EXTRA SPACE STORAGE INC. 
By Extra Space Storage Inc. (the ?Company?) (NYSE:EXR) announced today operating results for the three and nine months ended September 30, 2006. ?Operating results for the third quarter were positive, and we remain optimistic regarding our ability to drive shareholder value through external and internal growth initiatives,? said Kenneth M. Woolley, CEO and Chairman of Extra Space Storage Inc.
Third Quarter 2006 Highlights:
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Attained funds from operations ("FFO") of $0.26 per diluted share, |
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Realized same-store revenue and net operating income ("NOI") |
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Raised $205.3 million in gross proceeds from a public offering of |
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Completed the acquisition of five self-storage properties for |
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Declared and paid a regular quarterly dividend of $0.2275 per |
The results for the three and nine months ended September 30, 2006, include the operations of 561 properties, 213 of which were consolidated and 348 of which were held in joint ventures accounted for using the equity method, compared to the results for the three and nine months ended September 30, 2005, which included the operations of 546 properties, 191 of which were consolidated and 355 of which were in joint ventures accounted for using the equity method. Results for both periods include equity in earnings of real estate joint ventures, third-party management fees and development fees.
FFO Per Share:
FFO per fully diluted share for the three months ended September 30, 2006 was $0.26 compared to $0.18 for the three months ended September 30, 2005, an increase of 44.4%. FFO per fully diluted share for the nine months ended September 30, 2006 was $0.69 compared to $0.47 for the nine months ended September 30, 2005, an increase of 46.8%. FFO available to common shareholders was $14.7 million for the three months ended September 30, 2006, as compared to $7.3 million for the three months ended September 30, 2005. FFO available to common shareholders was $38.8 million for the nine months ended September 30, 2006, as compared to $17.1 million for the nine months ended September 30, 2005. The following table sets forth the calculation of FFO (dollars are in thousands, except share data):
| Three months ended | Nine months ended | |||||||||||
Sept. 30, 2006 | Sept. 30, 2005 | Sept. 30, 2006 | Sept. 30, 2005 | |||||||||
| Net income (loss) | $ | 4,307 | $ | (2,859) | $ | 8,137 | $ | (4,719) | ||||
| Plus: | ||||||||||||
| Real estate depreciation | 6,945 | 6,286 | 20,066 | 13,952 | ||||||||
| Amortization of intangibles | 1,944 | 3,199 | 6,448 | 7,235 | ||||||||
| Joint venture real estate depreciation | 1,144 | 890 | 3,600 | 1,088 | ||||||||
| Income allocated to Operating Partnership minority interest | 306 | ? | 585 | ? | ||||||||
| Less: | ||||||||||||
| Loss allocated to Operating Partnership minority interest | ? | (253) | ? | (419) | ||||||||
| Funds from operations | $ | 14,646 | $ | 7,263 | $ | 38,836 | $ | 17,137 | ||||
Weighted average number of shares - basic | ||||||||||||
Common stock (excluding restricted shares) | 52,501,864 | 37,465,700 | 51,929,336 | 33,544,089 | ||||||||
| OP units | 3,737,579 | 3,905,225 | 3,796,384 | 3,121,775 | ||||||||
| Total | 56,239,443 | 41,370,925 | 55,725,720 | 36,665,864 | ||||||||
| Weighted average number of shares - diluted | ||||||||||||
| Common stock | 53,335,259 | 37,465,700 | 52,453,780 | 33,544,089 | ||||||||
| OP units | 3,737,579 | 3,905,225 | 3,796,384 | 3,121,775 | ||||||||
| Total | 57,072,838 | 41,370,925 | 56,250,164 | 36,665,864 | ||||||||
FFO provides relevant and meaningful information about the Company's operating performance that is necessary, along with net income (loss) and cash flows, for an understanding of the Company's operating results. The Company believes FFO is a meaningful disclosure as a supplement to net earnings because net earnings assume 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 and FFO more accurately reflects the value of the Company's real estate assets. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (?NAREIT?) as net income (loss) computed in accordance with accounting principles generally accepted in the United States (?GAAP?), excluding gains or losses on sales of operating properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. The Company believes that to further understand the Company's performance, FFO should be considered along with the reported net income (loss) and cash flows in accordance with GAAP, as presented in the consolidated financial statements.
The Company's computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (loss) as an indication of the Company's performance, as an alternative to net cash flow from operating activities as a measure of liquidity, or as an indicator of the Company's ability to make cash distributions.
Operating Results for the Three and Nine Months Ended September 30, 2006:
Total revenues for the three and nine months ended September 30, 2006, were $51.2 million and $145.1 million, respectively, compared to $42.3 million and $89.8 million, respectively, for the three and nine months ended September 30, 2005. Net income for the three and nine months ended September 30, 2006 was $4.3 million and $8.1 million, respectively, compared to net losses of $2.9 million and $4.7 million, respectively, for the three and nine months ended September 30, 2005. Contributing to the increase in revenues and net income were the following:
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the acquisition of 70 wholly-owned properties, including 61 |
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the acquisition of 20 wholly-owned properties during the nine |
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the increase in management fees due to additional joint-venture |
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and continued revenue gains from the Company's wholly-owned lease |
Total expenses for the three and nine months ended September 30, 2006, were $34.7 million and $102.5 million, respectively, compared to $33.0 million and $69.4 million, respectively, for the three and nine months ended September 30, 2005.
Interest expense for the three and nine months ended September 30, 2006, was $13.4 million and $38.2 million, respectively, compared to $14.6 million and $28.3 million, respectively, for the three and nine months ended September 30, 2005.
Same-Store Portfolio Performance: The Company's same-store stabilized portfolio consists of 103 properties wholly-owned and operated by the Company at the beginning and at the end of the applicable periods presented and that had achieved stabilization as of the first day of such period. These results provide information relating to property-level operating changes at these properties without the effects of acquisitions or completed developments. The results shown should not be used as a basis for future same-store performance or for the performance of the Company's properties as a whole (dollars are in thousands):
| Three Months Ended September 30, | Percent |
Nine Months Ended September 30, | Percent | ||||||||||||||
| 2006 | 2005 | Change | 2006 | 2005 | Change | ||||||||||||
| Same-store rental revenues | $ | 21,607 | $ | 20,172 | 7.1 | % | $ | 62,514 | $ | 58,547 | 6.8 | % | |||||
| Same-store operating expenses | 7,406 | 6,862 | 7.9 | % | 21,771 | 20,562 | 5.9 | % | |||||||||
| Same-store net operating income | 14,201 | 13,310 | 6.7 | % | 40,743 | 37,985 | 7.3 | % | |||||||||
| Non same-store rental revenues | 23,075 | 16,073 | 43.6 | % | 63,363 | 23,739 | 166.9 | % | |||||||||
| Non same-store operating expenses | 9,207 | 6,504 | 41.6 | % | 24,832 | 10,723 | 131.6 | % | |||||||||
| Total rental revenues | 44,682 | 36,245 | 23.3 | % | 125,877 | 82,286 | 53.0 | % | |||||||||
| Total operating expenses | 16,613 | 13,366 | 24.3 | % | 46,603 | 31,285 | 49.0 | % | |||||||||
Same-store square foot occupancy as of quarter end | 88.4 | % | 86.3 | % | 88.4 | % | 86.3 | % | |||||||||
| Properties included in same-store | 103 | 103 | 103 | 103 | |||||||||||||
Same-store revenues for the three and nine months ended September 30, 2006, increased 7.1% and 6.8%, respectively, compared to the three and nine months ended September 30, 2005. The increase in revenue was due to increased rental rates to new and existing customers and the Company's ability to increase occupancy. Occupancy as of September 30, 2006 was 88.4% compared to 86.3% as of September 30, 2005. Same-store expenses for the three and the nine months ended September 30, 2005, increased 7.9% and 5.9%, respectively, compared to the three and nine months ended September 30, 2005. The increase in expenses for the three months ended September 30, 2006 was predominantly due to property tax reassessments and utilities. NOI increased 6.7% and 7.3%, respectively, for the three and nine months ended September 30, 2006, compared to the three and nine months ended September 30, 2005.
?We are pleased with our increases in revenue and NOI at our same-store properties. Our revenue management team is having a positive effect on these properties, and on the overall portfolio as well,? added Mr. Woolley.
Public Offering of Common Stock:
On September 25, 2006, the Company completed the sale of approximately 12.1 million shares of common stock in a public offering that raised gross proceeds of approximately $205.3 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses payable by the Company, of approximately $194.9 million. The Company intends to use the net proceeds from the offering for debt repayment, property acquisitions and general business purposes.
Property Acquisitions:
For the three months ended September 30, 2006, the Company acquired five properties located in California, Colorado, Georgia, Maryland and Texas for approximately $37.9 million. For the nine months ended September 30, 2006, a total of 20 properties have been acquired by the Company for approximately $136.0 million. All of the properties are wholly-owned by the Company.
Quarterly Dividend Declared and Paid:
On September 1, 2006, the Company announced its third quarter common stock dividend of $0.2275 per share. The dividend was paid on September 29, 2006, to stockholders of record as of September 15, 2006. The dividend payment was calculated based on an annual dividend of $0.91 per share.
Balance Sheet Flexibility:
As of September 30, 2006, the ratio of total fixed rate debt to total debt was approximately 91.4%. The weighted average interest rate was 5.4% for fixed rate loans and 6.4% for variable rate loans. The weighted average interest rate of all fixed and variable rate loans was 5.5%. The Company had $81.0 million of capacity on its line of credit, of which none was outstanding as of September 30, 2006. Total debt, including trust preferred notes, was $945.2 million at September 30, 2006, compared to $950.3 million on June 30, 2006.
Kent Christensen, Chief Financial Officer, stated: ?The common stock offering that we completed in the quarter has strengthened our balance sheet considerably and has given us more flexibility to grow through acquisition and development. We currently have $150 million in cash, which, when leveraged, gives Extra Space Storage over $300 million to pursue growth opportunities.?
Organizational Update:
On November 1, 2006, the Company made structural changes to its senior team. Kent N. Christensen has been promoted to Executive Vice President and Chief Financial Officer, Charles L. Allen has been promoted to Executive Vice President and Chief Legal Counsel, and Karl Haas has been promoted to Executive Vice President and Chief Operating Officer.
Outlook:
For the three months ended September 30, 2006, the Company realized year-on-year growth in both revenue and NOI at its same-store stabilized portfolio and at its overall wholly-owned stabilized store portfolio (which includes the 57 stabilized properties acquired from Storage USA in July 2005). The Company estimates that revenues and NOI in the three months ending December 31, 2006 will be higher than revenues and NOI achieved in 2005 in the same period on these two groups of properties.
The 20 properties that the Company has acquired to date in 2006 are performing at budgeted levels. The Company's 23 wholly-owned lease-up properties are expected to grow occupancy and revenues, with a number of these properties achieving full stabilization during the final quarter of 2006.
Solid demand continues in many of the Company's major markets. The markets of Atlanta, Miami, Northern California and Phoenix were top performers while Detroit and Philadelphia performed below the portfolio average.
Earnings Outlook: The Company expects fully diluted FFO for the three months and year ending December 31, 2006 to be within the ranges of $0.23 to $0.25 and $0.92 to $0.94 per share, respectively. The Company's FFO outlook includes all of the property acquisitions that have occurred to date in 2006.
The Company's estimates are based on the following assumptions:
| -- | Wholly-owned stabilized property revenue growth of 5%-6% |
| -- | Wholly-owned stabilized property NOI growth of 5%-6% |
| -- | Interest expense of approximately $12.8 million |
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Outstanding shares of approximately 68.0 million, including OP |
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General and administrative expenses (net of development fees) of |
Mr. Woolley concluded: ?We are pleased with another quarter of solid financial and operational performance. Our growth can be attributed to our high quality, well-located portfolio, our commitment to best practice systems and the hard work and dedication of the Extra Space Storage team across the country.?
Forward Looking Statements
Certain information set forth in this release contains ?forward-looking statements? within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as ?believes,? ?estimates,? ?expects,? ?may,? ?will,? ?should,? ?anticipates,? or ?intends? or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.
All forward-looking statements, including without limitation, management's examination of historical operating trends and estimates of future earnings, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management's expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this release. Any forward-looking statements should be considered in light of the risks referenced in ?Part II. Item 1A. Risk Factors? below and in ?Risk Factors? included in our most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q. Such factors include, but are not limited to:
