InStorage Real Estate Investment Trust
TSX VENTURE : IS.UN

InStorage Real Estate Investment Trust

November 14, 2007 23:00 ET

InStorage REIT Announces Third Quarter 2007 Results

TORONTO, ONATRIO--(Marketwire – Nov. 14, 2007) - InStorage Real Estate Investment Trust ("InStorage" or the "REIT")(TSX VENTURE:IS.UN) announced today its results for the three and nine months ended September 30, 2007.

Attention Business/Financial Editors:



Highlights:

- Acquired 2 properties during the third quarter ("Q3") totalling

67,000 square feet of rentable area and aggregate acquisition cost of

$12.0 million.

- Portfolio grows to 52 properties with a rentable area of 2.9 million

square feet and gross book value of real estate assets of

approximately $443.1 million at September 30, 2007.

- Mezzanine financing program continues to provide pipeline of

potential acquisitions - $1.2 million of loans advanced in Q3 with

$20.9 millions of mezzanine loans outstanding as at September 30,

2007 and an estimated development potential of 514,000 square feet of

rentable area.

- Total rental property income of $10.0 million in Q3, up 27% from

$7.9 million in the second quarter ("Q2") of 2007.

- Net Operating Income ("NOI")(i) of $6.5 million in Q3, up 27% from

$5.1 million in Q2.

- Funds from Operations ("FFO")(i) of $2.9 million in Q3, up 4% from

$2.8 million in Q2.

- Adjusted Funds from Operations ("AFFO")(i) of $3.3 million in Q3, up

3% from $3.2 million in Q2.

- Internalization of management complete.

(i) See "Non-GAAP Measures"


InStorage continued to grow its portfolio through the first nine months of 2007 with the acquisition of 32 properties located in Alberta, Saskatchewan, Ontario and Quebec totalling 1.9 million square feet of rentable area for an aggregate acquisition cost of $289.1 million. During the third quarter the REIT acquired 2 properties totalling approximately 67,000 square feet of rentable area with land available for the further development of approximately 86,000 square feet of rentable area. With the completion of these transactions, the REIT's portfolio has grown to 52 properties with a rentable area of 2.9 million square feet and gross book value of real estate assets of approximately $443.1 million as at September 30, 2007.

"We continued to execute on our business plan, maintaining our focused growth strategies to build our presence as the largest owner and operator of self-storage facilities in Canada," stated T. James Tadeson, Chief Executive Officer. "As our portfolio grows and our new operating systems become fully integrated, we are confident we will see significant operating synergies and economies of scale that will contribute to increased cash flow over the long term."

"Over the last two quarters we have moved ahead with our re-branding initiatives with the goal of having all our facilities under one high impact and recognizable brand name. Our branding design work was completed by a consulting firm that has designed some of the most recognizable retail brand names in North America. We are tremendously excited by the store designs we have now developed and expect to complete the re-branding of all our properties by end of 2008. As consumer awareness of the InStorage name grows, we believe that we will be able to drive revenues significantly and bring true brand value to InStorage and its unit holders." Mr. Tadeson added.

Total revenues for the third quarter of 2007 were $10.7 million, up 24% from $8.6 million in the second quarter of the year. Total revenues included rental property income of $10.0 million and interest income on mezzanine loans of $0.7 million for the three months ended September 30, 2007 compared to $7.9 million and $0.7 million respectively in the second quarter of the year. For the nine months ended September 30, 2007, total revenues were $23.8 million including rental property income of $21.7 million and interest income on mezzanine loans of $2.1 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 nine months ended September 30, 2007.

The weighted average annualized rent per square foot at September 30, 2007 was $17, consistent with the second quarter of 2007. The weighted average rent per square foot realized during the third quarter compared to the second quarter increased by 1.3%. The comparable basis average rent excludes the Domestik portfolio, which was acquired on June 28, 2007, and the Airdrie and Milton property acquisitions completed in the third quarter. The average rents realized on our properties in western Canada increased by 3.4% during the third quarter while the average rents in Ontario and Quebec have remained stable.

The weighted average occupancy of the properties as at September 30, 2007 was 81% compared to 83% on June 30, 2007. The decline in occupancy levels was mainly due to seasonal factors. The occupancy levels in July and August 2007 showed an improvement over the second quarter. The weighted average occupancy of the properties over the third quarter of 2007 was higher at 82% compared to 81% over the previous quarter. The quarterly average is a weighted average of the occupancy levels at the end of each month during the quarter. Both average rental rates and occupancies are consistent with management's expectations.

Mezzanine loan interest income was $0.7 million in the third quarter of 2007, consistent with the second 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 growth strategy. InStorage advanced mezzanine loans of $1.2 million to InScotia during the third quarter of 2007. As of September 30, 2007 a total of $20.9 million in mezzanine loans was outstanding.

Direct property operating expenses for the quarter were $3.5 million, or 34.9% of rental revenue. For the nine months ended September 30, 2007, property operating expenses were $7.8 million or 35.9% 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(*) for the three months ended September 30, 2007 was $6.5 million or 65.1% of rental property income, up from $5.1 million or 64.7% in the second quarter of the year. NOI for the nine months ended September 30, 2007 was $13.9 million or 64.1% of rental property income. The increase in NOI is due primarily to the increase in the size of the REIT's portfolio, stable rent and occupancies, and economies of scale being realized with the growth of the business.

FFO(*) for the third quarter of 2007 was $2.9 million or $0.014 per unit compared to $2.8 million or $0.014 per unit in the second quarter of 2007. For the nine months ended September 30, 2007, FFO was $6.9 million or $0.039 per unit. FFO for the first nine months of 2007 reflects general and administrative expenses ("G&A") of $1.9 million, re-branding costs of $0.2 million and $0.4 million of unit based compensation expense. Re-branding costs reduced FFO for the quarter and the year-to-date period by $0.2 million or $0.001 per unit. Effective September 1, 2007 the REIT completed the internalization of its asset and property management functions. As a result, effective that date, the REIT's G&A included compensation costs for the senior officers whose services were previously provided by the external manager. AFFO(i) for the three months ended September 30, 2007 was $3.3 million or $0.016 per unit, up from $3.2 million or $0.016 per unit in the second quarter of 2007. The REIT declared monthly distributions of $3.7 million for the three months ended September 30, 2007 and $9.7 million for the first nine months of the year.

Total debt as at September 30, 2007 was $241.9 million with a ratio of total debt to total assets of 52% compared to total debt of $71.8 million and a leverage ratio of 38% as at December 31, 2006. The REIT held $2.1 million in cash and cash equivalents at September 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.

(i) See "Non-GAAP Measures"



Financial Highlights

(dollars in thousands, Three months ended Nine months ended

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

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Rental property income $ 9,989 $ 21,670

Property operating expenses 3,491 7,769

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Net Operating Income ("NOI")(i) $ 6,498 $ 13,901

NOI margin 65.1% 64.1%

Interest income on mezzanine loans 713 2,114

Interest expense, net (3,133) (6,111)

General and administrative expenses (806) (1,879)

Re-branding expense (150) (187)

Asset management fees (216) (559)

Unit-based compensation (20) (399)

Amortization of income-producing

properties (5,676) (12,316)

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Net loss ($ 2,790) ($5,436)

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Basic and diluted net loss per unit ($ 0.01) ($ 0.03)

Funds From Operations ("FFO")(*) $ 2,886 $ 6,880

FFO per weighted average unit, basic

and diluted $ 0.014 $ 0.039

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Adjusted Funds from Operations ("AFFO")(*) $ 3,278 $ 7,806

AFFO per weighted average unit, basic

and diluted $ 0.016 $ 0.044

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Weighted average number of units diluted

(thousands) 202,742 178,383

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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 nine months ended September 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 52 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 thereof 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