858 $ 798,584 $ 761,446
Commercial properties (a)..................... 2,841 2,864 11,442 11,781
Containerized storage facilities (b).......... 7,940 8,209 33,953 29,723
Tenant reinsurance............................ 5,913 5,104 22,464 19,947
Interest and other income.......................... 1,203 1,656 8,628 8,661
-------------- ------------- -------------- -------------
223,136 206,691 875,071 831,558
-------------- ------------- -------------- -------------
Expenses:
Cost of operations:
Self-storage facilities (a)................... 74,250 69,317 280,905 250,215
Commercial properties (a)..................... 1,197 1,190 4,688 4,462
Containerized storage facilities (b).......... 4,852 7,283 20,918 23,056
Tenant reinsurance............................ 3,356 2,208 11,987 9,411
Depreciation and amortization..................... 48,779 45,311 185,775 177,978
General and administrative........................ 3,806 3,346 17,127 15,619
Interest expense.................................. - 525 1,121 3,809
-------------- ------------- -------------- -------------
136,240 129,180 522,521 484,550
-------------- ------------- -------------- -------------
Income before minority interest in income, equity in
earnings of real estate entities, discontinued
operations, and gain on disposition of real estate 86,896 77,511 352,550 347,008
Equity in earnings of real estate entities (c)....... 5,510 6,149 24,966 29,888
Minority interest in income:
Preferred partnership interests................... (6,727) (6,727) (26,906) (26,906)
Other partnership interests....................... (4,394) (3,897) (16,797) (17,181)
-------------- ------------- -------------- -------------
Income before discontinued operations and gain on
disposition of real estate..................... 81,285 73,036 333,813 332,809
Discontinued operations-containerized storage (b). (1,108) (5,205) (4,181) (12,178)
Discontinued operations-commercial and self-storage 5,593 85 6,014 648
(a)............................................
Gain (loss) on disposition of real estate assets.. 200 (702) 1,007 (2,541)
-------------- ------------- -------------- -------------
Net income........................................... $ 85,970 $ 67,214 $ 336,653 $ 318,738
============== ============= ============== =============
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distributions paid..................... $ 38,282 $ 37,222 $ 146,196 $ 148,926
Based on redemptions of preferred stock......... 3,723 - 7,120 6,888
Allocable to equity shareholders, Series A......... 5,375 5,375 21,501 21,501
Allocable to common shareholders................... 38,590 24,617 161,836 141,423
-------------- ------------- -------------- -------------
$ 85,970 $ 67,214 $ 336,653 $ 318,738
============== ============= ============== =============
Per common share:
Net income per share - Basic (d)................... $0.31 $0.20 $1.29 $1.15
============== ============= ============== =============
Net income per share - Diluted (d)................. $0.30 $0.20 $1.28 $1.14
============== ============= ============== =============
Weighted average common shares - Basic (e)......... 126,490 123,949 125,181 123,005
============== ============= ============== =============
Weighted average common shares - Diluted........... 127,825 124,984 126,517 124,571
============== ============= ============== =============
9
(a) The historical operations of a commercial facility that the Company
disposed of in the fourth quarter of 2002 and five self-storage facilities
that the Company disposed of in the fourth quarter of 2003 are classified
as Discontinued Operations - commercial and self-storage. Included in
discontinued operations is an aggregate gain on sale of the five
self-storage facilities amounting to $5,476,000 recorded in the quarter
ended December 31, 2003.
(b) The historical operations of the 31 closed containerized storage facilities
are included in Discontinued Operations - containerized storage. Included
in discontinued operations is a $750,000 impairment charge recorded in the
second quarter of 2003, and a $355,000 loss on sale recorded in the fourth
quarter of 2003 relating to a real estate facility previously used by the
discontinued containerized storage operations which was sold in December
2003. In addition, included in Discontinued Operations - containerized
storage were impairment charges with respect to the closed containerized
storage facilities amounting to $3,469,000 and $6,187,000 for the quarter
and year ended December 31, 2002 ($1,205,000 and $2,479,000 for the same
periods in 2003), as well as lease termination and other liabilities
totaling $374,000 and $2,447,000 for the quarter and year ended December
31, 2002 (none for the same periods in 2003).
(c) The decrease in equity in earnings of real estate entities is due primarily
to a reduction in our share of PSB's earnings. This decrease is
attributable to a decrease in the net impact of PSB's gains, losses, and
impairment charges recorded in each of the three months and year ended
December 31, 2003 and 2002.
(d) Included in basic and diluted earnings per share is net income of $0.04 and
$0.01 with respect to discontinued operations for the three months and year
ended December 31, 2003, and a net loss of $0.04 and $0.09 per share for
the same periods in 2002.
(e) 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 3,692,000 shares during 2002 and 2003 in
connection with the exercise of employee stock options.
10
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
December 31, December 31,
2003 2002
----------------- ----------------
(in thousands, except share
ASSETS and per share data)
------
Cash and cash equivalents....................................................... $ 204,833 $ 103,124
Operating real estate facilities:
Land and buildings, at cost.................................................. 5,125,498 4,988,526
Accumulated depreciation..................................................... (1,153,059) (987,546)
----------------- ----------------
3,972,439 4,000,980
Construction in process........................................................ 69,620 87,516
Land held for development or sale............................................... 12,236 17,807
----------------- ----------------
4,054,295 4,106,303
Investment in real estate entities.............................................. 336,696 329,679
Goodwill........................................................................ 78,204 78,204
Intangible assets, net.......................................................... 111,289 117,893
Mortgage notes receivable, including amounts from affiliates.................... 100,510 24,324
Other assets.................................................................... 82,242 84,135
----------------- ----------------
Total assets........................................................... $ 4,968,069 $ 4,843,662
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................................... $ 76,030 $ 115,867
Preferred stock called for redemption........................................... 115,000 -
Accrued and other liabilities................................................... 131,103 129,327
----------------- ----------------
Total liabilities...................................................... 322,133 245,194
Minority interest - preferred................................................... 285,000 285,000
Minority interest - other....................................................... 141,137 154,499
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized, 5,763,986
shares issued (in series) and outstanding (9,258,486 at December 31, 2002),
at liquidation preference:
Cumulative Preferred Stock, issued in series........................... 1,867,025 1,817,025
Common Stock, $0.10 par value, 200,000,000 shares authorized, 126,986,734
shares issued and outstanding (116,991,455 at December 31, 2002)........... 12,699 11,699
Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
8,776.102 shares issued and outstanding at December 31, 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.............................................................. 2,438,632 2,371,194
Cumulative net income........................................................ 2,366,660 2,030,007
Cumulative distributions paid................................................ (2,465,217) (2,071,656)
----------------- ----------------
Total shareholders' equity............................................. 4,219,799 4,158,969
----------------- ----------------
Total liabilities and shareholders' equity........................ $ 4,968,069 $ 4,843,662
================= ================
11
Public Storage, Inc.
Selected Financial Data
Computation of Funds from Operations
(Unaudited)
For the Three Months Ended For the Year Ended
December 31, December 31,
--------------------------- -------------------------
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.................................................................. $ 85,970 $ 67,214 $ 336,653 $ 318,738
Add back- depreciation and amortization................................. 48,779 45,311 185,775 177,978
Add back - depreciation and amortization included in Discontinued 275 737 2,228 3,670
Operations...........................................................
Add back - our pro-rata share of depreciation from equity investments... 7,400 7,361 27,753 27,078
Eliminate - depreciation with respect to non-real estate assets......... (1,354) (1,330) (6,206) (6,053)
Eliminate - our pro-rata share of PS Business Parks, Inc.'s (gain)/loss
on sale of real estate............................................... 266 (1,013) (2,786) (4,133)
Eliminate - (gains)/losses on sale of real estate assets included in
Discontinued Operations............................................... (5,121) - (5,121) -
Eliminate - (gains)/losses on sale of real estate assets................ (200) 702 (1,007) 2,541
Add back- minority interest share of income............................. 11,121 10,624 43,703 44,087
------------ ------------- ------------ ------------
Consolidated FFO............................................................ 147,136 129,606 580,992 563,906
Allocable to minority interests - preferred partnership interests........... (6,727) (6,727) (26,906) (26,906)
Allocable to minority interest - other partnership interests ............... (5,982) (5,686) (23,125) (25,268)
------------ ------------- ------------ ------------
Remaining FFO allocable to our shareholders................................. 134,427 117,193 530,961 511,732
Less: allocations to preferred and equity stock shareholders:
Senior Preferred distributions.......................................... (38,282) (37,222) (146,196) (148,926)
Issuance costs on redeemed preferred shares (a)......................... (3,723) - (7,120) (6,888)
Equity Stock, Series A distributions.................................... (5,375) (5,375) (21,501) (21,501)
------------ ------------- ------------ ------------
(47,380) (42,597) (174,817) (177,315)
------------ ------------- ------------ ------------
Remaining FFO allocable to our Common and Class B Common Stock (a).......... $ 87,047 $ 74,596 $ 356,144 $ 334,417
============ ============= ============ ============
Weighted average shares:
Regular common shares.................................................... 126,490 116,949 125,181 116,075
Class B common stock..................................................... - 7,000 - 7,000
Stock option dilution (b)................................................ 1,335 1,035 1,336 1,566
------------ ------------- ------------ ------------
Weighted average common shares for purposes of computing fully-diluted FFO
per common share........................................................ 127,825 124,984 126,517 124,641
============ ============= ============ ============
FFO per common share (a) (b) (c)............................................ $ 0.68 $ 0.60 $ 2.81 $ 2.68
============ ============= ============ ============
12
(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 gains and losses on real estate assets.. FFO is
presented because many analysts consider FFO to be one measure of the
performance of real estate companies. FFO computations do not consider
scheduled principal payments on debt, capital improvements, distributions,
and other obligations of the Company. FFO is not a substitute for the
Company's cash flow or net income as a measure of the Company's liquidity
or operating performance or its ability to pay dividends. FFO allocable to
Common and Class B Common Stock and FFO per common share for the three and
twelve months ended December 31, 2002 have been restated to reflect to the
application of the Securities and Exchange Commissions 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."
(b) During the three months ended December 31, 2003 and 2002, we incurred stock
based compensation expense of approximately $1,426,000 and $85,000,
respectively. In addition, the increase in our average common share price
during the fourth quarter of 2003, as compared to the same period in 2002,
resulted in an increase in the weighted average shares outstanding from
stock options when applying the treasury method. This increase combined
with the actual issuance of common stock in connection with the exercise of
employee stock options during the period resulted in a year-over-year
increase of approximately 2,414,000 weighted average shares outstanding for
the purpose of computing earnings per common share. The combination of
increased compensation expense and weighted average shares outstanding had
the impact of reducing FFO per common share by approximately $0.02 per
share for the three months ended December 31, 2003 as compared to the same
period in 2002. Stock based compensation for the year ended December 31,
2003 and 2002 was approximately $2,685,000 and $543,000, respectively,
representing a year-over-year increase of $2,142,000 or approximately $0.02
per common share.
(c) FFO per share was negatively affected by dilution relating to the 80 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 December 31, 2003 and 2002, respectively, and $0.15 and
$0.16 for each of the twelve months ended December 31, 2003 and 2002,
respectively.
13
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution
(Unaudited)
For the Three Months Ended For the Year Ended
December 31, December 31,
---------------------------- ---------------------------
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)............. $ 87,047 $ 74,596 $ 356,144 $ 334,417
Add: Stock option expense........................................ 100 66 394 163
Restricted stock expense................................ 749 - 1,120 -
Impact of application of EITF Topic D-42................ 3,723 - 7,120 6,888
Real estate impairment charges.......................... - - 750 -
Pro rata share of real estate impairment charges from - - 2,599 396
PSB..............................................................
Less: Capital expenditures to maintain facilities................ (9,706) (10,952) (30,175) (26,993)
------------ ------------ ------------ -----------
Funds available for distribution ("FAD") (b)..................... $ 81,913 $ 63,710 $ 337,952 $ 314,871
============ ============ ============ ===========
Distributions to common and Class B Common shareholders.......... $ 57,082 $ 55,612 $ 225,863 $ 221,299
============ ============ ============ ===========
Distribution payout ratio (b)................................... 69.7% 87.2% 66.8% 70.3%
============ ============ ============ ===========
- ---------------------------------
(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 gains and losses on real estate assets. FFO is
presented because many analysts consider FFO to be one measure of the
performance of real estate companies. FFO computations do not consider
scheduled principal payments on debt, capital improvements, distributions,
and other obligations of the Company. FFO is not a substitute for the
Company's cash flow or net income as a measure of the Company's liquidity
or operating performance or its ability to pay dividends.
(b) Funds available for distribution ("FAD") represents FFO, 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 presented because many analysts
consider it to be one measure of the performance of the real estate
companies.
14
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 Year Ended
December 31, December 31,
--------------------------- --------------------------
2003 2002 2003 2002
------------- ----------- ------------ ------------
(Amounts in thousands)
Rental income for the 1,252 Same Store facilities....... $ 187,093 $ 176,214 $ 734,503 $ 717,811
Less - rental income for Same Store facilities
accounted for on the equity method of accounting
(a)................................................ (5,775) (5,458) (22,496) (23,020)
Add: rental income for other non Same Store facilities
(b)................................................ 23,921 18,102 86,577 66,655
------------- ----------- ------------ ------------
Consolidated self-storage rental income.............. $ 205,239 $ 188,858 $ 798,584 $ 761,446
============= =========== ============ ============
Cost of operations for the 1,252 Same Store facilities.. $ 66,465 $ 62,286 $ 251,160 $ 227,289
Less - cost of operations for Same Store facilities
accounted for on the equity method of accounting
(a) ............................................... (1,678) (1,663) (6,561) (6,371)
Add: cost of operations for other non Same Store
facilities (b).................................... 9,463 8,694 36,306 29,297
------------- ----------- ------------ -----------
Consolidated self-storage cost of operations........ $ 74,250 $ 69,317 $ 280,905 $ 250,215
============= =========== ============ ============
(a) At December 31 2003, the Company has a noncontrolling ownership interest in
32 of the Same Store facilities, and prior to 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 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 December 31, 2003, or
because the Company acquired these facilities from third parties after
January 1, 2000.
15