FORM 10-Q A #1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1994
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 June 30, 1994
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 (I.R.S. 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 July 15, 1994:
Class A Common Stock, $.001 par value, 16,829,283 shares
outstanding
Class B Common Stock, $.001 par value, 154,604 shares
outstanding
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Balance Sheet
(unaudited)
(Amounts in thousands except share data)
Predecessor
-----------
Dec. 31, June 30,
1993 1994
--------- --------
Assets:
Storage centers:
Land $91,868 81,078
Buildings and equipment, net 283,167 338,051
-------- -------
375,035 419,129
--------- --------
Cash and cash equivalents 9,057 20,584
Restricted cash 2,783
Investment in joint venture 2,405
Other assets 9,890 10,404
--------- --------
Total assets $393,982 $455,305
========= ========
Liabilities and Stockholders Equity:
Accounts payable and
other liabilities $ 5,407 10,512
Accrued consolidation expense 3,879
Unearned rent and tenant deposits 2,188
Accrued real estate taxes 2,330
Lines of credit 4,190
Notes payable 21,826 124,210
--------- --------
Total liabilities 39,820 134,722
Partner's equity (deficit):
Limited Partners 354,787
General Partners (625)
Stockholders equity:
Class A common stock and Class B
convertible common stock, $0.001
par value; 120,000,000 and 500,000
shares authorized; 16,829,283 and
154,604 issued and outstanding 320,583
--------- --------
Total equity 354,162 320,583
--------- --------
Total liabilities, partner's
and stockholders' equity $393,982 $455,305
========= ========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Earnings
(unaudited)
(Amounts in thousands except per share data)
Predecessor
-------------
For the three For the three
months ended months ended
June 30, 1993 June 30, 1994
------------- -------------
Rental revenue $ 18,014 $ 19,085
Income from joint venture 155 46
Interest income and other income 61 154
----------- -----------
18,230 19,285
----------- -----------
Operating expense 4,217 4,222
Management fees 1,176 1,142
Depreciation and amortization 3,464 3,491
Real estate taxes 1,656 1,751
General and administrative 658 708
Interest 587 2,293
Other 115
----------- -----------
11,758 13,722
----------- -----------
Income before extraordinary item 6,472 5,563
Extraordinary item - loss on
retirement of debt (1,180)
----------- -----------
Net Income $ 6,472 $ 4,383
=========== ===========
Net Income per Common and Common Equivalent Share:
Income before extraordinary item $ 0.33
Extraordinary item - loss on
retirement of debt (0.07)
-----------
Net Income $ 0.26
===========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Earnings
(unaudited)
(Amounts in thousands except per share data)
Predecessor
------------------------
For the Period For the
six from six
months Jan. 1, months
ended 1994 to ended
June 30, March 1, June 30
1993 1994 1994
----------- ----------- ----------
Rental revenue $ 35,196 $ 12,348 $ 25,236
Income from joint venture 282 59
Interest income and other
income 127 203 231
Gain on consolidation 48,223
--------- --------- --------
35,605 60,774 25,526
--------- --------- --------
Operating expense 8,450 2,956 5,692
Management fees 2,281 733 1,506
Depreciation and amortization 6,932 2,390 4,291
Real estate taxes 3,337 1,170 2,326
General and administrative 1,231 1,232 811
Incentive management fees 5,340
Litigation, hostile takeover defense
and consolidation expense 12,180
Interest 1,156 2,992
Other 114 487 115
--------- --------- --------
23,501 26,488 17,733
--------- --------- --------
Income before extra-
ordinary item 12,104 34,286 7,793
Extraordinary item - loss on
retirement of debt (1,180)
--------- --------- --------
Net Income $ 12,104 $ 34,286 $ 6,613
========= ========= ========
Net Income per Common and Common Equivalent Share:
Income before extra-
ordinary item $ 0.46
Extraordinary item - loss on
retirement of debt (0.07)
--------
Net Income $ 0.39
========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Cash Flows
(unaudited)
(Amounts in thousands)
Predecessor
--------------------------------
For the Period For the
six from six
months Jan. 1, months
ended 1994 to ended
Sept. 30, March 1, Sept. 30
1993 1994 1994
--------- --------- ----------
Operating activities:
Net Income $ 12,104 $34,286 $ 6,613
Adjustments to reconcile
earnings to net cash provided
by operating activities:
Depreciation and amortization 6,932 2,390 4,291
Minority interest in joint
partnership earnings 241
Gain on consolidation (48,223)
Loss on retirement of debt 1,180
Deferred incentive
management fees 178
Changes in other accounts:
Restricted Cash (2,783)
Other assets 378 2,675 (773)
Accounts payable and
other liabilities (420) (1,712) 848
Accrued consolidation
expense 16,399
Unearned rent and
tenant deposits 189 249
Accrued real estate taxes (245) (948)
Due to affiliates 1
--------- --------- ---------
Net cash provided by
operating activities 19,358 5,116 9,376
--------- --------- ---------
Investing activities:
Construction, acquisition and
improvement of
storage centers (1,401) (1,158) (66,048)
Improvements to real estate
held for resale (1)
Proceeds from consolidation 64,120
Distributions in excess of
earnings investment
in joint partnerships 126 16
--------- --------- ---------
Net cash (used in) provided
by investing activities (1,276) 62,962 (66,032)
--------- --------- ---------
Financing activities:
Dividends paid (2,378)
Proceeds from notes payable 268 350 227,180
Proceeds from line of credit 680
Payment of financing costs (6,738)
Payment of assumed consolida-
tion liabilities (11,662)
Payments on notes payable (389) (855) (129,162)
Distributions to minority
interest in joint partnership (296)
Distributions to partners (15,921) (764)
--------- --------- ---------
Net cash (used in) provided
by financing activities (16,338) (589) 77,240
--------- --------- ---------
Increase in cash and cash
equivalents 1,744 67,489 20,584
Cash and cash equivalents at
beginning of year 9,936 9,057 ---
--------- --------- ---------
Cash and cash equivalents at
end of period $ 11,680 $76,546 $ 20,584
========= ========= =========
Supplemental schedule of cash flow information:
Cash paid during the period
for interest $ 1,156 $ --- $ 2,992
========= ========= =========
Cash paid during the period
for income taxes $ 129 $ --- $ ---
========= ========= =========
Supplemental schedule of cash flow information:
Liabilities incurred in connection with
the improvement and construction of
storage centers $ 1,427 $ --- $ ---
========= ========= =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
(unaudited)
Note A _ Organization
Shurgard Storage Centers, Inc. (the Company) was organized under the
laws of the State of Delaware on July 23, 1993, to serve as a
vehicle for investments in, and ownership of, a professionally
managed real estate portfolio consisting primarily of self-service
storage properties which provide month-to-month leases for business
and personal use.
On March 1, 1994 (Aquisition Date), the Company completed the
acquisition of 17 publicly-held limited partnerships (the
Partnerships) administered by Shurgard Incorporated (Shurgard) as a
means for assembling an initial portfolio of real estate investments
(Note E). The purchase method of accounting was used to establish
and record a new cost basis for the assets acquired and liabilities
assumed.
Note B _ Summary of Significant Accounting Policies
Basis of presentation: The consolidated financial statements
include the accounts of Shurgard Storage Centers, Inc., SSC Property
Holdings, Inc. and Capitol Hill Partners. SSC Property Holdings,
Inc. was established as a wholly-owned subsidiary to hold all
storage centers which secure the note payable to a financial
services company (Note F). The Company holds a 90% ownership
interest in Capitol Hill Partners, a joint venture with an
unaffiliated party which owns one storage center. All intercompany
balances and transactions have been eliminated upon consolidation.
The consolidated financial statements included in this report are
unaudited. In the opinion of the Company, all adjustments necessary
for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring
items. Interim results are not necessarily indicative of results
for a full year. Operating activity began March 1, 1994; prior to
that date, the Company was inactive.
The combined financial statements presented herein for December 31,
1993, the six and three months ended June 30, 1993, and the period
from January 1, 1994 to March 1, 1994 represent the Partnerships'
(Predecessor) combined financial position, results of operations and
cash flows prior to the Acquisition Date. Since the purchase method
of accounting was used to record assets acquired and certain limited
partners elected to be cashed out, 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 Partnership's higher historical
cost of storage centers and the related depreciation and the
Company's higher debt and related interest expense in periods after
the Aquisition Date.
Storage centers: Storage centers are recorded at cost.
Depreciation on buildings and equipment is recorded on a straight-
line basis over their estimated useful lives which range from three
to 30 years.
Investment in joint ventures: The Company consolidates the accounts
of those joint ventures in which the Company has a greater than 50%
interest. All other investments in joint ventures are accounted for
on the equity method.
Cash equivalents: Cash equivalents consist of money market
instruments and securities with original maturities of 90 days or
less.
Financing costs: Financing costs are included in other assets and
are amortized on the effective interest method over the life of the
related debt.
Federal income taxes: The Company intends to qualify as a real
estate investment trust (REIT) as defined in Section 856 of the
Internal Revenue Code. As a REIT, the Company will not be subject
to federal income taxes provided that it distributes annually at
least 95% of its taxable income and meets certain other
requirements. As a result, no provision for federal income taxes
has been made in the Company's financial statements.
Revenue recognition: Revenue is recognized when earned under
accrual accounting principles.
Net Income per share: Net Income per share is calculated based on
the weighted average shares outstanding during the periods
presented.
Financial instruments: The carrying values reflected in the
balance sheet at June 30, 1994, reasonably approximate the fair
value of cash and cash equivalents, other assets, and notes
payable. The Company estimates that the fair value of its notes
from shareholders is $2.25 million.
Note C _ Advisory and Management Agreements
The Company has entered into advisory and management agreements
under which Shurgard advises the Company with respect to its
investments, manages the day-to-day operations of the Company, and
provides property management services. The agreements provide for
an annual advisory fee, incentive advisory fees, reimbursement for
certain costs and expenses, and property management fees. The
property management fee is equal to 6% of gross storage center
revenues and 5% of office and business park revenues. The annual
advisory fee is equal to 0.5% of the fair market value of new
properties acquired after the initial acquisition (Note E), mortgage
loans receivable held and the average daily cash equivalents
invested in excess of cash equivalents acquired from the
Partnerships. The incentive advisory fee equals 10% of realized
gain on sale or refinancing of properties acquired after the initial
acquisition.
Note D Storage Centers
Storage centers consist of the following (amounts in thousands):
Land $ 81,078
Buildings 338,716
Equipment 4,279
--------
424,073
Less accumulated depreciation (4,944)
--------
$419,129
=========
Note E Acquisition
On March 1, 1994, the Company completed the acquisition of seventeen
publicly-held limited partnerships (the Partnerships) administered
by Shurgard Incorporated (Shurgard) as a means for assembling an
initial portfolio of real estate investments (the Acquisition). The
Company acquired the assets, subject to existing liabilities, of
each of the Partnerships for a cost of $387 million. A summary of
the assets and liabilities assumed in this transaction are as
follows (amounts in thousands):
Real estate $ 417,218
Interest in joint ventures 7,074
Cash, receivables and other assets 10,642
Notes Payable (26,192)
Other liabilities (21,326)
----------
$ 387,416
==========
The acquisition was funded with 16,983,728 shares of common stock
and $67,068,631 in proceeds from a note payable to a financial
services company. Assets assumed by the Company include
approximately $2,947,000 in cash. Real estate assets acquired
consist of 134 self-service storage centers and two business parks
located in seventeen states, as well as an interest in two joint
ventures owning an additional five storage centers.
Note F _ Notes Payable
Notes payable consist of the following (amounts in thousands):
Note payable to financial
services company $122,580
Mortgage note payable 1,471
Other notes payable 159
---------
$124,210
=========
On June 9, 1994, the Company refinanced substantially all of its
existing debt with Nomura Asset Capital Corp., a subsidiary of
Nomura Securities International, Inc. through a debt purchase
transaction. The $122.58 million loan provides the Company with
funds for seven years at a fixed rate equal to 8.28% and requires
monthly payments of interest only until maturity. The refinancing
of existing debt resulted in a loss on early retirement of $1.18
million, consisting of unamortized loan fees.
As required by the loan agreement, the Company deposited $2.78
million in reserve accounts for real estate taxes, insurance and
deferred maintenance. Amounts in these accounts are restricted to
the payment of deferred maintenance and insurance premiums and to
provide the lender with funds to remedy unpaid real estate taxes in
the case of default.
The mortgage note is secured by a deed of trust on the Bellingham
storage center. It is due in monthly installments of $13,441,
including principle and interest at 10.25%, and matures April 2001.
Other notes payable consists of local improvement district warrants.
The approximate maturities of principle over the next five fiscal
years range from $16,000 to $24,000.
Note G Stockholders' Equity
Stockholders' equity consists of the following (amounts in
thousands):
Class A common stock $317,434
Class B convertible common stock 2,916
Loans to stockholders (4,002)
Retained earnings 4,235
---------
$320,583
==========
In addition to the rights, privileges and powers of Class A common
stock, Class B common stockholders received loans from the Company
to fund certain obligations to the Partnerships. The loans are due
between 2001 and 2003 and are secured by the Class B stock. Class B
common stock is convertible to Class A stock at a one-to-one ratio
as the loans are repaid.
The Company has authorized 40,000,000 shares of preferred stock, of
which 2,800,000 shares have been designated as Series A Junior
Participating Preferred Stock, and none are issued and outstanding
at June 30, 1994. The Board of Directors is authorized to determine
the rights, preferences and privileges of the preferred stock
including the number of shares constituting any such series, and the
designation thereof.
The number of shares outstanding has been increased 330 shares from
the amount disclosed at March 31, 1994 due to the correction of a
clerical error. This change has no material effect on the quarterly
financial statements issued as of March 31, 1994.
Note H Stock Options
The Company has established the 1993 Stock Option Plan (the Plan)
for the purpose of attracting and retaining the Company's directors,
executive officers and other employees. The Plan provides for the
granting of options for up to 3% of the Company's outstanding shares
of Class A common stock at the end of each year, limited in the
aggregate to 5,000,000 shares. In general, the options vest ratably
over five years and must be exercised within ten years from date of
grant. The exercise price for qualified incentive options under the
Plan must be at least equal to fair market value at date of grant
and at least 85% of fair market value at date of grant for non
qualified options. The Plan expires in 2003. As of June 30, 1994,
8,000 options had been granted under the Plan at an exercise price
of $18.90.
The Company also established the Stock Option Plan for Non employee
Directors (the Non employee Plan) for the purpose of attracting and
retaining the services of experienced and knowledgeable outside
directors. The Non employee Plan provides for the annual granting
of options to purchase 400 shares of Class A common stock. Such
options vest upon continued service until the next annual meeting of
the Company. The total shares reserved under the Non employee Plan
is 20,000. The exercise price for options granted under the Non
employee Plan is equal to fair market value at date of grant. As of
June 30, 1994, 1,200 options had been granted under the Non employee
Plan at an exercise price of the average market price of the
Company's stock during the first 30 days of trading.
Note I _ Shareholder Rights Plan
In March 1994, the Company adopted a Shareholder Rights Plan and
declared a dividend distribution of one Right for each outstanding
share of common stock. Under certain conditions, each Right may be
exercised to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a purchase price of $65,
subject to adjustment. The Rights will be exercisable only if a
person or group has acquired 10% or more of the outstanding shares
of common stock, or following the commencement of a tender or
exchange offer for 10% or more of such outstanding shares of common
stock. If a person or group acquires more than 10% of the then
outstanding shares of common stock, each Right will entitle its
holder to receive, upon exercise, common stock (or, in certain
circumstances, cash, property or other securities of the Company)
having a value equal to two times the exercise price of the Right.
In addition, if the Company is acquired in a merger or other
business combination transaction, each Right will entitle its holder
to purchase that number of the acquiring Company's common shares
having a market value of twice the Right's exercise price. The
Company will be entitled to redeem the Rights at $.0001 per Right at
any time prior to the earlier of the expiration of the Rights in
March 2004 or the time that a person has acquired a 10% position.
The Rights do not have voting or dividend rights, and until they
become exercisable, have no dilutive effect on the earnings of the
Company.
Note J _ Litigation
In connection with the Acquisition, the Company was named in certain
lawsuits. All except one of these lawsuits have either been
dismissed without prejudice or a tentative settlement has been
agreed upon, subject to court approval. The Company does not expect
the tentative settlement or any changes to have a material impact on
the financial statements. One suit remains unresolved in Washington
where no action has been taken since it was filed on February 24,
1994. There is not sufficient information at this time to predict
an expected outcome.
Note K _ Subsequent Event
Subsequent to the end of the quarter, the Company executed a
Commitment Letter with a commercial bank group to provide a $50
million two-year revolving credit facility. This credit facility
will be secured by real estate and interest will be payable monthly
at either the banks' prime rate or LIBOR plus 200 basis points (at
the Company's option). The commitment fee for the revolving period
is 75 basis points of the commitment amount. Upon the expiration of
the revolving period, for an additional fee of 37.5 basis points of
the amount outstanding, the Company can extend any outstanding
balance for a one year term. The commitment is subject to customary
contingencies and due diligence.
Additionally, the Company entered into a purchase and sale agreement
with an unaffiliated seller to purchase up to twenty storage centers
on the East Coast, from Maryland to North Carolina, for up to $34
million. The purchase is subject to certain contingencies and due
diligence. If consummated, the transaction is expected to close in
early September and will be funded through the credit facility
discussed above.
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: January 30, 1995 By: /s/ Harrell Beck
------------------------------------
Harrell Beck
President, Chief Financial Officer and
Authorized Signatory
