(Source: Business Wire)
Public Storage (NYSE:PSA) announced today operating results for the first quarter ended March 31, 2009.
Operating Results for the Three Months Ended March 31, 2009
Net income to Public Storage shareholders for the three months ended March 31, 2009 was $217.0 million compared to $512.3 million for the same period in 2008, representing a decrease of $295.3 million. This decrease is primarily due to (i) a gain of $341.9 million in the quarter ended March 31, 2008 related to our disposition of an interest in Shurgard Europe, combined with (ii) a $34.7 million foreign exchange loss during the quarter ended March 31, 2009 as compared to an exchange gain of $41.0 million in the same period in 2008, partially offset by (iii) a $72.0 million reduction in earnings allocated to our preferred partnership unitholders in the quarter ended March 31, 2009 described below.
The foreign currency exchange gains and losses relate primarily to a Euro denominated loan receivable from Shurgard Europe and were due to changes in the value of the U.S. Dollar relative to the Euro during each period. See "Shurgard Europe" below for further information.
During the first quarter of 2009, we repurchased preferred partnership units at an aggregate acquisition cost of $153.0 million which was approximately $72.0 million less than the original net proceeds from issuance of the respective units. The $72.0 million benefit to our common shareholders is reflected as a reduction in the amount of net income allocated to these preferred unitholders and a corresponding increase in income allocation to our common shareholders.
Net operating income with respect to our domestic operations increased by $0.2 million in the three months ended March 31, 2009 as compared to the same period in 2008 due to an increase of $4.2 million with respect to our non-stabilized facilities combined with a decrease of $4.0 million with respect to our Same Store operations (see table below).
During the first quarter of 2009, pursuant to a tender offer, we acquired $96.7 million principal amount of our 7.75% senior unsecured notes due in 2011 at par plus accrued interest, and $13.5 million face amount of our 5.875% senior unsecured notes due in 2013 at 92.5% of par plus accrued interest. We recorded a related gain on early redemption of debt of approximately $4.1 million in the quarter ended March 31, 2009.
During the first quarter of 2009, we repurchased preferred shares at an acquisition cost of $17.5 million which was approximately $6.2 million less than the original net proceeds from issuance of the respective preferred securities. The $6.2 million benefit to our common shareholders is reflected as a decrease in income allocated to our preferred shareholders and a corresponding increase in the amount of net income allocated to our common shareholders.
For the three months ended March 31, 2009, net income allocable to our common shareholders (after allocating net income to our preferred and equity shareholders) was $159.5 million or $0.95 per common share on a diluted basis compared to $444.8 million or $2.63 per common share on a diluted basis for the same period in 2008, representing a decrease of $285.3 million or $1.68 per common share on a diluted basis. These decreases are primarily due to the impact of the factors described above.
Weighted average diluted common shares were 168,473,000 and 168,982,000, respectively, for the three months ended March 31, 2009 and 2008.
Funds from Operations
For the three months ended March 31, 2009, funds from operations ("FFO") increased to $1.51 per common share on a diluted basis as compared to $1.39 per common share for the same period in 2008, representing an increase of $0.12 per common share on a diluted basis or 8.6%.
For the three months ended March 31, 2009, FFO was impacted by (i) a foreign currency exchange loss totaling $34.7 million (compared to an exchange gain of $41.0 million for the same period in 2008), (ii) $3.5 million of costs incurred related to the discontinuance of our truck rental operations, which is included in discontinued operations, (iii) a $78.2 million reduction in the allocation of net income to our preferred shareholders and unitholders pursuant to the aforementioned preferred equity repurchases, combined with our pro rata share ($16.3 million) of PS Business Park's earnings representing the benefit from its preferred share repurchases, and included in equity in earnings of real estate entities, and (iv) a $4.1 million gain on the early extinguishment of debt. For the three months ended March 31, 2008, FFO was further impacted by costs and expenses incurred in connection with the disposition of an interest in Shurgard Europe totaling $2.5 million.
The following table provides a summary of the impact of these items that occurred during the three months ended March 31, 2009 and 2008:
Three Months Ended March 31, 2009 2008 PercentageChange FFO per common share prior to adjustments for the following items $ 1.16 $ 1.16 - Foreign currency exchange (loss) gain, net (0.21 ) 0.24 Costs incurred to terminate truck rental operations (0.02 ) - Increased income allocated to common shareholders, and from preferred equity shareholders, pursuant to preferred redemptions, including our equity share from PSB 0.56 - Gain on early extinguishment of debt 0.02 - Costs and expenses incurred in connection with the disposition of an interest in Shurgard Europe - (0.01 ) FFO per common share, as reported $ 1.51 $ 1.39 8.6 % -------------------------------------------------------------------------------
FFO is a term defined by the National Association of Real Estate Investment Trusts ("NAREIT"). It is generally defined as net income before depreciation with respect to real estate assets and gains and losses on real estate assets. FFO is presented because management and many analysts consider FFO to be one measure of the performance of real estate companies. In addition, we believe that FFO is helpful to investors as an additional measure of the performance of a REIT, because net income includes the impact of depreciation, which assumes that the value of real estate diminishes predictably over time, while we believe that the value of real estate fluctuates due to market conditions and in response to inflation. FFO computations do not consider scheduled principal payments on debt, capital improvements, distributions and other obligations of the Company. FFO is not a substitute for our cash flow or net income as a measure of our liquidity or operating performance or our ability to pay dividends. Other REITs may not compute FFO in the same manner; accordingly, FFO may not be comparable among REITs. See the attached reconciliation of net income to funds from operations included in the selected financial data attached to this press release.
Property Operations -- Same Store Facilities
The Same Store Pool represents those 1,899 facilities that are stabilized and owned since January 1, 2007 and therefore provide meaningful comparisons for 2007, 2008, and 2009. The Same Store Pool increased from 1,789 at December 31, 2008 to 1,899 at March 31, 2009, as we added facilities that are now stabilized and owned since January 1, 2007, and removed facilities from the previous Same Store Pool that, due primarily to construction activities, are no longer expected to be stabilized through December 31, 2009. The following table summarizes the historical operating results of these 1,899 facilities (117.5 million net rentable square feet) that represent approximately 93% of the aggregate net rentable square feet of our U.S. consolidated self-storage portfolio at March 31, 2009.
Selected Operating Data for the Same Store Facilities (1,899 Facilities): Three Months Ended March 31, 2009 2008 PercentageChange (Dollar amounts in thousands, except for weighted average data) Revenues: Rental income $ 331,539 $ 335,553 (1.2 )% Late charges and administrative fees collected 15,646 14,438 8.4 % Total revenues (a) 347,185 349,991 (0.8 )% Cost of operations: Property taxes 37,762 36,349 3.9 % Direct property payroll 24,360 24,377 (0.1 )% Media advertising 8,158 6,947 17.4 % Other advertising and promotion 4,614 4,426 4.2 % Utilities 9,598 9,437 1.7 % Repairs and maintenance 10,716 11,398 (6.0 )% Telephone reservation center 2,794 3,123 (10.5 )% Property insurance 2,698 3,213 (16.0 )% Other costs of management 24,307 24,586 (1.1 )% Total cost of operations (a) 125,007 123,856 0.9 % Net operating income before depreciation and amortization expense (b) 222,178 226,135 (1.7 )% Depreciation and amortization expense (c) (75,286 ) (89,358 ) 15.7 % Operating income $ 146,892 $ 136,777 7.4 % Gross margin 64.0 % 64.6 % (0.9 )% Weighted average for the period: Square foot occupancy (d) 87.9 % 88.8 % (1.0 )% Realized annual rent per occupied square foot (e) (g) $ 12.84 $ 12.87 (0.2 )% REVPAF (f) (g) $ 11.29 $ 11.43 (1.2 )% Weighted average at March 31: Square foot occupancy 88.2 % 89.3 % (1.2 )% In place annual rent per occupied square foot (h) $ 13.57 $ 13.86 (2.1 )% Total net rentable square feet (in thousands) 117,462 117,462 - -------------------------------------------------------------------------------
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 or "NOI" is a non-GAAP (generally accepted accounting principles) financial measure that excludes the impact of depreciation expense. Although depreciation is an operating expense, we believe that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, segment performance and comparing period-to-period and market-to-market property operating results. NOI is not a substitute for net operating income after depreciation in evaluating our operating results. c) Depreciation and amortization expense for the three months ended March 31, 2009 decreased primarily due to a reduction in amortization expense related to intangible assets that we obtained in the Shurgard Merger. d) Square foot occupancies represent weighted average occupancy levels over the entire period. e) Realized annual rent per occupied square foot is computed by annualizing the result of dividing rental income by the weighted average occupied square footage for the period. Realized annual rent per occupied square foot takes into consideration promotional discounts and other items that reduce rental income from the contractual amounts due.
