Net Income(loss) Restatement Previously As (In thousands) Reported Adjustment Restated ----------- ----------- ----------- Quarter ended September 30, 2006 $ (1,941) $ (21) $ (1,962) Quarter ended June 30, 2006 $ (30) $ 754 $ 724 Quarter ended March 31, 2006 $ (1,587) $ (38) $ (1,625) Year ended December 31, 2005 $ 2,777 $ (1,209) $ 1,5682006 Operating Results For the year ended December 31, 2006 the Company reported a net loss of $8.6 million or $(0.15) per share compared to net income (as restated) of $1.6 million or $0.04 per share for the year ended December 31, 2005. The 2006 results of operations were impacted by the following significant items:
-- $37.0 million related to increased net operating income (NOI) primarily due to additional NOI contributions from our 2006 acquisitions and a full year contribution from our 2005 acquisitions -- $24.8 million related to increased depreciation expense primarily attributable to additional depreciation expense related to 2006 acquisitions and a full year of 2005 acquisitions -- $13.8 million of additional interest expense on loans attributable to higher amounts of debt in 2006 primarily related to the financing of certain 2006 acquisitions with additional borrowings -- $2.7 million of severance costs related to our reorganization efforts included in General and Administrative (G&A) expense -- $2.4 million of real estate tax and workers compensation expense included in property operating expenses as a result of management re- evaluating its estimate of these expenses -- $1.9 million write-off of unamortized loan procurement costs in conjunction with certain financing transactions during the year -- $1.1 million of lower interest income as a portion of the proceeds from the Company's October 2005 follow-on equity offering had been invested in marketable securities during the fourth quarter of 2005 -- $0.6 million related to the settlement of a claim made based on actions of the Predecessor company prior to the initial public offering ($0.4 million) and professional fees incurred related to our reorganization ($0.2 million) included in G&A expense -- $0.3 million charge to write-off a property management system that was replaced during the third quarter of 2006 -- $0.2 million related to the settlement of claims for charges from January 2005 through June 2006 under the Company's management agreement with the Amsdell Companies for the Rising Tide properties, included in operating expenseThe Company reported a net loss of $5.7 million or $(0.10) per share for the quarter ended December 31, 2006, compared to a net loss (as restated) of $3.2 million or $(0.06) per share for the fourth quarter of 2005. The 399 owned facilities containing 25.4 million rentable square feet had a physical occupancy at December 31, 2006 of 78.2% and an average physical occupancy for the quarter ended December 31, 2006 of 78.6%. Funds from Operations (FFO): The following items reconcile the Company's previously issued fourth quarter 2006 FFO per share guidance of $0.24 to our reported fourth quarter FFO per share:
-- $0.6 million of write-off of unamortized loan procurement costs -- $0.4 million of severance costs related to reorganization efforts, included in G&A expense -- $0.4 million related to the settlement of a claim made based on actions of the Predecessor company prior to the initial public offering, included in G&A expense -- $0.2 million related to professional fees incurred related to the reorganization, included in G&A expense -- $0.2 million related to the settlement of claims for charges from January 2005 through June 2006 under the Company's management agreement with the Amsdell Companies for the Rising Tide properties, included in operating expense -- $0.7 million of workers compensation expense related to prior policy periods as a result of management re-evaluating its method of estimating this expense, included in operating expense -- $0.8 million of real estate taxes that related to periods prior to the fourth quarter as a result of management re-evaluating its method of estimating real estate taxes as well as reconciling prior estimates to actual real estate tax bills receivedAfter giving effect to these adjustments, the Company is reporting FFO for the fourth quarter of 2006 of $11.6 million or $0.18 per share. This compares to a restated FFO for the fourth quarter of 2005 of $9.0 million or $0.15 per share. Same-store Results: During the fourth quarter, in place annual rent per square foot of the 199 same-store facilities grew 5.2% to $12.53 compared to $11.91 during the fourth quarter of 2005. The same-store realized annual rent per occupied square foot grew 2.5% to $10.75 from the $10.49 realized during the fourth quarter of 2005. The same-store facilities average occupancy for the fourth quarter of 2006 was 79.5% as compared to 83.0% for the same quarter of last year. Same-store revenues were 0.8% lower in the fourth quarter of 2006 over the restated same-store revenues for the fourth quarter of 2005. Same-store operating expense comparisons are impacted by a $0.3 million increase in workers compensation expense, a $0.4 million increase in real estate taxes, and $0.2 million of the settlement on Rising Tide as discussed above. The $1.2 million, or 11.0%, increase in same-store operating expenses includes the impact of these items. Adjusting for the effect of these items, same-store operating expenses grew 2.8%, or approximately $0.3 million, for the fourth quarter of 2006 over the fourth quarter of 2005, as restated. The 199 same-store facilities contain approximately 12.9 million rentable square feet, representing approximately 50.7% of the aggregate rentable square feet of the Company's 399 owned facilities at December 31, 2006. These same-store facilities represent approximately 56.5% of property net operating income for the quarter ended December 31, 2006. Chief Executive Officer and President Dean Jernigan commented, "The 2006 goals that I outlined when I first joined the Company have been accomplished. Furthermore, our property operations team has been able to carry this momentum into 2007. I remain optimistic about our near-term internal growth prospects. I certainly did not expect to encounter the various accounting and reporting issues that we have unfortunately had to correct. I am pleased that we have been able to resolve these matters in a very compressed time frame and appreciate the patience of our shareholders as we completed our work." First Quarter and Full Year 2007 Financial Outlook The Company estimates that its fully diluted FFO per share for the three months ended March 31, 2007 will be between $0.21 and $0.23 and that its fully diluted loss per share will be between $(0.04) and $(0.02). The Company's estimate is based on the following key assumptions:
-- General and Administrative expenses of approximately $5.0 million -- Same-store occupancy of 79.5-80.0% -- Same-store revenue growth of 4-5% over the first quarter of 2006 -- Same-store expense growth of 8-9% over the first quarter of 2006 -- Same-store NOI growth of 1-3% over the first quarter of 2006 -- Acquisitions of approximately $19 million -- The Company expects to incur approximately $1.0 million of legal costs related to its inquiry into actions taken by former Officers of the Company.In 2007, same-store properties are defined as the 339 same-store facilities containing approximately 20.8 million rentable square feet that we owned during all of 2006. The Company is revising its previous 2007 earnings guidance to reflect the above-mentioned $1.0 million of legal costs. The revised FFO per share guidance is $1.09 to $1.19 and EPS guidance is $0.04 to $0.14. Chief Financial Officer Christopher Marr said, "During the last quarter we have been able to add additional senior management personnel to our Accounting/Finance and Information Technology teams. We continue to develop and implement processes and policies which are designed to strengthen internal controls as well as position the company to meet our growth objectives. While the challenges with respect to filing our Annual Report on Form 10-K have been significant, we continue to implement our business plan and fully anticipate we should be able meet our financial projections for 2007." Distributions On February 21, 2007, the Board of Directors declared a quarterly distribution of $0.29 per share, payable on April 24, 2007 to shareholders of record on April 9, 2007. Conference Call Management will host a conference call at 11:00 a.m. EDT on Wednesday, March 21, 2007 to discuss financial results for 2006 and its outlook for 2007. A live webcast of the conference call will be available online from the investor relations page of the Company's corporate website at www.u-store-it.com. The dial-in numbers are (877) 407-8035 for domestic callers and (201) 689-8035 for international callers. The reservation number for both is 229387. After the live webcast, the call will remain available on U-Store-It's website for thirty days. In addition, a telephonic replay of the call will be available until April 21, 2007. The replay dial-in number is (877) 660-6853 for domestic callers, (201) 612-7415 for international callers. The replay reservation number is 229387. Supplemental operating and financial data as of December 31, 2006 is available on our corporate website under the heading "Investor Relations and Corporate Information." About U-Store-It Trust U-Store-It Trust is a self-administered and self-managed real estate investment trust. The Company's self-storage facilities are designed to offer affordable, easily accessible and secure storage space for residential and commercial customers. According to the Self-Storage Almanac, U-Store-It Trust is one of the top five owners and operators of self-storage facilities in the United States. Non-GAAP Performance Measurements FFO is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance. The Company calculates FFO in accordance with the best practices described in the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts (the "White Paper"). The White Paper defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a key performance indicator in evaluating the operations of the Company's facilities. Given the nature of its business as a real estate owner and operator, the Company considers FFO a key measure of its operating performance that is not specifically defined by accounting principles generally accepted in the United States ("GAAP"). The Company believes that FFO is useful to management and investors as a starting point in measuring its operational performance because it excludes various items included in net income that do not relate to or are not indicative of its operating performance such as gains (or losses) from sales of property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance, is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, and is not indicative of funds available to fund the Company's cash needs, including its ability to make distributions. We define net operating income, which we refer to as "NOI," as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income: interest expense, loan procurement amortization expense, early extinguishment of debt, minority interest, loss on sale of storage facilities, depreciation and general and administrative/management fees to related party, and deducting from net income: income from discontinued operations, gains on sale of self-storage facilities, and interest income. NOI is not a measure of performance calculated in accordance with GAAP. Management uses NOI as a measure of operating performance at each of our facilities, and for all of our facilities in the aggregate. NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP. Forward-Looking Statements Certain statements in this release that are not historical fact may constitute forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risk, uncertainties and other factors that might cause such differences, some of which could be material, include but are not limited to: national and local economic, business, real estate and other market conditions; the competitive environment in which the Company operates; the execution of the Company's business plan; financing risks; increases in interest rates and operating costs; the Company's ability to maintain its status as a REIT for federal income tax purposes; acquisition and development risks; changes in real estate and zoning laws or regulations; risks related to natural disasters; potential environmental and other liabilities; material weaknesses in our internal financial reporting; and other factors affecting the real estate industry generally or the self-storage industry in particular. The Company refers you to the documents filed by the Company from time to time with the Securities and Exchange Commission, specifically the section titled "Business - Risk Factors" in the Company's Annual Report on Form 10-K, which discuss these and other risks and factors that could cause the Company's actual results to differ materially from any forward-looking statements.
U-STORE-IT TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) December 31, -------------------------------- (In thousands, except per share data) 2006 2005 (as restated) --------------- --------------- ASSETS Storage facilities $ 1,771,864 $ 1,386,786 Accumulated depreciation (205,049) (140,491) --------------- --------------- 1,566,815 1,246,295 Cash and cash equivalents 19,716 98,899 Restricted cash 14,126 18,921 Loan procurement costs - net of amortization 7,575 9,082 Marketable securities - 95,170 Other assets 6,475 7,599 Due from related parties 632 355 --------------- --------------- Total assets $ 1,615,339 $ 1,476,321 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Revolving credit facility $ 90,500 $ - Unsecured term loan 200,000 - Mortgage loans and notes payable 588,930 669,282 Accounts payable and accrued expenses 22,590 17,128 Due to related parties 336 74 Distributions payable 18,197 18,131 Deferred revenue 9,740 8,857 Security deposits 655 685 --------------- --------------- Total liabilities 930,948 714,157 Minority interests 56,898 63,695 Shareholders' Equity Common shares $.01 par value, 200,000,000 shares authorized, 57,335,490 and 57,010,162 shares issued and outstanding at December 31, 2006 and 2005, respectively 573 570 Additional paid in capital 794,632 790,372 Accumulated deficit (167,712) (92,473) --------------- --------------- Total shareholders' equity 627,493 698,469 --------------- --------------- Total liabilities and shareholders' equity $ 1,615,339 $ 1,476,321 =============== =============== U-STORE-IT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except For the For the per share data) Three Three For the For the months months Year Year ended ended ended ended December December December December 31, 31, 31, 31, 2006 2005 2006 2005 (as (as restated) restated) --------- --------- --------- --------- REVENUES Rental income $ 50,649 $ 40,223 $ 197,753 $ 137,202 Other property related income 4,339 2,837 14,902 10,001 Other - related party 118 130 457 405 --------- --------- --------- --------- Total revenues 55,106 43,190 213,112 147,608 OPERATING EXPENSES Property operating expenses 24,614 17,834 86,547 55,462 Property operating expenses - related party 22 (3) 69 43 Depreciation 17,918 12,316 64,729 39,949 Asset write-off - - 305 - General and administrative 4,866 8,342 21,675 17,786 General and administrative - related party 88 240 613 736 Management fees - related party - - - - --------- --------- --------- --------- Total operating expenses 47,508 38,729 173,938 113,976 OPERATING INCOME 7,598 4,461 39,174 33,632 OTHER INCOME (EXPENSE) Interest: Interest expense on loans (13,139) (9,715) (46,125) (32,370) Loan procurement amortization expense (493) (525) (1,998) (2,057) Write-off of loan procurement cost due to early extinguishment of debt (634) (93) (1,907) (93) Interest income 203 2,269 1,341 2,405 Other 264 27 191 (47) --------- --------- --------- --------- Total other expense (13,799) (8,037) (48,498) (32,162) INCOME (LOSS) BEFORE MINORITY INTERESTS (6,201) (3,576) (9,324) 1,470 MINORITY INTERESTS 513 190 773 (113) --------- --------- --------- --------- NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (5,688) (3,386) (8,551) 1,357 DISCONTINUED OPERATIONS Income from operations - 32 - 32 Gain on sale of storage facilities - 179 - 179 --------- --------- --------- --------- Income from discontinued operations - 211 - 211 --------- --------- --------- --------- NET INCOME (LOSS) $ (5,688) $ (3,175) $ (8,551) $ 1,568 ========= ========= ========= ========= Basic and diluted earnings (loss) per share from continuing operations $ (0.10) $ (0.06) $ (0.15) $ 0.04 Basic and diluted earnings (loss) per share from discontinued operations $ - $ 0.00 $ - $ - --------- --------- --------- --------- Basic and diluted earnings (loss) per share $ (0.10) $ (0.06) $ (0.15) $ 0.04 ========= ========= ========= ========= Weighted-average basic shares outstanding 57,412 55,882 57,287 42,120 Weighted-average diluted shares outstanding 57,412 55,882 57,287 42,203 ========= ========= ========= ========= Distributions declared per common share and unit $ 0.29 $ 0.28 $ 1.16 $ 1.13 ========= ========= ========= ========= Same-Store Facility Results (199 facilities) (unaudited) Three months ended December 31, ---------------------- Percent 2006 2005 Change ---------- ---------- ---------- (In thousands, except per square foot data) REVENUES Rental income $ 27,537 $ 28,072 Other property related income 2,327 2,025 ---------- ---------- ---------- Total revenues 29,864 30,097 -0.8% OPERATING EXPENSES Property taxes (1) 3,767 3,183 18.3% Personnel expense (2) 4,003 3,184 25.7% Advertising 997 1,175 -15.1% Repair and maintenance 366 231 58.4% Utilities 966 1,166 -17.2% Property insurance 532 313 70.0% Other expenses 2,010 2,166 -7.2% ---------- ---------- ---------- Total operating expenses (3) 12,641 11,418 10.7% Net operating income (4) $ 17,223 $ 18,679 -7.8% Gross margin 57.7% 62.1% Period Average Occupancy (5) 79.5% 83.0% Period End Occupancy (6) 79.0% 82.6% Total Rentable square feet 12,890,822 12,890,822 Realized annual rent per occupied square foot (7) $ 10.75 $ 10.49 In place annual rent per square foot (8) $ 12.53 $ 11.91 Reconciliation of Same-Store Net Operating Income to Operating Income Same-store net operating income (4) $ 17,223 $ 18,679 Non same-store net operating income (4) 13,247 6,680 Depreciation (17,918) (12,316) Asset Write-off - - General and Administrative expense (4,954) (8,582) ---------- ---------- Operating Income $ 7,598 $ 4,461 Year ended December 31, ---------------------- Percent 2006 2005 Change ---------- ---------- ---------- (In thousands, except per square foot data) REVENUES Rental income $ 113,215 $ 109,787 Other property related income 8,603 8,156 ---------- ---------- ---------- Total revenues 121,818 117,943 3.3% OPERATING EXPENSES Property taxes (1) 13,944 11,676 19.4% Personnel expense (2) 13,277 12,145 9.3% Advertising 3,136 3,181 -1.4% Repair and maintenance 1,302 881 47.8% Utilities 4,445 4,350 2.2% Property insurance 1,819 1,316 38.2% Other expenses 7,673 7,544 1.7% ---------- ---------- ---------- Total operating expenses (3) 45,596 41,093 11.0% Net operating income (4) $ 76,222 $ 76,850 -0.8% Gross margin 62.6% 65.2% Period Average Occupancy (5) 81.3% 82.8% Period End Occupancy (6) 79.0% 82.6% Total Rentable square feet 12,890,822 12,890,822 Realized annual rent per occupied square foot (7) $ 10.80 $ 10.29 In place annual rent per square foot (8) $ 12.43 $ 11.96 Reconciliation of Same-Store Net Operating Income to Operating Income Same-store net operating income (4) $ 76,222 $ 76,850 Non same-store net operating income (4) 50,274 15,253 Depreciation (64,729) (39,949) Asset Write-off (305) - General and Administrative expense (22,288) (18,522) ---------- ---------- Operating Income $ 39,174 $ 33,632 (1) - Includes $0.4 million of the adjustment related to managements change in estimate. (2) - Includes $0.3 million of the workers compensation adjustment relating to managements change in estimate and $0.2 million related to the adjustment related to Rising Tide management fees. (3) After adjusting for items in footnotes 1 and 2 above, total operating expenses for the three months ended December 31, 2006 were $11.7 million, representing a 2.8% increase over amounts for the three months ended December 31, 2005. (4) Net operating income (NOI) is a non-GAAP (generally accepted accounting principles) financial measure that excludes the impact of depreciation and general & administrative expense. Although depreciation and general & administrative expense are operating expenses, we believe that NOI is making decisions with respect to capital allocations, in determining current property values, and comparing period-to-period and market-to-market property operating results. NOI is not a substitute for operating income as determined in accordance with GAAP in evaluating our operating results. (5) Square feet occupancy represents the weighted average occupancy for the period. (6) Represents occupancy at December 31, 2006. (7) Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period. (8) In place annual rent per square foot represents annualized contractual rents per available square foot for the period. Non-GAAP Financial Measures - Computation of Funds From Operations (FFO) (unaudited) Three months ended Year ended (In thousands, -------------------------- -------------------------- except per share December 31, December 31, December 31, December 31, data) 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Net income (loss) $ (5,688) $ (3,175) $ (8,551) $ 1,568 Add (deduct): Real estate depreciation 17,760 12,316 64,099 39,949 Minority interests (513) (190) (773) 113 FFO (1) $ 11,559 $ 8,951 $ 54,775 $ 41,630 ============ ============ ============ ============ Earnings (loss) per share - fully diluted $ (0.10) $ (0.06) $ (0.15) $ 0.04 FFO per share - fully diluted $ 0.18 $ 0.15 $ 0.87 $ 0.91 Weighted-average diluted shares outstanding 57,412 55,882 57,287 42,203 Weighted-average diluted shares and units outstanding 62,811 61,232 62,606 45,565 Dividend per Common Share $ 0.29 $ 0.28 $ 1.16 $ 1.13 Payout ratio of FFO (Dividend per share divided by FFO per share) 158% 192% 133% 124% (1) Included in FFO is $3.3 million and $6.5 million of items not included in management's guidance for the three months and year ended December 31, 2006, respectively. These items include loan procurement costs, severance costs, an asset write-off, settlement of claims made, professional fees, workers compensation, and property tax expenses.
Contact Information: Contact: U-Store-It Trust Christopher P. Marr Chief Financial Officer (610) 293-5700