News Release Exhibit 99.1
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
Date: November 2, 2006
Contact: Mr. Clemente Teng
(818) 244-8080
PUBLIC STORAGE, INC. REPORTS RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30,
2006
GLENDALE, California - Public Storage, Inc. (NYSE:PSA) announced today operating
results for the third quarter ended September 30, 2006.
OPERATING RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2006:
- -----------------------------------------------------------
Net income for the three months ended September 30, 2006 was $81,181,000
compared to $128,344,000 for the same period in 2005, representing a decrease of
$47,163,000, or 36.7%. This decrease is primarily due to significant increases
in depreciation and amortization expense, general and administrative expense and
interest expense. Depreciation and amortization increased by approximately $65.6
million due primarily to the addition of real estate facilities and intangible
assets acquired in the merger with Shurgard Storage Centers, Inc. ("Shurgard")
and the corresponding depreciation and amortization related to such assets.
General and administrative expense increased by approximately $30.6 million
principally as a result of integration expenses related to the Shurgard merger,
development costs that were expensed with respect to terminated projects and
contract termination fees; these costs in aggregate totaled $29.6 million. In
connection with the merger, we assumed $1.3 billion in debt, and, as a result,
interest expense increased by approximately $6.9 million.
The negative impacts to our net income from the above mentioned items were
partially offset by 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
including the facilities acquired in the merger with Shurgard, as well as higher
interest income.
Our Same Store net operating income, before depreciation expense, increased by
approximately $9,256,000, or 6.6%, as a result of a 6.1% improvement in revenues
partially offset by a 5.0% increase in cost of operations. Aggregate net
operating income for our newly developed and recently expanded and acquired
facilities (other than the Shurgard facilities) increased by approximately
$8,815,000. 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. For those facilities that were acquired in the merger, net
operating income was approximately $35,363,000, reflecting the results from the
date of the merger, August 22, 2006, through September 30, 2006. 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 gross proceeds received from the
issuance of Preferred Stock and Preferred Partnership Units in the second and
third quarters of 2006. Substantially all of this cash was subsequently used to
fund the cash requirements with respect to the Shurgard merger.
We had a net loss allocable to our common shareholders (after allocating net
income to our preferred and equity shareholders) of $6,083,000 or $0.04 per
common share on a diluted basis for the three months ended September 30, 2006
compared to income allocable to common shareholders of $79,262,000 or $0.62 per
common share on a diluted basis for the same period in 2005, representing a
decrease of $85,345,000 or $0.66 per diluted common share. The decreases in net
income allocable to common shareholders on an aggregate and per-share basis are
due primarily to the impact of the factors described above, combined with an
increase in income allocated to preferred shareholders, as described below.
For the three months ended September 30, 2006 and 2005, we allocated $60,265,000
and $43,726,000 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, and recorded
our equity share of such charges, totaling $21,643,000 (or $0.15 per diluted
common share) for the three months ended September 30, 2006 in connection with
the redemption of preferred securities.
1
Weighted average diluted shares increased to 145,387,000 for the three months
ended September 30, 2006 from 128,742,000 for the three months ended September
30, 2005. The increase in weighted average diluted shares is due primarily to
the issuance of approximately 38.9 million shares in the merger with Shurgard,
which are included in our weighted average shares from August 22, 2006 through
September 30, 2006.
OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006:
- ---------------------------------------------------------------
Net income for the nine months ended September 30, 2006 was $324,259,000
compared to $333,021,000 for the same period in 2005, representing a decrease of
$8,762,000, or 2.6%. This decrease is primarily reflective of the third-quarter
impacts described above with respect to depreciation and amortization, general
and administrative expense and interest expense. These items were partially
offset by improved operations from our Same Store, newly developed and acquired
self-storage facilities (including the facilities acquired from Shurgard),
reduced minority interest in income and higher interest income.
Same Store net operating income, before depreciation expense, increased by
$23,903,000, or 5.9%, as a result of a 5.6% improvement in revenues partially
offset by a 5.1% increase in cost of operations. Aggregate net operating income
for our newly developed, acquired and expansion self-storage facilities
(excluding the Shurgard facilities) increased by approximately $24,895,000
largely due to the impact of facilities acquired in 2005 and 2006, combined with
continued fill-up of our newly developed and expansion facilities. We earned an
aggregate of $35,363,000 in net operating income in the third quarter with
respect to the facilities acquired from Shurgard, reflecting their operating
results from the date of the merger, August 22, 2006, through September 30,
2006. 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.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $127,292,000 or $0.94 per common
share on a diluted basis for the nine months ended September 30, 2006 compared
to $188,744,000 or $1.46 per common share on a diluted basis for the same period
in 2005, representing a decrease of $0.52 per common share, or a decrease of
36%. The decreases in net income allocable to common shareholders and earnings
per common diluted share are due primarily to the impact of the factors
described above, in addition to increased income allocated to preferred
shareholders, described below.
For the nine months ended September 30, 2006 and 2005, we allocated $159,256,000
and $126,286,000 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
$21,643,000 (or $0.16 per diluted common share) and $1,904,000 (or $0.01 per
diluted common share), for the nine months ended September 30, 2006 and 2005,
respectively.
Weighted average diluted shares increased to 134,851,000 for the nine months
ended September 30, 2006 from 128,844,000 for the nine months ended September
30, 2005. The increase in weighted average diluted shares is due primarily to
the issuance of approximately 38.9 million shares in the merger with Shurgard,
which are included in our weighted averages shares from August 22, 2006 through
September 30, 2006.
FUNDS FROM OPERATIONS:
- ----------------------
For the three months ended September 30, 2006, funds from operations ("FFO")
decreased to $0.77 per common share on a diluted basis as compared to $0.97 per
common share for the same period in 2005, representing a decrease of $0.20 per
common share, or 21%. For the nine months ended September 30, 2006, FFO
increased to $2.68 per common share on a diluted basis as compared to $2.66 per
common share for the same period in 2005, representing an increase of $0.02 per
common share, or 0.8%.
For the nine months ended September 30, 2006 and 2005, FFO has been negatively
impacted as a result of (i) costs and expenses incurred in connection with the
merger with Shurgard totaling approximately $18.1 million and $20.5 million for
the three and nine months ended September 30, 2006, respectively, (ii)
development costs that were expensed with respect to terminated projects
totaling $9.3 million for the three and nine months ended September 30, 2006,
(iii) contract termination fees of $2.2 million for the three and nine months
ended September 30, 2006, (iv) losses incurred in our tenant reinsurance
2
business and property casualty losses as a result of the impact from hurricanes
for the three and nine months ended September 30, 2005, (v) the impact of a gain
on the sale, in the nine months ended September 30, 2005, of non-real estate
assets previously used by our containerized storage business totaling $1.1
million and (vi) the application of EITF Topic D-42 in connection with the
redemption of our preferred securities and our pro-rata share of EITF Topic D-42
for PS Business Parks, Inc. ($22,972,000 and $2,909,000 for the nine months
ended September 30, 2006 and 2005, respectively).
The following table provides a summary of the impact of these items that have
occurred during the three and nine months ended September 30, 2006 and 2005:
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- -------------------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
----------- ---------- ------------ ---------- ---------- ------------
FFO per common share prior to adjustments for
the following items......................... $ 1.12 $ 0.98 14.3% $ 3.09 $ 2.68 15.3%
Costs and expenses incurred in connection with
the merger with Shurgard.................... (0.12) - (0.15) -
Cancellation of development projects........... (0.06) - (0.07) -
Contract termination costs..................... (0.02) - (0.02) -
Tenant insurance claims expense and casualty
losses from hurricane....................... - (0.01) - (0.01)
Gain on sale of non-real estate assets
previously used by our containerized storage
business.................................... - - - 0.01
Application of EITF Topic D-42 in connection
with the redemption of our preferred
securities and our equity share of PS
Business Parks Inc.'s charges............... (0.15) - (0.17) (0.02)
----------- ---------- ------------ ---------- ---------- ------------
FFO per common share, as reported ............. $ 0.77 $ 0.97 (20.6%) $ 2.68 $ 2.66 0.8%
=========== ========== ============ ========== ========== ============
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-SAME STORE FACILITIES:
- ------------------------------------------
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 September 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 nine months of 2006.
The Same Store facilities contain approximately 73.9 million net rentable square
feet, representing approximately 59% of the aggregate net rentable square feet
in the United States of our consolidated self-storage portfolio at September 30,
2006. The following table summarizes the pre-depreciation historical operating
results of the Same Store facilities:
3
Selected Operating Data for the Same Store
- ------------------------------------------
Facilities (1,266 Facilities):
- ------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------------- -----------------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
------------ ------------ ------------ ----------- ----------- ----------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income................................. $ 211,252 $ 199,139 6.1% $ 615,556 $ 583,088 5.6%
Late charges and administrative fees collected 10,134 9,606 5.5% 28,890 27,018 6.9%
------------ ------------ ------------ ----------- ----------- ----------
Total revenues (a)............................ 221,386 208,745 6.1% 644,446 610,106 5.6%
Cost of operations (excluding depreciation):
Property taxes ............................... 20,376 19,573 4.1% 60,385 57,906 4.3%
Payroll expense............................... 22,185 20,224 9.7% 65,924 62,275 5.9%
Advertising and promotion..................... 4,582 5,248 (12.7)% 17,977 18,032 (0.3)%
Utilities..................................... 5,113 4,764 7.3% 14,275 13,137 8.7%
Repairs and maintenance....................... 6,925 6,294 10.0% 20,731 19,344 7.2%
Telephone reservation center.................. 2,055 2,239 (8.2)% 6,106 6,033 1.2%
Property insurance............................ 2,860 1,932 48.0% 7,879 6,180 27.5%
Other costs of management..................... 7,019 7,456 (5.9)% 22,617 22,550 0.3%
------------ ------------ ------------ ----------- ----------- ----------
Total cost of operations (a).................... 71,115 67,730 5.0% 215,894 205,457 5.1%
------------ ------------ ------------ ----------- ----------- ----------
Net operating income (before depreciation) (b).... 150,271 141,015 6.6% 428,552 404,649 5.9%
Depreciation expense.............................. (37,270) (38,478) (3.1)% (112,290) (115,710) (3.0)%
------------ ------------ ------------ ----------- ----------- ----------
Operating income.................................. $ 113,001 $ 102,537 10.2% $ 316,262 $ 288,939 9.5%
============ ============ ============ =========== =========== ==========
Gross margin (before depreciation)................ 67.9% 67.6% 0.4% 66.5% 66.3% 0.3%
Weighted average for the period:
Square foot occupancy (c)....................... 91.4% 91.7% (0.3)% 91.2% 91.2% 0.0%
Realized annual rent per occupied square foot (d)
(d)(f).......................................... $ 12.50 $ 11.75 6.4% $ 12.17 $ 11.53 5.6%
REVPAF (e) (f).................................. $ 11.43 $ 10.77 6.1% $ 11.10 $ 10.51 5.6%
Weighted average at September 30:
Square foot occupancy........................... 90.5% 91.6% (1.2)%
In place annual rent per occupied square foot (g) $ 13.51 $ 12.85 5.1%
Total net rentable square feet (in thousands)..... 73,946 73,946 -
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.
4
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 $ 221,386
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 $ 71,115
Property taxes (in 000's):
2005..................................... $ 19,931 $ 18,402 $ 19,573 $ 17,025 $ 74,931
2006..................................... $ 20,663 $ 19,346 $ 20,376
Media advertising expense (in 000's):
2005..................................... $ 3,588 $ 2,955 $ 2,314 $ 2,141 $ 10,998
2006..................................... $ 3,978 $ 2,611 $ 1,002
Other advertising and promotion expense
(in 000's):
2005..................................... $ 2,382 $ 3,859 $ 2,934 $ 3,689 $ 12,864
2006..................................... $ 2,701 $ 4,105 $ 3,580
REVPAF:
2005..................................... $ 10.25 $ 10.52 $ 10.77 $ 10.76 $ 10.58
2006..................................... $ 10.77 $ 11.10 $ 11.43
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 $ 12.50
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% 91.4%
MERGER WITH SHURGARD:
- ---------------------
As previously announced, on August 22, 2006, we completed the merger with
Shurgard Storage Centers, Inc. Pursuant to the terms of the merger, we issued
approximately 38.9 million shares of Public Storage common stock to holders of
Shurgard's common stock and assumed Shurgard's debt of approximately $2.0
billion. In addition, pursuant to the merger, we issued approximately 1.9
million Public Storage stock options to former holders of Shurgard stock
options. Approximately 1.7 million of these stock options were exercised through
September 30, 2006, resulting in aggregate exercise proceeds totaling
approximately $74.4 million.
Immediately after the close of the merger, we repaid outstanding borrowings with
respect to Shurgard's bank credit facility and certain variable rate mortgage
notes totaling approximately $671 million. In addition, all of Shurgard's
outstanding preferred stock (approximately $138 million) was redeemed just prior
to the close of the merger.
Included in general and administrative expense are costs related to the merger,
as well as expenditures in planning and completing the integration of the two
companies of approximately $18.1 million and $20.5 million for the three and
nine months ended September 30, 2006, respectively. In upcoming quarters, we
expect to expense additional incremental costs of between approximately $15
million to $20 million, most of which will be incurred in the fourth quarter of
2006.
5
DEVELOPMENT AND ASSET ACQUISITION AND DISPOSITION ACTIVITIES:
- -------------------------------------------------------------
During the third quarter of 2006, we completed expansions to two facilities at a
total cost of $1.5 million, adding 25,000 net rentable square feet of
self-storage space.
At September 30, 2006, we had 49 projects in the United States that were either
under construction or were expected to begin construction generally within the
next year, comprised of 44 projects (2,322,000 net additional rentable square
feet) which expand existing self-storage facilities and enhance their visual
appeal for a total estimated cost of $219.2 million, and five projects (428,000
net rentable square feet) to convert space at former containerized storage
facilities into self-storage space for a total estimated cost of $18.9 million.
These projects will be fully funded by us. Opening dates for these facilities
are estimated through the next 24 months. The development of these facilities is
subject to various risks and contingencies.
In connection with the merger with Shurgard, we obtained a pipeline of future
developments in existing Shurgard markets in Europe which, at September 30,
2006, comprised of 11 facilities (541,000 net rentable square feet) with total
estimated costs of approximately $89.5 million, of which approximately $54.5
million had been incurred as of September 30, 2006.
In July 2006, a self-storage facility located in Seattle, Washington, was
entirely condemned by a local government agency. A gain on the disposition of
approximately $2.4 million was recorded in the third quarter of 2006 with
respect to the condemnation. The historical operations of this facility and the
gain on disposition are included in discontinued operations.
During the third quarter, we acquired the remaining partnership interests that
we did not own in a series of partnerships. These partnerships, which were
formed by Shurgard, owned 67 self-storage facilities located in Florida, North
Carolina and South Carolina. The aggregate acquisition cost was approximately
$60.8 million in cash.
During October 2006, we acquired the remaining interests in a partnership that
we did not own for approximately $1.5 million in cash. The partnership was
formed by Shurgard and owned a self-storage facility located in Florida.
ISSUANCE AND REDEMPTION OF PREFERRED SECURITIES:
- ------------------------------------------------
On August 3, 2006, we issued 18,400,000 depositary shares, with each depositary
share representing 1/1,000 of a share of 7.25% Cumulative Preferred Stock,
Series K. The gross proceeds from this offering were $460 million.
On September 28, 2006, we redeemed our 8.000% Series R Preferred Stock for $510
million, plus accrued and unpaid dividends. The Series R was called for
redemption in August 2006.
On September 26, 2006, we called for redemption our 7.875% Series S Preferred
Stock for $143.75 million, plus accrued and unpaid dividends. The Series S was
redeemed on October 31, 2006.
On October 20, 2006, we issued 9,200,000 depositary shares with each depositary
share representing 1/1,000 of a share of 6.75% Cumulative Preferred Stock,
Series L. The gross proceeds from this offering were $230 million.
In September 2006, PS Business Parks, Inc., ("PSB") an affiliate in which we own
approximately 44% of the common equity, redeemed its 9.25% Series E Preferred
Stock for an aggregate of $53.0 million.
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
November 2, 2006 (none from January 1, 2006 through November 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 November 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 December 28, 2006 to shareholders of
record as of December 15, 2006.
6
THIRD QUARTER CONFERENCE CALL:
- ------------------------------
A conference call is scheduled for Friday, November 3, 2006, at 9:00 a.m. (PST)
to discuss the third quarter ended September 30, 2006 earnings results. The
participant toll free number is (866) 425-6195 (conference ID number 7941438). A
simultaneous audio web cast may be accessed by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations"
(conference ID number 7941438). A replay of the conference call may be accessed
through November 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 7941438.
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 38 states and seven European
nations. At September 30, 2006, the Company had interests in 2,003 storage
facilities with approximately 126.4 million net rentable square feet in the
United States and 160 storage facilities with approximately 8.4 million net
rentable square feet in Europe.
Additional information about Public Storage, Inc. is available on our website,
www.publicstorage.com.
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 Reports on Form 10-Q for the quarters ended March 31,
2006 and June 30, 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 merger with Shurgard including
difficulties that may be encountered in integrating Public Storage and Shurgard,
loss of personnel as a result of the merger and the impact of the merger on
occupancy and rental rates, the inability to realize or delays in realizing
expected results from the merger, unanticipated operating costs resulting from
the 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; 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; difficulties in raising capital at reasonable rates; delays in the
development process; and economic uncertainty due to the impact of war or
terrorism. 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 Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
2006 2005 2006 2005
--------------- -------------- ---------------- ---------------
(Amounts in thousands, except per share data)
Revenues:
Rental income:
Self-storage facilities .......................... $ 328,841 $ 243,702 $ 842,751 $ 706,303
Commercial properties ............................ 3,408 2,918 9,413 8,693
Containerized self-storage ....................... 4,353 4,480 12,483 12,305
Ancillary operations................................ 22,106 17,587 55,649 48,803
Interest and other income........................... 12,651 4,717 27,773 11,004
--------------- -------------- ---------------- ---------------
371,359 273,404 948,069 787,108
--------------- -------------- ---------------- ---------------
Expenses:
Cost of operations:
Self-storage facilities .......................... 109,216 80,273 286,376 242,319
Commercial properties ............................ 1,497 1,122 4,080 3,292
Containerized self-storage ....................... 3,907 3,676 11,436 9,692
Ancillary operations ............................. 13,447 11,613 35,759 32,170
Depreciation and amortization (a)................... 113,531 47,896 212,206 144,074
General and administrative.......................... 36,242 5,621 49,996 16,890
Interest expense.................................... 9,323 2,471 12,752 5,928
--------------- -------------- ---------------- ---------------
287,163 152,672 612,605 454,365
--------------- -------------- ---------------- ---------------
Income from continuing operations before casualty loss
from hurricane, gain (loss) on disposition of real
estate assets, equity in earnings of real estate
entities, foreign currency exchange loss, income from
derivatives and minority interest in income.......... 84,196 120,732 335,464 332,743
Casualty loss from hurricane............................ - (196) - (196)
Gain (loss) on disposition of real estate assets........ 756 (142) 1,222 (89)
Equity in earnings of real estate entities ............. 2,618 9,853 9,208 20,382
Foreign currency exchange loss.......................... (172) - (172) -
Income from derivatives, net (b)........................ 32 - 32 -
Minority interest in income:
Allocable to preferred minority interests:
Based upon ongoing distributions (c)................ (5,403) (3,591) (13,652) (12,556)
Special distribution and EITF Topic D-42
allocation (c)..................................... - - - (874)
Other partnership interests ........................... (3,187) (3,652) (10,825) (12,925)
--------------- -------------- ---------------- ---------------
Income from continuing operations....................... 78,840 123,004 321,277 326,485
Cumulative effect of change in accounting principle. - - 578 -
Discontinued operations (d)......................... 2,341 5,340 2,404 6,536
--------------- -------------- ---------------- ---------------
Net income $ 81,181 $ 128,344 $ 324,259 $ 333,021
=============== ============== ================ ===============
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distributions paid....................... $ 60,265 $ 43,726 $ 159,256 $ 126,286
Based on redemptions of preferred stock........... 21,643 - 21,643 1,904
Allocable to equity shareholders, Series A.......... 5,356 5,356 16,068 16,087
Allocable to common shareholders.................... (6,083) 79,262 127,292 188,744
--------------- -------------- ---------------- ---------------
$ 81,181 $ 128,344 $ 324,259 $ 333,021
=============== ============== ================ ===============
Per common share:
Net income (loss) per share - Basic................. $ (0.04) $ 0.62 $ 0.95 $ 1.47
=============== ============== ================ ===============
Net income (loss) per share - Diluted............... $ (0.04) $ 0.62 $ 0.94 $ 1.46
=============== ============== ================ ===============
Weighted average common shares - Basic.............. 145,387 128,006 133,897 128,191
=============== ============== ================ ===============
Weighted average common shares - Diluted ........... 145,387 128,742 134,851 128,844
=============== ============== ================ ===============
8
(a) Depreciation and amortization increased substantially, principally due to
$50,626,000 in amortization of intangibles acquired in the merger with
Shurgard, as well as $12,426,000 in depreciation of the buildings acquired
from Shurgard. Amortization is expected to be approximately $94,800,000 in
the fourth quarter of 2006, $69,700,000 in the first quarter of 2007 and
approximately $125,000,000 during the remainder of 2007. Depreciation with
respect to the buildings, which is computed on a straight-line basis, is
expected to be approximately $29,800,000 in the fourth quarter of 2006.
(b) In connection with the merger with Shurgard, we assumed various derivative
instruments that Shurgard had entered into to hedge currency and interest
rate risk with respect to its European debt and investments. Shurgard
accounted for these instruments under Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments" ("SFAS 133") as
highly effective hedges and, accordingly, the fluctuations in value of
these instruments were not reflected in earnings. However, we have
determined that these derivative instruments are not highly effective
hedges under SFAS 133, because we expect that the extinguishment of the
hedges and the repayment of the various related debt instruments will not
occur at the same time. As a result, fluctuations in fair value of these
various instruments will be reflected in our net income. There was no
material impact from changes in fair value for the quarter ended September
30, 2006; however, fluctuations could be significant in the future and are
not determinable at this time.
(c) 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.
(d) We recorded a gain during the three and nine months ended September 30,
2006, totaling $2,370,000 in connection with a facility located in Seattle,
Washington that was condemned by a local governmental agency. For the three
and nine months ended September 30, 2005, we recorded a gain totaling
$5,180,000 in connection with a facility located in Portland, Oregon that
was condemned by a local governmental agency. The operations of the Seattle
facility are reflected in Discontinued Operations for both of the three and
nine month periods ended September 30, 2006 and 2005, and the operations of
the Portland facility are reflected in Discontinued Operations for the
three and nine months ended September 30, 2005. Also, for the nine months
ended September 30, 2005, non-real estate assets of containerized storage
operations were sold, resulting in a gain on sale of approximately
$1,143,000.
9
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
September 30, December 31,
2006 2005
------------------- ------------------
(Unaudited)
(Amounts in thousands, except share and
per share data)
ASSETS
Cash and cash equivalents .................................... $ 124,119 $ 493,501
Operating real estate facilities:
Land and building, at cost................................. 11,183,691 5,930,484
Accumulated depreciation................................... (1,655,737) (1,500,128)
------------------- ------------------
9,527,954 4,430,356
Construction in process....................................... 131,063 54,472
------------------- ------------------
9,659,017 4,484,828
Investment in real estate entities............................ 301,868 328,555
Goodwill...................................................... 174,634 176,285
Intangible assets, net of $50,626 in accumulated amortization. 432,481 -
Other assets.................................................. 175,071 69,317
------------------- ------------------
Total assets........................................... $ 10,867,190 $ 5,552,486
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................. $ 1,426,533 $ 113,950
Debt to joint venture partner................................. 37,214 35,697
Preferred stock called for redemption......................... 143,750 172,500
Accrued and other liabilities................................. 351,576 159,360
------------------- ------------------
Total liabilities...................................... 1,959,073 481,507
Minority interest - preferred................................. 325,000 225,000
Minority interest - other..................................... 174,704 28,970
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares
authorized, 1,715,486 shares issued (in series) and
outstanding (1,698,336 at December 31, 2005), at
liquidation preference:
Cumulative Preferred Stock, issued in series............. 2,927,150 2,498,400
Common Stock, $0.10 par value, 200,000,000 shares authorized,
168,986,243 shares issued and outstanding (128,089,563 at
December 31, 2005)....................................... 16,899 12,809
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,744.193 shares issued and outstanding at
September 30, 2006 and December 31, 2005 ............... - -
Paid-in capital............................................ 5,656,850 2,430,671
Cumulative net income...................................... 3,513,525 3,189,266
Cumulative distributions paid.............................. (3,702,742) (3,314,137)
Accumulated other comprehensive loss....................... (3,269) -
------------------- ------------------
Total shareholders' equity............................... 8,408,413 4,817,009
------------------- ------------------
Total liabilities and shareholders' equity............. $ 10,867,190 $ 5,552,486
=================== ==================
10
SHURGARD DOMESTIC SAME STORE SELECTED OPERATING DATA
- -----------------------------------------------------
In the merger with Shurgard, we acquired 390 wholly-owned and an interest in 97
facilities owned by affiliated joint ventures. We have applied our definition of
what qualifies as a Same Store and, as a result, the number of properties
included in the Shurgard Domestic Same Store portfolio has decreased from 462
facilities (as reported by Shurgard in the second quarter of 2006) to 383
facilities as is currently being reported. The operating data presented in the
table below reflects the historical data through August 22, 2006, the period for
which the facilities were operated under Shurgard combined with the historical
data from August 22, 2006 through September 30, 2006, the period operated under
Public Storage. Accordingly, the data presented below does not reflect the
actual results included in our operations for the three and nine months ended
September 30, 2006 and 2005 and does not purport to project results of
operations for any future date or period.
SELECTED OPERATING DATA FOR THE 383 FACILITIES
- ----------------------------------------------
OPERATED BY SHURGARD ON A STABILIZED BASIS SINCE
- ------------------------------------------------
JANUARY 1, 2004 ("SHURGARD DOMESTIC SAME STORE
- ----------------------------------------------
FACILITIES"): (a)
- -----------------
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------- --------------------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
----------- ------------ ----------- ----------- ------------ ----------
(Dollar amounts in thousands, except weighted average data) (b)
Revenues:
Rental income................................. $ 70,625 $ 68,232 3.5% $ 208,278 $ 197,930 5.2%
Late charges and administrative fees collected 2,667 2,567 3.9% 7,417 7,147 3.8%
----------- ------------ ----------- ----------- ------------ ----------
Total revenues (b)............................ 73,292 70,799 3.5% 215,695 205,077 5.2%
Cost of operations (excluding depreciation):
Property taxes ............................... 7,107 6,489 9.5% 20,764 19,292 7.6%
Payroll expense............................... 11,620 12,014 (3.3)% 36,303 35,730 1.6%
Advertising and promotion..................... 2,045 1,975 3.5% 5,099 5,581 (8.6)%
Utilities..................................... 2,215 2,108 5.1% 6,094 5,434 12.1%
Repairs and maintenance....................... 1,505 1,733 (13.2)% 4,785 4,944 (3.2)%
Property insurance............................ 565 377 49.9% 1,354 1,247 8.6%
Other costs of management..................... 2,559 2,579 (0.8)% 7,909 7,641 3.5%
----------- ------------ ----------- ----------- ------------ ----------
Total cost of operations (b).................... 27,616 27,275 1.3% 82,308 79,869 3.1%
----------- ------------ ----------- ----------- ------------ ----------
Net operating income (excluding depreciation)(c) $ 45,676 $ 43,524 4.9% $ 133,387 $ 125,208 6.5%
=========== ============ =========== =========== ============ ==========
Gross margin (before depreciation)................ 62.3% 61.5% 1.3% 61.8% 61.1% 1.1%
Weighted average for the period:
Square foot occupancy (d)....................... 85.9% 88.1% (2.5)% 85.6% 86.7% (1.3)%
Realized annual rent per occupied square foot (e) $ 13.28 $ 12.51 6.2% $ 13.10 $ 12.29 6.6%
REVPAF (f) (g).................................. $ 11.41 $ 11.02 3.5% $ 11.21 $ 10.66 5.2%
Weighted average at September 30:
Square foot occupancy........................... 85.8% 87.7% (2.2)%
Total net rentable square feet (in thousands)..... 24,765 24,765 -
(a) Operating data reflects the operations of these facilities without regard
to the time period in which Public Storage owned the facilities; only the
amounts for the period August 23, 2006 through September 30, 2006 are
included in our consolidated operating results.
(b) Revenues and cost of operations do not include ancillary revenues and
expenses generated at the facilities with respect to tenant reinsurance,
and 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. These amounts presented herein will
not necessarily compare to amounts previously presented by Shurgard in its
public reporting due to differences in classification of revenues and
expenses, including tenant reinsurance, retail sales and truck rental
activities which are included on our income statement under "ancillary
operations" but were previously presented by Shurgard as self-storage
revenue and operating expenses.
11
(c) 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.
(d) Square foot occupancies represent weighted average occupancy levels over
the entire period.
(e) 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.
(f) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income divided by total available net rentable square
feet.
(g) 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.
12
Shurgard European Same Store Selected Operating Data
- ----------------------------------------------------
In the merger with Shurgard, we acquired 103 wholly-owned and an interest in 57
facilities owned by affiliated joint ventures. We have applied our definition of
what qualifies as a Same Store. As a result, the number of properties included
in the Shurgard European Same Store portfolio has decreased from 123 facilities
(as reported by Shurgard in the second quarter of 2006) to 96 facilities as is
currently being reported. The operating data presented in the table below
reflect the historical data through August 22, 2006, the period for which the
facilities were operated under Shurgard combined with the historical data from
August 22, 2006 through September 30, 2006, the period operated under Public
Storage. Accordingly, the data presented below does not reflect the actual
results included in our operations for the three and nine months ended September
30, 2006 and 2005.
SELECTED OPERATING DATA FOR THE 96 FACILITIES
- ---------------------------------------------
OPERATED BY SHURGARD EUROPE ON A STABILIZED BASIS
- -------------------------------------------------
SINCE JANUARY 1, 2004 ("EUROPE SAME STORE
- --------------------------------------------
FACILITIES"): (a)
- -----------------
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------ -----------------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
------------ ------------- ------------- ------------ ---------- -----------
(Dollar amounts in thousands, except weighted average data, utilizing constant
exchange rates) (b)
Revenues:
Rental income................................. $ 27,539 $ 24,535 12.2% $ 77,737 $ 68,546 13.4%
Late charges and administrative fees collected 266 251 6.0% 757 610 24.1%
------------ ------------- ------------- ------------ ---------- -----------
Total revenues (c)............................ 27,805 24,786 12.2% 78,494 69,156 13.5%
Cost of operations (excluding depreciation):
Property taxes ............................... 1,261 1,174 7.4% 3,665 3,423 7.1%
Payroll expense............................... 5,198 5,189 0.2% 15,858 16,084 (1.4)%
Advertising and promotion..................... 1,179 1,689 (30.2)% 4,358 5,663 (23.0)%
Utilities..................................... 695 565 23.0% 2,266 2,051 10.5%
Repairs and maintenance....................... 898 807 11.3% 2,479 2,459 0.8%
Property insurance............................ 346 403 (14.1)% 1,028 1,150 10.6)%
Leasehold expense............................. 635 756 (16.0)% 1,815 1,723 5.3%
Other costs of management..................... 2,396 2,615 (8.4)% 6,651 7,910 (15.9)%
------------ ------------- ------------- ------------ ---------- -----------
Total cost of operations (c).................... 12,608 13,198 (4.5)% 38,120 40,463 (5.8)%
------------ ------------- ------------- ------------ ---------- -----------
Net operating income (excluding depreciation) (d) $ 15,197 $ 11,588 31.1% $ 40,374 $ 28,693 40.7%
============ ============= ============= ============ ========== ===========
Gross margin (before depreciation)................ 54.7% 46.8% 16.9% 51.4% 41.5% 23.9%
Weighted average for the period:
Square foot occupancy (e)....................... 86.7% 81.3% 6.6% 84.0% 77.2% 8.8%
Realized annual rent per occupied square foot (f) $ 24.01 $ 22.81 5.3% $ 23.32 $ 22.38 4.2%
REVPAF (g) (h).................................. $ 20.82 $ 18.54 12.3% $ 19.59 $ 17.27 13.4%
Weighted average at September 30:
Square foot occupancy........................... 88.3% 82.5% 7.0%
In place annual rent per occupied square foot (i) $ 23.42 $ 22.51 4.0%
Total net rentable square feet (in thousands)..... 5,291 5,291 -
(a) Operating data reflects the operations of these facilities without regard
to the time period in which Public Storage owned the facilities; only the
amounts for the period August 23, 2006 through September 30, 2006 are
included in our consolidated operating results.
(b) Amounts for all periods have been translated from local currencies to U.S.
dollars at a constant exchange rate of 1.25 US Dollars to Euros.
(c) Revenues and cost of operations do not include ancillary revenues and
expenses generated at the facilities with respect to tenant reinsurance,
and 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. These amounts presented herein will
not necessary compare to amounts previously presented by Shurgard in its
public reporting due to differences in classification of revenues and
expenses, including tenant reinsurance, retail sales, and truck rental
activities which are included on our income statement under "ancillary
operations" but were previously presented by Shurgard as self-storage
revenue and operating expenses.
13
(d) 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.
(e) Square foot occupancies represent weighted average occupancy levels over
the entire period.
(f) 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.
(g) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income divided by total available net rentable square
feet.
(h) 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.
(i) 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.
14
Selected Financial Data
Computation of Funds From Operations (a)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ----------------------------
2006 2005 2006 2005
-------------- -------------- -------------- ------------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common
Stock
Net income........................................................ $ 81,181 $ 128,344 $ 324,259 $ 333,021
Add back - depreciation and amortization...................... 113,531 47,896 212,206 144,074
Add back - depreciation and amortization included in
Discontinued Operations................................... 9 41 50 150
Eliminate - depreciation with respect to non-real estate (53) (51) (158) (1,733)
assets........................................................
Eliminate - gain on sale of real estate assets................ (3,126) (5,038) (3,592) (5,091)
Eliminate - our pro rata share of PSB's gain on sale of real (24) (5,458) (1,047) (7,164)
estate....................................................
Depreciation from unconsolidated real estate investments...... 10,031 8,822 28,751 26,265
Add back - minority interest share of income.................. 8,590 7,243 24,477 26,355
-------------- -------------- -------------- ------------
Consolidated FFO.................................................. 210,139 181,799 584,946 515,877
Allocable to preferred minority interest:
Based upon ongoing distributions (b).......................... (5,403) (3,591) (13,652) (12,556)
Special distribution and EITF Topic D-42 allocation (b)....... - - - (874)
Allocable to minority interest - other partnership interests...... (4,036) (4,255) (12,302) (16,071)
-------------- -------------- -------------- ------------
Remaining FFO allocable to our shareholders....................... 200,700 173,953 558,992 486,376
Less: allocations to preferred and equity stock shareholders:
Preferred shareholder distributions........................... (60,265) (43,726) (159,256) (126,286)
Issuance costs on redeemed preferred shares................... (21,643) - (21,643) (1,904)
Equity Stock, Series A distributions.......................... (5,356) (5,356) (16,068) (16,087)
-------------- -------------- -------------- ------------
Remaining FFO allocable to Common Stock (a)....................... $ 113,436 $ 124,871 $ 362,025 $ 342,099
============== ============== ============== ============
Weighted average shares:
Regular common shares......................................... 145,387 128,006 133,897 128,191
Weighted average stock options and restricted stock units
outstanding using treasury method ............................ 1,092 736 954 653
-------------- -------------- -------------- ------------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share................................ 146,479 128,742 134,851 128,844
============== ============== ============== ============
FFO per common share (a) (c)...................................... $ 0.77 $ 0.97 $ 2.68 $ 2.66
============== ============== ============== ============
(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 nine months ended September 30, 2005.
15
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution (b)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2006 2005 2006 2005
------------- ------------ ------------ -------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Stock (a)........................ $ 113,436 $ 124,871 $ 362,025 $ 342,099
Add: Stock-based compensation expense.................... 1,841 1,196 4,868 3,579
Impact of application of EITF Topic D-42................. 21,643 - 21,643 2,778
EITF Topic D-42 charges included in equity in earnings of
real estate entities................................. 600 - 1,329 131
Less: Capital expenditures to maintain facilities........ (20,917) (3,916) (44,366) (13,286)
------------- ------------ ------------ -------------
Funds available for distribution ("FAD") (b) (c)......... $ 116,603 $ 122,151 $ 345,499 $ 335,301
============= ============ ============ =============
Distribution to common shareholders (c) ................. $ 84,686 $ 64,157 213,281 $ 179,822
============= ============ ============ =============
Distribution payout ratio (b) (c)........................ 72.6% 52.5% 61.7% 53.6%
============= ============ ============ =============
(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.
(c) The distribution payout ratio has increased in the three and nine months
ended September 30, 2006 as compared to the same periods in 2005, due
primarily to a $17,001,000 and $31,080,000 increase, respectively, in
capital expenditures for the three and nine months ended September 30, 2006
as compared to the same periods in 2005, a total of $18.1 and $20.5 million
in Shurgard integration expenses incurred in the three and nine months
ended September 30, 2006, as well as the payment of a full quarter's common
distribution on September 30, 2006, on the approximately 38.9 million
shares issued to former Shurgard shareholders while we recorded only a
partial period's operations for the Shurgard assets from August 22, 2006
through September 30, 2006.
16
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,
------------------------- ----------------------------
2006 2005 2006 2005
------------ ------------ ------------- --------------
(Amounts in thousands)
Revenues for the 1,266 Same Store facilities......... $ 221,386 $ 208,745 $ 644,446 $ 610,106
Revenues for non-Same Store facilities (a): Development
facilities (year opened):
2002 and 2003................................. 7,322 6,452 20,841 18,338
2004.......................................... 2,047 1,505 5,407 3,759
2005.......................................... 784 154 1,737 204
2006.......................................... 375 - 431 -
Combination facilities........................ 5,516 4,422 15,289 12,394
Acquisition facilities (year acquired):
2004.......................................... 8,749 7,926 25,299 22,376
2005.......................................... 6,537 2,748 18,353 4,625
2006.......................................... 2,168 - 4,007 -
Shurgard facilities - United States (b).......... 38,941 - 38,941 -
Shurgard facilities - Europe (b)............... 17,348 - 17,348 -
Newly consolidated facilities.................... 3,686 - 10,874 -
Expansion facilities............................. 13,982 11,750 39,778 34,501
------------ ------------ ------------- --------------
Consolidated self-storage revenues (c)................ $ 328,841 $ 243,702 $ 842,751 $ 706,303
============ ============ ============= ==============
Cost of operations for the 1,266 Same Store facilities $ 71,115 $ 67,730 $ 215,894 $ 205,457
Cost of operations for non-Same Store facilities (a):
Development facilities (year opened):
2002 and 2003................................. 2,161 2,096 6,556 6,362
2004.......................................... 641 525 1,770 1,703
2005.......................................... 381 187 1,201 304
2006.......................................... 344 - 458 -
Combination facilities....................... 1,899 1,502 5,557 5,007
Acquisition facilities (year acquired):
2004.......................................... 3,120 3,005 9,331 9,362
2005.......................................... 2,424 1,195 7,278 2,146
2006.......................................... 1,061 - 2,003 -
Shurgard facilities - United States (b).......... 12,402 - 12,402 -
Shurgard facilities - Europe (b)............... 8,524 - 8,524 -
Newly consolidated facilities.................... 924 - 2,644 -
Expansion facilities............................. 4,220 4,033 12,758 11,978
------------ ------------ ------------- --------------
Consolidated self-storage cost of operations (c)...... $ 109,216 $ 80,273 $ 286,376 $ 242,319
============ ============ ============= ==============
(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 September 30, 2006, or because we
acquired these facilities from third parties after December 31, 2003.
(b) Represents the operations of the facilities acquired in the merger with
Shurgard for the period from August 22, 2006 through September 30, 2006.
(c) 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.
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