InStorage Real Estate Investment Trust
TSX VENTURE : IS.UN

InStorage Real Estate Investment Trust

April 30, 2007 08:00 ET

InStorage REIT Announces Fourth Quarter and 2006 Year End Results

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

Attention Business/Financial Editors:

InStorage Real Estate Investment Trust ("InStorage" or the "REIT") (TSX VENTURE:IS.UN) announced today its results for the three months ended December 31, 2006 and the period from January 12, 2006 to December 31, 2006.

Summary



- Acquired 20 properties in 2006, with a gross rentable area of

1.0 million square feet and gross book value of real estate assets of

$144.3 million

- Announced aquisitions will grow the REIT's property portfolio to

46 properties in the near term, with a gross rentable area of

2.6 million square feet and gross book value of real estate assets of

approximately $404.0 million

- Mezzanine financing program set up to provide a pipeline of potential

properties for acquisition - $13.7 million of loans advanced as at

December 31, 2006

- Mezzanine loan commitments have increased to $35.5 million since

December 31, 2006, with an estimated development potential of 736,000

square feet of gross rentable area

- Equity offerings with gross proceeds of $111.5 million completed in

2006; public offering closed on April 3, 2007 with gross proceeds of

$105.0 million

- Total rental property income of $3.2 million in the fourth quarter

- Mezzanine financing interest income of $0.3 million in the fourth

quarter

- Net loss during the quarter of $1.1 million, representing a net loss

of $0.01 per unit

- Net Operating Income ("NOI")(i) in fourth quarter of $2.1 million, or

66% of rental property income

- Funds from Operations ("FFO")(i) of $0.6 million in the fourth

quarter of 2006 with FFO per unit of $0.01


2006 was the first year of operation for InStorage, with the incorporation of SCOSS Capital Corp. ("SCOSS"), its predecessor corporation, on January 12, 2006, and the completion of a plan of arrangement on August 4, 2006 to convert SCOSS to InStorage REIT. Over the first several months of its operations, InStorage made a series of property acquisitions, and by year end had acquired a portfolio of 20 properties, with 1.0 million square feet of gross rentable area and gross book value of real estate assets of $144.3 million. Since December 31, 2006, InStorage has announced further acquisitions, the completion of which will grow the REIT's property portfolio to 46 self-storage facilities located in Alberta, Saskatchewan, Ontario and Quebec, totalling 2.6 million square feet of gross rentable area and gross book value of real estate assets of approximately $404.0 million. These acquisitions will provide InStorage with a leading presence in the Greater Toronto Area in Ontario and significant scale in Alberta, two very important markets due to their size and economic growth.

"We are pleased with the progress made by InStorage in such a short period of time since formation," said T. James Tadeson, the Chief Executive Officer of InStorage. "The Canadian self-storage market offers strong potential for growth through consolidation and excellence in property management and tenant services. We are committed to be the best operators of self-storage properties in Canada and, in the process, deliver stable returns to our unitholders. Our long-term goal is to establish ourselves as the largest self-storage provider in the country with a 10% to 20% share of the Canadian market."

Operations Results Highlights

Total rental property income for the fourth quarter of 2006 was $3.2 million. 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. Total rental property income for the period from January 12 to December 31, 2006 was $4.4 million. Sales of ancillary items account for less than 3% of total revenue but provide important storage related services to our tenants. Acquisitions completed during the year are reflected in revenues only for the period from the date of the acquisitions. The weighted average annualized rent per square foot at December 31, 2006 was approximately $17 with a weighted average occupancy rate of 82%. Both the average rental rate and occupancy are consistent with management's expectations.

During the quarter, InStorage earned $0.3 million in interest income from its mezzanine lending program. Year-to-date interest income from the mezzanine lending program was $0.5 million. 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 $13.7 million in mezzanine loans during 2006 and, subsequent to the year-end, increased mezzanine loan commitments to $35.5 million.

Direct property operating expenses for the quarter were $1.0 million, or 33% 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. On a year-to-date basis, property operating expenses were $1.5 million, or 34% of rental revenue.

NOI(i) for the three months ended December 31, 2006 was $2.1 million or 67% of rental property income and for the year-to-date period $2.9 million, or 66% of rental property income. The NOI for the properties is in-line with management's expectations.

InStorage incurred mortgage interest and bridge financing interest expense for the quarter of $1.1 million. This includes $0.3 million in amortization of deferred financing costs including $0.2 million of costs associated with a bridge facility repaid during the quarter. Interest costs on a year-to-date basis were $1.5 million.

Total mortgage debt as at December 31, 2006 was $71.8 million, with a leverage ratio of 38% based on total debt at period end as a percentage of the total assets on the balance sheet. The REIT held $37.3 million in cash and cash equivalents at December 31, 2006, a significant part of which was the cash received on the closing of a private placement equity offering on December 29, 2006, which raised $28.4 million, net of issuance costs. The proceeds from this offering were earmarked for acquisitions closing in early 2007.

FFO(i) for the fourth quarter of 2006 was $0.6 million, or $0.01 per unit. FFO for the period reflects general and administrative expenses of $0.7 million incurred in respect of salaries, rent, professional fees, public company costs and corporate governance initiatives. The year-to-date FFO was $0.1 million and reflects overhead costs of $1.2 million for 2006 and unit-based compensation expenses of $0.4 million recorded in the first half of 2006 in connection with option grants. The year-to-date overhead costs include amounts incurred before the commencement of significant operations of the REIT and are high in relation to revenues due to formation and reorganization expenses incurred during the period.



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(i) See "Non-GAAP Mesures".

Financial Highlights

(dollars in thousands,

except per unit amounts) Three months ended Period from January 12

December 31, 2006 to December 31, 2006

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

Rental property income $ 3,155 $ 4,369

Property operating expenses (1,047) (1,497)

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Net Operating Income ("NOI")(i) $ 2,108 $ 2,872

Interest income on mezzanine loans 342 527

Interest expense (1,096) (1,518)

General and administrative

expenses (679) (1,234)

Asset management fees (96) (143)

Unit-based compensation - (373)

Amortization of income-

producing properties (1,631) (2,205)

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

Net loss $ (1,052) $ (2,074)

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Basic and diluted net

loss per unit $ (0.01) $ (0.05)

Funds From Operations ("FFO")(i) $ 579 $ 131

Basic and diluted FFO(i) per unit $ 0.01 $ -

Weighted average number of

units (thousands) 107,004 46,031

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

(i) See "Non-GAAP Measures"


Cash Distributions

InStorage announced on September 20, 2006 that it would commence paying a monthly cash distribution to unitholders. From September to December 2006, the REIT declared monthly distributions of $0.006041667 per unit to unitholders, representing a total of $2.6 million of distributions declared during the year. All distributions paid by the REIT in respect of 2006 were returns of capital, and would not be included in the income of a unitholder for tax purposes.

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 December 31, 2006 and for the period from January 12, 2006 to December 31, 2006 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 and ancillary businesses throughout Canada. The REIT indirectly owns 37 self-storage properties located in Alberta, Saskatchewan and Ontario, and is the second largest owner/operator of self storage facilities in Canada.

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 complete previously announced acquisitions, as disclosed or at all; the implementation and effectiveness of the REIT's acquisition, growth and development strategies; InStorage's plans to be Canada's largest provider and leading manager of self-storage properties; access to debt and equity financing; and any indications as to expected future performance of the REIT. 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 ability and desire of the REIT and the vendors to complete announced acquisitions; the ability of InStorage and its subsidiaries to obtain necessary debt or equity financing, satisfy conditions under applicable transaction agreements; 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 Analysis for the three months ended December 31, 2006 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