FORM 10-Q A #2
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, 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 March 31, 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, Mar. 31,
1993 1994
--------- ---------
Assets:
Storage centers:
Land $ 91,868 $ 81,078
Buildings and equipment, net 283,167 340,709
--------- ---------
375,035 421,787
Cash and cash equivalents 9,057 15,441
Restricted cash 2,205
Investment in joint venture 2,433
Other assets 9,890 6,492
--------- ---------
Total assets $393,982 $448,358
========= =========
Liabilities and Stockholders Equity:
Accounts payable and other
liabilities $ 5,407 9,358
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 21,826 120,428
--------- ---------
Total liabilities 39,820 129,786
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 318,572
--------- ---------
Total equity 354,162 318,572
--------- ---------
Total liabilities, partner's
and stockholders' equity $393,982 $448,358
========= =========
<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
three from three
months Jan. 1, months
ended 1994 to ended
March 31, March 1, March 31,
1993 1994 1994
----------- ----------- ----------
Rental revenue $ 17,182 $ 12,348 $ 6,151
Income from joint venture 127 13
Interest income and
other income 66 203 77
Gain on consolidation 48,223
----------- ----------- ----------
17,375 60,774 6,241
----------- ----------- ----------
Operating expense 4,233 2,956 1,470
Management fees 1,105 733 364
Depreciation and
amortization 3,468 2,390 800
Real estate taxes 1,682 1,170 575
General and administrative 572 1,232 103
Incentive management fee 5,340
Litigation, hostile takeover
defense and consolida-
tion expense 12,180
Interest 569 699
Other 114 487
----------- ----------- ----------
11,743 26,488 4,011
----------- ----------- ----------
Net Income $ 5,632 $ 34,286 $ 2,230
=========== =========== ==========
Net Income per share $ 0.13
==========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statement of Cash Flows
(unaudited)
(Amounts in thousands)
Predecessor
------------------------
For the Period For the
three from three
months Jan. 1, months
ended 1994 to ended
March 31, March 1, March 31,
1994 1994 1994
----------- ----------- ----------
Operating activities:
Net income $ 5,632 $34,286 $2,230
Adjustments to reconcile
earnings to net cash
provided by operating activities:
Depreciation and amortization 3,468 2,390 800
Minority interest in joint
partnership earnings 110
Gain on consolidation (48,223)
Deferred incentive
management fees 78
Earnings in excess of distri-
butions from joint venture (13)
Changes in other accounts:
Restricted cash (2,205)
Other assets 295 2,675 1,036
Accounts payable and
other liabilities 117 (1,712) (306)
Accrued consolidation expense 16,399
Unearned rent and
tenant deposits 217 249
Accrued real estate taxes (252) (948)
Due to affiliates (13)
-------- -------- -------
Net cash provided by
operating activities 9,652 5,116 1,542
-------- -------- -------
Investing activities:
Construction, acquisition and
improvement of storage centers (680) (1,158) (65,452)
Improvements to real estate
held for resale (1)
Proceeds from consolidation 64,120
Distributions in excess of
earnings investment
in joint partnerships 89
-------- -------- -------
Net cash (used in) provided by
investing activities (592) 62,962 (65,452)
-------- -------- -------
Financing activities:
Proceeds from notes payable 350 104,600
Proceeds from line of credit 680
Payment of financing costs (3,223)
Payment of assumed
consolidation liabilities (11,662)
Principle payments on
notes payable (195) (855) (10,364)
Distributions to minority interest
in joint partnerships (166)
Distributions to partners (7,960) (764)
-------- -------- -------
Net cash (used in) provided
by financing activities (8,321) (589) 79,351
-------- -------- -------
Increase in cash and cash
equivalents 739 67,489 15,441
Cash and cash equivalents
at beginning of year 9,936 9,057 ---
-------- -------- -------
Cash and cash equivalents
at end of period $10,675 $76,546 $15,441
======== ======== =======
Supplemental schedule of cash flow information:
Cash paid during the period for
interest $ 688 $ --- $ 629
======== ======== =======
Cash paid during the period
for income taxes $ 144 $ --- $ ---
======== ======== =======
Supplemental schedule of cash flow information:
Liabilities incurred in connection with the
improvement and construction of
storage centers $ 905 $ --- $ ---
======== ======== =======
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
Three Months Ended March 31, 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 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 from 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, three months ended March 31, 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 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.
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 venture: 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 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.
Earnings per share: Earnings 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 March 31, 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 $2.74 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 338,115
Equipment 4,279
--------
423,472
Less accumulated depreciation (1,685)
--------
$421,787
========
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 16,983,557 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 and
office 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 $ 104,600
Mortgage notes payable 10,608
Lines of credit 5,220
-----------
$ 120,428
===========
On March 1, 1994, the Company signed a seven-year loan agreement
with Cargill Financial Services Corporation, to borrow $104.6
million. The related note payable bears interest at the 90-day
LIBOR plus 300 basis points per annum (6.75% at March 31, 1994) and
requires quarterly payments of interest until maturity on March 1,
2001. The note payable is secured by a deed of trust on 88 storage
centers with a historical cost of approximately $242.5 million. The
Company paid a one percent fee on the amount borrowed.
As required by the loan agreement, the Company deposited $2.1
million in a deferred maintenance and reserve account. Monies in
this account are restricted to the payment of capital expenditures
and deferred maintenance. The Company is required to deposit into
this account an amount equal to three percent of the gross revenues
from SSC Property Holdings, Inc. each quarter.
Prior to September 1, 1994, the Company may refinance this note
payable without penalty. If the note is not paid prior to that
date, the Company is required to cooperate with the lender to
establish a real estate mortgage investment conduit under which the
lender will securitize the loan. Additionally, after September 1,
1994, certain requirements as to the repayment of principal,
purchase of interest rate caps, a collection and servicing agreement
and yield maintenance requirements become effective. It is
management's intention to refinance this note payable prior to
September 1, 1994 (Note K).
Mortgage notes are payable to commercial banks and are generally due
in installments of principal and interest and mature at various
dates through 2001. Interest rates range from 5.96% to 10.69%
(weighted average rate of 8.24% at March 31, 1994). These notes are
secured by deeds of trust on nine storage centers with a historical
cost of approximately $40.6 million.
The Company has revolving lines of credit agreements with commercial
banks with an aggregate borrowing limit of $6.9 million. The
agreements require monthly interest payments of prime plus one-half
percent per annum (6.5% at March 31, 1994) and expire September
1994.
The approximate maturities of principal, excluding note payable to a
financial services company and lines of credit, over the next five
fiscal years are as follows (amounts in thousands):
1994 $ 243
1995 195
1996 339
1997 366
1998 5,150
Note G Stockholders' Equity
Stockholders' equity consists of the following (amounts in
thousands):
Class A common stock $ 316,435
Class B convertible common stock 3,909
Loans to stockholders (4,002)
Retained earnings 2,230
-----------
$ 318,572
===========
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 March 31, 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 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
nonqualified options. The Plan expires in 2003. As of March 31,
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 March 31, 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 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
any change to the tentative settlement 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 Nomura Asset Capital Corp., a subsidiary of
Nomura Securities International, Inc., to refinance substantially
all of its existing debt (approximately $119 million, including
amounts currently outstanding under its lines of credit), through a
debt purchase transaction. The commitment provides the Company with
funds for seven years at a fixed rate equal to the seven-year
treasury rate at the time of funding plus 1.5%. This commitment is
subject to customary contingencies and due diligence and expires
June 15, 1994.
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
