News Release Exhibit 99.1
Public Storage
701 Western Avenue
Glendale, CA 91201-2349
www.publicstorage.com
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For Release: Immediately
Date: November 6, 2008
Contact: Clemente Teng
(818) 244-8080
PUBLIC STORAGE REPORTS RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2008
AND DECLARES A SPECIAL DIVIDEND OF $0.60 PER SHARE
GLENDALE, CALIFORNIA - Public Storage (NYSE:PSA) announced today operating
results for the third quarter ended September 30, 2008.
OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008:
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Net income for the three months ended September 30, 2008 was $137.3 million
compared to $152.8 million for the same period in 2007, representing a decrease
of $15.5 million. This decline is primarily due to the impact of a $53.2 million
foreign exchange loss during the quarter ended September 30, 2008 as compared to
an exchange gain of $30.4 million in the same period in 2007, offset by reduced
depreciation and amortization expense and improvements in operating income with
respect to our domestic self-storage facilities.
The foreign currency exchange gains and losses relate primarily to intercompany
loans due from Shurgard Europe. The foreign currency gains and losses were due
to changes in the value of 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.
Amortization expense for the quarter ended September 30, 2008, with respect to
domestic intangible assets obtained in the August 22, 2006 acquisition of
Shurgard Storage Centers, Inc. (the "Shurgard Merger") decreased by $27.1
million as compared to the same period in 2007.
Net operating income (before depreciation and amortization) with respect to our
domestic operations increased $15.3 million in the three months ended September
30, 2008 as compared to the same period in 2007 due to an increase of $8.8
million with respect to our domestic same-store operations combined with an
increase of $6.5 million with respect to our non-stabilized facilities.
For the three months ended September 30, 2008, net income allocable to our
common shareholders (after allocating net income to our preferred and equity
shareholders) was $71.6 million or $0.42 per common share on a diluted basis
compared to $87.1 million or $0.51 per common share on a diluted basis for the
same period in 2007, representing a decrease of $15.5 million or $0.09 per
common share on a diluted basis. These decreases are due primarily to the impact
of the factors described above with respect to the decline in our net income.
For each of the three months ended September 30, 2008 and 2007, we allocated
$60.3 million of our net income to our preferred shareholders based on
distributions paid during each period.
Weighted average diluted common shares were 168,919,000 and 170,085,000,
respectively, for the three months ended September 30, 2008 and 2007. The
decline is due to share repurchases in the first quarter of 2008.
OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008:
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Net income for the nine months ended September 30, 2008 was $783.5 million
compared to $289.6 million for the same period in 2007, representing an
improvement of $493.9 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),
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improvements in operating income with respect to our domestic self-storage
facilities and reduced amortization expense, offset by a foreign exchange loss
of $12.2 million for the nine months ended September 30, 2008 as compared to a
foreign exchange gain of $41.0 million in the same period in 2007.
Net operating income (before depreciation and amortization) with respect to our
domestic operations increased $37.9 million in the nine months ended September
30, 2008 as compared to the same period in 2007 due to an increase of $22.1
million with respect to our domestic same-store operations combined with an
increase of $15.8 million with respect to our non-stabilized facilities.
Amortization expense for the nine months ended September 30, 2008, with respect
to domestic intangible assets obtained in the Shurgard Merger decreased by
$103.9 million compared to the same period in 2007.
For the nine months ended September 30, 2008, net income allocable to our common
shareholders (after allocating net income to our preferred and equity
shareholders) was $586.4 million or $3.47 per common share on a diluted basis
compared to $97.2 million or $0.57 per common share on a diluted basis for the
same period in 2007, representing an improvement of $489.2 million or $2.90 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 nine months ended September 30, 2008 and 2007, we allocated $181.0
million and $176.4 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 168,988,000 and 170,166,000,
respectively, for the nine months ended September 30, 2008 and 2007. The decline
is due primarily to share repurchases in the first quarter of 2008.
FUNDS FROM OPERATIONS:
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For the three month periods ended September 30, 2008, funds from operations
("FFO") declined to $1.09 per common share on a diluted basis as compared to
$1.43 per common share for the same period in 2007, representing a decrease of
$0.34 per common share or 23.8%. For each of the nine months ended September 30,
2008 and 2007, FFO was $3.58 per common share on a diluted basis.
For the three months ended September 30, 2008, FFO was impacted by (i) foreign
currency exchange and derivative losses totaling $53.2 million, (ii) a loss with
respect to damage to our facilities, and tenant insurance claims expense, caused
by Hurricane Ike aggregating $1.1 million and (iii) a change in accounting
estimate associated with our tenant insurance operations resulting in a $7.0
million decrease to our ancillary cost of operations during the quarter. For the
three months ended September 30, 2007, FFO was impacted by (i) foreign currency
exchange and derivative gains totaling $30.5 million, (ii) development costs
that were included in general and administrative expense with respect to
terminated projects totaling $1.3 million, and (iii) an impairment charge
included in discontinued operations with respect to the closure of a
containerized storage facility totaling $0.9 million.
For the nine months ended September 30, 2008, FFO has been impacted by (i)
foreign currency exchange and derivative losses totaling $12.2 million (a gain
of $42.1 million for the same period in 2007), (ii) a loss with respect to
damage to our facilities, and tenant insurance claims expense, caused by
Hurricane Ike aggregating $1.1 million, (iii) a change in accounting estimate
associated with our tenant insurance operations resulting in a $7.0 million
reduction in ancillary operating expenses during the period and (iv) incentive
compensation with respect to our disposition of an interest in Shurgard Europe
included in general and administrative expense totaling $27.9 million. FFO for
the nine months ended September 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, (iv) an
increase in insurance proceeds with respect to damage caused by Hurricane
Katrina of $2.7 million and (v) development costs that are included in general
and administrative expense with respect to terminated projects totaling $1.6
million, (vi) an impairment charge included in discontinued operations with
respect to the closure of a containerized storage facility totaling $0.9
million.
The following table provides a summary of the impact of these items that have
occurred during the three and nine months ended September 30, 2008 and 2007:
2
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- ----------------------------------
Percentage Percentage
2008 2007 Change 2008 2007 Change
-------- --------- ----------- --------- --------- -----------
FFO per common share prior to adjustments for the
following items............................... $ 1.37 $ 1.27 7.9% $ 3.79 $ 3.43 10.5%
Foreign currency exchange and derivative gains /
(loss), net................................... (0.31) 0.18 (0.07) 0.25
Casualty loss and tenant insurance losses
associated with Hurricane Ike................. (0.01) - (0.01) -
Change in accounting estimate - ancillary
operations.................................... 0.04 - 0.04 -
Incremental incentive compensation............... - - (0.17) -
Costs and expenses incurred in connection with the
proposed offering of shares in Shurgard Europe - - - (0.06)
Costs and expenses incurred in connection with the
Shurgard Merger............................... - - - (0.03)
Costs to reorganize as a Maryland REIT........ - - - (0.01)
Increase in insurance proceeds - casualty gain... - - - 0.02
Cancellation of development projects............. - (0.01) - (0.01)
Impairment charges on containerized storage
operations.................................... - (0.01) - (0.01)
-------- --------- --------- ---------
FFO per common share, as reported................ $ 1.09 $ 1.43 (23.8)% $ 3.58 $ 3.58 0.0%
======== ========= ========= =========
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%.
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 September 30, 2008. These facilities include 416
facilities acquired in August 2006 in connection with the Shurgard Merger.
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SELECTED OPERATING DATA FOR THE SAME STORE
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FACILITIES (1,789 FACILITIES):
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Three Months Ended September 30, Nine Months Ended September 30,
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Percentage Percentage
2008 2007 Change 2008 2007 Change
----------- ------------- ----------- -------------- ----------- ----------
(Dollar amounts in thousands, except weighted average data)
Revenues:
Rental income................................. $ 329,280 $ 322,095 2.2% $ 964,127 $ 938,063 2.8%
Late charges and administrative fees collected 14,753 14,022 5.2% 42,099 40,367 4.3%
----------- ------------- ----------- -------------- ----------- ----------
Total revenues (a)............................ 344,033 336,117 2.4% 1,006,226 978,430 2.8%
Cost of operations:
Property taxes................................ 33,465 32,340 3.5% 99,696 95,768 4.1%
Direct property payroll....................... 21,467 21,364 0.5% 66,217 66,084 0.2%
Media advertising............................. 1,998 4,044 (50.6)% 17,512 16,453 6.4%
Other advertising and promotion............... 4,348 4,180 4.0% 13,211 13,840 (4.5)%
Utilities..................................... 9,295 8,401 10.6% 25,581 24,417 4.8%
Repairs and maintenance....................... 9,096 10,286 (11.6)% 29,804 30,136 (1.1)%
Telephone reservation center.................. 2,970 2,751 8.0% 8,986 8,619 4.3%
Property insurance............................ 2,458 3,003 (18.1)% 8,167 9,830 (16.9)%
Other costs of management..................... 20,717 20,299 2.1% 64,169 62,524 2.6%
----------- ------------- ----------- -------------- ----------- ----------
Total cost of operations (a).................... 105,814 106,668 (0.8)% 333,343 327,671 1.7%
----------- ------------- ----------- -------------- ----------- ----------
Net operating income (before depreciation and
amortization) (b) ............................. 238,219 229,449 3.8% 672,883 650,759 3.4%
Depreciation and amortization expense (c)......... (75,154) (96,162) (21.8)% (234,784) (320,158) (26.7)%
----------- ------------- ----------- -------------- ----------- ----------
Operating income.................................. $ 163,065 $ 133,287 22.3% $ 438,099 $ 330,601 32.5%
=========== ============= =========== ============== =========== ==========
Gross margin (before depreciation and amortization) 69.2% 68.3% 1.3% 66.9% 66.5% 0.6%
Weighted average for the period:
Square foot occupancy (d)..................... 90.5% 90.1% 0.4% 90.1% 90.0% 0.1%
Realized annual rent per occupied square foot
(e) (g)...................................... $ 13.30 $ 13.06 1.8% $ 13.04 $ 12.70 2.7%
REVPAF (f) (g).................................. $ 12.04 $ 11.77 2.3% $ 11.75 $ 11.43 2.8%
Weighted average at September 30:
Square foot occupancy........................... 89.4% 89.1% 0.3%
In place annual rent per occupied square foot (h) $ 14.37 $ 14.11 1.8%
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 nine months ended
September 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.
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.
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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 $ 344,033
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 $ 105,814
2007..................................... $ 110,523 $ 110,480 $ 106,668 $ 98,557 $ 426,228
Property taxes (in 000's):
2008..................................... $ 33,705 $ 32,526 $ 33,465
2007..................................... $ 32,318 $ 31,110 $ 32,340 $ 26,389 $ 122,157
Media advertising (in 000's):
2008..................................... $ 6,366 $ 9,148 $ 1,998
2007..................................... $ 4,820 $ 7,589 $ 4,044 $ 2,622 $ 19,075
Other advertising and promotion
(in 000's):
2008..................................... $ 4,130 $ 4,733 $ 4,348
2007..................................... $ 4,633 $ 5,027 $ 4,180 $ 3,874 $ 17,714
REVPAF:
2008..................................... $ 11.45 $ 11.75 $ 12.04
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 $ 13.30
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% 90.5%
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. As a result of this transaction we began
accounting for our investment in Shurgard Europe under the equity method
effective March 31, 2008.
The intercompany loans to Shurgard Europe are denominated in Euros. At September
30, 2008, the loans totaled (euro)391.9 million ($566.1 million). No additional
loans were made during the quarter ended September 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, foreign currency translation losses of $53,172,000 and $12,160,000 were
recorded in the three and nine months ended September 30, 2008, respectively
(gains of $30,384,000 and $40,977,000, respectively, during the same periods in
2007).
During the nine months ended September 30, 2008, we incurred $27.9 million of
incentive compensation expense with respect to the March 31, 2008 Shurgard
Europe transaction. This amount is included in our general and administrative
expense. No incentive compensation amounts were incurred in the quarter ended
September 30, 2008.
5
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 $369 million of outstanding debt payable
to third parties at September 30, 2008, which is non-recourse to Shurgard Europe
and due May 2009 ($178 million) and July 2009 ($191 million), respectively. 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 September 30, 2008, Shurgard Europe had seven newly developed facilities
under construction (407,000 net rentable square feet), with total estimated
costs of approximately $67.6 million, of which $26.3 million had been incurred
as of September 30, 2008. They also have three expansion projects (110,000 net
rentable square feet) with $27.5 million in estimated development costs, of
which approximately $16.7 million has been incurred as of September 30, 2008.
Additionally, they also have five sites under development (230,000 net rentable
square feet) with $39.9 million in estimated development costs. The development
of these facilities is subject to various risks and contingencies. During the
third quarter of 2008, Shurgard Europe terminated plans for future development
and will wind down its development program as existing sites are completed.
DEVELOPMENT AND ASSET ACQUISITION ACTIVITIES:
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During the third quarter of 2008, we acquired two self-storage facilities in Las
Vegas, Nevada with net rentable square feet of 157,000 for an aggregate purchase
price of $10.6 million. We also completed two U.S. expansion projects at a total
cost of $5.2 million adding 65,000 net rentable square feet and one European
expansion project located in London, England at a total cost of $5.9 million
with 21,000 net rentable square feet.
At September 30, 2008, we had 19 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 $18.5 million and 17 projects
(791,000 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 $82.8 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:
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On July 21, 2008, we acquired the remaining interest that we did not own in an
affiliated partnership from an institutional investor for an aggregate purchase
price of $45.8 million. The partnership owns 12 self-storage facilities (861,000
net rentable square feet). 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 its equity for approximately $7.4
million.
SHARE REPURCHASES:
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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.
During the first quarter of 2008, we repurchased a total of 1,520,196 common
shares for an aggregate of approximately $111.9 million. We have 11,278,084
shares remaining on our repurchase authorization at November 6, 2008.
LIQUIDITY POSITION:
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At September 30, 2008, we have approximately $789 million of unrestricted cash
on hand and have access to an additional $300 million line of credit. The line
of credit does not expire until March 30, 2012.
At September 30, 2008, outstanding debt totaled $646.1 million, with no
significant maturities until 2011 ($228 million of maturities) and 2013 ($253
million of maturities). Our capital commitments include $56 million in remaining
commitments to complete our domestic development pipeline. If Shurgard Europe
acquires its partner's interest in two joint ventures and is unable to obtain
third-party financing, we have agreed to loan Shurgard Europe up to (euro)305
million ($441 million at September 30, 2008) for the acquisition. The
acquisition of these interests is contingent upon a number of items, including
the outcome of arbitration proceedings with respect to the joint ventures and
whether we assent to such an acquisition.
Our retained operating cash flow continues to provide a significant source of
capital to fund our activities. During the nine months ended September 30, 2008,
our funds from operations available to distribute to common shareholders ("FAD")
exceeded our common distributions by approximately $276 million. Our ability to
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continue to retain operating cash flow in the future will be contingent upon a
number of factors including, but not limited to, the growth in our operations
and our distribution requirements to maintain our REIT status.
DISTRIBUTIONS DECLARED:
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On November 6, 2008 our Board of Trustees declared a special dividend of $0.60
per common share. In addition, our Board of Trustees also declared a regular
common dividend of $0.55 per common share, a dividend of $0.6125 per share on
the Equity Shares, Series A and dividends with respect to our various series of
preferred shares. All the dividends are payable on December 30, 2008 to
shareholders of record as of December 15, 2008.
THIRD QUARTER CONFERENCE CALL:
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A conference call is scheduled for Friday, November 7, 2008 at 10:00 a.m. (PST)
to discuss the third quarter ended September 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
66989380). A simultaneous audio web cast may be accessed by using the link at
www.publicstorage.com under "Corporate Information, Investor Relations"
(conference ID number 66989380). A replay of the conference call may be accessed
through November 20, 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 66989380.
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. At September 30,
2008, the Company had interests in 2,017 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 September 30, 2008 expected to be
filed on or before November 10, 2008, our other 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 nine months ended
September 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 Nine Months Ended
September 30, (a) September 30, (a)
------------------------------- -------------------------------
2008 2007 2008 2007
-------------- -------------- ------------- --------------
(Amounts in thousands, except per share data)
Revenues:
Self-storage rental income...................... $ 393,326 $ 427,798 $ 1,199,491 $ 1,237,378
Ancillary operations............................ 32,079 37,165 98,958 106,252
Interest and other income (a)................... 11,485 3,257 25,343 6,337
-------------- -------------- ------------- --------------
436,890 468,220 1,323,792 1,349,967
-------------- -------------- ------------- --------------
Expenses:
Cost of operations:
Self-storage facilities ...................... 121,833 143,371 407,102 441,200
Ancillary operations (b)..................... 9,836 22,149 45,413 61,810
Depreciation and amortization (c)............... 92,031 147,741 309,900 491,617
General and administrative (d).................. 8,879 11,416 56,968 49,397
Interest expense................................ 9,099 15,257 35,187 48,772
-------------- -------------- ------------- --------------
241,678 339,934 854,570 1,092,796
-------------- -------------- ------------- --------------
Income from continuing operations before equity in
earnings of real estate entities, gain on
disposition of real estate investments, casualty
gain (loss), foreign currency exchange gain
(loss), income (expense) from derivatives and
minority interest in income...................... 195,212 128,286 469,222 257,171
Equity in earnings of real estate entities (a)...... 6,318 3,424 13,679 10,183
Gain on disposition of real estate investments (e).. 1,024 92 342,797 2,330
Casualty gain (loss)................................ (525) - (525) 2,665
Foreign currency exchange gain (loss) (f)........... (53,172) 30,384 (12,160) 40,977
Income (expense) from derivatives, net.............. - 117 (43) 1,126
Minority interest in income allocable to:
Preferred minority interests....................... (5,403) (5,403) (16,209) (16,209)
Other partnership interests ....................... (5,208) (2,901) (12,143) (5,402)
-------------- -------------- ------------- --------------
Income from continuing operations................... 138,246 153,999 784,618 292,841
Discontinued operations ............................ (915) (1,233) (1,132) (3,193)
-------------- -------------- ------------- --------------
Net income.......................................... $ 137,331 $ 152,766 $ 783,486 $ 289,648
============== ============== ============= ==============
Net income allocation:
Allocable to preferred shareholders based on
distribution paid........................... $ 60,333 $ 60,333 $ 180,999 $ 176,424
Allocable to Equity Shares, Series A............ 5,356 5,356 16,068 16,068
Allocable to common shareholders................ 71,642 87,077 586,419 97,156
-------------- -------------- ------------- --------------
$ 137,331 $ 152,766 $ 783,486 $ 289,648
============== ============== ============= ==============
Per common share:
Net income per share - Basic.................... $ 0.43 $ 0.51 $ 3.49 $ 0.57
============== ============== ============= ==============
Net income per share - Diluted.................. $ 0.42 $ 0.51 $ 3.47 $ 0.57
============== ============== ============= ==============
Weighted average common shares - Basic.......... 168,133 169,374 168,248 169,317
============== ============== ============= ==============
Weighted average common shares - Diluted........ 168,919 170,085 168,988 170,166
============== ============== ============= ==============
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 three and nine months ended
September 30, 2008, included in equity in earnings of real estate entities
is $2,260,000 and $3,717,000, respectively, related to our investment in
Shurgard Europe. These earnings are comprised of our 49% equity share of
Shurgard Europe's net loss, combined with $6,133,000 and $12,409,000 for
the three and nine months ended September 30, 2008, respectively,
representing 49% of the aggregate interest and trademark license income
received from Shurgard Europe after March 31, 2008. Included in interest
and other income for the three and nine months ended September 30, 2008, is
an aggregate of $6,380,000 and $12,912,000, respectively, 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 after March 31, 2008.
(b) Ancillary cost of operations for the three and nine months ended September
30, 2008 has decreased by $7.0 million as a result of a change in
accounting estimate related to our tenant insurance operations.
(c) Depreciation and amortization expense for the three and nine months ended
September 30, 2008 decreased when compared to the same period in 2007
primarily due to a $27.1 million and $103.9 million reduction,
respectively, 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.
(d) For the nine months ended September 30, 2008, general and administrative
expense includes additional incentive compensation totaling $27.9 million
associated with the disposition of an interest in Shurgard Europe. In
addition, for the nine months ended September 30, 2007, we incurred
additional expenses in connection with the proposed offering of shares of
Shurgard Europe totaling approximately $9.6 million.
(e) Gain on disposition of real estate investments for the nine months ended
September 30, 2008 includes a $341.9 million gain on our disposition of a
51% interest in Shurgard Europe.
(f) 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 the value of the U.S. Dollar and
the Euro.
9
PUBLIC STORAGE
SELECTED FINANCIAL DATA
September 30, December 31,
2008 2007
(Unaudited) (a)
------------------ -----------------
(Amounts in thousands,except
share and per share data)
ASSETS
Cash and cash equivalents .................................... $ 789,294 $ 245,444
Operating real estate facilities:
Land and buildings, at cost................................ 10,173,081 11,658,807
Accumulated depreciation................................... (2,317,190) (2,128,225)
------------------ -----------------
7,855,891 9,530,582
Construction in process....................................... 45,419 60,324
------------------ -----------------
7,901,310 9,590,906
Investment in real estate entities............................ 600,161 306,743
Goodwill...................................................... 174,634 174,634
Intangible assets, net........................................ 55,344 173,745
Note receivable from Shurgard Europe.......................... 566,084 -
Restricted cash............................................... 18,614 18,972
Other assets.................................................. 89,802 132,658
------------------ -----------------
Total assets........................................... $ 10,195,243 $ 10,643,102
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................. $ 646,059 $ 1,031,847
Debt due to joint venture partner............................. - 38,081
------------------ -----------------
Accrued and other liabilities................................. 255,337 303,357
Total liabilities...................................... 901,396 1,373,285
Minority interest - preferred partnership interests........... 325,000 325,000
Minority interest - other partnership interests............... 39,452 181,688
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, 168,239,183 shares issued and
outstanding (169,422,475 at December 31, 2007)........... 16,824 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 September 30, 2008 and December
31, 2007................................................. - -
Paid-in capital............................................ 5,558,579 5,653,975
Cumulative net income...................................... 4,744,313 3,960,827
Cumulative distributions paid.............................. (4,921,750) (4,446,181)
Accumulated other comprehensive income..................... 3,929 50,065
------------------ -----------------
Total shareholders' equity............................... 8,929,395 8,763,129
------------------ -----------------
Total liabilities and shareholders' equity............. $ 10,195,243 $ 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 September 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 September 30, Nine Months Ended September 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................................. $ 34,629 $ 34,533 0.3% $ 103,187 $ 100,346 2.8%
Late charges and administrative fees collected 602 346 74.0% 1,796 1,001 79.4%
----------- ------------ ---------- ------------ ----------- ----------
Total revenues (b)............................ 35,231 34,879 1.0% 104,983 101,347 3.6%
----------- ------------ ---------- ------------ ----------- ----------
Cost of operations (excluding depreciation and
amortization):
Property taxes ............................... 1,576 1,584 (0.5)% 4,737 4,446 6.5%
Direct property payroll....................... 4,000 3,948 1.3% 11,796 11,922 (1.1)%
Advertising and promotion..................... 1,025 785 30.6% 3,182 3,577 (11.0)%
Utilities..................................... 782 672 16.4% 2,458 2,402 2.3%
Repairs and maintenance....................... 854 848 0.7% 2,707 2,574 5.2%
Property insurance............................ 214 243 (11.9)% 648 1,015 (36.2)%
Other costs of management..................... 4,566 4,730 (3.5)% 14,174 15,172 (6.6)%
----------- ------------ ---------- ------------ ----------- ----------
Total cost of operations (b).................... 13,017 12,810 1.6% 39,702 41,108 (3.4)%
----------- ------------ ---------- ------------ ----------- ----------
Net operating income (excluding depreciation and
amortization) (c).............................. $ 22,214 $ 22,069 0.7% $ 65,281 $ 60,239 8.4%
=========== ============ ========== ============ =========== ==========
Gross margin (before depreciation and amortization) 63.1% 63.3% (0.3)% 62.2% 59.4% 4.7%
Weighted average for the period:
Square foot occupancy (d)....................... 87.3% 91.0% (4.1)% 87.2% 89.7% (2.8)%
Realized annual rent per occupied square foot (e)
(g)............................................... $ 30.02 $ 28.72 4.5% $ 29.85 $ 28.22 5.8%
REVPAF (f) (g).................................. $ 26.20 $ 26.13 0.3% $ 26.03 $ 25.31 2.8%
Weighted average at September 30:
Square foot occupancy........................... 87.7% 91.4% (4.0)%
In place annual rent per occupied square foot (h) $ 31.54 $ 29.96 5.3%
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 nine months ended
September 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 1.504 and 1.521 for the three and nine months ended
September 30, 2008, respectively, as compared to 1.374 and 1.344 for the
same periods in 2007, 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 Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
2008 2007 2008 2007
------------ ------------ ------------ --------------
(Amounts in thousands, except per share data)
Computation of Funds from Operations (FFO) allocable to Common Shares:
Net Income............................................................. $ 137,331 $ 152,766 $ 783,486 $ 289,648
Add back - depreciation and amortization........................... 92,031 147,741 309,900 491,617
Add back - depreciation and amortization included in Discontinued
Operations..................................................... 3 207 11 413
Eliminate - depreciation with respect to non-real estate assets.... (66) (111) (191) (317)
Eliminate - gain on sale of real estate investments................ (1,024) (92) (342,797) (2,330)
Add back - Depreciation from unconsolidated real estate investments 21,198 11,519 56,191 32,553
Add back - minority interest share of income....................... 10,611 8,304 28,352 21,611
------------ ------------ ------------ --------------
Consolidated FFO....................................................... 260,084 320,334 834,952 833,195
Allocable to preferred minority interests............................. (5,403) (5,403) (16,209) (16,209)
Allocable to other minority interests.................................. (5,677) (6,292) (16,790) (15,568)
------------ ------------ ------------ --------------
Remaining FFO allocable to our shareholders............................ 249,004 308,639 801,953 801,418
Less: allocations to preferred and equity shareholders:
Preferred shareholder distributions ............................... (60,333) (60,333) (180,999) (176,424)
Equity Shares, Series A distributions.............................. (5,356) (5,356) (16,068) (16,068)
------------ ------------ ------------ --------------
Remaining FFO allocable to Common Shares (a)........................... $ 183,315 $ 242,950 $ 604,886 $ 608,926
============ ============ ============ ==============
Weighted average shares:
Regular common shares.............................................. 168,133 169,374 168,248 169,317
Weighted average stock options and restricted share units
outstanding using treasury method .............................. 786 711 740 849
------------ ------------ ------------ --------------
Weighted average common shares for purposes of computing
fully-diluted FFO per common share.............................. 168,919 170,085 168,988 170,166
============ ============ ============ ==============
FFO per diluted common share (a)....................................... $ 1.09 $ 1.43 $ 3.58 $ 3.58
============ ============ ============ ==============
(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 Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2008 2007 2008 2007
----------- ------------ ----------- -------------
(Amounts in thousands)
Computation of Funds Available for Distribution ("FAD"):
FFO allocable to Common Shares (a)....................... $ 183,315 $ 242,950 $ 604,886 $ 608,926
Add: Non-cash share-based compensation expense........... 3,505 2,446 9,763 7,314
Eliminate: Non-cash foreign exchange and derivative (gains)
losses............................................... 53,172 (30,501) 12,203 (42,103)
Less: Aggregate capital expenditures..................... (41,058) (20,646) (72,629) (49,453)
Add back: Capital expenditures for Shurgard rebranding
effort............................................... - - - 3,600
----------- ------------ ----------- -------------
Funds available for distribution ("FAD") (b)............. $ 198,934 $ 194,249 $ 554,223 $ 528,284
=========== ============ =========== =============
Distribution to common shareholders...................... $ 92,900 $ 85,004 $ 278,502 $ 255,022
=========== ============ =========== =============
Distribution payout ratio (b)............................ 46.7% 43.8% 50.3% 48.3%
=========== ============ =========== =============
(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 (iv) 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 Nine Months Ended
September 30, September 30,
------------------------- ----------------------------
2008 2007 2008 2007
------------ ------------ ------------- -------------
(Amounts in thousands)
Revenues for the Same Store facilities............... $ 344,033 $ 336,117 $ 1,006,226 $ 978,430
Revenues for other facilities (a): Development
facilities (year opened):
2008.......................................... 30 - 31 -
2007.......................................... 363 118 871 197
2006.......................................... 1,996 1,332 5,409 3,269
2004 and 2005................................. 3,468 3,029 9,805 8,376
Expansion facilities.......................... 23,629 21,510 67,332 61,533
Acquisition facilities (year acquired):
2008.......................................... 978 - 1,332 -
2007.......................................... 1,443 681 3,836 992
2006 (b)...................................... 17,386 15,567 49,927 46,251
Shurgard Europe's wholly owned facilities........ - 34,117 36,935 98,200
Shurgard Europe's joint venture facilities ...... - 15,327 17,787 40,130
------------ ------------ ------------- -------------
Consolidated self-storage revenues (c)................ $ 393,326 $ 427,798 $ 1,199,491 $ 1,237,378
============ ============ ============= =============
Cost of operations for the Same Store facilities...... $ 105,814 $ 106,668 $ 333,343 $ 327,671
Cost of operations for other facilities (a): Development
facilities (year opened):
2008.......................................... 57 - 96 -
2007.......................................... 166 78 557 166
2006.......................................... 619 497 1,892 1,713
2004 and 2005................................. 1,110 1,065 3,502 3,302
Expansion facilities.......................... 7,174 7,636 22,367 22,245
Acquisition facilities (year acquired):
2008.......................................... 311 - 438 -
2007.......................................... 593 318 1,665 447
2006 (b)...................................... 5,989 5,853 18,588 19,100
Shurgard Europe's wholly owned facilities........ - 12,423 14,333 39,376
Shurgard Europe's joint venture facilities....... - 8,833 10,321 27,180
------------ ------------ ------------- -------------
Consolidated self-storage cost of operations (c)...... $ 121,833 $ 143,371 $ 407,102 $ 441,200
============ ============ ============= =============
(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.
(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