InStorage Real Estate Investment Trust
TSX VENTURE : IS.UN

InStorage Real Estate Investment Trust

August 14, 2007 08:00 ET

InStorage REIT Announces Second Quarter 2007 Results

TORONTO, ONTARIO—-(Marketwire – Aug. 14, 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 and six months ended June 30, 2007.



Highlights:

- Acquired 30 properties through first half of 2007 totalling

1.9 million square feet of gross rentable area and aggregate purchase

price of $277.0 million.

- Portfolio grows to 50 properties with a gross rentable area of

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

approximately $428.3 million at June 30, 2007

- Mezzanine financing program continues to provide pipeline of

potential acquisitions - $19.8 million of loans advanced as at

June 30, 2007 with an estimated development potential of 0.5 million

square feet of gross rentable area

- Total rental property income of $7.9 million in second quarter

("Q2"), up 108% from $3.8 million in the first quarter ("Q1") of 2007

- Net Operating Income ("NOI")(i) of $5.1 million in Q2, up 122% from

$2.3 million in the Q1

- Funds from Operations ("FFO")(i) of $2.8 million in Q2, up 133% from

$1.2 million in Q1

- Adjusted Funds from Operations ("AFFO")(i) of $3.2 million in Q1, up

146% from $1.3 million in Q1

- 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

(i) See "Non-GAAP Measures"


InStorage continued to grow its portfolio through the first half of 2007 with the acquisition of 30 properties located in Alberta, Saskatchewan, Ontario and Quebec totalling 1.9 million square feet of net rentable area for an aggregate purchase price of $277.0 million. With the completion of these transactions, the REIT's portfolio has grown to 50 properties with a gross rentable area of 2.9 million square feet and gross book value of real estate assets of approximately $428.3 million as at June 30, 2007. With this growth, 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.

"The first six months of 2007 were very active for InStorage as we expanded our portfolio and extended our presence in key growth markets across the country," stated T. James Tadeson, Chief Executive Officer. "Over the near term we will focus on intregrating these recent acquisitions and rolling out our recently-introduced branding and identity program. We have commenced activities towards standardising information systems at our properties as well as building our administrative and field infrastructure to help us manage in a more efficient and cost effective manner. We have completed the branding of 17 of our facilities to bring them under the "InStorage" brand and we will continue to roll out the branding program to all properties in the portfolio. We have experienced strong organic growth in NOI from Q1 to Q2, and will continue to work the portfolio to realize further NOI growth opportunities. In addition to our near term operational focus, as the leading consolidator of the Canadian self-storage industry we will continue to evaluate strategic acquisitions and developments that add value to our portfolio."

"Looking ahead, we anticipate continued strong demand for our services. The third quarter of the year is seasonally the strongest in the self-storage industry, and we expect that average rents and occupancies will continue to improve through the third quarter," Mr. Tadeson concluded.

Results of Operations

Total revenues for the second quarter of 2007 were $8.6 million, an increase from $4.5 million in the first quarter of the year. Total revenues included rental property income of $7.9 million and interest income on mezzanine loans of $0.7 million for the three months ended June 30, 2007 compared to $3.8 million and $0.7 million respectively in the first quarter of the year. For the six months ended June 30, 2007, total revenues were $13.1 million including rental property income of $11.7 million and interest income on mezzanine loans of $1.4 million. Total rental property income is made up of rental income from the properties, sales of merchandise and the sale of contents insurance to tenants. Sales of ancillary items accounted for less than 3% of total revenue in the three and six months ended June 30, 2007.

The weighted average annualized rent per square foot at June 30, 2007 was approximately $17, with a weighted average occupancy rate of 83%. Occupancy levels across the property portfolio showed a significant increase during the second quarter compared to the first quarter of the year due to seasonal increases in business activity, growth in the Alberta economy, as well as the lease up of some of the newly constructed properties acquired in the first and second quarters of 2007. The properties acquired as part of the StorageNOW and Apple Portfolios which were at a weighted average occupancy of 71% before acquisition, reached a weighted average occupancy of 81% at June 30, 2007. Similarly, the weighted average occupancy of the four properties acquired in the first quarter increased from 71% before acquisition to 80% at June 30, 2007. The higher occupancy levels have continued in July 2007 with overall occupancy of approximately 83% as at July 31, 2007. Both weighted average occupancy and rental rates are consistent with management's growth expectations.

Mezzanine loan interest income was $0.7 million in the second quarter of 2007, consistent with the first quarter of the year. 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 $4.0 million to InScotia during the second quarter of 2007. As of June 30, 2007 a total of $19.8 million in mezzanine loans was outstanding.

Direct property operating expenses for the quarter were $2.8 million, or 35.3% of rental revenue. For the six months ended June 30, 2007, property operating expenses were $4.3 million or 36.6% 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.

NOI(i) for the three months ended June 30, 2007 was $5.1 million or 64.7% of rental property income, up from $2.3 million or 60.7% in the first quarter of the year. NOI for the six months ended June 30, 2007 was $7.4 million or 63.4% of rental property income. The increase in NOI is due primarily to the increase in the size of the REIT's portfolio, seasonal increase in revenues for the quarter, and economies of scale being realized with the growth of the business.

Total mortgage debt as at June 30, 2007 was $226.8 million with a ratio of total debt to total assets of 51% compared to total mortgage debt of $71.4 million and a leverage ratio of 38% as at December 31, 2006. The REIT held $6.8 million in cash and cash equivalents at June 30, 2007. On August 7, 2007 the REIT announced that it had arranged a new $25.0 million revolving credit facility. The new facility will be used to fund the REIT's growth through acquisitions and its mezzanine financing program as well as general corporate purposes.

FFO(i) for the second quarter of 2007 was $2.8 million or $0.014 per unit compared to $1.2 million or $0.009 per unit in the first quarter of 2007. For the six months ended June 30, 2007, FFO was $4.0 million or $0.024 per unit. FFO for the first six months of 2007 reflects general and administrative expenses ("G&A") of $1.1 million and $0.4 million of unit based compensation expense. The second quarter G&A includes expenses associated with the annual meeting of unitholders and initial costs related to the re-branding of some of the properties. AFFO(*) for the three months ended June 30, 2007 was $3.2 million or $0.016 per unit, up from $1.3 million or $0.010 per unit in the first quarter of 2007. The REIT declared monthly distributions of $0.006041667 per unit to unitholders for a total of $3.7 million for the three months ended June 30, 2007 and $6.0 million for the six months ended on that date.

(i) See "Non-GAAP Measures"



Financial Highlights

(dollars in thousands, Three months ended Six months ended

except per unit amounts) June 30, 2007 June 30, 2007

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

Rental property income 7,894 11,681

Property operating expenses (2,788) (4,278)

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Net Operating Income ("NOI")(i) 5,106 7,403

Interest income on mezzanine loans 694 1,401

Interest expense, net (2,055) (2,978)

General and administrative expenses (629) (1,110)

Asset management fees (226) (343)

Unit-based compensation (63) (379)

Amortization of income-producing

properties (4,596) (6,640)

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Net loss (1,769) (2,646)

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Basic and diluted net loss per unit $0.01 $0.02

Funds from Operations ("FFO")(i) $2,827 $3,994

Basic and diluted FFO(i) per unit $0.014 $0.024

Adjusted Funds from Operations ("AFFO") $3,194 $4,528

Basic and diluted AFFO(i) per unit $0.016 $0.027

Diluted weighted average number of units

(thousands) 201,161 165,944

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(i) See "Non-GAAP Measures"


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 and six months ended June 30, 2007 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 50 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 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 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