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- *T 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
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