Public Storage 2006 Annual Report Download - page 7

occupancy o
f
a
b
out 87%. T
h
is is we
ll
b
e
l
ow our
h
istorica
l
l
eve
l
o
f
91% annua
l
occupancy. However
,
revenue
g
rowth will take lon
g
er to realize than the expense reductions. Generally, when we are tryin
g
to
accelerate customer volumes, we are aggressive with pricing, promotional discounts and marketing. In th
e
short term, it is often difficult to see the benefits of these programs as promotional discounts and marketing
expense a
d
verse
l
y a
ff
ect earnings in t
h
e mont
h
t
h
e customer moves in. In a
dd
ition, since a
b
out 30% o
f
ou
r
customers move in an
d
out wit
h
in 90
d
a
y
s, it ta
k
es time to ac
h
ieve a sta
b
i
l
ize
d
customer
b
ase. M
y
b
est
g
uess is t
h
at it wi
ll
ta
k
e us most o
f
t
h
e 2007 renta
l
season to ac
h
ieve a sta
b
i
l
ize
d
customer
b
ase in t
h
e U.S
.
E
uropean
O
peration
s
Our ob
j
ectives with the European Operations were to brin
g
the cost structure in line with the current size
of the operatin
g
platform and to drive occupancy and revenue
g
rowth by sharin
g
the marketin
g
an
d
p
ricin
g
strate
g
ies used in our domestic business.
Th
e European support sta
ff
, w
h
ic
h
consists o
f
a
ll
operations mana
g
ement an
d
support
f
unctions, rea
l
estat
e
an
d
corporate sta
ff
,
h
as
b
een re
d
uce
d
f
rom a
b
out 185 at t
h
e
b
e
g
innin
g
o
f
2006 to a
b
out 135 to
d
ay. We
h
av
e
a
l
so e
l
iminate
d
or mo
d
i
f
ie
d
certain property
l
eve
l
incentive p
l
ans, resu
l
tin
g
in
l
ower property
l
eve
l
payro
ll
.
Mar
k
eting costs are expecte
d
to
b
e
l
ower as a resu
l
t o
f
centra
l
ization o
f
a
ll
programs an
d
t
h
e e
l
iminatio
n
o
f
ine
ff
ective projects. In a
dd
ition, me
d
ia purc
h
asing
h
as
b
een centra
l
ize
d
wit
h
t
h
e same ven
d
or t
h
at w
e
use
f
or our
d
omestic programs.
I
n aggregate, we expect the annual savings from these programs will be in the $4 to $6 million range.
With respect to revenues, European Same Store property occupancies were 89% during the fourth quarter,
the highest in their history. Going into 2007, occupancies are 8% higher than last year with just over 4
%
higher in place rents. Europe has achieved this with modest promotional discounts and better marketin
g
and pricing programs.
I
n summary, the “inte
g
ration” is nearly complete, and we believe we are well on our way to realizin
g
th
e
p
otential benefits from the mer
g
er
.
T
his was not a “free lunch.” We incurred “transaction costs” (primarily severence, attorneys, investment
b
ankers and others) of about
$
48 million which have been allocated to the costs of assets acquired. We have
also incurred “inte
g
ration costs” of
$
56 million, which have been expensed in our 2006 financial results.
Financial Res
u
lts in 2006
T
he merger had a profound impact on our reported operating results. For 2006, revenues grew by ove
r
3
0%, or
$
300 million, to about
$
1.4 billion. About
$
200 million relates to the acquired Shurgar
d
p
roperties for the period we owned them. Next year’s revenues should exceed
$
1.6 billion attributabl
e
p
rimarily to owning the Shurgard properties for a full year.
Net income to common shareholders declined by 82% to
$
47 million. As a result, earnings per share
decreased by 83% to
$
0.33 per share, from
$
1.97 per share in 2005. Earnings were impacted by tw
o
m
ajor items associated with the Shurgard merger: amortization of acquired intangible assets (the ascribe
d
v
alue to the customers occupying units at the close of the merger) and integration costs. The amortization
was
$
176 million in 2006 and will be about
$
243 million in 2007 and
$
71 million in 2008. The merge
r
i
ntegration costs were
$
56 million and consisted of severance and additional compensation associated with