FORM 10-Q A #1
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 September 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 September 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 (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 October 14, 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, Sept.30,
1993 1994
--------- ---------
Assets:
Storage centers:
Land $ 91,868 $ 87,908
Buildings and equipment, net 283,167 363,891
--------- ---------
375,035 451,799
Cash and cash equivalents 9,057 15,982
Restricted cash 2,717
Investment in joint venture 3,050
Other assets 9,890 11,226
--------- ---------
Total assets $393,982 $484,774
========= =========
Liabilities and Stockholders Equity:
Accounts payable and other
liabilities $ 5,407 10,539
Accrued consolidation expense 3,879
Unearned rent and tenant deposits 2,188
Accrued real estate taxes 2,330
Lines of credit 4,190 30,000
Notes payable 21,826 125,121
--------- ---------
Total liabilities 39,820 165,660
Partner's equity (deficit):
Limited Partners 357,787
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 319,114
--------- ---------
Total equity 354,162 319,114
--------- ---------
Total liabilities, partner's
and stockholders' equity $393,982 $484,774
========= =========
<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
Sept. 30, 1993 Sept. 30, 1994
--------------- ---------------
Rental revenue $ 18,774 $ 20,465
Income from joint venture 148 50
Interest income and other income 69 242
Litigation settlement 317
----------- -----------
19,308 20,757
----------- -----------
Operating expense 4,706 4,875
Management fees 1,221 1,233
Depreciation and amortization 3,487 3,303
Real estate taxes 1,919 1,757
General and administrative 555 706
Interest 562 2,822
Other 18 57
----------- ------------
12,468 14,753
----------- ------------
Net Income $ 6,840 $ 6,004
=========== ===========
Net Income per share $ --- $ 0.35
=========== ===========
<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
nine from nine
months Jan. 1, months
ended 1994 to ended
Sept. 30, March 1, Sept. 30
1993 1994 1994
----------- ----------- ----------
Rental revenue $ 53,969 $ 12,348 $ 45,701
Income from joint venture 431 109
Interest income and
other income 196 203 473
Gain on consolidation 48,223
Litigation settlement 317
----------- ----------- ----------
54,913 60,774 46,283
----------- ----------- ----------
Operating expense 13,156 2,956 10,567
Management fees 3,501 733 2,739
Depreciation and amortization 10,419 2,390 7,594
Real estate taxes 5,257 1,170 4,083
General and administrative 1,786 1,232 1,517
Incentive management fees 5,340
Litigation, hostile takeover defense
and consolidation expense 12,180
Interest 1,718 5,814
Other 132 487 172
----------- ----------- ----------
35,969 26,488 32,486
----------- ----------- ----------
Income before extra-
ordinary item 18,944 34,286 13,797
Extraordinary item-loss
on retirement of debt (1,180)
----------- ----------- ----------
Net Income $ 18,944 $ 34,286 $ 12,617
=========== =========== ==========
Net Income per Common and Common Equivalent Share:
Income before extra-
ordinary item $ 0.81
Extraordinary item - loss on
retirement of debt (0.07)
----------
Net Income $ 0.74
==========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Cash Flows
(unaudited)
(Amounts in thousands)
Predecessor
------------------------
For the Period For the
nine from nine
months Jan. 1, months
ended 1994 to ended
Sept. 30, March 1, Sept. 30
1993 1994 1994
-------- -------- --------
Operating activities:
Net income $18,944 $34,286 $12,617
Adjustments to reconcile
earnings to net cash
provided by operating activities:
Depreciation and amortization 10,420 2,390 7,594
Minority interest in joint
partnership earnings 356
Gain on consolidation (48,223)
Loss on retirement of debt 1,180
Deferred incentive
management fees 278
Earnings in excess of distri-
butions from joint venture (29)
Changes in other accounts:
Restricted cash (2,717)
Other assets (236) 2,675 (474)
Accounts payable and
other liabilities (245) (1,712) 874
Accrued consolidation expense 16,399
Unearned rent and tenant
deposits 83 249
Accrued real estate taxes 395 (948)
Due to affiliates 230
-------- -------- --------
Net cash provided by
operating activities 30,225 5,116 19,045
-------- -------- --------
Investing activities:
Construction, acquisition and improve-
ment of storage centers (2,689) (1,158) (100,875)
Investment in joint venture (600)
Improvements to real estate
held for resale (1)
Proceeds from consolidation 64,120
Distributions in excess of
earnings investment
in joint partnerships 193
-------- -------- --------
Net cash (used in) provided
by investing activities (2,497) 62,962 (101,475)
-------- -------- --------
Financing activities:
Dividends paid (9,851)
Proceeds from notes payable 268 350 227,180
Proceeds from line of credit 680 30,000
Payment of financing costs (8,088)
Payment of assumed consoli-
dation liabilities (11,662)
Principle payments on notes
payable (800) (855) (129,168)
Distributions to minority interest
in joint partnerships (457)
Distributions to partners (23,894) (764)
-------- -------- --------
Net cash (used in) provided by
financing activities (24,883) (589) 98,411
-------- -------- --------
Increase in cash and cash
equivalents 2,845 67,489 15,981
Cash and cash equivalents
at beginning of year 9,936 9,057 1
-------- -------- --------
Cash and cash equivalents
at end of period $12,781 $76,546 $15,982
======== ======== ========
Supplemental schedule of cash flow information:
Cash paid during the period
for interest $1,716 $ --- $ 5,631
======== ======== ========
Cash paid during the period
for income taxes $ 132 $ --- $ ---
======== ======== ========
Supplemental schedule of cash flow information:
Liabilities incurred in connection with
the improvement and construction of
storage centers $1,705 $ --- $ ---
======== ======== ========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1994
(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 the Company, SSC Property Holdings, Inc.,
SSC Acquisitions, Inc., Shurgard-Freeman Medical Center Joint
Venture 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 G). SSC Acquisitions, Inc. was established as a
wholly owned subsidiary to hold all storage centers which will
secure the line of credit with the same financial service 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 nine and three months ended September 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 Acquisition 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
effective control. Minority interest of $477,000 is included in
other liabilities at September 30, 1994. All other investments
in joint ventures or participating mortgages are accounted for on
the equity method. Investments accounted for on the equity
method at September 30, 1994 include a 67% interest in Shurgard-
Freeman Medical Center Joint Venture (Note E).
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 September 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 $2.2 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 $ 87,908
Buildings 366,966
Equipment 4,526
-----------
459,400
Less accumulated depreciation (7,601)
-----------
$ 451,799
===========
Note E Acquisitions
On March 1, 1994, 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 included
approximately $2,947,000 in cash. Real estate assets acquired in
the Acquisition 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.
The following unaudited pro forma statements of income represents
the results of operations of the Company as if the acquisition
had occurred on January 1, 1993. 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.
Nine Months
Year Ended Ended
December 31, September 30,
1993 1994
----------- -----------
(in thousands)
Revenues $ 72,900 $ 58,777
Expenses
Operating 16,840 13,530
Property management fees 4,317 3,480
Depreciation and amortization 12,887 9,740
Real estate taxes 7,068 5,250
Interest 10,303 7,931
General, administrative
and other 2,390 2,133
----------- -----------
53,805 42,064
----------- -----------
Income before extraordinary item $ 19,095 $ 16,713
=========== ===========
On September 1, 1994, the Company purchased twenty storage
centers for $34 million from an unaffiliated seller. These
centers, located in Maryland, Virginia and North Carolina, were
financed through a $30 million draw on the Company's credit
facility, a $1 million note to the seller and approximately $2.5
million from cash reserves. The note to the seller is due in two
$500,000 installments in September 1995 and 1996 which include
accrued interest. The discounted value of these notes is
estimated to be $917,000.
During the quarter, the Company also entered into a joint venture
with a storage operator and developer to develop a property in
Nashville, Tennessee. the Company will have a 67% interest in
this project, which will initially have 59,700 net rentable
square feet and is expected to be complete in early 1995. The
Company's investment in this project is $600,000.
Note F _ Line of Credit
During the quarter, the Company established a $50 million
revolving two-year credit facility with a commercial bank group.
This credit facility is secured by real estate and accrues
interest at 7.33% for the first six months, thereafter at either
the banks' prime rate or LIBOR plus 200 basis points (at the
Company's option). The commitment fee for the revolving period
was 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. At September 30
1994, $30 million was outstanding on this credit facility.
Additionally, during the quarter, the Company executed a
commitment letter with Nomura Asset Capital Corporation, a
subsidiary of Nomura Securities International, Inc. to provide a
second $50 million two-year revolving credit facility. This
credit facility will be secured by real estate, bear interest at
LIBOR plus 175 basis points, and require a draw fee equal to 25
basis points of the amount drawn. The commitment fee for the
revolving period will be 100 basis points of the commitment
amount. The commitment is subject to customary contingencies and
due diligence.
Note G _ Notes Payable
Notes payable consist of the following (amounts in thousands):
Note payable to financial
services company $ 122,580
Mortgage note payable 1,468
Other notes payable 1,073
----------
$ 125,121
==========
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 to fund certain expenses including
real estate taxes and insurance.
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 and a note taken in connection with a real estate
acquisition. The approximate maturities of principle over the
next five fiscal years range from $20,000 to $516,000.
Note H 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 2,766
----------
$ 319,114
==========
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 September 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.
Note I 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 September 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
Nonemployee Directors (the Nonemployee Plan) for the purpose of
attracting and retaining the services of experienced and
knowledgeable outside directors. The Nonemployee 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 Nonemployee Plan is 20,000. The exercise
price for options granted under the Nonemployee Plan is equal to
fair market value at date of grant. As of September 30, 1994,
1,200 options had been granted under the Nonemployee Plan at an
exercise price of the average market price of the Company's stock
during the first 30 days of trading.
Note J _ 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.
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
