News Release
Public Storage
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: August 7, 2008
Contact: Clemente Teng
(818) 244-8080
PUBLIC STORAGE REPORTS RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2008
GLENDALE, California - Public Storage (NYSE:PSA) announced today operating
results for the second quarter ended June 30, 2008.
OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2008:
- -----------------------------------------------------------
Net income for the three months ended June 30, 2008 was $133.8 million compared
to $77.1 million for the same period in 2007, representing an increase of $56.7
million. This improvement is primarily due to improvements in operating income
with respect to our domestic self-storage facilities and reduced amortization
expense, offset in part by a reduction in foreign exchange gains and increased
general and administrative expense due to $25.4 million in incentive
compensation incurred in the quarter ended June 30, 2008 (see "Shurgard Europe"
below).
Net operating income (before depreciation and amortization) with respect to our
domestic operations increased $14.1 million in the three months ended June 30,
2008 as compared to the same period in 2007 due to an increase of $8.6 million
with respect to our domestic same-store operations combined with an increase of
$5.5 million with respect to our other domestic facilities, primarily our
facilities acquired in 2007 and 2008 and the continued fill-up of our newly
developed and expanded facilities.
Amortization expense for the quarter ended June 30, 2008, with respect to
domestic assets, decreased by $33.8 million as compared to the same period in
2007, primarily due to a reduction in domestic amortization expense related to
intangible assets that we obtained in the August 22, 2006 acquisition of
Shurgard Storage Centers, Inc. (the "Shurgard Merger").
During the quarter ended June 30, 2008, we recognized a negligible foreign
currency exchange loss totaling $2,000, as compared to a $5.6 million gain for
the same period in 2007, relating primarily to intercompany loans due from
Shurgard Europe. The foreign currency gains and losses were due to changes in
the U.S. Dollar relative to the Euro during each period when converting these
Euro denominated loans to U.S. Dollars for financial reporting purposes. See
"Shurgard Europe" below for further information.
For the three months ended June 30, 2008, net income allocable to our common
shareholders (after allocating net income to our preferred and equity
shareholders) was $68.1 million or $0.40 per common share on a diluted basis
compared to $14.4 million or $0.08 per common share on a diluted basis for the
same period in 2007, representing an improvement of $53.7 million or $0.32 per
common share on a diluted basis. These improvements are due primarily to the
impact of the factors described above with respect to the improvement in our net
income.
For the three months ended June 30, 2008 and 2007, we allocated $60.3 million
and $57.3 million of our net income, respectively, to our preferred shareholders
based on distributions paid during each period. The year-over-year increase is
due primarily to the issuance of additional preferred securities in 2007.
Weighted average diluted common shares were 168,814,000 and 170,213,000,
respectively, for the three months ended June 30, 2008 and 2007. The decline is
due to share repurchases in the first quarter of 2008.
OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2008:
- ---------------------------------------------------------
Net income for the six months ended June 30, 2008 was $646.2 million compared to
$136.9 million for the same period in 2007, representing an improvement of
$509.3 million. This improvement is primarily due to a gain of $341.9 million
recognized on the disposition of a 51% interest in Shurgard Europe on March 31,
2008 (see "Shurgard Europe" below for further information), improvements in
operating income with respect to our domestic self-storage facilities and
1
reduced amortization expense, offset in part by a reduction in foreign exchange
gains and increased general and administrative expense due to $27.9 million in
incentive compensation incurred during the six months ended June 30, 2008 (see
"Shurgard Europe" below).
Net operating income (before depreciation and amortization) with respect to our
domestic operations increased $22.7 million in the six months ended June 30,
2008 as compared to the same period in 2007 due to an increase of $13.4 million
with respect to our domestic same-store operations combined with an increase of
$9.3 million with respect to our other domestic facilities, primarily our
facilities acquired in 2007 and 2008 and the continued fill-up of our newly
developed and expanded facilities.
Amortization expense for the six months ended June 30, 2008, with respect to
domestic assets, decreased by $76.5 million as compared to the same period in
2007, primarily due to a reduction in domestic amortization expense related to
intangible assets that we obtained in the Shurgard Merger.
During the six months ended June 30, 2008, we recognized a foreign currency
exchange gain totaling $41.0 million, as compared to a $10.6 million gain for
the same period in 2007, relating primarily to intercompany loans due from
Shurgard Europe. The gains in each period were due to changes in the U.S. Dollar
relative to the Euro during each period when converting these Euro denominated
loans to U.S. Dollars for financial reporting purposes. See "Shurgard Europe"
below for further information.
For the six months ended June 30, 2008, net income allocable to our common
shareholders (after allocating net income to our preferred and equity
shareholders) was $514.8 million or $3.05 per common share on a diluted basis
compared to $10.1 million or $0.06 per common share on a diluted basis for the
same period in 2007, representing an improvement of $504.7 million or $2.99 per
common share on a diluted basis. These improvements are due primarily to the
impact of the factors described above with respect to the improvement in our net
income.
For the six months ended June 30, 2008 and 2007, we allocated $120.7 million and
$116.1 million of our net income, respectively, to our preferred shareholders
based on distributions paid each period. The year-over-year increase is due
primarily to the issuance of additional preferred securities in 2007.
Weighted average diluted common shares were 169,022,000 and 170,275,000,
respectively, for the six months ended June 30, 2008 and 2007. The decline is
due primarily to share repurchases in the first quarter of 2008.
FUNDS FROM OPERATIONS:
- ----------------------
For each of the three month periods ended June 30, 2008 and 2007, funds from
operations ("FFO") was $1.10 per common share on a diluted basis.
For the three months ended June 30, 2008, FFO has been impacted as a result of
incentive compensation with respect to our disposition of an interest in
Shurgard Europe included in general and administrative expense totaling $25.4
million. FFO for the three months ended June 30, 2007 was impacted by (i)
foreign currency exchange and derivative gains totaling $7.3 million, (ii)
expenses related to our proposed offering of shares in our European business
totaling $9.6 million, (iii) expenses incurred in connection with the Shurgard
Merger totaling approximately $1.3 million, and (iv) expenses related to our
reorganization as a Maryland REIT totaling approximately $2.0 million.
For the six months ended June 30, 2008, FFO increased to $2.49 per common share
on a diluted basis as compared to $2.15 per common share for the same period in
2007, representing an increase of $0.34 per common share, or 15.8%.
For the six months ended June 30, 2008, FFO has been impacted by (i) incentive
compensation with respect to our disposition of an interest in Shurgard Europe
included in general and administrative expense totaling $27.9 million and (ii)
foreign currency exchange and derivatives gain totaling $41.0 million ($11.6
million for the same period in 2007). FFO for the six months ended June 30, 2007
was also impacted by (i) expenses related to our proposed offering of shares in
our European business totaling $9.6 million, (ii) expenses incurred in
connection with the Shurgard Merger totaling approximately $5.3 million, (iii)
expenses related to our reorganization as a Maryland REIT totaling approximately
$2.0 million, and (iv) an increase in insurance proceeds with respect to damage
caused by Hurricane Katrina of $2.7 million.
The following table provides a summary of the impact of these items that have
occurred during the three and six months ended June 30, 2008 and 2007:
2
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ---------------------------------
Percentage Percentage
2008 2007 Change 2008 2007 Change
---------- --------- ---------- --------- ---------- -----------
FFO per common share prior to adjustments for the
following items............................. $ 1.25 $ 1.14 9.6% $ 2.42 $ 2.16 12.0%
Incremental incentive compensation............. (0.15) - (0.17) -
Foreign currency exchange and derivative gains, net - 0.04 0.24 0.07
Costs and expenses incurred in connection with the
proposed offering of shares in Shurgard Europe - (0.06) - (0.06)
Costs and expenses incurred in connection with the
Shurgard Merger............................. - (0.01) - (0.03)
Costs to reorganize as a Maryland REIT...... - (0.01) - (0.01)
Increase in insurance proceeds - casualty gain - - - 0.02
---------- --------- --------- ----------
FFO per common share, as reported.............. $ 1.10 $ 1.10 - $ 2.49 $ 2.15 15.8%
========== ========= ========= ==========
FFO is a term defined by the National Association of Real Estate Investment
Trusts ("NAREIT"). It is generally defined as net income before depreciation
with respect to real estate assets and gains and losses on real estate assets.
FFO is presented because management and many analysts consider FFO to be one
measure of the performance of real estate companies. In addition, we believe
that FFO is helpful to investors as an additional measure of the performance of
a REIT, because net income includes the impact of depreciation, which assumes
that the value of real estate diminishes predictably over time, while we believe
that the value of real estate fluctuates due to market conditions and in
response to inflation. FFO computations do not consider scheduled principal
payments on debt, capital improvements, 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. See the attached reconciliation of net income
to funds from operations included in the selected financial data attached to
this press release.
As previously noted, we have received net proceeds totaling approximately $609.1
million in connection with our March 31, 2008 disposition of a 51% interest in
Shurgard Europe. These funds were invested in short-term liquid investments
earning interest at interest rates averaging approximately 2.2% during the three
months ended June 30, 2008.
PROPERTY OPERATIONS -SAME STORE FACILITIES:
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The following table summarizes the historical operating results of 1,789
facilities that were all stabilized as of January 1, 2006 and contain
approximately 109.4 million net rentable square feet, representing approximately
87% of the aggregate net rentable square feet of our U.S. consolidated
self-storage portfolio at June 30, 2008. These facilities include 416 facilities
acquired in August 2006 in connection with the Shurgard Merger.
3
Selected Operating Data for the Same Store
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Facilities (1,789 Facilities):
- ------------------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- --------------------------------------
Percentage Percentage
2008 2007 Change 2008 2007 Change
------------ ------------ ----------- ----------- ------------ ----------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income................................. $ 321,605 $ 311,814 3.1% $ 634,847 $ 615,968 3.1%
Late charges and administrative fees collected 13,807 13,330 3.6% 27,346 26,345 3.8%
------------ ------------ ----------- ----------- ------------ ----------
Total revenues (a)............................ 335,412 325,144 3.2% 662,193 642,313 3.1%
Cost of operations:
Property taxes................................ 32,526 31,110 4.6% 66,231 63,428 4.4%
Direct property payroll....................... 21,906 22,154 (1.1)% 44,750 44,720 0.1%
Media advertising............................. 9,148 7,589 20.5% 15,514 12,409 25.0%
Other advertising and promotion............... 4,733 5,027 (5.8)% 8,863 9,660 (8.3)%
Utilities..................................... 7,663 7,601 0.8% 16,286 16,016 1.7%
Repairs and maintenance....................... 9,986 9,859 1.3% 20,708 19,850 4.3%
Telephone reservation center.................. 3,102 3,011 3.0% 6,016 5,868 2.5%
Property insurance............................ 2,715 3,378 (19.6)% 5,709 6,827 (16.4)%
Other costs of management..................... 20,403 20,751 (1.7)% 43,452 42,225 2.9%
------------ ------------ ----------- ----------- ------------ ----------
Total cost of operations (a).................... 112,182 110,480 1.5% 227,529 221,003 3.0%
------------ ------------ ----------- ----------- ------------ ----------
Net operating income (before depreciation and
amortization) (b) ............................. 223,230 214,664 4.0% 434,664 421,310 3.2%
Depreciation and amortization expense (c)......... (78,417) (107,879) (27.3)% (159,630) (223,996) (28.7)%
------------ ------------ ----------- ----------- ------------ ----------
Operating income.................................. $ 144,813 $ 106,785 35.6% $ 275,034 $ 197,314 39.4%
============ ============ =========== =========== ============ ==========
Gross margin (before depreciation and amortization) 66.6% 66.0% 0.9% 65.6% 65.6% -
Weighted average for the period:
Square foot occupancy (d)....................... 91.0% 90.9% 0.1% 89.9% 89.9% -
Realized annual rent per occupied square foot $ 12.92 $ 12.54 3.0% $ 12.91 $ 12.52 3.1%
(e) (g)......................................
REVPAF (f) (g).................................. $ 11.75 $ 11.40 3.1% $ 11.60 $ 11.26 3.0%
Weighted average at June 30:
Square foot occupancy........................... 91.7% 91.7% -
In place annual rent per occupied square foot (h) $ 14.21 $ 13.84 2.7%
Total net rentable square feet (in thousands)..... 109,436 109,436 -
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 and amortization) 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) Depreciation and amortization expense for the three and six months ended
June 30, 2008 decreased primarily due to a reduction in amortization
expense related to intangible assets that we obtained in the Shurgard
Merger.
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 and other items that
reduce rental income from the contractual amounts due.
4
f) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income which excludes late charges and administrative
fees divided by total available net rentable square feet. Rental income is
also net of promotional discounts and collection costs, including bad debt
expense.
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.
The following table summarizes additional selected financial data with respect
to the Same Store Facilities (unaudited):
Three Months Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31 Full Year
----------- ------------ -------------- -------------- --------------
Total revenues (in 000's):
2008..................................... $ 326,781 $ 335,412
2007..................................... $ 317,169 $ 325,144 $ 336,117 $ 327,885 $ 1,306,315
Total cost of operations (excluding
depreciation and amortization expense)
(in 000's):
2008..................................... $ 115,347 $ 112,182
2007..................................... $ 110,523 $ 110,480 $ 106,668 $ 98,557 $ 426,228
Property taxes (in 000's):
2008..................................... $ 33,705 $ 32,526
2007..................................... $ 32,318 $ 31,110 $ 32,340 $ 26,389 $ 122,157
Media advertising expense (in 000's):
2008..................................... $ 6,366 $ 9,148
2007..................................... $ 4,820 $ 7,589 $ 4,044 $ 2,622 $ 19,075
Other advertising and promotion
expense (in 000's):
2008..................................... $ 4,130 $ 4,733
2007..................................... $ 4,633 $ 5,027 $ 4,180 $ 3,874 $ 17,714
REVPAF:
2008..................................... $ 11.45 $ 11.75
2007..................................... $ 11.12 $ 11.40 $ 11.77 $ 11.50 $ 11.45
Weighted average realized annual rent per
occupied square foot for the period:
2008..................................... $ 12.89 $ 12.92
2007..................................... $ 12.52 $ 12.54 $ 13.06 $ 13.02 $ 12.79
Weighted average square foot occupancy levels
for the period:
2008..................................... 88.8% 91.0%
2007..................................... 88.8% 90.9% 90.1% 88.3% 89.5%
SHURGARD EUROPE:
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As previously announced, on March 31, 2008, an institutional investor acquired a
51% interest in Shurgard Europe's operations. Public Storage owns the remaining
49% interest and is the managing member of the newly formed joint venture that
now owns Shurgard Europe's operations.
The intercompany loans to Shurgard Europe are denominated in Euros. At June 30,
2008, the loans totaled (euro)391.9 million ($618.7 million). No additional
loans were made during the quarter ended June 30, 2008. The loans currently are
not hedged for future currency exchange fluctuations; accordingly, the amount of
U.S. Dollars that will be received on repayment will depend upon the currency
exchange rates at the time. Based primarily upon the change in estimated U.S.
Dollars to be received caused by fluctuation in currency exchange rates, a
foreign currency translation loss of $2,000 and a gain of $41,012,000 were
recorded in the three and six months ended June 30, 2008, respectively (gains of
$5,553,000 and $10,593,000, respectively, during the same periods in 2007).
5
During the three and six months ended June 30, 2008, respectively, we incurred
$25.4 million and $27.9 million, respectively, of incentive compensation expense
with respect to the March 31, 2008 Shurgard Europe transaction. These amounts
were included in our general and administrative expense.
As a result of our disposition of a 51% interest, we began accounting for our
investment in Shurgard Europe under the equity method; accordingly, Shurgard
Europe's accounts are no longer consolidated with those of Public Storage
effective March 31, 2008.
Shurgard Europe has an interest in 178 facilities (9.3 million net rentable
square feet) located in seven Western European countries. Included in this total
are 74 facilities (3.7 million net rentable square feet) that are owned in two
joint ventures in which Shurgard Europe has a 20% interest. The two joint
ventures collectively had approximately $408 million of outstanding debt payable
to third parties at June 30, 2008. A facility located in London, England was not
included in the Shurgard Europe transaction discussed above. This facility is
wholly owned by Public Storage, but continues to be managed by Shurgard Europe
for a fee.
At June 30, 2008, Shurgard Europe had five newly developed facilities under
construction (273,000 net rentable square feet), with total estimated costs of
approximately $44.8 million, and three expansion projects (110,000 net rentable
square feet) with $28.9 million in estimated development costs. They also have
nine projects in development (318,000 net rentable square feet) with a total
estimated cost of $61.8 million. The development of these facilities is subject
to various risks and contingencies.
During the second quarter of 2008, Shurgard Europe completed the development of
two wholly-owned facilities located in the Netherlands at a total cost of $10.9
million, adding 96,000 net rentable square feet to the portfolio.
DEVELOPMENT AND ASSET ACQUISITION ACTIVITIES:
- ---------------------------------------------
During the second quarter of 2008, we acquired two self-storage facilities in
California with net rentable square feet of 211,000 for an aggregate purchase
price of $31.2 million, which includes the assumption of approximately $10.3
million of debt. We also completed a newly developed facility with 49,000 net
rentable square feet at a total cost of $5.6 million and an expansion project at
a total cost of $7.8 million with 84,000 net rentable square feet.
At June 30, 2008, we had 25 projects that were either under construction or were
expected to begin construction generally within the next year, comprised of two
newly developed self-storage facilities (119,000 net rentable square feet) in
the United States for a total estimated cost of $17.6 million, 22 projects
(926,000 net additional rentable square feet) in the United States, which expand
existing self-storage facilities and enhance their visual appeal for a total
estimated cost of $85.5 million and expansion of one European facility located
in London, England (21,000 net rentable square feet and total estimated costs of
$6.6 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.
ACQUISITION OF INTEREST IN ACQUISITION JOINT VENTURE:
- -----------------------------------------------------
On July 21, 2008, we acquired the remaining interest that we did not own in an
affiliated partnership (the "Acquisition Joint Venture") from an institutional
investor for an aggregate purchase price of $45.8 million. The Acquisition Joint
Venture owned 12 self-storage facilities. The purchase price included the
repayment of approximately $38.4 million of debt due to the investor (bearing
interest at 8.5% per annum) and the acquisition of their equity for
approximately $7.4 million.
SHARE REPURCHASES:
- ------------------
As disclosed previously, our Board of Trustees has authorized the repurchase
from time to time of up to 35,000,000 of our common shares on the open market or
in privately negotiated transactions.
From January 1, 2008 through June 30, 2008, we repurchased a total of 1,520,196
common shares for an aggregate of approximately $111.9 million (none were
repurchased from July 1, 2008 through August 7, 2008). We have 11,278,084 shares
remaining on our repurchase authorization at August 7, 2008.
DISTRIBUTIONS DECLARED:
- -----------------------
On August 7, 2008 the Board of Trustees declared a quarterly distribution of
$0.55 per regular common share and $0.6125 per share on the depositary shares
each representing 1/1,000 of a share of Equity Shares, Series A. Distributions
were also declared with respect to the Company's various series of preferred
shares. All the distributions are payable on September 30, 2008 to shareholders
of record as of September 15, 2008.
6
SECOND QUARTER CONFERENCE CALL:
- -------------------------------
A conference call is scheduled for Friday, August 8, 2008 at 10:00 a.m. (PDT) to
discuss the second quarter ended June 30, 2008 earnings results. The domestic
dial-in number is (866) 406-5408, and the international dial-in number is (973)
582-2770 (conference ID number for either domestic or international is
55437794). A simultaneous audio web cast may be accessed by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations"
(conference ID number 55437794). A replay of the conference call may be accessed
through August 22, 2008 by calling (800) 642-1687 (domestic), or (706) 645-9291
(international), or by using the link at www.publicstorage.com under "Corporate
Information, Investor Relations." All forms of replay utilize conference ID
number 55437794.
ABOUT PUBLIC STORAGE:
- ---------------------
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. At June 30, 2008,
the Company had interests in 2,015 self-storage facilities located in 38 states
with approximately 127 million net rentable square feet in the United States and
179 storage facilities located in seven Western European nations with
approximately nine million net rentable square feet.
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
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, 2007 and Form 10-Q for the period ended June 30, 2008 expected to be filed
on or before August 11, 2008, our Quarterly Reports on Form 10-Q, and current
reports on Form 8-K. These risks include, but are not limited to, the following:
general risks associated with the ownership and operation of real estate,
including changes in demand for our storage facilities, potential liability for
environmental contamination, adverse changes in tax, real estate and zoning laws
and regulations, and the impact of natural disasters; risks associated with
downturns in the national and local economies in the markets in which we
operate; the impact of competition from new and existing storage and commercial
facilities and other storage alternatives; difficulties in our ability to
successfully evaluate, finance, integrate into our existing operations and
manage acquired and developed properties; risks related to our participation in
joint ventures; risks associated with international operations including, but
not limited to, unfavorable foreign currency rate fluctuations that could
adversely affect our earnings and cash flows; the impact of the regulatory
environment as well as national, state, and local laws and regulations
including, without limitation, those governing REITs; risks associated with a
possible failure by us to qualify as a REIT under the Internal Revenue Code of
1986, as amended; disruptions or shutdowns of our automated processes and
systems; difficulties in raising capital at a reasonable cost; 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.
7
PUBLIC STORAGE
SELECTED FINANCIAL DATA
(Unaudited)
Comparisons of our revenues and expenses for the three and six months ended June
30, 2008 to the same periods in 2007 are significantly impacted by the
acquisition by an institutional investor of a 51% interest in Shurgard Europe on
March 31, 2008, which resulted in the deconsolidation of Shurgard Europe.
Shurgard Europe's revenues and expenses after March 31, 2008 are excluded from
our statement of operations and, instead, our 49% equity share of Shurgard
Europe's operating results are included in the line item "equity in earnings of
real estate entities" and we also record interest and other income with respect
to (i) the interest received on our intercompany notes from Shurgard Europe and
(ii) license fee income.
Three Months Ended Six Months Ended
June 30, (a) June 30, (a)
------------------------------ -----------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
(Amounts in thousands, except per share data)
Revenues:
Self-storage rental income...................... $ 381,345 $ 410,972 $ 806,165 $ 809,580
Ancillary operations............................ 31,779 36,262 66,879 69,087
Interest and other income (a)................... 11,014 955 13,858 3,080
------------- ------------- ------------- -------------
424,138 448,189 886,902 881,747
------------- ------------- ------------- -------------
Expenses:
Cost of operations:
Self-storage facilities ...................... 128,354 149,137 285,269 297,829
Ancillary operations ......................... 18,109 20,352 35,577 39,661
Depreciation and amortization (b)............... 95,383 167,510 217,869 343,876
General and administrative (c).................. 33,173 21,465 48,089 37,981
Interest expense................................ 9,601 16,707 26,088 33,515
------------- ------------- ------------- -------------
284,620 375,171 612,892 752,862
------------- ------------- ------------- -------------
Income from continuing operations before equity in
earnings of real estate entities, gain (loss) on
disposition of real estate investments, casualty
gain, foreign currency exchange gain (loss),
income (expense) from derivatives and minority
interest in income............................... 139,518 73,018 274,010 128,885
Equity in earnings of real estate entities (a)...... 4,632 2,782 7,361 6,759
Gain (loss) on disposition of real estate
investments (d)..................................... (92) 2,238 341,773 2,238
Casualty gain ...................................... - - - 2,665
Foreign currency exchange gain (loss) (e)........... (2) 5,553 41,012 10,593
Income (expense) from derivatives, net.............. - 1,771 (43) 1,009
Minority interest in income allocable to:
Preferred minority interests....................... (5,403) (5,403) (10,806) (10,806)
Other partnership interests ....................... (4,739) (2,121) (6,935) (2,501)
------------- ------------- ------------- -------------
Income from continuing operations................... 133,914 77,838 646,372 138,842
Discontinued operations ............................ (101) (734) (217) (1,960)
------------- ------------- ------------- -------------
Net income.......................................... $ 133,813 $ 77,104 $ 646,155 $ 136,882
============= ============= ============= =============
Net income allocation:
Allocable to preferred shareholders based on
distribution paid........................... $ 60,333 $ 57,315 $ 120,666 $ 116,091
Allocable to Equity Shares, Series A............ 5,356 5,356 10,712 10,712
Allocable to common shareholders................ 68,124 14,433 514,777 10,079
------------- ------------- ------------- -------------
$ 133,813 $ 77,104 $ 646,155 $ 136,882
============= ============= ============= =============
Per common share:
Net income per share - Basic.................... $ 0.41 $ 0.09 $ 3.06 $ 0.06
============= ============= ============= =============
Net income per share - Diluted.................. $ 0.40 $ 0.08 $ 3.05 $ 0.06
============= ============= ============= =============
Weighted average common shares - Basic.......... 168,028 169,346 168,307 169,288
============= ============= ============= =============
Weighted average common shares - Diluted........ 168,814 170,213 169,022 170,275
============= ============= ============= =============
8
(a) Commencing March 31, 2008, we account for our investment in Shurgard Europe
using the equity method of accounting. Accordingly, we no longer present
Shurgard Europe's revenues, expenses and other operating items with respect
to periods after March 31, 2008, and we instead reflect our pro-rata share
of Shurgard Europe's operations as "equity in earnings of real estate
entities" along with interest and other income related to the note
receivable from Shurgard Europe. For the quarter ended June 30, 2008,
included in equity in earnings of real estate entities is $1,547,000
related to our investment in Shurgard Europe. These earnings are comprised
of our 49% equity share of Shurgard Europe's net loss, combined with
$6,276,000, representing 49% of the aggregate interest and trademark
license income received from Shurgard Europe. Included in interest and
other income for the quarter ended June 30, 2008, is an aggregate of
$6,532,000 with respect to the note receivable from Shurgard Europe and
trademark license fees, representing 51% of the aggregate interest and
trademark license income received from Shurgard Europe.
(b) Depreciation and amortization expense for the three and six months ended
June 30, 2008 decreased by $72.1 million and $126.0 million, respectively,
as compared to the same periods in 2007. This decrease is primarily due to
a reduction in amortization expense related to domestic intangible assets
that we obtained in the Shurgard Merger, combined with the impact of the
deconsolidation of Shurgard Europe.
(c) For the three and six months ended June 30, 2008, general and
administrative expense includes additional incentive compensation totaling
$25.4 million and $27.9 million, respectively, associated with the
disposition of an interest in Shurgard Europe. In addition, for the three
and six months ended June 30, 2007, we incurred additional expenses in
connection with the proposed offering of shares of Shurgard Europe totaling
approximately $9.6 million.
(d) Gain on disposition of real estate investments includes a $341.9 million
gain on our disposition of a 51% interest in Shurgard Europe on March 31,
2008.
(e) Our foreign exchange gains and losses are primarily related to our
intercompany loan to Shurgard Europe, representing the impact of the
fluctuation in the exchange rate between U.S. Dollars and the Euro.
9
PUBLIC STORAGE
SELECTED FINANCIAL DATA
June 30, December 31,
2008 2007
(Unaudited)(a)
----------------- ----------------
(Amounts in thousands, except
share and per share data)
ASSETS
Cash and cash equivalents .................................... $ 775,002 $ 245,444
Operating real estate facilities:
Land and buildings, at cost................................ 10,105,196 11,658,807
Accumulated depreciation................................... (2,234,359) (2,128,225)
----------------- ----------------
7,870,837 9,530,582
Construction in process....................................... 38,614 60,324
----------------- ----------------
7,909,451 9,590,906
Investment in real estate entities............................ 616,257 306,743
Goodwill...................................................... 174,634 174,634
Intangible assets, net........................................ 61,698 173,745
Note receivable from Shurgard Europe.......................... 618,724 -
Restricted cash............................................... 18,602 18,972
Other assets.................................................. 78,378 132,658
----------------- ----------------
Total assets........................................... $ 10,252,746 $ 10,643,102
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and debt due to joint venture partner........... $ 690,339 $ 1,069,928
Accrued and other liabilities................................. 223,197 303,357
----------------- ----------------
Total liabilities...................................... 913,536 1,373,285
Minority interest - preferred partnership interests........... 325,000 325,000
Minority interest - other partnership interests............... 38,376 181,688
Shareholders' equity:
Cumulative Preferred Shares of beneficial interest, $0.01
par value, 100,000,000 shares authorized, 1,739,500 shares
issued (in series) and outstanding (1,739,500 at December
31, 2007), at liquidation preference..................... 3,527,500 3,527,500
Common Shares of beneficial interest, $0.10 par value,
650,000,000 shares authorized, 168,074,469 shares issued and
outstanding (169,422,475 at December 31, 2007)........... 16,807 16,943
Equity Shares of beneficial interest, Series A, $0.01 par
value, 100,000,000 shares authorized, 8,744.193 shares
issued and outstanding at June 30, 2008 and December 31, 2007 - -
Paid-in capital............................................ 5,551,189 5,653,975
Cumulative net income...................................... 4,606,982 3,960,827
Cumulative distributions paid.............................. (4,763,161) (4,446,181)
Accumulated other comprehensive income..................... 36,517 50,065
----------------- ----------------
Total shareholders' equity............................... 8,975,834 8,763,129
----------------- ----------------
Total liabilities and shareholders' equity............. $ 10,252,746 $ 10,643,102
================= ================
(a) On March 31, 2008, an institutional investor acquired a 51% interest in our
European operations. As a result of the transaction, effective March 31,
2008 we no longer consolidate the accounts of Shurgard Europe and account
for our investment on the equity method of accounting.
10
Shurgard European Same Store Selected Operating Data
- ----------------------------------------------------
The operating data presented in the table below for each period reflects the
historical data for the European Same Store Portfolio of 96 facilities that have
been operated on a stabilized basis since January 1, 2006. As described more
fully in "Shurgard Europe" above, we deconsolidated Shurgard Europe effective
March 31, 2008 and, accordingly, the revenues and cost of operations for the
quarter ended June 30, 2008 are not included in our income statements.
Selected Operating Data for the 96 facilities
- ---------------------------------------------
operated by Shurgard Europe on a stabilized basis
- -------------------------------------------------
since January 1, 2006 ("Europe Same Store
- --------------------------------------------
Facilities"): (unaudited)
- -------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- ------------------------------------
Percentage Percentage
2008 2007 (a) Change 2008 2007 (a) Change
------------ ------------- ----------- ----------- ----------- -----------
(Dollar amounts in thousands, except weighted average data,
utilizing constant exchange rates) (a)
Revenues:
Rental income................................. $ 35,714 $ 34,703 2.9% $ 70,145 $ 67,352 4.1%
Late charges and administrative fees collected 632 356 77.5% 1,220 670 82.1%
------------ ------------- ----------- ----------- ----------- -----------
Total revenues (b)............................ 36,346 35,059 3.7% 71,365 68,022 4.9%
Cost of operations (excluding depreciation and
amortization):
Property taxes ............................... 1,659 1,609 3.1% 3,242 2,935 10.5%
Direct property payroll....................... 4,068 4,128 (1.5)% 7,967 8,146 (2.2)%
Advertising and promotion..................... 1,307 1,487 (12.1)% 2,206 2,854 (22.7)%
Utilities..................................... 838 820 2.2% 1,714 1,767 (3.0)%
Repairs and maintenance....................... 962 839 14.7% 1,892 1,761 7.4%
Property insurance............................ 228 389 (41.4)% 444 789 (43.7)%
Other costs of management..................... 4,904 5,575 (12.0)% 9,819 10,695 (8.2)%
------------ ------------- ----------- ----------- ----------- -----------
Total cost of operations (b).................... 13,966 14,847 (5.9)% 27,284 28,947 (5.7)%
------------ ------------- ----------- ----------- ----------- -----------
Net operating income (excluding depreciation and
amortization) (c).............................. $ 22,380 $ 20,212 10.7% $ 44,081 $ 39,075 12.8%
============ ============= =========== ============ =========== ===========
Gross margin (before depreciation and amortization) 61.6% 57.7% 6.8% 61.8% 57.4% 7.7%
Weighted average for the period:
Square foot occupancy (d)....................... 87.0% 89.9% (3.2)% 87.5% 89.2% (1.9)%
Realized annual rent per occupied square foot
(e) (g)........................................ $ 31.06 $ 29.21 6.3% $ 30.33 $ 28.57 6.2%
REVPAF (f) (g).................................. $ 27.02 $ 26.26 2.9% $ 26.54 $ 25.48 4.2%
Weighted average at June 30:
Square foot occupancy........................... 87.6% 91.1% (3.8)%
In place annual rent per occupied square foot (h) $ 32.77 $ 30.72 6.7%
Total net rentable square feet (in thousands)..... 5,286 5,286 -
(a) For comparative purposes, these amounts are presented on a constant
exchange rate basis. The amounts for the three and six months ended June
30, 2007 have been restated using the actual exchange rate for the same
periods in 2008. The exchange rate for the Euro relative to the U.S. Dollar
averaged 1.563 and 1.530 for the three and six months ended June 30, 2008,
respectively.
(b) Revenues and cost of operations do not include ancillary revenues and
expenses generated at the facilities with respect to tenant reinsurance and
retail sales. "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.
11
(c) Net operating income (before depreciation and amortization) or "NOI" is a
non-GAAP (generally accepted accounting principles) financial measure that
excludes the impact of depreciation expense. Although depreciation is an
operating expense, we believe that NOI is a meaningful measure of operating
performance, because we utilize NOI in making decisions with respect to
capital allocations, in determining current property values, segment
performance, and comparing period-to-period and market-to-market property
operating results. NOI is not a substitute for net operating income after
depreciation in evaluating our operating results.
(d) Square foot occupancies represent weighted average occupancy levels over
the entire period.
(e) Realized annual rent per occupied square foot is computed by annualizing
the result of dividing rental income by the weighted average occupied
square footage for the period. Realized annual rent per occupied square
foot takes into consideration promotional discounts and other items that
reduce rental income from the contractual amounts due.
(f) Annualized rental income per available square foot ("REVPAF") represents
annualized rental income which excludes late charges and administrative
fees divided by total available net rentable square feet. Rental income is
also net of promotional discounts and collection costs, including bad debt
expense.
(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.
12
PUBLIC STORAGE
SELECTED FINANCIAL DATA
Computation of Funds from Operations (a)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------------
2008 2007 2008 2007
------------- ------------ ------------- --------------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common Shares
Net Income............................................................. $ 133,813 $ 77,104 $ 646,155 $ 136,882
Add back - depreciation and amortization........................... 95,383 167,510 217,869 343,876
Add back - depreciation and amortization included in Discontinued
Operations..................................................... 3 91 8 206
Eliminate - depreciation with respect to non-real estate assets.... (64) (108) (125) (206)
Eliminate - gain (loss) on sale of real estate investments......... 92 (2,238) (341,773) (2,238)
Add back - Depreciation from unconsolidated real estate investments 22,821 11,279 34,993 21,034
Add back - minority interest share of income....................... 10,142 7,524 17,741 13,307
------------- ------------ ------------- --------------
Consolidated FFO....................................................... 262,190 261,162 574,868 512,861
Allocable to preferred minority interests............................. (5,403) (5,403) (10,806) (10,806)
Allocable to other minority interests.................................. (4,949) (5,473) (11,113) (9,276)
------------- ------------ ------------- --------------
Remaining FFO allocable to our shareholders............................ 251,838 250,286 552,949 492,779
Less: allocations to preferred and equity shareholders:
Preferred shareholder distributions ............................... (60,333) (57,315) (120,666) (116,091)
Equity Shares, Series A distributions.............................. (5,356) (5,356) (10,712) (10,712)
------------- ------------ ------------- --------------
Remaining FFO allocable to Common Shares (a)........................... $ 186,149 $ 187,615 $ 421,571 $ 365,976
============= ============ ============= ==============
Weighted average shares:
Regular common shares.............................................. 168,028 169,346 168,307 169,288
Weighted average stock options and restricted share units
outstanding using treasury method .............................. 786 867 715 987
------------- ------------ ------------- --------------
Weighted average common shares for purposes of computing fully-diluted
FFO per common share.............................................. 168,814 170,213 169,022 170,275
============= ============ ============= ==============
FFO per diluted common share (a)....................................... $ 1.10 $ 1.10 $ 2.49 $ 2.15
============= ============ ============= ==============
(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.
13
PUBLIC STORAGE
SELECTED FINANCIAL DATA
Computation of Funds Available for Distribution
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ------------------------------
2008 2007 2008 2007
----------- ------------- ------------ ---------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Shares (a)....................... $ 186,149 $ 187,615 $ 421,571 $ 365,976
Add: Non-cash share-based compensation expense........... 3,484 2,360 6,258 4,868
Eliminate: Non-cash foreign exchange and derivative (gains)
losses............................................... 2 (7,324) (40,969) (11,602)
Less: Aggregate capital expenditures..................... (24,697) (20,500) (31,571) (28,807)
Add back: Capital expenditures for Shurgard rebranding
effort............................................... - - - 3,600
----------- ------------- ------------ ---------------
Funds available for distribution ("FAD") (b)............. $ 164,938 $ 162,151 $ 355,289 $ 334,035
=========== ============= ============ ===============
Distribution to common shareholders...................... $ 92,819 $ 85,025 $ 185,602 $ 170,018
=========== ============= ============ ===============
Distribution payout ratio (b)............................ 56.3% 52.4% 52.2% 50.9%
=========== ============= ============ ===============
(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) 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 to maintain our facilities and elimination of 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.
14
PUBLIC STORAGE
SELECTED FINANCIAL DATA
Reconciliation of Same Store Revenues and Cost of Operations
To Consolidated Self-Storage Rental Income and Cost of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
2008 2007 2008 2007
----------- ------------ ------------ ------------
(Amounts in thousands)
Revenues for the Same Store facilities............... $ 335,412 $ 325,144 $ 662,193 $ 642,313
Revenues for other facilities (a): Development facilities
(year opened):
2008.......................................... 1 - 1 -
2007.......................................... 284 71 508 79
2006.......................................... 1,796 1,080 3,413 1,937
2004 and 2005................................. 3,253 2,754 6,337 5,347
Expansion facilities.......................... 22,383 20,466 43,703 40,023
Acquisition facilities (year acquired):
2008.......................................... 354 - 354 -
2007.......................................... 1,264 299 2,393 311
2006 (b)...................................... 16,598 15,318 32,541 30,684
Shurgard Europe's wholly owned facilities........ - 32,898 36,935 64,083
Shurgard Europe's joint venture facilities ...... - 12,942 17,787 24,803
----------- ------------ ------------ ------------
Consolidated self-storage revenues (c)................ $ 381,345 $ 410,972 $ 806,165 $ 809,580
=========== ============ ============ ============
Cost of operations for the Same Store facilities...... $ 112,182 $ 110,480 $ 227,529 $ 221,003
Cost of operations for other facilities (a): Development
facilities (year opened):
2008.......................................... 39 - 39 -
2007.......................................... 166 47 391 88
2006.......................................... 618 680 1,273 1,216
2004 and 2005................................. 1,158 1,137 2,392 2,237
Expansion facilities.......................... 7,302 7,434 15,193 14,609
Acquisition facilities (year acquired):
2008.......................................... 127 - 127 -
2007.......................................... 515 126 1,072 129
2006 (b)...................................... 6,247 6,318 12,599 13,247
Shurgard Europe's wholly owned facilities........ - 13,874 14,333 26,953
Shurgard Europe's joint venture facilities....... - 9,041 10,321 18,347
----------- ------------ ------------ ------------
Consolidated self-storage cost of operations (c)..... $ 128,354 $ 149,137 $ 285,269 $ 297,829
=========== ============ ============ ============
(a) We consolidate the operating results of additional self-storage facilities
that are not Same Store facilities.
(b) Includes 65 domestic facilities, and one facility located in London,
England which we acquired in the merger with Shurgard that are not included
in the Same Store facilities and are not owned by Shurgard Europe, along
with 12 additional facilities acquired in 2006. We discontinued
consolidation of 11 of these facilities effective May 24, 2007. On November
15, 2007, we recommenced consolidation of five of these properties. The
operations for these 11 facilities from January 1, 2007 through May 24,
2007, combined with the operations of the five facilities that we
recommenced consolidation after November 15, 2007, are included in this
table.
(c) Self-storage revenues and cost of operations do not include revenues and
expenses generated at the facilities with respect to tenant reinsurance,
retail sales and truck rentals.
15