Shurgard Storage Ctr (NYSE:SHU)
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From Jul 2019 to Jul 2024
Public Storage, Inc. (NYSE:PSA) announced today
operating results for the quarter ended June 30, 2006.
Operating Results for the Quarter Ended June 30, 2006:
Net income for the three months ended June 30, 2006 was
$128,862,000 compared to $108,266,000 for the same period in 2005,
representing an increase of $20,596,000, or 19.0%. This increase is
primarily due to improved operations from our Same Store group of
facilities, continued growth in operations from our newly developed
and recently expanded facilities, continued growth in our recently
acquired self-storage facilities as well as higher interest income.
These items were partially offset by an increase in general and
administrative expense.
Same Store net operating income, before depreciation expense,
increased by $6,517,000 or 4.8% as a result of a 5.7% improvement in
revenues partially offset by a 7.4% increase in cost of operations.
Aggregate net operating income for our newly developed and recently
expanded and acquired facilities increased by approximately
$8,654,000. This increase was largely due to the impact of facilities
acquired in 2005 and 2006, combined with continued fill-up of our
newly developed and expansion facilities. Interest income increased as
a result of earning higher interest rates on invested cash balances
combined with significantly higher average cash balances invested in
interest-bearing accounts as compared to the same period in 2005.
Higher invested cash balances were primarily due to the issuances of
$517.5 million of our 7.25% Series I Cumulative Preferred Stock on May
3, 2006 and $100.0 million of our 7.25% Series J Preferred Partnership
Units on May 9, 2006. General and administrative expense increased
primarily as a result of certain costs and expenses totaling $1.1
million with respect to the proposed merger with Shurgard Storage
Centers, Inc. ("Shurgard") (NYSE:SHU).
Net income allocable to our common shareholders (after allocating
net income to our preferred and equity shareholders) was $71,130,000
or $0.55 per common share on a diluted basis for the three months
ended June 30, 2006 compared to $60,763,000 or $0.47 per common share
on a diluted basis for the same period in 2005, representing an
increase of $0.08 per common share, or 17.0%. The increases in net
income allocable to common shareholders and earnings per common
diluted share are due primarily to the impact of the factors described
above, offset by an increase in income allocated to preferred
shareholders, as described below.
For the three months ended June 30, 2006 and 2005, we allocated
$52,376,000 and $42,147,000 of our net income, respectively, to our
preferred shareholders based on distributions paid. The year-over-year
increase is due to the issuance of additional preferred securities,
partially offset by the redemption of preferred securities that had
higher dividend rates than the newly issued preferred securities.
Weighted average diluted shares increased to 129,062,000 for the
three months ended June 30, 2006 from 128,618,000 for the three months
ended June 30, 2005.
Operating Results for the Six Months Ended June 30, 2006:
Net income for the six months ended June 30, 2006 was $243,078,000
compared to $204,677,000 for the same period in 2005, representing an
increase of $38,401,000, or 18.8%. This increase is primarily due to
improved operations from our Same Store, newly developed and acquired
self-storage facilities, reduced minority interest in income and
higher interest income. These items were partially offset by increases
in general and administrative expense and depreciation along with a
decrease in equity in earnings of real estate entities.
Same Store net operating income, before depreciation expense,
increased by $14,647,000 or 5.6% as a result of a 5.4% improvement in
revenues partially offset by a 5.1% increase in cost of operations.
Aggregate net operating income for our newly developed, acquired and
expansion self-storage facilities increased by approximately
$16,080,000 largely due to the impact of facilities acquired in 2005
and 2006, combined with continued fill-up of our newly developed and
expansion facilities. Minority interest in income declined due to the
acquisition of minority interests that occurred in 2005. Interest
income increased as a result of earning higher interest rates on
invested cash balances, combined with higher average cash balances
invested in interest-bearing accounts as compared to the same period
in 2005. Depreciation increased due principally to the expansion of
our real estate portfolio as a result of newly developed and acquired
facilities. General and administrative expense increased primarily as
a result of certain costs and expenses totaling $2.2 million with
respect to the proposed merger with Shurgard.
Net income allocable to our common shareholders (after allocating
net income to our preferred and equity shareholders) was $133,375,000
or $1.03 per common share on a diluted basis for the six months ended
June 30, 2006 compared to $109,482,000 or $0.85 per common share on a
diluted basis for the same period in 2005, representing an increase of
$0.18 per common share, or 21.2%. The increases in net income
allocable to common shareholders and earnings per common diluted share
are due primarily to the impact of the factors described above, offset
partially by increased income allocated to preferred shareholders,
described below.
For the six months ended June 30, 2006 and 2005, we allocated
$98,991,000 and $82,560,000 of our net income, respectively, to our
preferred shareholders based on distributions paid. The year-over-year
increase is due to the issuance of additional preferred securities,
partially offset by the redemption of preferred securities that had
higher dividend rates than the newly issued preferred securities. We
also recorded allocations of income to our preferred shareholders with
respect to the application of EITF Topic D-42 totaling $1,904,000 for
the six months ended June 30, 2005 (none for the same period in 2006).
Weighted average diluted shares increased to 129,037,000 for the
six months ended June 30, 2006 from 128,895,000 for the six months
ended June 30, 2005.
Funds from Operations:
For the three months ended June 30, 2006, funds from operations
("FFO") increased to $0.99 per common share on a diluted basis as
compared to $0.90 per common share for the same period in 2005,
representing an increase of $0.09 per common share, or 10.0%. For the
six months ended June 30, 2006, FFO increased to $1.93 per common
share on a diluted basis as compared to $1.69 per common share for the
same period in 2005, representing an increase of $0.24 per common
share, or 14.2%.
For the six months ended June 30, 2006 and 2005, FFO has been
negatively impacted as a result of (i) costs and expenses incurred in
connection with the proposed merger with Shurgard totaling
approximately $1.1 million and $2.2 million for the three and six
months ended June 30, 2006, respectively, (ii) the impact of a gain on
the sale, in the six months ended June 30, 2005, of non-real estate
assets previously used by our containerized storage business totaling
$1,143,000, and (iii) the application of EITF Topic D-42 in connection
with the redemption of our preferred securities ($2,778,000 in the six
months ended June 30, 2005), as well as amounts in equity in earnings
of real estate entities ($729,000 in the three and six months ended
June 30, 2006 and $131,000 in the three and six months ended June 30,
2005).
The following table provides a summary of the impact of these
items that have occurred during the three and six months ended June
30, 2006 and 2005:
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*T
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
Percentage Percentage
2006 2005 Change 2006 2005 Change
------- ------ ---------- ------- ------- ----------
FFO per common
share prior
to
adjustments
for the
following
items $ 1.01 $ 0.90 12.2% $ 1.96 $ 1.70 15.3%
Costs and
expenses
incurred in
connection
with the
proposed
merger with
Shurgard (0.01) - (0.02) -
Gain on sale
of non-real
estate assets
previously
used by our
containerized
storage
business - - - 0.01
Application of
EITF Topic
D-42 in
connection
with the
redemption of
preferred
securities (0.01) - (0.01) (0.02)
------- ------ ------- -------
FFO per common
share, as
reported $ 0.99 $ 0.90 10.0% $ 1.93 $ 1.69 14.2%
======= ====== ========== ======= ======= ==========
*T
FFO is a term defined by the National Association of Real Estate
Investment Trusts ("NAREIT"). It is generally defined as net income
before depreciation with respect to real estate assets and gains and
losses on real estate assets. FFO is presented because management and
many analysts consider FFO to be one measure of the performance of
real estate companies. In addition, we believe that FFO is helpful to
investors as an additional measure of the performance of a REIT,
because net income includes the impact of depreciation, which assumes
that the value of real estate diminishes predictably over time, while
we believe that the value of real estate fluctuates due to market
conditions and in response to inflation. FFO computations do not
consider scheduled principal payments on debt, capital improvements,
distribution, and other obligations of the Company. FFO is not a
substitute for our cash flow or net income as a measure of our
liquidity or operating performance or our ability to pay dividends.
Other REITs may not compute FFO in the same manner; accordingly, FFO
may not be comparable among REITs. See the attached reconciliation of
net income to funds from operations included in the selected financial
data attached to this press release.
Property Operations:
We derive substantially all of our revenues from the ownership and
management of self-storage facilities. In order to evaluate the
performance of our overall self-storage portfolio, we analyze the
operating performance of our stabilized self-storage facilities.
As of June 30, 2006, our "Same Store" portfolio consists of 1,266
facilities, which represents the facilities that we have consolidated
in our financial statements and have been operating at a stabilized
basis throughout 2004, 2005, and the first six months of 2006.
The Same Store facilities contain approximately 73.9 million net
rentable square feet, representing approximately 81% of the aggregate
net rentable square feet of our consolidated self-storage portfolio at
June 30, 2006. The following table summarizes the pre-depreciation
historical operating results of the Same Store facilities:
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Selected Operating Data for the Same
Store Facilities (1,266 Facilities): Three Months Ended June 30,
------------------------------------- --------------------------------
Percentage
2006 2005 Change
-------- -------- ----------
(Dollar amounts in thousands,
except weighted average data)
Revenues:
Rental income $205,213 $194,377 5.6%
Late charges and administrative
fees collected 9,619 8,925 7.8%
-------- -------- ----------
Total revenues (a) 214,832 203,302 5.7%
Cost of operations (excluding
depreciation):
Property taxes 19,346 18,402 5.1%
Payroll expense 22,409 20,956 6.9%
Advertising and promotion 6,716 6,814 (1.4)%
Utilities 4,362 3,816 14.3%
Repairs and maintenance 7,105 6,368 11.6%
Telephone reservation center 2,102 2,041 3.0%
Property insurance 3,169 2,246 41.1%
Other costs of management 7,540 7,093 6.3%
-------- -------- ----------
Total cost of operations (a) 72,749 67,736 7.4%
-------- -------- ----------
Net operating income (before
depreciation) (b) 142,083 135,566 4.8%
Depreciation expense (36,472) (38,264) (4.7)%
-------- -------- ----------
Operating income $105,611 $ 97,302 8.5%
======== ======== ==========
Gross margin (before depreciation) 66.1% 66.7% (0.9)%
Weighted average for the period:
Square foot occupancy (c) 92.1% 92.1% 0.0%
Realized annual rent per occupied
square foot (d) (f) $ 12.05 $ 11.42 5.5%
REVPAF (e) (f) $ 11.10 $ 10.52 5.5%
Selected Operating Data for the Same
Store Facilities (1,266 Facilities): Six Months Ended June 30,
------------------------------------- --------------------------------
Percentage
2006 2005 Change
-------- -------- ----------
(Dollar amounts in thousands,
except weighted average data)
Revenues:
Rental income $404,304 $383,949 5.3%
Late charges and administrative
fees collected 18,756 17,412 7.7%
-------- -------- ----------
Total revenues (a) 423,060 401,361 5.4%
Cost of operations (excluding
depreciation):
Property taxes 40,009 38,333 4.4%
Payroll expense 43,739 42,051 4.0%
Advertising and promotion 13,395 12,784 4.8%
Utilities 9,162 8,373 9.4%
Repairs and maintenance 13,806 13,050 5.8%
Telephone reservation center 4,051 3,794 6.8%
Property insurance 5,019 4,248 18.1%
Other costs of management 15,598 15,094 3.3%
-------- -------- ----------
Total cost of operations (a) 144,779 137,727 5.1%
-------- -------- ----------
Net operating income (before
depreciation) (b) 278,281 263,634 5.6%
Depreciation expense (75,020) (77,232) (2.9)%
-------- -------- ----------
Operating income $203,261 $186,402 9.0%
======== ======== ==========
Gross margin (before depreciation) 65.8% 65.7% 0.2%
Weighted average for the period:
Square foot occupancy (c) 91.1% 91.0% 0.1%
Realized annual rent per occupied
square foot (d) (f) $ 12.00 $ 11.41 5.2%
REVPAF (e) (f) $ 10.94 $ 10.39 5.3%
Weighted average at June 30:
Square foot occupancy 92.6% 92.4% 0.2%
In place annual rent per occupied
square foot (g) $ 13.30 $ 12.62 5.4%
Total net rentable square feet (in
thousands) 73,946 73,946 -
a) See attached reconciliation of these amounts to our
consolidated self-storage revenues and operating expenses.
Revenues and cost of operations do not include ancillary
revenues and expenses generated at the facilities with respect
to tenant reinsurance, retail sales and truck rentals. "Other
costs of management" included in cost of operations
principally represents all the indirect costs incurred in the
operations of the facilities. Indirect costs principally
include supervisory costs and corporate overhead cost
incurred to support the operating activities of the
facilities.
b) Net operating income (before depreciation) or "NOI" is a
non-GAAP (generally accepted accounting priniciples) financial
measure that excludes the impact of depreciation expense.
Although depreciation is an operating expense, we believe that
NOI is a meaningful measure of operating performance, because
we utilize NOI in making decisions with respect to capital
allocations, in determining current property values, segment
performance, and comparing period-to-period and
market-to-market property operating results. NOI is not a
substitute for net operating income after depreciation in
evaluating our operating results.
c) Square foot occupancies represent weighted average occupancy
levels over the entire period.
d) Realized annual rent per occupied square foot is computed by
annualizing the result of dividing rental income by the
weighted average occupied square footage for the period.
Realized annual rent per occupied square foot takes into
consideration promotional discounts, credit card fees and
other costs that reduce rental income from the contractual
amounts due.
e) Annualized rental income per available square foot ("REVPAF")
represents annualized rental income divided by total available
net rentable square feet.
f) Late charges and administrative fees are excluded from the
computation of realized annual rent per occupied square foot
and REVPAF because exclusion of these amounts provides a
better measure of our ongoing level of revenue, by excluding
the volatility of late charges, which are dependent
principally upon the level of tenant delinquency, and
administrative fees, which are dependent principally upon the
absolute level of move-ins for a period.
g) In place annual rent per occupied square foot represents
annualized contractual rents per occupied square foot without
reductions for promotional discounts, and excludes late
charges and administrative fees.
*T
The growth in rental income during the remainder of 2006 will
depend upon various factors, among which will be our ability to
maintain high occupancy levels and increase rental rates charged to
both new and existing customers. The following table summarizes
additional selected financial data with respect to our Same Store
facilities:
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Three Months Ended
-----------------------------------------------
March 31 June 30 September December Full Year
30 31
-------- -------- --------- -------- ---------
Total revenues (in
000's):
2005 $198,059 $203,302 $208,745 $208,272 $818,378
2006 $208,228 $214,832
Total cost of
operations
(excluding
depreciation
expense) (in
000's):
2005 $ 69,991 $ 67,736 $ 67,730 $ 65,873 $271,330
2006 $ 72,030 $ 72,749
Property taxes (in
000's):
2005 $19,931 $ 18,402 $ 19,573 $ 17,025 $ 74,931
2006 $20,663 $ 19,346
Media advertising
expense (in 000's):
2005 $ 3,588 $ 2,955 $ 2,314 $ 2,141 $ 10,998
2006 $ 3,978 $ 2,611
Other advertising
and promotion
expense (in 000's):
2005 $ 2,382 $ 3,859 $ 2,934 $ 3,689 $ 12,864
2006 $ 2,701 $ 4,105
REVPAF:
2005 $ 10.25 $ 10.52 $ 10.77 $ 10.76 $ 10.58
2006 $ 10.77 $ 11.10
Weighted average
realized annual
rent per occupied
square foot for the
period:
2005 $ 11.41 $ 11.42 $ 11.75 $ 11.89 $ 11.61
2006 $ 11.94 $ 12.05
Weighted average
square foot
occupancy levels
for the period:
2005 89.9% 92.1% 91.7% 90.5% 91.1%
2006 90.2% 92.1%
*T
Merger with Shurgard:
As previously announced, on March 6, 2006, the boards of directors
of Public Storage and Shurgard approved a definitive merger agreement
under which Public Storage will acquire Shurgard at a total
transaction value of approximately $5.0 billion. In connection with
the proposed merger, on July 24, 2006, Public Storage and Shurgard
filed the definitive joint proxy statement/prospectus with the
Securities and Exchange Commission and began mailing it to their
shareholders. Each company has scheduled a shareholders' meeting to be
held on August 22, 2006 to, among other things, vote on approval of
the merger.
Under the terms of the merger agreement, Public Storage will
issue, in a taxable transaction, approximately 41 million shares of
common stock to holders of Shurgard's common stock and assume
Shurgard's debt of approximately $1.9 billion (as of March 31, 2006).
In addition, approximately $136 million of Shurgard's preferred stock
will be redeemed. The merger is currently targeted to close on or
shortly after the date of the shareholder meetings.
More information with respect to the proposed merger can be found
in the definitive proxy statement/prospectus dated July 24, 2006 filed
with the Securities and Exchange Commission as part of a registration
statement regarding the proposed merger.
Included in general and administrative expense for the three and
six months ended June 30, 2006, respectively, are costs related to the
merger incurred prior to signing the merger agreement, as well as
expenditures in planning the integration of the two companies of
approximately $1.1 million and $2.2 million, respectively.
In upcoming quarters, we expect to incur additional incremental
costs related to the integration of the two companies, as well as
costs associated with winding down Shurgard's business affairs. These
costs cannot be estimated at this time and will be expensed as
incurred; therefore, they are expected to have a negative impact on
our earnings going forward.
Development and Asset Acquisition and Disposition Activities:
During the second quarter of 2006, we opened two newly developed
facilities at a total cost of $39.8 million containing 192,000 net
rentable square feet. We also completed expansions to three facilities
at a total cost of $8.2 million, adding 145,000 net rentable square
feet of self-storage space.
At June 30, 2006, there were 54 projects that were either under
construction or were expected to begin construction generally within
the next year, comprised of 49 projects (2,874,000 net additional
rentable square feet) which expand existing self-storage facilities
and enhance their visual appeal for a total estimated cost of $244.3
million, and five projects (420,000 net rentable square feet) to
convert space at former containerized storage facilities into
self-storage space for a total estimated cost of $18.4 million. These
projects will be fully funded by us. Opening dates for these
facilities are estimated through the next 24 months. The development
of these facilities is subject to various risks and contingencies.
During the second quarter of 2006, we acquired six facilities from
third parties containing an aggregate of 492,000 net rentable square
feet for an aggregate cost of approximately $52.6 million.
We were notified that one of our self-storage facilities located
in Seattle, Washington, will be condemned by local governmental
authorities. Accordingly, we commenced presenting the operating
results of this facility in discontinued operations on our
consolidated statement of income. The net income from this facility
for all periods presented is included in Discontinued Operations. The
condemnation was completed in July 2006, and a gain on the disposition
of approximately $2.4 million is expected to be recorded in the third
quarter of 2006.
Issuance and Redemption of Preferred Securities:
On May 3, 2006, we issued 20,700,000 depositary shares, with each
depositary share representing 1/1,000 of a share of 7.25% Cumulative
Preferred Stock, Series I. The offering resulted in $517.5 million of
gross proceeds. On May 9, 2006, we completed a private placement of
$100 million of our 7.25% Series J preferred units. We expect that the
proceeds from issuing these two securities will be used to fund cash
requirements with respect to the merger with Shurgard and general
corporate purposes.
During September and October of 2006, we have the opportunity to
redeem our 8.00% Series R preferred stock ($510 million) and our 7.88%
Series S preferred stock ($143.75 million), respectively. The
potential redemption of these securities, on their earliest redemption
dates, would result in EITF Topic D-42 allocations of approximately
$22 million in the third quarter of 2006. In addition, PS Business
Parks, Inc., an affiliate in which we own approximately 45% of the
common equity, has similar redemption opportunities including $53
million in preferred units in the third quarter of 2006 and $50
million in preferred stock in January 2007. Our pro rata share of EITF
Topic D-42 allocations from our investment in PS Business Parks, Inc.
(assuming redemption on the earliest possible date) is expected to be
approximately $1.4 million in the remainder of 2006.
Share Repurchases:
Our Board of Directors has authorized the repurchase from time to
time of up to 25,000,000 shares of our common stock on the open market
or in privately negotiated transactions. From the inception of the
repurchase program through August 2, 2006 (none from January 1, 2006
through August 2, 2006), we have repurchased a total of 22,201,720
shares of common stock at an aggregate cost of approximately $567.2
million.
Distributions Declared:
On August 2, 2006, the Board of Directors declared a quarterly
distribution of $0.50 per regular common share and $0.6125 per share
on the depositary shares each representing 1/1,000 of a share of
Equity Stock, Series A. Distributions were also declared with respect
to the Company's various series of preferred stock. All the
distributions are payable on September 28, 2006 to shareholders of
record as of September 15, 2006, which, if the merger is completed,
will include distributions on the shares issued in the merger.
Second Quarter Conference Call:
A conference call is scheduled for Thursday, August 3, 2006, at
9:00 a.m. (PDT) to discuss the second quarter ended June 30, 2006
earnings results. The participant toll free number is (877) 715-5318
(conference ID number 7661950). A simultaneous audio web cast may be
accessed by using the link at www.publicstorage.com under "Corporate
Information, Investor Relations" (conference ID number 7661950). A
replay of the conference call may be accessed through August 17, 2006
by calling (877) 519-4471 or by using the link at
www.publicstorage.com under "Corporate Information, Investor
Relations." Both forms of replay utilize conference ID number 7661950.
About Public Storage, Inc.:
Public Storage, Inc., a member of the S&P 500 and The Forbes
Global 2000, is a fully integrated, self-administered and self-managed
real estate investment trust that primarily acquires, develops, owns
and operates self-storage facilities. The Company's headquarters are
located in Glendale, California. The Company's self-storage properties
are located in 37 states. At June 30, 2006, the Company had interests
in 1,516 storage facilities with approximately 92 million net rentable
square feet.
Additional information about Public Storage, Inc. is available on
our website, www.publicstorage.com
Additional Information Regarding Merger with Shurgard:
In connection with the proposed transaction, Public Storage and
Shurgard have filed a definitive joint proxy statement/prospectus
dated July 24, 2006 with the Securities and Exchange Commission as
part of a registration statement regarding the proposed merger of
Public Storage and Shurgard. INVESTORS AND SECURITY HOLDERS ARE URGED
TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER
RELEVANT MATERIAL BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT
PUBLIC STORAGE AND SHURGARD AND THE PROPOSED MERGER. Investors and
security holders may obtain a free copy of the definitive proxy
statement/prospectus and other documents filed by Public Storage and
Shurgard with the SEC at the SEC's website at www.sec.gov. Each
company has scheduled a shareholders' meeting to be held on August 22,
2006, to, among other things, vote on approval of the merger. The
definitive joint proxy statement/prospectus and other relevant
documents may also be obtained free of charge from Public Storage or
Shurgard by directing such request to: Public Storage, Inc. 701
Western Avenue, Glendale, CA 91201-2349, Attention: Investor Relations
or Shurgard Storage Centers, Inc., 1155 Valley Street, Suite 400,
Seattle, WA 98109-4426, Attention: Investor Relations.
Public Storage and Shurgard and their respective directors and
executive officers may be deemed to be participants in the
solicitation of proxies from the shareholders of Public Storage and
Shurgard in connection with the merger. Information about Public
Storage and its directors and executive officers, and their ownership
of Public Storage and information about Shurgard and its directors and
executive officers, and their ownership of Shurgard securities, is set
forth in the definitive joint proxy statement/prospectus dated July
24, 2006 included in the registration statement on Form S-4 filed with
the SEC on April 20, 2006 and amended May 24, 2006, June 12, 2006,
June 19, 2006 and July 24, 2006. Additional information regarding the
interests of those persons may be obtained by reading the definitive
proxy statement/prospectus.
This communication shall not constitute an offer to sell or the
solicitation of an offer to sell or the solicitation of an offer to
buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities
laws of any such jurisdiction. No offering of securities shall be made
except by means of a prospectus meeting the requirements of Section 10
of the Securities Act of 1933.
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, 2005 and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006,
our registration statement on Form S-4 filed on April 20, 2006, and
amended May 24, 2006, June 12, 2006, June 19, 2006 and July 24, 2006,
and in the definitive joint proxy statement/prospectus filed as part
of the Form S-4, and in reports on Form 8-K. These risks include, but
are not limited to, the following: risks related to the proposed
merger with Shurgard, including approval of the proposed merger with
Shurgard by the shareholders of Shurgard and Public Storage and the
satisfaction of other closing conditions to the merger, difficulties
that may be encountered in integrating Public Storage and Shurgard,
the inability to realize or delays in realizing expected synergies
from the proposed merger, unanticipated operating costs resulting from
the proposed merger, and risks associated with international
operations; changes in general economic conditions and in the markets
in which Public Storage operates; the impact of competition from new
and existing storage and commercial facilities and other storage
alternatives, which could impact rents and occupancy levels at our
facilities; difficulties in Public Storage's ability to evaluate,
finance and integrate acquired and developed properties into its
existing operations and to fill up those properties, which could
adversely affect Public Storage's profitability; the impact of the
regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Real Estate
Investment Trusts, which could increase our expenses and reduce cash
available for distribution; consumers' failure to accept the
containerized storage concept which would reduce our profitability;
difficulties in raising capital at reasonable rates, which would
impede Public Storage's ability to grow; delays in the development
process, which could adversely affect profitability; and economic
uncertainty due to the impact of war or terrorism could adversely
affect its business plan. 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.
Additional financial data attached.
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PUBLIC STORAGE, INC
SELECTED FINANCIAL DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
(Amounts in thousands, except per share
data)
Revenues:
Rental income:
Self-storage facilities $262,398 $235,255 $513,910 $462,601
Commercial properties 3,013 2,927 6,005 5,775
Containerized storage
facilities 4,200 3,988 8,130 7,825
Ancillary operations 18,369 17,198 33,543 31,216
Interest and other income 10,047 3,394 15,122 6,287
-------- -------- -------- --------
298,027 262,762 576,710 513,704
-------- -------- -------- --------
Expenses:
Cost of operations:
Self-storage facilities 89,425 80,402 177,160 162,046
Commercial properties 1,235 1,043 2,583 2,170
Containerized storage
facilities 4,219 3,274 7,529 6,016
Ancillary operations 11,696 10,140 22,312 20,557
Depreciation and amortization 48,626 48,240 98,675 96,178
General and administrative 6,975 6,128 13,754 11,269
Interest expense 1,872 1,794 3,429 3,457
-------- -------- -------- --------
164,048 151,021 325,442 301,693
-------- -------- -------- --------
Income from continuing
operations before equity in
earnings of real estate
entities, minority interest in
income, cumulative effect of
change in accounting
principal, gain on sale of
real estate assets and
discontinued operations 133,979 111,741 251,268 212,011
Equity in earnings of real
estate entities 3,124 4,851 6,590 10,529
Minority interest in income:
Allocable to preferred minority
interests:
Based upon ongoing
distributions (a) (4,658) (3,590) (8,249) (8,965)
Special distribution and EITF
Topic D-42 allocation (a) - - - (874)
Other partnership interests (4,070) (4,878) (7,638) (9,273)
-------- -------- -------- --------
Income from continuing
operations 128,375 108,124 241,971 203,428
Cumulative effect of change
in accounting principle - - 578 -
Gain on disposition of real
estate assets 466 53 466 53
Discontinued operations (b) 21 89 63 1,196
-------- -------- -------- --------
Net income $128,862 $108,266 $243,078 $204,677
======== ======== ======== ========
Net income allocation:
----------------------
Allocable to preferred
shareholders:
Based on distributions
paid $ 52,376 $ 42,147 $ 98,991 $ 82,560
Based on redemptions of
preferred stock - - - 1,904
Allocable to equity
shareholders, Series A 5,356 5,356 10,712 10,731
Allocable to common
shareholders 71,130 60,763 133,375 109,482
-------- -------- -------- --------
$128,862 $108,266 $243,078 $204,677
======== ======== ======== ========
Per common share:
-------------------------------
Net income per share - Basic $ 0.55 $ 0.47 $ 1.04 $ 0.85
======== ======== ======== ========
Net income per share -
Diluted $ 0.55 $ 0.47 $ 1.03 $ 0.85
======== ======== ======== ========
Weighted average common
shares - Basic 128,180 127,986 128,151 128,284
======== ======== ======== ========
Weighted average common
shares - Diluted 129,062 128,618 129,037 128,895
======== ======== ======== ========
(a) On March 17, 2005, we redeemed all outstanding 9.5% Series N
($40,000,000) preferred units and on March 29, 2005 we
redeemed all outstanding 9.125% Series O ($45,000,000)
preferred units. In accordance with the SEC's clarification of
EITF Topic D-42, we allocated $874,000 to minority interests,
representing costs incurred when these units were originally
issued. We ceased allocating income with respect to these
interests following their redemption.
(b) Discontinued operations includes a gain on sale of non-real
estate assets previously used by the discontinued
containerized storage operations totaling $1,143,000 during
the six months ended June 30, 2005. Discontinued operations
also includes the operations of a self-storage facility
located in Seattle, Washington, which as of June 30, 2006 was
in the process of being condemned by local government
authorities.
PUBLIC STORAGE, INC.
SELECTED FINANCIAL DATA
June 30, December 31,
2006 2005
------------ ------------
(Unaudited)
(Amounts in thousands,
except share and per
share data)
ASSETS
Cash and cash equivalents $ 983,630 $ 493,501
Operating real estate facilities:
Land and building, at cost 6,147,679 5,930,484
Accumulated depreciation (1,594,913) (1,500,128)
----------- -----------
4,552,766 4,430,356
Construction in process 19,695 54,472
----------- -----------
4,572,461 4,484,828
Investment in real estate entities 303,884 328,555
Goodwill 174,634 176,285
Other assets 65,527 69,317
----------- -----------
Total assets $ 6,100,136 $ 5,552,486
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 105,053 $ 113,950
Debt to joint venture partner 35,784 35,697
Preferred stock called for redemption - 172,500
Accrued and other liabilities 171,773 159,360
----------- -----------
Total liabilities 312,610 481,507
Minority interest - preferred 325,000 225,000
Minority interest - other 33,223 28,970
Shareholders' equity:
Preferred Stock, $0.01 par value,
50,000,000 shares authorized,
1,723,236 shares issued (in series)
and outstanding (1,698,336 at
December 31, 2005), at liquidation
preference:
Cumulative Preferred Stock, issued in
series 3,120,900 2,498,400
Common Stock, $0.10 par value, 200,000,000
shares authorized, 128,210,747 shares
issued and outstanding (128,089,563 at
December 31, 2005) 12,821 12,809
Equity Stock, Series A, $0.01 par value,
200,000,000 shares authorized, 8,744.193
shares issued and outstanding at June 30,
2006 and December 31, 2005 - -
Paid-in capital 2,415,673 2,430,671
Cumulative net income 3,432,344 3,189,266
Cumulative distribution paid (3,552,435) (3,314,137)
----------- -----------
Total shareholders' equity 5,429,303 4,817,009
----------- -----------
Total liabilities and shareholders'
equity $ 6,100,136 $ 5,552,486
=========== ===========
Selected Financial Data
Computation of Funds From Operations (a)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
(Amounts in thousands, except per share
data)
Computation of Funds from
Operations (FFO)
allocable to Common Stock
--------------------------
Net income $ 128,862 $ 108,266 $ 243,078 $ 204,677
Add back - depreciation
and amortization 48,626 48,240 98,675 96,178
Add back - depreciation
and amortization
included in
Discontinued Operations 20 42 41 109
Add back - our pro rata
share of depreciation
from equity investments 9,466 8,758 18,720 17,443
Eliminate - depreciation
with respect to
non-real estate assets (45) (772) (105) (1,682)
Eliminate - gain on sale
of real estate assets (466) (53) (466) (53)
Eliminate - our pro rata
share of PSB's gain on
sale of real estate (711) (441) (1,023) (1,706)
Add back - minority
interest share of
income 8,728 8,468 15,887 19,112
--------- --------- --------- ---------
Consolidated FFO 194,480 172,508 374,807 334,078
Allocable to preferred
minority interest:
Based upon ongoing
distributions (b) (4,658) (3,590) (8,249) (8,965)
Special distribution and
EITF Topic D-42
allocation (b) - - - (874)
Allocable to minority
interest - other
partnership interests (4,386) (6,101) (8,266) (11,816)
--------- --------- --------- ---------
Remaining FFO allocable to
our shareholders 185,436 162,817 358,292 312,423
Less: allocations to
preferred and equity
stock shareholders:
Preferred shareholder
distributions (52,376) (42,147) (98,991) (82,560)
Issuance costs on
redeemed preferred
shares - - - (1,904)
Equity Stock, Series A
distributions (5,356) (5,356) (10,712) (10,731)
--------- --------- --------- ---------
Remaining FFO allocable to
Common Stock (a) $ 127,704 $ 115,314 $ 248,589 $ 217,228
========= ========= ========= =========
Weighted average shares:
--------------------------
Regular common shares 128,180 127,986 128,151 128,284
Weighted average stock
options and restricted
stock units outstanding
using treasury method 882 632 886 611
--------- --------- --------- ---------
Weighted average common
shares for purposes of
computing fully-diluted
FFO per common share 129,062 128,618 129,037 128,895
========= ========= ========= =========
FFO per common share (a)
(c) $ 0.99 $ 0.90 $ 1.93 $ 1.69
========= ========= ========= =========
(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, distribution, and other
obligations of the Company. FFO is not a substitute for our
cash flow or net income as a measure of our liquidity or
operating performance or our ability to pay dividends. Other
REITs may not compute FFO in the same manner; accordingly, FFO
may not be comparable among REITs.
(b) On March 17, 2005, we redeemed all outstanding 9.5% Series N
($40,000,000) preferred units, and on March 29, 2005 we
redeemed all outstanding 9.125% Series O ($45,000,000)
preferred units and, in accordance with the SEC's
clarification of EITF Topic D-42, we allocated $874,000 to
minority interests, representing costs incurred when these
units were originally issued.
(c) FFO per common share was positively impacted by a gain on
sale of non-real estate assets previously used by our
discontinued containerized storage business totaling
approximately $1,143,000 or $0.01 per common share for the six
months ended June 30, 2005.
Public Storage, Inc.
Selected Financial Data
Computation of Funds Available for Distribution (b)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
(Amounts in thousands)
Computation of Funds Available
for Distribution ("FAD"):
------------------------------
FFO allocable to Common Stock
(a) $127,704 $115,314 $248,589 $217,228
Add: Stock-based compensation
expense 1,491 1,152 3,027 2,383
Impact of application of EITF
Topic D-42 - - - 2,778
EITF Topic D-42 charges
included in equity in
earnings of real estate
entities 729 131 729 131
Less: Capital expenditures to
maintain facilities (15,070) (2,564) (23,449) (9,370)
-------- -------- -------- --------
Funds available for
distribution ("FAD") (b) $114,854 $114,033 $228,896 $213,150
======== ======== ======== ========
Distribution to common
shareholders $ 64,297 $ 57,593 $128,595 $115,665
======== ======== ======== ========
Distribution payout ratio (b) 56.0% 50.5% 56.2% 54.3%
======== ======== ======== ========
(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, distribution, and other
obligations of the Company. FFO is not a substitute for our
cash flow or net income as a measure of our liquidity or
operating performance or our ability to pay dividends. Other
REITs may not compute FFO in the same manner; accordingly, FFO
may not be comparable among REITs.
(b) Funds available for distribution ("FAD") represents FFO, plus
1) impairment charges with respect to real estate assets, 2)
the non-cash portion of stock-based compensation expense, and
3) income allocation to preferred equity holders in accordance
with EITF Topic D-42, less capital expenditures. The
distribution payout ratio is computed by dividing the
distribution paid by FAD. FAD is presented because many
analysts consider it to be a measure of the performance and
liquidity of real estate companies and because we believe that
FAD is helpful to investors as an additional measure of the
performance of a REIT. FAD is not a substitute for our cash
flow or net income as a measure of our liquidity, operating
performance, or our ability to pay dividends. Other REITs may
not compute FAD in the same manner; accordingly, FAD may not
be comparable among REITs.
Public Storage, Inc.
Selected Financial Data
Reconciliation of Same Store Revenues and Cost of Operations
To Consolidated Self-Storage Rental Income and Cost of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
(Amounts in thousands)
Revenues for the 1,266 Same
Store facilities $214,832 $203,302 $423,060 $401,361
Revenues for non-Same Store
facilities (a):
Development facilities
(year opened):
2002 and 2003 6,909 6,136 13,519 11,886
2004 1,742 1,247 3,360 2,254
2005 584 48 953 50
2006 56 - 56 -
Combination facilities 5,055 4,085 9,773 7,972
Acquisition facilities
(year acquired):
2004 8,470 7,454 16,550 14,450
2005 6,178 1,377 11,816 1,877
2006 1,442 - 1,839 -
Newly consolidated
facilities 3,890 - 7,188 -
Expansion facilities 13,240 11,606 25,796 22,751
-------- -------- -------- --------
Consolidated self-storage
revenues (b) $262,398 $235,255 $513,910 $462,601
======== ======== ======== ========
Cost of operations for the
1,266 Same Store facilities $ 72,749 $ 67,736 $144,779 $137,727
Cost of operations for non-
Same Store facilities (a):
Development facilities
(year opened):
2002 and 2003 2,230 2,218 4,395 4,266
2004 551 659 1,129 1,178
2005 406 94 820 117
2006 114 - 114 -
Combination facilities 1,846 1,898 3,658 3,505
Acquisition facilities
(year acquired):
2004 3,204 3,206 6,211 6,357
2005 2,385 674 4,854 951
2006 717 - 942 -
Newly consolidated
facilities 941 - 1,720 -
Expansion facilities 4,282 3,917 8,538 7,945
-------- -------- -------- --------
Consolidated self-storage
cost of operations (b) $ 89,425 $ 80,402 $177,160 $162,046
======== ======== ======== ========
(a) We consolidate the operating results of additional
self-storage facilities that are not Same Store facilities.
Such facilities are not included in the Same Store pool either
because they were not stabilized for the entire period from
January 1, 2004 through June 30, 2005, or because we acquired
these facilities from third parties after December 31, 2003.
(b) 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.
*T