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 released results for the quarter and fiscal year ended
December 31, 2005. The Company reported net income to common
shareholders of $2.5 million ($0.05 per share) for the fourth quarter
of 2005, compared to $3.6 million ($0.08 per share) for the fourth
quarter of 2004. For the year ended December 31, 2005, the Company
reported a net loss to common shareholders of $494,000 ($0.01 per
share), compared to net income to common shareholders of $33.1 million
($0.72 per share) for the year ended December 31, 2004. Results for
2005 were helped by a 26% improvement in income from operations over
the previous year, but this was more than offset by higher interest
expense, foreign currency exchange losses and costs related to the
Company's exploration of strategic alternatives.
Funds from operations (FFO) attributable to common shareholders
for the fourth quarter of 2005 was $23.9 million ($0.50 per share),
compared to $25.2 million ($0.53 per share) in the fourth quarter of
2004. FFO in the fourth quarter of 2005 benefited from a 110% increase
in income from operations compared to the fourth quarter of 2004
($0.34 per share). However, this increase was negated by increases in
net interest expense (interest expense less interest income and other)
of $9.1 million ($0.19 per share) due to higher borrowings and
interest rates; fluctuations in foreign currency exchange rates and
derivatives between the fourth quarter of 2005 and 2004 resulting in a
net negative swing of approximately $7 million ($0.15 per share) and
costs incurred in the fourth quarter of 2005 associated with the
Company's previously announced exploration of strategic alternatives
totaling $1.1 million ($0.02 per share).
For the year ended December 31, 2005 FFO attributable to common
shareholders was $68.5 million ($1.44 per share), compared to $96.3
million ($2.07 per share) for 2004. FFO in 2005 benefited from a 26%
increase in income from operations compared to 2004 ($0.46 per share).
However, this increase was more than offset by increases in net
interest expense of $24.4 million ($0.51 per share) due to higher
borrowings and interest rates; fluctuations in foreign currency
exchange rates and derivatives between 2005 and 2004 resulting in a
net negative swing of almost $17 million ($0.37 per share) and costs
incurred in 2005 associated with the Company's previously announced
exploration of strategic alternatives totaling $13.8 million ($0.29
per share).
David K. Grant, President and Chief Executive Officer commented,
"Clearly our net income for the year does not reflect the substantial
progress on many fronts that the Company has made in 2005. Our store
portfolios in both the US and Europe turned in very strong growth
performance over 2004. But more importantly, we have seen a building
of momentum throughout the year in our revenue growth, which has
continued into the first quarter of 2006. Our overhead cost cutting
initiatives announced last summer are beginning to take hold as we
have seen significant cost reductions in Europe. Finally, our people
who worked tirelessly last year to restore our internal control
systems have remediated the material weaknesses noted in 2004 and the
Company received an unqualified opinion on management's assessment of
internal control over financial reporting. This accomplishment will
help us to significantly reduce our audit and consulting costs going
forward."
Operating Results
Compared to the fourth quarter in 2004 and at constant exchange
rates, combined U.S. and Europe Same Store revenue for the fourth
quarter 2005 increased by $8.7 million (or 8.6%) to $109.4 million
from $100.8 million, and net operating income (NOI) after indirect and
leasehold expenses increased by $7.5 million (or 13.5%) to $63 million
from $55.5 million. For the year ended December 31, 2005, combined
Same Store revenue increased by $31.1 million (or 7.8%) to $430.8
million from $399.7 million, and combined Same Store NOI after
indirect and leasehold expenses increased by $18.7 million (or 8.4%)
to $240.9 million from $222.1 million during the previous year.
Due primarily to a 5.2% increase in average rental rate, the
Company's domestic Same Store segment generated a 7.1% increase in
revenue and a 7.8% increase in NOI after leasehold and indirect
expenses in the fourth quarter of 2005, compared to the fourth quarter
of 2004. For 2005 annual domestic Same Store revenue and NOI after
leasehold and indirect expenses increased 6.4% and 5.0% respectively,
compared to 2004.
At constant exchange rates, the European Same Store segment in the
fourth quarter of 2005 generated a 14% increase in revenue and a 41.9%
increase in NOI after leasehold and indirect expenses, compared to the
same quarter in 2004. For 2005, annual revenue and NOI after leasehold
and indirect expenses grew 12.5% and 26.6%, respectively, compared to
2004. Average Same Store occupancy in the fourth quarter of 2005
increased to 83% from 74% in the comparable quarter in 2004, with
significant gains in all markets, but especially in the Netherlands,
Sweden and Denmark.
Portfolio
As of December 31, 2005, Shurgard operated an international
network of 646 operating properties containing approximately 40.5
million net rentable square feet. The total includes 484 owned,
partially owned or leased storage centers in operation in the United
States, 13 storage centers in the United States managed for third
parties and 149 owned or partially owned storage centers in Europe.
In the fourth quarter of 2005, the Company opened nine storage
centers: one in Florida, adding 60,000 net rentable square feet at a
total cost of $5.2 million and eight in Europe (four in France, three
in the Netherlands and one in Belgium) adding a total of 430,000 net
rentable square feet for a total cost of $48.2 million. During 2005,
27 storage centers were added to the network; three storage centers
were developed in the United States, adding 156,000 net rentable
square feet for a total cost of $10.8 million; the Company acquired
ten storage centers in the United States adding 751,000 net rentable
square feet for a total cost of $45.1 million and in Europe the
Company developed 14 storage centers, adding 708,000 net rentable
square feet for a total cost of $92.5 million. In the fourth quarter
of 2005 the Company's investment in New Stores increased to $604
million, or 19% of the total portfolio, representing 4% of the
Company's NOI after indirect and leasehold expenses in the same
period.
There were no sales of storage centers in the fourth quarter,
although during 2005, the Company completed the sale of five storage
centers: one in Arizona, one in California and three in Washington,
for aggregate proceeds of approximately $24.8 million resulting in the
realization of aggregate gains of $11.8 million.
As of December 31, 2005, the Company had 15 new storage centers
under construction or pending construction (ten in the United States
and five in Europe) for an estimated total cost to completion of
$107.9 million and two major re-development projects underway in the
United States for an estimated total cost of $6 million.
Sarbanes-Oxley Section 404 Compliance
The Company is pleased to announce that management has completed
its assessment of internal control over financial reporting for 2005
and reported that the Company's controls were effective as of December
31, 2005. The Company received an unqualified opinion on its 2005
audit and management's assessment and operating effectiveness of
internal control over financial reporting for 2005.
Box Avenue Acquisition
In January 2006, Shurgard's European joint venture Second Shurgard
SPRL acquired 3S Self-Storage Systems in France, a high-quality
self-storage service provider operating under the Box Avenue brand
name, for a total consideration, including acquisition costs, of
approximately $46 million. The acquisition added nine Box Avenue
self-storage facilities and 343,000 net rentable square feet to the 39
Shurgard storage centers already operating in France, bringing the
total number of Shurgard storage centers in Europe to 158. The
acquisition reinforces Shurgard's position as the French self-storage
market leader, offering its customers an unmatched network of
high-quality sites and services in Paris, Bordeaux, Lille, Lyon,
Marseille and the French Riviera. "The acquisition provides a perfect
fit for Shurgard's existing network in France," said Shurgard Europe
Managing Director, Steven De Tollenaere.
Proposed Merger with Public Storage, Inc.
On March 6, 2006, the Company entered into a definitive merger
agreement with Public Storage, Inc., subject to shareholder approval
and fulfillment or waiver of other closing conditions. Under the terms
of the proposed merger each outstanding share of Shurgard's common
stock will be converted into the right to receive 0.82 of a fully paid
and non-assessable share of Public Storage common stock, and the
Company expects to redeem each series of its outstanding preferred
stock in accordance with its terms. Public Storage will assume
approximately $1.8 billion of Shurgard's debt. Holders of Shurgard's
stock options, restricted stock units and shares of restricted stock
will receive, subject to adjustments, options exercisable for shares
of Public Storage common stock, restricted stock units and restricted
shares of Public Storage common stock, respectively. For a more
complete description of the terms of the merger agreement and the
merger, please see the Company's Current Report on Form 8-K, filed
with the SEC on March 7, 2006.
Supplemental Information
Copies of this press release and supplemental tables relating to
the quarter and year ended December 31, 2005 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
fourth quarter results on Tuesday, March 21, 2006 at 11:00am
(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
800-866-5043 (US & CN callers) and 303-205-0033 (international
callers). A taped replay of the conference call will be available via
the Internet address listed above until March 28, 2006, or via
telephone until March 28, 2006, at 800-405-2236 (US & CN callers) and
303-590-3000 (international callers) access code 11056860#.
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 or 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
recently announced 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;
-- the Company may incur additional costs related to its
exploration of strategic alternatives and the proposed merger
with Public Storage;
-- 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. Consolidated Statements of Operations for the three
months ended December 31, 2005 and 2004 and for the year
ended December 31, 2005, 2004 and 2003.
Table 2. Consolidated Balance Sheets as of December 31, 2005 and
December 31, 2004.
Table 3. FFO Reconciliation for the three months ended December
31, 2005 and 2004 and for the years ended December 31,
2005, 2004 and 2003.
-0-
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Table 1: SHURGARD STORAGE CENTERS, INC.
OPERATING RESULTS
Consolidated Statements of Operations for the three months ended
December 31, 2005 and 2004 and for the year ended December 31, 2005,
2004 and 2003
(in thousands except share data)
For the three months
ended December 31, For the year ended December 31,
----------------------- -------------------------------
2005 2004 2005 2004 2003
-------- -------- --------- -------- ---------
(unaudited) (unaudited)
Revenue
Storage center
operations $123,713 $109,974 $478,292 $418,523 $290,513
Other 1,438 1,214 4,922 5,101 6,877
-------- -------- --------- -------- ---------
Total
revenue 125,151 111,188 483,214 423,624 297,390
-------- -------- --------- -------- ---------
Expenses
Operating 58,227 58,769 232,657 211,055 125,567
Real estate
development 1,835 2,327 10,042 4,991 23
Depreciation
and
amortization 24,913 24,564 95,670 87,399 55,444
Impairment
losses and
abandoned
project losses 1,030 1,267 3,354 2,856 13,889
General,
administrative
and other 8,360 9,634 35,318 32,961 18,012
-------- -------- --------- -------- ---------
Total
storage
center
expenses 94,365 96,561 377,041 339,262 212,935
-------- -------- --------- -------- ---------
Income from
operations 30,786 14,627 106,173 84,362 84,455
-------- -------- --------- -------- ---------
Other income
(expense)
Costs related
to takeover
proposal and
exploration of
strategic
alternatives (1,063) - (13,775) - -
Interest
expense (28,471) (21,156) (105,584) (81,753) (45,653)
Loss on
derivatives (536) (226) (2,122) (615) (2,194)
Foreign
exchange gain
(loss) 40 6,740 (9,665) 6,247 (431)
Interest income
and other, net 241 2,054 3,746 4,361 4,887
-------- -------- --------- -------- ---------
Other expense,
net (29,789) (12,588) (127,400) (71,760) (43,391)
-------- -------- --------- -------- ---------
Income (loss)
before equity
in earnings of
other
real estate
investments,
net, minority
interest and
income taxes 997 2,039 (21,227) 12,602 41,064
Minority
interest 4,701 4,253 20,936 16,608 (1,206)
Equity in
earnings of
other real
estate
investments,
net - 46 60 93 (3,099)
Income tax
expense (294) (25) (636) (72) (1,611)
-------- -------- --------- -------- ---------
Income (loss)
from
continuing
operations 5,404 6,313 (867) 29,231 35,148
Discontinued
operations
Income from
discontinued
operations 102 424 695 2,177 2,490
Gain on sale of
discontinued
operations - (97) 11,831 16,226 -
-------- -------- --------- -------- ---------
Discontinued
operations 102 327 12,526 18,403 2,490
Cumulative
effect of
change in
accounting
principle - - - (2,339) -
-------- -------- --------- -------- ---------
Net income 5,506 6,640 11,659 45,295 37,638
Net income
allocation
Preferred stock
dividends and
other (1) (3,036) (3,039) (12,153) (12,193) (12,082)
-------- -------- --------- -------- ---------
Net income
(loss)
available to
common
shareholders $ 2,470 $ 3,601 $ (494) $ 33,102 $ 25,556
======== ======== ========= ======== =========
Basic per share
amounts:
Income (loss)
from
continuing
operations
available to
common
shareholders $ 0.05 $ 0.07 $ (0.28) $ 0.37 $ 0.57
Total
discontinued
operations - 0.01 0.27 0.40 0.06
Cumulative
effect of
change in
accounting
principle - - - (0.05) -
-------- -------- --------- -------- ---------
Net income
(loss)
available to
common
shareholders
per share $ 0.05 $ 0.08 $ (0.01) $ 0.72 $ 0.63
======== ======== ========= ======== =========
Diluted per
share amounts:
Income (loss)
from
continuing
operations
available to
common
shareholders $ 0.05 $ 0.07 $ (0.28) $ 0.37 $ 0.56
Discontinued
operations - 0.01 0.27 0.39 0.06
Cumulative
effect of
change in
accounting
principle - - - (0.05) -
-------- -------- --------- -------- ---------
Net income
(loss)
available to
common
shareholders
per share $ 0.05 $ 0.08 $ (0.01) $ 0.71 $ 0.62
======== ======== ========= ======== =========
Distributions
per common
share $ 0.56 $ 0.55 $ 2.23 $ 2.19 $ 2.15
======== ======== ========= ======== =========
(1) Net of impact of antidilutive securities
Table 2: SHURGARD STORAGE CENTERS, INC.
BALANCE SHEET
Consolidated Balance Sheets as of December 31, 2005 and 2004
(in thousands except share and per data)
December 31, December 31,
2005 2004
------------- -------------
ASSETS:
Storage centers:
Operating storage centers $ 3,244,258 $ 3,143,488
Less accumulated depreciation (552,171) (479,531)
------------- -------------
Operating storage centers, net 2,692,087 2,663,957
Construction in progress 67,073 58,431
Properties held for sale 6,774 8,328
------------- -------------
Total storage centers 2,765,934 2,730,716
------------- -------------
Cash and cash equivalents 39,778 50,277
Restricted cash 4,972 7,181
Goodwill 27,440 24,206
Other assets 119,248 128,204
------------- -------------
Total assets $ 2,957,372 $ 2,940,584
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and other liabilities $ 181,435 $ 180,652
Lines of credit 583,500 397,300
Notes payable 1,275,720 1,287,202
------------- -------------
Total liabilities 2,040,655 1,865,154
------------- -------------
Minority interest 116,365 169,232
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; 47,041,680 and
46,624,900 shares issued and
outstanding, respectively 47 47
Additional paid-in capital 1,142,288 1,127,138
Accumulated deficit (459,586) (354,985)
Accumulated other comprehensive (loss)
income (13,580) 2,815
------------- -------------
Total shareholders' equity 800,352 906,198
------------- -------------
Total liabilities and shareholders'
equity $ 2,957,372 $ 2,940,584
============= =============
Table 3: SHURGARD STORAGE CENTERS, INC.
Funds From Operations (unaudited)
FFO Reconciliation for the three months ended December 31, 2005 and
2004 and for the year ended December 31, 2005, 2004, and 2003
(in thousands except per share data)
For the three months For the year
ended December 31, ended December 31,
-------------------- -----------------------------
2005 2004 2005 2004 2003
-------- -------- -------- -------- --------
Net income (1) $ 5,506 $ 6,640 $ 11,659 $ 45,295 $ 37,638
Depreciation and
amortization (2) 21,378 21,583 81,174 77,131 52,715
Depreciation and
amortization from
unconsolidated
joint ventures and
subsidiaries - - - - 12,150
Loss (gain) on sale
of operating
properties 40 - (12,299) (16,226) (2,238)
Cumulative effect
of change in
accounting
principle - - - 2,339 -
-------- -------- -------- -------- --------
FFO 26,924 28,223 80,534 108,539 100,265
Preferred
distribution and
other (3) (3,005) (3,039) (12,066) (12,193) (12,082)
-------- -------- -------- -------- --------
FFO attributable to
common
shareholders -
Diluted $ 23,919 $ 25,184 $ 68,468 $ 96,346 $ 88,183
======== ======== ======== ======== ========
Weighted-average
number of basic
shares 46,765 46,416 46,660 45,968 40,406
Effect of dilutive
stock based awards 1,178 678 977 658 582
-------- -------- -------- -------- --------
Weighted-average
number of diluted
shares 47,943 47,094 47,637 46,626 40,988
======== ======== ======== ======== ========
FFO per share -
Diluted $ 0.50 $ 0.53 $ 1.44 $ 2.07 $ 2.15
======== ======== ======== ======== ========
Distributions per
common share $ 0.56 $ 0.55 $ 2.23 $ 2.19 $ 2.15
======== ======== ======== ======== ========
(1) Net income
includes the
following:
Q4 2005 Q4 2004 2005 YTD 2004 YTD 2003 YTD
--------------------------------------------------
Foreign exchange
gain (loss) 40 6,740 (9,665) 6,247 (431)
---------- --------- --------- --------- --------
Costs related to
takeover proposal
and
exploration of
strategic
alternatives (1,063) - (13,775) - -
---------- --------- --------- --------- --------
(2) Excludes depreciation related to non-real estate assets and
minority interests in depreciation and amortization and includes
depreciation and amortization of discontinued operations.
(3) Net of impact of antidilutive securities.
*T