Public Storage, Inc. Exhibit 99.1
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: March 3, 2005
Contact: Mr. Harvey Lenkin
(818) 244-8080
PUBLIC STORAGE, INC. REPORTS RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED
DECEMBER 31, 2004
Glendale, California - Harvey Lenkin, President of Public Storage, Inc. (NYSE
and PCX: PSA), announced today operating results for the quarter and year ended
December 31, 2004.
OPERATING RESULTS FOR THE QUARTER ENDED DECEMBER 31, 2004:
- ----------------------------------------------------------
Net income for the three months ended December 31, 2004 was $107,271,000
compared to $85,970,000 for the same period in 2003, representing an increase of
$21,301,000 or 24.8%. This increase is primarily due to improved operations from
our Same Store, acquired and newly developed self-storage facilities, an
increase in equity in earnings of real estate entities, a decrease in general
and administrative expense, and a decrease in income allocable to minority
interests as a result of our restructuring of $200 million of our Series N
preferred partnership units. Equity in earnings of real estate entities
increased primarily as a result of our pro-rata share of earnings from PS
Business Parks, Inc. ("PSB") which, for the three months ended December 31,
2004, includes our $6.7 million share of a gain from the sale of real estate.
General and administrative expense decreased primarily as a result of the
disposition of a legal matter for an amount that was approximately $1.3 million
less than what we had previously estimated. These items were partially offset by
a reduction in discontinued operations as a result of a $5.5 million gain from
the sale of real estate assets recorded in the fourth quarter of 2003 as
compared to a $1.0 million gain in the same period in 2004.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $59,335,000 or $0.46 per common share
on a diluted basis (based on 129,088,000 weighted average diluted common
equivalent shares) for the three months ended December 31, 2004 compared to
$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 same period in 2003,
representing an increase of 53.8% in the aggregate or 53.3% on a per share
basis. The increases in net income allocable to common shareholders and earnings
per common diluted share are due to the impact of the factors described above
with respect to net income.
For the three months ended December 31, 2004 and 2003, we allocated $40,632,000
and $38,282,000 of our net income, respectively, to our preferred shareholders
based on distributions paid. For the three months ended December 31, 2004, we
recorded an additional allocation of net income to our preferred shareholders
and a corresponding reduction of net income allocation to our common
shareholders of $1,929,000 or $0.01 per common share on a diluted basis with
respect to our calling for redemption our Series E Preferred Stock (which was
subsequently redeemed in January 2005), pursuant to Emerging Issues Task Force
Topic D-42 ("EITF Topic D-42"). For the same period in 2003, such allocations
totaled $3,723,000 (or $0.03 per common diluted share) with respect to our
redemption of our Series K Preferred Stock.
Weighted average diluted shares increased from 127,825,000 for the three months
ended December 31, 2003 to 129,088,000 for the three months ended December 31,
2004 due primarily to the exercise of employee stock options.
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2004:
- -------------------------------------------------------
Net income for the year ended December 31, 2004 was $366,213,000 compared to
$336,653,000 for the same period in 2003, representing an increase of
$29,560,000 or 8.8%. This increase is primarily due to improved operations from
our Same Store, acquired and newly developed self-storage facilities, combined
with a decrease in income allocable to minority interests based upon ongoing
distributions as a result of our restructuring of $200 million of our Series N
preferred partnership units. These factors are partially offset by an increase
in the allocation of income to minority interest of $10,063,000 attributable to
the restructuring of our preferred partnership interests, increased general and
administrative expense attributable primarily to increased stock-based
compensation expense and reduced gains on sale of discontinued real estate
facilities.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders), was $178,063,000 or $1.38 per common
share on a diluted basis (based on 128,681,000 weighted average diluted common
1
equivalent shares) for the year ended December 31, 2004 compared to $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 same period in 2003,
representing an increase of 10.0% in the aggregate or 7.8% on a per share basis.
The increase in our net income allocable to common shareholders and earnings per
common diluted share is due primarily to the factors denoted above with respect
to the increase in net income, offset partially by an increase in the amount of
income allocated to our preferred shareholders.
For the years ended December 31, 2004 and 2003, we allocated $157,925,000 and
$146,196,000 of our net income, respectively, to our preferred shareholders
based on distributions paid. In addition, for the years ended December 31, 2004
and 2003, we allocated a total of $8,724,000 and $7,120,000 to our preferred
shareholders due the application of EITF Topic D-42 with respect to our
redemption of our various series of our preferred stock.
Weighted average diluted shares increased from 126,517,000 for the year ended
December 31, 2003 to 128,681,000 for the year ended December 31, 2004 due
primarily to the exercise of employee stock options.
FUNDS FROM OPERATIONS:
- ----------------------
For the three months ended December 31, 2004, funds from operations ("FFO")
increased to $0.82 per common share on a diluted basis as compared to $0.68 for
the same period in 2003, representing an increase of 20.6%. Funds from
operations per common share for the year ended December 31, 2004 increased to
$2.93 per common share on a diluted basis as compared to $2.81 for the same
period in 2003, representing an increase of 4.3%.
Funds from operations has been negatively impacted as a result of the
application of EITF Topic D-42 in connection with the redemption of preferred
securities, the payment of a special distribution to certain preferred unit
holders in connection with the restructure of the securities, casualty losses
sustained from the hurricanes, and asset impairment charges. The following table
provides a summary of the impact of these items that have occurred during the
three months and year ended December 31, 2004 and 2003.
Three Months Ended Year Ended
December 31, December 31,
------------------------------- -------------------------------
% %
2004 2003 Change 2004 2003 Change
--------- --------- -------- --------- ------- ----------
Funds from operations per common share prior to
adjustments for the following items....... $ 0.83 $ 0.71 16.9% $ 3.11 $2.89 7.6%
Impact as a result of the excess redemption
costs over carrying value of preferred
securities (application of EITF Topic D-42) (0.01) (0.03) (0.10) (0.06)
Special distribution paid to preferred
unitholders in connection with
restructuring the terms of the units...... - - (0.06) -
Casualty loss from hurricanes................. - - (0.02) -
Real estate asset impairment charges through
our pro-rata share of PSB's earnings...... - - - (0.02)
--------- --------- --------- -------
Funds from operations per common share, as
reported.................................. $ 0.82 $ 0.68 20.6% $ 2.93 $2.81 4.3%
========= ========= ========= =======
FFO is a term defined by the National Association of Real Estate Investment
Trusts. 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 our
scheduled principal payments on debt, capital improvements, distributions, or
other obligations of the Company. FFO is not a substitute for our cash flow or
net income as a measure of our liquidity or operating performance or our ability
to pay dividends. Other REIT's may not compute FFO in the same manner;
accordingly, FFO may not be comparable among REIT's. FFO is presented because
management and many analysts consider FFO to be one measure of the performance
of real estate companies and because we believe that FFO is helpful to investors
as an additional measure of performance of a REIT. See the attached
reconciliation of net income to funds from operations included in the selected
financial data attached to this press release.
2
PROPERTY OPERATIONS:
- --------------------
We derive substantially all of our revenues from the ownership and management of
self-storage facilities. In order to evaluate the performance of our overall
self-storage portfolio, management analyzes the operating performance of a
consistent group of self-storage facilities.
These facilities consist of 1,271 self-storage facilities, representing
approximately 87% of the 1,464 self-storage facilities in which we have an
ownership interest (the 1,271 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, 2002 and
include 1,238 facilities that are consolidated by us and 33 facilities owned by
unconsolidated entities in which we have an investment.
Selected Operating Data for the Same Store
- ------------------------------------------
Facilities (1,271 Facilities):
- ------------------------------
Three Months Ended December 31, Year Ended December 31,
---------------------------------------- ---------------------------------------
Percentage Percentage
2004 2003 Change 2004 2003 Change
----------- ----------- ----------- ----------- --------- ------------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income, net of discounts............ $ 191,534 $ 183,795 4.2% $ 754,655 $ 720,296 4.8%
Late charges and administrative fees
collected.......................... 8,447 7,409 14.0% 33,320 29,780 11.9%
----------- ----------- ----------- ----------- --------- ------------
Total revenues (a)......................... 199,981 191,204 4.6% 787,975 750,076 5.1%
Cost of operations:
Property taxes (b)......................... 17,233 17,599 (2.1)% 71,391 69,681 2.5%
Direct property payroll.................... 15,356 14,444 6.3% 59,769 57,791 3.4%
Advertising and promotion.................. 6,768 4,867 39.1% 22,389 21,456 4.3%
Utilities.................................. 4,880 4,800 1.7% 19,501 18,134 7.5%
Repairs and maintenance.................... 5,857 7,266 (19.4)% 22,815 21,300 7.1%
Telephone reservation center............... 2,260 3,021 (25.2)% 10,723 10,952 (2.1)%
Property insurance......................... 2,076 2,307 (10.0)% 8,992 8,848 1.6%
Other costs of management.................. 14,156 13,265 6.7% 53,083 47,989 10.6%
----------- ----------- ----------- ----------- --------- ------------
Total cost of operations (a)................. 68,586 67,569 1.5% 268,663 256,151 4.9%
----------- ----------- ----------- ----------- --------- ------------
Net operating income (before depreciation) (c). $ 131,395 $ 123,635 6.3% $ 519,312 $ 493,925 5.1%
=========== =========== =========== =========== ========= ============
Gross margin................................... 65.7% 64.7% 1.5% 65.9% 65.8% 0.2%
Weighted average for the period:
Square foot occupancy (d).................... 90.7% 90.7% 0.0% 90.9% 89.2% 1.9%
Realized annual rent per occupied square foot
(e)............................................ $ 11.41 $ 10.95 4.2% $ 11.22 $ 10.91 2.8%
REVPAF (f)................................... $ 10.35 $ 9.93 4.2% $ 10.20 $ 9.73 4.8%
Weighted average at December 31:
Square foot occupancy........................ 90.0% 89.6% 0.4%
In place annual rent per occupied square foot
(g)............................................ $ 12.33 $ 11.94 3.3%
Total net rentable square feet (in thousands).. 74,002 74,002 0.0%
a) See attached reconciliation of these amounts to our consolidated
self-storage revenues and operating expenses.
b) The reduction in property tax expense for the quarter ended December 31,
2004, is caused by a downward revision in our estimate of property tax
expense for the full year. Based upon property tax bills we received
during the fourth quarter, we determined that we had over accrued property
tax expense during the nine months ended September 30, 2004. As a result,
we reduced both our property tax liability and property tax expense by
approximately $800,000 in the quarter ended December 31, 2004.
c) We disclose net operating income of the Same Store facilities before
depreciation expense, because we believe that net operating income before
depreciation is an important measure of our operating performance.
d) Square foot occupancies represent weighted average occupancy levels over
the entire period.
3
e) Realized annual rent per occupied square foot is computed by dividing
annualized rental income, net of discounts, by the weighted average
occupied square footage for the period. Realized rent per square foot
takes into consideration promotional discounts, bad debt costs, credit
card fees and other costs that reduce rental income from the contractual
amounts due.
f) Annualized revenue per available square foot ("REVPAF") represents
annualized rental income, net of discounts, divided by total available net
rentable square feet.
g) In place annual rent per occupied square foot represents contractual rents
per occupied square foot without reductions for promotional discounts.
4
The growth in rental income during 2005 will depend upon various factors, among
which will be our ability to stabilize and maintain high occupancy levels, and
increase rental rates charged to new and existing customers. The following table
summarizes additional selected financial data with respect to our Same Stores:
Three Months Ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Full Year
-------------- -------------- ------------- ------------- ------------
Media advertising expense (in 000's):
2003..................................... $ 1,760 $ 2,987 $ 3,369 $ 1,148 $ 9,264
2004..................................... $ 3,366 $ 1,975 $ 2,013 $ 3,153 $ 10,507
REVPAF:
2003..................................... $ 9.33 $ 9.65 $ 10.02 $ 9.93 $ 9.73
2004..................................... $ 9.87 $ 10.16 $ 10.41 $ 10.35 $ 10.20
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 $ 11.11 $ 11.34 $ 11.41 $ 11.22
Weighted average square foot occupancy levels for the period:
2003..................................... 84.9% 89.2% 92.0% 90.7% 89.2%
2004..................................... 89.6% 91.4% 91.8% 90.7% 90.9%
Weighted average occupancy at December 31,
2003..................................... 89.6%
2004..................................... 90.0%
Weighted average occupancy at the end of February:
2004..................................... 89.4%
2005..................................... 89.6%
Media advertising expense for the two months ended February (in 000's):
2004..................................... $ 1,806
2005..................................... $ 2,035
EFFECTS FROM THE REDEMPTION OF PREFERRED SECURITIES
- ---------------------------------------------------
We have approximately $197,375,000 in preferred securities that become
redeemable at our option in 2005, as follows.
Earliest
Redemption Dividend Liquidation
Security Date Rate Value (000's)
- ---------------------------------- ---------- --------- --------------
Series E Preferred Stock (a) 1/31/05 10.000% $ 54,875
Series N Preferred Units (b) 3/17/05 9.500% 40,000
Series O Preferred Units (b) 3/29/05 9.125% 45,000
Series F Preferred Stock 4/30/05 9.750% 57,500
Total securities available for --------- --------------
redemption through 12/31/05 9.626% $ 197,375
========= ==============
(a) Our Series E Preferred Stock was called for redemption on December 22,
2004, and subsequently redeemed on January 31, 2005.
(b) During February 2005, these securities were called for redemption. The
redemptions will take effect on their earliest redemption dates noted in
the table above.
We expect that we will redeem each of these securities at each respective
earliest redemption date. Cash on-hand at December 31, 2004, will be utilized to
redeem these securities. As a result of the upcoming redemptions of these
preferred securities, we expect that application of EITF Topic D-42 will reduce
net income applicable to our common shareholders by approximately $2,778,000 (or
approximately $0.02 per common diluted share) in the first quarter of 2005.
5
DEVELOPMENT AND ACQUISITION ACTIVITIES:
- ---------------------------------------
During the fourth quarter of 2004, we opened three conversions of space at
former containerized storage facilities at a total cost of $6.9 million, adding
252,000 net rentable square feet of self-storage space.
At December 31, 2004, there were 47 projects that were either under construction
or were expected to begin construction generally within the next year, comprised
of 10 newly developed self-storage facilities (754,000 net rentable square feet)
with total estimated cost of $98.4 million, 17 projects (819,000 net rentable
square feet) which expand existing self-storage facilities and enhance their
visual appeal for a total estimated cost of $60.1 million, and 20 projects
(1,427,000 net rentable square feet) to convert space at former containerized
storage facilities into self-storage space for a total estimated cost of $52.2
million. These projects will be fully funded by us. Opening dates for these
facilities are estimated through the next 24 months. The development of these
facilities is subject to various risks and contingencies.
In the fourth quarter of 2004, we acquired 43 facilities from third parties,
consisting of approximately 3.0 million net rentable square feet, for an
aggregate cost of approximately $251.2 million, consisting of $94.7 million in
assumed mortgage debt, $25 million of our 6.25% Series Z Preferred Units, and
$131.5 million in cash.
On December 31, 2004, seven facilities that we had previously acquired in 2004
were acquired from us by our Acquisition Joint Venture, in which we have a 30%
interest, for an aggregate of $23.0 million in cash. In January 2005, the
Acquisition Joint Venture acquired an interest in three additional facilities
from us, that we had also previously acquired in 2004, for an aggregate of $27.4
million in cash. Our joint venture partner's 70% contribution with respect to
these facilities is reflected as "Debt to Joint Venture Partner" on our balance
sheet.
In January 2005, we acquired 6 additional self-storage facilities from third
parties (total net rentable square feet of 304,000) at an aggregate cost of
approximately $23.6 million of cash. These acquisitions were funded entirely by
us.
As of March 2, 2005, we are under contract to purchase five self-storage
facilities (total approximate net rentable square feet of 377,000) at an
aggregate cost of approximately $34.9 million. We anticipate that these
acquisitions will be funded entirely by us. Each of these contracts is subject
to significant contingencies, and there is no assurance that any of these
facilities will be acquired.
ISSUANCE AND REDEMPTION OF PREFERRED SECURITIES:
- ------------------------------------------------
As indicated above, in connection with the acquisition of self-storage
facilities during the fourth quarter of 2004, we issued $25.0 million of our
6.25% Series Z Preferred Units. The holders of these units have a one-time
option, exercisable five years from issuance, to require us to redeem their
units for $25 million cash plus unpaid and accrued distributions.
On December 22, 2004, we called for redemption all of the outstanding shares
(total liquidation value of $54.9 million) of our 10.0% Cumulative Preferred
Stock, Series E, at $25 per share plus accrued dividends. These shares were
subsequently redeemed on January 31, 2005.
As indicated above, we have called for redemption our 9.5% Series N Preferred
Units ($40.0 million) and our 9.125% Series O Preferred Units ($45.0 million).
Each of these securities will be redeemed for cash in March 2005.
On February 15, 2005, we priced a public offering of 5,400,000 depositary
shares, with each depositary share representing 1/1,000 of a share of 6.18%
Cumulative Preferred Stock, Series D. The offering resulted in $135 million of
gross proceeds on February 28, 2005.
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. During the quarter ended
December 31, 2004, we repurchased 36,000 shares of our common stock at an
aggregate cost of approximately $2,061,000. No additional shares were
repurchased between January 1, 2005 and March 3, 2005.
MANAGEMENT CHANGES:
- -------------------
David F. Doll has joined the Company as senior vice president and president of
the real estate group with overall responsibility for the Company's real estate
activities, including property acquisitions, developments, and repackagings. Mr.
Doll has 20 years of real estate experience in an executive capacity. Before
joining the Company, he was the senior executive vice president of Westfield
Corporation, a major owner and operator of shopping malls.
6
DISTRIBUTIONS DECLARED:
- -----------------------
On March 3, 2005, 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 the distributions are payable on March 31, 2005 to shareholders of
record as of March 15, 2005.
FOURTH QUARTER CONFERENCE CALL:
- -------------------------------
A conference call is scheduled for Friday, March 4, 2005, at 9:00 a.m. (PT) to
discuss these results. The participant toll free number is (877) 516-1540
(conference ID number 3158012). A simultaneous audio web cast may be accessed by
using the link at www.publicstorage.com under "Investor Relations" (conference
ID number 3158012). An instant replay of the conference call may be accessed
through April 4, 2005 by calling (800) 642-1687 and through April 6, 2005 by
using the link at www.publicstorage.com under "Investor Relations." Both forms
of replay utilize conference ID number 3158012.
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, 2004 the Company had interests in 1,464 storage
facilities with approximately 89.2 million net rentable square feet (843,000
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 21E 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 market 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, 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)
Three Months Ended Year Ended
December 31, December 31,
--------------------------------- ---------------------------
2004 2003 2004 2003
-------------- ---------------- ------------- ------------
(In thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities (a).................... $ 224,438 $ 205,239 $ 863,463 $ 798,584
Commercial properties (a)...................... 2,686 2,702 10,750 11,001
Containerized storage facilities (a)........... 4,256 5,496 19,355 23,991
Tenant reinsurance premiums...................... 5,977 5,913 24,243 22,464
Interest and other income........................ 2,925 1,203 10,165 8,628
-------------- ---------------- ------------- ------------
240,282 220,553 927,976 864,668
-------------- ---------------- ------------- ------------
Expenses:
Cost of operations:
Self-storage facilities (a).................... 76,802 74,250 300,921 280,905
Commercial properties (a)...................... 1,128 1,168 4,328 4,583
Containerized storage facilities (a)........... 3,033 3,226 11,774 13,939
Tenant reinsurance............................. 2,419 3,356 13,508 11,987
Depreciation and amortization.................... 47,633 48,375 183,148 184,145
General and administrative (b)................... 2,830 3,806 18,813 17,127
Interest expense................................. 660 - 760 1,121
-------------- ---------------- ------------- ------------
134,505 134,181 533,252 513,807
-------------- ---------------- ------------- ------------
Income from continuing operations before equity in
earnings of real estate entities, asset impairment
charge, gain on disposition of real estate
investments and minority interest in income....... 105,777 86,372 394,724 350,861
Equity in earnings of real estate entities (c)....... 10,918 5,510 22,564 24,966
Asset impairment charge due to casualty loss from
hurricanes........................................ - - (1,250) -
Gain on disposition of real estate investments....... 31 200 1,317 1,007
Minority interest in income:
Allocable to preferred minority interests:
Based upon ongoing distributions (d)............. (5,516) (6,727) (22,423) (26,906)
Special distributions and restructuring allocation
(d).............................................. - - (10,063) -
Other partnership interests ........................ (4,499) (4,394) (17,427) (16,797)
-------------- ---------------- ------------- ------------
Income from continuing operations.................... 106,711 80,961 367,442 333,131
Discontinued operations - containerized storage (a) (420) (669) (2,351) (2,729)
Discontinued operations - self-storage and
commercial (a)................................... 980 5,678 1,122 6,251
-------------- ---------------- ------------- ------------
Net income $ 107,271 $ 85,970 $ 366,213 $ 336,653
============== ================ ============= ============
Net income allocation:
Allocable to preferred shareholders..............
Based on distributions paid.................... $ 40,632 $ 38,282 $ 157,925 $ 146,196
Based on redemptions of preferred stock........ 1,929 3,723 8,724 7,120
Allocable to equity shareholders, Series A....... 5,375 5,375 21,501 21,501
Allocable to common shareholders................. 59,335 38,590 178,063 161,836
-------------- ---------------- ------------- ------------
$ 107,271 $ 85,970 $ 366,213 $ 336,653
============== ================ ============= ============
Per common share:
Net income per share - Basic..................... $0.46 $0.31 $1.39 $1.29
============== ================ ============= ============
Net income per share - Diluted................... $0.46 $0.30 $1.38 $1.28
============== ================ ============= ============
Weighted average common shares - Basic (e)....... 128,438 126,490 127,836 125,181
============== ================ ============= ============
Weighted average common shares - Diluted (e)..... 129,088 127,825 128,681 126,517
============== ================ ============= ============
8
(a) The historical operations of five self-storage facilities and one commercial
facility that we sold are classified as "Discontinued operations -
self-storage and commercial," including gains on sale aggregating $971,000
and $5,476,000 for the three months ended December 31, 2004 and 2003,
respectively. In addition, the historical operations of the containerized
storage facilities that we have closed are included in "Discontinued
operations - containerized storage." The caption "Discontinued operations -
containerized storage" includes asset impairment and lease termination
charges totaling $1,991,000 and $2,479,000 for the year ended December 31,
2004 and 2003, respectively, and $1,205,000 for the quarter ended December
31, 2003 (none for the quarter ended December 31, 2004). Also, during the
year ended December 31, 2003 a $750,000 impairment charge and a $355,000
loss on sale was recorded with respect to a real estate facility previously
used by the containerized storage operations was recorded and included in
discontinued operations.
(b) The increase in general and administrative expense for the year ended
December 31, 2004 compared to the same period in 2003 is primarily due to an
increase in stock based compensation and severance costs. The decrease in
general and administrative expense for the quarter ended December 31, 2004
as compared to the same period in 2003 is due primarily to the disposition
of a legal liability for an amount less than previously estimated.
(c) The increase in equity in earnings for the three months ended December 31,
2004 as compared to the same period in 2003 is due primarily to our $6.7
million share of a gain on sale of real estate assets recorded by PSB. The
decrease in equity in earnings for the year ended December 31, 2004 as
compared to the same period in 2003 is due primarily to our $6.0 million
share of PSB's increased depreciation expense due to its acquisition of
significant real estate assets in the fourth quarter of 2003.
(d) As previously reported, in the first quarter of 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 $200
million in units were originally issued is reflected as minority interest in
income for the year ended December 31, 2004. The change in the ongoing
distribution rate reduced preferred minority interest by approximately
$1,550,000 in the quarter ended December 31, 2004 as compared to the same
quarter in 2003. This impact was partially offset by the issuance of $25
million of our 6.25% Series Z preferred partnership units in the quarter
ended December 31, 2004 in connection with the acquisition of real estate
facilities.
(e) The increase in weighted average common share - basic and diluted was due
primarily to the issuance of an aggregate of 4.7 million shares of common
stock in connection with the exercise of employee stock options since
January 1, 2003.
9
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
December 31, December 31,
2004 2003
---------------- ------------------
(In thousands, except share and per
share data)
ASSETS
Cash and cash equivalents .................................... $ 366,255 $ 204,833
Operating real estate facilities:
Land and building, at cost................................. 5,510,750 5,125,498
Accumulated depreciation................................... (1,320,200) (1,153,059)
---------------- ------------------
4,190,550 3,972,439
Construction in process....................................... 47,277 69,620
Land held for development..................................... 8,883 12,236
---------------- ------------------
4,246,710 4,054,295
Investment in real estate entities............................ 341,304 336,696
Goodwill...................................................... 78,204 78,204
Intangible assets, net........................................ 104,685 111,289
Mortgage notes receivable, including amounts from affiliates.. 492 100,510
Other assets.................................................. 67,140 82,242
---------------- ------------------
Total assets........................................... $ 5,204,790 $ 4,968,069
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................. $ 129,519 $ 76,030
Debt to joint venture partner................................. 16,095 -
Preferred stock called for redemption......................... 54,875 115,000
Accrued and other liabilities................................. 145,431 131,103
---------------- ------------------
Total liabilities...................................... 345,920 322,133
Minority interest - preferred................................. 310,000 285,000
Minority interest - other..................................... 118,903 141,137
Commitments and contingencies................................. - -
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares
authorized, 3,980,186 shares issued (in series) and outstanding
(5,763,986 at December 31, 2003) at liquidation preference
Cumulative Preferred Stock, issued in series............. 2,102,150 1,867,025
Common Stock, $0.10 par value, 200,000,000 shares authorized,
128,526,450 shares issued and outstanding (126,986,734 at
December 31, 2003)......................................... 12,853 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............................................ 2,457,568 2,438,632
Cumulative net income...................................... 2,732,873 2,366,660
Cumulative distribution paid............................... (2,875,477) (2,465,217)
---------------- ------------------
Total shareholders' equity............................... 4,429,967 4,219,799
---------------- ------------------
Total liabilities and shareholders' equity............. $ 5,204,790 $ 4,968,069
================ ==================
10
Public Storage, Inc.
Selected Financial Data
Computation of Funds from Operations (a)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
--------------------------- --------------------------
2004 2003 2004 2003
------------- ----------- ----------- -----------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common
Stock
Net income...................................................... $ 107,271 $ 85,970 $ 366,213 $ 336,653
Add back - depreciation and amortization.................... 47,633 48,375 183,148 184,145
Add back - depreciation and amortization included in
Discontinued Operations................................. 92 679 1,197 3,858
Add back - our pro-rata share of depreciation from equity
investments............................................. 8,665 7,400 33,720 27,753
Eliminate - depreciation with respect to non-real estate
assets...................................................... (996) (1,354) (4,252) (6,206)
Eliminate - our pro-rata share of PSB's gain on sale of
real estate............................................. (6,653) 266 (6,715) (2,786)
Eliminate - gain on sale of real estate assets.............. (1,002) (5,321) (2,288) (6,128)
Add back - minority interest share of income................ 10,015 11,121 49,913 43,703
------------- ----------- ----------- -----------
Consolidated FFO................................................ 165,025 147,136 620,936 580,992
Allocable to preferred minority interest:
Based upon ongoing distributions (b)........................ (5,516) (6,727) (22,423) (26,906)
Special distribution and Topic D-42 allocation (b).......... - - (10,063) -
Allocable to minority interest - other partnership interests.... (5,694) (5,982) (23,473) (23,125)
------------- ----------- ----------- -----------
Remaining FFO allocable to our shareholders..................... 153,815 134,427 564,977 530,961
Less: allocations to preferred and equity stock shareholders:
Preferred shareholder distributions......................... (40,632) (38,282) (157,925) (146,196)
Issuance costs on redeemed preferred shares................. (1,929) (3,723) (8,724) (7,120)
Equity Stock, Series A distributions........................ (5,375) (5,375) (21,501) (21,501)
------------- ----------- ----------- -----------
Remaining FFO allocable to Common Stock (a)..................... $ 105,879 $ 87,047 $ 376,827 $ 356,144
============= =========== =========== ===========
Weighted average shares:
Regular common shares....................................... 128,438 126,490 127,836 125,181
Weighted average stock options and restricted stock units
outstanding using treasury method (c)....................... 650 1,335 845 1,336
------------- ----------- ----------- -----------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share.............................. 129,088 127,825 128,681 125,181
============= =========== =========== ===========
FFO per common share (a) (d) (e)................................ $ 0.82 $ 0.68 $ 2.93 $ 2.81
============= =========== =========== ===========
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT"). It is generally defined as net
income before depreciation and gains and losses on real estate assets. FFO
is presented because management and many analysts consider FFO to be one
measure of the performance of real estate companies and because we believe
that FFO is helpful to investors as an additional measure of the performance
of a REIT. 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 our cash flow or net income as a
measure of our liquidity or operating performance or our ability to pay
dividends. Other REIT's may not compute FFO in the same manner; accordingly,
FFO may not be comparable among REIT's.
(b) As previously reported, in the first quarter of 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 $200
million 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 reduced preferred minority interest by approximately
$1,550,000 in the quarter ended December 31, 2004 as compared to the same
quarter in 2003. Additionally, in conjunction with an acquisition during
fourth quarter 2004, we issued $25 million in preferred units at 6.25% per
year which increased minority interest by approximately $339,000 for the
fourth quarter 2004 compared to the same period in 2003.
11
(c) The decrease in weighted average stock options and restricted stock units
outstanding using the treasury method is due primarily to employees'
exercise of stock options, offset partially by the impact of a higher
average stock price in the quarter and year ended December 31, 2004 as
compared to the same period in 2003.
(d) FFO per share was negatively affected by dilution relating to the 82 newly
developed facilities opened by us or the Consolidated Development Joint
Venture since January 1, 2000. Based upon an average cost of capital of 8%,
this dilution amounted to approximately $0.02 and $0.12 for the three months
and year ended December 31, 2004, respectively, as compared to $0.03 and
$0.15, respectively, for the same periods in 2003.
(e) We have significant uninvested cash balances, primarily from the issuance of
preferred securities. These cash balances negatively impact our funds from
operations per share, because the earnings on the cash balances are
substantially less than the corresponding dividend rate. Our funds from
operations per share were negatively impacted by a total of $0.04 and $0.16
for the quarter and year ended December 31, 2004, respectively, as compared
to $0.02 and $0.06 for the same periods in 2003, based upon the difference
between an average preferred coupon rate of 6.5% and the interest earned on
the cash balances.
12
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution (b)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------------------ --------------------------
2004 2003 2004 2003
------------ ---------- ------------ ------------
(Amounts in thousands, except per share data)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Stock (a)........................ $ 105,879 $ 87,047 $ 376,827 $ 356,144
Add: Stock-based compensation expense.................... 848 835 2,963 1,500
Impact of application of EITF Topic D-42.............. 1,929 3,723 10,787 7,120
Our share of PSB's EITF Topic D-42 charges............ - - 2,171 -
Real estate impairment charge......................... - - - 750
Our share of PSB's real estate impairment charges..... - - - 2,599
Less: Capital expenditures to maintain facilities........ (15,571) (9,705) (35,868) (30,175)
------------ ---------- ------------ ------------
Funds available for distribution ("FAD") (b)............. $ 93,085 $ 81,900 $ 356,880 $ 337,938
============ ========== ============ ============
Distribution to common shareholders...................... $ 58,360 $ 57,083 $ 230,834 $ 225,864
============ ========== ============ ============
Distribution payout ratio (b)............................ 62.7% 69.7% 64.7% 66.8%
============ ========== ============ ============
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT"). It is generally defined as net
income before depreciation and gains and losses on real estate assets. FFO
is presented because management and many analysts consider FFO to be one
measure of the performance of real estate companies and because we believe
that FFO is helpful to investors as an additional measure of the performance
of a REIT. 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 our cash flow or net income as a
measure of our liquidity or operating performance or our ability to pay
dividends. Other REIT's may not compute FFO in the same manner; accordingly,
FFO may not be comparable among REIT's.
(b) Funds available for distribution ("FAD") represents FFO, plus 1) impairment
charges with respect to real estate assets, 2) the non-cash portion of
stock-based compensation expense, and 3) income allocation to preferred
equity holders in accordance with EITF Topic D-42, less capital
expenditures. The distribution payout ratio is computed by dividing the
distribution paid by FAD. FAD is presented because many analysts consider it
to be a measure of the performance of real estate companies and because we
believe that FAD is helpful to investors as an additional measure of the
performance of a REIT. FAD is not a substitute for our cash flow or net
income as a measure of our liquidity, operating performance, or our ability
to pay dividends. Other REIT's may not compute FAD in the same manner;
accordingly, FAD may not be comparable among REIT's.
13
Public Storage, Inc.
Selected Financial Data
Reconciliation of Same Store Revenues and Cost of Operations
To Consolidated Self-storage Rental Income and Cost of Operations
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
---------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------ ------------ -------------
(Amounts in thousands)
Revenues for the 1,271 Same Store facilities............. $ 199,981 $ 191,204 $ 787,975 $ 750,076
Less - revenues for the Same Store facilities accounted
for on the equity method of accounting (a)........... (6,439) (6,148) (25,267) (23,902)
Add: revenues for non-Same Store facilities (b)...... 30,896 20,183 100,755 72,410
------------- ------------ ------------ -------------
Consolidated self-storage revenues....................... $ 224,438 $ 205,239 $ 863,463 $ 798,584
============= ============ ============ =============
Cost of operations for the 1,271 Same Store facilities... $ 68,586 $ 67,569 $ 268,663 $ 256,151
Less - cost of operations for Same Store facilities
accounted for on the equity method of accounting (a). (2,241) (1,757) (7,350) (6,856)
Add: cost of operations for non-Same Store
facilities (b)....................................... 10,457 8,438 39,608 31,610
------------- ------------ ------------ -------------
Consolidated self-storage cost of operations......... $ 76,802 $ 74,250 $ 300,921 $ 280,905
============= ============ ============ =============
(a) At December 31, 2004, we have a non-controlling ownership interest in 33 of
the Same Store facilities. The revenues and cost of operations earned while
we do not have a controlling ownership interest are not included in our
consolidated self-storage rental income and cost of operations. Instead, we
record our share of the net operating results in our income statements as
"Equity in earnings of real estate entities."
(b) We consolidate 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 December 31, 2004, or because we
acquired these facilities from third parties after December 31, 2001.
14