Exhibit 99.1
News Release
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: May 6, 2004
Contact: Mr. Harvey Lenkin
(818) 244-8080
Public Storage, Inc. Reports Results for the First Quarter Ended March 31, 2004
Glendale, California - Harvey Lenkin, President of Public Storage, Inc. (NYSE
and PCX:PSA), announced today operating results for quarter ending March 31,
2004.
Operating Results for the Quarter Ended March 31, 2004:
- -------------------------------------------------------
Net income for the three months ended March 31, 2004 was $69,067,000 compared to
$76,639,000 for the same period in 2003, representing a decrease of $7,572,000
or 9.9%. This decrease is primarily due to an increase in the allocation of
income to minority interest of $10,063,000 attributable to the restructuring of
our preferred partnership interests (as discussed below), an increase in
depreciation expense due to newly opened facilities, and increased general and
administrative expense attributable primarily to increased stock-based
compensation expense and terminated employee expense. The effect of these items
was partially offset by improved operations of our Same Store self-storage
facilities (as discussed below), and improved operations generated by our newly
developed self-storage facilities.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $21,927,000 or $0.17 per common share
on a diluted basis (based on 128,387,000 weighted average diluted common
equivalent shares) for the three months ended March 31, 2004 compared to
$31,945,000 (restated for the application of EITF Topic D-42 as discussed below)
or $0.26 per common share on a diluted basis (based on 125,232,000 weighted
average diluted common equivalent shares) for the same period in 2003,
representing a decrease of 34.6% on a per share basis. The decrease in our 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 as
well as an increase in net income allocated to our preferred shareholders. The
increase in net income allocated to our preferred shareholders was due to an
allocation for the excess of the redemption amount over the carrying amount of
preferred securities redeemed during the quarter (described below), as well as
an increase in distributions to preferred shareholders due to an increase in
average outstanding securities offset by lower average coupon rates.
For the three months ended March 31, 2004 and 2003, we allocated $38,042,000 and
$37,022,000 of our net income, respectively, to our preferred shareholders based
on their distributions. 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
and a corresponding reduction of net income allocable to our common shareholders
for the three months ended March 31, 2004 of $3,723,000 or $0.03 per common
share. This allocation represents the excess of the redemption amount over the
carrying amount (primarily representing the underwriter's commission) of our
Series L Preferred Stock that was redeemed on March 10, 2004. Similarly, in a
restatement of amounts previously reported for the three months ended March 31,
2003, we allocated net income to our preferred shareholders and a reduced net
income allocable to our common shareholders of $2,297,000 or $0.02 per common
share, representing the excess of the redemption amount over the carrying amount
(primarily representing the underwriter's commission) of our Series B Preferred
Stock that we called for redemption during the three months ended March 31,
2003.
Since March 31, 2003, we have redeemed $317.5 million of our preferred stock,
including $230 million that was redeemed during the three months ended March 31,
2004. The average dividend rate with respect to these securities was
approximately 8.28% annually. As a result of these redemptions, distributions
paid to the holders of these securities were reduced by $4,254,000 during the
three months ended March 31, 2004 as compared to the same period in 2003.
Offsetting this reduction was an increase in distributions paid to our preferred
shareholders as the result of the issuance of $520.0 million of preferred stock
over the past year, including $267.5 million that was issued during the three
months ended March 31, 2004. The average annual dividend rate with respect to
these securities is approximately 6.38%. As a result of these issuances,
distributions paid to our preferred shareholders increased by approximately
$5,274,000 during the three months ended March 31, 2004 as compared to the same
period in 2003. Approximately $230.0 million of the $520.0 million was utilized
during the three months ended March 31, 2004 to redeem preferred securities. The
remaining net proceeds from the issuances remains on-hand in our invested cash
reserves earning interest at nominal rates relative to the distribution
requirement of the preferred stock. Net income was negatively impacted by the
difference between the distribution rates with respect to these preferred
securities and the nominal interest income earned on the net proceeds raised. We
expect that the negative impact will continue until such net proceeds are
ultimately deployed into the acquisition or development of real estate assets,
the redemption of higher rate preferred stock, the repayment of scheduled
principal payments on debt, or other corporate purposes, including common stock
repurchases.
1
Funds from Operations:
- ----------------------
For the three months ended March 31, 2004, funds from operations ("FFO")
decreased to $0.58 per common share on a diluted basis as compared to $0.64 for
the same period in 2003, representing a decrease of 9.4%.
Funds from operations for the three months ended March 31, 2004 and 2003, has
been reduced by $3,723,000 ($0.03 per share) and $2,297,000 ($0.02 per share),
respectively, reflecting the application of the Securities and Exchange
Commission's clarification of EITF Topic D-42 with respect to our Series L
Preferred Stock that we redeemed on March 10, 2004 and our Series B Preferred
Stock that we redeemed on March 31, 2003.
FFO for the three months ended March 31, 2004 was reduced by $943,000 ($0.01 per
share) due to our share of PS Business Parks' ("PSB") application of EITF Topic
D-42 with respect to preferred securities that it called for redemption in the
three months ended March 31, 2004. FFO for the three months ended March 31, 2003
was reduced by $2,599,000 ($0.02 per share), representing our share of PSB's
impairment charge on impending real estate sales recorded in the three months
ended March 31, 2003.
For the quarter ended March 31, 2004, FFO was also negatively impacted by a
special distribution paid to certain preferred unitholders of $8,000,000 ($0.06
per share) and $2,063,000 ($0.02 per share) of excess redemption cost over
carrying cost of the preferred units. Both of these reductions were related to
the restructuring of preferred partnership units as described below.
The following table provides a summary of the impact of the above-mentioned
changes that have occurred during the first quarter of 2004:
Three Months Ended
March 31,
------------------------------------
Percentage
2004 2003 Change
--------- --------- -----------
Funds from operations per common share prior to
adjustments for the following items................ $ 0.70 $ 0.68 2.9%
Impact as a result of the excess redemption costs over carrying value of
preferred securities (application of EITF Topic D-42):
In connection with the redemption of our
preferred stock................................... (0.03) (0.02)
In connection with the restructuring of our
preferred partnership units....................... (0.02) -
In connection with PSB's redemption of preferred
stock through our pro rata share of equity in
earnings.......................................... (0.01) -
Special distribution paid to preferred unitholders in
connection with restructuring the terms of the units... (0.06) -
Real estate asset impairment charges through our pro
rata share of PSB's earnings........................... - (0.02)
--------- ---------
Funds from operations per common share, as
reported (a)....................................... $ 0.58 $ 0.64 (9.4)%
========= =========
(a) Funds from Operations per common share as presented in our quarterly
earnings release for the quarter ended March 31, 2003 was $0.68 per common
share. It has been restated to $0.64 per common share, reflecting the impact of
Topic D-42 described below, and to implement the SEC's recent guidance that real
estate impairment charges should not be added back to net income in determining
Funds from Operations per common share.
During the three months ended March 31, 2004 and 2003, we incurred stock based
compensation expense of approximately $967,000 and $167,000, respectively. In
addition, the increase in our average common share price during the first
quarter of 2004, as compared to the same period in 2003, 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 2,939,000 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 March 31, 2004 as
compared to the same period in 2003.
2
FFO is a term defined by the National Association of Real Estate Investment
Trusts by which real estate investment trusts ("REITs") may be compared. FFO 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, distributions, or 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. 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.
We have increased the number of facilities included in the "Same Store" pool
from 1,252 at December 31, 2003 to 1,271 facilities (which at March 31, 2004
includes 33 facilities owned by unconsolidated entities in which the Company has
an investment). The 19 facilities added to the Same Store pool had enough
operating history as stabilized facilities managed by Public Storage, and in
which Public Storage had an interest in to provide meaningful comparative
information for 2002, 2003, and 2004. We believe that the increase in the Same
Store pool to 1,271 facilities provides a more complete view of the Company's
portfolio.
As a result of the change in the Same Store pool, the relative weighting of
markets has changed. Accordingly, comparisons should not be made between
information presented previously for the Same Store pool of 1,252 facilities and
this current pool of 1,271 facilities in order to identify trends in
occupancies, realized rents per square foot, or operating results.
The following table summarizes the pre-depreciation historical operating results
of the Same Store facilities:
3
Selected Operating Data for the Same Store
- ------------------------------------------
Facilities (1,271 Facilities):
- ------------------------------
Three Months Ended March 31,
------------------------------------
Percentage
2004 2003 Change
----------- ---------- ------------
(Dollar amounts in thousands, except
weighted average data)
Rental income:
Base rental income............................. $ 197,043 $ 183,947 7.1%
Promotional discounts.......................... (14,372) (11,326) 26.9%
----------- ---------- ------------
Adjusted base rental income ................... 182,671 172,621 5.8%
Late charges and administrative fees collected. 8,296 7,045 17.8%
----------- ---------- ------------
Total rental income (a)........................ 190,967 179,666 6.3%
Cost of operations:
Property taxes............................... 18,889 18,107 4.3%
Direct property payroll...................... 14,688 13,868 5.9%
Cost of managing facilities.................. 6,219 5,511 12.8%
Advertising and promotion.................... 5,622 3,911 43.7%
Utilities.................................... 4,714 4,258 10.7%
Repairs and maintenance...................... 5,410 4,092 32.2%
Telephone reservation center................. 2,767 2,432 13.8%
Property insurance .......................... 2,315 1,542 50.1%
Other........................................ 7,160 5,949 20.4%
----------- ---------- ------------
Total cost of operations (a)................... 67,784 59,670 13.6%
----------- ---------- ------------
Net operating income.............................. $ 123,183 $ 119,996 2.7%
=========== ========== ============
Gross margin...................................... 64.5% 66.8% (3.4)%
Weighted average for the period:
Square foot occupancy (b)...................... 89.6% 84.9% 5.5%
Realized annual rent per occupied square foot (c) $ 11.02 $ 10.99 0.3%
REVPAF (d)..................................... $ 9.87 $ 9.33 5.8%
Weighted average at March 31:
Square foot occupancy.......................... 90.0% 85.4% 5.4%
In place annual rent per occupied square foot (e) $ 12.14 $ 12.01 1.1%
Posted annual rent per square foot (f)......... $ 12.79 $ 12.17 5.1%
Total available net rentable square feet (in
thousands)........................................ 74,002 74,002 -
(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 ("REVPAF") 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.
Analysis of Same Store Results
- ------------------------------
During the first quarter of 2004, net operating income for the Same Store
facilities increased 2.7% as compared to the same period in 2003, due to the
following:
o REVPAF increased 5.8% from $9.33 per square foot in the first quarter
of 2003 to $9.87 in the first quarter of 2004. This was attributable
to a 5.5% increase in weighted average occupancy levels from 84.9% in
the first quarter of 2003 to 89.6% in the first quarter of 2004. In
addition, realized annual rent per occupied square foot increased 0.3%
from $10.99 in the first quarter of 2003 to $11.02 in the first
quarter of 2004, due primarily to higher monthly average rates charged
to existing and new tenants, offset in large part by the impact of
increased promotional discounts given to incoming tenants from
$11,326,000 for the first quarter of 2003 to $14,372,000 for the first
quarter of 2004.
4
o The impact of the increase in REVPAF was partially offset by a 13.6%
increase in operating expenses from $59,670,000 in the first quarter
of 2003 to $67,784,000 in the first quarter of 2004. This increase in
cost of operations is primarily due to 1) a $1,711,000 (43.7%)
increase in advertising and promotion expense, attributable primarily
to a $1,606,000 (91.3%) increase in television advertising expense, 2)
a $1,528,000 (7.9%) increase in direct property payroll and cost of
managing facilities, attributable primarily to higher wage rates and
increased incentives to property personnel, and 3) a $1,318,000
(32.2%) increase in repairs and maintenance expense.
o Net operating income also benefited from a 17.8% increase in late
charges and administrative fees collected from $7,045,000 in the first
quarter of 2003 to $8,296,000 in the first quarter of 2004. This
increase is primarily attributable to an increase in administrative
fees charged to new tenants upon move-in from $10 to $15 effective
January 1, 2004, combined with a 5.8% increase in move-ins.
Outlook:
- --------
We expect to continue promotional discounting and television advertising at
least in the second 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):
2003............................... $ 11,326 $ 14,560 $ 13,273 $13,244 $ 52,403
2004............................... $ 14,372
Television advertising expense (in 000's):
2003............................... $ 1,760 $ 2,987 $ 3,369 $ 1,148 $ 9,264
2004............................... $ 3,366
REVPAF:
2003............................... $ 9.33 $ 9.65 $ 10.02 $ 9.93 $ 9.73
2004............................... $ 9.87
Weighted average realized annual rent per
occupied square foot for the period:
2003............................... $ 10.99 $ 10.81 $ 10.89 $ 10.95 $ 10.91
2004............................... $ 11.02
Weighted average occupancy levels for the period:
2003............................... 84.9% 89.2% 92.0% 90.7% 89.2%
2004............................... 89.6%
Weighted average occupancy at April 30:
2003............................... 86.8%
2004............................... 91.3%
Total Promotional discounts during the month
of April (in 000's):
2003............................... $ 4,380
2004............................... $ 5,626
Television advertising expense during the month
of April (in 000's):
2003............................... $ 596
2004............................... $ 941
5
Property Development and Acquisitions:
- --------------------------------------
During the first quarter of 2004, we opened three newly developed self-storage
facilities (237,000 net rentable square feet), at a total cost of approximately
$27,395,000. In addition, we completed two conversions of industrial space at
the discontinued containerized storage facilities at a total cost of $3,296,000,
adding 116,000 net rentable square feet of self-storage space. We also completed
various expansions and remodeling projects to enhance existing properties'
visual and structural appeal at a cost of $6,523,000.
At March 31, 2004, there are 42 projects that are in construction or are
expected to begin construction generally by December 31, 2004, comprised of 11
newly developed self-storage facilities (718,000 net rentable square feet) with
total estimated costs of $75.3 million, 15 projects (530,000 net rentable square
feet) which expand existing self-storage facilities and enhance their visual
appeal for a total estimated cost of $39.1 million, and 16 projects (1,048,000
net rentable square feet) to convert industrial space at the discontinued
containerized storage facilities into self-storage space for a total estimated
cost of $34.2 million. These projects will be fully funded by the Company.
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 first quarter of 2004.
Containerized Storage Business:
- -------------------------------
As previously announced, management adopted a business plan in 2002 that
included the closure of 22 non-strategic containerized storage facilities.
During 2003 and 2004, an additional ten facilities (nine and one, respectively)
were identified as non-strategic and scheduled for closure. Collectively, these
32 facilities are referred to as the "Closed Facilities" and 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." As of March 31, 2004, three of the
Closed Facilities were in the process of closing which may take until the end of
the third quarter of 2004. For the three months ended March 31, 2004, impairment
charges totaling $169,000 were recorded with respect to the containerized
storage facility closed during the first quarter of 2004 (none for the quarter
ended March 31, 2003).
Issuance and Redemption of Preferred Stock:
- -------------------------------------------
On January 2, 2004, we issued 1,600,000 shares ($40.0 million) representing
interests in our 6.85% Cumulative Preferred Stock, Series Y at an issuance price
of $25.00 per share in a direct placement to an institutional investor. On March
5, 2004, we issued 4,500,000 depositary shares ($112.5 million) representing
interests in our 6.25% Cumulative Preferred Stock, Series Z (NYSE:PSAPrZ) in a
public offering at an issuance price of $25.00 per share. On March 31, 2004, we
issued 4,600,000 depositary shares ($115.0 million) representing interests in
our 6.125% Cumulative Preferred Stock, Series A (NYSE:PSAPrA) in a public
offering at an issuance price of $25.00 per share.
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 $25.00 per share, plus a sum
equal to all accrued and unpaid dividends from January 1, 2004 through the
redemption date. On March 10, 2004, we redeemed all 4,600,000 depositary shares
of our 8.25% Series L ($115.0 million) at a redemption price of $25.00 per
share, plus a sum equal to all accrued and unpaid dividends from January 1, 2004
through the redemption date.
Repurchases of Common Stock:
- ----------------------------
As previously reported, the Board of Directors has authorized the repurchase of
up to 25,000,000 shares of the Company's common stock. Cumulatively through
December 31, 2003, we had repurchased a total of 21,672,020 shares of common
stock. During the first quarter of 2004, we repurchased 85,000 shares of our
common stock for approximately $3,967,000. In addition, during April 2004, the
Company repurchased 324,700 shares of our common stock for an aggregate of
approximately $14,267,000.
Restructuring of Preferred Equity:
- ----------------------------------
As previously announced, on March 22, 2004, certain investors who hold $200
million of our 9.5% Series N Cumulative Redeemable Perpetual Preferred Units
agreed, in exchange for a special distribution of $8,000,000, to a reduction in
the distribution rate on their preferred units from 9.50% per year to 6.40% per
year. The investors also received their distribution that accrued from January
1, 2004 through the effective date of the exchange. We did not incur any third
party fees in this restructure.
6
As a result of this restructuring, income allocable to minority interests
increased, and our net income decreased $10,063,000 due to (1) the $8,000,000
cash payment to the holders of the preferred units and (2) the application of
the Securities and Exchange Commission's recent 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" totaling
$2,063,000, which represents the excess of the $200 million stated amount of the
preferred units over their carrying amount. Beginning with the second quarter of
2004, this restructuring will result in a decrease in income allocable to
minority interests causing an increase in our net income by $1.55 million per
quarter.
Amendment to Credit Facility:
- -----------------------------
On March 25, 2004, we amended our $200 million credit facility with Wells Fargo
and our banking group. The amendment provides for more flexible terms and
conditions and extends the term of facility to April 1, 2007. As of March 31,
2004, there were no outstanding borrowings on line of credit.
Distributions Declared:
- -----------------------
On May 6, 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 June 30, 2004 to shareholders of
record as of June 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 bore interest at 1.4% per annum and
matured on March 9, 2004. PS Business Parks, Inc. repaid the loan in full by
March 8, 2004.
First Quarter Conference Call:
- ------------------------------
A conference call is scheduled for Friday, May 7, 2004, at 9:00 a.m. (PDT) to
discuss these results. The participant toll free number is (877) 516-1540
(conference ID number 6829190). A simultaneous audio web cast may be accessed by
using the link at www.publicstorage.com under "Investor Relations" (conference
ID number 6829190). An instant replay of the conference call may be accessed
through May 9, 2004 by calling (800) 642-1687 and through June 7, 2004 by using
the link at www.publicstorage.com under "Investor Relations." Both forms of
replay utilize conference ID number 6829190.
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 March 31, 2004, the Company had interests in 1,413 storage facilities
with approximately 85.5 million net rentable square feet and 808,000 rentable
units.
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, 2003, "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 March 31, 2004, 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.
7
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
(unaudited)
For the Three Months Ended
March 31,
---------------------------------
2004 2003
-------------- --------------
(in thousands, except per share
data)
Revenues:
Rental income:
Self-storage facilities (a)...................................... $ 206,045 $ 189,496
Commercial properties............................................ 2,695 2,846
Containerized storage facilities (a)............................. 6,606 7,442
Tenant reinsurance............................................... 5,963 5,215
Interest and other income............................................. 1,357 1,699
-------------- --------------
222,666 206,698
-------------- --------------
Expenses:
Cost of operations:
Self-storage facilities (a)...................................... 75,562 65,299
Commercial properties............................................ 1,141 1,193
Containerized storage facilities (a)............................. 4,014 4,638
Tenant reinsurance............................................... 3,135 2,699
Depreciation and amortization........................................ 46,770 45,367
General and administrative (b)....................................... 5,884 4,250
Interest expense..................................................... 100 453
-------------- --------------
136,606 123,899
-------------- --------------
Income before minority interest in income, equity in earnings of real
estate entities, discontinued operations, and gain on disposition of
real estate....................................................... 86.060 82,799
Equity in earnings of real estate entities (c).......................... 4,057 4,687
Minority interest in income:
Allocable to preferred minority interests:
Based upon ongoing distributions (d)............................... (6,554) (6,726)
Special distribution and restructuring allocation (d).............. (10,063) -
Allocable to other partnership interests............................. (4,003) (3,942)
-------------- --------------
Income before discontinued operations and gain on disposition of real
estate............................................................ 69,497 76,818
Discontinued operations (a).......................................... (430) (193)
Gain on disposition of real estate assets............................ - 14
-------------- --------------
Net income.............................................................. $ 69,067 $ 76,639
============== ==============
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distributions paid........................................ $ 38,042 $ 37,022
Based on redemptions of preferred stock............................ 3,723 2,297
Allocable to equity shareholders, Series A............................ 5,375 5,375
Allocable to common shareholders...................................... 21,927 31,945
-------------- --------------
$ 69,067 $ 76,639
============== ==============
Per common share:
Net income per share - Basic and Diluted.............................. $0.17 $0.26
============== ==============
Weighted average common shares - Basic (e)............................ 127,182 124,078
============== ==============
Weighted average common shares - Diluted ............................. 128,387 125,232
============== ==============
(a) The historical operations of five self-storage facilities that the Company
disposed of in the fourth quarter of 2003 are classified as Discontinued
Operations. In addition, the historical operations of the 32 closed
containerized storage facilities are included in Discontinued Operations.
Included in Discontinued Operations for the quarter ended March 31, 2004
is a $169,000 impairment charge with respect to one containerized storage
facility closed in the first quarter of 2004.
(b) The increase in general and administrative expense is due to an increase
in stock-based compensation expense from $167,000 for the first quarter of
2003 to $967,000 for the same period in 2004, combined with expenses
associated with terminated employees in the amount of $610,000 in the
first quarter of 2004.
(c) The decrease in equity in earnings of real estate entities is attributable
primarily to our $943,000 share of PSB's EITF Topic D-42 allocations of
income recorded in the three months ended March 31, 2004 in connection
with redemptions of preferred securities, combined with our $1,852,000
share of higher depreciation due to PSB's acquisition of real estate in
the fourth quarter of 2003. This decrease was offset partially by our net
share of PSB's reduction in income from an impairment charge, net of a
gain on sale, recorded in the first quarter of 2003; our net share of
these amounts was $2,130,000 in the first quarter of 2003.
(d) During the quarter ended March 31, 2004, the holders of $200 million of
the series N preferred units agreed, in exchange for a special
distribution of $8 million, to a reduction in the distribution rate on
their preferred units from 9.50% per year to 6.40% per year, effective
March 22, 2004. This $8 million special distribution was reflected as
minority interest in income. In addition, in accordance with the SEC's
clarification of the EITF Topic D-42, the $2,063,000 in costs incurred
when the $200M in units were originally issued is reflected as minority
interest in income for the quarter ended March 31, 2004. The change in the
ongoing distribution rate is expected to reduce ongoing preferred minority
interest by approximately $1,550,000 per quarter beginning March 22, 2004.
(e) The increase in weighted average common shares - basic was due primarily
to the issuance of approximately 427,000 shares during the second quarter
of 2003 in connection with the acquisition of the remaining partnership
interests in an entity in which the Company held a partial equity
interest, as well as the issuance of an aggregate of approximately
3,555,000 shares during 2003 and 2004 in connection with the exercise of
employee stock options, partially offset by repurchases of an aggregate of
260,000 shares of our common stock during 2003 and for the three months
ended March 31, 2004.
8
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
March 31, December 31,
2004 2003
--------------- --------------
(unaudited)
(in thousands, except share
ASSETS and per share data)
------
Cash and cash equivalents....................................................... $ 319,635 $ 204,833
Operating real estate facilities:
Land and buildings, at cost.................................................. 5,165,743 5,125,498
Accumulated depreciation..................................................... (1,196,142) (1,153,059)
--------------- --------------
3,969,601 3,972,439
Construction in process........................................................ 51,199 69,620
Land held for development....................................................... 12,236 12,236
--------------- --------------
4,033,036 4,054,295
Investment in real estate entities.............................................. 335,739 336,696
Goodwill........................................................................ 78,204 78,204
Intangible assets, net.......................................................... 109,638 111,289
Mortgage notes receivable, including amounts from affiliates.................... 488 100,510
Other assets.................................................................... 83,640 82,242
--------------- --------------
Total assets........................................................... $ 4,960,380 $ 4,968,069
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................................... $ 49,313 $ 76,030
Preferred stock called for redemption........................................... - 115,000
Accrued and other liabilities................................................... 134,500 131,103
--------------- --------------
Total liabilities...................................................... 183,813 322,133
Minority interest - preferred................................................... 285,000 285,000
Minority interest - other....................................................... 139,528 141,137
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized, 7,368,486
shares issued (in series) and outstanding (5,763,986 at December 31, 2003),
at liquidation preference:
Cumulative Preferred Stock, issued in series........................... 2,019,525 1,867,025
Common Stock, $0.10 par value, 200,000,000 shares authorized, 127,712,895
shares issued and outstanding (126,986,734 at December 31, 2003)........... 12,771 12,699
Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
8,776.102 shares issued and outstanding.................................... - -
Paid-in capital.............................................................. 2,449,998 2,438,632
Cumulative net income........................................................ 2,435,727 2,366,660
Cumulative distributions paid................................................ (2,565,982) (2,465,217)
--------------- --------------
Total shareholders' equity............................................. 4,352,039 4,219,799
--------------- --------------
Total liabilities and shareholders' equity........................ $ 4,960,380 $ 4,968,069
=============== ==============
9
Public Storage, Inc.
Selected Financial Data
Computation of Funds from Operations
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
2004 2003
------------ ------------
(Amounts in thousands,
except per share data)
Computation of Funds from Operations (FFO) allocable to Common Stock
- --------------------------------------------------------------------
Net income.................................................................. $ 69,067 $ 76,639
Add back- depreciation and amortization................................. 46,770 45,367
Add back - depreciation and amortization included in Discontinued
Operations........................................................... 78 673
Add back - our pro-rata share of depreciation from equity investments... 8,275 6,294
Eliminate - depreciation with respect to non-real estate assets......... (1,148) (1,631)
Eliminate - our pro-rata share of PS Business Parks, Inc.'s gain on
sale of real estate.................................................. - (469)
Eliminate - gain on sale of real estate assets.......................... - (14)
Add back - minority interest share of income............................ 20,620 10,668
------------ ------------
Consolidated FFO............................................................ 143,662 137,527
Allocable to preferred minority interests:
Based upon ongoing distributions (a)...................................... (6,554) (6,726)
Special distribution and restructuring allocation (a).................... (10,063) -
Allocable to minority interest - other partnership interests ............... (5,578) (5,588)
------------ ------------
Remaining FFO allocable to our shareholders................................. 121,467 125,213
Less: allocations to preferred and equity stock shareholders:
Senior Preferred distributions.......................................... (38,042) (37,022)
Issuance costs on redeemed preferred shares (b)......................... (3,723) (2,297)
Equity Stock, Series A distributions.................................... (5,375) (5,375)
------------ ------------
(47,140) (44,694)
------------ ------------
Remaining FFO allocable to Common Stock (b)................................. $ 74,327 $ 80,519
============ ============
Weighted average shares:
Regular common shares.................................................... 127,182 124,078
Weighted average stock options outstanding using treasury method (c)..... 1,205 1,154
------------ ------------
Weighted average common shares for purposes of computing fully-diluted FFO
per common share........................................................ 128,387 125,232
============ ============
FFO per common share (a) (b) (c) (d)........................................ $ 0.58 $ 0.64
============ ============
(a) During the quarter ended March 31, 2004, the holders of $200 million of
the series N preferred units agreed, in exchange for a special
distribution of $8 million, to a reduction in the distribution rate on
their preferred units from 9.50% per year to 6.40% per year, effective
March 22, 2004. This $8 million special distribution was reflected as
minority interest in income. In addition, in accordance with the SEC's
clarification of EITF Topic D-42, the $2,063,000 in costs incurred when
the $200M in units were originally issued is reflected as minority
interest in income for the quarter ended March 31, 2004. The change in the
ongoing distribution rate is expected to reduce ongoing preferred minority
interest by approximately $1,550,000 per quarter beginning March 22, 2004.
(b) 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 Stock and FFO per common share for the
three months ended March 31, 2003 have been restated to reflect 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."
(c) During the three months ended March 31, 2004 and 2003, we incurred stock
based compensation expense of approximately $967,000 and $167,000,
respectively. In addition, the increase in our average common share price
during the first quarter of 2004, as compared to the same period in 2003,
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 2,939,000 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 March 31, 2004 as compared to the same
period in 2003.
(d) FFO per share was negatively affected by dilution relating to the 78 newly
developed facilities opened by the Company or the Consolidated Development
Joint Venture since January 1, 2000. Based upon an average cost of capital
of 8%, this dilution amounted to approximately $0.04 for each of the three
months ended March 31, 2004 and 2003, respectively. FFO was also
negatively impacted a total of approximately $0.03 and $0.01 per share for
the three months ended March 31, 2004 and 2003, respectively, as a result
of uninvested cash balances, primarily representing the differential
between the distribution rates with respect to these securities and the
nominal interest income earned on the uninvested proceeds.
10
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
2004 2003
------------ ------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
- --------------------------------------------------------
FFO allocable to Common Stock (a)................................ $ 74,327 $ 80,519
Add: Stock option expense........................................ 119 99
Restricted stock expense................................ 534 -
Impact of application of EITF Topic D-42 (b)............ 6,729 2,297
Our share of PSB's real estate impairment charges....... - 2,599
Less: Capital expenditures to maintain facilities................ (2,705) (2,333)
------------ ------------
Funds available for distribution ("FAD") (c)..................... $ 79,004 $ 83,181
============ ============
Distributions to common shareholders............................. $ 57,348 $ 55,995
============ ============
Distribution payout ratio (c)................................... 72.6% 67.3%
============ ============
(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) The three months ended March 31, 2004 includes $3,723,000 with respect to
the redemption of our Cumulative Preferred Series L, $2,063,000 with
respect to the restructuring of the Series N preferred partnership
interests, and $943,000 representing our pro rata share of PSB's EITF
Topic D-42 allocations of income. The amount for the three months ended
March 31, 2003, pertains to the redemption of our Cumulative Preferred
Series B.
(c) 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
equity holders 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 real estate companies.
11
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
March 31,
--------------------------
2004 2003
------------ -----------
(Amounts in thousands)
Rental income for the 1,271 Same Store facilities....... $ 190,967 $ 179,666
Less - rental income for Same Store facilities
accounted for on the equity method of accounting
(a)................................................ (6,134) (5,720)
Add: rental income for other non Same Store facilities
(b)................................................ 21,212 15,550
------------ -----------
Consolidated self-storage rental income.............. $ 206,045 $ 189,496
============ ===========
Cost of operations for the 1,271 Same Store facilities.. $ 67,784 $ 59,670
Less - cost of operations for Same Store facilities
accounted for on the equity method of accounting (a) (1,834) (1,625)
Add: cost of operations for other non Same Store
facilities (b).................................... 9,612 7,254
------------ -----------
Consolidated self-storage cost of operations........ $ 75,562 $ 65,299
============ ===========
(a) At March 31 2004, the Company has a noncontrolling ownership interest in
33 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, 2002 through March 31, 2004, or
because the Company acquired these facilities from third parties after
December 31, 2001.
12