InStorage REIT announces third quarter 2007 results



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

    
    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")(*) of $6.5 million in Q3, up 27% from
        $5.1 million in Q2.
    -   Funds from Operations ("FFO")(*) of $2.9 million in Q3, up 4% from
        $2.8 million in Q2.
    -   Adjusted Funds from Operations ("AFFO")(*) of $3.3 million in Q3, up
        3% from $3.2 million in Q2.
    -   Internalization of management complete.
    (*) 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(*) 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.

    (*) 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
    -------------------------------------------------------------------------

    Rental property income                       $ 9,989            $ 21,670
    Property operating expenses                    3,491               7,769
    -------------------------------------------------------------------------
    Net Operating Income ("NOI")(*)              $ 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)
    -------------------------------------------------------------------------
    Net loss                                    ($ 2,790)            ($5,436)
    -------------------------------------------------------------------------
    Basic and diluted net loss per unit          ($ 0.01)            ($ 0.03)
    Funds From Operations ("FFO")(*)             $ 2,886             $ 6,880
    FFO per weighted average unit, basic
     and diluted                                 $ 0.014             $ 0.039
    -------------------------------------------------------------------------
    Adjusted Funds from Operations ("AFFO")(*)   $ 3,278             $ 7,806
    AFFO per weighted average unit, basic
     and diluted                                 $ 0.016             $ 0.044
    -------------------------------------------------------------------------
    Weighted average number of units diluted
     (thousands)                                 202,742             178,383
    -------------------------------------------------------------------------
    (*) 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.

    The TSX Venture Exchange does not accept responsibility for the adequacy
    or accuracy of this release.




For further information:

For further information: InStorage Real Estate Investment Trust, T.
James Tadeson, Chief Executive Officer, Tel: (416) 867-9705; Alay Shah, Chief
Financial Officer, Tel: (416) 867-9740

Organization Profile

INSTORAGE REAL ESTATE INVESTMENT TRUST

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