Shurgard Storage Ctr (NYSE:SHU)
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Shurgard Storage Centers, Inc. (NYSE:SHU), a leading
self-storage real estate investment trust in the United States and
Europe, today announced results for the quarter ended March 31, 2006.
Net income to common shareholders for the quarter was $2.0 million
($0.04 per share), compared to $2.2 million ($0.05 per share) in the
first quarter of 2005. However, earnings for the first quarter of 2005
were largely driven by a reported gain on property sales of $6.4
million. Funds from operations (FFO) attributable to common
shareholders for the first quarter of 2006 were $24.6 million ($0.51
per share), compared to $15.5 million ($0.33 per share) for the first
quarter of 2005. The substantial increase in FFO is primarily
attributable to strong revenue growth in both the Company's domestic
and European portfolios along with reductions achieved in operating
and general and administrative costs. Of the 643 properties in
Shurgard's global portfolio, the 585 stores classified in the Same
Store group generated a combined increase in revenue and net operating
income (NOI) after leasehold and indirect expenses (at constant
exchange rates) in excess of 10% and 20%, respectively, for the first
quarter of 2006, compared to the first quarter of 2005.
FFO in the first quarter of 2006 benefited from an $11.9 million,
or 22%, improvement ($0.25 per share) in NOI after leasehold and
indirect expenses from all stores, compared to the first quarter of
2005. There was also a net positive swing in foreign currency exchange
and derivative fluctuations (net of minority interest share) of
approximately $3.7 million ($0.08 per share) from the first quarter of
2005 to the first quarter of 2006. Partially offsetting these gains
were increases in interest expense of $5.3 million ($0.11 per share)
due to higher borrowings and interest rates, and costs incurred in the
first quarter of 2006 associated with the Company's proposed merger
with Public Storage, Inc. totaling $1.5 million ($0.03 per share). As
previously disclosed, on March 6, 2006, Shurgard entered into a merger
agreement with Public Storage that contemplates that Shurgard will be
merged with and into a subsidiary of Public Storage. A copy of the
merger agreement is filed with Shurgard's current report on Form 8-K
dated March 7, 2006.
Operating Results
Compared to the first quarter of 2005 and at constant exchange
rates, combined domestic and European Same Store revenue for the first
quarter of 2006 increased by $11.4 million (or 10.5%) to $119.7
million from $108.3 million, and NOI after indirect and leasehold
expenses increased by $11.3 million (or 20.6%) to $66.1 million from
$54.8 million.
The 462 stores in the Company's domestic Same Store segment
generated a 7.9% increase in revenue and a 10.7% increase in NOI after
leasehold and indirect expenses in the first quarter of 2006, compared
to the first quarter of 2005, due primarily to a 6.5% increase in
rental rates and moderated expense growth. At constant exchange rates,
the 123 stores in the European Same Store segment in the first quarter
of 2006 generated an 18.4% increase in revenue and a 74% increase in
NOI after leasehold and indirect expenses, compared to the same
quarter in 2005. Most of the European Same Store revenue growth came
from broad gains in occupancy, which averaged 80% in the first quarter
of 2006 compared to 68% in the first quarter of 2005. The substantial
year-over-year improvement in NOI after leasehold and indirect
expenses was additionally due to significant reductions in indirect
operating expenses. When the 27 most recent additions to the European
Same Store pool are excluded from this analysis, the remaining 96
stores in the pool generated growth in revenue and NOI after leasehold
and indirect expenses of approximately 14% and 47%, respectively.
Shurgard's Chief Executive Officer, David K. Grant, commented, "We
are very pleased with the continued improvement in operating results
from both our domestic and European portfolios. The trend in revenue
growth experienced during the first quarter has continued through
April and industry demand appears to be remaining solid across most
markets. At the same time the substantial drop in our operating costs
in Europe is evidence that our restructuring plan put in place last
summer is bearing fruit. While we are working with our counterparts at
Public Storage on the companies' integration plan our people have
continued to maintain their focus on our core business."
Portfolio
As of March 31, 2006, Shurgard operated an international network
of 656 operating properties containing approximately 41 million net
rentable square feet. The total includes 484 owned, partially-owned or
leased storage centers and 13 storage centers managed for third
parties in the United States and 159 owned or partially-owned storage
centers in Europe.
In the first quarter of 2006, the Company acquired ten storage
centers in Europe, all in France. As previously announced, in January
the Company acquired a business which operates nine stores, consisting
of 343,000 net rentable square feet, for approximately $47.4 million,
although one of the acquired stores is being held for resale.
Additionally, the Company acquired a storage center in Marseilles,
France on March 31, 2006, consisting of 47,000 net rentable square
feet, for $3.1 million. These acquisitions brought the Company's New
Store portfolio to a total of 57 properties, representing an
investment of $327 million, or 10% of the total portfolio. NOI after
leasehold and indirect expenses for this group was approximately at
breakeven for the first quarter of 2006.
As of March 31, 2006, the Company had 21 new storage centers or
major redevelopment projects under construction or pending
construction (fifteen in the United States and six in Europe) for an
estimated total cost at completion of approximately $145 million.
Proposed Merger with Public Storage, Inc.
On April 20, 2006, Public Storage filed a registration statement
on Form S-4 with the SEC related to the common stock to be issued by
Public Storage in connection with the merger and containing a joint
proxy statement seeking the approvals necessary by our respective
common stockholders to consummate the merger. As disclosed by Public
Storage on their earnings call on May 5, 2006, the SEC's decision to
review the registration statement will likely delay the closing date
of the proposed merger into the third quarter.
Supplemental Information
Copies of this press release and supplemental tables relating to
the quarter ended March 31, 2006 will be available on the Company's
website at http://www.shurgard.com/ir or by request at 206-624-8100.
The Company will host a conference call to discuss first quarter
results on Thursday, May 11, 2006, at 10:00 am (Pacific). The public
is invited to listen to the call live via the Internet by clicking the
appropriate links on the Company's website. The call is also available
live on a listen-only basis by dialing 866-250-4375 (US & CN callers)
and 303-262-2050 (international callers). A taped replay of the
conference call will be available via the Internet address listed
above, or via telephone until May 18, 2006, at 800-405-2236 (US & CN
callers) and 303-590-3000 (international callers) access code
11060821#.
The Company uses FFO in addition to net earnings to report its
operating results. The Company uses the definition of FFO adopted by
the National Association of Real Estate Investment Trusts as
interpreted by the Securities and Exchange Commission. Accordingly,
FFO is defined as net earnings (computed in accordance with U.S.
GAAP), excluding gains (losses) on dispositions of interests in
depreciated operating properties and real estate depreciation and
amortization expenses. FFO includes the Company's share of FFO of
unconsolidated real estate ventures and discontinued operations and
excludes minority interests in FFO. The Company believes FFO is a
meaningful disclosure as a supplement to net earnings because net
earnings assumes that the values of real estate assets diminish
predictably over time as reflected through depreciation and
amortization expenses. The Company believes that the values of real
estate assets fluctuate due to market conditions. The Company's
calculation of FFO may not be comparable to similarly titled measures
reported by other companies because not all companies calculate FFO in
the same manner. FFO is not a liquidity measure and should not be
considered as an alternative to cash flows or indicative of cash
available for distribution. It also should not be considered an
alternative to net earnings, as determined in accordance with U.S.
GAAP, as an indication of the Company's financial performance. A
reconciliation of U.S. GAAP net income to FFO is included in the
tables attached to this release.
Although net operating income (NOI) is a non-U.S. GAAP measure,
the Company believes it is a meaningful measure of operating
performance as a supplement to net income because the Company relies
on NOI for purposes of making decisions with respect to resource
allocations, current property values, segment performance, and
comparing period-to-period and market-to-market property operating
results. NOI is defined as storage center operations revenues less
direct operating and real estate tax expense for each of the Company's
properties. A reconciliation of Same Store and New Store NOI to income
(loss) from continuing operations is provided in the tables attached
to this release and in supplemental tables posted to our website at
http://www.shurgard.com/ir.
This release contains forward-looking statements as that term is
defined in Section 27A of the Securities Act of 1933, as amended, and
in Section 21F of the Securities Exchange Act of 1934 as amended.
These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect,"
"plan," "intend," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of these terms or other
similar terminology. These statements are only predictions and are
inherently uncertain. The Company's actual results may differ
significantly from its expectations due to uncertainties, including
the risk that:
-- the Company may encounter difficulties in realizing the
proposed merger with Public Storage, Inc. and integrating the
two companies; Shurgard or Public Storage may fail to obtain
approval of the transaction by their respective shareholders
or to satisfy other closing conditions to the transaction;
-- changes in economic conditions in the markets in which the
Company operates or competition from new self-storage
facilities or other storage alternatives may cause a decline
in rent or occupancy rates or delays in rent-up of newly
developed properties;
-- new developments could be delayed or reduced by zoning and
permitting requirements outside of the Company's control,
increased competition for desirable sites, construction delays
due to weather, unforeseen site conditions, labor shortages,
personnel turnover or scheduling problems with contractors,
subcontractors or suppliers;
-- the Company may experience increases in the cost of labor,
taxes, marketing and other operating and construction
expenses;
-- tax law changes may change the taxability of future income;
-- increases in interest rates or changes to our credit ratings
may increase the cost of refinancing long-term debt;
-- alternatives for funding the Company's business plan may be
impaired by economic uncertainty due to war or terrorism;
-- Shurgard Self Storage SCA, the Company's wholly-owned European
subsidiary, may be adversely affected if it is unable to find
adequate sites to complete the targeted number of developments
in its Second Shurgard joint venture;
-- the Company may not maintain compliance with its debt
covenants; and
-- the Company may be adversely affected by legislation or
changes in regulations.
For a discussion of additional risks and other factors that could
affect these forward-looking statements and Shurgard's financial
performance, see Shurgard's report on Form 10-K for the year ended
December 31, 2005, filed with the SEC on March 20, 2006.
Forward-looking statements are based on estimates as of the date of
this release. Except as required by law, we disclaim any obligation to
publicly update these forward-looking statements reflecting new
estimates, events or circumstances after the date of this release.
INDEX of TABLES TO FOLLOW:
Table 1. Condensed Consolidated Statements of Income for the three
months ended March 31, 2006 and 2005.
Table 2. Condensed Consolidated Balance Sheets as of March 31,
2006 and December 31, 2005.
Table 3. FFO Reconciliation for the three months ended March 31,
2006 and 2005.
Table 4. Segment Totals for the three months ended March 31, 2006
and 2005.
Table 5. Reconciliation of Segment NOI to income from continuing
operations for the three months ended March 31, 2006 and 2005.
Table 6. Segment exchange rate differences for the three months
ended March 31, 2005.
-0-
*T
Table 1: SHURGARD STORAGE CENTERS, INC.
OPERATING RESULTS (unaudited)
Condensed Consolidated Statements of Income for the three
months ended March 31, 2006 and 2005
(in thousands except per share data)
Three months
ended March 31,
2006 2005
-------- --------
Revenue
Storage center operations $126,768 $112,238
Other 842 1,386
-------- --------
Total revenue 127,610 113,624
-------- --------
Expenses
Operating 61,094 59,078
Real estate development 1,670 2,930
Depreciation and amortization 25,923 23,344
Impairment losses and abandoned project expense 545 323
General, administrative and other 7,453 8,029
-------- --------
Total storage center expenses 96,685 93,704
-------- --------
Income from operations 30,925 19,920
-------- --------
Other income (expense)
Costs related to proposed merger (1,465) -
Interest expense (29,404) (24,125)
Gain (loss) on derivatives, net 691 (359)
Foreign exchange gain (loss) 125 (3,848)
Interest income and other, net 405 960
-------- --------
Other expense, net (29,648) (27,372)
-------- --------
Income (loss) before equity in earnings of other
real estate investments, net, minority interest
and income taxes 1,277 (7,452)
Minority interest 3,933 6,110
Equity in earnings of other real estate
investments, net - 21
Income tax expense (19) (10)
-------- --------
Income (loss) from continuing operations 5,191 (1,331)
Discontinued operations
Income from discontinued operations 68 164
Gain on sale of discontinued operations - 6,423
-------- --------
Discontinued operations 68 6,587
Cumulative effect of change
in accounting principle (200) -
-------- --------
Net income 5,059 5,256
Net income allocation
Preferred stock dividends and other (3,037) (3,042)
-------- --------
Net income available to common shareholders $ 2,022 $ 2,214
======== ========
Basic per share amounts:
Income (loss) from continuing operations
available to common shareholders $ 0.04 $ (0.09)
Total discontinued operations - 0.14
Cumulative effect of change in
accounting principle - -
-------- --------
Net income available to common shareholders per
share $ 0.04 $ 0.05
======== ========
Diluted per share amounts:
Income (loss) from continuing operations
available to common shareholders $ 0.04 $ (0.09)
Discontinued operations - 0.14
Cumulative effect of change in
accounting principle - -
-------- --------
Net income available to common shareholders per
share $ 0.04 $ 0.05
======== ========
Distributions per common share $ 0.56 $ 0.55
======== ========
Table 2: SHURGARD STORAGE CENTERS, INC.
BALANCE SHEET
Condensed Consolidated Balance Sheets as of March 31, 2006 and
December 31, 2005
(in thousands except share and per share data)
March 31, Dec. 31,
2006 2005
---------- ----------
ASSETS: (unaudited)
Storage centers:
Operating storage centers $3,316,120 $3,244,258
Less accumulated depreciation (576,875) (552,171)
---------- ----------
Operating storage centers, net 2,739,245 2,692,087
Construction in progress 88,349 67,073
Properties held for sale 3,783 6,774
---------- ----------
Total storage centers 2,831,377 2,765,934
---------- ----------
Cash and cash equivalents 36,616 39,778
Restricted cash 2,876 4,972
Goodwill 27,440 27,440
Other assets 125,071 119,248
---------- ----------
Total assets $3,023,380 $2,957,372
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and other liabilities $ 143,136 $ 181,435
Lines of credit 620,700 583,500
Notes payable 1,322,780 1,275,720
---------- ----------
Total liabilities 2,086,616 2,040,655
---------- ----------
Minority interest 138,983 116,365
Commitments and contingencies
Shareholders' equity:
Series C Cumulative Redeemable Preferred
Stock; $0.001 par value; 2,000,000 shares
authorized; 2,000,000 shares issued and
outstanding; liquidation preference of
$50,000 48,115 48,115
Series D Cumulative Redeemable Preferred
Stock; $0.001 par value; 3,450,000 shares
authorized; 3,450,000 shares issued and
outstanding; liquidation preference of
$86,250 83,068 83,068
Class A Common Stock, $0.001 par value;
120,000,000 authorized; 47,251,336 and
47,041,680 shares issued and outstanding,
respectively 47 47
Additional paid-in capital 1,150,041 1,142,288
Accumulated deficit (483,856) (459,586)
Accumulated other comprehensive (loss) income 366 (13,580)
---------- ----------
Total shareholders' equity 797,781 800,352
---------- ----------
Total liabilities and shareholders' equity $3,023,380 $2,957,372
========== ==========
Table 3: SHURGARD STORAGE CENTERS, INC.
FUNDS FROM OPERATIONS (unaudited)
FFO Reconciliation for the three months
ended March 31, 2006 and 2005
(in thousands except per share data)
Three months
ended March 31,
2006 2005
------- -------
Net income (1) $ 5,059 $ 5,256
Depreciation and amortization (2) 22,271 19,723
Loss (gain) on sale of operating properties 82 (6,423)
Cumulative effect of change in accounting principle 200 -
------- -------
FFO 27,612 18,556
Preferred dividends and other (3,037) (3,042)
------- -------
FFO attributable to common shareholders - Diluted $24,575 $15,514
======= =======
Weighted-average number of basic shares 46,955 46,514
Effect of dilutive stock based awards 1,228 673
------- -------
Weighted-average number of diluted shares 48,183 47,187
======= =======
FFO per share - Diluted $ 0.51 $ 0.33
======= =======
Distributions per common share $ 0.56 $ 0.55
======= =======
(1) Net income includes the following:
Q1 2006 Q1 2005
-------- -------
Foreign exchange gain (loss) 125 (3,848)
-------- -------
Costs related to proposed merger (1,465) -
-------- -------
(2) Excludes depreciation related to non-real estate assets and
minority interests in depreciation and amortization and includes
depreciation and amortization of discontinued operations.
Table 4: SHURGARD STORAGE CENTERS, INC.
SEGMENT TOTALS (unaudited)
Segment Totals for the three months ended March 31, 2006 and 2005
(in thousands)
Three months ended Domestic Domestic Europe Europe
March 31, 2006 Same Store New Store Same Store New Store
--------- -------- --------- --------
Storage center operations
revenue $ 87,583 $ 3,548 $ 32,123 $ 3,514
Direct operating expense 30,601 1,580 13,923 4,003
--------- -------- --------- --------
Net operating income 56,982 1,968 18,200 (489)
--------- -------- --------- --------
Indirect expense 4,755 227 2,637 857
Leasehold expense 1,002 163 654 317
--------- -------- --------- --------
Indirect and leasehold
expense 5,757 390 3,291 1,174
--------- -------- --------- --------
Net operating income (loss)
after indirect and
leasehold expense $ 51,225 $ 1,578 $ 14,909 $ (1,663)
========= ======== ========= ========
Three months ended Other Discontinued
March 31, 2006 Stores Stores Total
-------- ----------- ---------
Storage center operations
revenue $ 98 $ (98) $ 126,768
Direct operating expense 30 (30) 50,107
-------- ----------- ---------
Net operating income 68 (68) 76,661
-------- ----------- ---------
Indirect expense - - 8,476
Leasehold expense - - 2,136
-------- ----------- ---------
Indirect and leasehold
expense - - 10,612
-------- ----------- ---------
Net operating income (loss)
after indirect and
leasehold expense $ 68 $ (68) $ 66,049
======== =========== =========
Three months ended Domestic Domestic Europe Europe
March 31, 2005 Same Store New Store Same Store New Store
--------- -------- --------- --------
Storage center operations
revenue $ 81,141 $ 651 $ 29,717 $ 721
Direct operating expense 29,351 539 15,209 1,653
--------- -------- --------- --------
Net operating income 51,790 112 14,508 (932)
--------- -------- --------- --------
Indirect expense 4,399 92 4,507 576
Leasehold expense 1,129 35 602 -
--------- -------- --------- --------
Indirect and leasehold
expense 5,528 127 5,109 576
--------- -------- --------- --------
Net operating income (loss)
after indirect and
leasehold expense $ 46,262 $ (15) $ 9,399 $ (1,508)
========= ======== ========= ========
Three months ended Other Discontinued
March 31, 2005 Stores Stores Total
-------- ----------- ---------
Storage center operations
revenue $ 428 $ (420) $ 112,238
Direct operating expense 187 (169) 46,770
-------- ----------- ---------
Net operating income 241 (251) 65,468
-------- ----------- ---------
Indirect expense 36 (35) 9,575
Leasehold expense - - 1,766
-------- ----------- ---------
Indirect and leasehold
expense 36 (35) 11,341
-------- ----------- ---------
Net operating income (loss)
after indirect and
leasehold expense $ 205 $ (216) $ 54,127
======== =========== =========
Table 5: SHURGARD STORAGE CENTERS, INC.
RECONCILIATION OF SEGMENT NOI TO INCOME FROM CONTINUING OPERATIONS
(unaudited)
Reconciliation of Segment NOI to income from continuing operations for
the three months ended March 31, 2006 and 2005
(in thousands)
Three months
ended March 31,
------------------
2006 2005
-------- --------
NOI after indirect and leasehold expense $ 66,049 $ 54,127
Other revenue 842 1,386
Other operating expense, net (375) (967)
Real estate development expense (1,670) (2,930)
Depreciation and amortization (25,923) (23,344)
Impairment and abandoned project expense (545) (323)
General, administrative and other (7,453) (8,029)
Costs related to proposed merger (1,465) -
Interest expense (29,404) (24,125)
Gain (loss) on derivatives, net 691 (359)
Foreign exchange gain (loss) 125 (3,848)
Interest income and other, net 405 960
Minority interest 3,933 6,110
Equity in earnings of other real estate investments,
net - 21
Income tax expense (19) (10)
-------- --------
Income (loss) from continuing operations $ 5,191 $ (1,331)
======== ========
Table 6: SHURGARD STORAGE CENTERS, INC.
SEGMENT EXCHANGE RATE DIFFERENCES (unaudited)
Segment exchange rate differences for the three months
ended March 31, 2005
(in thousands)
Europe
Three months ended New Exchange
March 31, 2005 Store (1) Difference Total (2)
--------- --------- -------
Segment revenue $ 661 $ 60 $ 721
Direct operating and real estate tax
expense 1,517 136 1,653
--------- --------- -------
NOI (856) (76) (932)
Leasehold expense - - -
--------- --------- -------
NOI after leasehold expense (856) (76) (932)
Indirect operating expense 528 48 576
--------- --------- -------
NOI after indirect and leasehold
expense $ (1,384) $ (124) $(1,508)
========= ========= =======
Europe
Three months ended Same Exchange
March 31, 2005 Store (1) Difference Total (2)
--------- --------- -------
Segment revenue $ 27,134 $ 2,583 $29,717
Direct operating and real estate tax
expense 13,889 1,320 15,209
--------- --------- -------
NOI 13,245 1,263 14,508
Leasehold expense 548 54 602
--------- --------- -------
NOI after leasehold expense 12,697 1,209 13,906
Indirect operating expense 4,131 376 4,507
--------- --------- -------
NOI after indirect and leasehold
expense $ 8,566 $ 833 $ 9,399
========= ========= =======
(1) Amounts are translated from local currencies to U.S. dollars using
the average exchange rate for the first quarter of 2006 for the
purpose of comparison with 2005 results. See exchange rates on
Table 16.
(2) Amounts are translated from local currencies to U.S. dollars using
the average exchange rate for the first quarter of 2005 for the
purpose of reconciliation with the 2005 Condensed Consolidated
Financial Statements. See exchange rates on Table 16.
*T