News Release Exhibit 99.1
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
For Release: Immediately
Date: October 27, 2005
Contact: Mr. Clemente Teng
(818) 244-8080
Public Storage, Inc. Reports Results for the Third Quarter Ended September 30,
2005
GLENDALE, California -Public Storage, Inc. (NYSE and PCX: PSA), announced today
operating results for the quarter ended September 30, 2005.
OPERATING RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2005:
Net income for the three months ended September 30, 2005 was $128,344,000
compared to $97,515,000 for the same period in 2004, representing an increase of
$30,829,000 or 32%. This increase is primarily due to improved operations from
our Same Store, newly developed and acquired self-storage facilities, an
increase in equity earnings of real estate entities, improved tenant reinsurance
operations, a gain on the disposition of real estate assets, and higher interest
income. These items were partially offset by increases in depreciation and
interest expense. Equity in earnings of real estate entities increased primarily
as a result of our pro-rata share of gain from the sale of real estate recorded
by one of the entities that we have an interest in, but do not consolidate, in
the quarter ended September 30, 2005.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity stock shareholders) was $79,262,000 or $0.62 per common
share on a diluted basis for the three months ended September 30, 2005 compared
to $48,597,000 or $0.38 per common share on a diluted basis for the same period
in 2004, representing an increase of $0.24 per common share, or 63%. The
increases in net income allocable to common shareholders and earnings per common
diluted share are due primarily to the impact of the factors described above
with respect to the increase in net income. Weighted average diluted shares
decreased to 128,742,000 for the three months ended September 30, 2005 from
128,826,000 for the three months ended September 30, 2004.
For the three months ended September 30, 2005 and 2004, we allocated $43,726,000
and $40,471,000 of our net income, respectively, to our preferred shareholders
based on distributions paid. The year-over-year increase is due to the issuance
of additional preferred securities, partially offset by the redemption of
preferred securities that had higher dividend rates than the newly preferred
securities issued. For the three months ended September 30, 2004, we also
recorded an additional allocation of net income to our preferred shareholders
and a corresponding reduction of net income allocation to our common
shareholders of $3,072,000 or $0.02 per common share with respect to our
redemption of our Series M and Series D Preferred stock, pursuant to Emerging
Issues Task Force Topic D-42 ("EITF Topic D-42").
OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005:
Net income for the nine months ended September 30, 2005 was $333,021,000
compared to $258,942,000 for the same period in 2004, representing an increase
of $74,079,000, or 29%. This increase is primarily due to improved operations
from our Same Store, newly developed and acquired self-storage facilities,
reduced minority interest in income, an increase in equity earnings of real
estate entities, improved tenant reinsurance operations, increased gains on the
disposition of real estate assets and higher interest income. These items were
partially offset by increases in depreciation and interest expense. Equity in
earnings of real estate entities increased due to our pro-rata share of gain
from the sale of real estate recorded by one of the entities that we have an
interest in, but do not consolidate, in the nine months ended September 30,
2005.
Minority interest in income declined primarily due to a reduction in redemption
and restructuring costs associated with preferred partnership units in 2004,
combined with the redemption of preferred partnership units during 2005. We
allocated income to minority interests pursuant to EITF Topic D-42 totaling
$874,000 and $2,063,000 for the nine months ended September 30, 2005 and 2004,
respectively. In addition, during the nine months ended September 30, 2004, we
allocated $8.0 million to preferred minority interests as a result of a special
distribution associated with a restructuring.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity stock shareholders) was $188,744,000 or $1.46 per
common share on a diluted basis for the nine months ended September 30, 2005
compared to $118,728,000 or $0.92 per common share on a diluted basis for the
same period in 2004, representing an increase of $0.54 per common share, or 59%.
The increases in net income allocable to common shareholders and earnings per
1
common diluted share are due primarily to the impact of the factors described
above with respect to the increase in net income, partially offset by an
increase in net income allocated to our preferred shareholders. Weighted average
diluted shares increased to 128,844,000 for the nine months ended September 30,
2005 from 128,545,000 for the nine months ended September 30, 2004.
For the nine months ended September 30, 2005 and 2004, we allocated $126,286,000
and $117,293,000 of our net income, respectively, to our preferred shareholders
based on distributions paid. The year-over-year increase is due to the issuance
of additional preferred securities, partially offset by the redemption of
preferred securities at higher dividend rates than the newly preferred
securities issued. We also recorded allocations of income to our preferred
shareholders with respect to the application of EITF Topic D-42 totaling
$1,904,000 (or $0.01 per common share) and $6,795,000 (or $0.05 per common
share) for the nine months ended September 30, 2005 and 2004, respectively.
FUNDS FROM OPERATIONS:
For the three months ended September 30, 2005, funds from operations ("FFO")
increased to $0.97 per common share on a diluted basis as compared to $0.76 for
the same period in 2004, representing an increase of $0.21 per common share, or
27.6%. For the nine months ended September 30, 2005, FFO increased to $2.66 per
common share on a diluted basis as compared to $2.11 for the same period in
2004, representing an increase of $0.55 per common share, or 26.1%.
For the three and nine months ended September 30, 2005 and 2004, FFO per common
share has been impacted as a result of (i) the application of EITF Topic D-42 in
connection with the redemption of preferred securities, (ii) in the case of the
first quarter of 2004, the payment of a special distribution to certain
preferred unit holders in connection with the restructure of the securities,
(iii) FFO per common share for the nine months ended September 30, 2005 includes
the impact of a gain on the sale of non-real estate assets previously used by
our containerized storage business, totaling approximately $1,143,000 ($0.01 per
share), which occurred during the first quarter of 2005, and (iv) losses
incurred in our tenant reinsurance business and property casualty losses as a
result of the impact from hurricanes.
The following table provides a summary of the impact of these items that have
occurred during the three and nine months ended September 30, 2005 and 2004:
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- ------------------------------------
Percentage Percentage
2005 2004 Change 2005 2004 Change
---------- --------- ----------- --------- ---------- -----------
FFO per common share, as reported.............. $ 0.97 $ 0.76 27.6% $ 2.66 $ 2.11 26.1%
Aggregate impact from the application of EITF
Topic D-42 in connection with the
redemption of preferred securities......... - 0.03 0.02 0.09
Special distribution paid to preferred
unitholders in connection with
restructuring the terms of the units....... - - - 0.06
Gain on the sale of non-real estate assets
previously used by our containerized
storage business......................... - - (0.01) -
Tenant insurance claims expense and casualty
losses from hurricanes................... 0.01 0.02 0.01 0.02
---------- --------- ----------- --------- ---------- -----------
FFO per common share prior to the impact
of the above items.................... $ 0.98 $ 0.81 21.0% $ 2.68 $ 2.28 17.5%
========== ========= =========== ========= ========== ===========
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 REITs may not compute FFO in the same manner;
accordingly, FFO may not be comparable among REITs. 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.
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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, we analyze the operating performance of our stabilized
self-storage facilities.
At September 30, 2005, our "Same Store" portfolio consists of 1,260 facilities,
which represents the facilities that we have consolidated in our financial
statements and have been operating on a stabilized basis throughout 2003, 2004,
and the first nine months of 2005. During the quarter ended September 30, 2005,
we removed a total of 9 facilities from the Same Store pool because the
operations of these facilities were no longer comparable to prior periods. These
9 facilities included 8 facilities located in New Orleans that were damaged by
the impact of Hurricane Katrina and one facility located in Houston that was
partially condemned due to eminent domain proceedings. The new Same Store pool
of 1,260 facilities should not be compared to the pool of 1,269 facilities
presented in prior press releases when evaluating trends in operations.
The following table summarizes the pre-depreciation historical operating results
of the Same Store facilities:
Selected Operating Data for the Same Store
Facilities (1,260 Facilities):
- ------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------- ---------------------------------------
Percentage Percentage
2005 2004 Change 2005 2004 Change
------------- ------------ ------------ ------------ ------------ -----------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income, net of discounts............ $ 197,329 $ 188,991 4.4% $ 577,941 $ 552,453 4.6%
Late charges and administrative fees
collected.......................... 9,528 8,171 16.6% 26,811 24,312 10.3%
------------- ------------ ------------ ------------ ------------ -----------
Total revenues (a)......................... 206,857 197,162 4.9% 604,752 576,765 4.9%
Cost of operations:
Payroll expense............................ 20,096 20,357 (1.3)% 61,911 61,149 1.2%
Property taxes ............................ 19,261 18,375 4.8% 56,816 54,735 3.8%
Advertising and promotion.................. 5,182 4,373 18.5% 17,740 15,402 15.2%
Repairs and maintenance.................... 6,172 6,351 (2.8)% 19,084 19,034 0.3%
Utilities.................................. 4,657 4,313 8.0% 12,831 12,130 5.8%
Property insurance......................... 1,929 2,241 (13.9)% 6,145 6,923 (11.2)%
Telephone reservation center............... 2,217 2,760 (19.7)% 5,976 8,367 (28.6)%
Other costs of management.................. 7,413 6,846 8.3% 22,425 21,459 4.5%
------------- ------------ ------------ ------------ ------------ -----------
Total cost of operations (a)................. 66,927 65,616 2.0% 202,928 199,199 1.9%
------------- ------------ ------------ ------------ ------------ -----------
Net operating income (before depreciation) .... $ 139,930 $ 131,546 6.4% $ 401,824 $ 377,566 6.4%
============= ============ ============ ============ ============ ===========
Gross margin................................... 67.6% 66.7% 1.3% 66.4% 65.5% 1.4%
Weighted average for the period:
Square foot occupancy (b).................... 91.7% 91.9% (0.2)% 91.2% 91.1% 0.1%
Realized annual rent per occupied square foot
(c)............................................ $ 11.74 $ 11.22 4.6% $ 11.53 $ 11.03 4.5%
REVPAF (d)................................... $ 10.77 $ 10.31 4.5% $ 10.51 $ 10.05 4.6%
Weighted average at September 30:
Square foot occupancy........................ 91.6% 92.0% (0.4)%
In place annual rent per occupied square
foot (e)..................................... $ 12.83 $ 12.20 5.2%
Total net rentable square feet (in thousands).. 73,311 73,311 -
a) See attached reconciliation of these amounts to our consolidated
self-storage revenues and operating expenses. Revenues and cost of
operations do not include revenues and expenses generated at the facilities
with respect to tenant reinsurance, retail sales and truck rentals. "Other
costs of management" included in cost of operations principally represents
all the indirect costs incurred in the operations of the facilities.
Indirect costs principally include supervisory costs and corporate overhead
cost incurred to support the operating activities of the facilities.
b) Square foot occupancies represent weighted average occupancy levels over
the entire period.
c) 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 annual rent per occupied
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. Realized annual rent per occupied square foot
excludes late charges and administrative fees collected, and it is
presented because we believe annual realized rent per occupied square foot
is an important measure of our operations.
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d) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income, net of discounts, divided by total available net
rentable square feet. REVPAF excludes late charges and administrative fees
collected. REVPAF is presented because we believe it is useful in
evaluating our operations.
e) In place annual rent per occupied square foot represents annualized
contractual rents per occupied square foot without reductions for
promotional discounts, and excludes late charges and administrative fees.
The growth in rental income during the remainder of 2005 will depend upon
various factors, including our ability to maintain high occupancy levels, and
increase rental rates charged to both new and existing customers. The following
table summarizes additional selected financial data with respect to our Same
Store facilities:
Three Months Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31 Full Year
-------------- ------------ -------------- ------------- --------------
Media advertising expense (in 000's):
2004..................................... $ 3,290 $ 1,956 $ 1,988 $ 3,060 $ 10,294
2005..................................... $ 3,522 $ 2,940 $ 2,309
REVPAF:
2004..................................... $ 9.77 $ 10.06 $ 10.31 $ 10.27 $ 10.10
2005..................................... $ 10.25 $ 10.51 $ 10.77
Weighted average realized annual rent per
occupied square foot for the period:
2004..................................... $ 10.90 $ 10.99 $ 11.22 $ 11.31 $ 11.10
2005..................................... $ 11.41 $ 11.41 $ 11.74
Weighted average square foot occupancy levels
for the period:
2004..................................... 89.7% 91.5% 91.9% 90.8% 91.0%
2005..................................... 89.9% 92.1% 91.7%
EFFECTS OF HURRICANES:
- ----------------------
In August 2005, all eight of our facilities located in New Orleans were damaged
as a result of the impact of Hurricane Katrina. All of the facilities were
closed for operations for several weeks following the hurricane; however, all
but three of these facilities have since reopened. The five that are operating
are not operating at full capacity, as many units are offline due to damage. Two
of the three facilities that remain closed will not be able to reopen at all
without substantial restoration and repair work.
During the quarter ended September 30, 2005, our net operating income (before
depreciation) for these eight facilities was $531,000 compared to $1,020,000 for
the same period last year, a reduction of $489,000, or 48%. For the first six
months of 2005, net operating income (before depreciation) was $1,980,000 as
compared to $1,877,000 for same period in 2004, an increase of $103,000 or 5%.
With respect to the two facilities that have been significantly damaged and
should remain inoperable for the foreseeable future, net operating income
(before depreciation) was $129,000 for the third quarter of 2005 compared to
$255,000 for the same period last year and $463,000 for the first six months of
2005 compared to $454,000 for same period in 2004.
Notwithstanding that five of our facilities in New Orleans are currently
operating, we believe that the indirect economic effects of the hurricane on the
city may have a negative impact on our facilities' operating results, and these
effects are expected to continue for an indeterminate time period.
We have third-party insurance coverage, subject to certain deductibles, that
covers restoration of physical damage to our facilities. We also have business
interruption insurance, subject to certain deductibles, that principally covers
loss of income due to units being offline as a result of physical damage. Loss
of income occasioned entirely by indirect economic effects is generally not
covered.
We estimate that the cost to restore our facilities will be approximately $6.2
million, of which approximately $210,000 will be repairs and maintenance expense
that will be incurred in the fourth quarter of 2005. We expect our insurers to
pay for approximately $2.8 million of these costs. We recorded a casualty loss
with respect to the damage to our self-storage facilities amounting to
approximately $196,000 in the quarter ended September 30, 2005, which represents
the excess of the net book value of assets damaged over the insurance proceeds
we expect to receive. We recorded a similar casualty loss during the same
quarter in 2004 of $1,250,000.
No income from business interruption proceeds has been recorded during the
quarter, as certain specific deductible limits have not yet been reached based
upon losses incurred to date.
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The above estimates are subject to change as we and our insurers (i) more fully
evaluate the extent of physical damage, which may not be fully determinable
until commencement of demolition, (ii) develop detailed restoration plans and
(iii) evaluate the impact of local conditions in the building labor and supplies
markets on restoration costs. In addition, we have not yet determined whether
restoration of the two most significantly damaged facilities in New Orleans will
be economically viable; however, if we did not restore these facilities we could
apply the insurance proceeds towards the development of facilities in other
locations.
Our tenant insurance subsidiary reinsures policies against claims for losses to
goods stored by tenants in our facilities, for tenants who elect such coverage.
Included in cost of operations for tenant reinsurance for the third quarter of
2005 is $500,000 in estimated losses with respect to tenant claims as a result
of damage sustained from the impact of Hurricane Katrina. During the same period
last year, we recorded $1.5 million for estimated losses from tenant claims for
the series of hurricanes that occurred during the third quarter of 2004.
On October 24, 2005, Hurricane Wilma struck southern Florida, where we have 111
facilities in the Miami, West Palm Beach, and Tampa areas. We are currently
assessing damage and do not expect to have damage estimates for several weeks.
The impact of this hurricane will be recorded in our operating results for the
quarter ending December 31, 2005.
DEVELOPMENT, ACQUISITION AND DISPOSITION ACTIVITIES:
- ----------------------------------------------------
During the third quarter of 2005, we opened one newly developed facility
representing the conversion of an existing commercial facility into a
self-storage facility at an incremental cost of $4.5 million containing 135,000
net rentable square feet. We also completed three projects whereby we converted
space at former containerized storage facilities into self-storage space at a
total cost of $5.7 million, adding an aggregate 151,000 net rentable square feet
of self-storage space.
At September 30, 2005, there were 57 projects that were either under
construction or were expected to begin construction generally within the next
year, comprised of seven newly developed self-storage facilities (579,000 net
rentable square feet) with total estimated cost of $81.0 million, 38 projects
(2,309,000 net additional rentable square feet) which expand existing
self-storage facilities and enhance their visual appeal for a total estimated
cost of $177.1 million, and 12 projects (926,000 net rentable square feet) to
convert space at former containerized storage facilities into self-storage space
for a total estimated cost of $33.2 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.
During the third quarter of 2005, we acquired seven facilities from third
parties, with an aggregate of 549,000 net rentable square feet, for an aggregate
cost of approximately $42.3 million in cash. These acquisitions were funded
entirely by us.
In addition to the facilities acquired in the quarter ended September 30, 2005,
we acquired six additional facilities for approximately $68.9 million with
504,000 net rentable square feet between October 1, 2005 and October 26, 2005.
At October 26, 2005, we are under contract to acquire five additional facilities
(total approximate net rentable square feet of 385,000) at an aggregate cost of
approximately $64.1 million, including the assumption of debt on one of these
facilities totaling approximately $4.8 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.
During the third quarter of 2005, we acquired a minority interest in an
affiliated partnership that we consolidate for financial reporting purposes for
an aggregate acquisition cost of approximately $14.6 million in cash.
On August 5, 2005 we acquired the third party institutional investor's
partnership interest in PSAC Storage Investors, LLC for approximately $41.4
million in cash. The institutional investor along with Mr. Hughes, the Company's
Chairman of the Board, were partners in PSAC Storage Investors, LLC, a
partnership that owns an interest in our consolidated development joint venture.
As a result of the acquisition, we began consolidating the accounts of PSAC
Storage Investors, LLC, during the third quarter of 2005. In addition, the
acquisition allows us to terminate the partnership and the development joint
venture as of November 17, 2005, which we intend to do. Upon termination, we
will acquire Mr. Hughes' interest in PSAC Storage Investors, LLC, for
approximately $64.5 million, pursuant to the terms of the partnership agreement.
As of September 30, 2005, Mr. Hughes' interest in PSAC Storage Investors, LLC's
is presented as debt on our balance sheet. In addition, Mr. Hughes' accrued
preferred return (at 7.9972%) from the date of our acquisition of our interest
through September 30, 2005 of approximately $789,000 has been presented as
interest expense. As a result of this acquisition, on August 5, 2005, the
recording of minority interest in income with respect to the Consolidated
Development Joint Venture ceased. Prior to the acquisition on August 5, 2005, a
total of approximately $826,000 in income was allocated to the Consolidated
Development Joint Venture during the quarter ended September 30, 2005, which is
net of $322,000 in depreciation expense.
As previously reported, in an eminent domain proceeding, one of our self-storage
facilities located in the Portland, Oregon market was condemned. We received the
proceeds from the disposal of this facility during the third quarter of 2005 and
5
recorded a gain of approximately $5.2 million. The operations of this facility
prior to its disposition, and the gain on disposition were classified as
"discontinued operations" for all periods presented on our September 30, 2005
income statement. This property was not previously included in our Same Store
pool.
ISSUANCE AND REDEMPTION OF PREFERRED SECURITIES:
- ------------------------------------------------
On August 23, 2005, we issued 8,000,000 depositary shares, with each depositary
share representing 1/1,000 of a share of 6.45% Cumulative Preferred Stock,
Series F. The offering resulted in $200 million of gross proceeds. On October 3,
2005, we issued an additional 2,000,000 depositary shares, with each depositary
share representing 1/1,000 of a share in our 6.45% Series F Preferred Stock
resulting in $50 million of gross proceeds.
In December 2005, we expect to call for redemption our 8.60% Cumulative
Preferred Stock, Series Q with a redemption value of $172,500,000, plus
redemption costs. As a result, we will recognize an EITF Topic D-42 charge of
$5,634,000 in the fourth quarter of 2005.
COMMON STOCK ACTIVITY:
- ----------------------
As previously reported, the Board of Directors has authorized the repurchase of
up to 25,000,000 shares of the Company's common stock. As of June 30, 2005, we
have repurchased a total of 22,201,720 shares of our common stock. No additional
shares were repurchased between July 1, 2005 and October 27, 2005.
DISTRIBUTIONS DECLARED:
- -----------------------
On October 27, 2005, the Board of Directors declared a quarterly distribution of
$0.50 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 December 29, 2005 to shareholders of
record as of December 15, 2005.
THIRD QUARTER CONFERENCE CALL:
- ------------------------------
A conference call is scheduled for Friday, October 28, 2005, at 9:00 a.m. (PDT)
to discuss the third quarter 2005 earnings results. The participant toll free
number is (877) 516-1540 (conference ID number 9827945). A simultaneous audio
web cast may be accessed by using the link at www.publicstorage.com under
"Investor Relations" (conference ID number 9827945). A replay of the conference
call may be accessed through November 28, 2005 by calling (800) 642-1687 or by
using the link at www.publicstorage.com under "Investor Relations." Both forms
of replay utilize conference ID number 9827945.
ABOUT PUBLIC STORAGE, INC.:
- ---------------------------
Public Storage, Inc., an S&P 500 company, 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 are located in Glendale, California. The Company's self-storage
properties are located in 37 states. At September 30, 2005 the Company had
interests in 1,487 storage facilities with approximately 91 million net rentable
square feet.
FORWARD LOOKING STATEMENTS:
- ---------------------------
When used within this document, the words "expects," "believes," "anticipates,"
"should," "estimates," and similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities Act of
1995. 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 and risks are described
from time to time in Public Storage's filings with the Securities and Exchange
Commission including in Item 1A to the Company's Annual Report on Form 10-K for
the year ended December 31, 2004, "Risk Factors" and in Item 2A to the Company's
Quarterly Report on Form 10-Q for the quarters ended March 31, 2005 and June 30,
2005 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
6
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 our website,
www.publicstorage.com. The Company's Form 10-Q for the quarter ended September
30, 2005, which will be certified by the Company's CEO/President and Chief
Financial Officer, will be posted to our website, when it is filed with the
Securities and Exchange Commission.
Additional financial data attached.
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PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------------
2005 2004 2005 2004
------------ ------------- -------------- ----------------
(In thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities (a)...................... $ 243,822 $ 219,743 $ 706,634 $ 638,520
Commercial properties (a)........................ 2,918 2,707 8,693 8,064
Containerized storage facilities (a)............. 4,480 5,048 12,305 15,099
Tenant reinsurance premiums........................ 6,332 6,210 18,499 18,266
Interest and other income.......................... 7,376 3,300 16,698 7,240
------------ ------------- -------------- ----------------
264,928 237,008 762,829 687,189
------------ ------------- -------------- ----------------
Expenses:
Cost of operations:
Self-storage facilities (a)...................... 80,308 74,002 242,429 223,953
Commercial properties (a)........................ 1,122 1,031 3,292 3,200
Containerized storage facilities (a)............. 3,676 3,073 9,692 8,741
Tenant reinsurance............................... 3,017 4,204 7,560 11,089
Depreciation and amortization...................... 47,917 44,354 144,136 135,447
General and administrative......................... 5,621 5,527 16,890 15,983
Interest expense................................... 2,471 - 5,928 100
------------ ------------- -------------- ----------------
144,132 132,191 429,927 398,513
------------ ------------- -------------- ----------------
Income from continuing operations before equity in
earnings of real estate entities and minority
interest in income................................. 120,796 104,817 332,902 288,676
Equity in earnings of real estate entities ........... 9,853 3,184 20,382 11,646
Asset impairment charge due to casualty loss from
hurricanes ..................................... (196) (1,250) (196) (1,250)
Minority interest in income:
Allocable to preferred minority interests:
Based upon ongoing distributions................... (3,591) (5,176) (12,556) (16,907)
Special distribution and EITF Topic D-42 allocation
(b)................................................ - - (874) (10,063)
Other partnership interests .......................... (3,652) (4,345) (12,925) (12,928)
------------ ------------- -------------- ----------------
Income from continuing operations...................... 123,210 97,230 326,733 259,174
Gain/(loss) on disposition of real estate.......... (142) 1,286 (89) 1,286
Discontinued operations (a)........................ 5,276 (1,001) 6,377 (1,518)
------------ ------------- -------------- ----------------
Net income $ 128,344 $ 97,515 $ 333,021 $ 258,942
============ ============= ============== ================
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distributions paid...................... $ 43,726 $ 40,471 $ 126,286 $ 117,293
Based on redemptions of preferred stock.......... - 3,072 1,904 6,795
Allocable to equity shareholders, Series A......... 5,356 5,375 16,087 16,126
Allocable to common shareholders................... 79,262 48,597 188,744 118,728
------------ ------------ -------------- ----------------
$ 128,344 $ 97,515 $ 333,021 $ 258,942
============ ============= ============== ================
Per common share:
Net income per share - Diluted..................... $ 0.62 $ 0.38 $ 1.46 $ 0.92
============ ============= ============== ================
Net income per share - Basic....................... $ 0.62 $ 0.38 $ 1.47 $ 0.93
============ ============= ============== ================
Weighted average common shares - Diluted........... 128,742 128,826 128,844 128,545
============ ============= ============== ================
Weighted average common shares - Basic............. 128,006 128,085 128,191 127,635
============ ============= ============== ================
(a) The historical operations of a self-storage facility that was condemned in
July 2005, a commercial facility that we sold in 2004, and the historical
operations of the containerized storage facilities that we have closed are
included in "Discontinued operations." Discontinued operations includes a
gain on sale of non-real estate assets previously used by the discontinued
containerized storage operations totaling approximately $1,143,000 during
the nine months ended September 30, 2005. Discontinued operations for the
three and nine months ended September 30, 2005, includes a gain of
$5,180,000 relating to the condemnation of a self-storage facility pursuant
to an eminent domain proceeding.
8
(b) On March 17, 2005, we redeemed all outstanding 9.5% Series N ($40,000,000)
preferred units and on March 29, 2005 we redeemed all outstanding 9.125%
Series O ($45,000,000) preferred units. In accordance with the SEC's
clarification of EITF Topic D-42, we allocated $874,000 to minority
interests, representing costs incurred when these units were originally
issued. 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 $8.0 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 $8.0 million special distribution was
reflected as minority interest in income in the nine months ended September
30, 2004, along with $2,063,000 in costs incurred when the $200 million in
units were originally issued, in accordance with EITF Topic D-42. The
ongoing distributions reflect a partial period for the time the units were
outstanding during each period.
9
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
September 30, December 31,
2005 2004
------------------- ------------------
(unaudited)
(In thousands, except share and per
share data)
ASSETS
Cash and cash equivalents .................................... $ 531,774 $ 366,255
Operating real estate facilities:
Land and building, at cost................................. 5,747,868 5,510,750
Accumulated depreciation................................... (1,449,887) (1,320,200)
------------------- ------------------
4,297,981 4,190,550
Construction in process....................................... 50,899 47,277
Land held for development..................................... 8,404 8,883
------------------- ------------------
4,357,284 4,246,710
Investment in real estate entities............................ 333,482 341,304
Goodwill...................................................... 78,204 78,204
Intangible assets, net........................................ 99,732 104,685
Other assets.................................................. 71,152 67,632
------------------- ------------------
Total assets........................................... $ 5,471,628 $ 5,204,790
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................. $ 115,060 $ 129,519
Debt to joint venture partner................................. 35,654 16,095
Due to affiliate (a).......................................... 64,513 -
Preferred stock called for redemption......................... - 54,875
Accrued and other liabilities................................. 162,401 145,431
------------------- ------------------
Total liabilities...................................... 377,628 345,920
Minority interest - preferred................................. 225,000 310,000
Minority interest - other..................................... 32,007 118,903
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares
authorized, 1,699,236 shares issued (in series) and outstanding
(3,980,186 at December 31, 2004), at liquidation preference:
Cumulative Preferred Stock, issued in series............. 2,520,900 2,102,150
Common Stock, $0.10 par value, 200,000,000 shares authorized,
128,034,490 shares issued and outstanding (128,526,450 at
December 31, 2004)....................................... 12,803 12,853
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,744.193 shares issued and outstanding
(8,776.102 at December 31, 2004) ........................ - -
Paid-in capital............................................ 2,435,068 2,457,568
Cumulative net income...................................... 3,065,894 2,732,873
Cumulative distribution paid............................... (3,197,672) (2,875,477)
------------------- ------------------
Total shareholders' equity............................... 4,836,993 4,429,967
------------------- ------------------
Total liabilities and shareholders' equity............. $ 5,471,628 $ 5,204,790
=================== ==================
(a) Represents amount due to Mr. Hughes, the Company's Chairman of the Board.
Mr. Hughes and an institutional investor were partners in PSAC Storage
Investors, LLC, a partnership that is a partner with the Company in our
development joint venture. In August 2005, we acquired all the
institutional investor's interest in PSAC Storage Investors, LLC and began
to consolidate the accounts of PSAC Storage Investors, LLC as of August
2005. PSAC Storage Investors, LLC has exercised its right to terminate the
development joint venture effective November 17, 2005. As a consequence, we
have notified PSAC Storage Investors, LLC that we will exercise our right
to buy, on November 17, 2005, all of the partnership interests in PSAC
Storage Investors, LLC pursuant to the partnership agreement. The only
remaining interest in PSAC Storage Investors, LLC is the partnership
interest held by Mr. Hughes which has been classified as a liability in the
above consolidated balance sheet.
10
Selected Financial Data
Computation of Funds from Operations (a)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
2005 2004 2005 2004
-------------- ---------- ------------- ------------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common
Stock
Net income..................................................... $ 128,344 $ 97,515 $ 333,021 $ 258,942
Add back - depreciation and amortization................... 47,917 44,354 144,136 135,447
Add back - depreciation and amortization included in
Discontinued Operations................................ 20 352 88 1,173
Add back - our pro rata share of depreciation from equity
investments............................................ 8,822 8,521 26,265 25,055
Eliminate - depreciation with respect to non-real estate
assets..................................................... (51) (1,030) (1,733) (3,256)
Eliminate - our pro rata share of gain on sale of real
estate included in equity of earnings of real estate
entities............................................... (5,458) (136) (7,164) (62)
Eliminate - loss (gain) on sale of real estate............. 142 (1,286) 89 (1,286)
Eliminate - gain on sale of real estate assets included in
discontinued operations................................. (5,180) - (5,180) -
Add back - minority interest share of income............... 7,243 9,521 26,355 39,898
-------------- ---------- ------------- ------------
Consolidated FFO............................................... 181,799 157,811 515,877 455,911
Allocable to preferred minority interest:
Based upon ongoing distributions (b)....................... (3,591) (5,176) (12,556) (16,907)
Special distribution and EITF Topic D-42 allocation (b).... - - (874) (10,063)
Allocable to minority interest - other partnership interests... (4,255) (5,902) (16,071) (17,779)
-------------- ---------- ------------- ------------
Remaining FFO allocable to our shareholders.................... 173,953 146,733 486,376 411,162
Less: allocations to preferred and equity stock shareholders:
Preferred shareholder distributions........................ (43,726) (40,471) (126,286) (117,293)
Issuance costs on redeemed preferred shares................ - (3,072) (1,904) (6,795)
Equity Stock, Series A distributions....................... (5,356) (5,375) (16,087) (16,126)
-------------- ---------- ------------- ------------
Remaining FFO allocable to our common shareholders (a)......... $ 124,871 $ 97,515 $ 342,099 $ 270,948
============== ========== ============= ============
Weighted average common shares outstanding:
Common shares outstanding.................................. 128,006 128,085 128,191 127,635
Weighted average stock options and restricted stock units
outstanding using treasury method.......................... 736 741 653 910
-------------- ---------- ------------- ------------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share............................. 128,742 128,826 128,844 128,545
============== ========== ============= ============
FFO per common share (a) (c)................................... $ 0.97 $ 0.76 $ 2.66 $ 2.11
(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 with respect to real estate assets 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 REITs may not compute
FFO in the same manner; accordingly, FFO may not be comparable among REITs.
(b) On March 17, 2005, we redeemed all outstanding 9.5% Series N ($40,000,000)
preferred units, and on March 29, 2005 we redeemed all outstanding 9.125%
Series O ($45,000,000) preferred units and, in accordance with the SEC's
clarification of EITF Topic D-42, we allocated $874,000 to minority
interests, representing costs incurred when these units were originally
issued. 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 $8.0 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 $8.0 million special distribution was
reflected as minority interest in income in the nine months ended September
30, 2004, along with $2,063,000 in costs incurred when the $200 million in
units were originally issued, in accordance with EITF Topic D-42. The
ongoing distributions reflect a partial period for the time the units were
outstanding during each period.
(c) FFO per common share for the nine months ended September 30, 2005 was
positively impacted by a gain on sale of non-real estate assets previously
used by our discontinued containerized storage business totaling
approximately $1,143,000 or $0.01 per common share.
11
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution (b)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2005 2004 2005 2004
------------- ------------ ------------ ------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to our common shareholders (a)............. $ 124,871 $ 97,815 $ 342,099 $ 270,948
Add: Stock-based compensation expense.................... 1,196 709 3,579 2,115
Impact of application of EITF Topic D-42................. - 3,072 2,778 8,858
EITF Topic D-42 charges included in equity in earnings of
real estate entities..................................... - 1,228 131 2,171
Less: Capital expenditures to maintain facilities........ (3,916) (10,653) (13,286) (20,297)
------------- ------------ ------------ ------------
Funds available for distribution ("FAD") (b)............. $ 122,151 $ 92,171 $ 335,301 $ 263,795
============= ============ ============ ============
Distribution to common shareholders...................... $ 64,157 $ 57,719 $ 179,822 $ 172,474
============= ============ ============ ============
Distribution payout ratio (b)............................ 52.5% 62.6% 53.6% 65.4%
============= ============ ============ ============
(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 REITs may not compute FFO in the same manner; accordingly,
FFO may not be comparable among REITs.
(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 to common shareholders 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 REITs may not compute
FAD in the same manner; accordingly, FAD may not be comparable among REITs.
12
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 Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------ ------------- --------------
(Amounts in thousands)
Revenues for the 1,260 Same Store facilities......... $ 206,857 $ 197,162 $ 604,752 $ 576,765
Revenues for non-Same Store facilities (a):
Development facilities (year opened):
2001 and 2002................................. 5,607 5,000 16,131 13,883
2003.......................................... 3,355 2,520 9,410 5,906
2004.......................................... 1,505 399 3,759 546
2005.......................................... 154 - 204 -
Acquisition facilities (year acquired):
2004.......................................... 7,926 95 22,376 95
2005.......................................... 2,748 - 4,625 -
Expansion facilities............................. 11,248 10,797 32,983 30,953
Combination facilities........................... 4,422 3,770 12,394 10,372
------------- ------------ ------------- --------------
Consolidated self-storage revenues (b)................. $ 243,822 $ 219,743 $ 706,634 $ 638,520
============= ============ ============= ==============
Cost of operations for the 1,260 Same Store facilities. $ 66,927 $ 65,616 $ 202,928 $ 199,199
Cost of operations for non-Same Store facilities (a):
Development facilities (year opened):
2001 and 2002................................. 1,913 1,797 5,893 5,834
2003.......................................... 1,047 1,171 3,146 3,301
2004.......................................... 525 389 1,703 792
2005.......................................... 187 - 304 -
Acquisition facilities (year acquired):
2004.......................................... 3,005 103 9,362 103
2005.......................................... 1,195 - 2,146 -
Expansion facilities............................. 4,007 3,480 11,940 10,564
Combination facilities........................... 1,502 1,446 5,007 4,160
------------- ------------ ------------- --------------
Consolidated self-storage cost of operations (b)....... $ 80,308 $ 74,002 $ 242,429 $ 223,953
============= ============ ============= ==============
(a) 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, 2003 through September 30, 2005, or because we
acquired these facilities from third parties after December 31, 2002.
(b) Self-storage revenues and cost of operations do not include revenues and
expenses generated at the facilities with respect to tenant reinsurance,
retail sales and truck rentals.
13