InStorage Real Estate Investment Trust
TSX VENTURE : IS.UN

InStorage Real Estate Investment Trust

May 30, 2007 17:43 ET

InStorage REIT Announces First Quarter 2007 Results

TORONTO, ONTARIO—-(Marketwire – May 30, 2007) -

Attention Business/Financial Editors:

InStorage Real Estate Investment Trust ("InStorage" or the "REIT") (TSX VENTURE:IS.UN) announced today its results of operations for the three months ended March 31, 2007.



Summary

- Completed acquisition of four properties in the first quarter with

250,000 square feet of net rentable area and aggregate purchase price

of $28.0 million.

- Acquisitions completed after March 31, 2007 increased InStorage's

property portfolio to 46 properties with a gross rentable area of

2.6 million square feet and gross book value of approximately

$404.0 million

- Mezzanine financing program continues to provide pipeline of

potential acquisitions - $15.2 million of loans advanced as at

March 31, 2007 with an estimated development potential of

412,000 square feet of gross rentable area

- Completed public offering of units on April 3, 2007 with gross

proceeds of $105.0 million

- Announced internalization of management to be effective September 1,

2007

- Total rental property income of $3.8 million in the first quarter

- Mezzanine financing interest income of $0.7 million during the

quarter

- Net loss during the quarter of $0.9 million or $0.01 per unit

- Net Operating Income ("NOI")(i) of $2.3 million in the first quarter,

or 61% of rental property income

- Funds from Operations ("FFO")(i) of $1.2 million in the first quarter

or $0.01 per unit


InStorage continued to grow its portfolio through the first quarter of 2007 with the acquisition of four properties operating under the Stor edge name in Alberta and Saskatchewan totalling 250,000 square feet of net rentable area for an aggregate purchase price of $28.0 million. Subsequent to the end of the quarter additional transactions were completed that have increased the REIT's portfolio to 46 properties located in Alberta, Saskatchewan, Ontario and Quebec, with a gross rentable area of 2.6 million square feet and gross book value of real estate assets of approximately $404.0 million. As a result of its acquisitions to date, InStorage has gained a leading presence in the Greater Toronto Area and significant scale in Alberta, two very important markets due to their size and economic growth.

"Our growth continues as we build our presence as the leading consolidator in the Canadian self-storage business," stated T. James Tadeson, Chief Executive Officer. "We have successfully closed all acquisitions announced to date and remain optimistic about the potential for further growth. We have taken significant steps towards the integration of the properties acquired within our property management structure and we will be rolling out the InStorage brand across our properties during the year."

Results of Operations

Total revenues for the first quarter of 2007 were $4.5 million including rental property income of $3.8 million and interest income on mezzanine loans of $0.7 million. With the growth in the property portfolio, total rental property income increased by $0.6 million from $3.2 million in the fourth quarter of 2006. Total rental property income is made up of rental income from the properties, sales of packaging materials and the sale of contents insurance to tenants. Sales of ancillary items accounted for less than 3% of total revenue in the period but provide important storage related services to the REIT's tenants. The weighted average annualized rent per square foot at March 31, 2007 was approximately $17, with a weighted average occupancy rate on the same date of approximately 81%. Both the weighted average occupancy and rental rates are consistent with management's expectations. The weighted average occupancy at March 31, 2007 was lower compared to the December year end due to the addition of the Stor edge properties which have a weighted average occupancy of 65%, with two of the properties in lease up. The Stor edge properties have experienced meaningful growth in weighted average occupancy since the end of the first quarter, up 4% to 69% as at the end of May 2007.

Mezzanine loan interest income rose to $0.7 million in the first quarter of 2007 from $0.3 million in the fourth quarter of 2006 due to the increase in loans advanced and the adoption during the quarter of new accounting standards which resulted in the recognition of an additional $0.1 million in interest income. The mezzanine lending program provides InStorage with a pipeline of potential properties for acquisition through InStorage's development partner, InScotia Developments Limited Partnership ("InScotia"), a related party of the REIT. InStorage's relationship with InScotia is an important component of the REIT's acquisition strategy. InStorage advanced mezzanine loans of $3.2 million and a bridge loan of $9.1 million to InScotia during the first quarter of 2007.

Direct property operating expenses for the quarter were $1.5 million, or 39% of rental revenue. These expenses consist primarily of realty taxes, wages paid to staff operating the facilities, utilities, advertising, insurance, repairs and maintenance and other administrative and operating costs. Property operating costs were higher than average in the first quarter due to snow removal costs and higher utility costs, especially in climate controlled facilities. Seasonally higher costs in the winter months combined with seasonally lower revenues resulted in higher property operating costs as a percentage of revenues during the quarter. During the period ended March 31, 2006, the comparative period last year, the REIT did not own any properties and SCOSS Capital Corp., the REIT's predecessor incurred $0.1 million in general and administrative expenses and stock based compensation costs.

NOI(i) for the three months ended March 31, 2007 was $2.3 million or 61% of rental property income. The NOI for the REIT's property portfolio is in line with management's expectations.

InStorage incurred interest expense for the quarter of $0.9 million which is net of $0.2 million of interest income from short-term investments.

Total mortgage debt as at March 31, 2007 was $85.1 million with a ratio of total debt to total assets of 42% compared to total mortgage debt of $71.8 million and a leverage ratio of 38% as at December 31, 2006. The REIT held $5.5 million in cash and cash equivalents at March 31, 2007.

FFO(*) for the first quarter of 2007 was $1.2 million or $0.01 per unit, compared to $0.6 million or $0.01 per unit in the fourth quarter of 2006. FFO in the first quarter of 2007 reflects general and administrative expenses of $0.5 million and $0.3 million of unit based compensation expense related to options issued during the quarter.

From January to March 2007, the REIT declared monthly distributions of $0.006041667 per unit to unitholders, representing $2.4 million of distributions declared during the quarter.



Financial Highlights

(dollars in thousands, except per unit amounts) Three months ended

March 31, 2007

-------------------------------------------------------------------------

Rental property income $ 3,787

Property operating expenses (1,490)

-------------------------------------------------------------------------

Net Operating Income ("NOI")(i) $ 2,297

Interest income on mezzanine loans 707

Interest expense, net (923)

General and administrative expenses (481)

Asset management fees (117)

Unit-based compensation (316)

Amortization of income-producing properties (2,044)

-------------------------------------------------------------------------

Net loss $ (877)

-------------------------------------------------------------------------

Basic and diluted net loss per unit $ (0.01)

Funds From Operations ("FFO")(i) $ 1,167

Basic and diluted FFO(i) per unit $ 0.01

Weighted average number of units (thousands) 129,765

-------------------------------------------------------------------------

(i) See "Non-GAAP Measures"


Non-GAAP Measures

NOI and FFO are widely used as supplemental measures of a Canadian real estate investment trust's performance and are not defined under Canadian generally accepted accounting principles ("GAAP"). InStorage uses these measures to assess the operating performance of its income-producing properties. NOI and FFO should not be considered alternatives to net income or other measures that have been calculated in accordance with GAAP and may not be comparable to similar measures presented by other issuers. Readers are directed to the REIT's Management's Discussion and Analysis for the three months ended March 31, 2007 for a description of these Non-GAAP measures and a reconciliation of FFO to net loss.

InStorage Real Estate Investment Trust

The REIT is an unincorporated open-ended real estate investment trust that invests primarily in self-storage properties throughout Canada. The REIT is the largest owner operator of self-storage facilities in Canada and is the country's leading self-storage industry consolidator, with a current portfolio of 46 self-storage properties located in Alberta, Saskatchewan, Ontario and Quebec.

Additional information concerning the REIT may be obtained on the REIT's website, www.instoragereit.ca, and on the SEDAR website at www.sedar.com, under the REIT's profile.

Forward-Looking Information

This press release contains forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Examples of such statements include: the intention to continue to build the REIT's presence as the leading consolidator in the Canadian self-storage business and to roll out the InStorage brand across the REIT's properties during the year. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release. Such forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to: the availability of acquisition opportunities; the level of activity in the underlying self-storage business of InStorage, the self-storage industry and in the economy generally; consumer interest in the services and products of InStorage's subsidiaries; competition; and anticipated and unanticipated costs. While the REIT anticipates that subsequent events and developments may cause its views to change, it specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the REIT's views as of any date subsequent to the date of this press release. Although the REIT has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

The factors identified above are not intended to represent a complete list of the factors that could affect the REIT. Additional factors are noted under "Risk and Uncertainties" in the REIT's Management's Discussion and for the period from January 12, 2006 to December 31, 2006, a copy of which may be obtained on the SEDAR website at www.sedar.com.

Contact Information

  • InStorage Real Estate Investment Trust John Bartkiw Chief Financial Officer (416) 867-9702
    or
    InStorage Real Estate Investment Trust Alay Shah Vice President, Finance & Administration (416) 867-9740 Website: www.instoragereit.ca