Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On March 31, 2008, Public Storage entered into an agreement with the New York
Common Retirement Fund ("NYCRF") whereby NYCRF acquired a 51% interest in Public
Storage's Shurgard Europe operations for approximately (euro)383.2 million
($605.6 million), plus an adjustment for operating results of Shurgard Europe
between December 31, 2007 and March 31, 2008. NYCRF's acquisition, referred to
hereinafter as the "Transaction," was completed on March 31, 2008. Shurgard
Europe held substantially all of Public Storage's operations in Europe, except
for a single property located in the United Kingdom which Public Storage
continues to wholly own.
Public Storage will own the remaining 49% interest and is the managing member of
Shurgard European Holdings LLC, a joint venture formed to own Shurgard Europe's
operations ("the Joint Venture"). The Joint Venture includes Shurgard Europe's
20% equity interest in two existing ventures which are the subject of a
previously disclosed arbitration. If the remaining interests in those ventures
can be acquired, they may be incorporated into the newly-formed joint venture.
In connection with the Transaction, the intercompany debt owed by Shurgard
Europe to Public Storage was modified to (i) fix the interest rate at 7.5% per
year, (ii) adjust the outstanding balance to (euro)391 million (approximately
$620 million) as of March 31, 2008, and (iii) modify the term of the debt to one
year with an additional one year extension. In addition, Public Storage is
committed to provide additional loans to Shurgard Europe, under the same terms
and conditions, up to an additional (euro)305 million to fund Shurgard Europe's
obligations to repay existing third-party indebtedness owed by the two
previously mentioned ventures and the possible acquisition of the remaining
interest in those two ventures. Shurgard Europe intends to repay all of its
related-party debt to Public Storage through the issuance of third-party debt as
soon as market conditions permit, but no later than March 31, 2010.
The unaudited pro forma condensed consolidated balance sheet at December 31,
2007 has been prepared as if the Transaction occurred on December 31, 2007. As a
result of the Transaction, Public Storage will begin to account for its
investment in Shurgard Europe under the equity method, accordingly, Shurgard
Europe's accounts will no longer be consolidated with Public Storage's. Pro
forma adjustments have been made to the historical condensed consolidated
balance sheet at December 31, 2007 to reflect the de-consolidation of Shurgard
Europe's accounts, the gain to be recorded upon consumation of the Transaction,
and the use of the equity method to account for Public Storage's remaining 49%
interest in Shurgard Europe.
The unaudited pro forma condensed consolidated statement of income for the year
ended December 31, 2007 has been prepared as if the Transaction occurred on
January 1, 2007. Pro forma adjustments have been made to the historical
condensed consolidated income statement for the year ended December 31, 2007 to
reflect the de-consolidation of Shurgard Europe's accounts, the Transaction and
the use of the equity method to account for Public Storage's remaining 49%
interest in Shurgard Europe. In addition, pro forma adjustments have been made
to reflect interest income related to the intercompany loans due from Shurgard
Europe to Public Storage and license fees payable by Shurgard Europe to Public
Storage pursuant to a contract.
1
The pro forma adjustments do not reflect the impact of changes in exchange
rates, principally of the U.S. Dollar relative to the Euro, through the
transaction date of March 31, 2008. The income statement reflects the average
exchange rate of the U.S. Dollar relative to the Euro of 1.370 in the year ended
December 31, 2007, while the December 31, 2007 balance sheet reflects the
exchange rate of 1.472 at December 31, 2007. The estimated gain on sale of
approximately $307,704,000, and the $25,533,000 realized exchange gain reflected
in the December 31, 2007 pro forma condensed consolidated balance sheet does not
include the impact of activities and other items, including changes in exchange
rates, recognized in the period from December 31, 2007 through the date of
consummation of the Transaction of March 31, 2008 (including the aforementioned
contractual adjustment, which has not been determined, to the proceeds for the
operating results of Shurgard Europe between December 31, 2007 and March 31,
2008). The gain to actually be recorded at March 31, 2008 has not yet been
determined, and could be substantially different.
The pro forma adjustments are based on currently available information and on
certain assumptions as set forth in the accompanying notes to the pro forma
condensed consolidated financial statements that we believe are reasonable in
the circumstances. The actual amounts could differ materially from these
amounts. In addition, the pro forma condensed consolidated financial information
does not reflect changes that may occur as a result of activities subsequent to
the Transaction. The pro forma condensed consolidated financial statements and
accompanying notes should be read in conjunction with the historical financial
statements of Public Storage, which are included in Pubic Storage's Annual
Report on Form 10-K for the year ended December 31, 2007 filed with the
Securities and Exchange Commission. You can find this report at the Securities
and Exchange Commission's website at http//www.sec.gov.
The following pro forma condensed consolidated financial statements are
presented for illustrative purposes only and do not purport to represent what
Public Storage's results of operations would actually have been if the
Transaction had in fact occurred as of January 1, 2007 or to project Public
Storage's results of operations for any future date or period. We cannot assure
you that the assumptions used in the preparation of the pro forma financial
information will prove to be correct.
2
PUBLIC STORAGE
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2007
(Unaudited)
(Amounts in thousands, except per share data)
Public Storage Receipt of De - Allocate Public Storage
Historical Proceeds Consolidation Proceeds (Pro Forma)
---------- -------- ------------- -------- -----------
(Note 1) (Note 2) (Note 3)
ASSETS
Cash and cash equivalents.................... $ 245,444 $ 602,127 $ (31,602) $ - $ 815,969
Operating real estate facilities, net of
accumulated depreciation ................ 9,530,582 - (1,573,527) - 7,957,055
Construction in process ..................... 60,324 - (30,360) - 29,964
Restricted cash ............................. 18,972 - - - 18,972
Investment in real estate entities .......... 306,743 - 577,300 (294,423) 589,620
Goodwill .................................... 174,634 - - - 174,634
Intangible assets, net ...................... 173,745 - (85,580) - 88,165
Other assets ................................ 132,658 - (56,612) - 76,046
Unallocated disposition proceeds............. - (602,127) - 602,127 -
Receivable from Shurgard Europe.............. - - 575,508 - 575,508
--------------------------------------------------------------------------------------
Total assets ................................ $ 10,643,102 $ - $ (624,873) $ 307,704 $ 10,325,933
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ............................... $ 1,031,847 $ - $ (384,045) $ - $ 647,802
Debt to joint venture partner ............... 38,081 - - - 38,081
Accrued and other liabilities ............... 303,357 - (100,443) - 202,914
--------------------------------------------------------------------------------------
Total liabilities ..................... 1,373,285 - (484,488) - 888,797
Minority interest - preferred ............... 325,000 - - - 325,000
Minority interest - other ................... 181,688 - (140,385) - 41,303
Shareholders' equity:
Preferred shares ........................ 3,527,500 - - - 3,527,500
Common shares ........................... 16,943 - - - 16,943
Equity shares ........................... - - - - -
Paid in capital ......................... 5,653,975 - - - 5,653,975
Cumulative net income.................... 3,960,827 - 333,237 4,294,064
Accumulated other comprehensive income... 50,065 - - (25,533) 24,532
Cumulative distributions paid ........... (4,446,181) - - - (4,446,181)
--------------------------------------------------------------------------------------
Total shareholders' equity ............ 8,763,129 - - 307,704 9,070,833
--------------------------------------------------------------------------------------
Total liabilities and shareholders' equity... $ 10,643,102 $ - $ (624,873) $ 307,704 $ 10,325,933
======================================================================================
Book value per common share (Note 4)......... $ 29.64 $ 31.45
================= ==================
Common shares outstanding (Note 4)........... 169,422 169,422
================= ==================
See accompanying notes to pro forma condensed consolidated balance sheet
3
PUBLIC STORAGE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2007
(Unaudited)
1. RECEIPT OF PROCEEDS FROM SALE OF SHURGARD EUROPE
In connection with the Transaction, we received gross proceeds of
(euro)383.2 million ($605,627,000). In addition, we incurred estimated related
costs including accounting, tax, legal, and other advisory and consulting
services of approximately $3,500,000. As a result, our net proceeds were
approximately $602,127,000.
The following adjustments were made to reflect the receipt of
$602,127,000 in net proceeds:
Amounts in
thousands
------------------
Increase to cash ($605,627,000 in gross proceeds,
less $3,500,000 in estimated transaction costs).............. $ 602,127
Unallocated disposition proceeds............................. $ (602,127)
2. DE-CONSOLIDATION OF SHURGARD EUROPE
Prior to the Transaction, the accounts of Shurgard Europe were
consolidated with Public Storage's for financial reporting purposes. Concurrent
with the Transaction, Shurgard Europe began to be operated in the Joint Venture,
in which we hold a 49% interest and the institutional investor holds 51% of the
equity interest. We have determined that the Joint Venture is not a Variable
Interest Entity under the provisions of the Financial Accounting Standards
Board's Interpretation 46(R), "Consolidation of Variable Interest Entities."
Based upon the governing documents under which the Joint Venture
operates, effective March 31, 2008, we are the managing member. However, NYCRF
substantially participates in the decision-making and operations of the Joint
Venture, and as a result, we do not control the Joint Venture. Accordingly, we
will de-consolidate Shurgard Europe effective March 31, 2008.
The following adjustments reflect the deconsolidation of Shurgard
Europe:
Adjustments have been recorded to eliminate the
historical assets of Shurgard Europe at
December 31, 2007: Amounts in thousands
---------------------
o Cash and cash equivalents....................... $ (31,602)
o Operating real estate facilities................ (1,573,527)
o Construction in process......................... (30,360)
o Intangible assets............................... (85,580)
o Other assets.................................... (56,612)
Adjustment have been recorded to eliminate the
historical liabilities and minority interest
of Shurgard Europe at December 31, 2007:
o Notes payable................................... $ (384,045)
o Accrued and other liabilities................... (100,443)
o Minority interest - other....................... (140,385)
The equity interest acquired by NYCRF was subject to notes payable to
our wholly-owned U.S. subsidiaries of approximately (euro)391 million
($575,508,000 based upon the exchange rate of the U.S. Dollar relative to the
Euro of 1.472 at December 31, 2007). The historical amounts of such intercompany
balances were eliminated in consolidation on our historical December 31, 2007
balance sheet. The following adjustments reflect the recording of this
intercompany note:
4
PUBLIC STORAGE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2007
(Unaudited)
Amounts in thousands
--------------------
An adjustment has been recorded to reflect the (euro)391 million ($575,508,000 based
upon the exchange rate of the dollar relative to the Euro of 1.472 at
December 31, 2007) receivable from Shurgard Europe, which will no longer be
eliminated in consolidation.................................................. $575,508
An adjustment has been recorded to reflect our net equity investment (based upon
our equity interest prior to the sale of the 51% interest) in Shurgard
Europe as an investment in real estate entities.............................. $577,300
3. ALLOCATION OF PROCEEDS AND RECORDING OF GAIN ON SALE
We expect to record a gain on sale, representing the difference between
the estimated net proceeds of $602,127,000 and 51% of our existing $577,300,000
net equity investment in Shurgard Europe. The gain is estimated, based upon the
December 31, 2007 balances, to be approximately $307,704,000. In addition, at
December 31, 2007, we had approximately $50,065,000 in accumulated other
comprehensive income related to cumulative exchange gains with respect to our
investment in Shurgard Europe, of which 51% has become realized as a result of
our disposition, resulting in an additional $25,533,000 of realized exchange
gain.
The actual gain to be recorded at March 31, 2008, and the actual
realized cumulative exchange gain, will be based upon the book values of the
assets and liabilities of Shurgard Europe at March 31, 2008, which will include
the impact of activity, including changes in exchange rates, between December
31, 2007 and March 31, 2008 (including the aforementioned contractual
adjustment, which has not been determined, to the disposition proceeds for the
operating results of Shurgard Europe between December 31, 2007 and March 31,
2008). The actual gain at March 31, 2008 has not yet been determined, and could
be substantially different from the amount disclosed herein.
The following adjustments have been recorded to reflect the impact of
the estimated gain on our balance sheet as if the Transaction had occurred on
December 31, 2007.
Amounts in
thousands
------------
Unallocated disposition proceeds have been eliminated............................. $ 602,127
=============
Investment in real estate entities has been reduced to reflect our sale of 51% of
our equity investment in Shurgard Europe (based upon our aggregate equity
investment as per Note 2 above of $577,300,000, multiplied by the 51% pro
rata interest sold).......................................................... $ (294,423)
=============
Accumulated other comprehensive income has been reduced to reflect the
realization of 51% of our $50,065,000 aggregate cumulative exchange
gain relative to Shurgard Europe at December 31, 2007........................ $ (25,533)
=============
Cumulative net income has been increased to reflect a) the recognition of a gain
with respect to the Transaction totaling $307,704,000 and b) the realization
of $25,533,000 in cumulative foreign exchange gains relative to our investment
in Shurgard Europe at December 31, 2007...................................... $ 333,237
=============
5
PUBLIC STORAGE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2007
(Unaudited)
4. BOOK VALUE PER COMMON SHARE
Book value per common share has been determined by dividing i)
total shareholders' equity less the liquidation value of the Preferred
Shares and the Equity Shares, Series A by ii) the outstanding common
shares. The following summarizes the pro forma common shares
outstanding:
Historical equity per common share: Aggregate historical shareholders'
equity of $8,763,129,000 less $3,527,500,000 liquidation value of
preferred shares and $214,233,000 liquidation value of Equity Shares,
Series A, divided by 169,422,000 common shares outstanding......................... $29.64
Pro forma equity per common share: Aggregate pro forma shareholders'
equity of $9,070,833,000 less $3,527,500,000 liquidation value
of preferred shares and $214,233,000 liquidation value of Equity Shares,
Series A, divided by 169,422,000 common shares outstanding......................... $31.45
6
PUBLIC STORAGE
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 2007
(Unaudited)
(Amounts in thousands, except per share amounts)
Record Public
Storage's Pro
Elimination Forma Earnings
Public of Historical from Shurgard
Storage Amounts Europe Public Storage
---------------------------------------------------------
Historical (Note 1) (Note 2) Pro Forma
Revenues:
Operating Revenues:
Self-storage facilities..................... $1,662,454 $ (192,397) $ - $ 1,470,057
Ancillary operations........................ 142,500 (17,398) - 125,102
Interest and other income....................... 11,417 (699) 21,133 31,851
---------------------------------------------------------
1,816,371 (210,494) 21,133 1,627,010
---------------------------------------------------------
Expenses:
Cost of operations:
Self-storage facilities..................... 580,227 (91,604) - 488,623
Ancillary operations........................ 79,638 (5,160) - 74,478
Depreciation and amortization................... 622,410 (122,706) - 499,704
General and administrative...................... 59,749 (20,321) - 39,428
Interest expense................................ 63,671 (22,108) - 41,563
---------------------------------------------------------
1,405,695 (261,899) - 1,143,796
---------------------------------------------------------
Income from continuing operations before the
following items............................ 410,676 51,405 21,133 483,214
Equity in earnings (loss) of real estate
entities........................................ 12,738 - (20,171) (7,433)
Casualty gain................................... 2,665 - - 2,665
Gain on disposition of real estate and real
estate investments......................... 2,547 - - 2,547
Foreign currency exchange gain.................. 57,593 - - 57,593
Income from derivatives......................... 851 (851) - -
Minority interest in income..................... (29,543) (9,389) - (38,932)
---------------------------------------------------------
Income from continuing operations............... $ 457,527 $ 41,165 $ 962 $ 499,654
=========================================================
Earnings per common share from continuing operations
(Note 3):
Basic...................................... $ 1.18 $ 1.43
Diluted.................................... $ 1.17 $ 1.42
Weighted average common shares outstanding (Note 3):
Basic...................................... 169,342 169,342
Diluted.................................... 170,147 170,147
See accompanying notes to pro forma condensed consolidated statements of income
7
PUBLIC STORAGE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2007
(Unaudited)
1. ELIMINATION OF HISTORICAL AMOUNTS OF SHURGARD EUROPE INCLUDED IN PUBLIC
STORAGE'S CONSOLIDATED FINANCIAL STATEMENTS
Prior to the Transaction, the accounts of Shurgard Europe were
consolidated with Public Storage's for financial reporting purposes. Concurrent
with the Transaction, Shurgard Europe began to be operated in the Joint Venture,
in which we hold a 49% interest and NYCRF holds 51% of the equity interest. We
have determined that the Joint Venture is not a Variable Interest Entity under
the provisions of the Financial Accounting Standards Board's Interpretation
46(R), "Consolidation of Variable Interest Entities."
Based upon the governing documents under which the Joint Venture
operates, effective March 31, 2008, we are the managing member. However, NYCRF
substantially participates in the decision-making and operations of the Joint
Venture, and as a result, we do not control the Joint Venture. Accordingly, we
will de-consolidate Shurgard Europe effective March 31, 2008.
The following adjustments reflect the elimination of the amounts
included in our historical financial statements for the year ended December 31,
2007 with respect to Shurgard Europe. The amounts reflected in our financial
statements are based upon the average exchange rate of the US Dollar relative to
the Euro of approximately 1.370.
Amounts in
thousands
--------------------
Revenues have been decreased to reflect the elimination of the
historical revenues with respect to Shurgard Europe:
o Self-storage facilities.................................................. $(192,397)
o Ancillary operations from tenant insurance and merchandise sales......... (17,398)
o Interest and other income................................................ (699)
Expenses have been decreased to reflect the elimination of the
historical expenses for Shurgard Europe:
o Cost of operations - self storage facilities............................. $ (91,604)
o Ancillary cost of operations............................................. (5,160)
o Depreciation and amortization............................................ (122,706)
o General and administrative expense....................................... (20,321)
o Interest expense......................................................... (22,108)
Income from derivatives held by Shurgard Europe has been eliminated............... $ (851)
============
Minority interest in loss with respect to the operations of the two existing
ventures that Shurgard Europe has an interest in has been eliminated......... $ (9,389)
============
8
PUBLIC STORAGE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2007
(Unaudited)
2. RECORD PUBLIC STORAGE'S PRO FORMA EARNINGS FROM SHURGARD EUROPE
As a result of the Transaction and following the elimination
of Shurgard Europe's historical balances, as noted above, Public
Storage will a) commence recording its pro rata share of earnings of
Shurgard Europe, b) record interest income, net of intercompany
eliminations, on the intercompany notes described above (which are
denominated in Euros) between Shurgard Europe and our domestic
subsidiaries, and c) record license fees equal to 1% of the pro rata
revenues earned by Shurgard Europe.
Pro forma adjustments have been made to reflect Public
Storage's earnings to be recorded on this unconsolidated basis:
Amounts in
thousands
----------------
Interest and other income was increased to reflect Public Storage's
income from items which will be charged to Shurgard Europe, as follows:
o Interest income on the intercompany notes, based upon the contractual
interest rate of 7.5% and the average outstanding balance of
$531,013,000 (interest income reflected herein is based upon a weighted
average exchange rate of 1.370 for the year ended December 31, 2007;
note that the actual debt balances at March 31, 2008 were (euro)391 million
or approximately $620 million based upon the exchange rate at March 31,
2008).................................................................... $ 39,826
o Public Storage's license fee income based upon Shurgard Europe's pro rata
interest in the self-storage facilities it owns or has an interest in.... 1,610
----------------
o Adjustment to Public Storage's interest and other income prior to
intercompany eliminations.............................................. 41,436
o Elimination of Public Storage's 49% pro-rata share of intercompany interest
and license fee income ($41,436,000 X 49%) .............................. (20,303)
----------------
o Net increase to interest and other income.............................. $ 21,133
================
9
PUBLIC STORAGE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2007
(Unaudited)
Amounts in
thousands
-------------
Equity in earnings (loss) of real estate entities has been adjusted to reflect
Public Storage's equity in the loss of Shurgard Europe, as follows:
o Net loss of Shurgard Europe included in the historical operating results of
Public Storage (which are eliminated in Note 1 above) ................... $(41,165)
o Amounts representing an expense of Shurgard Europe which were not reflected
in the consolidated operating results of Public Storage, representing
income on intercompany notes ($39,826,000) and royalty income
($1,610,000). ........................................................... (41,436)
-------------
o Total pro forma loss of Shurgard Europe................................ $(82,601)
o Multiplied by: Public Storage's 49% pro forma equity interest in Shurgard
Europe................................................................... 49%
o Public Storage's equity in the pro forma loss of Shurgard Europe, prior to
intercompany eliminations.............................................. (40,474)
o Elimination of Public Storage's 49% pro-rata share of intercompany interest
and license fee income ($41,436,000 X 49%) .............................. 20,303
-------------
o Net adjustment for Public Storage's equity in the loss of
Shurgard Europe........................................................ $(20,171)
=============
3. PRO FORMA INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE
Income per common share has been determined by dividing Pro
Forma net income from continuing operations available to common
shareholders of $241,473,000 (based upon aggregate net income from
continuing operations of $499,654,000, less $236,757,000 allocated to
the preferred shareholders and $21,424,000 allocated to the Equity
Shares, Series A), by the applicable weighted average shares
outstanding for the year ended December 31, 2007:
Diluted earnings per common share
(based upon 170,147,000 weighted average
diluted shares).................................. $1.42
Basic earnings per common share
(based upon 169,342,000 weighted average basic
shares).......................................... $1.43
10