Filed by Public Storage, Inc.
Pursuant to Rule 165 and Rule 425(a) under the
United States Securities act of 1933, as amended
Subject Company: Shurgard Storage Centers, Inc.
Commission file No. 001-11455
Date: August 2, 2006
Exhibit 99.1
News Release
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: August 2, 2006
Contact: Mr. Clemente Teng
(818) 244-8080
PUBLIC STORAGE, INC. REPORTS RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2006
GLENDALE, California - Public Storage, Inc. (NYSE:PSA) announced today operating
results for the quarter ended June 30, 2006.
OPERATING RESULTS FOR THE QUARTER ENDED JUNE 30, 2006:
- ------------------------------------------------------
Net income for the three months ended June 30, 2006 was $128,862,000 compared to
$108,266,000 for the same period in 2005, representing an increase of
$20,596,000, or 19.0%. This increase is primarily due to improved operations
from our Same Store group of facilities, continued growth in operations from our
newly developed and recently expanded facilities, continued growth in our
recently acquired self-storage facilities as well as higher interest income.
These items were partially offset by an increase in general and administrative
expense.
Same Store net operating income, before depreciation expense, increased by
$6,517,000 or 4.8% as a result of a 5.7% improvement in revenues partially
offset by a 7.4% increase in cost of operations. Aggregate net operating income
for our newly developed and recently expanded and acquired facilities increased
by approximately $8,654,000. This increase was largely due to the impact of
facilities acquired in 2005 and 2006, combined with continued fill-up of our
newly developed and expansion facilities. Interest income increased as a result
of earning higher interest rates on invested cash balances combined with
significantly higher average cash balances invested in interest-bearing accounts
as compared to the same period in 2005. Higher invested cash balances were
primarily due to the issuances of $517.5 million of our 7.25% Series I
Cumulative Preferred Stock on May 3, 2006 and $100.0 million of our 7.25% Series
J Preferred Partnership Units on May 9, 2006. General and administrative expense
increased primarily as a result of certain costs and expenses totaling $1.1
million with respect to the proposed merger with Shurgard Storage Centers, Inc.
("Shurgard") (NYSE:SHU).
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $71,130,000 or $0.55 per common share
on a diluted basis for the three months ended June 30, 2006 compared to
$60,763,000 or $0.47 per common share on a diluted basis for the same period in
2005, representing an increase of $0.08 per common share, or 17.0%. 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,
offset by an increase in income allocated to preferred shareholders, as
described below.
For the three months ended June 30, 2006 and 2005, we allocated $52,376,000 and
$42,147,000 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 issued preferred
securities.
Weighted average diluted shares increased to 129,062,000 for the three months
ended June 30, 2006 from 128,618,000 for the three months ended June 30, 2005.
OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2006:
- ---------------------------------------------------------
Net income for the six months ended June 30, 2006 was $243,078,000 compared to
$204,677,000 for the same period in 2005, representing an increase of
$38,401,000, or 18.8%. This increase is primarily due to improved operations
from our Same Store, newly developed and acquired self-storage facilities,
reduced minority interest in income and higher interest income. These items were
partially offset by increases in general and administrative expense and
depreciation along with a decrease in equity in earnings of real estate
entities.
Same Store net operating income, before depreciation expense, increased by
$14,647,000 or 5.6% as a result of a 5.4% improvement in revenues partially
offset by a 5.1% increase in cost of operations. Aggregate net operating income
1
for our newly developed, acquired and expansion self-storage facilities
increased by approximately $16,080,000 largely due to the impact of facilities
acquired in 2005 and 2006, combined with continued fill-up of our newly
developed and expansion facilities. Minority interest in income declined due to
the acquisition of minority interests that occurred in 2005. Interest income
increased as a result of earning higher interest rates on invested cash
balances, combined with higher average cash balances invested in
interest-bearing accounts as compared to the same period in 2005. Depreciation
increased due principally to the expansion of our real estate portfolio as a
result of newly developed and acquired facilities. General and administrative
expense increased primarily as a result of certain costs and expenses totaling
$2.2 million with respect to the proposed merger with Shurgard.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $133,375,000 or $1.03 per common
share on a diluted basis for the six months ended June 30, 2006 compared to
$109,482,000 or $0.85 per common share on a diluted basis for the same period in
2005, representing an increase of $0.18 per common share, or 21.2%. 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,
offset partially by increased income allocated to preferred shareholders,
described below.
For the six months ended June 30, 2006 and 2005, we allocated $98,991,000 and
$82,560,000 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 issued preferred
securities. We also recorded allocations of income to our preferred shareholders
with respect to the application of EITF Topic D-42 totaling $1,904,000 for the
six months ended June 30, 2005 (none for the same period in 2006).
Weighted average diluted shares increased to 129,037,000 for the six months
ended June 30, 2006 from 128,895,000 for the six months ended June 30, 2005.
FUNDS FROM OPERATIONS:
- ----------------------
For the three months ended June 30, 2006, funds from operations ("FFO")
increased to $0.99 per common share on a diluted basis as compared to $0.90 per
common share for the same period in 2005, representing an increase of $0.09 per
common share, or 10.0%. For the six months ended June 30, 2006, FFO increased to
$1.93 per common share on a diluted basis as compared to $1.69 per common share
for the same period in 2005, representing an increase of $0.24 per common share,
or 14.2%.
For the six months ended June 30, 2006 and 2005, FFO has been negatively
impacted as a result of (i) costs and expenses incurred in connection with the
proposed merger with Shurgard totaling approximately $1.1 million and $2.2
million, for the three and six months ended June 30, 2006, respectively, (ii)
the impact of a gain on the sale, in the six months ended June 30, 2005, of
non-real estate assets previously used by our containerized storage business
totaling $1,143,000, and (iii) the application of EITF Topic D-42 in connection
with the redemption of our preferred securities ($2,778,000 in the six months
ended June 30, 2005), as well as amounts in equity in earnings of real estate
entities ($729,000 in the three and six months ended June 30, 2006 and $131,000
in the three and six months ended June 30, 2005).
The following table provides a summary of the impact of these items that have
occurred during the three and six months ended June 30, 2006 and 2005:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
--------- -------- ---------- -------- -------- ----------
FFO per common share prior to adjustments for
the following items............................ $ 1.01 $ 0.90 12.2% $ 1.96 $ 1.70 15.3%
Costs and expenses incurred in connection with
the proposed merger with Shurgard.............. (0.01) - (0.02) -
Gain on sale of non-real estate assets
previously used by our containerized storage - - - 0.01
business.......................................
Application of EITF Topic D-42 in connection
with the redemption of preferred securities.... (0.01) - (0.01) (0.02)
--------- -------- ---------- -------- -------- ----------
FFO per common share, as reported ............. $ 0.99 $ 0.90 10.0% $ 1.93 $ 1.69 14.2%
========= ======== ========== ======== ======== ==========
2
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. In addition, we believe
that FFO is helpful to investors as an additional measure of the performance of
a REIT, because net income includes the impact of depreciation, which assumes
that the value of real estate diminishes predictably over time, while we believe
that the value of real estate fluctuates due to market conditions and in
response to inflation. 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. See the attached reconciliation of net income
to funds from operations included in the selected financial data attached to
this press release.
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.
As of June 30, 2006, our "Same Store" portfolio consists of 1,266 facilities,
which represents the facilities that we have consolidated in our financial
statements and have been operating at a stabilized basis throughout 2004, 2005,
and the first six months of 2006.
The Same Store facilities contain approximately 73.9 million net rentable square
feet, representing approximately 81% of the aggregate net rentable square feet
of our consolidated self-storage portfolio at June 30, 2006. The following table
summarizes the pre-depreciation historical operating results of the Same Store
facilities:
SELECTED OPERATING DATA FOR THE SAME STORE
- ------------------------------------------
FACILITIES (1,266 FACILITIES): Three Months Ended June 30, Six Months Ended June 30,
- ------------------------------ --------------------------------------- ---------------------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
----------- ------------- ---------- ------------ ------------ ----------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income................................. $ 205,213 $ 194,377 5.6% $ 404,304 $ 383,949 5.3%
Late charges and administrative fees collected 9,619 8,925 7.8% 18,756 17,412 7.7%
----------- ------------- ---------- ------------ ------------ ----------
Total revenues (a)............................ 214,832 203,302 5.7% 423,060 401,361 5.4%
Cost of operations (excluding depreciation):
Property taxes ............................... 19,346 18,402 5.1% 40,009 38,333 4.4%
Payroll expense............................... 22,409 20,956 6.9% 43,739 42,051 4.0%
Advertising and promotion..................... 6,716 6,814 (1.4)% 13,395 12,784 4.8%
Utilities..................................... 4,362 3,816 14.3% 9,162 8,373 9.4%
Repairs and maintenance....................... 7,105 6,368 11.6% 13,806 13,050 5.8%
Telephone reservation center.................. 2,102 2,041 3.0% 4,051 3,794 6.8%
Property insurance............................ 3,169 2,246 41.1% 5,019 4,248 18.1%
Other costs of management..................... 7,540 7,093 6.3% 15,598 15,094 3.3%
----------- ------------- ---------- ------------ ------------ ----------
Total cost of operations (a).................... 72,749 67,736 7.4% 144,779 137,727 5.1%
----------- ------------- ---------- ------------ ------------ ----------
Net operating income (before depreciation) (b).... 142,083 135,566 4.8% 278,281 263,634 5.6%
Depreciation expense.............................. (36,472) (38,264) (4.7)% (75,020) (77,232) (2.9)%
----------- ------------- ---------- ------------ ------------ ----------
Operating income............................... $ 105,611 $ 97,302 8.5% $ 203,261 $ 186,402 9.0%
=========== ============= ========== ============ ============ ==========
Gross margin (before depreciation)................ 66.1% 66.7% (0.9)% 65.8% 65.7% 0.2%
Weighted average for the period:
Square foot occupancy (c)....................... 92.1% 92.1% 0.0% 91.1% 91.0% 0.1%
Realized annual rent per occupied square
foot (d)(f).................................... $ 12.05 $ 11.42 5.5% $ 12.00 $ 11.41 5.2%
REVPAF (e) (f).................................. $ 11.10 $ 10.52 5.5% $ 10.94 $ 10.39 5.3%
Weighted average at June 30:
Square foot occupancy........................... 92.6% 92.4% 0.2%
In place annual rent per occupied square foot (g) $ 13.30 $ 12.62 5.4%
Total net rentable square feet (in thousands)..... 73,946 73,946 -
3
a) See attached reconciliation of these amounts to our consolidated
self-storage revenues and operating expenses. Revenues and cost of
operations do not include ancillary 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) Net operating income (before depreciation) or "NOI" is a non-GAAP
(generally accepted accounting principles) financial measure that excludes
the impact of depreciation expense. Although depreciation is an operating
expense, we believe that NOI is a meaningful measure of operating
performance, because we utilize NOI in making decisions with respect to
capital allocations, in determining current property values, segment
performance, and comparing period-to-period and market-to-market property
operating results. NOI is not a substitute for net operating income after
depreciation in evaluating our operating results.
c) Square foot occupancies represent weighted average occupancy levels over
the entire period.
d) Realized annual rent per occupied square foot is computed by annualizing
the result of dividing rental income by the weighted average occupied
square footage for the period. Realized annual rent per occupied square
foot takes into consideration promotional discounts, credit card fees and
other costs that reduce rental income from the contractual amounts due.
e) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income divided by total available net rentable square
feet.
f) Late charges and administrative fees are excluded from the computation of
realized annual rent per occupied square foot and REVPAF because exclusion
of these amounts provides a better measure of our ongoing level of revenue,
by excluding the volatility of late charges, which are dependent
principally upon the level of tenant delinquency, and administrative fees,
which are dependent principally upon the absolute level of move-ins for a
period.
g) 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 2006 will depend upon
various factors, among which will be 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
------------- ------------- ------------ ----------- ----------
Total revenues (in 000's):
2005..................................... $ 198,059 $ 203,302 $ 208,745 $ 208,272 $ 818,378
2006..................................... $ 208,228 $ 214,832
Total cost of operations (excluding depreciation
expense) (in 000's):
2005..................................... $ 69,991 $ 67,736 $ 67,730 $ 65,873 $ 271,330
2006..................................... $ 72,030 $ 72,749
Property taxes (in 000's):
2005..................................... $ 19,931 $ 18,402 $ 19,573 $ 17,025 $ 74,931
2006..................................... $ 20,663 $ 19,346
Media advertising expense (in 000's):
2005..................................... $ 3,588 $ 2,955 $ 2,314 $ 2,141 $ 10,998
2006..................................... $ 3,978 $ 2,611
Other advertising and promotion expense (in 000's):
2005..................................... $ 2,382 $ 3,859 $ 2,934 $ 3,689 $ 12,864
2006..................................... $ 2,701 $ 4,105
REVPAF:
2005..................................... $ 10.25 $ 10.52 $ 10.77 $ 10.76 $ 10.58
2006..................................... $ 10.77 $ 11.10
Weighted average realized annual rent per occupied
square foot for the period:
2005..................................... $ 11.41 $ 11.42 $ 11.75 $ 11.89 $ 11.61
2006..................................... $ 11.94 $ 12.05
Weighted average square foot occupancy levels for
the period:
2005..................................... 89.9% 92.1% 91.7% 90.5% 91.1%
2006..................................... 90.2% 92.1%
4
MERGER WITH SHURGARD:
- ---------------------
As previously announced, on March 6, 2006, the boards of directors of Public
Storage and Shurgard approved a definitive merger agreement under which Public
Storage will acquire Shurgard at a total transaction value of approximately $5.0
billion. In connection with the proposed merger, on July 24, 2006, Public
Storage and Shurgard filed the definitive joint proxy statement/prospectus with
the Securities and Exchange Commission and began mailing it to their
shareholders. Each company has scheduled a shareholders' meeting to be held on
August 22, 2006 to, among other things, vote on approval of the merger.
Under the terms of the merger agreement, Public Storage will issue, in a taxable
transaction, approximately 41 million shares of common stock to holders of
Shurgard's common stock and assume Shurgard's debt of approximately $1.9 billion
(as of March 31, 2006). In addition, approximately $136 million of Shurgard's
preferred stock will be redeemed. The merger is currently targeted to close on
or shortly after the date of the shareholder meetings.
More information with respect to the proposed merger can be found in the
definitive joint proxy statement/prospectus dated July 24, 2006 filed with the
Securities and Exchange Commission as part of a registration statement regarding
the proposed merger.
Included in general and administrative expense for the three and six months
ended June 30, 2006, respectively, are costs related to the merger incurred
prior to signing the merger agreement, as well as expenditures in planning the
integration of the two companies of approximately $1.1 million and $2.2 million,
respectively.
In upcoming quarters, we expect to incur additional incremental costs related to
the integration of the two companies, as well as costs associated with winding
down Shurgard's business affairs. These costs cannot be estimated at this time
and will be expensed as incurred; therefore, they are expected to have a
negative impact on our earnings going forward.
DEVELOPMENT AND ASSET ACQUISITION AND DISPOSITION ACTIVITIES:
- -------------------------------------------------------------
During the second quarter of 2006, we opened two newly developed facilities at a
total cost of $39.8 million containing 192,000 net rentable square feet. We also
completed expansions to three facilities at a total cost of $8.2 million, adding
145,000 net rentable square feet of self-storage space.
At June 30, 2006, there were 54 projects that were either under construction or
were expected to begin construction generally within the next year, comprised of
49 projects (2,874,000 net additional rentable square feet) which expand
existing self-storage facilities and enhance their visual appeal for a total
estimated cost of $244.3 million, and five projects (420,000 net rentable square
feet) to convert space at former containerized storage facilities into
self-storage space for a total estimated cost of $18.4 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 second quarter of 2006, we acquired six facilities from third parties
containing an aggregate of 492,000 net rentable square feet for an aggregate
cost of approximately $52.6 million.
We were notified that one of our self-storage facilities located in Seattle,
Washington, will be condemned by local governmental authorities. Accordingly, we
commenced presenting the operating results of this facility in discontinued
operations on our consolidated statement of income. The net income from this
facility for all periods presented is included in Discontinued Operations. The
condemnation was completed in July 2006, and a gain on the disposition of
approximately $2.4 million is expected to be recorded in the third quarter of
2006.
ISSUANCE AND REDEMPTION OF PREFERRED SECURITIES:
- ------------------------------------------------
On May 3, 2006, we issued 20,700,000 depositary shares, with each depositary
share representing 1/1,000 of a share of 7.25% Cumulative Preferred Stock,
Series I. The offering resulted in $517.5 million of gross proceeds. On May 9,
2006, we completed a private placement of $100 million of our 7.25% Series J
preferred units. We expect that the proceeds from issuing these two securities
will be used to fund cash requirements with respect to the merger with Shurgard
and general corporate purposes.
During September and October of 2006, we have the opportunity to redeem our
8.00% Series R preferred stock ($510 million) and our 7.88% Series S preferred
stock ($143.75 million), respectively. The potential redemption of these
securities, on their earliest redemption dates, would result in EITF Topic D-42
5
allocations of approximately $22 million in the third quarter of 2006. In
addition, PS Business Parks, Inc., an affiliate in which we own approximately
45% of the common equity, has similar redemption opportunities including $53
million in preferred units in the third quarter of 2006 and $50 million in
preferred stock in January 2007. Our pro rata share of EITF Topic D-42
allocations from our investment in PS Business Parks, Inc. (assuming redemption
on the earliest possible date) is expected to be approximately $1.4 million in
the remainder of 2006.
SHARE REPURCHASES:
- ------------------
Our Board of Directors has authorized the repurchase from time to time of up to
25,000,000 shares of our common stock on the open market or in privately
negotiated transactions. From the inception of the repurchase program through
August 2, 2006 (none from January 1, 2006 through August 2, 2006), we have
repurchased a total of 22,201,720 shares of common stock at an aggregate cost of
approximately $567.2 million.
DISTRIBUTIONS DECLARED:
- -----------------------
On August 2, 2006, 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 September 28, 2006 to shareholders
of record as of September 15, 2006, which, if the merger is completed, will
include distributions on the shares issued in the merger.
SECOND QUARTER CONFERENCE CALL:
- -------------------------------
A conference call is scheduled for Thursday, August 3, 2006, at 9:00 a.m. (PDT)
to discuss the second quarter ended June 30, 2006 earnings results. The
participant toll free number is (877) 715-5318 (conference ID number 7661950). A
simultaneous audio web cast may be accessed by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations"
(conference ID number 7661950). A replay of the conference call may be accessed
through August 17, 2006 by calling (877) 519-4471 or by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations." Both
forms of replay utilize conference ID number 7661950.
ABOUT PUBLIC STORAGE, INC.:
- ---------------------------
Public Storage, Inc., a member of the S&P 500 and The Forbes Global 2000, 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 June 30, 2006,
the Company had interests in 1,516 storage facilities with approximately 92
million net rentable square feet.
Additional information about Public Storage, Inc. is available on our website,
www.publicstorage.com.
ADDITIONAL INFORMATION REGARDING MERGER WITH SHURGARD:
- ------------------------------------------------------
In connection with the proposed transaction, Public Storage and Shurgard have
filed a definitive joint proxy statement/prospectus dated July 24, 2006 with the
Securities and Exchange Commission as part a registration statement regarding
the proposed merger of Public Storage and Shurgard. INVESTORS AND SECURITY
HOLDERS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND
OTHER RELEVANT MATERIAL BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT PUBLIC
STORAGE AND SHURGARD AND THE PROPOSED MERGER. Investors and security holders may
obtain a free copy of the definitive proxy statement/prospectus and other
documents filed by Public Storage and Shurgard with the SEC at the SEC's website
at www.sec.gov. Each company has scheduled an annual shareholders' meeting to be
held on August 22, 2006, to, among other things, vote on approval of the merger.
The definitive joint proxy statement/prospectus and other relevant documents may
also be obtained free of charge from Public Storage or Shurgard by directing
such request to: Public Storage, Inc. 701 Western Avenue, Glendale, CA
91201-2349, Attention: Investor Relations or Shurgard Storage Centers, Inc.,
1155 Valley Street, Suite 400, Seattle, WA 98109-4426, Attention: Investor
Relations.
Public Storage and Shurgard and their respective directors and executive
officers may be deemed to be participants in the solicitation of proxies from
the shareholders of Public Storage and Shurgard in connection with the merger.
Information about Public Storage and its directors and executive officers, and
their ownership of Public Storage and information about Shurgard and its
directors and executive officers, and their ownership of Shurgard securities, is
set forth in the definitive joint proxy statement/prospectus dated July 24, 2006
6
included in the registration statement on Form S-4 filed with the SEC on April
20, 2006 and amended May 24, 2006, June 12, 2006, June 19, 2006 and July 24,
2006. Additional information regarding the interests of those persons may be
obtained by reading the definitive proxy statement/prospectus.
This communication shall not constitute an offer to sell or the solicitation of
an offer to sell or the solicitation of an offer to buy any securities, nor
shall there be any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933.
FORWARD-LOOKING STATEMENTS:
- ---------------------------
All statements in this press release, other than statements of historical fact,
are forward-looking statements which may be identified by the use of the words
"expects," "believes," "anticipates," "should," "estimates" and similar
expressions. These forward-looking statements involve known and unknown risks
and uncertainties, which may cause Public Storage's actual results and
performance to be materially different from those expressed or implied in the
forward-looking statements. Factors and risks that may impact future results and
performance are described from time to time in Public Storage's filings with the
Securities and Exchange Commission, including in Item 1A, "Risk Factors" in
Public Storage's Annual Report on Form 10-K for the fiscal year ended December
31, 2005 and our Quarterly Report on Form 10-Q for the quarter ended March 31,
2006, our registration statement on Form S-4 filed on April 20, 2006, and
amended May 24, 2006, June 12, 2006, June 19, 2006 and July 24, 2006, and in the
definitive joint proxy statement/prospectus filed as part of the Form S-4, and
in reports on Form 8-K. These risks include, but are not limited to, the
following: risks related to the proposed merger with Shurgard, including
approval of the proposed merger with Shurgard by the shareholders of Shurgard
and Public Storage and the satisfaction of other closing conditions to the
merger, difficulties that may be encountered in integrating Public Storage and
Shurgard, the inability to realize or delays in realizing expected synergies
from the proposed merger, unanticipated operating costs resulting from the
proposed merger, and risks associated with international operations; changes in
general economic conditions and in the markets in which Public Storage operates;
the impact of competition from new and existing storage and commercial
facilities and other storage alternatives, which could impact rents and
occupancy levels at our facilities; difficulties in Public Storage's ability to
evaluate, finance and integrate acquired and developed properties into its
existing operations and to fill up those properties, which could adversely
affect Public Storage'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
our expenses and reduce cash available for distribution; consumers' failure to
accept the containerized storage concept which would reduce our profitability;
difficulties in raising capital at reasonable rates, which would impede Public
Storage's ability to grow; delays in the development process, which could
adversely affect profitability; and economic uncertainty due to the impact of
war or terrorism could adversely affect its business plan. Public Storage
disclaims any obligation to update publicly or otherwise revise any
forward-looking statements, whether as a result of new information, new
estimates, or other factors, events or circumstances after the date of this
press release, except where expressly required by law.
Additional financial data attached.
7
PUBLIC STORAGE, INC
SELECTED FINANCIAL DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
2006 2005 2006 2005
-------------- -------------- --------------- --------------
(Amounts in thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities .......................... $ 262,398 $ 235,255 $ 513,910 $ 462,601
Commercial properties ............................ 3,013 2,927 6,005 5,775
Containerized storage facilities ................. 4,200 3,988 8,130 7,825
Ancillary operations................................ 18,369 17,198 33,543 31,216
Interest and other income........................... 10,047 3,394 15,122 6,287
-------------- -------------- --------------- --------------
298,027 262,762 576,710 513,704
-------------- -------------- --------------- --------------
Expenses:
Cost of operations:
Self-storage facilities .......................... 89,425 80,402 177,160 162,046
Commercial properties ............................ 1,235 1,043 2,583 2,170
Containerized storage facilities ................. 4,219 3,274 7,529 6,016
Ancillary operations ............................. 11,696 10,140 22,312 20,557
Depreciation and amortization....................... 48,626 48,240 98,675 96,178
General and administrative.......................... 6,975 6,128 13,754 11,269
Interest expense.................................... 1,872 1,794 3,429 3,457
-------------- -------------- --------------- --------------
164,048 151,021 325,442 301,693
-------------- -------------- --------------- --------------
Income from continuing operations before equity in
earnings of real estate entities, minority interest
in income, cumulative effect of change in accounting
principal, gain on sale of real estate assets and
discontinued operations.............................. 133,979 111,741 251,268 212,011
Equity in earnings of real estate entities ............. 3,124 4,851 6,590 10,529
Minority interest in income:
Allocable to preferred minority interests:
Based upon ongoing distributions (a)................ (4,658) (3,590) (8,249) (8,965)
Special distribution and EITF Topic D-42 allocation
(a)................................................. - - - (874)
Other partnership interests ........................... (4,070) (4,878) (7,638) (9,273)
-------------- -------------- --------------- --------------
Income from continuing operations....................... 128,375 108,124 241,971 203,428
Cumulative effect of change in accounting principle. - - 578 -
Gain on disposition of real estate assets........... 466 53 466 53
Discontinued operations (b)......................... 21 89 63 1,196
-------------- -------------- --------------- --------------
Net income $ 128,862 $ 108,266 $ 243,078 $ 204,677
============== ============== =============== ==============
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distributions paid....................... $ 52,376 $ 42,147 $ 98,991 $ 82,560
Based on redemptions of preferred stock........... - - - 1,904
Allocable to equity shareholders, Series A.......... 5,356 5,356 10,712 10,731
Allocable to common shareholders.................... 71,130 60,763 133,375 109,482
-------------- -------------- --------------- --------------
$ 128,862 $ 108,266 $ 243,078 $ 204,677
============== ============== =============== ==============
Per common share:
Net income per share - Basic........................ $ 0.55 $ 0.47 $ 1.04 $ 0.85
============== ============== =============== ==============
Net income per share - Diluted...................... $ 0.55 $ 0.47 $ 1.03 $ 0.85
============== ============== =============== ==============
Weighted average common shares - Basic.............. 128,180 127,986 128,151 128,284
============== ============== =============== ==============
Weighted average common shares - Diluted ........... 129,062 128,618 129,037 128,895
============== ============== =============== ==============
(a) 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. We ceased allocating income with respect to these interests
following their redemption.
(b) Discontinued operations includes a gain on sale of non-real estate assets
previously used by the discontinued containerized storage operations
totaling $1,143,000 during the six months ended June 30, 2005. Discontinued
operations also includes the operations of a self-storage facility located
in Seattle, Washington, which as of June 30, 2006 was in the process of
being condemned by local government authorities.
8
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
June 30, December 31,
2006 2005
--------------------- -----------------
(Unaudited)
(Amounts in thousands, except share and
per share data)
ASSETS
Cash and cash equivalents .................................... $ 983,630 $ 493,501
Operating real estate facilities:
Land and building, at cost................................. 6,147,679 5,930,484
Accumulated depreciation................................... (1,594,913) (1,500,128)
--------------------- -----------------
4,552,766 4,430,356
Construction in process....................................... 19,695 54,472
--------------------- -----------------
4,572,461 4,484,828
Investment in real estate entities............................ 303,884 328,555
Goodwill...................................................... 174,634 176,285
Other assets.................................................. 65,527 69,317
--------------------- -----------------
Total assets........................................... $ 6,100,136 $ 5,552,486
===================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................. $ 105,053 $ 113,950
Debt to joint venture partner................................. 35,784 35,697
Preferred stock called for redemption......................... - 172,500
Accrued and other liabilities................................. 171,773 159,360
--------------------- -----------------
Total liabilities...................................... 312,610 481,507
Minority interest - preferred................................. 325,000 225,000
Minority interest - other..................................... 33,223 28,970
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares
authorized, 1,723,236 shares issued (in series)
and outstanding (1,698,336 at December 31, 2005), at
liquidation preference:
Cumulative Preferred Stock, issued in series............. 3,120,900 2,498,400
Common Stock, $0.10 par value, 200,000,000 shares authorized,
128,210,747 shares issued and outstanding (128,089,563 at
December 31, 2005)....................................... 12,821 12,809
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,744.193 shares issued and outstanding at June
30, 2006 and December 31, 2005 .......................... - -
Paid-in capital............................................ 2,415,673 2,430,671
Cumulative net income...................................... 3,432,344 3,189,266
Cumulative distribution paid............................... (3,552,435) (3,314,137)
--------------------- -----------------
Total shareholders' equity............................... 5,429,303 4,817,009
--------------------- -----------------
Total liabilities and shareholders' equity............. $ 6,100,136 $ 5,552,486
===================== =================
9
Selected Financial Data
Computation of Funds From Operations (a)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2006 2005 2006 2005
------------- ------------- -------------- -------------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common
Stock
Net income........................................................ $ 128,862 $ 108,266 $ 243,078 $ 204,677
Add back - depreciation and amortization...................... 48,626 48,240 98,675 96,178
Add back - depreciation and amortization included in
Discontinued Operations................................... 20 42 41 109
Add back - our pro rata share of depreciation from equity
investments............................................... 9,466 8,758 18,720 17,443
Eliminate - depreciation with respect to non-real estate
assets........................................................ (45) (772) (105) (1,682)
Eliminate - gain on sale of real estate assets................ (466) (53) (466) (53)
Eliminate - our pro rata share of PSB's gain on sale of real
estate.................................................... (711) (441) (1,023) (1,706)
Add back - minority interest share of income.................. 8,728 8,468 15,887 19,112
------------- ------------- -------------- -------------
Consolidated FFO.................................................. 194,480 172,508 374,807 334,078
Allocable to preferred minority interest:
Based upon ongoing distributions (b).......................... (4,658) (3,590) (8,249) (8,965)
Special distribution and EITF Topic D-42 allocation (b)....... - - - (874)
Allocable to minority interest - other partnership interests...... (4,386) (6,101) (8,266) (11,816)
------------- ------------- -------------- -------------
Remaining FFO allocable to our shareholders....................... 185,436 162,817 358,292 312,423
Less: allocations to preferred and equity stock shareholders:
Preferred shareholder distributions........................... (52,376) (42,147) (98,991) (82,560)
Issuance costs on redeemed preferred shares................... - - - (1,904)
Equity Stock, Series A distributions.......................... (5,356) (5,356) (10,712) (10,731)
------------- ------------- -------------- -------------
Remaining FFO allocable to Common Stock (a)....................... $ 127,704 $ 115,314 $ 248,589 $ 217,228
============= ============= ============== =============
Weighted average shares:
Regular common shares......................................... 128,180 127,986 128,151 128,284
Weighted average stock options and restricted stock units
outstanding using treasury method............................. 882 632 886 611
------------- ------------- -------------- -------------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share................................ 129,062 128,618 129,037 128,895
============= ============= ============== =============
FFO per common share (a) (c)...................................... $ 0.99 $ 0.90 $ 1.93 $ 1.69
============= ============= ============== =============
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT"). FFO is a non-GAAP (generally
accepted accounting principles) financial measure. FFO 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. In addition, we believe that FFO is helpful to investors
as an additional measure of the performance of a REIT, because net income
includes the impact of depreciation, which assumes that the value of real
estate diminishes predictably over time, while we believe that the value of
real estate fluctuates due to market conditions and in response to
inflation. 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.
(c) FFO per common share 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 for
the six months ended June 30, 2005.
10
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution (b)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2006 2005 2006 2005
------------- ----------- ------------- -------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Stock (a)........................ $ 127,704 $ 115,314 $ 248,589 $ 217,228
Add: Stock-based compensation expense.................... 1,491 1,152 3,027 2,383
Impact of application of EITF Topic D-42................. - - - 2,778
EITF Topic D-42 charges included in equity in earnings of
real estate entities................................. 729 131 729 131
Less: Capital expenditures to maintain facilities........ (15,070) (2,564) (23,449) (9,370)
------------- ----------- ------------- -------------
Funds available for distribution ("FAD") (b)............. $ 114,854 $ 114,033 $ 228,896 $ 213,150
============= =========== ============= =============
Distribution to common shareholders...................... $ 64,297 $ 57,593 $ 128,595 $ 115,665
============= =========== ============= =============
Distribution payout ratio (b)............................ 56.0% 50.5% 56.2% 54.3%
============= =========== ============= =============
(a) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts ("NAREIT"). FFO is a non-GAAP (generally
accepted accounting principles) financial measure. FFO 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. In addition, we believe that FFO is helpful to investors
as an additional measure of the performance of a REIT, because net income
includes the impact of depreciation, which assumes that the value of real
estate diminishes predictably over time, while we believe that the value of
real estate fluctuates due to market conditions and in response to
inflation. 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 by FAD. FAD is presented because many analysts consider
it to be a measure of the performance and liquidity 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.
11
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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2006 2005 2006 2005
------------- ------------ ------------ ------------
(Amounts in thousands)
Revenues for the 1,266 Same Store facilities......... $ 214,832 $ 203,302 $ 423,060 $ 401,361
Revenues for non-Same Store facilities (a):
Development facilities (year opened):
2002 and 2003................................. 6,909 6,136 13,519 11,886
2004.......................................... 1,742 1,247 3,360 2,254
2005.......................................... 584 48 953 50
2006.......................................... 56 - 56 -
Combination facilities........................ 5,055 4,085 9,773 7,972
Acquisition facilities (year acquired):
2004.......................................... 8,470 7,454 16,550 14,450
2005.......................................... 6,178 1,377 11,816 1,877
2006.......................................... 1,442 - 1,839 -
Newly consolidated facilities.................... 3,890 - 7,188 -
Expansion facilities............................. 13,240 11,606 25,796 22,751
------------- ------------ ------------ ------------
Consolidated self-storage revenues (b)............... $ 262,398 $ 235,255 $ 513,910 $ 462,601
============= ============ ============ ============
Cost of operations for the 1,266 Same Store facilities $ 72,749 $ 67,736 $ 144,779 $ 137,727
Cost of operations for non-Same Store facilities (a):
Development facilities (year opened):
2002 and 2003................................. 2,230 2,218 4,395 4,266
2004.......................................... 551 659 1,129 1,178
2005.......................................... 406 94 820 117
2006.......................................... 114 - 114 -
Combination facilities....................... 1,846 1,898 3,658 3,505
Acquisition facilities (year acquired):
2004.......................................... 3,204 3,206 6,211 6,357
2005.......................................... 2,385 674 4,854 951
2006.......................................... 717 - 942 -
Newly consolidated facilities.................... 941 - 1,720 -
Expansion facilities............................. 4,282 3,917 8,538 7,945
------------- ------------ ------------ ------------
Consolidated self-storage cost of operations (b)..... $ 89,425 $ 80,402 $ 177,160 $ 162,046
============= ============ ============ ============
(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, 2004 through June 30, 2005, or because we acquired
these facilities from third parties after December 31, 2003.
(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.
12