U-Store-It 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2006
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number: 001-32324
U-STORE-IT TRUST
(Exact Name of Registrant as Specified in its Charter)
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Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
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20-1024732
(I.R.S. Employer
Identification No.) |
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6745 Engle Road
Suite 300
Cleveland, Ohio
(Address of Principal Executive Offices)
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44130
(Zip Code) |
(440) 234-0700
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act. (Check one).
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2 of
the Exchange Act.) Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Class
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Outstanding at November 8, 2006 |
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common stock, $.01 par value
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57,335,490 |
U-STORE-IT TRUST
TABLE OF CONTENTS
Note the financial statements covered in this report contain the results of operations and
financial condition of U-Store-It Trust (we, us, our or the Company) for the three and nine
months ended September 30, 2006 and 2005.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within the meaning of
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. Risks, uncertainties and other factors that might cause such
differences, some of which could be material, include, but are not limited to:
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national and local economic, business, real estate and other market conditions; |
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the competitive environment in which we operate; |
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the execution of our business plan; |
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financing risks; |
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increases in interest rates and operating costs; |
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our ability to maintain our status as a real estate investment trust (REIT) for federal income tax purposes; |
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acquisition and development risks; |
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changes in real estate and zoning laws or regulations; |
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risks related to natural disasters; |
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potential environmental and other liabilities; |
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other factors affecting the real estate industry generally or the self-storage industry in particular; and |
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other risks identified in this Quarterly Report on Form 10-Q and, from time to time, in
other reports we file with the Securities and Exchange Commission (the SEC) or in other
documents that we publicly disseminate. |
We undertake no obligation to publicly update or revise these forward-looking statements, whether
as a result of new information, future events or otherwise except as may be required in securities
laws.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U-STORE-IT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value amounts)
(unaudited)
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September 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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Storage facilitiesnet |
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$ |
1,577,971 |
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$ |
1,246,295 |
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Cash and cash equivalents |
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15,900 |
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201,098 |
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Restricted cash |
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14,714 |
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14,672 |
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Loan procurement costsnet of amortization |
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7,541 |
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10,437 |
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Other assets |
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8,332 |
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8,631 |
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Due from related parties |
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307 |
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355 |
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TOTAL ASSETS |
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$ |
1,624,765 |
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$ |
1,481,488 |
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LIABILITIES
AND SHAREHOLDERS EQUITY |
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LIABILITIES |
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Revolving credit facility |
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$ |
170,500 |
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$ |
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Loans payable |
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693,694 |
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669,282 |
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Accounts payable and accrued expenses |
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22,465 |
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18,854 |
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Due to related party |
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103 |
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74 |
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Distributions payable |
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18,184 |
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16,624 |
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Deferred revenue |
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10,365 |
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8,857 |
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Security deposits |
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682 |
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685 |
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Total Liabilities |
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915,993 |
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714,376 |
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COMMITMENTS AND CONTINGENCIES |
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MINORITY INTERESTS |
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58,962 |
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64,108 |
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SHAREHOLDERS EQUITY |
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Common shares, $.01 par value,
200,000,000 shares authorized,
57,295,490 and 57,010,162 shares
issued and outstanding at September
30, 2006 and December 31, 2005,
respectively |
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573 |
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570 |
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Additional paid in capital |
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797,039 |
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793,687 |
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Accumulated deficit |
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(147,802 |
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(91,253 |
) |
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Total shareholders equity |
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649,810 |
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703,004 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
1,624,765 |
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$ |
1,481,488 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
U-STORE-IT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share data)
(unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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REVENUES: |
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Rental income |
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$ |
52,562 |
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$ |
38,561 |
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$ |
147,444 |
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$ |
97,638 |
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Other property related income |
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3,844 |
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2,742 |
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10,563 |
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7,164 |
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Total revenues |
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56,406 |
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41,303 |
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158,007 |
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104,802 |
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OPERATING EXPENSES: |
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Property operating expenses |
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21,978 |
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14,651 |
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61,792 |
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37,426 |
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Property
operating expenses related party |
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15 |
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11 |
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47 |
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46 |
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Depreciation |
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16,405 |
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10,868 |
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46,811 |
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27,633 |
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Asset write-off |
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307 |
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307 |
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General and administrative |
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7,289 |
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3,494 |
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16,810 |
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9,444 |
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General and administrative related party |
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73 |
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192 |
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523 |
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496 |
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Total operating expenses |
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46,067 |
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29,216 |
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126,290 |
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75,045 |
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OPERATING INCOME |
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10,339 |
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12,087 |
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31,717 |
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29,757 |
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OTHER INCOME (EXPENSE): |
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Interest: |
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Interest expense on loans |
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(12,009 |
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(9,706 |
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(32,986 |
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(22,655 |
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Loan procurement amortization expense |
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(529 |
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(570 |
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(1,505 |
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(1,328 |
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Write-off of loan procurement cost
due to early extinguishment of debt |
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(1,273 |
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Interest income |
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95 |
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80 |
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1,138 |
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137 |
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Other |
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(13 |
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(31 |
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(73 |
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(74 |
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Total other expense |
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(12,456 |
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(10,227 |
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(34,699 |
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(23,920 |
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INCOME (LOSS) BEFORE MINORITY INTERESTS |
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(2,117 |
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1,860 |
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(2,982 |
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5,837 |
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MINORITY INTERESTS |
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176 |
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(195 |
) |
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249 |
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(351 |
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NET INCOME (LOSS) |
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$ |
(1,941 |
) |
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$ |
1,665 |
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$ |
(2,733 |
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$ |
5,486 |
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Basic earnings (loss) per share |
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$ |
(0.03 |
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$ |
0.04 |
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$ |
(0.05 |
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$ |
0.15 |
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Diluted earnings (loss) per share |
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$ |
(0.03 |
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$ |
0.04 |
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$ |
(0.05 |
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$ |
0.15 |
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Weighted-average basic shares outstanding |
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57,351 |
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37,492 |
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57,308 |
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37,492 |
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Weighted-average diluted shares outstanding |
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57,351 |
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37,634 |
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57,308 |
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37,554 |
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Distributions
declared per common share and unit |
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$ |
0.29 |
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$ |
0.28 |
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$ |
0.87 |
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$ |
0.84 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
U-STORE-IT TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
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Nine Months Ended September 30, |
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2006 |
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2005 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
(2,733 |
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$ |
5,486 |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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48,316 |
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28,961 |
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Asset
write-offs |
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319 |
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Equity compensation expense |
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987 |
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609 |
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Accretion of fair market value of debt |
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(582 |
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(150 |
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Early extinguishment of debt |
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1,273 |
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Minority interests |
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(249 |
) |
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351 |
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Gain on sale of assets |
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(4 |
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(10 |
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Changes in other operating accounts: |
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Other assets |
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(1,882 |
) |
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(4,932 |
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Accounts payable and accrued expenses |
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3,146 |
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6,214 |
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Other liabilities |
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(359 |
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231 |
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Net cash provided by operating activities |
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48,232 |
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36,760 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Acquisitions, additions and improvements to storage facilities |
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(305,385 |
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(268,225 |
) |
Acquisitions, additions and improvements to storage facilities related party |
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(37,414 |
) |
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(10,874 |
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Net proceeds from sales of assets |
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42 |
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|
561 |
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Insurance settlements |
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1,712 |
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Increase in restricted cash |
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(42 |
) |
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(5,782 |
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Net cash used in investing activities |
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(341,087 |
) |
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(284,320 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from: |
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Revolving credit facility |
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170,500 |
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|
176,800 |
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Loans payable |
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160,000 |
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Short-term financing |
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30,000 |
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Principal payments on: |
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Revolving credit facility |
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(68,500 |
) |
Loans payable |
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(9,457 |
) |
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(1,982 |
) |
Short term financing |
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(30,000 |
) |
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Capital lease obligations |
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(31 |
) |
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(84 |
) |
Shareholder distributions |
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(49,934 |
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(28,527 |
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Minority interest distributions |
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(4,523 |
) |
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(1,121 |
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Loan procurement costs |
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(1,237 |
) |
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|
(2,697 |
) |
Proceeds from exercise of stock options |
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|
2,339 |
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Net cash provided by financing activities |
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|
107,657 |
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|
233,889 |
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NET DECREASE IN CASH |
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(185,198 |
) |
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(13,671 |
) |
CASH AND CASH EQUIVALENTSBeginning of period |
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201,098 |
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|
28,485 |
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CASH AND CASH EQUIVALENTSEnd of period |
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$ |
15,900 |
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$ |
14,814 |
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Supplemental disclosure of non-cash activities: |
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Storage facilities acquired through the issuance of limited partnership units in
the operating partnership |
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$ |
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$ |
68,594 |
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Storage facilities acquired through the assumption of a mortgage loan |
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$ |
34,451 |
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$ |
94,296 |
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Other assets and liabilities (net) acquired as part of storage facility acquisitions |
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$ |
2,032 |
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$ |
1,223 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
5
U-STORE-IT TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
U-Store-It Trust (we or the Company) was formed in July 2004 to succeed the self-storage
operations owned directly and indirectly by Robert J. Amsdell, Barry L. Amsdell, Todd C. Amsdell
and their affiliated entities and related family trusts (the Amsdell Entities or the
Predecessor). The Company commenced operations on October 21, 2004, after completing the mergers
of Amsdell Partners, Inc. and High Tide LLC with and into the Company. The Company subsequently
completed an initial public offering (IPO) of its common shares on October 27, 2004 concurrently
with the consummation of various formation transactions. The IPO consisted of the sale of an
aggregate of 28,750,000 common shares. In October 2005, the Company completed a follow on public
offering, pursuant to which it sold an aggregate of 19,665,000 common shares. The Company owns
approximately 92% of the aggregate partnership interests in U-Store-It, L.P. (the Operating
Partnership) at September 30, 2006. The Company is a real estate company engaged in the business
of owning, acquiring, developing and operating self-storage properties for business and personal
use under month-to-month leases and is operated as a real estate investment trust (REIT), for
federal income tax purposes. All of the Companys assets are held by, and operations are conducted
through, the operating partnership and its subsidiaries. Through the operating partnership, the
Company owns and manages 399 and 339 storage facilities as of September 30, 2006 and December 31,
2005, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC) regarding interim financial reporting and, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of financial position, results of operations and cash flows for the interim
periods presented in accordance with generally accepted accounting principles (GAAP).
Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Companys audited
financial statements prepared in accordance with GAAP, and the related notes thereto, for the year
ended December 31, 2005, which are included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 (Commission File No. 001-32324), as certain footnote
disclosures normally included in financial statements prepared in accordance with GAAP have been
condensed or omitted from this report pursuant to the rules of the SEC. The results of operations
for the three and nine months ended September 30, 2006 and 2005 are not necessarily indicative of
the results of operations to be expected for any future period or the full year.
Reclassifications Certain prior year amounts have been reclassified to conform to current
year presentation.
3. STORAGE FACILITIES
The following summarizes the real estate assets of the Company as of:
|
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September 30, |
|
|
December 31, |
|
Description |
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands) |
|
Land |
|
$ |
412,051 |
|
|
$ |
301,188 |
|
Buildings and improvements |
|
|
1,182,966 |
|
|
|
958,759 |
|
Equipment |
|
|
168,322 |
|
|
|
125,456 |
|
Construction in progress |
|
|
1,770 |
|
|
|
1,383 |
|
|
|
|
|
|
|
|
Total |
|
|
1,765,109 |
|
|
|
1,386,786 |
|
Less accumulated depreciation |
|
|
(187,138 |
) |
|
|
(140,491 |
) |
|
|
|
|
|
|
|
Storage facilitiesnet |
|
$ |
1,577,971 |
|
|
$ |
1,246,295 |
|
|
|
|
|
|
|
|
6
The following table summarizes the acquisitions the Company completed during the three months
ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of |
|
|
Rentable |
|
|
|
|
|
|
|
Facility/Portfolio |
|
Acquisition |
|
|
Square Feet |
|
|
Number of Facilities |
|
|
Purchase Price |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
(Dollars in millions) |
|
Balance Beginning of period |
|
|
|
|
|
|
24,221 |
|
|
|
383 |
|
|
|
|
|
Jernigan Portfolio (1) |
|
July 27 |
|
|
664 |
|
|
|
9 |
|
|
$ |
44.9 |
|
U-Stor Portfolio (2) |
|
August 4 |
|
|
63 |
|
|
|
1 |
|
|
|
3.4 |
|
Bailes Portfolio |
|
August 8 |
|
|
216 |
|
|
|
3 |
|
|
|
15.6 |
|
In and Out (3) |
|
August 17 |
|
|
128 |
|
|
|
1 |
|
|
|
7.4 |
|
Texas Portfolio |
|
September 27 |
|
|
142 |
|
|
|
2 |
|
|
|
12.0 |
|
Other (4) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance End of period |
|
|
|
|
|
|
25,436 |
|
|
|
399 |
|
|
$ |
83.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above acquisitions
are included in the Companys results of operations from the date of acquisition.
|
|
|
(1) |
|
The purchase price included the assumption of approximately $7.4 million of
indebtedness. The debt was adjusted using market rates and the effect of the adjustment was
approximately $(0.4) million. |
|
(2) |
|
The purchase price included the assumption of approximately $2.0 million of
indebtedness. The debt was adjusted using market rates and the effect of the adjustment was
approximately $(0.1) million. |
|
(3) |
|
The purchase price included the assumption of approximately $4.6 million of
indebtedness. The debt was adjusted using market rates and the effect of the adjustment was
approximately $(0.1) million. |
|
(4) |
|
The Company added approximately 2,000 net rentable square feet at its existing
facilities during the three months ended September 30, 2006. |
4. REVOLVING CREDIT FACILITY
In February 2006, the Company and the operating partnership entered into a new three-year
$250.0 million revolving credit facility, replacing the Companys existing $150.0 million facility,
which had no outstanding balance as of December 31, 2005. The revolving credit agreement is
scheduled to terminate in February 2009 with a one-year extension option. As of September 30, 2006,
the outstanding balance on the facility was $170.5 million. The terms of the new agreement allow
the Company to increase the credit limit up to $350.0 million if necessary, at a later date. Under
the terms of the agreement, the Company is required to satisfy certain financial coverage ratios
and operating covenants, including a maximum leverage ratio and interest coverage ratio, all of
which the Company was in compliance with as of September 30, 2006. Borrowings under the new
facility bear interest, at the Companys option, at either an alternative base rate or a Eurodollar
rate, in each case plus an applicable margin. The alternative base interest rate is a fluctuating
rate equal to the higher of the prime rate or the sum of the federal funds effective rate plus 50
basis points. The applicable margin for the alternative base rate will vary from 0.15% to 0.60%
depending on the Companys leverage ratio. The Eurodollar rate is a periodic fixed rate equal to
LIBOR. The applicable margin for the Eurodollar rate will vary from 1.15% to 1.60% based on the
Companys leverage ratio. The facilitys interest rate was 6.63% at September 30, 2006, which
consisted of LIBOR at a rate of 5.33% with a spread of 1.30% . The credit facility requires a
commitment fee based on the unused portion of the credit facility, which was 0.25% at September 30,
2006. The credit facility is unsecured; however, it requires that the Company maintain a minimum
borrowing base of properties. As of September 30, 2006, the Company had availability of
approximately $79.5 million under this revolving credit facility.
5. LOANS AND NOTES PAYABLE
In July 2006, YSI VII LLC (YSI VII), an indirect subsidiary of the Company, assumed a $3.4
million fixed rate mortgage loan in connection with the acquisition of the Jernigan Portfolio, Bank
of America as the lender, which requires monthly debt service payments until June 2013. The
mortgage loan, which is secured by one of the Companys self-storage facilities, bears interest at
5.50% and matures in June 2013. Since the debt was assumed at below market rates, the assumed debt
was adjusted as part of the purchase price allocation to fair value of approximately $3.2 million
at an effective interest rate of 6.50%. This mortgage loan requires YSI VII to establish reserves
relating to the mortgaged facilities for replacements, repairs, real estate taxes and insurance.
The operating partnership is a guarantor under this mortgage loan with respect to certain
exceptions to the non-recourse provisions of the loan.
7
In July 2006, YSI VIII LLC (YSI VIII), an indirect subsidiary of the Company, assumed a $1.9
million fixed rate mortgage loan with Bank of America as the lender in connection with the acquisition of the
Jernigan Portfolio, which requires monthly debt service payments until June 2013. The mortgage
loan, which is secured by one of the Companys self-storage facilities, bears interest at 5.50% and
matures in June 2013. Since the debt was assumed at below market rates, the assumed debt was
adjusted as part of the purchase price allocation to fair value of approximately $1.8 million at an
effective interest rate of 6.50%. This mortgage loan requires YSI VIII to establish reserves
relating to the mortgaged facilities for replacements, repairs, real estate taxes and insurance.
The operating partnership is a guarantor under this mortgage loan with respect to certain
exceptions to the non-recourse provisions of the loan.
In July 2006, YSI IX LLC (YSI IX), an indirect subsidiary of the Company, assumed a $2.1
million fixed rate mortgage loan with Bank of America as the lender in connection with the acquisition of the
Jernigan Portfolio, which requires monthly debt service payments until June 2013. The mortgage
loan, which is secured by one of the Companys self-storage facilities, bears interest at 5.50% and
matures in June 2013. Since the debt was assumed at below market rates, the assumed debt was
adjusted as part of the purchase price allocation to fair value of approximately $2.0 million at an
effective interest rate of 6.50%. This mortgage loan requires YSI IX to establish reserves relating
to the mortgaged facilities for replacements, repairs, real estate taxes and insurance. The
operating partnership is a guarantor under this mortgage loan with respect to certain exceptions to
the non-recourse provisions of the loan.
In August 2006, YSI XV LLC (YSI XV), an indirect subsidiary of the Company, assumed a $2.0
million fixed rate mortgage loan with Wachovia as the lender in connection with the acquisition of
U-Stor, which requires monthly debt service payments until January 2015. The mortgage loan, which
is secured by one of the Companys self-storage facilities, bears interest at 5.60% and matures in
January 2015. Since the debt was assumed at below market rates, the assumed debt was adjusted as
part of the purchase price allocation to fair value of approximately $1.9 million at an effective
interest rate of 6.41%. This mortgage loan requires YSI XV to establish reserves relating to the
mortgaged facilities for replacements, repairs, real estate taxes and insurance. The operating
partnership is a guarantor under this mortgage loan with respect to certain exceptions to the
non-recourse provisions of the loan.
In August 2006, YSI XVII LLC (YSI XVII), an indirect subsidiary of the Company, assumed a
$4.6 million fixed rate mortgage loan with GEMSA as
the lender in connection with the acquisition of In and Out, which requires monthly debt service payments until June 2013. The mortgage loan, which
is secured by one of the Companys self-storage facilities, bears interest at 5.72% and matures in
June 2013. Since the debt was assumed at below market rates, the assumed debt was adjusted as part
of the purchase price allocation to fair value of approximately $4.5 million at an effective
interest rate of 6.32%. This mortgage loan requires YSI XVII to establish reserves relating to the
mortgaged facilities for replacements, repairs, real estate taxes and insurance. The operating
partnership is a guarantor under this mortgage loan with respect to certain exceptions to the
non-recourse provisions of the loan.
The Companys mortgage loans and notes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
September 30, |
|
|
December 31, |
|
|
|
Rate |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Loans due November 2006 (see note 10) |
|
|
8.16 |
% |
|
$ |
64,177 |
|
|
$ |
65,090 |
|
Loans due December 2006 (see note 10) |
|
|
7.13 |
% |
|
|
38,539 |
|
|
|
39,132 |
|
Loans due November 2009 |
|
|
5.085 |
% |
|
|
88,727 |
|
|
|
89,870 |
|
Loans due May 2010 |
|
|
5.19 |
% |
|
|
88,750 |
|
|
|
89,872 |
|
Loans due January 2011 |
|
|
5.325 |
% |
|
|
88,779 |
|
|
|
89,875 |
|
Loans due August 2012 |
|
|
5.13 |
% |
|
|
80,000 |
|
|
|
80,000 |
|
Loans due September 2012 |
|
|
4.96 |
% |
|
|
80,000 |
|
|
|
80,000 |
|
Loans due November 2015 |
|
|
5.97 |
% |
|
|
71,383 |
|
|
|
72,352 |
|
Other fixed rate mortgage loans payable with
maturity dates ranging from 2007 through
2015 at effective interest rates ranging
from 5.00% to 6.50%, reflecting 24 mortgage
loans at September 30, 2006 and 17 mortgage
loans at December 31, 2005 |
|
5.47% to 8.96% |
|
|
91,614 |
|
|
|
59,588 |
|
Other notes |
|
|
5.97 |
% |
|
|
138 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
692,107 |
|
|
|
665,941 |
|
Fair value
adjustment on assumed indebtedness and notes, net |
|
|
|
|
|
|
1,587 |
|
|
|
3,341 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
693,694 |
|
|
$ |
669,282 |
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006 and December 31, 2005, the Companys mortgage loans payable were
collateralized by certain of its self-storage facilities with net book values of approximately $959
million and $910 million, respectively.
8
The following table represents the future principal payment requirements on the outstanding
mortgage loans at September 30, 2006:
|
|
|
|
|
Year |
|
September 30, 2006 |
|
|
|
(Dollars in thousands) |
|
2006 |
|
$ |
104,850 |
|
2007 |
|
|
24,876 |
|
2008 |
|
|
16,961 |
|
2009 |
|
|
94,302 |
|
2010 |
|
|
112,346 |
|
2011 and thereafter |
|
|
338,772 |
|
|
|
|
|
Total |
|
$ |
692,107 |
|
|
|
|
|
6. MINORITY INTERESTS
Minority interests relate to the interests in the operating partnership that are not owned by
the Company, which, at September 30, 2006 and December 31, 2005, amounted to approximately 8%.
In conjunction with the formation of the Company, certain former owners contributed properties
to the operating partnership and received units in the operating partnership concurrently with the
closing of the IPO. Limited partners who acquired units in the various formation transactions have
the right, that began on October 27, 2005, to require the operating partnership to redeem part or
all of their operating partnership units for cash or, at the Companys option, common shares, based
upon the fair market value of an equivalent number of common shares for which the operating
partnership units would have been redeemed if the Company had assumed and satisfied the operating
partnerships obligation by paying common shares. The market value of the Companys common shares
for this purpose will be equal to the average of the closing trading price of the Companys common
shares on the New York Stock Exchange for the ten trading days before the day on which the Company
received the redemption notice. Upon consummation of the IPO, the carrying value of the net assets
of the operating partnership was allocated to minority interests. Pursuant to three contribution
agreements and three option exercises in 2005, entities owned by the Companys Chairman and one of
its trustees received an aggregate of 1,524,358 operating partnership units for six properties with
a net historical basis of $7.3 million.
In conjunction with the July 2005 acquisition of 71 self-storage facilities from National Self
Storage and the Schomac Group, Inc., the Company paid approximately $214.5 million which included
$69.7 million in cash, assumed $83.0 million of indebtedness and issued 3,674,497 operating
partnership units valued at $61.8 million. As provided in the partnership agreement of the
operating partnership, these units are redeemable by unitholders for cash or, at the Companys
option, common shares on a one-for-one basis. During the second quarter the Company received a
redemption notice from certain unitholders. The Company intends to register these shares during
the remainder of 2006 or in the first quarter of 2007.
7. RELATED PARTY TRANSACTIONS
Acquisition of Facilities
In connection with the IPO, the Company entered into an option agreement with Rising Tide
Development, a company owned and controlled by Robert J. Amsdell, the Companys Chairman, and Barry
L. Amsdell, one of its trustees, to acquire 18 self-storage facilities, consisting, as of September
30, 2006, of 14 facilities owned by Rising Tide Development, one facility which Rising Tide
Development has the right to acquire from unaffiliated third parties and three facilities which
have since been acquired by the Company pursuant to the exercise of its options. The options become
exercisable with respect to each particular self-storage facility if and when that facility
achieves a month-end occupancy level of 85% for three consecutive months. None of the remaining
self-storage facilities that the Company has the option to purchase met the occupancy requirement
as of September 30, 2006.
The Company acquired nine self-storage facilities from Jernigan Property Group on July 27,
2006 for consideration of approximately $45.3 million. Our President and Chief Executive Officer,
Mr. Jernigan, serves as President of Jernigan Property Group and has a 20% beneficial interest in
eleven self-storage properties partially owned by Jernigan Property Group and related companies and
partnerships. Mr. Jernigan has agreed that he will not expand his interest, ownership or activity
in the self-storage business beyond these eleven facilities. In accordance with the contract signed
April 3, 2006 our operating partnership entered into an agreement to acquire nine of these
self-storage facilities. Given Mr. Jernigans appointment as a trustee and the President and Chief
Executive Officer of the Company on April 24, 2006, this transaction was subject to review and
final approval by a majority of the independent
members of the Companys Board of Trustees. Mr. Jernigan has discontinued all involvement in
the day-to-day management or operation of the Jernigan Property Group facilities.
9
Management Services
Effective October 27, 2004, YSI Management LLC, one of our wholly owned subsidiaries, entered
into a management contract with Rising Tide Development to provide property management services to
the option facilities for a fee equal to the greater of 5.35% of the gross revenues of each
facility or $1,500 per facility per month. Management fees earned by YSI Management LLC, from
Rising Tide Development, were approximately $0.1 million and $0.3 million, respectively, for each
of the three months and nine months, ended September 30, 2006 and 2005. Accounts receivable from
Rising Tide Development at September 30, 2006 and December 31, 2005, were approximately $0.3
million and $0.4 million, respectively, and is included in Due From Related Parties. This
receivable represents expenses paid on behalf of Rising Tide Development by YSI Management LLC that
will be reimbursed under standard business terms. Additionally, U-Store-It Mini Warehouse Co.,
another of the Companys wholly owned subsidiaries, entered into a marketing and ancillary services
contract with Rising Tide Development to provide marketing and various additional services to the
option facilities. In return for these services, U-Store-It Mini Warehouse Co. retains all the
profits from these services. Fees earned from this management contract were approximately $0.1
million for each of the three months ended September 30, 2006 and 2005 respectively, and $0.3
million and $0.2 million for the nine months ended September 30, 2006 and 2005, respectively.
In 2004, our Predecessor engaged Amsdell Construction, a company owned 50% by Robert J.
Amsdell and 50% by Barry L. Amsdell, to rebuild a South Carolina facility destroyed by fire in 2004
and to complete a build out under one of our office leases. The total payments incurred by the
Company to Amsdell Construction for the three and nine months ended September 30, 2006,
respectively was approximately $10,875 and $41,764, respectively. Total payments incurred for the
three and nine months ended September 30, 2005, were $0.0 million and $0.3 million, respectively.
Corporate Office Leases
The Company and its operating partnership has entered into a number of leases with Amsdell and
Amsdell, an entity owned by Robert J. Amsdell and Barry L. Amsdell, for office space of
approximately 35,000 square feet at office buildings in Cleveland, Ohio. These leases range in term
from those expiring in April 2007 to long-term leases expiring in December 2014 with various
extension options at the then prevailing market rates. The Companys disinterested trustees
approved the terms of, and entry into, these leases by the operating partnership.
The total amount of lease payments incurred under these office leases for the three and nine
months ended September 30, 2006 was approximately $0.2 million, and $0.4 million, respectively.
For the three and nine months ended September 30, 2005, lease payments incurred were $0.1 million
and $0.3 million, respectively.
Total future minimum rental payments under the related party lease agreements entered into as
of September 30, 2006 are as follows:
|
|
|
|
|
|
|
Related Party |
|
|
|
Amount |
|
|
|
(Dollars in thousands) |
|
2006 |
|
$ |
117 |
|
2007 |
|
|
474 |
|
2008 |
|
|
468 |
|
2009 |
|
|
453 |
|
2010 |
|
|
453 |
|
2011 and thereafter |
|
|
1,948 |
|
|
|
|
|
Total |
|
$ |
3,913 |
|
|
|
|
|
The Company bills Amsdell and Amsdell for the cost of certain services. As of September 30,
2006 and December 31, 2005, the Company recorded a receivable of $3,961 and $10,172, respectively.
10
Aircraft Lease
The Company chartered an aircraft from Aqua Sun Investments, L.L.C. (Aqua Sun), a company
owned by Robert J. Amsdell
and Barry L. Amsdell. The Company was under contract pursuant to a
timesharing agreement to reimburse Aqua Sun at the rate of $1,250 for each hour of use of the
aircraft and the payment of certain expenses associated with the use of the aircraft. As described
in the paragraph below, effective June 30, 2005 the timesharing agreement was terminated by mutual
agreement of the parties thereto and was replaced on July 1, 2005 with a non-exclusive aircraft
lease agreement with Aqua Sun (the Aircraft Lease). The Companys disinterested trustees approved
the terms of, and the entry into, the non-exclusive aircraft lease agreement by the operating
partnership.
Under the Aircraft Lease with Aqua Sun, the operating partnership leased for corporate use
from time to time an airplane owned by Aqua Sun. Under the terms of the Aircraft Lease, the
operating partnership leased use of the airplane owned by Aqua Sun at an hourly rate of $1,450 per
flight hour. Aqua Sun was responsible for various costs associated with operation of the airplane,
including insurance, storage and maintenance and repair, but the operating partnership is
responsible for fuel costs and the costs of pilots and other cabin personnel required for its use
of the airplane. The Aircraft Lease, which was effective as of July 1, 2005, had a one-year term
and was terminated at June 30, 2006. The total amount incurred for such aircraft charters described
above by the Company for the three months ended September 30, 2006 and 2005 was approximately $0.0
million and $0.1 million, respectively, and for the nine months ended September 30, 2006 and 2005
was $0.1 million and $0.3 million, respectively.
Other
The Company engaged Dunlevy Building Systems Inc., a company owned by John Dunlevy, a
brother-in-law of Robert J. Amsdell and Barry L. Amsdell, for construction, zoning consultant and
general contractor services at certain of its self-storage facilities. The total payments were
incurred by the Company to Dunlevy Building Systems Inc. for the three months ended September 30,
2006 and 2005 were approximately $0 and $17,000, respectively, and for the nine months ended
September 30, 2006 and 2005 were $19,028 and $22,000, respectively.
The Company engaged Deborah Dunlevy Designs, a company owned by Deborah Dunlevy, a sister of
Robert J. Amsdell and Barry L. Amsdell, for interior design services at certain of its self-storage
facilities and offices. The total payments incurred by the Company to Deborah Dunlevy Designs for
the three months and nine months ended September 30, 2005 were approximately $0 and $56,000,
respectively. There were no payments made during the nine months ended September 30, 2006.
Registration Rights
The Amsdell Entities that acquired common shares or operating partnership units in the
formation transactions which took place at the time of the IPO received certain registration
rights. An aggregate of approximately 9.7 million common shares acquired in the formation
transactions are subject to a registration rights agreement (including approximately 1.1 million
shares issuable upon redemption of approximately 1.1 million operating partnership units issued in
the formation transactions). The Amsdell Entities are entitled to require the Company to register
their shares for public sale subject to certain exceptions, limitations and conditions precedent.
In addition, Rising Tide Development received registration rights with respect to the
operating partnership units it received in connection with the Companys acquisition of three
option facilities. Rising Tide Development is entitled to require the Company to register
approximately 0.4 million common shares (which shares are issuable upon redemption of approximately
0.4 million operating partnership units issued in connection with the Companys option exercises)
for public sale subject to certain exceptions, limitations and conditions precedent.
The Company intends to register the aforementioned shares during the remainder of 2006 or the
first quarter of 2007. Additionally, certain operating partnership units issued in conjunction with
the acquisition of self-storage facilities from National Self Storage
will be exchanged for shares in
accordance with its purchase agreement.
11
8. PRO FORMA FINANCIAL INFORMATION
During the nine months ended September 30, 2006, the Company acquired 60 self-storage
facilities for an aggregate purchase price of approximately $363.2 million. The unaudited condensed
consolidated pro forma financial information set forth below reflects adjustments to the Companys
historical financial data to give effect as if the acquisitions and related assumed indebtedness
each had occurred on January 1, 2005.
The unaudited condensed consolidated pro forma information presented below does not purport to
represent what the Companys actual results of operations would have been for the periods
indicated, nor does it purport to represent the Companys future results of operations.
The following table summarizes, on a pro forma basis, our consolidated results of operations
for the three and nine months ended September 30, 2006 and 2005 based on the assumptions described
above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
(Dollars in thousands, except per share data) |
Pro forma total revenues |
|
$ |
57,315 |
|
|
$ |
50,532 |
|
|
$ |
167,010 |
|
|
$ |
113,805 |
|
Pro forma net income (loss) |
|
$ |
(2,067 |
) |
|
$ |
1,136 |
|
|
$ |
(4,612 |
) |
|
$ |
3,472 |
|
Pro forma diluted earnings (loss) per share |
|
$ |
(0.04 |
) |
|
$ |
0.03 |
|
|
$ |
(0.08 |
) |
|
$ |
0.09 |
|
9. STAFF ACCOUNTING BULLETIN NO. 108
In September 2006, SEC issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108 provides guidance on the
consideration of effects of the prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. The SEC staff believes registrants must quantify
errors using both a balance sheet and income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant quantitative and qualitative
factors are considered, is material. Adjustments made under this pronouncement are reflected in
the opening balance of shareholders equity in the year of adoption. SAB 108 also requires
the adjustment of any prior quarterly financial statements within the fiscal year of adoption for
the effects of such errors on the quarters when the information is next presented. Such
adjustments do not require previously filed reports with the SEC to be amended. The SAB allows for
the adjustment to be made through a cumulative effect transition. SAB 108 is effective for the
first annual period ending after November 15, 2006 with early application encouraged.
Effective September 30, 2006 the Company early adopted SAB 108. Upon the Company assessing the
impact of SAB 108 on its condensed consolidated financial statements, the Company determined that
an immaterial error corrected in the second quarter of 2006 related to rental income and errors related to loan procurement costs
and workers compensation expense which were deemed to be immaterial
individually and in the aggregate under the Companys previous
error assessment methodology, were material under the provisions of
SAB 108.
In accordance with SAB 108, the
Company has adjusted its opening accumulated deficit for fiscal 2006 and its financial results for
the first two quarters of fiscal 2006 (included in the nine months ended September 30, 2006 in the
accompanying condensed consolidated financial statements) for the items described below.
Loan Procurement Costs
The Company adjusted its opening accumulated deficit for 2006 and its financial results for
the first two quarters of 2006 to reflect a change in amortization period of certain loan
procurement costs, associated with debt instruments with increasing interest rates that originated
in 2000 and 2001. The loan procurement costs were being amortized over a period inconsistent with
the determination of the debt instruments interest cost.
Rental Income
The Company adjusted its opening accumulated deficit for 2006 and its financial results for
the first two quarters of 2006 for adjustments to certain tenant receivable transactions. During
the second quarter 2006, the Company identified an immaterial accounting error related to certain
tenant receivable transactions. The misstatement related to the period in which the revenue related
to certain tenants had been recognized and it originated in 2005.
12
Workers Compensation
The Company adjusted its opening accumulated deficit for 2006 and its financial results
for the first two quarters of 2006 for adjustments to unrecorded workers compensation expense from
2004 and 2005. The workers compensation expense had been understated
as a result of erroneous information used to calculate expense
in the 2004 and 2005 timeframe.
Impact of Adjustments
The impact of each of the items noted above on fiscal 2006 opening shareholders equity and
accumulated deficit and on net loss for the first and second quarters of fiscal 2006 is presented
below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan |
|
|
|
|
|
|
|
|
Procurement |
|
Rental |
|
Workers |
|
|
|
|
Costs |
|
Income |
|
Compensation |
|
Total |
Cumulative effect on shareholders equity as of January 1, 2006 |
|
$ |
(1,243 |
) |
|
$ |
(946 |
) |
|
$ |
(257 |
) |
|
$ |
(2,446 |
) |
Cumulative effect on accumulated deficit as of January 1, 2006 |
|
$ |
(1,243 |
) |
|
$ |
(946 |
) |
|
$ |
(257 |
) |
|
$ |
(2,446 |
) |
Effect on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31, 2006 |
|
$ |
(62 |
) |
|
$ |
75 |
|
|
$ |
(52 |
) |
|
$ |
(39 |
) |
Net loss for the three months ended June 30, 2006 |
|
$ |
(62 |
) |
|
$ |
871 |
|
|
$ |
(56 |
) |
|
$ |
753 |
|
Net loss for the six months ended June 30, 2006 |
|
$ |
(124 |
) |
|
$ |
946 |
|
|
$ |
(108 |
) |
|
$ |
714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously |
|
|
|
|
|
As |
|
|
|
|
Reported |
|
Adjustment |
|
Adjusted |
|
|
As of and for the three months ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan procurement costs net of amortization |
|
$ |
9,714 |
|
|
$ |
(1,424 |
) |
|
$ |
8,290 |
|
|
|
|
|
Other assets |
|
$ |
8,983 |
|
|
$ |
(950 |
) |
|
$ |
8,033 |
|
|
|
|
|
Total Assets |
|
$ |
1,512,329 |
|
|
$ |
(2,374 |
) |
|
$ |
1,509,955 |
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
16,206 |
|
|
$ |
517 |
|
|
$ |
16,723 |
|
|
|
|
|
Total Liabilities |
|
$ |
763,433 |
|
|
$ |
517 |
|
|
$ |
763,950 |
|
|
|
|
|
Minority interests |
|
$ |
62,295 |
|
|
$ |
(241 |
) |
|
$ |
62,054 |
|
|
|
|
|
Accumulated deficit |
|
$ |
(109,492 |
) |
|
$ |
(2,650 |
) |
|
$ |
(112,142 |
) |
|
|
|
|
Total shareholders equity |
|
$ |
686,601 |
|
|
$ |
(2,650 |
) |
|
$ |
683,951 |
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
1,512,329 |
|
|
$ |
(2,374 |
) |
|
$ |
1,509,955 |
|
|
|
|
|
Statement of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
45,027 |
|
|
$ |
82 |
|
|
$ |
45,109 |
|
|
|
|
|
Total revenues |
|
$ |
48,128 |
|
|
$ |
82 |
|
|
$ |
48,210 |
|
|
|
|
|
Property operating expenses |
|
$ |
18,860 |
|
|
$ |
57 |
|
|
$ |
18,917 |
|
|
|
|
|
Total operating expenses |
|
$ |
39,118 |
|
|
$ |
57 |
|
|
$ |
39,175 |
|
|
|
|
|
Operating income |
|
$ |
9,010 |
|
|
$ |
25 |
|
|
$ |
9,035 |
|
|
|
|
|
Loan procurement amortization expense |
|
$ |
(395 |
) |
|
$ |
(67 |
) |
|
$ |
(462 |
) |
|
|
|
|
Total other expense |
|
$ |
(10,742 |
) |
|
$ |
(67 |
) |
|
$ |
(10,809 |
) |
|
|
|
|
Income (loss) before minority interest |
|
$ |
(1,732 |
) |
|
$ |
(42 |
) |
|
$ |
(1,774 |
) |
|
|
|
|
Minority interests |
|
$ |
145 |
|
|
$ |
3 |
|
|
$ |
148 |
|
|
|
|
|
Net loss |
|
$ |
(1,587 |
) |
|
$ |
(39 |
) |
|
$ |
(1,626 |
) |
|
|
|
|
Diluted loss per share |
|
$ |
(0.03 |
) |
|
$ |
|
|
|
$ |
(0.03 |
) |
|
|
|
|
Statement of Cash Flows | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,587 |
) |
|
$ |
(39 |
) |
|
$ |
(1,626 |
) |
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
15,067 |
|
|
$ |
67 |
|
|
$ |
15,134 |
|
|
|
|
|
Minority interests |
|
$ |
(145 |
) |
|
$ |
(3 |
) |
|
$ |
(148 |
) |
|
|
|
|
Changes in other operating accounts | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
(1,947 |
) |
|
$ |
(82 |
) |
|
$ |
(2,029 |
) |
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
(2,635 |
) |
|
$ |
57 |
|
|
$ |
(2,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan procurement costs net of amortization |
|
$ |
9,298 |
|
|
$ |
(1,491 |
) |
|
$ |
7,807 |
|
|
|
|
|
Other assets |
|
$ |
7,734 |
|
|
$ |
|
|
|
$ |
7,734 |
|
|
|
|
|
Total Assets |
|
$ |
1,551,179 |
|
|
$ |
(1,491 |
) |
|
$ |
1,549,688 |
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
19,262 |
|
|
$ |
578 |
|
|
$ |
19,840 |
|
|
|
|
|
Total liabilities |
|
$ |
820,342 |
|
|
$ |
578 |
|
|
$ |
820,920 |
|
|
|
|
|
Minority interests |
|
$ |
60,759 |
|
|
$ |
(172 |
) |
|
$ |
60,587 |
|
|
|
|
|
Accumulated deficit |
|
$ |
(126,181 |
) |
|
$ |
(1,897 |
) |
|
$ |
(128,078 |
) |
|
|
|
|
Total shareholders equity |
|
$ |
670,078 |
|
|
$ |
(1,897 |
) |
|
$ |
668,181 |
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
1,551,179 |
|
|
$ |
(1,491 |
) |
|
$ |
1,549,688 |
|
|
|
|
|
Statement of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Income |
|
$ |
48,822 |
|
|
$ |
949 |
|
|
$ |
49,771 |
|
|
|
|
|
Total revenues |
|
$ |
52,440 |
|
|
$ |
949 |
|
|
$ |
53,389 |
|
|
|
|
|
Property operating expenses |
|
$ |
20,954 |
|
|
$ |
61 |
|
|
$ |
21,015 |
|
|
|
|
|
Total operating expenses |
|
$ |
41,105 |
|
|
$ |
61 |
|
|
$ |
41,166 |
|
|
|
|
|
Operating income |
|
$ |
11,335 |
|
|
$ |
888 |
|
|
$ |
12,223 |
|
|
|
|
|
Loan procurement amortization expense |
|
$ |
(447 |
) |
|
$ |
(67 |
) |
|
$ |
(514 |
) |
|
|
|
|
Total other expense |
|
$ |
(11,367 |
) |
|
$ |
(67 |
) |
|
$ |
(11,434 |
) |
|
|
|
|
Income (loss) before minority interest |
|
$ |
(32 |
) |
|
$ |
821 |
|
|
$ |
789 |
|
|
|
|
|
Minority interests |
|
$ |
2 |
|
|
$ |
(68 |
) |
|
$ |
(66 |
) |
|
|
|
|
Net income (loss) |
|
$ |
(30 |
) |
|
$ |
753 |
|
|
$ |
723 |
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the six months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan procurement costs net of amortization |
|
$ |
9,298 |
|
|
$ |
(1,491 |
) |
|
$ |
7,807 |
|
|
|
|
|
Other assets |
|
$ |
7,734 |
|
|
$ |
|
|
|
$ |
7,734 |
|
|
|
|
|
Total Assets |
|
$ |
1,551,179 |
|
|
$ |
(1,491 |
) |
|
$ |
1,549,688 |
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
19,262 |
|
|
$ |
578 |
|
|
$ |
19,840 |
|
|
|
|
|
Total liabilities |
|
$ |
820,342 |
|
|
$ |
578 |
|
|
$ |
820,920 |
|
|
|
|
|
Minority interests |
|
$ |
60,759 |
|
|
$ |
(172 |
) |
|
$ |
60,587 |
|
|
|
|
|
Accumulated Deficit |
|
$ |
(126,181 |
) |
|
$ |
(1,897 |
) |
|
$ |
(128,078 |
) |
|
|
|
|
Total shareholders equity |
|
$ |
670,078 |
|
|
$ |
(1,897 |
) |
|
$ |
668,181 |
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
1,551,179 |
|
|
$ |
(1,491 |
) |
|
$ |
1,549,688 |
|
|
|
|
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Income |
|
$ |
93,849 |
|
|
$ |
1,031 |
|
|
$ |
94,880 |
|
|
|
|
|
Total revenues |
|
$ |
100,568 |
|
|
$ |
1,031 |
|
|
$ |
101,599 |
|
|
|
|
|
Property operating expenses |
|
$ |
39,814 |
|
|
$ |
118 |
|
|
$ |
39,932 |
|
|
|
|
|
Total operating expenses |
|
$ |
80,223 |
|
|
$ |
118 |
|
|
$ |
80,341 |
|
|
|
|
|
Operating income |
|
$ |
20,345 |
|
|
$ |
913 |
|
|
$ |
21,258 |
|
|
|
|
|
Loan procurement amortization expense |
|
$ |
(842 |
) |
|
$ |
(134 |
) |
|
$ |
(976 |
) |
|
|
|
|
Total other expense |
|
$ |
(11,367 |
) |
|
$ |
(67 |
) |
|
$ |
(11,434 |
) |
|
|
|
|
Income (loss) before minority interest |
|
$ |
(22,109 |
) |
|
$ |
(134 |
) |
|
$ |
(22,243 |
) |
|
|
|
|
Minority interests |
|
$ |
(1,764 |
) |
|
$ |
779 |
|
|
$ |
(985 |
) |
|
|
|
|
Net loss |
|
$ |
(1,617 |
) |
|
$ |
714 |
|
|
$ |
(903 |
) |
|
|
|
|
Diluted loss per share |
|
$ |
(0.03 |
) |
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
|
|
|
Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,617 |
) |
|
$ |
714 |
|
|
$ |
(903 |
) |
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
21,248 |
|
|
$ |
134 |
|
|
$ |
31,382 |
|
|
|
|
|
Minority interests |
|
$ |
(147 |
) |
|
$ |
65 |
|
|
$ |
(82 |
) |
|
|
|
|
Changes in other operating accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
(350 |
) |
|
$ |
(1,301 |
) |
|
$ |
(1,381 |
) |
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
112 |
|
|
$ |
118 |
|
|
$ |
230 |
|
|
|
|
|
13
10. SUBSEQUENT EVENTS
In
October 2006, the Company repaid its 7.13% mortgage, for USI II
a wholly-owned subsidiary, that had total principal
outstanding of approximately $38.5 million. The debt was paid from proceeds obtained by drawing on
the Companys existing revolving credit facility.
In
November 2006, the Company entered into a 30-day, unsecured
$50.0 million bridge loan
agreement with Wachovia Bank, National Association as the lender. The term loan bears interest at a
variable rate of LIBOR plus 115 basis points. The proceeds of the $50.0 million bridge loan
combined with borrowings under the Companys revolving credit facility were used to repay its 8.16%
mortgage, for Acquiport III a wholly-owned subsidiary, that had total principal outstanding of approximately $64.1 million in
November 2006.
14
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report. The Company makes certain statements in this section
that are forward-looking statements within the meaning of the federal securities laws. For a
complete discussion of forward-looking statements, see the section in this report entitled
Forward-Looking Statements. Certain risk factors may cause actual results, performance or
achievements to differ materially from those expressed or implied by the following discussion. For
a discussion of such risk factors, see the section entitled Risk Factors in Item 1 of the Annual
Report on Form 10-K for the year ended December 31, 2005.
OVERVIEW
The Company is an integrated self-storage real estate company, which means that it has
in-house capabilities in the operation, design, development, leasing, and acquisition of
self-storage facilities. At September 30, 2006 and December 31, 2005, the Company owned 399 and 339
self-storage facilities and related assets, respectively, totaling approximately 25.4 million and
20.8 million rentable square feet, respectively.
On October 27, 2004, the Company completed its IPO, pursuant to which it sold an aggregate of
28,750,000 common shares. On October 7, 2005, the Company completed a follow on public offering,
pursuant to which it sold an aggregate of 19,665,000 common shares.
The Company derives revenues principally from rents received from its customers who rent units
at its self-storage facilities under month-to-month leases. Therefore, our operating results depend
materially on our ability to retain our existing customers and lease our available self-storage
units to new customers while maintaining and, where possible, increasing our pricing levels. In
addition, our operating results depend on the ability of our customers to make required rental
payments to us. We believe that our decentralized approach to the management and operation of our
facilities, which places an emphasis on local, market level oversight and control, allows us to
respond quickly and effectively to changes in local market conditions, including increasing rents
while maintaining occupancy levels, or increasing occupancy levels while maintaining pricing
levels.
The Company experiences minor seasonal fluctuations in the occupancy levels of our facilities,
which are generally slightly higher during the summer months due to increased moving activity.
The Company intends to focus on increasing our internal growth and selectively pursuing
targeted acquisitions and developments of self-storage facilities. We intend to incur additional
debt in connection with any such future acquisitions or developments.
The Company has one reportable operating segment: we own, operate, develop, and acquire
self-storage facilities. The Companys self-storage facilities are located in major metropolitan
areas and have numerous tenants per facility. All our operations are within the United States and
no single tenant represents 1% or more of our revenues. The facilities in Florida, California,
Illinois, New Jersey and Texas provided approximately 19.9%, 15.9%, 7.1%, 6.4% and 6.4%,
respectively, of total revenues for the nine months ended September 30, 2006.
Summary of Critical Accounting Policies and Estimates
Set forth below is a summary of the accounting policies that management believes are critical
to the preparation of the unaudited condensed consolidated financial statements. These policies
have not changed since the Company filed its Annual Report on Form 10-K for the year ended December
31, 2005 with the SEC. Certain of the accounting policies used in the preparation of these
condensed consolidated financial statements are particularly important for an understanding of the
financial position and results of operations presented in the historical condensed consolidated
financial statements included in this report. These policies require the application of judgment
and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this
uncertainty, actual results could differ from estimates calculated and utilized by management.
15
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include all of the
accounts of the Company, the operating partnership and the wholly owned subsidiaries of the
operating partnership. The mergers of Amsdell Partners, Inc. and High Tide LLC with and into the
Company, and the property interests contributed to the operating partnership by the Predecessor,
have been accounted for as a reorganization of entities under common control and accordingly, were
recorded at the Predecessors historical cost basis.
For analytical presentation, all percentages are calculated using the numbers presented in the
financial statements contained in Item 1 of this Form 10-Q.
Self-Storage Facilities
The Company records self-storage facilities at cost less accumulated depreciation.
Depreciation on the buildings and equipment is recorded on a straight-line basis over their
estimated useful lives, which range from five to 39 years. Expenditures for significant renovations
or improvements that extend the useful life of assets are capitalized. Repairs and maintenance
costs are expensed as incurred.
When facilities are acquired, the purchase price is allocated to the tangible and intangible
assets acquired and liabilities assumed based on estimated fair values. When a portfolio of
facilities is acquired, the purchase price is allocated to the individual facilities based upon an
income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which
take into account the relative size, age and location of the individual facility along with current
and projected occupancy and rental rate levels or appraised values, if available. Allocations to
the individual assets and liabilities are based upon comparable market sales information for land,
buildings and improvements and estimates of depreciated replacement cost of equipment.
In allocating the purchase price, the Company determines whether the acquisition includes
intangible assets or liabilities. Substantially all of the leases in place at acquired properties
are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to
date no portion of the purchase price has been allocated to above- or below-market lease
intangibles. The Company also considers whether the in-place, at-market leases for any facility
represent an intangible asset. Based upon the Companys experience, leases of this nature generally
re-let in less than 30 days and lease-up costs are minimal. Accordingly, the Company has no
intangible assets recorded for in-place, at-market leases as of September 30, 2006. Additionally,
to date no intangible asset has been recorded for the value of tenant relationships, because the
Company does not have any concentrations of significant tenants and the average tenant turnover is
fairly frequent.
Long-lived assets classified as held for use are reviewed for impairment when events and
circumstances indicate that there may be an impairment. The carrying values of these long-lived
assets are compared to the undiscounted future cash flows attributable to the assets. An impairment
loss is recorded if the net carrying value of the asset exceeds the fair value based on its
undiscounted future cash flows attributable to the asset and circumstances indicate that the
carrying value of the real estate asset may not be recoverable. The impairment loss recognized
equals the excess of net carrying value over the related fair value of the asset.
The Company considers long-lived assets to be held for sale upon satisfaction of the
following criteria: (a) management commits to a plan to sell a facility (or group of facilities),
(b) the facility is available for immediate sale in its present condition subject only to terms
that are usual and customary for sales of such facilities, (c) an active program to locate a buyer
and other actions required to complete the plan to sell the facility have been initiated, (d) the
sale of the facility is probable and transfer of the asset is expected to be completed within one
year, (e) the facility is being actively marketed for sale at a price that is reasonable in
relation to its current fair value and (f) actions required to complete the plan indicate that it
is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Typically these criteria are all met when the relevant asset is under contract, significant
non-refundable deposits have been made by the potential buyer, the assets are immediately available
for transfer and there are no contingencies related to the sale that may prevent the transaction
from closing. In most transactions, these contingencies are not satisfied until the actual closing
of the transaction; and, accordingly, the facility is not identified as held for sale until the
closing actually occurs. However, each potential transaction is evaluated based on its separate
facts and circumstances.
16
Revenue Recognition
Management has determined that all of the Companys leases with tenants are operating leases.
Rental income is recognized in accordance with the terms of the lease agreements or contracts,
which generally are month-to-month. Revenues from long-term operating leases are recognized on a
straight-line basis over the term of the lease. The excess of rents recognized over amounts
contractually due pursuant to the underlying leases is included in deferred revenue, and
contractually due but unpaid rents are included in other assets.
Share Based Compensation
We apply the fair value method of accounting for contingently issued shares and share options
issued under our incentive award plan. Accordingly, share compensation expense is recorded ratably
over the vesting period relating to such contingently issued shares and options. The Company has
recognized compensation expense on a straight-line method over the requisite service period.
Additionally, certain restricted share units awarded in 2005 to our chairman vest immediately upon
his retirement from the Company as he has reached the retirement age set forth in his award
agreement. Accordingly, share compensation expense related to this issuance was expensed fully at
the grant date. Compensation expense recorded for the three and nine months ended September 30,
2006 was approximately $0.6 million and $1.0 million, respectively. Compensation expense recorded
during the prior year was $0.2 million and $0.6 million for the three months and nine months ended
September 30, 2005, respectively.
Recent Accounting Pronouncements
In September 2006, SEC issued SAB No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108
provides guidance on the consideration of effects of the prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment. The SEC staff believes
registrants must quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. Adjustments made under this
pronouncement are reflected on the opening balance sheet of shareholders equity in the year of
adoption. SAB 108 also requires the adjustment of any prior quarterly financial statements within
the fiscal year of adoption for the effects of such errors on the quarters when the information is
next presented. Such adjustments do not require previously filed reports with the SEC to be
amended. The SAB allows for the adjustment to be made through a cumulative effect transition. SAB
108 is effective for the first annual period ending after November 15, 2006 with early application
encouraged.
Effective September 30, 2006 the Company early adopted SAB 108. Upon the Company assessing
the impact of SAB 108 on its condensed consolidated financial statements, the Company determined
that an immaterial error corrected in the second quarter of 2006 related to rental income and errors related to loan procurement costs
and workers compensation expense which were deemed to be immaterial
individually and in the aggregate under the Companys previous
error assessment methodology, were material under the provisions of
SAB 108.
In accordance with SAB 108, the
Company has adjusted its opening accumulated deficit for fiscal 2006 and its financial results for
the first two quarters of fiscal 2006 (included in the nine months ended September 30, 2006 in the
accompanying unaudited condensed consolidated financial statements).
17
Impact of Adjustments
The impact of each of the items noted above on fiscal 2006 opening shareholders equity and
accumulated deficit and on net loss for the first and second quarters of fiscal 2006 is presented
below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Procurement |
|
Rental |
|
Workers |
|
|
|
|
Costs |
|
Income |
|
Compensation |
|
Total |
Cumulative effect on shareholders equity as of January 1, 2006 |
|
$ |
(1,243 |
) |
|
$ |
(946 |
) |
|
$ |
(257 |
) |
|
$ |
(2,446 |
) |
Cumulative effect on accumulated deficit as of January 1, 2006 |
|
$ |
(1,243 |
) |
|
$ |
(946 |
) |
|
$ |
(257 |
) |
|
$ |
(2,446 |
) |
Effect on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31,
2006 |
|
$ |
(62 |
) |
|
$ |
75 |
|
|
$ |
(52 |
) |
|
$ |
(39 |
) |
Net loss for the three months ended June 30, 2006 |
|
$ |
(62 |
) |
|
$ |
871 |
|
|
$ |
(56 |
) |
|
$ |
753 |
|
Net loss for the six months ended June 30, 2006 |
|
$ |
(124 |
) |
|
$ |
946 |
|
|
$ |
(108 |
) |
|
$ |
714 |
|
In
September 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes
a framework for measuring fair value and expands disclosures about
fair value measurements. This Statement is effective for fiscal years
beginning after December 31, 2007. The Company is in the process
of determining the impact of this Statement on the Companys
consolidated financial statements.
18
In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in tax
positions. This Interpretation requires that we recognize in our financial statements, the impact
of a tax position, if that position is more likely than not of being sustained on audit, based on
the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of
our 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as
an adjustment to opening accumulated deficit. We are currently evaluating the impact of adopting
FIN 48 on our financial statements.
Results of Operations
The following discussion of the results of operations should be read in conjunction with the
unaudited condensed consolidated financial statements and the accompanying notes thereto.
Historical results set forth in the condensed consolidated statements of operations reflect only
the existing facilities and should not be taken as indicative of future operations.
Acquisition and Development Activities
The comparability of the Companys results of operations is significantly affected by
development, redevelopment and acquisition activities in 2006 and 2005. At September 30, 2006 and
September 30, 2005, the Company owned interests in 399 and 236 self-storage facilities and related
assets, respectively.
The following table summarizes the acquisitions that the Company completed during the three
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of |
|
|
Rentable |
|
|
|
|
|
|
|
Facility/Portfolio |
|
Acquisition |
|
|
Square Feet |
|
|
Number of Facilities |
|
|
Purchase Price |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
(Dollars in millions) |
|
Balance Beginning of period |
|
|
|
|
|
|
24,221 |
|
|
|
383 |
|
|
|
|
|
Jernigan Portfolio (1) |
|
July 27 |
|
|
664 |
|
|
|
9 |
|
|
$ |
44.9 |
|
U-Stor Portfolio (2) |
|
August 4 |
|
|
63 |
|
|
|
1 |
|
|
|
3.4 |
|
Bailes Portfolio |
|
August 8 |
|
|
216 |
|
|
|
3 |
|
|
|
15.6 |
|
In and Out (3) |
|
August 17 |
|
|
128 |
|
|
|
1 |
|
|
|
7.4 |
|
Texas Portfolio |
|
September 27 |
|
|
142 |
|
|
|
2 |
|
|
|
12.0 |
|
Other (4) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance End of period |
|
|
|
|
|
|
25,436 |
|
|
|
399 |
|
|
$ |
83.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above acquisitions
are included in the Companys results of operations from and after the date of acquisition.
|
|
|
(1) |
|
The purchase price included the assumption of approximately $7.4 million of indebtedness.
The debt was adjusted using market rates and the effect of the adjustment was approximately
$(0.4) million. |
|
(2) |
|
The purchase price included the assumption of approximately $2.0 million of indebtedness. The
debt was adjusted using market rates and the effect of the adjustment was approximately $(0.1)
million. |
|
(3) |
|
The purchase price included the assumption of approximately $4.6 million of indebtedness. The
debt was adjusted using market rates and the effect of the adjustment was approximately $(0.1)
million. |
|
(4) |
|
The Company added approximately 2,000 net rentable square feet at its existing facilities
during the three months ended September 30, 2006. |
19
A comparison of income (loss) before minority interests for the three and nine months
ended September 30, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
52,562 |
|
|
$ |
38,561 |
|
|
$ |
147,444 |
|
|
$ |
97,638 |
|
Other property related income |
|
|
3,844 |
|
|
|
2,742 |
|
|
|
10,563 |
|
|
|
7,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
56,406 |
|
|
|
41,303 |
|
|
|
158,007 |
|
|
|
104,802 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
21,978 |
|
|
|
14,651 |
|
|
|
61,792 |
|
|
|
37,426 |
|
Property operating expenses related party |
|
|
15 |
|
|
|
11 |
|
|
|
47 |
|
|
|
46 |
|
Depreciation |
|
|
16,405 |
|
|
|
10,868 |
|
|
|
46,811 |
|
|
|
27,633 |
|
Asset write-off |
|
|
307 |
|
|
|
|
|
|
|
307 |
|
|
|
|
|
General and administrative |
|
|
7,289 |
|
|
|
3,494 |
|
|
|
16,810 |
|
|
|
9,444 |
|
General and administrative related party |
|
|
73 |
|
|
|
192 |
|
|
|
523 |
|
|
|
496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
46,067 |
|
|
|
29,216 |
|
|
|
126,290 |
|
|
|
75,045 |
|
OPERATING INCOME |
|
|
10,339 |
|
|
|
12,087 |
|
|
|
31,717 |
|
|
|
29,757 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on loans |
|
|
(12,009 |
) |
|
|
(9,706 |
) |
|
|
(32,986 |
) |
|
|
(22,655 |
) |
Loan procurement amortization expense |
|
|
(529 |
) |
|
|
(570 |
) |
|
|
(1,505 |
) |
|
|
(1,328 |
) |
Write-off of loan procurement costs |
|
|
|
|
|
|
|
|
|
|
(1,273 |
) |
|
|
|
|
Interest income |
|
|
95 |
|
|
|
80 |
|
|
|
1,138 |
|
|
|
137 |
|
Other |
|
|
(13 |
) |
|
|
(31 |
) |
|
|
(73 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(12,456 |
) |
|
|
(10,227 |
) |
|
|
(34,699 |
) |
|
|
(23,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE MINORITY INTERESTS |
|
$ |
(2,117 |
) |
|
$ |
1,860 |
|
|
$ |
(2,982 |
) |
|
$ |
5,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Operating Results for the Three Months Ended September 30, 2006 and 2005
Total Revenues
Rental income increased from $38.6 million for the three months ended September 30, 2005 to
$52.6 million for the three months ended September 30, 2006, an increase of $14.0 million, or
36.3%. This increase is primarily attributable to (i) the acquisition of 19 facilities in the last
three months of 2005 and 60 facilities in the first nine months of 2006 and (ii) an increase in
revenues from our pool of same-store facilities of approximately $1.1 million (see Same-Store
Facility Results below). Additionally, the Company recorded approximately $0.2 million of revenue
from business interruption insurance settlements received during the three months ended September
30, 2006.
Other property related income increased from $2.7 million for the three months ended September
30, 2005 to $3.8 million for the three months ended September 30, 2006, an increase of $1.1
million, or 40.2%. This increase is primarily attributable to the acquisition of 19 facilities in
the last three months of 2005 and 60 facilities during the first nine months of 2006.
Total Operating Expenses
Property operating expenses increased from $14.7 million for the three months ended September
30, 2005 to $22.0 million for the three months ended September 30, 2006, an increase of $7.3
million, or 50.0%. This increase is primarily attributable to (i) the acquisition of 19 facilities
in the last three months of 2005 and 60 facilities in the first nine months of 2006 and (ii) an
increase in operating expenses from our pool of same-store facilities of approximately $1.7
million (see Same-Store Facility Results below).
General and administrative costs increased from $3.7 million for the three months ended
September 30, 2005 to $7.4 million for the three months ended September 30, 2006, an increase of
$3.7 million, or 100%. The increase related primarily to severance costs of approximately $2.1
million, of which $0.5 million were non-cash, related to a Company restructuring of certain
management positions. Additionally, the Company incurred higher payroll related expenses of
approximately $0.8 million, increased audit and tax fees of approximately $0.5 million and the
write-off of approximately $0.1 million of receivables.
Depreciation increased from $10.9 million for the three months ended September 30, 2005 to
$16.4 million for the three months ended September 30, 2006, an increase of $5.5 million, or 50.9%.
The increase is primarily attributable to the acquisition activity
during 2005 and 2006.
20
Total Other Expenses
Interest expense increased from $9.7 million for the three months ended September 30, 2005 to
$12.0 million for the three months ended September 30, 2006, an increase of $2.3 million, or 23.7%.
The increase is primarily attributable to a higher amount of outstanding debt in 2006.
Loan procurement amortization expense decreased from $0.6 million for the three months ended
September 30, 2005 to $0.5 million for the three months ended September 30, 2006, a decrease of
$0.1 million or 7.2%. The decrease is primarily attributable to lower financing costs attributable
to the revolving credit facility entered into in 2006.
Interest income remained flat at $0.1 million for the three months ended September 30, 2005
and 2006.
Income
(Loss) Before Minority Interests
The decrease in income (loss) from operations of $4.0 million for the three months ended
September 30, 2006 was primarily attributable to higher property operating expense, increased
depreciation expense and increased interest expense related to the acquisition of 79 properties
since September 30, 2005.
Comparison of Operating Results for the Nine Months Ended September 30, 2006 and 2005
Total Revenues
Rental income increased from $97.6 million for the nine months ended September 30, 2005 to
$147.4 million for the nine months ended September 30, 2006, an increase of $49.8 million, or
51.0%. This increase is primarily attributable to (i) the acquisition of 19 facilities in the last
three months of 2005 and 60 facilities in the first nine months of 2006 and (ii) an increase in
revenues from our pool of same-store facilities of approximately $3.6 million (see Same-Store
Facility Results below). Additionally, the Company recorded approximately $0.4 million of revenue
from business interruption insurance settlements received during the nine months ended September
30, 2006.
Other property related income increased from $7.2 million for the nine months ended September
30, 2005 to $10.6 million for the nine months ended September 30, 2006, an increase of $3.4
million, or 47.4%. This increase is primarily attributable to the acquisition of 19 facilities in
the last three months of 2005 and 60 facilities during the first nine months of 2006.
Total Operating Expenses
Property operating expenses increased from $37.5 million for the nine months ended September
30, 2005 to $61.8 million for the nine months ended September 30, 2006, an increase of $24.3
million, or 64.1%. This increase is primarily attributable to (i) the acquisition of 19 facilities
in the last three months of 2005 and 60 facilities in the first nine months of 2006 and (ii) an
increase in operating expenses from our pool of
same-store facilities of approximately $3.2
million (see Same-Store Facility Results below).
General and administrative costs increased from $9.9 million for the nine months ended
September 30, 2005 to $17.3 million for the nine months ended September 30, 2006, an increase of
$7.4 million, or 74.4%. The increase related primarily to approximately $3.0 million of increased
compensation costs, $2.1 million of severance costs, of which $0.5 million were non-cash,
associated with a Company restructuring of certain management positions, $0.6 million of increased
audit and tax fees, $0.6 million of additional investor relation costs, $0.5 million of directors
and officers insurance, and $0.2 million of
additional rent expense.
Depreciation increased from $27.6 million for the nine months ended September 30, 2005 to
$46.8 million for the nine months ended September 30, 2006, an increase of $19.2 million, or 69.4%.
The increase is primarily attributable to the acquisition activity in
2005 and 2006.
Total Other Expenses
Interest expense increased from $22.7 million for the nine months ended September 30, 2005 to
$33.0 million for the nine months ended September 30, 2006, an increase of $10.3 million, or 45.6%.
The increase is attributable primarily to a higher amount of outstanding debt in 2006.
21
Loan procurement amortization expense increased from $1.3 million for the nine months ended
September 30, 2005 to $2.8 million for the nine months ended September 30, 2006. The Company
recorded a non-cash write-off of $1.3 million of loan procurement costs in connection with the
replacement of its revolving credit facility in the first quarter of 2006.
Interest income increased from $0.1 million for the nine months ended September 30, 2005 to
$1.1 million in 2006. This increase is primarily attributable to the investment of excess proceeds
received in October 2005 from the Companys follow on public offering.
Income
(Loss) Before Minority Interests
The decrease in income (loss) from continuing operations of $8.8 million for the nine months
ended September 30, 2006 was primarily attributable to increased interest expense of $10.3 million
offset by increased interest income of $1.0 million.
Same-Store Facility Results
The Company considers its same-store portfolio to consist of only those facilities owned at
the beginning and at the end of the applicable periods presented.
The following same-store presentation is considered to be useful to investors in evaluating
our performance because it provides information relating to changes in facility-level operating
performance without taking into account the effects of acquisitions, developments or dispositions.
The following table sets forth operating data for our same-store portfolio for the periods
presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
Nine months ended |
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
Percent |
|
|
2006 |
|
2005 |
|
Change |
|
2006 |
|
2005 |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Same-store revenues |
|
$ |
30,299 |
|
|
$ |
29,199 |
|
|
|
3.8 |
% |
|
$ |
89,528 |
|
|
$ |
85,922 |
|
|
|
4.2 |
% |
Same-store property operating expenses |
|
|
10,874 |
|
|
|
9,221 |
|
|
|
17.9 |
% |
|
|
32,001 |
|
|
|
28,754 |
|
|
|
11.3 |
% |
Non same-store revenues |
|
|
26,107 |
|
|
|
12,104 |
|
|
|
|
|
|
|
68,479 |
|
|
|
18,880 |
|
|
|
|
|
Non same-store property operating expenses |
|
|
11,119 |
|
|
|
5,441 |
|
|
|
|
|
|
|
29,838 |
|
|
|
8,718 |
|
|
|
|
|
Total revenues |
|
|
56,406 |
|
|
|
41,303 |
|
|
|
|
|
|
|
158,007 |
|
|
|
104,802 |
|
|
|
|
|
Total property operating expenses |
|
|
21,993 |
|
|
|
14,662 |
|
|
|
|
|
|
|
61,839 |
|
|
|
37,472 |
|
|
|
|
|
Number of facilities included in same-store analysis |
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
Comparison of the Same-Store Results for the Three Months Ended September 30, 2006 to the
Three Months Ended September 30, 2005
Same-store revenues increased from $29.2 million for the three months ended September 30, 2005
to $30.3 million for the three months ended September 30, 2006, an increase of $1.1 million, or
3.8%. This increase is the result of $3.5 million of increased rents offset by $(2.4) million
attributable to decreased occupancy.
Same-store property operating expenses increased from $9.2 million for the three months ended
September 30, 2005 to $10.9 million for the three months ended September 30, 2006, an increase of
$1.7 million, or 17.9%. This increase was primarily attributable to increased property taxes and
insurance expense.
Comparison of the Same-Store Results for the Nine Months Ended September 30, 2006 to the Nine
Months Ended September 30, 2005
Same-store
revenues increased from $85.9 million for the nine months ended September 30, 2005
to $89.5 million for the nine months ended September 30,
2006, an increase of $3.6 million, or
4.2%. This increase is the result of $5.6 million of increased rents offset by $(2.0) million
attributable to decreased occupancy.
Same-store property operating expenses increased from $28.8 million for the nine months ended
September 30, 2005 to $32.0 million for the nine months ended September 30, 2006, an increase of
$3.2 million, or 11.3%. The increase was due to higher expenses primarily related to property
taxes and repairs and maintenance as well as higher costs across all
other operating expenses.
22
Cash Flows
A comparison of cash flow operating, investing and financing activities for the nine months
ended September 30, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
2006 |
|
2005 |
|
(decrease) |
|
|
(Dollars in thousands) |
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
48,232 |
|
|
$ |
36,760 |
|
|
$ |
11,472 |
|
Investing activities |
|
$ |
(341,087 |
) |
|
$ |
(284,320 |
) |
|
$ |
56,767 |
|
Financing activities |
|
$ |
107,657 |
|
|
$ |
233,889 |
|
|
$ |
(126,232 |
) |
Comparison of Cash Flows for the Nine Months Ended September 30, 2006 to the Nine Months Ended
September 30, 2005
Cash provided by operating activities increased from $36.8 million for the nine months ended
September 30, 2005 to $48.2 for the nine months ended September 30, 2006, an increase of $11.4
million. The increase is primarily attributable to the acquisition of 19 self-storage facilities in
the last three months of 2005 and 60 self-storage facilities in the first nine months of 2006.
Cash used in investing activities increased from $284.3 million for the nine months ended
September 30, 2005 to $341.1 million for the nine months ended September 30, 2006, an increase of
$56.8 million.
During the nine months ended September 30, 2005 the Company had
acquisitions of approximately $432 million which was funded by
approximately $268 million of cash expenditures and $164 million of
non-cash items. During the nine months ended September 30, 2006 the
Company had approximately $363 million of acquisitions which was
funded by approximately $327 million cash expenditures and $36 million of non-cash items.
Cash provided by financing activities decreased from $233.9 million for the nine months ended
September 30, 2005 to $107.6 million during the nine months ended September 30, 2006, a decrease of
$126.2 million. This decrease is primarily attributable to the availability to draw down on the
excess proceeds in 2006 remaining from the October 2005 follow-on equity offering.
Funds From Operations
Funds from operations, which we refer to as FFO, is a widely used performance measure for
real estate companies and is provided here as a supplemental measure of operating performance. We
calculate FFO in accordance with the National Association of Real Estate Investment Trusts 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. Adjustments for unconsolidated partnerships and
joint ventures, if any, are calculated to reflect FFO on the same basis.
Management uses FFO as a key performance indicator in evaluating the operations of our
facilities. Given the nature of our business as a real estate owner and operator, we believe that
FFO is helpful to management and investors as a starting point in measuring our operational
performance because it excludes various items included in net income that do not relate to or are
not indicative of our 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 our financial performance, is not an alternative to cash
flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity,
and is not indicative of funds available to fund our cash needs, including our ability to make
distributions. Our computation of FFO may not be comparable to FFO reported by other REITs that do
not define the term in accordance with the White Paper or that interpret the White Paper
differently than we do. The following table sets forth the reconciliation of net income (loss), the
most directly comparable GAAP measure, to FFO:
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
Nine months ended September 30 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Dollars and shares in thousands) |
|
|
|
|
|
Net income (loss) |
|
$ |
(1,941 |
) |
|
$ |
1,665 |
|
|
$ |
(2,733 |
) |
|
$ |
5,486 |
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation |
|
|
16,243 |
|
|
|
10,868 |
|
|
|
46,339 |
|
|
|
27,633 |
|
Minority interest |
|
|
(176 |
) |
|
|
195 |
|
|
|
(249 |
) |
|
|
351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO Operating partnership |
|
$ |
14,126 |
|
|
$ |
12,728 |
|
|
$ |
43,357 |
|
|
$ |
33,470 |
|
FFO Allocable to minority interest |
|
|
(1,176 |
) |
|
|
(1,173 |
) |
|
|
(3,615 |
) |
|
|
(2,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO Allocable to common shareholders |
|
$ |
12,950 |
|
|
$ |
11,555 |
|
|
$ |
39,742 |
|
|
$ |
31,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding(1) |
|
|
57,431 |
|
|
|
37,634 |
|
|
|
57,418 |
|
|
|
37,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
declared per common share and unit |
|
$ |
0.29 |
|
|
$ |
0.28 |
|
|
$ |
0.87 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted average number of shares for the 2006 periods include approximately 0.1 million
shares related to certain equity awards issued that are dilutive for FFO. |
Liquidity and Capital Resources
In February 2006, we and our operating partnership entered into a new three-year, $250.0
million unsecured revolving credit facility. The credit facility allows us to increase the amount
that may be borrowed up to $350.0 million at a later date. The facility is scheduled to mature in
February 2009, with the option for a one-year extended maturity date. Borrowings under the facility
bear interest, at our option, at either an alternative base rate or a Eurodollar rate, in each case
plus an applicable margin depending on our leverage ratio. The alternative base interest rate is a
fluctuating rate equal to the higher of the prime rate or the sum of the federal funds effective
rate plus 50 basis points. The applicable margin for the alternative base rate will vary from 0.15%
to 0.60%. The Eurodollar rate is a periodic fixed rate equal to LIBOR. The applicable margin for
the Eurodollar rate will vary from 1.15% to 1.60%. The margin at September 30, 2006 was 1.30%. We
intend to use this new credit facility principally to finance future acquisitions, development of
self-storage facilities, debt repayments and for general working capital purposes. Upon entering
into this agreement, we utilized the facility to repay a $30.0 million 60-day term loan.
Our ability to borrow under this new credit facility will be subject to our ongoing compliance
with the following financial covenants, among others:
|
|
|
Maximum total indebtedness to total asset value of 65%; |
|
|
|
|
Maximum floating rate indebtedness to total indebtedness of 35%; |
|
|
|
|
Minimum interest coverage ratio of 2.0:1.0; |
|
|
|
|
Minimum fixed charge coverage ratio of 1.6:1.0; and |
|
|
|
|
Minimum tangible net worth of $675.0 million plus 75% of net proceeds from equity issuances after December 31, 2005. |
As of September 30, 2006, approximately $79.5 million was available under our revolving credit
facility. As of September 30, 2006, the Company had total indebtedness outstanding of approximately
$864.2 million, as compared to the $669.3 million of debt outstanding at December 31, 2005. At
September 30, 2006, the Company was in compliance with all of its debt covenants.
Our cash flow from operations historically has been one of our primary sources of liquidity to
fund debt service, distributions and capital expenditures. We derive substantially all of our
revenue from customers who lease space from us at our facilities. Therefore, our ability to
generate cash from operations is dependent on the rents that we are able to charge and collect from
our customers. While we believe that facilities in which we invest self-storage facilities are
less sensitive to near-term economic downturns, prolonged economic downturns will adversely affect
cash flow from operations.
In order to qualify as a REIT for federal income tax purposes, we are required to distribute
at least 90% of our REIT taxable income, excluding capital gains, to our shareholders on an annual
basis or pay federal income tax.
24
The nature of our business, coupled with the requirement that we distribute a substantial
portion of our income on an annual basis, will cause us to have substantial liquidity needs over
both the short term and the long term. Our short-term liquidity needs consist primarily of funds
necessary to pay operating expenses associated with our facilities, refinancing of certain mortgage
indebtedness, interest expense and scheduled principal payments on debt, expected distributions to
limited partners and shareholders and recurring capital expenditures. These expenses, as well as
the amount of recurring capital expenditures that we incur, will vary from year to year, in some
cases significantly. For 2006 we expect to incur approximately $4.9 million of costs for recurring
capital expenditures. In addition, we anticipate spending an additional approximately $3.9 million
in 2006 for renovations and improvements at our facilities that were owned as of December 31, 2005.
In
October 2006, the Company repaid its 7.13% mortgage, for USI II
a wholly-owned subsidiary, that had total principal
outstanding of approximately $38.5 million. The debt was paid from proceeds obtained by drawing on
the Companys existing revolving credit facility.
In
November 2006, the Company and the Operating Partnership entered into a 30-day, unsecured
$50.0 million bridge loan
agreement with Wachovia Bank, National Association as the lender. The term loan bears interest at a
variable rate of LIBOR plus 115 basis points. The proceeds of the $50.0 million bridge loan
combined with borrowings under the Companys revolving credit facility were used to repay its 8.16%
mortgage, for Acquiport III a wholly-owned subsidiary, that had total principal outstanding of approximately $64.1 million in
November 2006. The Company anticipates closing on a new $450 million credit facility in November
2006 to repay the bridge loan.
Our long-term liquidity needs consist primarily of funds necessary to pay for development of
new facilities, redevelopment of operating facilities, non-recurring capital expenditures,
acquisitions of facilities and repayment of indebtedness at maturity. In particular, we intend to
pursue the acquisition of additional facilities, which will require additional capital. We do not
expect that we will have sufficient funds on hand to cover these long-term cash requirements. We
will have to satisfy these needs through either additional borrowings, including borrowings under
our revolving credit facility, sales of common or preferred shares and/or cash generated through
facility dispositions and joint venture transactions.
We believe we have access to multiple sources of capital to
fund long-term liquidity requirements, including the incurrence of additional debt and the issuance
of additional equity. However, we cannot provide any assurance that this will
be the case. Our ability to incur additional indebtedness will be dependent on a number of factors,
including our degree of leverage, the value of our unencumbered assets and borrowing restrictions
that may be imposed by lenders. Our ability to access the equity capital markets will be dependent
on a number of factors as well, including general market conditions for REITs and market
perceptions about us.
Other Material Changes in Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
2006 |
|
2005 |
|
Increase/Decrease |
|
|
(Dollars in thousands) |
Selected Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Storage facilities net |
|
$ |
1,577,971 |
|
|
$ |
1,246,295 |
|
|
$ |
331,676 |
|
Cash and cash equivalents |
|
|
15,900 |
|
|
|
201,098 |
|
|
|
(185,198 |
) |
Selected Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
22,465 |
|
|
$ |
18,854 |
|
|
$ |
3,611 |
|
Deferred revenue |
|
|
10,365 |
|
|
|
8,857 |
|
|
|
1,508 |
|
Storage facilities increased $331.7 million and cash decreased $185.2 million from December
31, 2005 to September 30, 2006, primarily due to the acquisition of 60 self-storage facilities
during the first nine months of 2006.
Additionally,
accounts payable and accrued expenses and deferred revenue increased by $3.6
million and $1.5 million, respectively, during the nine months ended September 30, 2006, primarily
due to the acquisition of 60 self-storage facilities during the same period.
25
Contractual Obligations
The following table summarizes our known contractual obligations as of September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than 1 |
|
|
1-3 |
|
|
3-5 |
|
|
More Than 5 |
|
Contractual Obligations |
|
Total |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
|
(Dollars in thousands) |
|
Revolving Credit Facility |
|
$ |
170,500 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
170,500 |
|
|
$ |
|
|
Loans and Notes Payable |
|
|
692,107 |
|
|
|
104,850 |
|
|
|
41,837 |
|
|
|
206,648 |
|
|
|
338,772 |
|
Interest Payments |
|
|
182,152 |
|
|
|
9,574 |
|
|
|
83,803 |
|
|
|
52,002 |
|
|
|
36,773 |
|
Contractual Capital Lease Obligations |
|
|
25 |
|
|
|
8 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
Ground Leases and Third Party Office Lease |
|
|
559 |
|
|
|
41 |
|
|
|
224 |
|
|
|
94 |
|
|
|
200 |
|
Related Party Office Leases |
|
|
3,913 |
|
|
|
117 |
|
|
|
942 |
|
|
|
906 |
|
|
|
1,948 |
|
Software Contracts |
|
|
1,208 |
|
|
|
104 |
|
|
|
828 |
|
|
|
276 |
|
|
|
|
|
Employment Contracts |
|
|
5,264 |
|
|
|
426 |
|
|
|
2,858 |
|
|
|
1,580 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,055,728 |
|
|
$ |
115,120 |
|
|
$ |
130,509 |
|
|
$ |
432,006 |
|
|
$ |
378,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect that the contractual obligations due in 2006 will be satisfied from the refinancing
of two existing loans in 2006, out of cash generated from operations and, if required, draws on our
revolving credit facility.
Off-Balance Sheet Arrangements
The Company does not currently have any off-balance sheet arrangements that have, or are
reasonably likely to have, a material current or future effect on its financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys future income, cash flows and fair values relevant to financial instruments
depend upon prevailing interest rates. Market risk refers to the risk of loss from adverse changes
in market prices and interest rates.
Effect of Changes in Interest Rates on our Outstanding Debt
As of September 30, 2006, the Company had approximately $170.5 million of variable rate debt
outstanding (representing approximately 19.7% of its total debt). Based upon the balances
outstanding on variable rate debt at September 30, 2006, a 100 basis point increase or decrease in
interest rates on variable rate debt would increase or decrease future interest expense by
approximately $1.7 million annually. The Company does not currently use derivative financial
instruments to reduce our exposure to changes in interest rates.
As of September 30, 2006, the Company had approximately $692.1 million of fixed rate debt
outstanding (representing approximately 80.3% of total debt). A change in the interest rates on
fixed rate debt generally impacts the fair value of the debt but it has no impact on interest
incurred or cash flow. To determine the fair value, the fixed rate debt is discounted at a rate
based upon current lending rates, assuming debt is outstanding through maturity or expected
refinancing dates. At September 30, 2006, the fair value of the Companys long term fixed rate debt
was estimated to be $680.9 million. A 100 basis point increase in interest rates would result in a
decrease in the fair value of this fixed rate debt of approximately $18.8 million at September 30,
2006. A 100 basis point decrease in interest rates would result in an increase in the fair value of
this fixed rate debt of approximately $19.8 million at September 30, 2006.
26
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) to ensure that
information required to be disclosed in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the SECs
rules and forms. Based on their evaluation as of the end of the third quarter of 2006, the
Companys President and Chief Executive Officer and its Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective to meet such objective and that the
Companys disclosure controls and procedures adequately alert them on a timely basis to material
information relating to the Company (including its consolidated subsidiaries) required to be
included in the Companys Exchange Act filings.
Changes in Internal Control Over Financial Reporting
In connection with the Companys assessment of its internal control over financial reporting
as required under Section 404 of the Sarbanes-Oxley Act of 2002, management identified a number of
improvements to our control environment that we are in the process of implementing, including
changes to personnel and information technology systems.
|
|
|
Personnel. During the third quarter, the Company terminated its relationship with its
former Treasurer and the former Controller. Late in the second quarter, the Company hired
a new Chief Financial Officer, Christopher P. Marr, and during the quarter hired a number
of new operations, accounting and finance personnel and engaged consulting resources to
supplement our existing finance organization. Finally, the Company will be moving its
Finance, Accounting and Information Technology departments to the Philadelphia area. We
believe this was a significant change with respect to the personnel responsible for the
effectiveness of transaction processing and review activities in our control environment.
Additional Finance, Accounting and Information Technology department personnel changes and
oversight of processes are expected to continue through the first quarter of 2007. |
|
|
|
|
Information Technology Systems. In addition, during the third quarter the Company
completed its conversion to a new revenue management software system, Centershift®
STORE TM , which provides the Company with an enhanced and automated
rental management and point-of-sale software solution. This new system did not require
customization by the Company or its vendor. Pre-implementation testing and
post-implementation reviews were conducted by management to ensure that internal controls
surrounding the system implementation process, the applications and the closing process
were properly designed to prevent material financial statement errors. |
Management is taking the necessary steps to monitor and maintain appropriate internal
controls during this period of change. No other changes occurred in the Companys internal control
over financial reporting during the third quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.
27
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
The following paragraph supplements the risk factors set forth in our Annual Report on Form
10-K for the year ended December 31, 2005.
Our insurance coverage may not comply fully with certain loan requirements.
We maintain comprehensive insurance on each of our self-storage facilities in amounts
sufficient to permit replacement of the property, subject to applicable deductibles. Certain of our
properties secure our mortgage-backed debt, some of which was assumed in connection with our
acquisition of facilities, that requires us to maintain insurance at levels and on terms that are
not commercially reasonable in the current insurance environment. We may be unable to obtain
required insurance coverage if the cost and/or availability make it impractical or impossible to
comply with debt covenants. If we cannot comply with a lenders requirements in any respect, the
lender could declare a default that could affect our ability to obtain future financing and could
have a material adverse effect on our results of operations and cash flows and our ability to
obtain future financing. In addition, we may be required to self-insure against certain losses or
the Companys insurance costs may increase.
28
ITEM 6. EXHIBITS
|
|
|
10.1*+
|
|
Amended and Restated Employment Agreement dated as of August 23,
2006 by and between U-Store-It Trust and Todd C. Amsdell
incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on August 28, 2006. |
|
|
|
10.2*+
|
|
First Amendment to Noncompetition Agreement, dated as of August 23,
2006, by and between U-Store-It Trust and Steven G. Osgood
incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on August 28, 2006. |
|
|
|
10.3*+
|
|
First Amendment to Noncompetition Agreement, dated as of August 23,
2006, by and between U-Store-It Trust and Tedd D. Towsley
incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K filed on August 28, 2006. |
|
|
|
10.4*
|
|
Credit Agreement, dated as of November 1, 2006, by and between
U-Store-It, L.P., as borrower, and Wachovia Bank, National
Association as lender incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on November 7, 2006. |
|
|
|
10.5*
|
|
Note, dated as of November 1, 2006, executed on behalf of
U-Store-It, L.P. incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on November 7, 2006. |
|
|
|
10.6*
|
|
Guaranty, dated as of November 1, 2006, executed on behalf of
U-Store-It Trust, U-Store-It Mii Warehouse Co., and YSI Management
LLC as guarantors incorporated by reference to Exhibit 10.3 to the
Companys Current report on From 8-K filed on November 7, 2006. |
|
|
|
10.7+
|
|
U-Store-It Executive Deferred Compensation Plan, filed herewith. |
|
|
|
31.1
|
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Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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* |
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Incorporated herein by reference as above indicated. |
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+ |
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Denotes a management contract or compensatory plan, contract or arrangement. |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 9, 2006
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U-STORE-IT TRUST |
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By:
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/s/ CHRISTOPHER P. MARR
Christopher P. Marr
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Chief Financial Officer |
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(Signing on behalf of Registrant as a duly authorized
officer of Registrant and signing as the Principal
Financial Officer and Principal Accounting Officer of
Registrant) |
30