Exhibit 99.1
News Release
Public Storage
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
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For Release: Immediately
Date: November 8, 2007
Contact: Clemente Teng
(818) 244-8080
PUBLIC STORAGE REPORTS RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2007
GLENDALE, California - Public Storage (NYSE:PSA) announced today operating
results for the third quarter ended September 30, 2007.
OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007:
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Net income for the three months ended September 30, 2007 was $152,766,000
compared to $81,181,000 for the same period in 2006, representing an increase of
$71,585,000. This increase in net income is primarily due to a foreign currency
exchange gain, reduction in general and administrative expense and improved
operations from our real estate facilities. These factors were partially offset
by increased depreciation and amortization expense.
Comparisons of our revenues, expenses, and weighted average shares outstanding
are significantly impacted by the merger with Shurgard, which closed on August
22, 2006. The operating results with respect to the assets and liabilities
acquired in the merger with Shurgard are included in our operating results from
August 23, 2006 through September 30, 2006 during the quarter ended September
30, 2006, as compared to the entire quarter ended September 30, 2007.
During the quarter ended September 30, 2007, we recognized a foreign currency
exchange gain of $30.4 million relating to intercompany loans between our U.S.
and European subsidiaries. The gain was the result of the continued weakening of
the US Dollar relative to the Euro during the quarter. See "Shurgard Europe"
below for further information.
General and administrative expense declined $24.8 million in the quarter ended
September 30, 2007 as compared to the same period in 2006. This decline was
primarily due to the reduction in integration expenses associated with the
Shurgard merger, contract termination costs, and development costs that were
expensed with respect to terminated projects; these expenses aggregated $29.6
million in the quarter ended September 30, 2006 as compared to $1.4 million for
the same period in 2007.
Our Same Store net operating income, before depreciation expense, increased by
approximately $2,901,000 to $161,374,000, or 1.8%, as a result of a 1.7%
improvement in revenues partially offset by a 1.5% increase in cost of
operations. Aggregate net operating income for our newly developed, recently
expanded and acquired self-storage facilities (other than the Shurgard
facilities) increased by approximately $4,368,000 to $30,208,000 compared to the
same period in 2006. This increase was largely due to the impact of facilities
acquired in 2005, 2006 and 2007, combined with continued fill-up of our newly
developed and expansion facilities.
For those facilities that were acquired in the Shurgard merger, net operating
income was approximately $92,996,000 for the quarter ended September 30, 2007 as
compared to $35,363,000 (which reflects the operations of these facilities from
August 23, 2006 through September 30, 2006) for the same period in 2006.
Depreciation and amortization expense for the quarter ended September 30, 2007
increased by $34.3 million, as compared to the same period in 2006. This
increase is primarily due to increased depreciation and amortization expense
with respect to the buildings and intangible assets acquired in the merger with
Shurgard.
For the three months ended September 30, 2007, net income allocable to our
common shareholders (after allocating net income to our preferred and equity
shareholders) was $87,077,000 or $0.51 per common share on a diluted basis
compared to a net loss of $6,083,000 or $0.04 per common share on a diluted
basis for the same period in 2006, representing an increase of $93,160,000 or
$0.55 per diluted common share. The increase in net income allocable to common
shareholders on an aggregate and per-share basis is due primarily to the impact
of the factors described above, combined with a decrease in income allocated to
preferred shareholders, as described below.
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For the three months ended September 30, 2007 and 2006, we allocated $60,333,000
and $60,265,000 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. In 2006, 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 $0.15 per diluted common share) for the three months
ended September 30, 2006 in connection with the redemption of preferred
securities.
Weighted average diluted shares increased to 170,085,000 for the three months
ended September 30, 2007 from 145,387,000 for the three months ended September
30, 2006. The increase in weighted average diluted shares is due primarily to
the impact of the issuance of 38.9 million shares in connection with our merger
with Shurgard, with approximately 16.7 million of such shares being included in
our operating results for the quarter ended September 30, 2006 (representing the
weighted average outstanding of such shares from August 22, 2006 through
September 30, 2006). The increase also includes the weighted average impact of
the exercise of approximately 1.8 million stock options issued in connection
with the merger with Shurgard principally during the quarter ended September 30,
2006.
OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007:
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Net income for the nine months ended September 30, 2007 was $289,648,000
compared to $324,259,000 for the same period in 2006, representing a decrease of
$34,611,000. This decrease is primarily due to a $279.7 million increase in
depreciation and amortization expense, due primarily to depreciation and
amortization with respect to the buildings and intangibles acquired in the
merger with Shurgard. Increased depreciation and amortization expense was
partially offset by a foreign currency exchange gain of $41.0 million and
improved operations from our real estate facilities.
Comparisons of our revenues, expenses, and weighted average shares outstanding
are significantly impacted by the merger with Shurgard, which closed on August
22, 2006. The results with respect to the assets and liabilities acquired in the
merger with Shurgard are included in our operating results from August 23, 2006
through September 30, 2006 during the nine months ended September 30, 2006, as
compared to the entire nine months ended September 30, 2007.
During the nine months ended September 30, 2007, we recognized a foreign
currency exchange gain aggregating $41.0 million relating to intercompany loans
between our U.S. and European subsidiaries. The gain was the result of the
continued weakening of the US Dollar relative to the Euro during the nine month
period ended September 30, 2007. See "Shurgard Europe" below for further
information.
Same Store net operating income, before depreciation expense, increased by
$9,479,000 to $461,150,000, or 2.1%, as a result of a 2.1% improvement in
revenues partially offset by a 2.1% increase in cost of operations. Aggregate
net operating income for our newly developed, recently expanded and acquired
self-storage facilities (excluding the Shurgard facilities) increased by
approximately $12,090,000 to $81,213,000.
For those facilities that were acquired in the Shurgard merger, net operating
income was approximately $253,926,000 for the nine months ended September 30,
2007, as compared to $35,363,000 (which reflects the operations of these
facilities from August 23, 2006 through September 30, 2006) for the same period
in 2006.
Net income allocable to our common shareholders (after allocating net income to
our preferred and equity shareholders) was $97,156,000 or $0.57 per common share
on a diluted basis for the nine months ended September 30, 2007 compared to
$127,292,000 or $0.94 per common share on a diluted basis for the same period in
2006, representing a decrease of $0.37 per common share, or 39.4%. The decrease
in net income allocable to common shareholders and earnings per common diluted
share are due primarily to the impact of the factors described above, partially
offset by decrease in income allocated to preferred shareholders, as described
below.
For the nine months ended September 30, 2007 and 2006, we allocated $176,424,000
and $159,256,000 of our net income, respectively, to our preferred shareholders
based on distributions paid. The year-over-year increase is due to the issuance
of additional preferred securities, partially offset by the redemption of
preferred securities that had higher dividend rates than the newly preferred
securities issued. In 2006, 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) for the nine months
ended September 30, 2006 in connection with the redemption of preferred
securities.
Weighted average diluted shares increased to 170,166,000 for the nine months
ended September 30, 2007 from 134,851,000 for the nine months ended September
30, 2006. The increase in weighted average diluted shares is due primarily to
the impact of the issuance of 38.9 million shares in connection with our merger
with Shurgard, with approximately 5.6 million of such shares being included in
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our operating results for the quarter ended September 30, 2006 (representing the
weighted average outstanding of such shares from August 22, 2006 through
September 30, 2006) and all such shares included in our weighted average shares
for the same period in 2007. The increase also includes the weighted average
impact of the exercise of approximately 1.8 million stock options issued in
connection with the merger with Shurgard principally during the quarter ended
September 30, 2006.
FUNDS FROM OPERATIONS:
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For the three months ended September 30, 2007, funds from operations ("FFO")
increased to $1.43 per common share on a diluted basis as compared to $0.77 per
common share for the same period in 2006, representing an increase of $0.66 per
common share, or 85.7%.
For the three months ended September 30, 2007, FFO has been impacted as a result
of (i) net foreign currency exchange gains of approximately $30.4 million, (ii)
development costs that are included in general and administrative expense with
respect to terminated projects totaling $1.3 million ($9.3 million for the same
period in 2006), (iii) an impairment charge included in discontinued operations
with respect to the closure of a containerized storage facility totaling $0.9
million. In addition, for the three months ended September 30, 2006, FFO was
impacted by (i) expenses incurred in connection with the merger with Shurgard
totaling approximately $18.1 million, (ii) contract termination costs totaling
$2.2 million, (iii) our pro rata share of PS Business Parks, Inc.'s application
of EITF Topic D-42 included in equity in earnings, and our application of EITF
Topic D-42, in connection with the redemption of preferred securities totaling
$22.2 million.
For the nine months ended September 30, 2007, FFO increased to $3.58 per common
share on a diluted basis as compared to $2.68 per common share for the same
period in 2006, representing an increase of $0.90 per common share, or 33.6%.
For the nine months ended September 30, 2007, FFO has been impacted as a result
of (i) net foreign currency exchange gains of approximately $41.0 million, (ii)
development costs that are included in general and administrative expense with
respect to terminated projects totaling $1.6 million ($9.3 million for the same
period in 2006), (iii) an impairment charge included in discontinued operations
with respect to the closure of a containerized storage facility totaling $0.9
million, (iv) additional expenses incurred in connection with the merger with
Shurgard included in general and administrative expense totaling approximately
$5.3 million ($20.5 million for the same period in 2006), (v) $9.6 million in
general and administrative expenses related to our proposed offering of shares
in our European business, (vi) $2.0 million in general and administrative
expense associated with our reorganization as a Maryland REIT, (vii) an increase
in insurance proceeds with respect to damage caused by Hurricane Katrina of $2.7
million. In addition, for the nine months ended September 30, 2006, FFO has been
impacted as a result of (i) contract termination costs included in general and
administrative expense totaling $2.2 million, (ii) our pro rata share of PS
Business Parks, Inc.'s application of EITF Topic D-42 included in equity in
earnings, and our application of EITF Topic D-42, in connection with the
redemption of preferred securities totaling $23.0 million.
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The following table provides a summary of the impact of these items that have
occurred during the three and nine months ended September 30, 2007 and 2006:
Three Months Ended Nine Months Ended
September 30, September 30,
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Percentage Percentage
2007 2006 Change 2007 2006 Change
---------- ---------- ------------ ---------- ---------- ----------
FFO per common share prior to adjustments for
the following items......................... $ 1.27 $ 1.12 13.4% $ 3.44 $ 3.09 11.3%
Foreign currency exchange gain................. 0.18 - 0.24 -
Cancellation of development projects........... (0.01) (0.06) (0.01) (0.07)
Impairment charges on containerized storage
operations.................................. (0.01) - (0.01) -
Costs and expenses incurred in connection with
the merger with Shurgard.................... - (0.12) - (0.15)
Contract termination costs..................... - (0.02) (0.03) (0.02)
Costs and expenses incurred in connection with a
proposed offering of shares in our European
business.................................... - - (0.06) -
Costs to reorganize as a Maryland REIT......... - - (0.01) -
Increase in insurance proceeds - casualty gain - - 0.02 -
Application of EITF Topic D-42 in connection
with the redemption of preferred securities. - (0.15) - (0.17)
---------- ---------- ---------- ----------
FFO per common share, as reported.............. $ 1.43 $ 0.77 85.7% $ 3.58 $ 2.68 33.6%
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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:
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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, 2007, our "Same Store" portfolio consists of 1,316
facilities, which represents the facilities that we have consolidated in our
financial statements and have been operating at a stabilized basis throughout
2005, 2006 and the first nine months of 2007.
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 September 30,
2007. The following table summarizes the historical operating results of the
Same Store facilities:
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SELECTED OPERATING DATA FOR THE SAME STORE
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FACILITIES (1,316 FACILITIES): Three Months Ended September 30, Nine Months Ended September 30,
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Percentage Percentage
2007 2006 Change 2007 2006 Change
------------ ----------- ------------ ------------ ----------- -------------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income................................. $ 226,794 $ 222,884 1.8% $ 662,577 $ 649,036 2.1%
Late charges and administrative fees collected 10,640 10,536 1.0% 30,695 30,033 2.2%
------------ ----------- ------------ ------------ ----------- -------------
Total revenues (a)............................ 237,434 233,420 1.7% 693,272 679,069 2.1%
Cost of operations (excluding depreciation):
Property taxes ............................... 22,718 21,700 4.7% 67,219 64,418 4.3%
Direct property payroll....................... 15,433 16,528 (6.6)% 47,672 48,671 (2.1)%
Advertising and promotion..................... 5,947 4,772 24.6% 21,836 18,793 16.2%
Utilities..................................... 5,583 5,582 0.0% 16,123 15,511 3.9%
Repairs and maintenance....................... 7,924 7,319 8.3% 21,981 21,860 0.6%
Telephone reservation center.................. 1,995 2,155 (7.4)% 6,246 6,402 (2.4)%
Property insurance............................ 2,104 3,021 (30.4)% 6,935 8,326 (16.7)%
Other costs of management..................... 14,356 13,870 3.5% 44,110 43,417 1.6%
------------ ----------- ------------ ------------ ----------- -------------
Total cost of operations (a).................... 76,060 74,947 1.5% 232,122 227,398 2.1%
------------ ----------- ------------ ------------ ----------- -------------
Net operating income (before depreciation) (b).... 161,374 158,473 1.8% 461,150 451,671 2.1%
Depreciation expense.............................. (40,553) (41,294) (1.8)% (121,350) (121,643) (0.2)%
------------ ----------- ------------ ------------ ----------- -------------
Operating income.................................. $ 120,821 $ 117,179 3.1% $ 339,800 $ 330,028 3.0%
============ =========== ============ ============ =========== =============
Gross margin (before depreciation)................ 68.0% 67.9% 0.1% 66.5% 66.5% -
Weighted average for the period:
Square foot occupancy (c)....................... 90.5% 91.3% (0.9)% 90.6% 91.2% (0.7)%
Realized annual rent per occupied
square foot (d)(f).............................. $ 12.89 $ 12.55 2.7% $ 12.54 $ 12.20 2.8%
REVPAF (e) (f).................................. $ 11.66 $ 11.46 1.7% $ 11.36 $ 11.13 2.1%
Weighted average at September 30:
Square foot occupancy........................... 89.5% 90.5% (1.1)%
In place annual rent per occupied square foot (g) $ 13.97 $ 13.54 3.2%
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.
e) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income divided by total available net rentable square
feet.
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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
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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 $ 230,161 $ 237,434
Total cost of operations (excluding depreciation
expense) (in 000's):
2006..................................... $ 75,802 $ 76,649 $ 74,947 $ 72,149 $ 299,547
2007..................................... $ 77,828 $ 78,234 $ 76,060
Property taxes (in 000's):
2006..................................... $ 21,988 $ 20,730 $ 21,700 $ 18,844 $ 83,262
2007..................................... $ 22,871 $ 21,630 $ 22,718
Media advertising expense (in 000's):
2006..................................... $ 4,130 $ 2,802 $ 1,049 $ 3,823 $ 11,804
2007..................................... $ 3,365 $ 5,333 $ 2,885
Other advertising and promotion
expense (in 000's):
2006..................................... $ 2,833 $ 4,256 $ 3,723 $ 3,640 $ 14,452
2007..................................... $ 3,363 $ 3,828 $ 3,062
REVPAF:
2006..................................... $ 10.79 $ 11.13 $ 11.46 $ 11.16 $ 11.13
2007..................................... $ 11.09 $ 11.32 $ 11.66
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 $ 12.37 $ 12.89
Weighted average square foot occupancy levels for the period:
2006..................................... 90.1% 92.1% 91.3% 89.8% 90.8%
2007..................................... 89.8% 91.5% 90.5%
SHURGARD EUROPE:
We own and operate 103 wholly-owned European facilities with 5.6 million net
rentable square feet along with a 20% interest in two joint ventures which
collectively own 66 European facilities with 3.3 million net rentable square
feet. The two joint ventures collectively had approximately $353 million of
outstanding debt to third parties at September 30, 2007, which is included in
our condensed consolidated financial statements.
At September 30, 2007, one of the joint ventures had six facilities under
construction (309,000 net rentable square feet), with total estimated costs of
approximately $64 million, of which approximately $43 million had been incurred
as of September 30, 2007. We also have eight facilities and two redevelopment
projects under construction, which will be funded by us (484,000 net rentable
square feet). Total estimated costs for these projects are approximately $80
million of which approximately $17 million was incurred as of September 30,
2007. The development of these facilities is subject to various risks and
contingencies.
During the third quarter of 2007, one of the joint ventures completed the
development of a facility in France at a total cost of $9 million, adding 56,000
net rentable square feet to the portfolio.
At September 30, 2007, our European subsidiaries owed approximately (euro)389
million ($556 million as of September 30, 2007) to our domestic subsidiaries.
The loans are eliminated in consolidation for financial reporting purposes. We
expect our European subsidiaries to obtain external financing in the next 12 to
24 months, which will fund the repayment of the loans. The loans, which are
denominated in Euros, have not been hedged. The amount of US Dollars that will
be
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received on repayment will depend upon the exchange rates at the time. Based
upon the change in estimated US Dollars to be received caused by fluctuation in
currency rates during each respective period, foreign currency translation gains
of $30.4 million and $41.0 million, respectively, were recorded in the three and
nine months ended September 30, 2007. The US Dollar exchange rate relative to
the Euro was approximately 1.319, 1.347, and 1.426 at December 31, 2006, June
30, 2007, and September 30, 2007, respectively.
DEVELOPMENT AND ASSET ACQUISITION ACTIVITIES IN THE UNITED STATES:
- ------------------------------------------------------------------
During the quarter, we acquired five self-storage facilities in California and
Georgia containing 379,000 net rentable square feet, for approximately $44
million.
During the third quarter of 2007, we completed the development of a facility in
New York and two expansion projects at a total cost of $22 million, adding
302,000 net rentable square feet. At September 30, 2007, we had 39 projects
(1,711,000 net additional rentable square feet) that were either under
construction or were expected to begin construction generally within the next
year, which expand existing self-storage facilities and enhance their visual
appeal for a total estimated cost of $150 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.
SHARE REPURCHASES:
- ------------------
Our Board of Trustees 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 8, 2007, we have repurchased a total of 22,201,720 shares (none from
January 1, 2006 through November 8, 2007) of common stock at an aggregate cost
of approximately $567.2 million.
DISTRIBUTIONS DECLARED:
On November 8, 2007 the Board of Trustees 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, 2007 to shareholders of
record as of December 13, 2007.
THIRD QUARTER CONFERENCE CALL:
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A conference call is scheduled for Friday, November 9, 2007 at 9:00 a.m. (PST)
to discuss the third quarter ended September 30, 2007 earnings results. The
domestic dial-in number is (866) 406-5408, and the international dial-in number
is (973) 582-2770 (conference ID for either domestic or international is
9348547). A simultaneous audio web cast may be accessed by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations"
(conference ID number 9348547). A replay of the conference call may be accessed
through November 23, 2007 by calling (877) 519-4471 (domestic), or (973)341-3080
(international), or by using the link at www.publicstorage.com under "Corporate
Information, Investor Relations." All forms of replay utilize conference ID
number 9348547.
ABOUT PUBLIC STORAGE:
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Public Storage, 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 September 30, 2007, the Company had interests in 2,012 storage
facilities with approximately 126 million net rentable square feet in the United
States and 169 storage facilities with approximately nine million net rentable
square feet in Europe.
Additional information about Public Storage 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
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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.
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PUBLIC STORAGE
SELECTED FINANCIAL DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2007 2006 2007 2006
-------------- ------------- ------------- ---------------
(Amounts in thousands, except per share data)
Revenues:
Self-storage rental income.................... $ 427,949 $ 328,782 $ 1,237,946 $ 842,361
Ancillary operations.......................... 37,754 29,827 107,903 77,500
Interest and other income..................... 3,257 12,651 6,337 27,773
-------------- ------------- ------------- ---------------
468,960 371,260 1,352,186 947,634
-------------- ------------- ------------- ---------------
Expenses:
Cost of operations:
Self-storage facilities .................... 143,371 109,106 441,657 286,204
Ancillary operations ....................... 22,687 18,514 63,419 50,315
Depreciation and amortization (a)............. 147,767 113,463 491,725 212,057
General and administrative (b)................ 11,416 36,242 49,397 49,996
Interest expense.............................. 15,257 9,323 48,772 12,752
-------------- ------------- ------------- ---------------
340,498 286,648 1,094,970 611,324
-------------- ------------- ------------- ---------------
Income from continuing operations before equity in
earnings of real estate entities, gain on
disposition of real estate investments, casualty gain,
foreign currency exchange gain (loss), income from
derivatives and minority interest in income.... 128,462 84,612 257,216 336,310
Equity in earnings of real estate entities ....... 3,424 2,618 10,183 9,208
Gain on disposition of real estate investments ... 92 756 2,330 1,222
Casualty gain .................................... - - 2,665 -
Foreign currency exchange gain (loss) (c)........ 30,384 (172) 40,977 (172)
Income from derivatives, net...................... 117 32 1,126 32
Minority interest in income allocable to:
Preferred minority interests based upon ongoing
distributions.................................. (5,403) (5,403) (16,209) (13,652)
Other partnership interests ..................... (2,901) (3,187) (5,402) (10,825)
-------------- ------------- ------------- ---------------
Income from continuing operations................. 154,175 79,256 292,886 322,123
Cumulative effect of a change in accounting - - - 578
principle.....................................
Discontinued operations ...................... (1,409) 1,925 (3,238) 1,558
-------------- ------------- ------------- ---------------
Net income $ 152,766 $ 81,181 $ 289,648 $ 324,259
============== ============= ============= ===============
Net income allocation:
- ----------------------
Allocable to preferred shareholders:
Based on distribution paid................. $ 60,333 $ 60,265 $ 176,424 $ 159,256
Based on redemptions of preferred stock.... - 21,643 - 21,643
Allocable to equity shareholders, Series A.... 5,356 5,356 16,068 16,068
Allocable to common shareholders.............. 87,077 (6,083) 97,156 127,292
-------------- ------------- ------------- ---------------
$ 152,766 $ 81,181 $ 289,648 $ 324,259
============== ============= ============= ===============
Per common share:
Net income (loss) per share - Basic........... $ 0.51 $ (0.04) $ 0.57 $ 0.95
============== ============= ============= ===============
Net income (loss) per share - Diluted......... $ 0.51 $ (0.04) $ 0.57 $ 0.94
============== ============= ============= ===============
Weighted average common shares - Basic........ 169,374 145,387 169,317 133,897
============== ============= ============= ===============
Weighted average common shares - Diluted ..... 170,085 145,387 170,166 134,851
============== ============= ============= ===============
(a) Depreciation and amortization increased due to $53,320,000 and $210,471,000
in amortization of intangibles assets primarily acquired in the merger with
Shurgard for the three and nine months ended September 30, 2007,
respectively, compared to $50,626,000 for the three and nine months ended
September 30, 2006. In addition, we recorded $35,700,000 and $107,100,000
in depreciation of the buildings acquired in the merger with Shurgard for
the three and nine months ended September 30, 2007, compared to $12,426,000
from August 23, 2006 to September 30, 2006 with respect to the same quarter
in 2006. Amortization of the intangible assets is expected to be
approximately $37,757,000 in the fourth quarter of 2007.
9
(b) For the three months ended September 30, 2007, general and administrative
expense includes (i) development costs that were expensed with respect to
terminated projects totaling $1.3 million ($9.3 million for the same period
in 2006), and (ii) ongoing general and administrative expense related to
our European operations for the entire quarter ended September 30, 2007
(the same period for 2006 only includes amounts from August 23, 2006 to
September 30, 2006). In addition, for the three months ended September 30,
2006, general and administrative expense includes integration expenses
incurred in connection with the merger with Shurgard totaling approximately
$18.1 million and contract termination costs aggregating $2.2 million. For
the nine months ended September 30, 2007, general and administrative
expense includes (i) development costs that were expensed with respect to
terminated projects totaling $1.6 million ($9.3 million for the same period
in 2006), (ii) additional expenses incurred in connection with the merger
with Shurgard totaling approximately $5.3 million ($20.5 million for the
same period in 2006), (iii) $9.6 million related to our proposed offering
of shares in our European business, (iv) $2.0 million associated with our
reorganization as a Maryland REIT and (v) ongoing general and
administrative expense related to our European operations for the entire
nine month period ended September 30, 2007 (the same period for 2006 only
includes amounts from August 23, 2006 to September 30, 2006). In addition,
for the nine months ended September 30, 2006, we incurred contract
termination costs of $2.2 million.
(c) We recorded foreign exchange gains aggregating approximately $30.4 million
and $41.0 million in the three and nine months ended September 30, 2007,
respectively, related to our financing activities in Europe, representing
the impact of the fluctuation of the exchange rate in US Dollars to the
Euro.
10
PUBLIC STORAGE
SELECTED FINANCIAL DATA
(Unaudited)
September 30, December 31,
2007 2006
-------------------- -------------------
(Amounts in thousands, except share and
per share data)
ASSETS
Cash and cash equivalents .................................... $ 168,586 $ 535,684
Operating real estate facilities:
Land and building, at cost................................. 11,507,352 11,261,865
Accumulated depreciation................................... (2,034,014) (1,754,362)
-------------------- -------------------
9,473,338 9,507,503
Construction in process....................................... 103,657 90,038
-------------------- -------------------
9,576,995 9,597,541
Investment in real estate entities............................ 317,982 301,905
Goodwill...................................................... 174,634 174,634
Intangible assets, net........................................ 222,168 414,602
Restricted cash............................................... 20,844 19,900
Other assets.................................................. 148,414 154,207
-------------------- -------------------
Total assets........................................... $ 10,629,623 $ 11,198,473
==================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings on bank credit facilities.......................... $ - $ 345,000
Notes payable and debt due to joint venture partner........... 1,041,902 1,503,542
Preferred stock called for redemption......................... - 302,150
Accrued and other liabilities................................. 323,091 333,706
-------------------- -------------------
Total liabilities...................................... 1,364,993 2,484,398
Minority interest - preferred partnership interests........... 325,000 325,000
Minority interest - other partnership interests............... 181,772 181,030
Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
1,739,500 shares issued (in series) and outstanding
(1,712,600 at December 31, 2006), at liquidation preference:
Cumulative Preferred Stock, issued in series............. 3,527,500 2,855,000
Common Stock, $0.10 par value, 200,000,000 shares authorized,
169,402,880 shares issued and outstanding (169,144,467 at
December 31, 2006)....................................... 16,941 16,915
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 8,744.193 shares issued and outstanding at
September 30, 2007 and December 31, 2006................. - -
Paid-in capital............................................ 5,652,304 5,661,507
Cumulative net income...................................... 3,792,940 3,503,292
Cumulative distributions paid.............................. (4,295,512) (3,847,998)
Accumulated other comprehensive income (a)................. 63,685 19,329
-------------------- -------------------
Total shareholders' equity............................... 8,757,858 8,208,045
-------------------- -------------------
Total liabilities and shareholders' equity............. $ 10,629,623 $ 11,198,473
==================== ===================
(a) Accumulated other comprehensive income reflects the cumulative unrealized
foreign currency translation adjustment with respect to our European
operations. The increase at September 30, 2007 as compared to the balance
at December 31, 2006 principally reflects the change in the exchange rate
of the Euro relative to US Dollars from 1.319 at December 31, 2006 to 1.426
at September 30, 2007 applied to the assets and liabilities domiciled in
the European Community.
11
Shurgard Domestic Same Store Selected Operating Data
- ----------------------------------------------------
The Shurgard Domestic Same Store pool of 343 facilities are all stabilized since
January 1, 2005 and will therefore provide meaningful comparative data for 2005,
2006 and the first nine months of 2007. For our reporting for the quarter ended
June 30, 2007, the Shurgard Domestic Same Store Pool included 344 facilities,
which has now been reduced for a facility which is no longer stabilized.
The operating data presented in the table below reflects the historical data
from January 1, 2006 through August 23, 2006, the period for which the 343
facilities were operated under Shurgard, combined with the historical data from
August 23, 2006 through September 30, 2007, the period operated under Public
Storage.
SELECTED OPERATING DATA FOR THE 343 FACILITIES
- ----------------------------------------------
OPERATED BY SHURGARD ON A STABILIZED BASIS SINCE
- ------------------------------------------------
JANUARY 1, 2005 ("SHURGARD DOMESTIC SAME STORE
- ----------------------------------------------
FACILITIES"): (a) Three Months Ended September 30, Nine Months Ended September 30,
- ---------------- --------------------------------------- --------------------------------------
Percentage Percentage
2007 2006 (a) Change 2007 2006 (a) Change
------------- ------------- ----------- ------------ ------------- -----------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income................................. $ 67,041 $ 62,826 6.7% $ 194,351 $ 185,603 4.7%
Late charges and administrative fees collected 2,272 2,364 (3.9)% 6,453 6,569 (1.8)%
------------- ------------- ----------- ------------ ------------- -----------
Total revenues (b)............................ 69,313 65,190 6.3% 200,804 192,172 4.5%
Cost of operations (excluding depreciation):
Property taxes ............................... 6,713 6,329 6.1% 19,907 18,499 7.6%
Direct property payroll....................... 4,214 6,922 (39.1)% 13,208 22,273 (40.7)%
Advertising and promotion..................... 1,513 1,323 14.4% 5,625 3,218 74.8%
Utilities..................................... 1,870 1,963 (4.7)% 5,526 5,378 2.8%
Repairs and maintenance....................... 2,034 1,299 56.6% 6,032 4,251 41.9%
Telephone reservation center.................. 519 162 220.4% 1,626 162 903.7%
Property insurance............................ 625 491 27.3% 2,032 1,172 73.4%
Other costs of management..................... 4,330 5,190 (16.6)% 13,368 17,139 (22.0)%
------------- ------------- ----------- ------------ ------------- -----------
Total cost of operations (b).................... 21,818 23,679 (7.9)% 67,324 72,092 (6.6)%
------------- ------------- ----------- ------------ ------------- -----------
Net operating income (excluding depreciation) (c) $ 47,495 $ 41,511 14.4% $ 133,480 $ 120,080 11.2%
============= ============= =========== ============ ============= ===========
Gross margin (before depreciation)................ 68.5% 63.7% 7.5% 66.5% 62.5% 6.4%
Weighted average for the period:
Square foot occupancy (d)....................... 89.4% 84.8% 5.4% 88.7% 84.2% 5.3%
Realized annual rent per occupied square foot (e) $ 13.76 $ 13.60 1.2% $ 13.40 $ 13.48 (0.6)%
REVPAF (f) (g).................................. $ 12.30 $ 11.53 6.7% $ 11.89 $ 11.35 4.8%
Weighted average at September 30:
Square foot occupancy........................... 88.5% 84.7% 4.5%
In place annual rent per occupied square foot (h) $ 14.68 $ 14.60 0.5%
Total net rentable square feet (in thousands)..... 21,797 21,797 -
(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, 2007 are
included in our consolidated operating results for each respective period.
(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 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.
12
(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.
(h) 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
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. The operating data presented in the table below for each
period reflects the historical data for the European Same Store Portfolio from
January 1, 2006 through August 22, 2006, the period for which the facilities
were operated under Shurgard combined with the historical data from August 23,
2006 through September 30, 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 September 30, Nine Months Ended September 30,
- ----------------- -------------------------------------- ------------------------------------
Percentage Percentage
2007 2006 (a) Change 2007 2006 (a) Change
------------ ------------- ---------- ----------- ------------ -----------
(Dollar amounts in thousands, except weighted average data,
utilizing constant exchange rates) (b)
Revenues:
Rental income................................. $ 32,475 $ 29,660 9.5% $ 92,478 $ 84,229 9.8%
Late charges and administrative fees collected 323 286 12.9% 915 820 11.6%
------------ ------------- ---------- ----------- ------------ -----------
Total revenues (c)............................ 32,798 29,946 9.5% 93,393 85,049 9.8%
Cost of operations (excluding depreciation):
Property taxes ............................... 1,525 1,359 12.2% 4,187 3,978 5.3%
Direct property payroll....................... 3,680 4,159 (11.5)% 10,889 12,288 (11.4)%
Advertising and promotion..................... 738 1,270 (41.9)% 3,270 4,725 (30.8)%
Utilities..................................... 630 749 (15.9)% 2,202 2,457 (10.4)%
Repairs and maintenance....................... 790 967 (18.3)% 2,351 2,685 (12.4)%
Property insurance............................ 231 373 (38.1)% 932 1,114 (16.3)%
Other costs of management..................... 4,439 4,712 (5.8)% 13,925 14,053 (0.9)%
------------ ------------- ---------- ----------- ------------ -----------
Total cost of operations (c).................... 12,033 13,589 (11.5)% 37,756 41,300 (8.6)%
------------ ------------- ---------- ----------- ------------ -----------
Net operating income (excluding depreciation) (d) $ 20,765 $ 16,357 26.9% $ 55,637 $ 43,749 27.2%
============ ============= ========== =========== ============ ===========
Gross margin (before depreciation)................ 63.3% 54.6% 15.9% 59.6% 51.4% 16.0%
Weighted average for the period:
Square foot occupancy (e)....................... 91.0% 86.7% 5.0% 89.7% 84.0% 6.8%
Realized annual rent per occupied square foot (f) $ 27.00 $ 25.89 4.3% $ 26.01 $ 25.29 2.8%
REVPAF (g) (h).................................. $ 24.57 $ 22.44 9.5% $ 23.33 $ 21.25 9.8%
Weighted average at September 30:
Square foot occupancy........................... 91.4% 88.4% 3.4%
In place annual rent per occupied square foot (i) $ 28.34 $ 26.41 7.3%
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 September 30, 2007 and for
the period August 23, 2006 through September 30, 2006 are included in our
consolidated operating results.
(b) The majority of our European operations are denominated in Euros. For
comparative purposes, amounts for the three months ended September 30, 2006
and 2007 are translated at constant exchange rates representing the average
exchange rates for the three months ended September 30, 2007. Amounts for
the nine months ended September 30, 2006 and 2007 are also translated at
constant exchange rates, representing the average exchange rates for the
nine months ended September 30, 2007. The average exchange rate for the
Euro was approximately 1.374 and 1.344, respectively, in US Dollars per
Euro for the three and nine months ended September 30, 2007, respectively.
(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.
14
(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.
15
PUBLIC STORAGE
SELECTED FINANCIAL DATA
Computation of Funds From Operations (a)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
2007 2006 2007 2006
------------ ------------- ------------ ------------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common Stock
Net income................................................................ $ 152,766 $ 81,181 $ 289,648 $ 324,259
Add back - depreciation and amortization.............................. 147,767 113,463 491,725 212,057
Add back - depreciation and amortization included in Discontinued
Operations........................................................ 181 77 305 199
Eliminate - depreciation with respect to non-real estate assets....... (111) (53) (317) (158)
Eliminate - our pro rata share of PSB's gain on sale of real estate... - (24) - (1,047)
Eliminate - gain on sale of real estate assets........................ (92) (3,126) (2,330) (3,592)
Depreciation from unconsolidated real estate investments.............. 11,519 10,031 32,553 28,751
Add back - minority interest share of income.......................... 8,304 8,590 21,611 24,477
------------ ------------- ------------ ------------
Consolidated FFO.......................................................... 320,334 210,139 833,195 584,946
Allocable to preferred minority interests based upon ongoing
distributions............................................................ (5,403) (5,403) (16,209) (13,652)
Allocable to other minority interests..................................... (6,292) (4,036) (15,568) (12,302)
------------ ------------- ------------ ------------
Remaining FFO allocable to our shareholders............................... 308,639 200,700 801,418 558,992
Less: allocations to preferred and equity stock shareholders:
Preferred shareholder distributions .................................. (60,333) (60,265) (176,424) (159,256)
Issuance costs on redeemed preferred shares........................... - (21,643) - (21,643)
Equity Stock, Series A distributions.................................. (5,356) (5,356) (16,068) (16,068)
------------ ------------- ------------ ------------
Remaining FFO allocable to Common Stock (a)............................... $ 242,950 $ 113,436 $ 608,926 $ 362,025
============ ============= ============ ============
Weighted average shares:
Regular common shares................................................. 169,374 145,387 169,317 133,897
Weighted average stock options and restricted stock units outstanding
using treasury method .............................................. 711 1,092 849 954
------------ ------------- ------------ ------------
Weighted average common shares for purposes of computing fully-diluted
FFO per common share...................................................... 170,085 146,479 170,166 134,851
============ ============= ============ ============
FFO per common share (a).................................................. $ 1.43 $ 0.77 $ 3.58 $ 2.68
============ ============= ============ ============
(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.
16
PUBLIC STORAGE
SELECTED FINANCIAL DATA
Computation of Funds Available for Distribution (c)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2007 2006 2007 2006
------------ ---------- ----------- ------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Stock (a)........................ $ 242,950 $ 113,436 $ 608,926 $ 362,025
Add: Non-cash stock-based compensation expense........... 2,446 1,841 7,314 4,868
Impact of application of EITF Topic D-42................. - 21,643 - 21,643
Less: Non-cash foreign exchange and derivative gains..... (30,501) 140 (42,103) 140
Add: Non-cash EITF Topic D-42 charges included in equity
in earnings of real estate entities.................. - 600 - 1,329
Less: Capital expenditures to maintain facilities (b).... (20,646) (20,917) (45,853) (44,366)
------------ ---------- ----------- ------------
Funds available for distribution ("FAD") (c)............. $ 194,249 $ 116,743 $ 528,284 $ 345,639
============ ========== =========== ============
Distribution to common shareholders...................... $ 85,004 $ 84,686 $ 255,022 $ 213,281
============ ========== =========== ============
Distribution payout ratio (c)............................ 43.8% 72.5% 48.3% 61.7%
============ ========== =========== ============
(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 nine months
ended September 30, 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 i) impairment
charges with respect to real estate assets, ii) the non-cash portion of
stock-based compensation expense, iii) 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. FAD does not take into consideration required principal
payments on debt. Other REITs may not compute FAD in the same manner;
accordingly, FAD may not be comparable among REITs.
17
PUBLIC STORAGE
SELECTED FINANCIAL DATA
Reconciliation of Same Store Revenues and Cost of Operations
To Consolidated Self-Storage Revenues and Cost of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2007 2006 2007 2006
------------- ------------ ------------ -------------
(Amounts in thousands)
Revenues for the 1,316 Same Store facilities......... $ 237,434 $ 233,420 $ 693,272 $ 679,069
Revenues for non-Same Store facilities (a): Development
facilities (year opened):
2007.......................................... 118 - 197 -
2006.......................................... 1,332 375 3,269 431
2005.......................................... 1,165 784 3,081 1,737
2003 and 2004................................. 5,891 5,634 17,026 15,826
Expansion facilities.......................... 21,770 19,889 60,933 55,775
Acquisition facilities (year acquired):
2007.......................................... 681 - 992 -
2006.......................................... 2,599 2,168 7,285 4,007
2005.......................................... 7,264 6,537 20,833 18,353
Newly consolidated facilities.................... 4,002 3,686 11,572 10,874
Consolidated U.S. Shurgard facilities (b):
Shurgard Same Stores......................... 69,313 27,876 200,804 27,876
Other facilities............................. 26,308 10,480 76,193 10,480
Deconsolidated U.S. Shurgard facilities (c)...... - 585 2,198 585
Consolidated Europe Shurgard facilities (b):
Shurgard Same Stores......................... 32,798 12,012 93,393 12,012
Other facilities............................. 17,274 5,336 46,898 5,336
------------- ------------ ------------ -------------
Consolidated self-storage revenues (d)................ $ 427,949 $ 328,782 $ 1,237,946 $ 842,361
============= ============ ============ =============
Cost of operations for the 1,316 Same Store facilities $ 76,060 $ 74,947 $ 232,122 $ 227,398
Cost of operations for non-Same Store facilities (a):
Development facilities(year opened):
2007.......................................... 78 - 166 -
2006.......................................... 497 344 1,713 458
2005.......................................... 517 381 1,645 1,201
2003 and 2004................................. 1,575 1,577 4,781 4,759
Expansion facilities.......................... 7,202 6,522 21,620 19,537
Acquisition facilities (year acquired):
2007.......................................... 318 - 447 -
2006.......................................... 1,095 1,061 3,383 2,003
2005.......................................... 2,506 2,424 7,652 7,278
Newly consolidated facilities.................... 826 924 2,568 2,644
Consolidated U.S. Shurgard facilities (b):
Shurgard Same Stores......................... 21,818 8,516 67,324 8,516
Other facilities............................. 9,457 3,652 29,738 3,652
Deconsolidated U.S. Shurgard facilities (c)...... - 234 916 234
Consolidated Europe Shurgard facilities (b):
Shurgard Same Stores......................... 12,033 5,048 37,756 5,048
Other facilities............................. 9,389 3,476 29,826 3,476
------------- ------------ ------------ -------------
Consolidated self-storage cost of operations (d)...... $ 143,371 $ 109,106 $ 441,657 $ 286,204
============= ============ ============ =============
(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 September 30, 2007, or because we
acquired these facilities from third parties after December 31, 2004.
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(b) Represents the operations of the facilities acquired in the merger with
Shurgard, which remain consolidated at September 30, 2007, for the period
from January 1, 2007 through September 30, 2007.
(c) Represents the operations of the 11 facilities acquired from Shurgard that
we discontinued consolidation with the Company effective May 24, 2007, for
the period their operating results were consolidated.
(d) 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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