InStorage Real Estate Investment Trust
TSX : IS.UN

InStorage Real Estate Investment Trust

May 15, 2008 07:00 ET

InStorage REIT Announces First Quarter 2008 Results

TORONTO, ONTARIO--(Marketwire - May 15, 2008) - InStorage Real Estate Investment Trust ("InStorage" or the "REIT") (TSX:IS.UN) announced today its results for the three months ended March 31, 2008.

Total revenues in the first quarter of 2008 were $10.8 million, including property income of $10.0 million and interest income on mezzanine loans of $0.8 million, up from total revenues of $4.5 million in the first quarter of 2007, including property income of $3.8 million and interest income of $0.7 million. The increase is due primarily to the acquisition of 28 facilities over the prior twelve months totalling 1.7 million square feet of rentable area. Same property rental property income in the first quarter of 2008 increased by 3.9% over the same period last year mainly due to higher rental rates.

Total revenues in the first quarter of 2008 declined by 1% compared to the fourth quarter of 2007 due primarily to seasonal factors as the first quarter of the year has historically demonstrated weaker demand for self-storage than the rest of the year, which resulted in lower occupancies. This decrease was offset by an increase in revenues of $0.2 million as the REIT commenced recognition of the results of one property upon completion of development in the period. Lower mezzanine interest income was received in the first quarter of 2008 compared to the fourth quarter of 2007 due to the repayment of $1.2 million in mezzanine loans at December 31, 2007. As of March 31, 2008, a total of $26.4 million in mezzanine loans was outstanding, representing ten properties aggregating approximately 596,000 square feet of gross leaseable area under development. Seven of these properties are currently in lease-up representing approximately 437,000 square feet.

"As disclosed previously, the first quarter was impacted by seasonal factors typically experienced in the self-storage business, and certain one-time costs," stated T. James Tadeson, Chief Executive Officer. "While we were disappointed with our results in the period, they were not entirely unexpected due to the harsh winter season we've just come through in Canada. Our occupancy levels were negatively impacted by a number of factors, some of which were out of our control and some of which we're aggressively addressing now. We expect to see much improved performance for the full 2008 year as occupancies recover, average rents continue to rise, and the effects of our branding and other marketing initiatives start to be realized."

The average rent per square foot realized during the first quarter of 2008 was $17.76, up from $16.31 in the first quarter of 2007 and $17.47 in the fourth quarter of 2007. Compared to the fourth quarter of 2007, average rents realized in Quebec increased by 4.9% and in Ontario by 1.3% during the first quarter while the average rents in Western Canada remained stable. The weighted average occupancy for the first quarter of 2008 was 76% compared to 80% in the first quarter of 2007 due primarily to acquisitions completed over the prior twelve months with lower occupancies. The change in occupancy for the first quarter of 2008 compared to 79% for the fourth quarter of 2007 was due to seasonal factors, and was generally in line with management's expectations, particularly in the context of increased rental rates.

Direct property operating expenses for the first quarter of 2008 were $4.8 million, or 48.2% of rental revenue, compared to $1.5 million or 39.3% of property revenue in the first quarter of 2007 and $4.6 million or 46.0% of rental revenue in the fourth quarter of 2007. These expenses consist primarily of realty taxes, operating staff wages, utilities, advertising, insurance, repairs and maintenance and other administrative and operating costs. The increase in operating costs for the first quarter of 2008 compared to the fourth quarter of 2007 was primarily due to the following:

- Property taxes reassessments that took place in 2007 did not recur in the first quarter of 2008, which resulted in lower property taxes of approximately $0.1 million recognized in the quarter;

- Higher snow removal costs and utility expenses of approximately $0.2 million in total during the first quarter due to increased snowfall and unusually colder weather across the country; and

- The development of one property was substantially completed during the first quarter of 2008 and accordingly, the REIT commenced recognizing the results of operations of this property in the quarter which resulted in higher property operating costs of $0.1 million.

Net Operating Income(i) ("NOI") for the three months ended March 31, 2008 was $5.2 million or 51.8% of rental property income, compared to $2.3 million or 60.7% of rental income in the first quarter of 2007 and $5.4 million or 54.0% of property revenue in the fourth quarter of 2007. The decrease in NOI is due primarily to the seasonally lower occupancy combined with higher property operating costs as discussed above.

Funds From Operations(ii) ("FFO") for the first quarter of 2008 was $1.0 million or $0.04 per unit compared to $1.2 million or $0.07 per unit in the first quarter of 2007 and $1.8 million or $0.07 per unit in the fourth quarter of 2007. FFO for the first quarter of 2008 reflects higher general and administrative expenses ("G&A") compared to the fourth quarter of 2007, and includes one-time costs of approximately $0.3 million associated with the listing of its units on the Toronto Stock Exchange. Adjusted Funds From Operations(iii)("AFFO") for the three months ended March 31, 2008 was $1.5 million or $0.06 per unit compared to $1.5 million or $0.09 per unit in the first quarter of 2007 and $2.4 million or $0.09 per unit in the fourth quarter of 2007. The decline in FFO and AFFO in the first quarter of 2008 compared to the fourth quarter of 2007 is due primarily to seasonal factors and one-time costs incurred in the period. The REIT declared monthly distributions of $3.7 million, for the three months ended March 31, 2008 of which $0.6 million was paid in units under the Distribution Reinvestment Plan.

Financial Position

The ratio of total debt to total assets as at March 31, 2008 was 54% compared to 53% at December 31, 2007 and 42% as at March 31, 2007. The mortgage portfolio at March 31, 2008 incurred a weighted average interest rate of 5.58% with a weighted average term to maturity of 7.8 years. The REIT held $0.4 million in cash and cash equivalents at March 31, 2008. Approximately 75.9% of the REIT's total debt is in the form of fixed rate mortgages.

Outlook

InStorage's existing portfolio offers significant organic growth opportunities. InStorage is fully focused on realizing organic growth through higher occupancies of lease-up properties and rental rate increases, and is implementing several programs and initiatives in order to achieve these objectives. The REIT has increased rents at all properties in the first quarter of 2008 and expects to put through further increases during the year. The introduction of its Revenue Management system during the quarter will provide a significantly more responsive rental rate adjustment mechanism which will assist in balancing optimal occupancy and rental rate levels throughout the portfolio.

Management believes that the general and administrative expenses, not including one-time costs, have stabilized and will remain stable at approximately 9% to 10% of total revenues on an annualized basis going forward.

"Looking ahead, our main focus is to capitalize on the increase in our size and scale to drive brand awareness for InStorage, capture national and regional business accounts, build alliances, and implement sales and training programs. At the same time, we are capturing more cost savings opportunities through our economies of scale and systems integration," said T. James Tadeson, Chief Executive Officer. "The development of new facilities continues through InScotia Developments, and we are excited to have added new locations to our InStorage network this quarter. As for acquisitions, we will continue to consolidate the fragmented Canadian self-storage industry, although at a more modest pace than in 2007."

Other Developments

On March 18, 2008 InStorage entered into a strategic alliance with Discount Car and Truck Rentals ("Discount"), the largest Canadian owned truck rental provider. Discount will be InStorage's exclusive third party provider of rental trucks across the REIT's owned and managed self storage locations. Through this alliance, InStorage's customers will be able to select from a complete range of late-model trucks to meet their storage transportation needs. The new alliance will include cross-promotional efforts including call centre referrals, joint corporate customer marketing initiatives, co-branding of websites and yellow pages and the co-branding of a number of trucks in each market.

On March 1, 2008, the REIT opened two new self-storage facilities located in Calgary, Alberta and Windsor, Ontario. In total, the two facilities will add approximately 128,000 square feet of gross leaseable area (GLA) to the REIT's portfolio once they are acquired.

On February 20, 2008, the units of the REIT commenced trading on the Toronto Stock Exchange ("TSX"). Immediately prior to the listing on the TSX the units of the REIT were consolidated on an eight-to-one (8:1) basis, as approved by the unitholders of the REIT at the June 7, 2007 annual and special meeting of the Unitholders. The limited partnership units of InStorage Limited Partnership were consolidated on the same basis as and concurrently with the units of the REIT.

On January 14, 2008, the REIT implemented the Distribution Reinvestment Plan ("DRIP"). Under the terms of the DRIP, unitholders have the option to elect to receive all or a portion of the regular monthly distribution in additional REIT units. Participants of the DRIP receive additional units equal to 4% of their monthly cash distributions reinvested in the DRIP. As at March 31, 2008 participation in the DRIP stood at approximately 18%.



Financial Highlights

(dollars in thousands, Three months ended Three months ended
except per unit amounts) March 31, 2008 March 31, 2007
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Rental property income 9,955 3,787
Property operating expenses (4,799) (1,490)
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Net Operating Income ("NOI")(i) 5,156 2,297
NOI margin 51.8% 60.7%
Interest income on mezzanine loans 824 707
Interest expense, net (3,591) (923)
General and administrative expenses (1,285) (481)
Re-branding expense (69) -
Asset management fees - (117)
Unit-based compensation (49) (316)
Amortization of income-producing properties (5,425) (2,044)
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Net loss (4,439) (877)
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Basic and diluted net loss per unit $(0.18) $(0.05)
Funds From Operations("FFO")(ii) 986 1,167
FFO per weighted average unit, $0.04 $0.07
basic and diluted
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Adjusted Funds from Operations ("AFFO")(iii) 1,509 1,461
AFFO per weighted average unit, $0.06 $0.09
basic and diluted
--------------------------------------------------------------------------
Weighted average number of 25,327 16,221
units diluted (thousands)
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(iv)Non-GAAP Measures

NOI, FFO and AFFO 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, FFO and AFFO 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 ended March 31, 2008 for a description of these Non-GAAP measures and a reconciliation of FFO and AFFO 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 52 owned and 11 managed 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; the intention to roll out the InStorage brand across the REIT's properties during the year; anticipated demand for the REIT's services; expectations regarding average rental and occupancy rates; and the REIT's intention to focus on integrating recent acquisitions. 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; interest rate levels and the impact therof on the REIT's debt servicing obligations; the ability of the REIT to successfully integrate newly acquired properties or portfolios into its operations and realise the anticipated benefits of same; 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 Analysis for the three months and year ended December 31, 2007, a copy of which may be obtained on the SEDAR website at www.sedar.com.

Contact Information

  • InStorage Real Estate Investment Trust
    T. James Tadeson
    Chief Executive Officer
    (416) 867-9705
    or
    InStorage Real Estate Investment Trust
    Alay Shah
    Chief Financial Officer
    (416) 867-9740
    Website: www.instoragereit.ca