News Release Exhibit 99.1
Public Storage, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: May 3, 2007
Contact: Mr. Clemente Teng
(818) 244-8080
PUBLIC STORAGE, INC. REPORTS RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2007
GLENDALE, California - Public Storage, Inc. (NYSE:PSA) announced today operating
results for the first quarter ended March 31, 2007.
OPERATING RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2007:
- -------------------------------------------------------------
Net income for the three months ended March 31, 2007 was $59,778,000 compared to
net income of $114,216,000 for the same period in 2006, representing a decrease
of $54,438,000. This decrease is primarily due to the temporary impact of
certain items related to our merger with Shurgard Storage Centers, Inc.
("Shurgard"). During the three months ended March 31, 2007, we incurred
amortization expense totaling $86 million due to the amortization of certain
intangible assets acquired in the merger and we incurred approximately $4
million in merger integration expenses. This decrease also includes $36 million
in depreciation expense related to buildings acquired in the merger.
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, as well as continued growth in our recently acquired self-storage
facilities including the facilities acquired in the merger with Shurgard.
Our Same Store net operating income, before depreciation expense, increased by
approximately $4,354,000 to $147,849,000, or 3.0%, as a result of a 2.9%
improvement in revenues partially offset by a 2.7% increase in cost of
operations. We continued with our expanded media activities along with our
aggressive pricing and promotional discount programs in order to increase the
overall occupancy of our domestic portfolio, which includes the domestic
properties acquired from Shurgard. Aggregate net operating income for our newly
developed and recently expanded and acquired facilities (other than the Shurgard
facilities) increased by approximately $4,414,000 to $22,044,000 compared to the
same period in 2006. 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 Shurgard merger in August 2006, net operating income was approximately
$77,109,000 for the quarter ended March 31, 2007.
For the three months ended March 31, 2007, we had a net loss allocable to our
common shareholders (after allocating net income to our preferred and equity
shareholders) of $4,354,000 or $0.03 per common share on a diluted basis
compared to income of $62,245,000 or $0.48 per common share on a diluted basis
for the same period in 2006, representing a decrease of $66,599,000 or $0.51 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 March 31, 2007 and 2006, we allocated $58,776,000 and
$46,615,000 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 169,229,000 for the three months
ended March 31, 2007 from 129,009,000 for the three months ended March 31, 2006.
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 since the completion of the merger on
August 22, 2006, as well as the exercise of employee stock options assumed in
the merger with Shurgard.
1
FUNDS FROM OPERATIONS:
- ----------------------
For the three months ended March 31, 2007, funds from operations ("FFO")
increased to $1.05 per common share on a diluted basis as compared to $0.94 per
common share for the same period in 2006, representing an increase of $0.11 per
common share, or 11.7%.
For the three months ended March 31, 2007 and 2006, FFO has been impacted as a
result of (i) additional expenses incurred in connection with the merger with
Shurgard totaling approximately $4.0 million and $1.2 million for the three
months ended March 31, 2007 and 2006, respectively, included in general and
administrative expense, (ii) foreign exchange gains net of a loss on derivative
instruments aggregating approximately $4.3 million for the three months ended
March 31, 2007, and (iii) a change in estimated insurance proceeds with respect
to damage caused by Hurricane Katrina ($2.7 million), resulting in a casualty
gain for the three months ended March 31, 2007.
The following table provides a summary of the impact of these items that have
occurred during the three months ended March 31, 2007 and 2006:
Three Months Ended
March 31,
----------------------------------------------
Percentage
2007 2006 Change
------------ ------------ --------------
FFO per common share prior to adjustments for the
following items............................. $ 1.02 $ 0.95 7.4%
Costs and expenses incurred in connection with the merger
with Shurgard............................... (0.02) (0.01)
Foreign exchange and derivatives, net.......... 0.03 -
Increase in insurance proceeds - casualty gain. 0.02 -
------------ ------------
FFO per common share, as reported ............. $ 1.05 $ 0.94 11.7%
============ ============
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 increased the number of facilities included in the Same Store Facilities from
1,266 facilities at December 31, 2006 to 1,316 facilities at March 31, 2007. The
increase in the Same Store pool of facilities is due to the inclusion of 79
facilities previously classified as Acquired, Developed or Expansion facilities
and the removal of 29 facilities that are now classified as Expansion
facilities. These facilities are included in the Same Store Facilities because
they are all stabilized and owned since January 1, 2005 and will therefore
provide meaningful comparative data for 2005, 2006 and 2007. The 29 facilities
that have been classified as Expansion facilities are facilities that are either
currently undergoing repackaging activities or are expected to commence such
activities during 2007 and accordingly will no longer provide meaningful
comparative data for 2005, 2006 and 2007.
As a result of the increase in the number of Same Store Facilities, the relative
weighting of markets has changed. Accordingly, comparisons should not be made
between information presented in our 2006 reports for the 1,266 Same Store
Facilities and the current 1,316 Same Store Facilities to identify trends in
occupancies, realized rents per square foot, or other operating trends.
2
The Same Store facilities contain approximately 77.8 million net rentable square
feet, representing approximately 63% of the aggregate net rentable square feet
in the United States of our consolidated self-storage portfolio at March 31,
2007. The following table summarizes the historical operating results of the
Same Store facilities:
Selected Operating Data for the Same Store Three Months Ended
- ------------------------------------------- March 31,
Facilities (1,316 Facilities): ------------------------------------------------------
- ------------------------------ Percentage
2007 2006 Change
--------------- -------------- ---------------
(Dollar amounts in thousands, except weighted average
data)
Revenues:
Rental income................................. $ 215,727 $ 209,805 2.8%
Late charges and administrative fees
collected................................... 9,950 9,492 4.8%
--------------- -------------- ---------------
Total revenues (a)............................ 225,677 219,297 2.9%
Cost of operations (excluding depreciation):
Property taxes ............................... 22,871 21,988 4.0%
Direct property payroll....................... 16,141 15,519 4.0%
Advertising and promotion..................... 6,728 6,963 (3.4)%
Utilities..................................... 5,428 5,195 4.5%
Repairs and maintenance....................... 7,041 7,104 (0.9)%
Telephone reservation center.................. 2,069 2,043 1.3%
Property insurance............................ 2,454 1,962 25.1%
Other costs of management..................... 15,096 15,028 0.5%
--------------- -------------- ---------------
Total cost of operations (a).................... 77,828 75,802 2.7%
--------------- -------------- ---------------
Net operating income (before depreciation) (b).... 147,849 143,495 3.0%
Depreciation expense.............................. (40,406) (41,051) (1.6)%
--------------- -------------- ---------------
Operating income.................................. $ 107,443 $ 102,444 4.9%
=============== ============== ===============
Gross margin (before depreciation)................ 65.5% 65.4% 0.2%
Weighted average for the period:
Square foot occupancy (c)....................... 89.8% 90.1% (0.3)%
Realized annual rent per occupied square foot (d) (f) $ 12.35 $ 11.97 3.2%
REVPAF (e) (f).................................. $ 11.09 $ 10.79 2.8%
Weighted average at March 31:
Square foot occupancy........................... 90.2% 90.3% (0.1)%
In place annual rent per occupied square foot (g) $ 13.28 $ 13.02 2.0%
Total net rentable square feet (in thousands)..... 77,782 77,782 -
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.
3
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 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):
2006..................................... $ 219,297 $ 226,352 $ 233,420 $ 227,007 $ 906,076
2007..................................... $ 225,677
Total cost of operations (excluding depreciation
expense) (in 000's):
2006..................................... $ 75,802 $ 76,649 $ 74,947 $ 72,149 $ 299,547
2007..................................... $ 77,828
Property taxes (in 000's):
2006..................................... $ 21,988 $ 20,730 $ 21,700 $ 18,844 $ 83,262
2007..................................... $ 22,871
Media advertising expense (in 000's):
2006..................................... $ 4,130 $ 2,802 $ 1,049 $ 3,823 $ 11,804
2007..................................... $ 3,365
Other advertising and promotion
expense (in 000's):
2006..................................... $ 2,833 $ 4,256 $ 3,723 $ 3,640 $ 14,452
2007..................................... $ 3,363
REVPAF:
2006..................................... $ 10.79 $ 11.13 $ 11.46 $ 11.16 $ 11.13
2007..................................... $ 11.09
Weighted average realized annual rent per occupied
square foot for the period:
2006.................................... $ 11.97 $ 12.08 $ 12.55 $ 12.42 $ 12.26
2007..................................... $ 12.35
Weighted average square foot occupancy levels for
the period:
2006..................................... 90.1% 92.1% 91.3% 89.8% 90.8%
2007..................................... 89.8%
MERGER WITH SHURGARD:
- ---------------------
On August 22, 2006, we completed the merger with Shurgard Storage Centers, Inc.
Included in general and administrative expense are costs related to completing
the integration of the two companies of approximately $4.0 million for the three
months ended March 31, 2007. Similar costs relating to pursuing the merger
totaling $1.2 million were incurred in the quarter ended March 31, 2006. At the
end of the first quarter 2007, all the remaining Shurgard corporate staff has
been terminated and the corporate facility in Seattle has been closed. We expect
there will be merger integration costs of less than $2 million during the second
quarter 2007.
SHURGARD EUROPE:
- ----------------
In January 2007, we repaid all of the notes, $433 million (325 million euros)
that encumbered 101 of our wholly-owned European facilities. In connection with
the repayment of this debt, we also terminated the related European currency and
interest rate hedges.
4
We own a 20% interest in two joint ventures which collectively own 65 European
properties with 3.2 million net rentable square feet. The two ventures
collectively had approximately $305 million of outstanding debt at March 31,
2007, which is included in our condensed consolidated financial statements.
At March 31, 2007, we had seven facilities under construction of which six were
being developed by the joint venture (351,000 net rentable square feet), with
total estimated costs of approximately $74 million, of which approximately $39
million had been incurred as of March 31, 2007. The development of these
facilities is subject to various risks and contingencies.
During the first quarter of 2007, we completed the development of two facilities
consisting of one in France and one in Sweden at a total cost of $14 million,
adding 96,000 net rentable square feet to the portfolio.
During the second quarter of 2007, we expect a share offering of Shurgard
Europe. In connection with the offering, which is subject to Belgian regulatory
approval, market conditions and other factors, we expect to reduce our ownership
in Shurgard Europe, but will retain a significant equity interest.
As previously disclosed in January 2007, we filed an arbitration action with our
joint venture partner related to our intention to terminate the joint venture
early. As part of our efforts to resolve this dispute, we've entered into an
agreement to exchange their interest in the joint venture for shares in the
proposed public company.
DEVELOPMENT AND ASSET ACQUISITION ACTIVITIES IN THE U.S.:
- ---------------------------------------------------------
During the first quarter of 2007, in the United States we completed one
development facility at a total cost of $4 million, adding 42,000 of net
rentable square feet, and four expansion facilities at a total cost of $14
million, adding 128,000 net rentable square feet.
At March 31, 2007, we had 48 projects in the United States that were either
under construction or were expected to begin construction generally within the
next year, comprised of 45 projects (2,097,000 net additional rentable square
feet) which expand existing self-storage facilities and enhance their visual
appeal for a total estimated cost of $164 million, and three newly developed
self-storage facilities (173,000 net rentable square feet) for a total estimated
cost of $19 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 first quarter 2007, we purchased a self-storage facility in Honolulu,
Hawaii with an aggregate of 79,000 net rentable square feet, for approximately
$23 million.
ISSUANCE AND REDEMPTION OF PREFERRED SECURITIES:
- ------------------------------------------------
On January 9, 2007, we issued 20,000,000 depositary shares, with each depositary
share representing 1/1,000 of a share of 6.625% Cumulative Preferred Stock,
Series M, for aggregate gross proceeds of $500 million. The net proceeds from
this offering were used to fund the redemption of preferred securities along
with repaying a $300 million bridge loan.
On January 18, 2007, we redeemed our 7.625% Series T Preferred Stock for $152
million, plus accrued and unpaid dividends. The Series T was called for
redemption in December 2006.
On February 19, 2007, we redeemed our 7.625% Series U Preferred Stock for $150
million, plus accrued and unpaid dividends. The Series U was called for
redemption in December 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
May 3, 2007, we have repurchased a total of 22,201,720 shares (none from January
1, 2006 through May 3, 2007) of common stock at an aggregate cost of
approximately $567.2 million.
NEW CREDIT FACILITY:
- --------------------
On March 27, 2007, we entered into a new credit facility with our banking group.
The new facility, which replaced our existing facilities, provides for
borrowings up to $300 million and provides for more flexible terms and
conditions, as compared to the retiring facility. The new facility expires on
March 26, 2012. As of March 31, 2007, there was $132 million outstanding on our
line of credit.
5
2007 ANNUAL MEETING
- -------------------
At our 2007 Annual Meeting of Shareholders, our shareholders, among other
matters, re-elected all current Board members and approved our proposal to
reorganize as a Maryland real estate investment trust. We expect to complete the
Maryland reorganization during the second quarter.
DISTRIBUTIONS DECLARED:
- -----------------------
On May 3, 2007 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 June 28, 2007 to shareholders of record as
of June 15, 2007.
FIRST QUARTER CONFERENCE CALL:
- ------------------------------
A conference call is scheduled for Friday, May 4, 2007 at 9:00 a.m. (PDT) to
discuss the first quarter ended March 31, 2007 earnings results. The participant
toll free number is (866) 406-5408 (conference ID number 8680419). A
simultaneous audio web cast may be accessed by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations"
(conference ID number 8680419). A replay of the conference call may be accessed
through May 18, 2007 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 8680419.
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 Western
European nations. At March 31, 2007, the Company had interests in 2,005 storage
facilities with approximately 126 million net rentable square feet in the United
States and 168 storage facilities with approximately nine 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, 2006 and our Quarterly Reports on Form 10-Q 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
completing the integration of Public Storage and Shurgard, the impact of the
merger on occupancy and rental rates, the inability to realize or delays in
realizing expected results 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.
6
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
(Unaudited)
Three Months Ended
March 31,
-----------------------------------
2007 2006
---------------- ---------------
Amounts in thousands, except per
share data)
Revenues:
Self-storage rental income.......................... $ 398,781 $ 251,347
Ancillary operations................................ 33,461 22,096
Interest and other income........................... 2,125 5,075
---------------- ---------------
434,367 278,518
---------------- ---------------
Expenses:
Cost of operations:
Self-storage facilities .......................... 148,920 87,703
Ancillary operations ............................. 21,001 15,274
Depreciation and amortization (a)................... 176,481 50,028
General and administrative (b)...................... 16,516 6,779
Interest expense.................................... 16,808 1,557
---------------- ---------------
379,726 161,341
---------------- ---------------
Income from continuing operations before casualty gain from
hurricane, equity in earnings of real estate entities,
foreign currency exchange gain, income (expense) from
derivatives and minority interest in income......... 54,641 117,177
Casualty gain from Hurricane (c)........................ 2,665 -
Equity in earnings of real estate entities ............. 3,977 3,466
Foreign currency exchange gain (d)...................... 5,040 -
Income (expense) from derivatives, net (e).............. (762) -
Minority interest in income:
Allocable to preferred minority interests:
Based upon ongoing distributions.................... (5,403) (3,591)
Other partnership interests ........................... (380) (3,568)
---------------- ---------------
Income from continuing operations....................... 59,778 113,484
Cumulative effect of change in accounting principle. - 578
Discontinued operations ............................ - 154
---------------- ---------------
Net income $ 59,778 $ 114,216
================ ===============
Net income allocation:
Allocable to preferred shareholders................. $ 58,776 $ 46,615
Allocable to equity shareholders, Series A.......... 5,356 5,356
Allocable to common shareholders.................... (4,354) 62,245
---------------- ---------------
$ 59,778 $ 114,216
================ ===============
Per common share:
Net income (loss) per share - Basic................. $ (0.03) $ 0.49
================ ===============
Net income (loss) per share - Diluted............... $ (0.03) $ 0.48
================ ===============
Weighted average common shares - Basic.............. 169,229 128,122
================ ===============
Weighted average common shares - Diluted ........... 169,229 129,009
================ ===============
(a) Depreciation and amortization increased substantially, principally due to
$85,784,000 in amortization of intangibles acquired in the merger with
Shurgard for the three months ended March 31, 2007, as well as
$35,700,000 in depreciation of the buildings acquired from Shurgard for
the same period. Amortization is expected to be approximately $69,200,000
in the second quarter of 2007, $51,600,000 in the third quarter of 2007
and $36,700,000 in the fourth quarter of 2007.
7
(b) Included in general and administrative expense are merger related costs
totaling $4,037,000 and $1,224,000 for the three months ended March 31,
2007 and 2006, respectively.
(c) During 2005, several of our self-storage facilities were significantly
damaged by Hurricane Katrina. As a result, a loss was recorded in 2005
based on the excess of the net book value of the damaged facilities over
the estimated insurance proceeds that we would receive. During the first
quarter of 2007, we recorded a casualty gain totaling $2,665,000,
representing an increase in our estimate of insurance proceeds.
(d) Represents a gain on intercompany notes receivable with our European
subsidiary reflecting the change in Euro exchange rate from December 31,
2006 through March 31, 2007. Because we expect these proceeds to be
repaid in the short term, we reflect the change in currency valuations in
income during the period in which the changes occur.
(e) 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 are reflected in
our net income.
8
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
March 31, December 31,
2007 2006
------------------ ------------------
(Unaudited)
(Amounts in thousands, except share and
per share data)
ASSETS
Cash and cash equivalents .................................... $ 90,700 $ 555,584
Operating real estate facilities:
Land and building, at cost................................. 11,339,274 11,261,865
Accumulated depreciation................................... (1,844,609) (1,754,362)
------------------ ------------------
9,494,665 9,507,503
Construction in process....................................... 76,592 90,038
------------------ ------------------
9,571,257 9,597,541
Investment in real estate entities............................ 301,711 301,905
Goodwill...................................................... 174,634 174,634
Intangible assets, net........................................ 329,372 414,602
Other assets.................................................. 151,473 154,207
------------------ ------------------
Total assets........................................... $ 10,619,147 $ 11,198,473
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings on bank credit facilities.......................... $ 132,000 $ 345,000
Notes payable and debt due to joint venture partner........... 1,069,360 1,503,542
Preferred stock called for redemption......................... - 302,150
Accrued and other liabilities................................. 296,383 333,706
------------------ ------------------
Total liabilities...................................... 1,497,743 2,484,398
Minority interest - preferred partnership interests........... 325,000 325,000
Minority interest - other partnership interests............... 177,109 181,030
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
1,732,600 shares issued (in series) and outstanding (1,712,600 at
December 31, 2006), at liquidation preference:
Cumulative Preferred Stock, issued in series............. 3,355,000 2,855,000
Common Stock, $0.10 par value, 200,000,000 shares authorized,
169,310,601 shares issued and outstanding (169,144,467 at
December 31, 2006)....................................... 16,931 16,915
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,744.193 shares issued and outstanding at
March 31, 2007 and December 31, 2006..................... - -
Paid-in capital............................................ 5,651,677 5,661,507
Cumulative net income...................................... 3,563,070 3,503,292
Cumulative distributions paid.............................. (3,997,123) (3,847,998)
Accumulated other comprehensive income..................... 29,740 19,329
------------------ ------------------
Total shareholders' equity............................... 8,619,295 8,208,045
------------------ ------------------
Total liabilities and shareholders' equity............. $ 10,619,147 $ 11,198,473
================== ==================
9
Shurgard Domestic Same Store Selected Operating Data
- ----------------------------------------------------
We decreased the number of facilities included in the Shurgard Domestic Same
Store Facilities from 366 facilities at December 31, 2006 to 355 facilities at
March 31, 2007. The Shurgard Domestic Same Store pool of 355 facilities are all
stabilized since January 1, 2005 and will therefore provide meaningful
comparative data for 2005, 2006 and 2007.
As a result of the decrease in the number of Shurgard Domestic Same Store
Facilities, the relative weighting of markets has changed. Accordingly,
comparisons should not be made between information presented in our 2006 reports
for the 366 Shurgard Domestic Same Store Facilities and the current pool of 355
facilities to identify trends in occupancies, realized rents per square foot, or
other operating trends.
The operating data presented in the table below reflects the historical data
from January 1, 2006 through March 31, 2006, the period for which the facilities
were operated under Shurgard combined with the historical data from January 1,
2007 through March 31, 2007, the period operated under Public Storage.
Selected Operating Data for the 355 facilities
operated by Shurgard on a stabilized basis since January 1, 2005
("Shurgard Domestic Same Store Facilities"): (a)
Three Months Ended March 31,
----------------------------------------------
Percentage
2007 2006 Change
------------- ------------- -------------
(Dollar amounts in thousands, except weighted
average data)
Revenues:
Rental income................................. $ 64,389 $ 62,279 3.4%
Late charges and administrative fees collected 2,118 2,117 -
------------- ------------- -------------
Total revenues (b)............................ 66,507 64,396 3.3%
Cost of operations (excluding depreciation):
Property taxes ............................... 6,893 6,339 8.7%
Direct property payroll....................... 4,813 7,922 (39.2)%
Advertising and promotion..................... 1,873 1,599 17.1%
Utilities..................................... 2,078 1,959 6.1%
Repairs and maintenance....................... 2,070 1,610 28.6%
Telephone reservation center.................. 559 - -
Property insurance............................ 737 358 105.9%
Other costs of management..................... 4,772 5,876 (18.8)%
------------- ------------- -------------
Total cost of operations (b).................... 23,795 25,663 (7.3)%
------------- ------------- -------------
Net operating income (excluding depreciation) (c) $ 42,712 $ 38,733 10.3%
============= ============= =============
Gross margin (before depreciation)................ 64.2% 60.1% 6.8%
Weighted average for the period:
Square foot occupancy (d)....................... 86.8% 83.4% 4.1%
Realized annual rent per occupied square foot (e) $ 13.08 $ 13.17 (0.7)%
REVPAF (f) (g).................................. $ 11.36 $ 10.98 3.5%
Weighted average at March 31:
Square foot occupancy........................... 87.6% 83.4% 5.0%
Total net rentable square feet (in thousands)..... 22,680 22,680 -
(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 January 1, 2007 through March 31, 2007 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,
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
10
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.
(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.
Depreciation is not presented herein because it is not comparable during
the period owned by us and during the period owned by Shurgard, due to
differing historical costs and depreciable lives.
(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.
11
Shurgard European Same Store Selected Operating Data
- ----------------------------------------------------
In the merger with Shurgard, we acquired 103 wholly-owned facilities and an
interest in 57 facilities owned by affiliated joint ventures located in seven
European countries. We have applied our definition of what qualifies as a Same
Store. The operating data presented in the table below reflects the historical
data from January 1, 2006 through March 31, 2006, the period for which the
facilities were operated under Shurgard combined with the historical data from
January 1, 2007 through March 31, 2007, the period operated under Public
Storage.
Selected Operating Data for the 96 facilities operated by Shurgard
Europe on a stabilized basis since January 1, 2005 ("Europe Same
Store Facilities"): (a)
Three Months Ended March 31,
-----------------------------------------------------
Percentage
2007 2006 Change
---------------- --------------- ----------------
(Dollar amounts in thousands, except weighted average
data, utilizing constant exchange rates) (b)
Revenues:
Rental income................................. $ 29,271 $ 26,608 10.0%
Late charges and administrative fees collected 279 279 -
---------------- --------------- ----------------
Total revenues (c)............................ 29,550 26,887 9.9%
Cost of operations (excluding depreciation):
Property taxes ............................... 1,198 1,318 (9.1)%
Direct property payroll....................... 3,580 4,055 (11.7)%
Advertising and promotion..................... 1,223 1,860 (34.2)%
Utilities..................................... 850 893 (4.8)%
Repairs and maintenance....................... 823 851 (3.3)%
Property insurance............................ 358 369 (3.0)%
Other costs of management..................... 4,570 4,400 3.9%
---------------- --------------- ----------------
Total cost of operations (c).................... 12,602 13,746 (8.3)%
---------------- --------------- ----------------
Net operating income (excluding depreciation) (d) $ 16,948 $ 13,141 29.0%
================ =============== ================
Gross margin (before depreciation)................ 57.4% 48.9% 17.4%
Weighted average for the period:
Square foot occupancy (e)....................... 88.5% 81.8% 8.2%
Realized annual rent per occupied square foot (f) $ 25.03 $ 24.61 1.7%
REVPAF (g) (h).................................. $ 22.15 $ 20.13 10.0%
Weighted average at March 31:
Square foot occupancy........................... 89.0% 81.9% 8.7%
In place annual rent per occupied square foot (i) $ 26.52 $ 26.02 1.9%
Total net rentable square feet (in thousands)..... 5,286 5,286 -
(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 January 1, 2007 through March 31, 2007 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 1.31 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. "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 and retail sales which are
included on our income statement under "ancillary operations" but were
previously presented by Shurgard as self-storage revenue and operating
expenses.
12
(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.
Depreciation is not presented herein because it is not comparable during
the period owned by us and during the period owned by Shurgard, due to
differing historical costs and depreciable lives.
(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.
13
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
Computation of Funds from Operations (a)
(Unaudited)
Three Months Ended
March 31,
-------------------------------------
2007 2006
----------------- ----------------
(Amounts in thousands,
except per share data)
Computation of Funds from Operations (FFO) allocable to Common Stock
Net income................................................................... $ 59,778 $ 114,216
Add back - depreciation and amortization................................. 176,481 50,028
Add back - depreciation and amortization included in Discontinued Operations - 42
Eliminate - depreciation with respect to non-real estate assets.......... (98) (60)
Eliminate - our pro rata share of PSB's gain on sale of real estate...... - (312)
Depreciation from unconsolidated real estate investments................. 9,755 9,254
Add back - minority interest share of income............................. 5,783 7,159
----------------- ----------------
Consolidated FFO............................................................. 251,699 180,327
Allocable to preferred minority interest:
Based upon ongoing distributions......................................... (5,403) (3,591)
Allocable to minority interest - other partnership interests................. (3,803) (3,880)
----------------- ----------------
Remaining FFO allocable to our shareholders.................................. 242,493 172,856
Less: allocations to preferred and equity stock shareholders:
Preferred shareholder distributions and EITF Topic D-42 allocation....... (58,776) (46,615)
Equity Stock, Series A distributions..................................... (5,356) (5,356)
----------------- ----------------
Remaining FFO allocable to Common Stock (a).................................. $ 178,361 $ 120,885
================= ================
Weighted average shares:
Regular common shares.................................................... 169,229 128,122
Weighted average stock options and restricted stock units outstanding using
treasury method..................................................... 1,107 887
----------------- ----------------
Weighted average common shares for purposes of computing fully-diluted FFO per
common share........................................................ 170,336 129,009
================= ================
FFO per common share (a)..................................................... $ 1.05 $ 0.94
================= ================
(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, distributions, 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.
14
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
Computation of Funds Available for Distribution (c)
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2007 2006
------------- -------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Stock (a)........................ $ 178,361 $ 120,885
Add: Stock-based compensation expense.................... 2,508 1,536
Less: Foreign exchange and Derivative gains.............. (4,278) -
Less: Capital expenditures to maintain facilities (b).... (4,707) (8,379)
------------- -------------
Funds available for distribution ("FAD") (c)............. $ 171,884 $ 114,042
============= =============
Distribution to common shareholders...................... $ 84,993 $ 64,298
============= =============
Distribution payout ratio (c)............................ 49.4% 56.4%
============= =============
(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, distributions, 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) Capital expenditures excludes approximately $3,600,000 for the quarter
ended March 31, 2007 of costs incurred to re-brand the U.S. Shurgard
facilities to the "Public Storage" name, which principally consists of
permanent signage.
(c) 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, 3) income allocation to
preferred equity holders in accordance with EITF Topic D-42, less capital
expenditures and any gain or loss on foreign exchange or from
derivatives. 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.
15
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
March 31,
--------------------------------
2007 2006
--------------- --------------
(Amounts in thousands)
Revenues for the 1,316 Same Store facilities......... $ 225,677 $ 219,297
Revenues for non-Same Store facilities (a): Development
facilities (year opened):
2007.......................................... 8 -
2006.......................................... 857 -
2005.......................................... 911 369
2003 and 2004................................. 5,480 4,948
Expansion facilities.......................... 19,363 17,400
Acquisition facilities (year acquired):
2007.......................................... 12 -
2006.......................................... 2,285 397
2005.......................................... 6,632 5,638
Newly consolidated facilities.................... 3,736 3,298
Shurgard facilities - United States (b).......... 89,958 -
Shurgard facilities - Europe (b)................. 43,862 -
--------------- --------------
Consolidated self-storage revenues (c)............... $ 398,781 $ 251,347
=============== ==============
Cost of operations for the 1,316 Same Store
facilities...................................... $ 77,828 $ 75,802
Cost of operations for non-Same Store facilities (a):
Development facilities (year opened):
2007.......................................... 41 -
2006.......................................... 536 -
2005.......................................... 560 414
2003 and 2004................................. 1,621 1,581
Expansion facilities.......................... 7,065 6,433
Acquisition facilities (year acquired):
2007.......................................... 3 -
2006.......................................... 1,109 225
2005.......................................... 2,569 2,469
Newly consolidated facilities.................... 877 779
Shurgard facilities - United States (b).......... 33,657 -
Shurgard facilities - Europe (b)................. 23,054 -
--------------- --------------
Consolidated self-storage cost of operations (c).... $ 148,920 $ 87,703
=============== ==============
(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, 2005 through March 31, 2007, or
because we acquired these facilities from third parties after December
31, 2004.
(b) Represents the operations of the facilities acquired in the merger with
Shurgard for the period from January 1, 2007 through March 31, 2007.
(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.
16