FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 1995 Commission file number 0-23466
SHURGARD STORAGE CENTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1603837
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1201-3RD AVENUE, SUITE 2200, SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 206-624-8100
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Shares outstanding at May 8, 1995:
Class A Common Stock, $.001 par value, 18,095,988 shares outstanding
Class B Common Stock, $.001 par value, 154,604 shares outstanding
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Balance Sheets
(unaudited)
(Amounts in thousands except share data)
March 31, December 31,
1995 1994
----------- ----------
Assets:
Storage centers:
Land $ 90,831 $ 88,532
Buildings and equipment, net 368,442 362,332
Construction in progress 2,635 532
----------- ----------
461,908 451,396
Other real estate investments 18,955 15,104
Cash and cash equivalents 6,831 13,162
Restricted cash 2,689 2,766
Other assets 46,084 12,162
----------- ----------
Total assets $ 536,467 $ 494,590
=========== ==========
Liabilities and Shareholders' Equity:
Accounts payable and other liabilities $ 11,598 $ 10,608
Dividends payable 7,683
Lines of credit 49,000 42,000
Notes payable 132,392 125,137
----------- ----------
Total liabilities 200,673 177,745
----------- ----------
Shareholders' equity:
Class A common stock, $0.001 par value;
120,000,000 authorized; 18,095,988
shares issued and outstanding 346,315 317,434
Class B common stock, $0.001 par value;
500,000 shares authorized, 154,604
issued and outstanding; net of loans
to shareholders of $4,002 (1,086) (1,086)
Cumulative dividends (32,610) (17,324)
Cumulative earnings 23,175 17,821
----------- ----------
Total shareholders' equity 335,794 316,845
=========== ==========
Total liabilities and
shareholders' equity $ 536,467 $ 494,590
=========== ==========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Earnings
(unaudited)
(Amounts in thousands except per share data)
Company Predecessor
------------------------- ------------
For the three For the three Period from
months ended months ended Jan. 1, 1994 to
Mar. 31, 1995 Mar. 31, 1994 Mar. 1, 1994
------------- ------------ ------------
Rental revenue $ 20,972 $ 6,151 $ 12,348
Revenue from other
real estate investments 339 13 20
Property management revenue 57
---------- ---------- -----------
Total revenue 21,368 6,164 12,368
---------- ---------- -----------
Operating expense 5,135 1,470 2,961
Management fees 1,320 364 733
Depreciation and amortization 3,767 800 2,390
Real estate taxes 1,808 575 1,170
General and administrative 787 103 1,232
----------- -----------------------
Total expenses 12,817 3,312 8,486
----------- -----------------------
Income from operations 8,551 2,852 3,882
----------- -----------------------
Interest and other income 234 77 188
Interest expense (3,431) (699) (487)
Incentive management fees (5,340)
Litigation, hostile takeover
defense and consolidation
expense (12,180)
Gain on consolidation 48,223
----------- ----------- ----------
Total other income
(expense) (3,197) (622) 30,404
----------- ----------- ----------
Net income $ 5,354 $ 2,230 $ 34,286
=========== =========== ===========
Net income per share $ 0.31 $ 0.13 $ ---
=========== =========== ===========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Cash Flows
(unaudited)
(Amounts in thousands)
Company Predecessor
------------------------- ------------
Three months Three months Period ended
ended ended Jan. 1, 1994
March. 31, March 31, to March 1,
1995 1994 1994
----------- ---------- ------------
Operating activities:
Net income $ 5,354 $2,230 $34,286
Adjustments to reconcile earnings
to net cash provided by operating
activities:
Depreciation and amortization 3,767 800 2,390
Gain on consolidation (48,223)
Earnings in excess of distributions
from joint venture (13) (20)
Changes in other accounts:
Restricted cash 77 (2,205)
Other assets 1,947 1,036 2,675
Accounts payable and other (1,985) (306) (2,391)
liabilities
Accrued consolidation expense 16,399
-------- ------- ---------
Net cash provided by operating
activities 9,160 1,542 5,116
-------- --------- --------
Investing activities:
Construction, acquisition and
improvement of storage centers (5,820) (65,452) (1,158)
Purchase of real estate investments (3,971)
Purchase of amortizable assets (200)
Investment in property
management company (233)
Proceeds from consolidation 64,120
Distributions in excess of earnings
investment in joint partnerships 120
-------- --------- --------
Net cash (used in) provided by
investing activities (10,104) (65,452) 62,962
-------- --------- --------
Financing activities:
Proceeds from notes payable 104,600 350
Proceeds from line of credit 7,000 680
Payment of financing costs (427) (3,223)
Payment of assumed consolidation
liabilities (11,662)
Repayment of assumed line of credit (4,337)
Principal payments on notes payable (20) (10,364) (855)
Dividends paid (7,603)
Distributions to partners (764)
-------- --------- ---------
Net cash (used in) provided by
financing activities (5,387) 79,351 (589)
-------- --------- ---------
(Decrease) increase in cash and
cash equivalents (6,331) 15,441 67,489
Cash and cash equivalents at
beginning of year 13,162 --- 9,057
-------- --------- --------
Cash and cash equivalents at end
of period $6,831 $15,441 $76,546
======== ========= ========
Supplemental schedule of cash flow information:
Cash paid during the period for
interest $ 3,418 $ 629 $ 487
======== ========= ========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
Three Months Ended March 31, 1995
(unaudited)
Note A _ Basis of Presentation
The consolidated financial statements include the accounts of the
Company, SSC Property Holdings, Inc., SSC Acquisitions, Inc., and
Capitol Hill Partners. SSC Property Holdings, Inc. was
established as a wholly-owned subsidiary to hold all storage
centers which secure certain notes. SSC Acquisitions, Inc. was
established as a wholly owned subsidiary to hold all storage
centers which secure a line of credit. The Company holds a 90%
ownership interest in Capitol Hill Partners which owns one
storage center. All intercompany balances and transactions have
been eliminated upon consolidation. Prior to March 1, 1994, the
Company was inactive.
The consolidated financial statements included in this report are
unaudited. In the opinion on the Company, all adjustments
necessary for a fair presentation of such financial statements
have been included and such adjustments consisted only of normal
recurring items. The interim financial statements should be read
in conjunction with the 1994 Annual Report. Interim results are
not necessarily indicative of results for a full year.
The combined financial statements presented herein for the period
from January 1, 1994 to March 1, 1994 represent the Predecessor's
combined results of operations and cash flows prior to the March
1, 1994. Since the purchase method of accounting was used to
record assets acquired and certain limited partners elected to
receive cash rather than Company stock, the Predecessor financial
statements are not comparable in all material respects with
financial statements subsequent to the Acquisition Date. The
most significant differences relate to the Partnerships' higher
historical cost of storage centers and the related depreciation
and the Company's higher debt and related interest expense in
periods after the Acquisition Date.
Weighted average shares outstanding for the three months ended
March 31, 1995 and 1994 were 17,082,409 and 16,983,887,
respectively.
Note B Merger
In December 1994, the Board of Directors executed a Merger
Agreement with Shurgard Incorporated (the Management Company) in
order to become self-administered and self-advised. At a special
meeting on March 21, 1995, the shareholders voted to approve the
Merger with the Management Company. On March 24, 1995, the
Company issued 1,266,705 new shares of Class A common stock to
the shareholders of the Management Company, subject to certain
adjustments and an audit of the Management Company's final
statement of assets, liabilities and stockholders' equity. In
addition, 282,572 shares previously owned by the Management
Company were reissued to Management Company shareholders. The
Management Company shareholders may receive additional shares
over the next five years as consideration for certain partnership
interests held by the Management Company which were not valued at
the time of the Merger. Additionally, the Company paid $3,010 in
cash to Management Company shareholders in place of fractional
shares. A summary of the assets and liabilities assumed in this
transaction are as follows (amounts in thousands):
Storage centers $ 8,058
Cash 780
Other assets 34,138
Line of credit (4,337)
Notes payable (7,275)
Other liabilities (2,480)
---------
$28,884
=========
Subsequent to the end of the quarter, the Company agreed to
purchase the limited partnership interest in a partnership which
owns seven storage centers and a 59.5% interest in a joint
venture owning three additional storage centers. The Company
will pay $35.5 million in exchange for the 99% limited
partnership interest and the transaction is expected to close by
the end of May 1995. The Company previously owned the 1% general
partnership interest which was acquired in the Merger.
The following unaudited pro forma statements of income represent
the results of operations of the Company for the three months
ended March 31, 1994 and 1995. The pro forma operating data have
been prepared as if all properties owned by the Company at March
31, 1995 had been acquired on January 1, 1994 and that the merger
of the Management Company and the acquisition of the limited
partnership interest had been consummated on January 1, 1994.
The pro forma balance sheet data at March 31, 1995 has been
prepared as if the acquisition the limited partnership interest
had been consummated on March 31, 1995. The pro forma results do
not necessarily indicate the actual results that would have been
obtained, nor are they necessarily indicative of the future
operations of the combined companies.
Statement of Net Income (unaudited)
Three months ended March 31,
----------------------------
1995 1994
------------- -------------
(in thousands)
Revenues $ 24,076 $ 22,429
Operations expenses 14,323 13,516
Interest expense 4,391 4,359
------------- ------------
Net income $ 5,362 $ 4,554
============= ============
Net income per share $ 0.29 $ 0.25
============= ============
Balance Sheet (unaudited)
March 31, 1995
(in thousands)
--------------
Storage centers, net $ 498,795
Other assets 75,658
--------------
Total assets $ 574,453
==============
Notes payable $ 132,392
Lines of credit 84,500
Other liabilities and minority interest 21,767
--------------
Total liabilities 238,659
Common stock 335,794
--------------
Total shareholders' equity and liabilities $574,453
==============
Note C _ Lines of Credit
On March 31, 1995, the Company borrowed an additional $7 million
on its lines of credit. Proceeds were used to repay the $4.337
million line of credit assumed in the Merger and fund the
acquisition of two storage centers and several parcels of
undeveloped land on which the Company intends to build storage
centers.
Part I, Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company has entered into a number of important transactions
during 1995 that further establish the structural and financial
means of executing its 1995 growth plan. The following discussion
summarizes the recent developments pertaining to the Company.
Merger of the Management Company - In order to create a fully
integrated company and more closely align the interests of
management with the shareholders, the Management Company merged with
the Company on March 24, 1995. Pursuant to the Agreement and Plan
of Merger, the outstanding shares of the Management Company common
stock were converted into an aggregate of 1,266,705 newly issued
shares of the Company's Class A Common Stock (Common Stock) and an
additional 282,572 shares that replaced the Common Stock previously
owned by the Management Company, subject to certain adjustments.
Pursuant to the Merger Agreement, Management Company shareholders
are also entitled to receive additional shares of Common Stock in
the future based on (i) the extent to which, during the five years
following the Merger, the Company realizes value as a result of
certain transactions relating to interests in or assets of six
limited partnerships acquired by the Company in the Merger and (ii)
the value, at the end of five years after the Merger, or in the
event of a change of control of the Company, of any remaining
interests in such partnerships as determined by independent
appraisal.
Listing of Common Stock on the NYSE - The Common Stock was
authorized for listing on the NYSE under the symbol "SHU" on April
27, 1995, and commenced trading on the NYSE on May 5, 1995. From
March 28, 1994 through May 4, 1995, the Common Stock traded on the
Nasdaq National Market under the symbol "SHUR."
Acquisition of Evergreen Properties - Subsequent to the end of the
quarter, Shurgard agreed to purchase the limited partner interest in
Shurgard Evergreen Limited Partnership ( the Evergreen Partnership),
an entity formed in May 1990 to develop and own self storage
centers, of which the Company is the general partner. The limited
partner interest was owned by a wholly owned subsidiary of the State
Investment Board of the State of Washington. The Evergreen
Partnership developed and owns seven self storage centers directly
and, through a joint venture, owns an interest in an additional
three centers. Three of the centers are located in the Atlanta,
Georgia area, three are located in the Portland, Oregon area, and
one each is located near Philadelphia, Pennsylvania, Phoenix,
Arizona, San Antonio, Texas and Seattle, Washington. On April 30,
1995, the centers, having an aggregate of 631,000 net rentable
square feet, had a weighted average occupancy rate of 81%, based on
net rentable square footage. The purchase price for the limited
partner interest in Evergreen Partnership is $35.5 million and will
be financed through the Company's line of credit. The Company will
acquire the limited partner interest through a subsidiary, and
currently intends to continue to Evergreen Partnership's existence.
Additional Developments and Acquisitions - In 1995, the Company
has continued to selectively acquire development parcels and self
storage centers in its target markets. New developments are under
construction in Houston, Dallas and Plano, Texas, Atlanta, Georgia
and Nashville, Tennessee, that will contain an aggregate of
approximately 318,000 net rentable square feet of storage space.
The Company has also acquired existing self storage properties in
Taylor, Michigan (March 1995), Oak Forest, Illinois (May 1995) and
Puyallup, Washington (May 1995) with a total of approximately
173,000 net rentable square feet of storage space. Additionally,
since year end, the Company invested $2.5 million in its Benelux
subsidiary which has commenced construction on two storage centers
in the Brussels metropolitan area having agreggate net rentable
square footage of 82,000.
Announcement of Public Stock Offering - In April 1995, the Company
filed a $200 million shelf registration for debt and equity
securities. On May 10, 1995, the Company announced its intention to
offer for sale 3,000,000 shares of Common Stock. The proceeds from
this equity offering will be used to reduce the Company's lines of
credit and for general corporate purposes.
Liquidity and Capital Resources
During the quarter, the Company invested $13.9 million in storage
centers. In addition to the $8 million center acquired in the
Merger, the Company invested $2.9 million in the Taylor, Michigan
storage center, approximately $2.2 million in development projects
and $700,000 in capital improvements to its existing portfolio. The
$3.8 million increase in other real estate investments reflects
primarily the $3 million invested in the Company's Benelux
subsidiary.
Cash balances declined from December 31, 1994 to March 31, 1995 as
operating cash flow and working capital were used to temporarily
fund acquisition and development needs. Additional cash was
borrowed on the lines of credit as needed to meet remaining
acquisition, and development requirements. Dividend payments are
approximately 84% of Funds From Operations (FFO). The Company
borrowed $7 million on March 31, 1995, under its line of credit to
repay the $4.3 million line of credit assumed in the Merger and
finance the acquisition and development activity described above.
At March 31, 1995, the Company's debt to total asset ratio was 34%
and its debt to total market capitalization ratio was 30%.
The Company anticipates that cash flow from operating activities,
available lines of credit and the proceeds from its equity offering
will continue to provide adequate capital for planned expansion,
principal payments and dividend payments in accordance with REIT
requirements. Cash provided by operating activities for the three
months of operations was $9 million. Capital available from lines
of credit at March 31, 1995 was $46.4 million. The Company has
declared the following dividends:
Quarter ended Record Date Pay Date Per Share Amount
-------------- ------------ ------------- -----------------
Dec. 31, 1994 Feb. 10, 1995 Mar. 29, 1995 0.44
Mar. 31, 1995 Mar. 22, 1995 May 19, 1995 0.46
June 30, 1995 June 2, 1995 on or before 0.46
July 31, 1995
Results of Operations
The Company operates a professionally-managed real estate portfolio
consisting primarily of self-service storage properties that provide
month-to-month leases for business and personal use. Net income for
the quarter was $5.4 million, or $0.31 per share, reflecting three
months of consolidated operations for 159 storage centers and two
business parks, as well as the first month of operations for one
Tennessee storage development project. FFO for the first quarter of
1995 was $9,149. The table below provides measures of geographic
diversity and earnings as a percentage of historical cost.
Performance measures are annualized to allow comparisons between
periods.
Percentage of Portfolio Year-to-date 1995
Based on Original Cost Annualized Property
At March 31, 1995 Performance
----------------------- -------------------
California 15.2% 11.3%
Florida 5.8% 10.7%
New York 5.4% 14.1%
Texas 14.6% 10.6%
Virginia 9.0% 11.7%
Washington 20.2% 10.8%
Other 29.8% 12.4%
--------
Total 100%
========
The annualized property performance percentages are determined by
dividing the annualized property level net operating income (rental
revenue less operating expenses, real estate taxes and management
fees) for the three months ended March 31, 1995 by the original
acquisition cost. This performance is not necessarily indicative of
what the actual property performance percentages for the full year
will be. Net operating income is not reduced by depreciation or
certain general and administrative expenses and, had it been, the
percentages would be lower. This performance measure should not be
construed as a yield or return of investment.
Quarter Ended March 31, 1995 compared to Quarter Ended March 31,
1994
The following comparison of operating results discussion the
Company's actual first quarter 1995 results to the combined
operating results of the Predecessor from January 1, 1994 to March
1, 1994 and the operating results of the Company from March 1, 1994
(the beginning of operations) to March 31, 1994.
First quarter 1995 rental revenues rose 13.4% or $2.5 million
compared to the first quarter of 1994. This reflects approximately
$1.4 million of revenues related to the 20 storage centers acquired
September 1, 1994, as well as a 6% increase in average rental rates
for the original portfolio of assets. Occupancy levels remained
relatively stable at 87% for the quarter ended March 31, 1995
compared to 88% for the quarter ended March 31, 1994.
Total expenses for the first quarter of 1995 rose 8.6% over the
first quarter of 1994. More than half of this increase reflects the
addition of the twenty storage centers discussed above. General and
administrative expenses declined as the Predecessor's expenses
include certain non-recurring costs related to the liquidation of
the partnerships.
Income from operations for the quarter ended March 31, 1995 increase
27% or $1.8 million over the same quarter in 1994. Approximately
$700,000 of this increase represents the results of operations for
the twenty storage centers acquired on September 1, 1994. Income
from the $11.7 million invested in participating mortgages during
December of 1994 contributed an additional $300,000. Property
management operations for the last week of March contributed $32,000
net of the additional depreciation and amortization expense. The
remaining increase reflects improved operating results for the
Company's original portfolio of real estate.
The Company's debt for most of the first quarter of 1995 was $167
million compared to $26 million for the Predecessor (for two months)
and $120 million for the Company ( for one month) in the first
quarter of 1994. This additional debt is reflected in the Company's
interest expense and earnings for the three months ended March 31,
1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SHURGARD STORAGE CENTERS, INC.
Date: May 10, 1995 By: /s/ Harrell Beck
-----------------------------------------------
Harrell Beck
Chief Financial Officer and Authorized Signatory
