SHU Shurgard Storage Ctr

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 nine months ended September 30, 2005. The Company reported a net loss to common shareholders of $1.4 million ($0.03 per share), after taking a charge of $12.7 million ($0.27 per share) for costs of professional advisors associated with an unsolicited takeover proposal and exploration of strategic alternatives. For the third quarter of 2004, net income to common shareholders was $15.1 million ($0.33 per share). For the nine months ended September 30, 2005, the Company reported a loss to common shareholders of $3 million ($0.06 per share) compared to net income to common shareholders of $29.5 million ($0.64 per share) for the nine months ended September 30, 2004. Funds from operations (FFO) attributable to common shareholders for the third quarter of 2005 was $13.6 million ($0.28 per share), compared to $29.6 million ($0.63 per share) in the third quarter of 2004. FFO attributable to common shareholders was $44.5 million ($0.94 per share) for the nine-month period in 2005, compared to $71 million ($1.53 per share) for the equivalent period in 2004. FFO for the three and nine months ended September 30, 2005 was similarly affected by the charge described above. Operating Results Combined Same Store revenue in the third quarter for the United States and Europe increased by $8.0 million (or 7.8%) to $111 million from $103 million, and NOI after indirect and leasehold expenses increased by $4.7 million (or 8%) to $63.4 million from $58.7 million, compared to the same quarter in 2004. For the nine-month period ended September 30, 2005, combined Same Store revenue increased by $24.2 million (or 8.1%) to $321.4 million from $297.2 million, and combined Same Store NOI after indirect and leasehold expenses increased by $11.9 million (or 7.2%) to $177.9 million from $166 million during the same period in 2004. David K. Grant, President and Chief Operating Officer stated, "This quarter was notable for the broad-based rate growth realized in our domestic portfolio, along with continued solid occupancy gains in our European portfolio. Over the past few quarters, customer gains in Europe have been impressive, with Same Store occupancy reaching 83% at the end of the quarter. We are also pleased to see the positive effects of our cost-cutting initiatives taking hold. Third quarter European Same Store indirect expenses were down over 19% from the second quarter of 2005." During the third quarter of 2005, the Company's Domestic Same Store segment generated growth in revenue of 6.8% over the third quarter of 2004, due primarily to an increase in average rates of approximately 5%. Third quarter of 2005 growth in NOI after leasehold and indirect expenses was 5.5% over the same quarter in 2004. At constant exchange rates, the Europe Same Store segment in the third quarter of 2005 generated increases in revenue of 11.8% and NOI after leasehold and indirect expenses in the third quarter grew 23.9%, compared to the same quarter in 2004. Strong revenue growth in the Same Store portfolio during the quarter was due primarily to the substantial improvement in average occupancy, which increased to 81% from 71% in the comparable quarter in 2004. Occupancy improved in all countries, but was particularly strong in the Netherlands, Sweden and Denmark. The Company's substantial investment ($551 million, or 18% of the portfolio) in 87 New Stores provided 5% of the Company's NOI after indirect and leasehold expenses in the third quarter 2005, compared to 3% in the second quarter 2005. Improved operating results in the third quarter were offset by higher interest expense, audit and Sarbanes-Oxley Section 404 compliance costs and personnel expenses. Interest expense increased by $7.4 million ($0.16 per share) to $27.5 million in the third quarter of 2005 from $20.1 million for the equivalent quarter in 2004. The increase reflects higher borrowings, resulting primarily from financing acquisitions and developments in 2005, higher interest rates on the Company's domestic variable rate line of credit and an increase in the interest rate on the Company's European borrowings as a result of refinancing its variable rate credit facility that matured in 2004 with seven-year financing. Audit, Sarbanes-Oxley Section 404 compliance, legal and personnel costs increased $1.8 million ($0.04 per share). The Company also recognized a $142,000 foreign exchange loss this quarter compared to a gain of $1.9 million ($0.04 per share) in the third quarter of 2004. Of the $12.7 million charge in relation to the unsolicited takeover proposal and exploration of strategic alternatives, $1.4 million has been paid through the end of the third quarter. The balance includes a provision for fees due in connection with the financial advisor agreement that will be payable over the next several quarters. Legal and other advisory costs are expensed as incurred. Portfolio As of September 30, 2005, Shurgard operated an international network of 644 operating properties containing approximately 40.5 million net rentable square feet. The total includes 483 owned, partially owned or leased storage centers in operation in the United States, 20 stores in the United States managed for third parties and 141 owned or partially owned stores in Europe. In the third quarter of 2005, the Company opened four stores: two in the United States (Oregon and California) and two in Europe (Germany and the United Kingdom). In addition, the Company completed the sale of three storage centers: one in Arizona and two in Washington, for aggregate proceeds of $10.7 million and aggregate gains of $5.4 million. As of September 30, 2005, the Company had 20 new stores under construction or pending construction (nine in the United States and eleven in Europe) for an estimated total cost of $143.1 million and six re-development projects underway in the United States for an estimated total cost of $6.2 million. Also, during the quarter the Company incurred impairment losses and abandoned project losses of $1.1 million, relating primarily to land parcels held for sale and abandoned development projects in the United States and Europe. Impact of Hurricanes Management announced that seven stores incurred damage as a result of Hurricane Wilma, which struck southern Florida on October 24, 2005. For the third quarter of 2005 these stores produced revenue of $2.7 million (2.2% of total revenue) and NOI of $1.8 million (2.3% of total NOI). All stores are covered by insurance for losses due to physical damage and business interruption and have already re-opened. The Company's initial estimates are that store repairs (net of insurance recovery) will be approximately $1.2 million, but as the hurricane occurred after the end of the quarter, it does not impact our third quarter 2005 operating results. Based on a significant increase in inquiries, management projects that increased demand for available unaffected units will more than offset the loss of units under repair and that the overall impact on store revenue and NOI will be immaterial. The Company's stores incurred no material damage from Hurricane Katrina in August 2005 or from Hurricane Rita in September 2005. 2005 FFO and Earnings Guidance Excluding all costs associated with the unsolicited takeover proposal and exploration of strategic alternatives, management's current FFO per share forecast for 2005 is $1.77 - $1.80. The revised forecast reflects better than anticipated store operating results, offset by unanticipated property abandonment and impairment costs, hurricane damage costs and higher than previously projected interest expense, audit and Sarbanes-Oxley compliance costs, as noted above. Supplemental Information Copies of this press release and supplemental information relating to the third quarter of 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 third quarter results on Tuesday, November 8, 2005, at 1:30 p.m. (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 November 15, 2005, or via telephone until November 15, 2005, at 800-405-2236 (US & CN callers) and 303-590-3000 (international callers) access code 11043936#. 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. Accordingly, FFO is defined as net earnings (computed in accordance with 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 GAAP net income to FFO is included in the tables attached to this release. 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. Our actual results may differ significantly from our expectations due to uncertainties, including the risk that: -- changes in economic conditions in the markets in which we operate 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 our 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; -- we 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; -- our alternatives for funding our business plan may be impaired by economic uncertainty due to war or terrorism; -- Shurgard Self Storage SCA, our wholly owned European subsidiary that we refer to as Shurgard Europe, may be adversely affected if it is unable to complete funding of its development joint ventures and maintain compliance with its debt covenants; -- we may not completely remediate our control deficiencies and material weaknesses such that management would be able to conclude that our internal control over financial reporting is effective; -- we may incur costs related to defending against hostile takeover attempts; and -- we 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, 2004, filed with the SEC on March 29, 2005, report on Form 10-Q for the quarter ended March 31, 2005, filed with the SEC on May 10, 2005, report on Form 10-Q for the quarter ended June 30, 2005, filed with the SEC on August 9, 2005, and its report on Form 10-K/A for the year ended December 31, 2004, filed with the SEC on October 14, 2005. 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: -0- *T Table 1. Consolidated Statements of Net Income for the three months and nine months ended September 30, 2005 and 2004 Table 2. Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 Table 3. FFO Reconciliation for the three months and nine months ended September 30, 2005 and 2004 Note that an additional 15 supplemental tables are included in the release posted on the Company's website Table 1: SHURGARD STORAGE CENTERS, INC. OPERATING RESULTS (unaudited) Condensed Consolidated Statements of Net Income for the three and nine months ended September 30, 2005 and 2004 (in thousands except share data) For the three months For the nine months ended September 30, ended September 30, -------------------- ------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Revenue Storage center operations $124,418 $108,084 $354,175 $308,142 Other 748 1,299 3,484 3,887 -------- -------- -------- -------- Total revenue 125,166 109,383 357,659 312,029 -------- -------- -------- -------- Expenses Operating 57,627 52,567 174,165 152,046 Real estate development 2,564 1,632 8,207 2,664 Depreciation and amortization 24,202 21,459 70,711 62,782 Impairment losses and abandoned project loses 1,133 616 2,324 1,589 General, administrative and other 8,015 6,257 26,958 23,327 -------- -------- -------- -------- Total storage center expenses 93,541 82,531 282,365 242,408 -------- -------- -------- -------- Income from operations 31,625 26,852 75,294 69,621 -------- -------- -------- -------- Other income (expense) Costs related to takeover proposal and exploration of strategic alternatives (12,712) - (12,712) - Interest expense (27,503) (20,126) (77,113) (60,597) Gain (loss) on derivatives 126 (274) (1,586) (389) Foreign exchange (loss) gain (142) 1,899 (9,705) (493) Interest income and other, net 1,277 1,106 3,505 2,307 -------- -------- -------- -------- Other expense, net (38,954) (17,395) (97,611) (59,172) -------- -------- -------- -------- (Loss) income before equity in earnings of other real estate investments, net, minority interest and income taxes (7,329) 9,457 (22,317) 10,449 Minority interest 3,249 4,002 16,235 12,355 Equity in earnings of other real estate investments, net 27 22 60 47 Income tax benefit (expense) 47 (24) (342) (47) -------- -------- -------- -------- (Loss) income from continuing operations (4,006) 13,457 (6,364) 22,804 Discontinued operations Income from discontinued operations 188 363 686 1,867 Gain on sale of discontinued operations 5,408 4,333 11,831 16,323 -------- -------- -------- -------- Discontinued operations 5,596 4,696 12,517 18,190 Cumulative effect of change in accounting principle - - - (2,339) -------- -------- -------- -------- Net income 1,590 18,153 6,153 38,655 Net income allocation Preferred stock dividends and other (3,038) (3,037) (9,118) (9,154) -------- -------- -------- -------- Net (loss) income available to common shareholders $ (1,448) $ 15,116 $ (2,965) $ 29,501 ======== ======== ======== ======== Net (loss) income per Common Share - Basic: (Loss) Income from continuing operations available to common shareholders $ (0.15) $ 0.23 $ (0.33) $ 0.30 Total discontinued operations 0.12 0.10 0.27 0.39 Cumulative effect of change in accounting principle - - - (0.05) -------- -------- -------- -------- Net (loss) income available to common shareholders per share $ (0.03) $ 0.33 $ (0.06) $ 0.64 ======== ======== ======== ======== Net (loss) income per Common Share - Diluted: (Loss) Income from continuing operations available to common shareholders $ (0.15) $ 0.23 $ (0.33) $ 0.30 Discontinued operations 0.12 0.10 0.27 0.39 Cumulative effect of change in accounting principle - - - (0.05) -------- -------- -------- -------- Net (loss) income available to common shareholders per share $ (0.03) $ 0.33 $ (0.06) $ 0.64 ======== ======== ======== ======== Distributions per common share $ 0.56 $ 0.55 $ 1.67 $ 1.64 ======== ======== ======== ======== Table 2: SHURGARD STORAGE CENTERS, INC. BALANCE SHEET (unaudited) Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 (in thousands except share data) September 30, December 31, 2005 2004 ----------- ---------- ASSETS: Storage centers: Operating storage centers $ 3,188,377 $3,143,488 Less accumulated depreciation (531,013) (479,531) ----------- ---------- Operating storage centers, net 2,657,364 2,663,957 Construction in progress 81,395 58,431 Properties held for sale 8,875 8,328 ----------- ---------- Total storage centers 2,747,634 2,730,716 ----------- ---------- Cash and cash equivalents 38,352 50,277 Restricted cash 5,624 7,181 Goodwill 27,440 24,206 Other assets 115,954 120,504 ----------- ---------- Total assets $ 2,935,004 $2,932,884 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable and accrued expenses $ 59,228 $ 60,938 Other liabilities 123,237 112,014 Lines of credit 568,500 397,300 Notes payable 1,261,697 1,287,202 ----------- ---------- Total liabilities 2,012,662 1,857,454 ----------- ---------- Minority interest 108,136 169,232 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; 46,793,460 and 46,624,900 shares issued and outstanding, respectively 47 47 Additional paid-in capital 1,135,349 1,127,138 Accumulated deficit (435,745) (354,985) Accumulated other comprehensive (loss) income (16,628) 2,815 ----------- ---------- Total shareholders' equity 814,206 906,198 ----------- ---------- Total liabilities and shareholders' equity $ 2,935,004 $2,932,884 =========== ========== Table 3: SHURGARD STORAGE CENTERS, INC. Funds From Operations (unaudited) FFO Reconciliation for the three and nine months ended September 30, 2005 and 2004 (in thousands except per share data) For the three months For the nine months ended September 30, ended September 30, ------------------- ------------------- 2005 2004 2005 2004 ------- ------- -------- -------- Net income $ 1,590 $18,153 $ 6,153 $ 38,655 Depreciation and amortization (1) 20,930 18,932 59,795 55,548 Gain on sale of operating properties (5,916) (4,472) (12,339) (16,386) Cumulative effect of change in accounting principle - - - 2,339 ------- ------- -------- -------- FFO 16,604 32,613 53,609 80,156 Preferred distribution and other (3,038) (3,037) (9,118) (9,154) ------- ------- -------- -------- FFO attributable to common shareholders $13,566 $29,576 $ 44,491 $ 71,002 ======= ======= ======== ======== FFO per share $ 0.28 $ 0.63 $ 0.94 $ 1.53 ======= ======= ======== ======== Distributions per common share $ 0.56 $ 0.55 $ 1.67 $ 1.64 ======= ======= ======== ======== (1) Excludes depreciation related to non-real estate assets and minority interests in depreciation and amortization and includes depreciation and amortization of discontinued operations. *T