FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 $250
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-23466
SHURGARD STORAGE CENTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1603837
(State of organization) (IRS Employer Identification No.)
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 624-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.001 per share
Class B Common Stock, par value $.001 per share
Preferred Share Purchase Rights
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 27, 1995: $411,734,299
Class A Common Stock outstanding as of March 27, 1995: 18,096,120 shares
Class B Common Stock outstanding as of March 27, 1995: 154,604 shares
Documents incorporated by reference: none
There are 47 pages.
<PAGE>
PART I
Item 1 Business
GENERAL. Shurgard Storage Centers, Inc. (the Company), a real estate
investment trust (REIT), was formed through the consolidation on March 1,
1994 of 17 publicly held real estate limited partnerships (the Consolidation)
that were sponsored by Shurgard Incorporated (the Management Company). The
Company is one of the largest operators of self-storage properties in the
United States. It now owns directly and through joint ventures 161 operating
self-storage properties, containing approximately 10.7 million net rentable
square feet, located in 22 major metropolitan areas in 19 states. The
Company's self-storage properties offer low-cost, easily accessible storage
space for personal and business uses. In addition, the Company owns two
business parks. As of December 31, 1994, the Company's self-storage
properties had a weighted average occupancy of 89% and a weighted average
annual rent per square foot of $8.25. On March 24, 1995 the Company became a
self-administered and self-managed REIT through the acquisition of the
Management Company (the Merger). As a result of the merger, the Company has
approximately 600 employees.
The Company seeks to maximize shareholder value by increasing funds from
operations through internal growth and through the acquisition and
development of additional self-storage properties. The Company believes that
its access to capital markets, the experience of its management team in
acquiring, developing and operating self-storage properties, its geographic
diversification and its emphasis on quality will enable it to achieve this
objective.
The Company's strategy for internal growth is to increase rental rates
while maintaining strong occupancy levels, provide high-quality facilities,
achieve high levels of customer satisfaction, and employ skilled on-site
managers who have the ability to operate the properties with considerable
autonomy. The Company's external growth strategy is designed to capitalize
on the current fragmentation in the self-storage industry through acquisition
and development of facilities in appropriate markets. In particular, the
Company seeks to acquire or develop high-quality properties concentrated in
its existing markets and in new markets that fit well within its current
network. The Company expects to fund future acquisitions through the
incurrence of additional indebtedness, future offerings of equity securities
and retained cash flow.
MERGER WITH MANAGEMENT COMPANY. On March 24, 1995, the Management
Company merged with and into the Company (the Closing) pursuant to an
Agreement and Plan of Reorganization dated December 19, 1994 (the Merger
Agreement) and the Company became a self-administered and self-managed REIT.
Pursuant to the Merger Agreement, the outstanding shares of Management
Company Common Stock were converted into an aggregate of 1,266,837 newly
issued shares of Shurgard Class A Common Stock and 282,572 Class A shares
previously owned by the Management Company (the Share Consideration) subject
to certain adjustments described below. Pursuant to the Merger Agreement,
Management Company shareholders are also entitled to receive additional
shares of Shurgard Class A Common Stock in the future based on (i) the extent
to which, during the five years following the Closing, 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 or in the event of a change of
control, of any remaining interests in such partnerships as determined by
independent appraisal (the Contingent Shares).
Pursuant to the Merger Agreement, 10% of the new shares of Shurgard
Class A Common Stock issuable upon the Closing were deposited in an
indemnification escrow. While the indemnification escrow is in place, the
Company will be entitled to recover to the extent of such shares, subject to
certain exceptions and thresholds, the full dollar amount of losses incurred
as a result of (i) any breach of representation or warranty made by the
Management Company, (ii) any breach by the Management Company of any covenant
or agreement contained in the Merger Agreement, (iii) any liability for taxes
assessed resulting from a determination that the spin-off of InterMation,
Inc., a subsidiary of the Management Company that was spun off prior to the
Closing (the Intermation Spin-off) does not qualify for tax-free treatment,
(iv) any overstatement of Management Company equity reflected in the final
statement of assets and liabilities of the Management Company delivered at
the Closing, and (v) liabilities and associated costs that may arise with
respect to general partnership interests. The indemnification escrow will
remain in place for three years from the Closing, except that the Company 's
rights to indemnification with respect to matters other than employee benefit
and retirement plans and certain tax liabilities will terminate after two
years. Following such three-year period, any remaining shares in escrow will
be returned to the Management Company shareholders. Notwithstanding the
foregoing, the Company will have recourse against such shareholders,
severally, for tax liabilities associated with the InterMation Spin-off
arising prior to expiration of the applicable statute of limitations, limited
in amount to the product of the number of shares released and the Market
Value (as defined below) as of the Closing. An additional 5% of the new
shares of Shurgard Class A Common Stock issuable upon the Closing was
deposited into escrow, subject to (i) the audit by Deloitte & Touche LLP of
the closing statement of assets and liabilities and (ii) the receipt of an
anticipated tax refund due the Management Company as a result of its short
taxable year ending as of the Closing.
Through the Merger, the Company internalized the expertise and
experience of the Management Company's personnel (approximately 600
employees), which covers all aspects of the self-storage industry. In
addition, the Company acquired contractual rights and other tangible and
intangible assets of the Management Company. Such contractual rights include
the Management Company's rights under third-party property management and
asset management contracts, license agreements in two markets, leases for
office space and the Management Company's line of credit. Other assets
acquired by the Company from the Management Company as a result of the Merger
include a storage center located in Daly City, California, proprietary
operating and computer systems, the Management Company's rights in the
Shurgard name, and office furniture and equipment. Further, the Company
acquired the Management Company's interests in certain partnerships and other
entities, including its limited partnership interest in the general partner
of five partnerships, its general partner interest in two partnerships and
its interest in a Belgian entity. Because the Management Company's
shareholders are entitled to receive additional shares of Shurgard Class A
Common Stock in the future as Contingent Shares with respect to six of these
partnership interests, however, the benefit to the Company of acquiring such
partnership interests is limited to distributions from operating cash flow of
such partnerships.
INDUSTRY BACKGROUND. The self-storage industry initially developed in
response to the growing need for low-cost accessible storage. Self-storage
facilities are generally constructed along major thoroughfares that provided
ready access and public visibility or in outlying areas where land was
inexpensive. In certain areas of the country, where new construction is
impractical because of construction costs, lack of suitable sites or other
restrictions, older structures are converted into self-storage facilities.
The self-storage business is moderately seasonal with peak occupancy
following the traditional Memorial Day to Labor Day moving season.
The self-storage industry is highly fragmented, with facilities owned
and operated by individuals, small businesses, institutional investors, REITs
and syndicated partnerships. Based on information reported in the Self-
Storage Almanac for 1994, the Company estimates that there are in excess of
22,000 facilities throughout the United States. It is anticipated that the
demand for self-storage will continue to expand in view of the continuing
need for low-cost storage. It is expected, however, that the competition will
increase as the self-storage industry expands.
ACQUISITION, DEVELOPMENT AND INVESTMENT POLICIES. The Company primarily
owns self-storage real properties that it acquired from 17 partnerships
participating in the Consolidation. These properties had been acquired or
developed earlier by such partnerships under the sponsorship and management
of the Management Company.
The Company intends to continue to acquire self-storage properties from
others, depending on various factors such as the Company's capitalization,
availability of attractive investments, expected investment returns and other
similar economic matters generally considered when making real estate
investments. Recently, in September 1994, the Company purchased 20 self-
storage properties for an aggregate purchase price of $34 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Acquisition of Twenty Storage
Centers." The Company also intends to acquire unimproved property for
development, or existing improvements for conversion, into self-storage
facilities. It has been the Company's experience that a self-storage
facility must be approximately 35% to 40% occupied in order for gross
receipts from operations to equal or exceed normal operating expenses. Given
the anticipated lease-up time, the Company will not normally expect a
developed facility to generate positive cash flow during the first six months
of operations. As a general rule, the Shurgard REIT plans to acquire and
develop facilities primarily in the markets that the Company already operates
in. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Future Acquisition
and Development Plans."
Although investment in mortgage loans is subject to certain limitations
under the Company's By-Laws, the Company has recently committed approximately
$13 million in certain participating mortgage loans and expects to invest in
this type of mortgage in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Investment in Participating Mortgages."
In certain circumstances, the Company may invest in real estate through
a partnership, joint venture or similar joint enterprise that in turn owns or
operates self-storage properties. The Company's By-Laws require that it
observe certain procedural requirements before participating in joint
enterprises. As a result of the Consolidation, the Company succeeded to two
joint venture interests and, since the Consolidation, has recently entered
into three joint ventures to develop self-storage facilities in the Nashville
area and invested in Benelux SCS, a Belgian entity similar to a limited
partnership. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Investment in Tennessee Joint Ventures" and "- Investment in Benelux Storage
Operations."
BORROWINGS. In June 1994, the Company obtained seven-year term debt
financing in the amount of $122.6 million at a fixed rate of 8.28% per annum
to refinance substantially all of its then existing debt. In August and
December 1994, the Company established two revolving credit facilities
aggregating $100 million in available financing to provide funds for future
acquisition and development of self-storage properties. Approximately $42
million of the revolving credit facilities has been used to finance its
purchase of 20 self-storage facilities in September 1994 and its investment
in participating mortgages in December 1994. All of the foregoing borrowings
are secured by selected self-storage properties. For additional information
relating to such borrowings, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Under the By-Laws, subject to certain exceptions, the Company may not
incur debt if after giving effect to such borrowing, its Indebtedness for
borrowing funds would exceed 50% of its Total Assets or 300% of its Adjusted
Net Worth (as those terms are defined in the By-Laws). As of December 31,
1994, the Company's Indebtedness was approximately 33% of its Total Assets
and approximately 51% of Adjusted Net Worth.
ANCILLARY SERVICES. While rental income from leased space constitutes
the primary source of revenues from the properties owned by the Company,
additional revenues are received from incidental services and products
available at the properties for tenants and others. Currently, approximately
50% of the properties owned by the Company receive revenues through truck
rental operations conducted at the properties and almost all properties
receive revenues from lock and box sales to tenants and others. While
revenues from such services constitute nonqualifying income for purposes of
determining its qualification as a REIT, the Company believes that such
services are an integral part of its self-storage operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - REIT Qualification and
Distribution Requirements."
MANAGEMENT OF OTHER SELF-STORAGE PROPERTIES. As a result of the Merger,
the Company has succeeded to the management of 87 self-storage facilities,
constituting approximately 5 million net rentable square feet, for affiliated
and unaffiliated owners of self-storage facilities. Revenue from such
management services will constitute nonqualifying income for purposes of
determining the Company's qualification as a REIT. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - REIT Qualification and Distribution
Requirements."
The Company manages such properties under management agreements that
generally have short terms, with automatic one-year renewals unless notice of
nonrenewal is given within 60 days of expiration of the term. In most cases
the management agreements may be terminated by the owner on 60 days notice,
with or without cause. Generally, the Company receives a property management
fee of 6% of gross revenues from self-storage operations and other fees for
specified additional services. Under the management agreements, the Company
assumes general responsibility and authority for all aspect of property
management, including the establishment of operational policies, the leasing,
marketing, advertising, maintenance and security of properties, the
supervision of construction, repairs and improvements and the employment and
supervision of on-site personnel, contract services, consultants, contractors
and other professionals.
SHURGARD SERVICE MARK. In 1978, the Management Company registered the
name "Shurgard" and related services marks with the U.S. Patent and Trademark
Office to protect the exclusive use of such name and service marks in the
United States. Subsequently, the mark was registered in several foreign
countries. As a result of the Merger, the Company has succeeded to such
registered names and service marks. The Company's properties, as well as the
other properties managed by the Company, are operated under the common name
of "Shurgard" for the purpose of creating business goodwill and a
recognizable symbol in the self-storage industry. The nonexclusive use of
the service mark "Shurgard" by the owners of other properties managed by the
Company is governed by the terms of the respective management agreements. If
the management agreement is terminated by the Company for reasons other than
the owner's breach or if the owner terminates the agreement for cause, the
owner has the right to continue use of the name until its properties are sold
or otherwise disposed of. Otherwise the right to use of the name terminates
with termination of the management agreement. The Company's rights to use of
the name "Shurgard" and related service marks are subject to existing
licenses covering Tennessee, Kentucky, portions of Florida, Belgium , the
Netherlands and Luxembourg and the contractual right of a co-founder of the
Management Company to use the name with respect to six properties.
FEDERAL INCOME TAX. The Company believes that it has operated, and
intends to continue to operate, in such a manner as to qualify as a REIT
under the Internal Revenue Code of 1986, but no assurance can be given that
it will at all times so qualify. To the extent that the Company continues to
qualify as a REIT, it will not be taxed, with certain limited exceptions, on
the taxable income that is distributed to its shareholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - REIT Qualification and
Distribution Requirements."
COMPETITION. The Company competes with, among others, national and
regional storage operators and developers. Performance at any one location is
generally most influenced by competition within a three to five mile radius.
The primary factors upon which competition is based are location, rental
rates, suitability of the property's design to prospective tenants' needs and
the manner in which the property is operated and marketed. The Company has
established itself within its markets as a quality operator, emphasizing
customer service and security.
Relatively low increases in storage supply and continued increases in
the industry demand have driven substantial occupancy gains over the last
several years. Management considers occupancy levels in the 90% range to be
"full", and as such they believe significant future occupancy gains will be
difficult to obtain. Management anticipates that future increases in
revenues from storage centers currently owned by the Company will be
primarily the result of rental rate increases. To the extent that the
existing properties continue to operate profitably, this will likely
stimulate further development and result in greater competition between the
newly developed and existing properties.
Entry into the self-storage business through acquisition of existing
facilities is relatively easy for persons or institutions with the required
initial capital. Development of new self-storage facilities is more
difficult, however, due to zoning, environmental and other regulatory
requirements. Management has seen recent increases in storage development.
Competition may be accelerated by any increase in availability of funds for
investment in real estate. Rising interest rates tend to decrease the
availability of funds and therefore can decrease the growth of competition.
The extent to which the Company is affected by competition will depend in
significant part on local market conditions. The Company anticipates that
increased development may affect industry occupancies in 1996 or 1997.
Item 2 Properties
The Company owns directly and through joint ventures 161 operating self-
storage properties located in 22 major metropolitan areas in 19 states. The
Company's self-storage facilities are designed to offer low-cost accessible
storage space for personal and business use. Individuals usually rent space
in self-storage facilities for storage of furniture, household appliances,
personal belongings, motor vehicles, boats, campers, motorcycles and other
household and recreational goods. Businesses typically use space for storage
of inventory, business records, seasonal goods, equipment and fixtures. The
Company estimates that business users rent approximately 35% to 40% of the
space at its properties. The Company's self-storage facilities are divided
into a number of self-enclosed rental units that generally range in size from
25 to 360 square feet. In addition, many facilities have uncovered storage
outside the buildings for parking motor vehicles, boats, campers and other
similar items suitable for outside storage. As a general rule, customers have
access to their leased space without additional charge during normal business
hours and control access to such space through the use of padlocks.
Approximately 20% of the properties owned by the Company include climate-
controlled storage units.
Self-storage facilities differ from warehouses and other storage
facilities in that the tenants are generally responsible for delivering and
retrieving stored goods. A majority of the facilities also offer truck
rentals and inventory sales to the public. The leasing, maintenance and
operation of the facility are the responsibility of on-site managers who
frequently reside in an apartment located at the facility. The facility's
security is provided through a variety of systems that may include, among
others, on-site personnel, electronic devices such as intrusion and fire
alarms, access controls and video and intercom surveillance devices, facility
fencing and lighting.
Most self-storage facilities consist of one or more single-story
buildings that are located on a site of 1.5 to 5 acres, depending on the size
of the facility. The facilities frequently are constructed with concrete
block or tilt-up concrete panels, with steel columns or precast concrete
columns that rest on concrete footings and slabs and have built-up tar roofs
or pitched truss roofs with shingles or standing seam metal roofs. The
interior walls are generally constructed with metal studs and partitions or
other construction materials that are secure but readily movable. Access to
the storage units is usually provided through roll-up or swing doors. The
parking areas and driveways are generally paved with asphalt, cement or other
similar materials. Most facilities have fencing, floodlights, sliding or
swinging gates and certain of the security devices mentioned above.
In some cases, multistory buildings able to bear substantial weight
loads, such as warehouses and newspaper plants, have been converted into self-
storage facilities. In addition, similar multistory buildings for self-
storage have been constructed in dense urban areas where land costs, zoning
and other development considerations make it impractical or undesirable to
construct single-story buildings.
Generally, tenants can access leased space directly by automobile, truck
or other delivery device, but some facilities, in particular the multistory
buildings, have separate loading docks and elevators available for delivery
and retrieval of stored goods.
The Company's expenditures on compliance with environmental laws and
regulations in 1994 were immaterial to overall performance. The Company is
not aware of any material capital expenditures required to comply with
environmental laws and regulations. Although there can be no assurance as to
the future events or discoveries, the Company is not aware of any
environmental contamination of its facilities material to its overall
business, financial condition or results of operations.
The following table provides information regarding the year acquired (by
the Company or by one of the partnerships included in the Consolidation, as
the case may be), year built, approximate net rentable square feet and
acreage of each of the self-storage properties and business parks owned by
the Company.
<TABLE>
<CAPTION>
Previous Approximate
Shurgard Net
Partnership Year Square
Property Name Property Location Owner Acquired Year Built Feet Acreage
---------------------- ------------------ --------- -------- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Kalamazoo Kalamazoo, MI 1 1980 1980 43,000 3.0
Vancouver Mall <F1> Vancouver, WA 1 1980 1982 46,000 3.3
West Seattle <F1> Seattle, WA 1 1980 1981 48,000 3.4
Bellingham Bellingham, WA 1 1981 1981 73,000 5.7
Everett <F2> Everett, WA 1 1981 1978 64,000 4.2
Highland Hill Tacoma, WA 2 1981 1982 60,000 3.9
Troy East <F1> Troy, MI 1 1981 1975/77 79,000 4.8
Alsip <F1> Alsip, IL 2 1982 1980 66,000 4.6
Dolton <F1> Calumet City, IL 2 1982 1979 64,000 3.0
Lombard <F1> Lombard, IL 2 1982 1980 52,000 3.1
Rolling Meadows <F1> Rolling Meadows, IL 2 1982 1980 60,000 4.5
Schaumburg <F1> Schaumburg, IL 2 1982 1980 71,000 4.3
Grand Rapids Grand Rapids, MI 3 1983 1978 46,000 3.2
Lansing <F1> Lansing, MI 3 1983 1978/79 41,000 2.5
Salem <F1> Salem, OR 3 1983 1979/81 67,000 3.8
Seattle <F1> Seattle, WA 4 1983 1979 79,000 4.5
Southfield <F1> Southfield, MI 3 1983 1976 77,000 4.3
Troy West <F1> Troy, MI 3 1983 1979 88,000 5.2
Bellevue East <F1> <F5> Bellevue, WA 4 1984 1975 165,000 5.6
Bellevue West <F1> <F5> Bellevue, WA 4 1984 1979 5.2
Edmonds <F1> Edmonds, WA 5 1984 1974/75 120,000 6.5
Factoria <F1> Bellevue, WA 3 1984 1984 57,000 3.8
Federal Way <F1> Federal Way, WA 4 1984 1975 134,000 5.7
Fife <F3> Tacoma, WA 6 1984 1977 64,000 3.9
North Spokane <F1> Spokane, WA 5 1984 1976 76,000 4.1
Renton <F1> Renton, WA 4 1984 1979/89 80,000 4.5
Tamarac <F1> Denver, CO 5 1984 1977 25,000 1.9
Tempe <F2> Tempe, AZ 5 1984 1976 54,000 3.0
Thornton <F1> Denver, CO 5 1984 1984 41,000 2.4
Totem Lake <F2> Kirkland, WA 5 1984 1978 61,000 2.6
Windermere <F1> Littleton, CO 5 1984 1977/79 83,000 5.3
Woodinville <F2> Woodinville, WA 6 1984 1982/84 70,000 3.5
Gladstone Gladstone, OR 6 1984/85 1981/89 48,000 3.2
Beaverton <F1> Beaverton, OR 7 1985 1974 26,000 2.0
Bedford <F3> Bedford, TX 6 1985 1984 69,000 2.7
Bellefontaine St. Louis, MO 7 1985 1979 45,000 4.9
Bridgeview <F1> Bridgeview, IL 6 1985 1983 75,000 4.1
Burien <F2> Seattle, WA 6 1985 1974 92,000 5.3
Colton <F1> Colton, CA 7 1985 1984 73,000 3.8
Hayward <F1> Hayward, CA 8 1985 1983 48,000 2.8
Hill Country Village San Antonio, TX 7 1985 1982 79,000 4.0
<F1>
Irving <F1> Irving, TX 7 1985 1975/84 78,000 4.2
Issaquah <F1> Issaquah, WA 7 1985 1986 56,000 4.7
N.W. Houst <F1> Houston, TX 7 1985 1979/83 104,000 4.9
Oakland Park <F1> Ft. Lauderdale, FL 8 1985 1974/78 292,000 13.4
Phoenix <F1> Phoenix, AZ 7 1985 1984 77,000 2.7
Plymouth Canton Township, MI 6 1985 1979 75,000 5.3
San Antonio NE <F1> San Antonio, TX 7 1985 1982 74,000 3.6
Scottsdale <F1> Scottsdale, AZ 6 1985 1976/85 47,000 3.0
Sea-Tac <F2> Seattle, WA 6 1985 1979 60,000 3.0
Southcenter Renton, WA 6 1985 1979 67,000 4.1
Union City <F1> Hayward, CA 7 1985 1985 42,000 2.9
Scottsdale North <F2> Scottsdale, AZ 6 1985/87 1985 112,000 4.1
Walled Lake <F1> Walled Lake, MI 7 1985/89 1984 68,000 4.3
Newport News S. <F1> Newport News, VA 18 1985/92 1985 60,000 3.9
Airport Philadelphia, PA 10 1986 1985 101,000 6.7
Arlington <F1> Arlington, TX 8 1986 1984 57,000 2.7
Aurora North <F1> Seattle, WA 9 1986 1978 58,000 1.6
B Y Gold Brooklyn, NY 10 1986 1940 108,000 0.4
B Y Utica Brooklyn, NY 12 1986 1964 71,000 1.1
B Y Van Dam Long Island City, NY 12 1986 1925 63,000 0.5
B Y Yonkers Yonkers, NY 11 1986 1928 102,000 1.6
Chandler <F1> Chandler, AZ 8 1986 1986 69,000 4.0
Clinton <F1> Clinton, MD 9 1986 1985 31,000 2.0
College Park <F3> Indianapolis, IN 9 1986 1984 70,000 6.0
Downtown Seattle <F2> Seattle, WA 11 1986 1912 28,000 0.3
East Lynnwood <F1> Lynnwood, WA 10 1986 1978 80,000 3.8
El Cajon <F2> El Cajon, CA 11 1986 1977 127,000 6.0
El Cerrito Richmond, CA 10 1986 1987 62,000 1.5
Fairfax <F1> Fairfax, VA 10 1986 1980 62,000 5.6
Glendale <F3> Indianapolis, IN 9 1986 1985 60,000 5.6
Kearney-Balboa <F2> San Diego, CA 12 1986 1984 94,000 2.3
La Habra <F1> La Habra, CA 9 1986 1979/91 97,000 7.1
Lakewood <F3> Golden, CO 10 1986 1985 67,000 2.7
Lisle <F2> Lisle, IL 11 1986 1976/86 52,000 3.4
MacArthur Blvd. <F1> Irving, TX 9 1986 1984 63,000 7.2
North Austin <F1> Austin, TX 8 1986 1982 76,000 5.9
Palo Alto <F1> Palo Alto, CA 10 1986 1987 49,000 1.4
Roswell <F3> Roswell, GA 12 1986 1986 57,000 3.8
Santa Ana <F2> Santa Ana, CA 12 1986 1975/86 168,000 8.1
Seminole <F1> Seminole, FL 8 1986 1984/85 61,000 2.7
Sunnyvale Sunnyvale, CA 9 1986 1974/75 122,000 6.5
Thousand Oaks <F2> San Antonio, TX 8 1986 1987 53,000 2.9
West Chester West Chester, PA 8 1986 1980 87,000 7.0
Westheimer <F1> Houston, TX 8 1986 1977 73,000 3.7
Westwood <F2> Santa Monica, CA 11 1986 1988 38,000 0.3
Willowbrook <F1> Willowbrook, IL 12 1986 1979/82 44,000 3.3
B Y Northern Long Island City, NY 11 1987 1940 78,000 1.9
Capitol Hill <F6> Seattle, WA 12 1987 1988 76,000 0.7
Cook Road <F1> Houston, TX 14 1987 1986 61,000 3.0
Euless Blvd. <F1> Hurst, TX 11 1987 1974 68,000 4.7
Falls Church <F1> Falls Church, VA 15/17 1987 1988 93,000 1.5
Fontana Sierra <F1> Fontana, CA 14 1987 1980/85 84,000 3.6
Fredricksburg <F1> San Antonio, TX 11 1987 1978/82 82,000 4.5
Interbay <F3> Seattle, WA 15 1987 1988 80,000 0.4
King City <F1> Tigard, OR 10 1987 1986 84,000 4.9
Mesa <F1> Mesa, AZ 14 1987 1985 103,000 4.8
Military Trail <F1> West Palm Beach, FL 14 1987 1981 124,000 9.4
Mountain View <F1> Mountain View, CA 16 1987 1986 29,000 0.7
Northglenn <F1> Northglenn, CO 6 1987 1979 75,000 5.5
Old Bridge Matawan, NJ 14 1987 1987 78,000 6.1
Olive Innerbelt St. Louis, MO 14 1987 1952/86 94,000 2.5
Phoenix East <F1> Phoenix, AZ 14 1987 1984 66,000 2.0
S. San Francisco <F1> San Francisco, CA 14 1987 1985 57,000 2.1
Smokey Point <F1> Arlington, WA 14 1987 1984/87 34,000 2.2
Solana Beach <F2> Solana Beach, CA 14 1987 1984 95,000 4.5
South Tacoma <F1> Tacoma, WA 12 1987 1975 46,000 3.1
Suitland Suitland, MD 14 1987 1985 44,000 2.7
West Palm Beach <F1> West Palm Beach, FL 16 1987 1975 163,000 11.8
Tacoma Interstate <F3> Tacoma, WA 12 87/88/91 1979/81 128,000 12.2
Ann Arbor Ann Arbor, MI 18 1988 1977 62,000 3.9
Bandera Road <F1> San Antonio, TX 16 1988 1981 76,000 3.6
Bayside <F3> Virginia Beach, VA 16 1988 1984 28,000 1.7
Blanco Road <F1> San Antonio, TX 15 1988 1989/91 66,000 3.6
Brentwood Brentwood, MO 16 1988 1977 53,000 3.4
Canton <F7> Canton, MI 18 1988 1986 58,000 3.3
Crofton <F1> Gambrills, MD 16 1988 1985 40,000 2.1
Culver City Los Angeles, CA 15/17 1988 1989 76,000 1.4
Federal <F1> Houston, TX 12 1988 1988 55,000 3.4
Fraser <F7> Fraser, MI 18 1988 1985 73,000 5.2
Herndon <F1> Herndon, VA 18 1988 1985 39,000 3.0
Hillside <F3> Hillside, IL 17 1988 1988 65,000 5.3
Huntington Beach <F2> Huntington Beach, CA 16 1988 1986 91,000 3.3
Imperial Valley <F1> Houston, TX 14 1988 1987 54,000 3.1
Kingwood <F2> Kingwood, TX 11 1988 1988 54,000 3.3
Laurel <F1> Laurel, MD 16 1988 1984 30,000 2.0
Livonia <F7> Livonia, MI 18 1988 1985 67,000 4.8
Manassas East <F1> Manassas, VA 16 1988 1984 35,000 2.0
Manassas West <F1> Manassas, VA 16 1988 1985 35,000 1.5
North Richmond <F1> Richmond, VA 18 1988 1984 37,000 2.6
Portland <F1> Portland, OR 15 1988 1988 49,000 2.1
Sugarland <F1> Sugarland, TX 18 1988 1987 55,000 3.0
Warren <F7> Warren, MI 18 1988 1985 68,000 4.6
Woodlands <F1> Houston, TX 16 1988 1988 64,000 3.8
Beltline Rd. <F1> Irving, TX 10 1989 1985/86 89,000 6.3
Denny Road <F1> Beaverton, OR 17 1989 1988 65,000 6.2
Greenbriar <F1> Houston, TX 17 1989 1988 60,000 1.8
Kempsville <F1> Virginia Beach, VA 14 1989 1985 33,000 2.0
Medical Center Houston, TX 15/17 1989 1989 57,000 2.6
Virginia Beach Virginia Beach, VA 15 1989 1985 36,000 2.3
Hillcroft <F2> Houston, TX 15 1991 1988 59,000 3.4
Briggs Chaney <F3> Silver Spring, MD N/A 1994 1987 28,000 2.0
Capital Blvd <F3> Raleigh, NC N/A 1994 1984 35,000 2.1
Cary <F3> Cary, NC N/A 1994 1984 62,000 4.7
Cedar Road <F3> Chesapeake, VA N/A 1994 1989 36,000 2.1
Charlottesville <F3> Charlottesville, VA N/A 1994 1984 32,000 2.1
Crater Road <F3> Petersburg, VA N/A 1994 1987 36,000 3.8
Dale City <F3> Dale City, VA N/A 1994 1986 31,000 1.6
Frederick <F3> Frederick, MD N/A 1994 1987 32,000 1.7
Gainesville <F3> Gainesville, VA N/A 1994 1988 31,000 2.0
Gaithersburg <F3> Gaithersburg, MD N/A 1994 1986 57,000 5.4
Garner <F3> Garner, NC N/A 1994 1987 28,000 3.1
Germantown <F3> Germantown, MD N/A 1994 1988 45,000 1.9
Glenwood <F3> Raleigh, NC N/A 1994 1983 31,000 1.9
Holland Road <F3> Virginia Beach, VA N/A 1994 1985 34,000 3.9
Jeff Davis Hwy <F3> Richmond, VA N/A 1994 1990 35,000 5.2
Laskin Road <F3> Virginia Beach, VA N/A 1994 1984 39,000 2.5
Morrisville <F3> Morrisville, NC N/A 1994 1988 40,000 3.3
Oxon Hill <F3> Ft. Washington, MD N/A 1994 1987 28,000 1.3
Princess Anne Road <F3> Virginia Beach, VA N/A 1994 1985 40,000 2.2
Temple Avenue <F3> Petersburg, VA N/A 1994 1989 34,000 4.0
Daly City <F4> Daly City, CA N/A 1995 1989 96,000 5.2
Hermitage <F8> Nashville, TN N/A 1995 1995 68,000 19.0
<FN>
<F1> Properties secure a loan from Nomura Asset Capital Corp., a subsidiary
of Nomura Securities International, Inc., entered into in June 1994.
<F2> Properties secure a line of credit from Seattle-First National Bank
entered into in August 1994.
<F3> Properties secure a line of credit from Nomura Asset Capital Corp.
entered into in December 1994.
<F4> Property secures a loan from Aetna Life Insurance Company assumed in
connection with the Merger.
<F5> Bellevue West and Bellevue East are operated as one facility. Their
aggregate net rentable square feet is 164,825.
<F6> The Company owns a 90% interest in this property.
<F7> The Company owns a 30% interest in this property.
<F8> The Company owns a 50% interest in this property.
</FN>
</TABLE>
The following table sets forth information regarding average occupancy
and average annual revenue per square foot for the properties owned by each
of the 17 partnerships included in the Consolidation for the years ended
December 31, 1990, 1991 and 1992.
<TABLE>
<CAPTION>
Net
Rentable
Number of Square 1990 1991 1992 1990 1991 1992
Partnership Properties Feet Average Occupancy Annual Rent Per Square Foot
---------------- ---------- ------ ------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shurgard 1 6 352,000 85% 84% 89% $6.36 $6.36 $6.24
Shurgard 2 <F1> 6 373,000 82 89 94 7.08 6.84 6.84
Shurgard 3 <F1> 6 375,000 83 89 89 6.36 6.24 6.48
Shurgard 4 <F1> 5 459,000 79 78 85 6.96 7.20 7.20
Shurgard 5 7 460,000 84 87 92 5.40 5.52 5.88
Shurgard 6 12 853,000 80 83 85 5.76 6.00 6.24
Shurgard 7 11 728,000 80 81 82 5.40 5.52 5.88
Shurgard 8 9 816,000 85 81 86 6.24 6.60 6.72
Shurgard 9 7 500,000 87 88 86 7.68 7.92 7.92
Shurgard 10 9 701,000 73 78 80 8.76 8.88 8.76
Shurgard 11 10 674,000 83 83 85 9.12 9.37 10.08
Shurgard 12 <F2> 10 803,000 81 80 81 8.40 8.88 9.28
Shurgard 14 13 925,000 83 83 85 8.84 7.08 7.32
Shurgard 15 <F3> 7 480,000 70 78 75 8.28 9.12 10.15
Shurgard 16 11 643,000 85 80 83 7.56 7.92 8.04
Shurgard 17 <F4> 6 416,000 39 69 85 8.52 8.40 10.23
Shurgard 18 <F5> 9 520,000 92 91 92 6.96 7.08 7.32
<FN>
<F1> This partnership had a fiscal year end of September 30. The numbers
presented represent the average occupancy and annual rent per square
foot for the fiscal years ended September 30, 1990, 1991 and 1992.
<F2> Includes one property in which Shurgard 12 has a 90% interest.
<F3> Includes three properties in which Shurgard 15 has a 61% interest.
<F4> Includes three properties in which Shurgard 17 has a 39% interest.
<F5> Includes four properties in which Shurgard 18 has a 30% interest.
</FN>
</TABLE>
The following table sets forth information regarding average occupancy
and average annual revenue per square foot for the properties owned by the
Company for the years ended December 31, 1993 and 1994 (excluding the 20
properties acquired by the Company in September 1994 and the property
acquired from the Management Company in the Merger).
<TABLE>
<CAPTION>
Number of 1990 1991 1993 1994
State Properties Average Occupancy Annual Rent Per Square Foot
------------ ---------- ------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Arizona 7 97% 91% $6.26 $7.50
California 17 88 86 8.85 9.28
Colorado 5 96 91 6.30 7.01
Florida 4 83 85 7.67 7.70
Illinois 9 91 95 7.47 7.64
Michigan 13 87 91 6.08 6.66
New York 5 80 87 14.34 14.63
Oregon 6 89 93 6.82 7.22
Texas 24 79 87 7.41 7.63
Virginia 10 90 89 9.40 9.94
Washington 28 88 88 7.58 7.79
Other 13 89 91 7.95 8.48
</TABLE>
The following table sets forth information regarding aggregate average
occupancy and average annual revenue per square foot for the properties owned
by the Company for the years ended December 31, 1990 through 1994 (excluding
the 20 properties acquired by the Company in September 1994 and the property
acquired from the Management Company in the Merger).
<TABLE>
<S> <C> <C> <C> <C> <C>
1990<F1> 1991<F1> 1992<F1> 1993<F2> 1994<F2>
-------- -------- -------- -------- --------
Average occupancy 79% 82% 86% 87% 89%
Average rent per square foot $7.16 $7.35 $7.68 $7.84 $8.25
<FN>
<F1> Calculated as the average of the information for the 17 partnerships
included in the Consolidation.
<F2> Calculated as the weighted average of the original 141 properties owned
by the Company.
</FN>
</TABLE>
LEASING OF PROPERTIES. Rental units are usually rented on a month-to-
month basis, but longer term leases are used in some circumstances. The
average rental period for a tenant is approximately 1.5 years. This average
is comprised of business tenants who tend to lease space for longer periods
(approximately 2-3 years) and residential customers who tend to lease space
for shorter periods (approximately 6 months to a year). Rental income from
leased space constitutes the primary revenue from such facilities, but
additional revenues are received from incidental services rendered at the
facilities, such as lock and box sales and truck rentals. Rental rates vary
substantially depending on the size of the storage space and the facility
location and quality of the facility. In addition, self-storage facilities
range considerably in size. Of the facilities owned by the Company, the
smallest facility is approximately 30,000 square feet, while the largest
facility is approximately 300,000 square feet. Storage units within a
facility typically range from 25 to 360 square feet of storage area. Smaller
units are usually leased to individuals for consumer goods, while large
spaces are frequently leased to business and commercial users.
OFFICE AND BUSINESS PARKS. The Company currently owns two business
parks, both of which are located near Tacoma, Washington. The Fife Business
Park, which was built in 1977 and acquired in 1984 by one of the partnerships
included in the Consolidation, has approximately 64,000 net rentable square
feet on 4 acres. The Tacoma Interstate Business Park, which was built in
1979 and acquired in 1987 by one of the partnerships included in the
Consolidation, has approximately 128,000 net rentable square feet on 12
acres.
Item 3 Legal Proceedings
There are no legal proceedings pending to which the Company is a party
that are likely to have a material adverse impact on the Company's
operations.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the fourth
quarter of 1994.
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder
Matters
Market prices for the shares of Shurgard Class A Common Stock are
reported on the Nasdaq National Market. The Class A Common Stock began
trading under the symbol "SHUR" on March 28, 1994 and is currently owned by
approximately 43,000 shareholders. The table below sets forth for the fiscal
periods indicated the high and low sale prices per share of Shurgard Class A
Common Stock on the Nasdaq National Market as reported in published financial
sources, and dividends declared. For current price information, the Company
shareholders are urged to consult publicly available sources.
<TABLE>
<CAPTION>
Price Per Share of
Shurgard Class A
Common Stock
----------------- Dividends
1994 High Low Declared<F1>
------------- ------ ------ ------------
<S> <C> <C> <C>
First Quarter (beginning March 28, 1994) $23.75 $22.00 $--
Second Quarter 24.25 21.00 .14<F2>
Third Quarter 23.25 20.50 .44
Fourth Quarter 23.00 17.75 .44
<FN>
<F1> Dividends are declared quarterly by the Company's Board of Directors
based on financial results for the prior quarter. All 1994 dividends
are treated as ordinary income to stockholders for Federal tax purposes.
<F2> The second quarter dividend reflects one month of operations for the
original portfolio of assets.
</FN>
</TABLE>
Holders of shares of Company Common Stock are entitled to receive
distributions when, as and if declared by the Company's Board of Directors
out of any assets legally available for payment. The Company is required to
distribute annually to its shareholders at least 95% of its "REIT taxable
income," which, as defined by the relevant tax statutes and regulations, is
generally equivalent to net taxable ordinary income.
Item 6 Selected Financial Data
The following selected consolidated financial data of the Company should
be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Predecessor <F1> Company
------------------------------------------ --------
Period At or
from for
Jan. 1 for year
At or for year ended December 31, to ended
--------------------------------- March 1, Dec. 31,
1990 1991 1992 1993 1994 1994
------ ----- ----- ----- ----- -----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Operating revenues $55,524 $60,767 $67,073 $72,310 $12,363 $66,921
Earnings 16,289 20,411 22,055 18,284 34,286 17,821
Net income per common share<F3> 30.39 38.08 41.15 34.08 63.97 1.05
Dividends declared per common share<F3> 51.09 60.45 56.71 59.57 732.05 1.02<F4>
Balance Sheet Data:
Total assets 425,408 416,085 400,182 393,982 391,685 493,390
Total borrowings 22,201 24,430 24,365 26,016 --- 167,137
<FN>
<F1> The Predecessor information reflects the combination of the 17
partnerships included in the Consolidation.
<F2> Operating data for the Company for the year ended December 31, 1993 are
not included as they are de minimis.
<F3> Predecessor "per share" information is net income and distributions per
limited partner unit. Distributions for the period from January 1, 1994
to March 1, 1994 include the liquidating distribution made in connection
with the Consolidation.
<F4> Does not include the dividend of $.44 per share declared in January 1995
based on financial results for the quarter ended December 31, 1994.
</FN>
</TABLE>
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The Company is one of the largest operators of self-storage properties
in the United States. It owns directly and through joint ventures 161
operating self-storage properties, containing approximately 10.7 million net
rentable square feet, located in 22 major metropolitan areas in 19 states.
Self-storage properties offer low-cost, easily accessible storage space for
personal and business uses. The Company's investment objectives are to
maximize shareholder value by increasing funds from operations through
internal growth and through the acquisition and development of additional
self-storage properties. The Company believes that its access to capital
markets, the experience of its management team in acquiring, developing, and
operating self-storage properties, its geographic diversification and its
emphasis on quality will enhance its ability to achieve this objective.
During 1994, the Company has expanded its portfolio of real estate properties
and real estate based investments through the use of debt capital. The
Company expects to obtain capital for future growth from additional
indebtedness, future offerings of its equity securities and retained cash
flow.
LIQUIDITY AND CAPITAL RESOURCES
ACQUISITION OF ORIGINAL PORTFOLIO. On March 1, 1994 (the Acquisition
Date), the Company completed the acquisition of 17 publicly held limited
partnerships administered by Shurgard Incorporated (the Management Company)
as a means of assembling an initial portfolio of real estate investments. The
Company acquired the assets, subject to existing liabilities, of each of the
partnerships for an aggregate cost of $387.4 million. The acquisition was
funded by the issuance of 16,983,728 shares of Company Common Stock and $67.1
million in borrowings from a financial services company. Real estate assets
acquired consisted of 134 self-storage centers and two business parks located
in 17 states, as well as interests in two joint ventures owning an additional
five storage centers.
REFINANCING OF EXISTING DEBT. On June 9, 1994, the Company refinanced
substantially all of its existing debt through a debt purchase transaction
with Nomura Asset Capital Corp., a subsidiary of Nomura Securities
International, Inc. The $122.6 million of indebtedness, secured by certain
real estate, has a seven year term, a fixed rate equal to 8.28% and requires
monthly payments of interest only until maturity. The Company paid $1.8
million in fees for this seven-year loan. The following table summarizes the
uses of proceeds from this loan:
<TABLE>
<S> <C>
Repayment of Consolidation debt $104,600,000
Repayment of other debt 14,156,000
Loan fees and closing costs 2,371,000
Net proceeds 1,453,000
------------
Loan proceeds $122,580,000
============
</TABLE>
Repayment of other debt represents retirement of notes assumed from the
Predecessor in connection with the Consolidation. In connection with this
transaction, the Company incurred a $1.2 million loss on early retirement of
debt due to the write off of unamortized loan fees. The refinancing provides
the Company with stabilized debt service costs and greater flexibility for
future growth.
ESTABLISHMENT OF FIRST REVOLVING CREDIT FACILITY. In August 1994, the
Company entered into an agreement with a bank group to establish a revolving
credit facility for up to $50 million, secured by real estate. The actual
amount available on this credit facility is a function of the quarterly
performance of secured properties and the quarterly interest rate. Interest
on each draw is payable monthly at either the bank's prime rate or LIBOR plus
200 basis points and can be fixed for various periods at the Company's
option. The commitment fee for the original two-year revolving period was
$375,000 and, upon the expiration of such period, for an additional fee of
37.5 basis points of the amount outstanding, the Company may extend any
outstanding balance for a one-year term. The Company intends to use funds
available from this credit facility to finance the future acquisition and
development plans.
ESTABLISHMENT OF SECOND REVOLVING CREDIT FACILITY. Additionally, in
December 1994, the Company entered into an agreement with a financial
services company to provide a second $50 million two-year revolving credit
facility. The actual amount available on this credit facility is a function
of the quarterly performance of secured properties and the quarterly interest
rate. This credit facility is secured by real estate, bears interest at
LIBOR plus 175 basis points, and requires a draw fee equal to 25 basis points
of the amount drawn. The commitment fee for the two-year period was
$500,000. The Company intends to use funds available from this credit
facility to finance the future acquisition and development plans.
ACQUISITION OF TWENTY STORAGE CENTERS. On September 1, 1994, the
Company purchased 20 storage centers from an unaffiliated storage operator
based in Raleigh, North Carolina for an aggregate purchase price of $34
million. These centers were financed with $30 million from the Company's
first credit facility, a $1 million note to the seller and $3 million in
cash. The interest rate on the $30 million loan was 7.33% from September 1,
1994 to March 1, 1995 and is 8.2% from March 1, 1995 to June 1, 1995, at
which time it will adjust again. This acquisition gives the Company a
significant presence in the Raleigh market as well as expanding its presence
in Richmond, Washington DC and Virginia Beach. The new properties acquired
by the Company were 98% occupied with average rent per square foot of $7.34
as of June 30, 1994. The average age of these properties was 7.6 years.
Selected information regarding the location and size of these newly acquired
centers is as follows:
<TABLE>
Metropolitan No. of No. of No. of
Area Stores Units Sq. Ft.
-------------------- ------ ------ --------
<S> <C> <C> <C>
Washington DC. 7 2,399 252,807
Raleigh, NC 5 1,567 195,130
Richmond, VA 3 926 105,225
Virginia Beach, VA 4 1,196 147,550
Charlottesville, VA 1 300 31,600
---- ------ --------
20 6,388 732,312
</TABLE>
INVESTMENT IN TENNESSEE JOINT VENTURES The Company has entered into
three joint ventures with three partnerships, managed by a storage operator
and developer, to develop three properties in the Nashville, Tennessee
metropolitan area. The Hermitage center opened March 1, 1995, the Medical
Center storage facility is expected to open in early 1995 and the Franklin
Center is expected to open in late 1995. All current investments in these
joint ventures have been funded through operating cash flow. The following
is a summary of each investment and the amounts of any construction loan
guarantees which represent the Company's pro rata portion of each joint
venture's debt.
<TABLE>
Square Investment Amount Investment Venture Loan
Project Name Feet Date Invested Committed Interest Guarantee
-------------- ------ --------- -------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Hermitage 67,700 July 1994 $640,000 $640,000 50.0% $1,110,700
Medical Center 59,700 Nov. 1994 600,000 600,000 67.0% 833,500
Franklin 55,000 Jan. 1995 962,000 2,500,000 91.2% ---
</TABLE>
INVESTMENT IN BENELUX STORAGE OPERATIONS. The Company has committed to
invest up to $5.7 million in Benelux SCS, a Belgian societe en commandite
simple (an entity similar to a limited partnership) that will own and operate
self-storage properties in the Benelux region of Europe. The Company has
acquired interests in Benelux SCS similar to that of general and limited
partnership interests. Through its entitlement to a majority of the seats on
the board, the Company currently has authority to direct the business affairs
of Benelux SCS. Its percentage interest in economic benefits from this
partnership will be determined based on its percentage of total contributed
capital. As of the date of this Annual Report on Form 10-K, the Company has
contributed approximately $2.4 million in exchange for equity interest in
Benelux SCS. The funding for this investment was obtained from the Company's
cash flow from operations.
INVESTMENT IN PARTICIPATING MORTGAGES. On December 14, 1994, the
Company paid $11.3 million and committed an additional $1.7 million for
investment in two 10-year participating mortgage loans that are nonrecourse
to the borrower and are secured by real estate, including four storage
centers and office/warehouse space located in the Washington, DC metropolitan
area. The four storage centers have in aggregate 207,000 square feet of
rentable space in 1,917 units. They currently average 88% occupancy and the
average annual rent per square foot for 1994 was $9.82. The warehouse/office
space totals 28,340 square feet, is fully occupied and provides rent of
$21,000 monthly. All four centers have been managed by the Management Company
for 1.5 years and, under the loan agreement, will continue to be managed by
the Management Company. The Company will receive interest at 8% per annum
plus 50% of both operating cash flow and distributions from the sale of real
property. The Company has options to purchase the properties at established
prices, generally exercisable in five years and extending until maturity of
the loans. The Company funded this investment through a $12 million draw on
its first revolving credit facility, which bears interest at 8.89% until June
8, 1995. Thereafter, it will adjust based on the bank's prime rate or 200
basis points above LIBOR.
APPROVAL OF MERGER WITH MANAGEMENT COMPANY. In December 1994, the Board
of Directors executed a Merger Agreement with the Management Company in order
to become self-administered and self-advised. At a special meeting on March
21, 1995, the stockholders voted to approve the acquisition of the Management
Company and the transaction closed March 24, 1995. Through the Merger, the
Company has internalized the expertise and experience of the Management
Company's personnel, which cover all aspects of the self-storage business.
Additionally, the Company has acquired rights to the Shurgard name as well as
proprietary operating and computer systems
As of March 24, 1995, due to the consummation of the Merger, the Company
no longer pays management or advisory fees. Instead, the Company will incur
the actual expenses currently incurred by the Management Company, including
personnel expenses related to approximately 600 Management Company employees.
Additionally, the Company will receive property management fees and other
revenues paid by affiliated and unaffiliated entities for services previously
performed by the Management Company.
FUTURE ACQUISITION AND DEVELOPMENT PLANS. The Company's Board of
Directors has approved a growth plan for 1995. Due to the increased
competition for acquisitions in the storage market and the Company's focus on
maintaining its high quality standards and consistent building design to
develop brand awareness, this plan focuses primarily on the development of
new storage centers in markets in which the Company currently operates.
Management believes that its substantial experience in the development of
storage centers will aid in the development portion of its growth plan.
Management generally does not anticipate cash flow in excess of interest
expense on development projects for at least the first year of operations,
and the timing of positive cash flow cannot be predicted as it is based on a
number of factors including length of construction and timing of opening
dates. Management does not expect this period of rent-up to have a
significant effect on dividends in 1995. The Company has purchased one
parcel of land in Texas, has several development sites in the final stages of
due diligence, and is evaluating a number of other development sites.
Additionally, the Company intends to explore possible developments through
joint ventures with quality local storage developers and operators as a means
of entering new markets and gaining access to local expertise in these new
markets. Despite the competition for acquisitions, the Company will pursue
selective acquisition of quality projects during 1995, especially those
acquisitions that provide a strategic advantage to the Company.
SHORT-TERM AND LONG-TERM LIQUIDITY. As of December 31, 1994, the
Company's ratio of debt to total assets was 34%. The Company's total debt at
December 31, 1994 was $167 million with a weighted average interest rate of
8.16%. Because $125 million of the Company's debt is fixed rate, the effect
of increases in variable rate debt are limited; rising rates caused the
Company's weighted average interest rate to rise to 8.32% in March 1995.
Variable rate debt totaling $42 million will adjust again in June 1995. In
addition to affecting interest expense, rising interest rates may also limit
the amount available to the Company under its credit facilities due to
certain restrictive covenants. Despite fluctuations in interest rates,
Management believes it will be able to raise sufficient debt or equity
capital to fund its growth plan.
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for debt service payments until maturity
as well as for dividend payments in accordance with REIT requirements. The
Company anticipates refinancing outstanding debt upon maturity through long-
term debt or equity or some combination thereof. Cash provided by operating
activities for the ten months of operations ended December 31, 1994 was $29.3
million. Working capital reserves at December 31, 1994 were $5.7 million and
dividends declared by the Company through December 31, 1994 total $1.02 per
share. Subsequent to the end of the year, the Company declared a dividend of
$0.44 per share related to earnings for the fourth quarter of 1994 and a
second dividend of $0.46 per share related to earnings for the first quarter
of 1995. In order to maintain its REIT status, the Company is required to
distribute all 1995 earnings and profits as well as all cumulative earning
and profits acquired in connection with the acquisition of the Management
Company. Management does not believe that its regular quarterly dividends
will be sufficient to meet these requirements. Accordingly, Management
expects to make a special distribution during 1995 to the extent it is
necessary to meet those requirements.
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS. As a REIT, the
Company is not required to pay federal income tax on annual taxable income
that it currently distributes to its shareholders, provided that the Company
distributes an amount equal to at least 95% of its taxable income. Such
distributions must be made in the taxable year to which they relate or in the
following taxable year if declared before the REIT timely files its tax
return for such years and is paid on or before the first regular dividend
payment date after such declaration. The Company's first distribution in
1995 will be partially applied towards the Company's 1994 distribution
requirement.
In connection with the Merger, the accumulated earnings and profits of
the Management Company were carried over to the Company for tax purposes. In
order to maintain its REIT qualification, the Company is required in 1995 to
distribute to its shareholders an amount necessary to eliminate such
accumulated earnings and profits. The actual amount distributed and the
timing of the distribution or distributions in 1995 will depend on the final
determination of the Management Company's accumulated earnings and profits
immediately prior to the Merger.
As a REIT, the Company must derive at least 95% of its total gross
income from specified classes of income related to real property, dividends,
interest or certain gains from the sale or other disposition of stock or
other securities. The Company's revenues from truck rentals, sales of locks
and boxes and management services performed for owners of other properties do
not qualify under this 95% gross income test. The Company estimates that
such nonqualifying income will be approximately 4.9% of gross revenue in 1995
and will be approximately 5.7% of gross revenue in subsequent years, thereby
failing the 95% test. The Company plans to acquire additional properties and
develop new properties to reduce the percentage of nonqualifying income.
There can be no assurance, however, that acquisitions and development
activities will occur on such a scale or within such time periods that
nonqualifying income will meet the 95% test for future years. Accordingly,
the Company may be required to defer or reduce its income from its third-
party management services to avoid terminating its REIT qualification.
RESULTS OF OPERATIONS
MARCH 1, 1994 THROUGH DECEMBER 31, 1994. The Company operates a
professionally managed real estate portfolio consisting primarily of self-
storage properties that provide month-to-month leases for business and
personal use. Income before extraordinary item for the period was $19
million, or $1.12 per share, reflecting ten months of consolidated operations
for 139 storage centers and two business parks and four month of operations
for the 20 newly purchased storage properties. The following table shows, by
state, certain information regarding the Company's portfolio of self-storage
properties.
<TABLE>
Percentage of Portfolio Year-to-date 1994
Based on Original Cost Annualized Property
At Dec. 31, 1994 Performance
<S> <C> <C>
California 15.2% 11.1%
Florida 5.8 10.7
New York 5.4 12.7
Texas 14.6 10.8
Virginia 9.0 9.3
Washington 20.2 11.6
Other 29.8 12.0
Total 100.0%
</TABLE>
This table indicates geographic diversity and earnings as a percentage
of historical cost. Performance measures are annualized to allow comparisons
between periods. 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 ten months ended December 31, 1994 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; had it been, the percentages would be lower. This performance
measure should not be construed as a yield or return on investment.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993. Rental revenues for the
year ended December 31, 1994 (including two months of Predecessor operations
from January 1, 1994 to the Acquisition Date) rose 9.5% or $6.8 million
compared to the same period in 1993 for the Predecessor. Approximately $1.8
million or 26% of this increase is related to the 20 storage centers recently
acquired. The remaining 74% of the increase is attributable to rising rental
rates and occupancies for the original portfolio of assets. Rental rates for
the original real estate portfolio increased 5.2% from $7.84 per square foot
for 1993 to $8.25 for 1994. The average occupancy for the same stores rose
from 87% for the year ended 1993 to 89% for 1994.
Income from operations rose 14% or $3.85 million, after a 7% increase in
expenses. Expense increases include an 11% rise in operating expense
resulting from the addition of twenty new centers on September 1, 1994, as
well as increases in repair and maintenance and insurance premiums. The
Management Company intensified its comprehensive inspection program aimed at
identifying and making necessary property repairs during 1994. These repairs
are important to maintaining the Company's quality image in the market place,
as well as protecting the Company's real estate assets. Rising insurance
premiums reflect industry increases in property insurance premiums due to the
recent series of natural disasters in the United States and losses incurred
by the Shurgard properties in 1992 and 1993. Additionally, general and
administrative expenses from January 1, 1994 to the Acquisition Date for the
Predecessor included certain expenses related to the liquidation of the
Partnerships including audit, tax and legal fees. State taxes for the
Predecessor were also high for the two months of 1994 due to the tax gains
resulting from the sale of assets.
The Predecessor financial statements for the period from January 1, 1994
to the Acquisition Date and for the year ended December 31, 1993 include
various nonrecurring items related to the Consolidation and liquidation of
the seventeen partnerships which comprise the Predecessor; these include the
gain incident to the Consolidation and related incentive management fees,
litigation, hostile takeover defense and transaction costs. The Company's
debt at December 31, 1994 is $141 million higher than the Predecessor's debt
at December 31, 1993. This additional debt is reflected in the Company's
interest expense and earnings for the year ended December 31, 1994. Certain
of the limited partners of the partnerships included in the Consolidation
elected to take cash and liquidate their investment. The Company borrowed
the $67 million required for these cash payments as well as approximately $20
million to pay liabilities related to the Consolidation which were assumed
from the Predecessor and approximately $10 million to cover loan closing
costs and establish cash reserves. Interest on the $97 million for the year
ended December 31, 1994 is $6.7 million. Additionally, as a result of the
Consolidation, the majority of the debt held by the partnerships, including
short-term debt at relatively low interest rates, had to be refinanced at a
slightly higher rate (8.28%). The Company also borrowed $30 million in
connection with the acquisition of the 20 storage centers on September 1,
1994 and $12 million in connection with an investment in participating
mortgages on December 14, 1994; interest on this $42 million was $806,000.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO 1992. Predecessor rental
revenues for the year ended December 31, 1993 rose 7.8% or $5.2 million
compared to the same period in 1992 due to rising rental rates and
occupancies. Rental rates increased 2% from $7.68 per square foot for 1992
to $7.84 for 1993. The average occupancy for the same stores rose from 86%
for the year ended 1992 to 87% for 1993.
Income from operations rose 12% or $3.0 million after a 5% increase in
expenses. Expense increases include an 8% rise in operating expense
resulting from increases in personnel and utilities. Additionally,
management fees rose from 1992 to 1993 due to a contractual increase in the
incentive management fees paid by one of the partnerships that comprise the
Predecessor. The Company does not pay any comparable incentive management
fees.
The Predecessor financial statements for the year ended December 31,
1993 include litigation, hostile takeover defense and transaction costs
related to the Consolidation and liquidation of the seventeen partnerships.
PRO FORMA RESULTS OF OPERATIONS. As the Company did not begin operating
the properties until March 1, 1994 and the Predecessor information is not
comparable for reasons discussed above, management believes that the pro
forma information included below is necessary to provide more meaningful
comparative information for the year ended December 31, 1994.
Pro forma information for 1993 and 1994, prepared as if the Company had
owned its original portfolio of real estate and its current debt was
outstanding for the entire period (note that 1994 information for all stores
includes four months of operating activity for the 20 storage centers
acquired on September 1, 1994 while 1994 information for same stores does
not), is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
-----------------------------------
All Stores Same Stores
1994 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma rental revenues $ 79,284 $ 77,353 $ 72,310
Pro forma net operating income $ 48,728 $ 47,495 $ 44,087
Pro forma net income before
extraordinary item 1 $ 21,917 $ 21,821 $ 19,095
Pro forma net income before
extraordinary item per share<F2> $ 1.29 $ 1.28 $ 1.12
Funds from operations (FFO)<F1><F3> $ 35,491 $ 35,048 $ 31,665
<FN>
<F1> Assumes the Company's fixed rate seven-year debt (8.28%) was outstanding
during the entire period.
<F2> Assumes 16,983,887 shares of the Company's common stock were outstanding
during the entire period.
<F3> Funds from Operations (FFO) are calculated as earnings plus depreciation
and amortization minus certain non-recurring revenue plus non-recurring
expenses.
</FN>
</TABLE>
Net income before extraordinary item for 1994 for all stores, increased
by 14.8% to $21.9 million from $19.1 million for 1993. Net income before
extraordinary item for 1994 for same stores, increased by 14.3% to $21.8
million. These trends are primarily a reflection of rising rental rates and
occupancy as discussed above, but eliminate the inconsistent structure of the
Predecessor. Funds from operations (FFO) is used by many financial analysts
in evaluating REITs. FFO, as used by the Company, is net income before
extraordinary items, depreciation, and amortization, plus or minus certain
non-recurring revenues and expenses. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP), as an
indication of the Company's financial performance or cash flow from operating
activities (determined in accordance with GAAP), or as a measure of
liquidity, nor is it necessarily indicative of sufficient cash flow to fund
all of the Company's needs. FFO for 1994 for all stores increased 12.1% to
$35.49 million. FFO for 1994 for same stores increased by 10.7% to $35.05
million, from FFO of $31.67 million, for 1993.
Item 8 Financial Statements and Supplementary Data
The financial statements of the Company at and for the year ended
December 31, 1994, the financial statements of the Predecessor at December
31, 1993 and for the two years then ended and the period from January 1, 1994
to March 1, 1994, and the report of Deloitte & Touche LLP, independent
auditors, are included elsewhere herein. Reference is made to the Index of
Financial Statements and Schedules in Item 14.
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10 Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions and Offices with the Company
--------------- ---- --------------------------------------------
<S> <C> <C>
Charles K. Barbo 53 Chairman of the Board, President and Chief
Executive Officer
Harrell L. Beck 38 Director, Senior Vice President, Chief
Financial Officer and Treasurer
Dan Kourkoumelis 44 Director
Donald W. Lusk 67 Director
Wendell J. Smith 62 Director
David K. Grant 41 Executive Vice President
Michael Rowe 38 Executive Vice President
Kristin H. Stred 36 Senior Vice President, Secretary and General
Counsel
</TABLE>
Charles K. Barbo has been involved as a principal in the real estate
investment industry since 1969. Mr. Barbo is one of the co-founders of the
Management Company, which was organized in 1972 to provide property
management services for self-storage facilities and other real estate and
commercial ventures. Prior to the Merger, he served as Chairman of the Board
and President of the Management Company. Upon the consummation of the
Merger, he was named Chairman of the Board, President and Chief Executive
Officer of the Company pursuant to the Merger Agreement. Mr. Barbo is a
graduate of the Owner/President Management Program of Harvard Business
School, holds a Bachelor of Arts degree in history from the University of
Washington, and is a licensed real estate broker and a licensed securities
principal and salesman. He is an alumnus of the Young Presidents
Organization.
Harrell L. Beck has served as a director of the Company and as its Chief
Financial Officer and Treasurer since July 1993. Prior to closing of the
Merger, Mr. Beck also served as the Company's President. He was named Senior
Vice President of the Company upon the closing of the Merger. Mr. Beck also
served as the Chief Financial Officer and Treasurer of the Management
Company. He joined the Management Company in April 1986 as the Eastern
Regional Vice President and, in 1990, became its Chief Financial Officer and,
in 1992, its Treasurer. Prior to joining the Management Company, Mr. Beck
was a manager with Touche Rose & Co., where he was employed for approximately
six years providing services primarily to clients in the real estate and
aerospace industries. Mr. Beck has a Bachelor of Arts degree in Business
Administration from Washington State University and is a member of the
American Institute of Certified Public Accountants and the Washington Society
of Certified Public Accountants.
Dan Kourkoumelis has served as a director of the Company since March
1994. He is the President, Chief Operating Officer and a director of Quality
Food Centers, Inc. (QFC), a publicly held corporation that operates the
largest independent supermarket chain in the Seattle area. Mr. Kourkoumelis
joined QFC in 1967 and has held a variety of positions since then. He served
as Executive Vice President from 1983 to 1987, when he also became Chief
Operating Officer, and became President in 1989 and a director in 1991. Mr.
Kourkoumelis has a Bachelor of Arts degree in Marketing from the University
of Washington.
Donald W. Lusk has served as a director of the Company since March 1994.
He is the President of Lusk Consulting Group, which is engaged in general
management consulting, as well as the formation and delivery of management
development programs in the US and Canada. From 1974 to 1991, Mr. Lusk was
Regional Managing Partner of Management Action Programs in the Pacific
Northwest. Mr. Lusk has a Bachelor of Arts degree from Pomona College. He
currently serves as director of G.T. Development Corporation. He has
previously served as a director of Robert E. Bayley Construction Company,
Management Action Programs, Inc., The Bekins Company, California Pacific
National Bank, I.C.X. Corporation, Laguna Manufacturing Company, Ormand
Industries and Pacific United Services Corporation and was Chairman of the
Board of the School of Business and Economics Advisory Board of Seattle
Pacific University.
Wendell J. Smith has served as a director of the Company since March
1994. Mr. Smith is also currently a director of Franchise Finance
Corporation of America. He has previously served on the Western and National
Advisory Boards for FNMA and the Advisory Board of the Center for Real Estate
Research at the University of California. He retired in 1991 from the State
of California Public Employees Retirement System (Calpers) after 27 years of
employment, the last 21 in charge of all real estate equities and mortgage
acquisitions for Calpers. During those 21 years, Calpers invested over $8
billion in real estate and mortgages. In 1991, Mr. Smith established W.J.S.
& Associates, which provides advisory and consulting services for pension
funds and pension fund advisors.
David K. Grant has served as the Company's Executive Vice President and
the Director of Real Estate Investment since July 1993. Mr. Grant joined the
Management Company in November 1985 as Director of Real Estate Investment and
continued to serve in that capacity until the Merger. He also served as an
Executive Vice President of the Management Company. Mr. Grant was previously
a manager with Touche Rose & Co., where he was employed for approximately 10
years providing financial consulting, accounting and auditing services
primarily to clients in the real estate, construction and engineering
industries. Mr. Grant has a Bachelor of Arts degree in Business
Administration and a Bachelor of Science degree in Accounting, both from
Washington State University.
Michael Rowe has served as the Company's Executive Vice President and
the Director of Storage Operations since July 1993. Prior to the Merger, he
served as the Executive Vice President and Director of Storage Operations of
the Management Company. Prior to his employment with the Management Company,
he was employed with Touche Rose & Co., where he participated in independent
audits of major real estate syndication, development and management companies
in the Pacific Northwest. He became Controller of the Management Company in
1982 and Vice President and Treasurer in 1983. In 1987, Mr. Rowe was named
Director of Storage Operations of the Management Company. Mr. Rowe has a
Bachelor of Arts degree in Business Administration from Washington State
University.
Kristin H. Stred has served as the Company's Secretary and General
Counsel since July 1993. She was named Senior Vice President of the Company
upon the closing of the Merger. Ms. Stred joined the Management Company in
July 1992 and until the Merger served as Secretary and General Counsel. She
was previously an attorney with The Boeing Company from October 1991 to July
1992 and Assistant General Counsel with King Broadcasting Company from July
1987 to September 1991. Ms. Stred has a Bachelor of Arts degree with honors
in general studies from Harvard University and a J.D. from Harvard Law
School. She is a member of the Washington State Bar Association, is a former
president of Washington Women Lawyers and is a member of the Executive
Committee of the Corporate Law Department Section of the Washington State Bar
Association.
Section 16 Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the Commission). Officers, directors and greater than 10%
shareholders are required by Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Mr. Grant filed a late report on Form 4 with respect to a purchase of
shares on behalf of his grandfather. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no Forms 5 were required for those persons, the
Company believes that during the 1994 fiscal year all other filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with by such persons.
Item 11 Executive Compensation
Compensation Summary
The following table sets forth the compensation for services rendered
during the fiscal years ended December 31, 1994 and 1993, for Charles K.
Barbo, who was appointed Chairman of the Board, President and Chief Executive
Officer of the Company in connection with the Merger, and for the four other
most highly compensated executive officers of the Company following the
Merger. Although certain of the individuals named below served as directors
or officers of the Company prior to the Merger, they did not receive any cash
compensation for such services from the Company but instead were compensated
by the Management Company. Accordingly, all dollar amounts shown were paid
by the Management Company and, except as indicated otherwise, all options
shown were options to purchase shares of common stock of the Management
Company (the Management Company Common Stock).
<TABLE>
Summary Compensation Table
<CAPTION> Long-Term
Annual Compensation Compensation
---------------------------------- ----------
Shares All Other
Underlying Compensation
Year Salary($) Bonus($)<F1> Options(#) ($) <F2>
------ ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Charles K. Barbo 1994 $155,000 $30,000 -- $200
Chairman, President and Chief 1993 $150,000 $25,000 -- $2,316
Executive Officer
Michael Rowe 1994 $103,000 $24,000 2,000<F3> $7,043
Executive Vice President and Director 1993 $100,000 30,340 10,000<F4> $8,999
of Storage Operations
David K. Grant 1994 $103,000 $24,000 2,000<F3> $5,888
Executive Vice President and Director 1993 $100,000 15,000 10,000<F4> $7,844
of Real Estate Investment
Harrell L. Beck 1994 $80,000 $24,000 2,000<F3> $1,217
Director, Senior Vice President, 1993 $75,000 $15,000 10,000<F4> $1,217
Chief Financial Officer and Treasurer
Kristin H. Stred 1994 $80,000 $24,000 2,000<F3> $1,057
Senior Vice President, General 1993 $75,000 $15,000 7,500<F4> $1,057
Counsel and Secretary
<FN>
<F1> Includes bonus awards earned pursuant to the terms of discretionary
bonus, incentive compensation and profit-sharing arrangements.
<F2> For the year ended December 31, 1994, includes employer matching
contributions made by the Management Company under its Employee
Retirement Savings Plan of $200 per person, with respect to each of
Messrs. Rowe and Grant, $5,688 relating to interests in Management
Company cash distributions from investments in certain partnerships, and
with respect to Messrs. Rowe, Beck, and Stred there were payments of
$1,017, $1,155, and $887, paid annually towards insurance premiums on
an executive disability plan.
<F3> Represents options to purchase shares of the Company's Class A Common
Stock (the Class A Common Stock) granted by the Company.
<F4> All Management Company options were exercised prior to the Merger.
</FN>
</TABLE>
Option Grants
The following table sets forth certain information regarding options to
purchase shares of Class A Common Stock granted during the fiscal year ended
December 31, 1994, to the individuals for whom compensation is reported in
this Annual Report on Form 10-K. Such individuals were not granted any
options to purchase shares of Management Company Common Stock during the
fiscal year ended December 31, 1994.
<TABLE>
Option Grants in Fiscal 1994
<CAPTION>
Potential Realizable
Value at
Percent Assumed Annual Rate
Number of Total of Stock Price
of Shares Options Appreciation for
Underlying Granted Exercise Option Term <F3>
Options in Fiscal Price Expiration ----------------------
Name Granted (#)<F1> Year<F2> ($/Share) Date 5%($) 10%($)
------------------- ------------- -------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo -- -- -- -- -- --
Michael Rowe 2,000 25% $18.90 3/17/04 $23,772 $60,243
David K. Grant 2,000 25% $18.90 3/17/04 $23,772 $60,243
Harrell L. Beck 2,000 25% $18.90 3/17/04 $23,772 $60,243
Kristin H. Stred 2,000 25% $18.90 3/17/04 $23,772 $60,243
<FN>
<F1> Options were granted at the fair market value on the date of grant,
which was the per share value of the value of the partnership assets
included in the consolidation (the Consolidation) of the 17 publicly
held limited partnerships that constituted the Company's initial
portfolio of real estate investments, less liabilities. Each option
vests in annual installments of 20%, commencing on the first anniversary
of the date of grant.
<F2> The Company did not have any employees during the fiscal year ended
December 31, 1994. As shown in this table, option grants were made to
officers of the Company.
<F3> The dollar amounts under these columns are the result of calculations at
assumed rates of appreciation of 5% and 10% and are not intended to
forecast future appreciation. No value will be realized if the stock
price does not exceed the exercise price of the options.
</FN>
</TABLE>
Option Exercises and Year-End Values
The following table sets forth certain information as of December 31,
1994, regarding options to purchase shares of Management Company Common Stock
held by the individuals for whom compensation is reported in this Annual
Report on Form 10-K. None of such individuals exercised any options during
the fiscal year ended December 31, 1994.
<TABLE>
Aggregated Fiscal 1994 Year-End Values
for Management Company Options
<CAPTION>
Total Number of Securities Value of Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year-End(#) at Fiscal Year-End($)<F1>
-------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Charles K. Barbo -- -- -- --
Michael Rowe 5,333 18,667 $27,450 $80,268
David K. Grant 2,666 17,334 $13,455 $73,205
Harrell L. Beck 5,333 17,667 $27,450 $76,079
Kristin H. Stred -- 7,500 -- $31,050
<FN>
<F1> The value was calculated by multiplying the number of shares of
Management Company Common Stock issuable upon exercise of the options by
the number of shares of Class A Common Stock each share of Management
Company Common Stock will be converted into in the Merger (assuming
1,549,409 shares of Class A Common Stock are issued at the closing of
the Merger, including 1,266,837 newly issued shares and 282,572 share
previously owned by the Management Company), multiplying the result by
the closing price of the Class A Common Stock on December 31, 1994, and
deducting the aggregate exercise price of the options from the result.
All Management Company options (whether exercisable or unexercisable as
of December 31, 1994) were exercised prior to the Merger. Shares
acquired on exercise were converted into the Merger consideration.
</FN>
</TABLE>
The following table sets forth certain information as of December 31,
1994, regarding options to purchase shares of Class A Common Stock held by
the individuals for whom compensation is reported in this Annual Report on
Form 10-K. None of such individuals exercised any options during the fiscal
year ended December 31, 1994.
<TABLE>
Aggregated Fiscal 1994 Year-End Values
for Shurgard REIT Options
<CAPTION>
Total Number of Securities Value of Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year-End(#) at Fiscal Year-End($)<F1>
-------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles K. Barbo -- -- -- --
Michael Rowe <F2> -- 2,000 -- $3,700
David K. Grant <F2> -- 2,000 -- $3,700
Harrell L. Beck <F2> -- 2,000 -- $3,700
Kristin H. Stred <F2> -- 2,000 -- $3,700
<FN>
<F1> This amount is the aggregate number of outstanding options multiplied by
the difference between the fair market value of Class A Common Stock as
of December 31, 1994, minus the exercise price of such options.
<F2> On March 17, 1995, 400 shares out of the 2,000 shares issues became
exercisable.
</FN>
</TABLE>
Director Compensation
Each non-employee director receives $12,000 per year plus $1,000 for
each board meeting or committee meeting attended. Additionally during 1994,
each non-employee director received $6,000 for their participation in the
evaluation of the Merger. Each non-employee director was issued options 400
Class A common shares at $22.93 per share under the Stock Option Plan for
Nonemployee Directors.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 24, 1995, certain
information with respect to the beneficial ownership of shares of the
Company's Common Stock by (i)each director of the Company, (ii)each of the
Company's executive officers for whom compensation is reported in this Annual
Report on Form 10-K, and (iii)all directors and executive officers of the
Company as a group. Except as otherwise noted, the Company believes that the
beneficial owners of the shares of the Common Stock listed below, based on
information furnished by such owners, have sole voting and investment power
with respect to such shares. As of March 24, 1995, to the Company's
knowledge no shareholder beneficially owned more than 5% of the shares of
Class A Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Title of Class Beneficial Ownership Class
---------------------------- ------------------- --------------------- ----------
<S> <C> <C> <C>
Charles K. Barbo Class A Common Stock 612,810<F1><F2> 3.4%
1201 Third Avenue, Suite 2200 Class B Common Stock 76,529<F3> 49.5%
Seattle, WA 98101
Arthur W. Buerk Class A Common Stock 354,868<F1> 1.9%
3831 49th N.E. Class B Common Stock 76,529<F3> 49.5%
Seattle, WA 98105
Michael Rowe Class A Common Stock 68,888<F1><F4> *
David K. Grant Class A Common Stock 53,010<F1><F5> *
Harrell L. Beck Class A Common Stock 18,698<F1><F6> *
Kristin H. Stred Class A Common Stock 6,533<F1><F7> *
Dan Kourkoumelis Class A Common Stock -- --
Donald W. Lusk Class A Common Stock 200 *
Wendell J. Smith Class A Common Stock 300 *
All directors and executive
officers as a group (8 Class A Common Stock 759,939<F1> 4.2%
persons) Class B Common Stock 76,529<F3> 49.5%
* Less than one percent.
<FN>
<F1> Includes 1,549,409 shares of Class A Common Stock issued to Management
Company shareholders at the closing of the Merger (including 1,266,837
newly issued shares and 282,572 shares previously owned by the
Management Company. Does not include any additional shares of Class A
Common Stock that may subsequently be issued pursuant to the Merger
Agreement. See "Merger with Management Company" in Item 1 of this Form
10-K.
<F2> Includes 2,669 shares held for Mr. Barbo's individual account under the
Company's Employee Retirement Savings Plan.
<F3> Class B Common Stock entitled each of Messrs. Barbo and Buerk to a loan
in an amount necessary to satisfy his general partner capital
obligations resulting from the Consolidation. Class B Common Stock is
convertible into Class A Common Stock at a one-to-one ratio upon
repayment of the loan.
<F4> Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable written 60 days and 2,499 shares held for Mr.
Rowe's individual account under the Company's Employee Retirement
Savings Plan.
<F5> Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable written 60 days and 1,963 shares held for Mr.
Grant's individual account under the Company's Employee Retirement
Savings Plan.
<F6> Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable written 60 days and 1,805 shares held for Mr.
Beck's individual account under the Company's Employee Retirement
Savings Plan.
<F7> Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable written 60 days and -0- shares held for Ms.
Stred's individual account under the Company's Employee Retirement
Savings Plan.
</FN>
</TABLE>
Item 13 Certain Relationships and Related Transactions
On March 1, 1994, as a part of the Consolidation approved by limited
partners, the Company made a $1,981,000 interest-free loan to Mr. Barbo to
enable him to make certain capital contributions that were required in
connection with the Consolidation. Mr. Barbo's Class B Common Stock has been
pledged as collateral for the loan. Upon repayment of the loan, a percentage
of the Class B Common Stock will be released from the pledge equal to the
percentage of the loan principal being repaid and Mr. Barbo will then have
the option to convert his Class A Common Stock, on a share-for-share basis,
into Class A Common Stock. The Company engaged the Management Company for
various on-going services under an advisory agreement and a property
management agreement. During 1994, the Company paid aggregate fees of
$4,046,000 to the Management Company (4,787,000 on a pro forma basis
including the period prior to the Consolidation on February 28,1994).
On March 24, 1995, the Management Company was merged into the Company
following a favorable vote of the shareholders of the Company on March 21,
1995. In the Merger, the Company issued an aggregate of 1,549,409 shares of
its Class A Common Stock to the Management Company shareholders (including
1,266,837 newly issued shares and 282,572 shares previously owned by the
Management Company). The average of the closing prices of the Company's
stock on the Nasdaq National Market for the 30 trading days prior to the date
of the Merger was $22.80, resulting aggregate Merger consideration of
$28,884,000 under the Merger Agreement (1,266,837 new share times $22.80 per
share). The Company's independent directors negotiated the transaction on
behalf of the Company and, based in part on a fairness opinion rendered by
Alex. Brown & Sons Incorporated, unanimously approved the Merger and
recommended that the shareholders vote for it.
Harrell L. Beck, David K. Grant, Michael Rowe and Kristin H. Stred, the
Company's executive officers at the time of the Merger, were also executive
officers of the Management Company and held 1.2%, 3.2%, 4.3% and .4%,
respectively, of its outstanding stock prior to the Merger. In addition,
Charles K. Barbo, who was an executive officer of the Management Company and
held 37.1% of its outstanding stock prior to the Merger, was appointed as
Chairman of the Board and an executive officer of the Company on the
effective date of the Merger.
In the Merger, Messrs. Barbo, Beck, Grant and Rowe and Ms. Stred
received 574,867 shares, 18,139 shares, 48,963 shares, 67,166 shares and
5,833 shares, respectively, in exchange for shares of Management Company
stock. Of such shares, (i) 24,833 shares were attributable to shares
acquired immediately prior to the Merger at an average cost of $9.99 on
exercise of Management Company stock options granted to such executive
officers (except Mr. Barbo), of which 20,389 were attributable to options
whose vesting was accelerated in connection with the Merger, and (ii) 20,666
shares were attributable to stock bonuses awarded to such executive officers
(except Mr. Barbo) by the Management Company immediately prior to the Merger.
Such bonuses were part of general grants and awards to Management Company
employees. In addition, pursuant to the Merger Agreement, Management Company
shareholders (including the Company's executive officers) will be entitled to
receive additional shares of Class A Common Stock, prorata in proportion to
their ownership interests in the Management Company, 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 or in the event of a change of control,
of any remaining interests in such partnerships as determined by independent
appraisal. The Company also agreed that it will provide for limitation of
director liability and indemnification of the Management Company's directors,
officers, employees and agents at least to the extent that such persons are
entitled thereto under the Management Company's Articles of Incorporation and
By-Laws.
Prior to the Merger, InterMation, Inc. (InterMation), a wholly owned
subsidiary of the Management Company operating a records storage business,
was distributed to the Management Company shareholders (including the
Company's executive officers), in proportion to their ownership interests in
the Management Company, because its revenue constitutes nonqualifying income
for a REIT for federal income tax purposes. Messrs. Barbo and Rowe are
directors of InterMation. The Company owns one facility engaged in the
records storage business and it is managed by InterMation. In March 1995,
the Company reached an agreement with InterMation to sell this records
storage business to InterMation for approximately $575,000 and lease the
facility to InterMation at a monthly rental of approximately $23,000. The
lease term will be three years, with two five year options to renew, although
either party can terminate the lease on 18 months notice. The purchase price
will be evidenced by a note bearing interest at 10% per annum, providing for
monthly principal and interest of $70,000 and full payment upon expiration of
the lease.
In 1993, the Management Company entered into an affiliation agreement
with Freeman Management Corporation ("FMC"), a property development company
located in Nashville, Tennessee, pursuant to which the Management Company and
FMC agreed to jointly develop and acquire self-storage facilities located in
Tennessee and Kentucky and the Management Company would receive certain fees,
including fees equal to 2% of gross revenues of the joint venture for use of
the Shurgard name and for services provided. The acquisition and development
rights were assigned to the Company, which now participates in three joint
ventures with FMC, two of which were established in 1994. During 1994, the
Management Company received no fees from joint ventures of the Company and
FMC; however, the Management Company received $5,000 under the affiliation
agreement for a property owned by FMC. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Investment in Tennessee Joint Ventures."
In October 1994, the Company entered into ten-year participating loan
arrangements with William B. Wrench and a partnership affiliated with him.
The loans are secured by four self-service storage facilities located in the
Fairfax, Virginia area. The Company has the option to purchase such
facilities in December 1999. Under a separate agreement, the Management
Company managed the facilities during the terms of loan for a fee of 6% of
gross revenue from self-storage activities and 5% of gross revenue from
office/warehouse space. During 1994, the Management Company received fees of
$114,000 under such arrangement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources - Investment in Participating Mortgages."
The Company has committed to invest up to $5.7 million in a Belgian
entity that will own and operate self-storage properties in the Belelux
region of Europe. The nature of its investment allows the Company the
authority to direct the business affairs of the entity. The Management
Company had a smaller preexisting investment in a predecessor and, prior to
the Merger, continued to hold a limited interest in the ongoing enterprise.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources - Investment in Benelux
Storage Operations."
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
<TABLE>
<S> <C>
Page No.
----------
Consolidated Balance Sheet at December 31, 1994 (Company) and
December 31, 1993 (Predecessor). 35
For the year ended December 31, 1994 (Company), the period
from January 1, 1994 to March 1, 1994 (Predecessor), the
years ended December 31, 1993 and 1992:
Consolidated Statements of Net Income 36
Consolidated Statements of Partners' and Shareholders' Equity 37
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 39-46
Independent Auditors' Report for the year ended December 31,
1994 (Company), the period from January 1, 1994 to March 1,
1994 (Predecessor), the years ended December 31, 1993 and 1994. 47
</TABLE>
2. Financial Statement Schedules
All schedules have been omitted because either they are not applicable
or the required information is shown in the financial statements.
3. Exhibits
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of December 19, 1994<F4>
3.1 Amended and Restated Certificate of Incorporation of the Registrant<F*>
3.2 Restated By-Laws of the Registrant<F1>
4.1 Rights Agreement between the Registrant and Gemisys Corporation dated
as of March 17, 1994<F2>
10.1 Advisory Agreement between Shurgard Storage Centers, Inc. and Shurgard
Incorporated dated as of March 1, 1994<F4>
10.2 Management Services Agreement between Shurgard Storage Centers, Inc.
and Shurgard Incorporated dated as of March 1, 1994<F4>
10.3 Loan Agreement among Shurgard Storage Centers, Inc., Seattle-First
National Bank, Key Bank of Washington and West One Bank dated August
19, 1994<F4>
10.4 Amended and Restated Loan Agreement between Nomura Asset Capital Corp.,
as Lender, and SSC Property Holdings, Inc., as Borrower, dated as of
June 8, 1994<F4>
10.5 Amended and Restated Collection Account and Servicing Agreement among
SSC Property Holdings, Inc., Pacific Mutual Life Insurance Company,
LaSalle National Bank and Nomura Asset Capital Corp. dated as of June
8, 1994<F4>
10.6 Revolving Loan Agreement among Shurgard Storage Centers, Inc., SSC
Acquisitions, Inc. and Normura Asset Capital Corp. dated as of December
23, 1994<F4>
10.7 Amended and Restated 1993 Stock Option Plan
10.8 Stock Option Plan for Nonemployee Directors <F3>
11.1 Statement regarding computation of pre share net income
21.1 Subsidiaries of the Registrant<F4>
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
<FN>
<F1> Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-4, Amendment No. 8 (Post-Effective
Amendment No. 4), filed with the Securities and Exchange Commission on
February 2, 1994.
<F2> Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on March 17, 1994.
<F3> Compensation Plan incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on March 8, 1994.
<F4> Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-4, Amendment No. 2, filed with the
Securities and Exchange Commission on February 8, 1995.
</FN>
</TABLE>
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the quarter ended
December 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Seattle, State of Washington, on the 29th day of March, 1995.
SHURGARD STORAGE CENTERS, INC.
By: /S/ HARRELL L. BECK
-----------------------------------
Harrell L. Beck
Senior Vice President, Treasurer,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed by the following
persons in the capacities indicated below on the 29th day of March, 1995.
Signature Title
-------------------- ----------------------------------------
/S/ CHARLES K. BARBO Chairman of the Board, President and Chief
--------------------- Executive Officer (Principal Executive Officer)
Charles K. Barbo
/S/ HARRELL L. BECK Senior Vice President, Treasurer,
--------------------- Chief Financial Officer and Director
Harrell L. Beck (Principal Financial and Accounting Officer)
/S/ DAN KOURKOUMELIS
--------------------- Director
Dan Kourkoumelis
/S/ DONALD W. LUSK
--------------------- Director
Donald W. Lusk
/S/ W.J. SMITH Director
---------------------
W.J. (Jim) Smith
<PAGE>
<TABLE>
Shurgard Storage Centers, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands except share data)
<CAPTION>
Predecessor Company
------------- ------------
December 31, December 31,
1993 1994
------------ ------------
<S> <C> <C>
Assets:
Storage centers:
Land $ 91,868 $ 88,532
Buildings and equipment, net 283,167 362,332
Construction in progress 532
------------ ------------
375,035 451,396
Other real estate investments 2,675 15,104
Cash and cash equivalents 9,057 13,162
Restricted cash 2,766
Other assets 7,215 12,162
------------ ------------
Total assets $ 393,982 $ 494,590
============ ============
Liabilities and Shareholders' Equity:
Accounts payable and other liabilities $ 9,925 $ 10,608
Accrued consolidation expenses 3,879
Lines of credit 4,190 42,000
Notes payable 21,826 125,137
------------ ------------
Total liabilities 39,820 177,745
------------ ------------
Commitments (Notes D and E)
Partners' equity (deficit):
Limited partners 354,787
General partners (625)
-----------
Total partners' equity 354,162
Shareholders' equity:
Class A common stock, $0.001 par value;
120,000,000 authorized; 16,829,283
shares issued and outstanding 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)
Retained earnings 497
-----------
Total shareholders' equity 316,845
------------ -----------
Total liabilities, shareholders'
and partners' equity $ 393,982 $ 494,590
=========== ===========
See notes to consolidated financial statements. Page 35
<PAGE>
</TABLE>
<TABLE>
Shurgard Storage Centers, Inc. and Subsidiaries
Consolidated Statements of Net Income
(in thousands except per share data)
<CAPTION>
Predecessor Company
---------------------------- --------
Period
Year Ended from Jan. 1 Year
December 31, 1994 to Ended
----------------- Mar. 1, Dec. 31,
1992 1993 1994 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Rental revenue $ 66,994 $ 72,217 $ 12,348 $ 66,697
Revenue from other
real estate investments 111 129 20 224
------- ------- ------- -------
67,105 72,346 12,368 66,921
------- ------- ------- -------
Operating expense 15,586 16,879 2,961 15,799
Management fees 4,145 4,695 733 4,046
Depreciation and amortization 13,557 13,923 2,390 11,373
Real estate taxes 7,067 7,066 1,170 5,840
General, administrative and other 2,359 2,390 1,232 2,502
------- ------- ------- -------
42,714 44,953 8,486 39,560
------- ------- ------- -------
Income from operations 24,391 27,393 3,882 27,361
------- ------- ------- -------
Interest and other income 317 590 188 745
Interest expense (2,347) (2,288) (487) (9,105)
Incentive management fees (5,340)
Gain on consolidation 48,223
Litigation, hostile takeover defense
and consolidation expenses (7,411) (12,180)
Other (306)
------- ------- ------- -------
(2,336) (9,109) 30,404 (8,360)
------- ------- ------- -------
Income before extraordinary item 22,055 18,284 34,286 19,001
Extraordinary item - loss on
retirement of debt (1,180)
------- ------- ------- -------
Net income $ 22,055 $ 18,284 $ 34,286 $ 17,821
======= ======= ======= =======
Net income per common and common equivalent share:
Income before extraordinary item $ 1.12
Extraordinary item - loss on
retirement of debt (0.07)
------- ------- ------- -------
Net income $ 1.05
=======
Net income per unit of limited
partnership interests $ 41.15 $ 34.11 $ 63.97
======== ======= ======== =======
Distributions per unit of limited
partnership interests $ 56.71 $ 59.57 $ 732.05
======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements. Page 36
<PAGE>
<TABLE>
Shurgard Storage Centers, Inc. and Subsidiaries
Consolidated Statements of Partners' and Shareholders' Equity
(in thousands except per share data)
<CAPTION>
Limited General
Predecessor Partners Partners Total
--------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1, 1992 $ 376,549 $ (426) $ 376,123
Distributions (30,092) (293) (30,385)
Earnings 21,835 221 22,056
---------- ---------- ----------
Balance, December 31, 1992 $ 368,292 $ (498) $ 367,794
Distributions (31,606) (310) (31,916)
Earnings 18,101 183 18,284
---------- ---------- ----------
Balance, December 31, 1993 $ 354,787 $ (625) $ 354,162
Distributions (388,432) (4,018) (392,450)
Contribution 4,002 4,002
Earnings 33,645 641 34,286
---------- ---------- ----------
Balance, March 1, 1994 $ --- $ --- $ ---
========== ========== ==========
</TABLE>
=============================================================================
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Loans to
---------------------- --------------------- Class B Retained
Shares Amount Shares Amount Shareholders Earnings Total
----------- ---------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 23, 1993
(inception) and Dec. 31,
1993 5 $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock 16,829,278 317,434 154,604 2,916 (4,002) 316,348
Net income 17,821 17,821
Dividends (17,324) (17,324)
---------- --------- --------- --------- --------- --------- ---------
Balance, Dec. 31, 1994 16,829,283 $317,434 154,604 $2,916 $(4,002) $497 $316,845
========== ========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements Page 37
<PAGE>
<TABLE>
Shurgard Storage Centers, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(in thousands)
<CAPTION>
Predecessor Company
----------------------------------- ---------
Period
from
Year Ended Jan. 1 Year
December 31, 1994 to Ended
--------------------- Mar. 1, Dec. 31,
1992 1993 1994 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 22,055 $ 18,284 $ 34,286 $ 17,821
Adjustments to reconcile earnings
to net cash by operating activities:
Depreciation and amortization 13,557 13,923 2,390 11,373
Gain on consolidation (48,223)
Loss on retirement of debt 1,180
Loss on condemnation 306
Earnings in excess of distributions
from joint venture (20) (149)
Amortization of discount on note payable 19
Changes in operating accounts:
Restricted cash (2,766)
Other assets (431) (2,594) 2,675 (1,196)
Accounts payable and other liabilities (694) 1,557 (2,391) 3,027
Accrued consolidation expense 3,879 16,399
---------- --------- --------- ---------
Net cash provided by operating
activities 34,793 35,049 5,116 29,309
---------- --------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of real estate
and equipment 64,120
Purchase of real estate investments (12,534)
Distributions in excess of earnings
from joint venture 224 306
Acquisition of and improvements
to storage centers (5,364) (5,888) (1,158) (102,635)
---------- --------- --------- ---------
Net cash (used in) provided by
investing activities (5,140) (5,582) 62,962 (115,169)
---------- --------- --------- ---------
FINANCING ACTIVITIES:
Dividends or distributions paid (30,384) (31,916) (764) (17,324)
Proceeds from lines of credit 2,620 680 42,000
Proceeds from notes payable 2,125 350 227,180
Payment of financing costs (26) (4) (8,718)
Payment of assumed consolidation
liabilities (14,946)
Principal payments on notes payable (2,756) (969) (855) (129,171)
---------- --------- --------- ---------
Net cash (used in) provided by
financing activities (31,041) (30,269) (589) 99,021
---------- --------- --------- ---------
(Decrease) increase in cash and
cash equivalents (1,388) (802) 67,489 13,161
Cash and cash equivalents at
beginning of period 11,247 9,859 9,057 1
---------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 9,859 $ 9,057 $ 76,546 $ 13,162
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements Page 38
<PAGE>
Shurgard Storage Centers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Year Ended December 31, 1994
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. The Company intends to
qualify as a real estate investment trust (REIT) as defined in Section 856 of
the Internal Revenue Code.
On March 1, 1994 (Acquisition Date), the Company completed the acquisition of
17 publicly-held limited partnerships (the Predecessor, Note O) administered
by Shurgard Incorporated (the Management Company) as a means for assembling
an initial portfolio of real estate investments (Note F).
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.,
and Capitol Hill Partners. SSC Property Holdings, Inc. was established as a
wholly-owned subsidiary to hold all storage centers which secure certain
notes (Note H). SSC Acquisitions, Inc. was established as a wholly owned
subsidiary to hold all storage centers which secure a line of credit (Note
G). 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 the Acquisition Date, the
Company was inactive.
The accompanying combined financial statements as of December 31, 1993 and
for the years ended December 31, 1992 and 1993, and for the period from
January 1, 1994 to March 1, 1994 represent the Predecessor's combined
financial position, results of operations and cash flows through the
Acquisition Date. The Predecessor financial statements are not comparable in
all material respects with financial statements of the Company. The most
significant differences relate to (1) the Company's lower original cost of
storage centers and related depreciation resulting from the use of the
purchase method of accounting and (2) higher debt and related interest
expense as a result of certain limited partners electing to take a cash
payment in lieu of the Company's common stock at the Acquisition Date.
Certain amounts in the Predecessor financial statements have been
reclassified to conform to the current year Company presentation.
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.
OTHER REAL ESTATE INVESTMENTS: The Company consolidates the accounts of
those joint ventures in which the Company has effective control as evidenced
by, among other factors, a majority interest in the investment and the
ability to cause a sale of investment assets. Minority interest of $470,000
is included in other liabilities at December 31, 1994. All other investments
in joint ventures are accounted for on the equity method. Investments
accounted for on the equity method include a 67% interest in Shurgard-Freeman
Medical Center Joint Venture, a 50% interest in Shurgard Freeman Hermitage
Joint Venture and a 30% interest in Shurgard Joint Partners II.
Participating mortgages are accounted for as loans (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: To qualify as a REIT, the Company must distribute
annually at least 95% of its taxable income and meet certain other
requirements. Additionally, as a REIT, it will not be subject to federal
income taxes to the extent of dividends. The Company intends to make
elections regarding dividends such that it will not pay federal taxes for
1994 and, as a result, no provision for federal income taxes has been made in
the Company's financial statements.
The financial statements of the Predecessor do not reflect a provision for
federal income taxes because such taxes were the responsibility of the
individual partners.
REVENUE RECOGNITION: Revenue is recognized when earned under accrual
accounting principles.
GAIN ON CONSOLIDATION: Gain on consolidation is calculated as the excess of
the purchase price paid by the Company over the book value of the net assets
of the Predecessor on the Acquisition Date.
NET INCOME PER SHARE: Net income per share is calculated based on the
weighted average shares outstanding during the periods presented.
(16,983,887 shares for the year ended December 31, 1994.)
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST: Earnings per unit of
limited partnership interest of the Predecessor is based on total earnings
allocated to the limited partners divided by the total number of $1,000
limited partnership units outstanding during the year (530,607 units for the
years ended December 31, 1991, 1992 and 1993 and the period ended March 1,
1994).
DISTRIBUTIONS PER UNIT OF LIMITED PARTNERSHIP INTEREST: Distributions per
unit of limited partnership interest of the Predecessor is based on the total
amount distributed to the limited partners divided by the total number of
$1,000 limited partnership units outstanding during the year (530,607 units
for the years ended December 31, 1991, 1992 and 1993 and the period ended
March 1, 1994).
FINANCIAL INSTRUMENTS: The carrying values reflected in the balance sheet at
December 31, 1994, reasonably approximate the fair value of cash and cash
equivalents and other assets. The Company estimates that the fair value of
its notes from shareholders is $2.2 million. Based on the borrowing rates
currently available to the Company for bank loans with similar terms and
average maturities, the fair value of fixed rate long-term debt is estimated
to be $117.1 million.
Note C _ Advisory and Management Agreements
The Company has entered into advisory and management agreements under which
the Management Company 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 F), 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. For the year ended December 31, 1994,
$3,987,000 was paid under the property management agreement and $59,000 was
paid under the advisory agreement.
In connection with the management of storage centers, the Predecessor paid to
the Management Company a property management fee of 6% of rental revenues.
Incentive management fees were paid by two of the partnerships included in
the Predecessor. These incentive fees were based on the amount of
distributions to partners at 8% and 25% depending on the cumulative amount of
distributions to Limited partners. No comparable fee is paid by the Company.
Note D - Storage Centers
Storage centers consist of the following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
------------ ------------
Dec. 31, 1993 Dec. 31, 1994
------------ ------------
<S> <C> <C>
Land $ 91,868 $ 88,532
Buildings 363,918 368,593
Equipment 13,612 5,123
------------ ------------
469,398 462,248
Less accumulated depreciation (94,363) (11,384)
------------ ------------
375,035 450,864
Construction in progress 532
------------ ------------
$ 375,035 $ 451,396
============ ============
</TABLE>
The Company has entered into two construction contracts for improvements to
current facilities. Outstanding commitments under these contracts total
$435,000.
Note E - Other real estate investments
Other real estate investments consist of the following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
------------ ------------
Dec. 31, 1993 Dec. 31, 1994
------------ ------------
<S> <C> <C>
Investments in joint ventures $ 2,675 $ 3,804
Investments in participating
mortgages 11,300
------------ ------------
$ 2,675 $ 15,104
============ ============
</TABLE>
The Company has entered into three joint ventures with three partnerships,
formed by a storage operator and developer, to develop three properties in
the Nashville, Tennessee metropolitan area. The Hermitage and Medical Center
storage facilities are expected to open in early 1995 and the Franklin Center
is expected to open in late 1995. The following is a summary of each
investment and the amounts of any construction loan guarantees which
represent the Company's pro rata portion of each joint venture's debt.
<TABLE>
<CAPTION>
Net
Rentable Total Joint
Project Square Investment Amount Investment Venture Loan
Name Feet Date Invested Committed Interest Guarantee
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hermitage 67,700 July 1994 $ 640,000 $ 640,000 50.0% $1,110,700
Medical
Center 59,700 Nov. 1994 600,000 600,000 67.0% 833,500
Franklin 55,000 Jan. 1995 962,000 2,500,000 91.2% ---
</TABLE>
The Company holds a 30% interest in Shurgard Joint Partners II, a limited
partnership which owns four storage centers and was sponsored by the
Management Company.
On December 14, 1994, the Company paid approximately $11.3 million and
committed an additional $1.7 million for investment in two 10-year
participating mortgage loans, which are nonrecourse to the borrower and are
secured by real estate, including four storage centers and office/warehouse
space. The Company will receive interest at 8% per annum plus 50% of both
operating cash flow and distributions from the sale of real property. The
Company has options to purchase the properties at established prices,
generally exercisable in five years and extending until maturity of the
loans.
During 1994, the Company formed a wholly owned subsidiary, SSC Benelux, Inc.,
which, through a Belgian partnership with the Management Company and European
Self Storage, will invest in storage centers in the Benelux region of Europe.
The Company has committed to invest up to $5.7 million in the venture and,
subsequent to year end, the Company invested $2.4 million through its
subsidiary SSC Benelux, Inc.
Note F - Acquisitions
On March 1, 1994, the Company acquired the assets, subject to existing
liabilities, of the Predecessor for a cost of $387 million. A summary of the
assets and liabilities assumed in this transaction are as follows (in
thousands):
<TABLE>
<S> <C>
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)
-----------
Total consideration $ 387,416
===========
</TABLE>
The acquisition was funded by the issuance of 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 and cash equivalents. 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 interests in two joint ventures owning an
additional five storage centers. In 1994, the purchase price was increased
$1,200,000 for estimated additional costs related to the Acquisition.
The following unaudited pro forma statements of income represent 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.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1993 1994
----------- ------------
(in thousands)
<S> <C> <C>
Revenues $ 72,900 $ 80,160
Expenses:
Operating 16,840 18,762
Property management fees 4,317 4,787
Depreciation and amortization 12,887 13,519
Real estate taxes 7,068 7,007
Interest 10,303 11,222
General, administrative and other 2,390 2,946
------------ -----------
53,805 58,243
------------ -----------
Income before extraordinary item $ 19,095 $ 21,917
============ ===========
</TABLE>
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
$3 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 on September 1, 1994 was estimated to be
$917,000.
Note G _ Lines of Credit
In August 1994, 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 on each draw at either the banks'
prime rate or LIBOR plus 200 basis points and can be fixed for various
periods at the Company's option. Of the $42 million outstanding on this
credit facility, $30 million accrues interest at 7.33% through March 1, 1995
and $12 million accrues interest at 8.89% through June 8, 1995. The
commitment fee for the original two-year period was $375,000. Upon the
expiration of the original two-year period, for an additional fee of 37.5
basis points of the amount outstanding, the Company may extend any
outstanding balance for a one year term.
In December 1994, the Company established a second $50 million two-year
revolving credit facility with Nomura Asset Capital Corporation, a subsidiary
of Nomura Securities International, Inc. This credit facility is secured by
real estate, bears interest at LIBOR plus 175 basis points, and requires a
draw fee equal to 25 basis points of the amount drawn. The Company paid a
$500,000 commitment fee related to this loan.
The loan agreements related to the lines of credit provide for certain
restrictive covenants based on net worth and cash flow. The actual amount
available on these credit facilities is a function of the quarterly
performance of the secured properties and the quarterly interest rate.
The Predecessor had various lines of credit totaling $5,675,000, secured by
real estate, that bore interest at .5% above prime due monthly. The lines of
credit were assumed by the Company and subsequently refinanced.
Note H _ Notes Payable
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
------------- -------------
Dec. 31, 1993 Dec. 31, 1994
------------- -------------
<S> <C> <C>
Note payable to financial services company $ $ 122,580
Mortgage notes payable 21,658 1,467
Other notes payable 168 1,090
------------- -------------
$ 21,826 $ 125,137
============= =============
</TABLE>
On June 9, 1994, the Company refinanced substantially all of its existing
debt through a debt purchase transaction with a financial services company.
The $122.58 million loan provides the Company with funds for seven years at a
fixed rate equal to 8.28%, requires monthly payments of interest only until
maturity and is secured by the 88 properties owned by SSC Property Holdings,
Inc. 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 has deposited cash in restricted accounts to fund
certain expenses including real estate taxes and insurance.
The mortgage note is secured by a deed of trust on a storage center. It is
due in monthly installments of $13,441, including principal 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.
The Predecessor had $21,658,000 of notes payable secured by real estate, on
which interest ranged from 5.96% to 11%. All except approximately $1.5
million of this debt was either repaid on the Acquisition Date or assumed and
subsequently refinanced by the Company.
Note I - Shareholders' Equity
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 2000 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. In January
1995, the Board of Directors declared a dividend of $0.44 per common share.
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 December 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 J - 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 December 31, 1994,
options for 8,000 shares had been granted under the Plan at an exercise price
of $18.90 per share.
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
December 31, 1994, options for 1,200 shares had been granted under the
Nonemployee Plan at an exercise price of the average market price of $22.93
per share.
Note K _ 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 Company's earnings.
Note L _ Supplemental cash flow information
<TABLE>
<CAPTION>
Predecessor Company
----------------------------- --------
Period
from
Year ended Jan. 1, Year
December 31, 1994 to Ended
------------------ Mar. 1, Dec. 31,
1992 1993 1994 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash paid during the period
for interest $ 2,349 $ 2,288 $ 487 $ 8,829
========= ========= ========= =========
Liabilities incurred in connection
with the construction of
storage centers $ 973 $ 206 $ --- $ ---
========= ========= ========= =========
</TABLE>
Note M _ Supplemental quarterly financial data (unaudited)
<TABLE>
<CAPTION>
Period
Three months ended from
------------------------------------------ Jan. 1 to
March 31, June 30, Sept. 30, Dec. 31, March 1,
Predecessor: 1993 1993 1993 1993 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 17,309 $ 18,169 $ 19,239 $ 17,629 $ 60,571
======== ======== ======== ======== ========
Income from
operations $ 6,135 $ 6,998 $ 7,333 $ 6,927 $ 3,882
======== ======== ======== ======== ========
Net income (loss) $ 5,632 $ 6,472 $ 6,840 $ (660) $ 34,286
======== ======== ======== ======== ========
Net income (loss)
per unit of
limited partner-
ship interest $ 10.50 $ 12.07 $ 12.75 $ (1.24) $ 63.97
======== ========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------
March 31, June 30, Sept. 30, Dec.31,
1994 1994 1994 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 6,164 $ 19,131 $ 20,515 $ 21,111
========== ========= ========= =========
Income from operations $ 2,852 $ 7,702 $ 8,584 $ 8,223
========== ======== ======== =========
Net income before
extraordinary item $ 2,230 $ 5,563 $ 6,004 $ 5,204
Extraordinary item - loss on
retirement of debt (Note H) (1,180)
---------- -------- -------- ---------
Net income $ 2,230 $ 4,383 $ 6,004 $ 5,204
========== ======== ======== =========
Per common share:
Net income before
extraordinary item $ 0.13 $ 0.33 $ 0.35 $ 0.31
========== ========= ========= =========
Company operating information for the quarter ended March 31, 1994 reflects
only one month of operating results.
Note N _ Merger of Management Company
In December 1994, the Board of Directors executed a Merger Agreement with the
Management Company in order to become self-administered and self-advised. At
a special meeting on March 21, 1995, the stockholders voted to approve the
Merger with the Management Company. On March 24, 1995, the Company issued
1,266,837 new shares of Class A common stock to the shareholders of the
Management Company pursuant to this merger, subject to certain adjustments
and an audit of the Management Company's final balance sheet. 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.
Note O - Predecessor
The combined financial statements of the Predecessor include the accounts of
the partnerships listed below as of December 31, 1993 and for the years ended
December 31, 1993 and 1992, except for Shurgard Income Properties II, III,
and IV, each of which are as of their fiscal years ended September 30, 1993
and 1992.
Shurgard Mini-Storage Limited Partnership I
Shurgard Income Properties II
Shurgard Income Properties III, a Real Estate Limited Partnership
Shurgard Income Properties VI, a Real Estate Limited Partnership
Shurgard Income Properties Five, a Real Estate Limited Partnership
Shurgard Income Properties Six, a Real Estate Limited Partnership
Shurgard Income Properties Seven, a Real Estate Limited Partnership
Shurgard Income Properties Eight, a Real Estate Limited Partnership
Shurgard Income Properties Nine, a Real Estate Limited Partnership
Shurgard Income Properties Ten, a Real Estate Limited Partnership
Shurgard Income Properties Eleven, a Real Estate Limited Partnership
Shurgard Income Properties Twelve, a Real Estate Limited Partnership
Shurgard Income Properties - Fund 14 Limited Partnership
Shurgard Growth Capital - Fund 15 Limited Partnership
Shurgard Income Properties - Fund 16 Limited Partnership
Shurgard Growth Capital - Fund 17 Limited Partnership
Shurgard Income Properties - Fund 18 Limited Partnership
<PAGE>
Independent Auditors' Report
Board of Directors
Shurgard Storage Centers, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheet of Shurgard
Storage Centers, Inc., and subsidiaries (the Company) as of December 31,
1994, and the related consolidated statements of income, shareholders'
equity, and cash flows for the year ended December 31, 1994. We have also
audited the combined balance sheet of the 17 limited partnerships (the
Predecessor) described in Note A, as of December 31, 1993 and the related
combined statements of income, cash flows and partners' equity (deficit) for the
period from January 1, 1994 to March 1, 1994 and for the years ended December
31, 1992 and 1993. These financial statements are the responsibility of the
Company's and Predecessor's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements of the Company and the
combined financial statements of the Predecessor present fairly, in all
material respects, the financial position of the Company as of December 31,
1994, the results of its operations and its cash flows for the year ended
December 31, 1994, the financial position of the Predecessor as of December
31, 1993 and its operations and its cash flows for the period from January 1,
1994 to March 1, 1994 and for the years ended December 31, 1992 and 1993 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
February 9, 1995 (March 24, 1995 as to Notes E and N)
</TABLE>
Shurgard Storage Centers, Inc.
AMENDED AND RESTATED 199393 STOCK OPTION PLAN
Section 1. Purpose
The purpose of the 1993 Stock Option Plan (this "Plan")
is to provide a means whereby selected employees, directors
and officers of Shurgard Storage Centers, Inc. (the
"Company"), or of any wholly-owned subsidiary (as defined in
subsection 5.8 and referred to hereinafter as "related
corporations") thereof, may be granted options to purchase the
Common Stock (as defined in Section 3) of the Company, in
order to attract and retain the services or advice of such
employees, directors and officers and to provide added
incentive to such persons by encouraging stock ownership in
the Company.
Section 2. Administration
This Plan shall be administered by the Board of Directors
of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee to administer this Plan,
by such committee. The administrator of this Plan shall
hereinafter be referred to as the "Plan Administrator."
In the event a member of the Board (or the committee) may
be eligible, subject to the restrictions set forth in
Section 4, to participate in or receive or hold options under
this Plan, no member of the Board or the committee shall vote
with respect to the granting of an option hereunder to himself
or herself, as the case may be, and, if state corporate law
does not permit a committee to grant options to directors,
then any option granted under this Plan to a director for his
or her services as such shall be approved by the full Board.
The members of any committee serving as Plan
Administrator shall be appointed by the Board for such term as
the Board may determine. The Board may from time to time
remove members from, or add members to, the committee.
Vacancies on the committee, however caused, may be filled by
the Board.
With respect to grants made under this Plan to officers
and directors of the Company who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Plan Administrator shall be constituted at all
times so as to meet the requirements of Rule 16b-3 promulgated
under Section 16(b) of the Exchange Act if any of the
Company's equity securities are registered pursuant to
Section 12(b) or 12(g) of the Exchange Act.
Except for the terms and conditions explicitly set forth
in this Plan, the Plan Administrator shall have the authority,
in its discretion, to determine all matters relating to the
options to be granted under this Plan, including selection of
the individuals to be granted options, the number of shares to
be subject to each option, the exercise price and all other
terms and conditions of the options. Grants under this Plan
need not be identical in any respect, even when made
simultaneously. The interpretation and construction by the
Plan Administrator of any terms or provisions of this Plan or
any option issued hereunder, or of any rule or regulation
promulgated in connection herewith, shall be conclusive and
binding on all interested parties, so long as such
interpretation and construction with respect to incentive
stock options correspond to the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"),
the regulations thereunder and any amendments thereto.
Section 3. Stock Subject to This Plan
The stock subject to this Plan shall be the Company's
Class A Common Stock, par value $.001 per share (the "Common
Stock"), presently authorized but unissued or now held or
subsequently acquired by the Company as treasury shares.
Subject to adjustment as provided in Section 7, for each
calendar year from and including 1995 a number of shares of
Common Stock equal to an amount of up to 3% of the adjusted
average common shares outstanding of the Company used to
calculate fully diluted earnings per share as reported in the
Annual Report to stockholders for the preceding year shall
become available for issuance under this Plan; provided, that
for the calendar year 1994, the number of shares available for
issuance under this Plan shall be 3% of that number of shares
outstanding upon the closing of the consolidating transaction
among up to 17 limited partnerships sponsored by Shurgard
Incorporated as described in the Registration Statement on
Form S-4 (No. 33-57794) filed with the Securities and Exchange
Commission on February 2, 1993, as amended (the "Registration
Statement"). In addition, any shares of Common Stock
available for issuance under this Plan in previous years but
not actually issued, shall be added to the aggregate number of
shares of Common Stock available for issuance in that calendar
year under this Plan. In no event, however, except as subject
to adjustment as provided in Section 7, shall more than
5,000,000 shares of Common Stock be cumulatively available for
issuance pursuant to the exercise of stock options awarded
under this Plan, including incentive stock options ("ISOs").
If any option granted under this Plan shall expire or be
surrendered, exchanged for another option, cancelled or
terminated for any reason without having been exercised in
full, the unpurchased shares subject thereto shall thereupon
again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for such
expired, surrendered, exchanged, cancelled or terminated
options.
Section 4. Eligibility
An ISO may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or
any related corporation that qualifies under the Code. A
nonqualified stock option may be granted to any employee,
director or officer of the Company or any related corporation.
Any party to whom an option is granted under this Plan shall
be referred to hereinafter as an "Optionee."
Section 5. Terms and Conditions of Options
Options granted under this Plan shall be evidenced by
written agreements which shall contain such terms, conditions,
limitations and restrictions as the Plan Administrator shall
deem advisable and which are not inconsistent with this Plan.
Notwithstanding the foregoing, options shall include or
incorporate by reference the following terms and conditions:
5.1 Number of Shares and Price
The maximum number of shares that may be purchased
pursuant to the exercise of each option and the price per
share at which such option is exercisable (the "exercise
price") shall be as established by the Plan Administrator;
provided that the Plan Administrator shall act in good faith
to establish an exercise price which shall be not less than
the fair market value per share of the Common Stock at the
time the option is granted; and provided, further, that the
exercise price shall in no case be less than the par value per
share of the Common Stock at the time the option is granted;
and provided, further, that, with respect to stock options
granted to greater than 10% stockholders, the exercise price
shall be as required by subsection 6.1.
5.2 Term and Maturity
Subject to the restrictions contained in Section 6 with
respect to granting ISOs to greater than 10% stockholders, the
term of each stock option shall be as established by the Plan
Administrator and, if not so established, shall be 10 years
from the date it is granted but in no event shall it exceed 10
years. To ensure that the Company or related corporation will
achieve the purpose and receive the benefits contemplated in
this Plan, any option granted to any Optionee hereunder shall,
unless the condition of this sentence is waived or modified in
the agreement evidencing the option or by resolution adopted
at any time by the Plan Administrator to provide for more
rapid vesting, be exercisable according to the following
schedule:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option
the Option Is Granted Which Is Exercisable
--------------------------- -----------------------
after one year 20%
after two years 40%
after three years 60%
after four years 80%
after five years 100%
5.3 Exercise
Subject to the vesting schedule described in
subsection 5.2, each option may be exercised in whole or in
part at any time and from time to time; provided, however,
that no fewer than 100 shares (or the remaining shares then
purchasable under the option, if less than 100 shares) may be
purchased upon any exercise of option rights hereunder and
that only whole shares will be issued pursuant to the exercise
of any option and that the exercise price shall not be less
than the par value per share of the Common Stock at the time
the option is exercised. During an Optionee's lifetime, any
options granted under this Plan are personal to him or her and
are exercisable solely by such Optionee. Options shall be
exercised by delivery to the Company of notice of the number
of shares with respect to which the option is exercised,
together with payment of the exercise price.
5.4 Payment of Exercise Price
Payment of the option exercise price shall be made in
full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified
or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case
determines not to accept a personal check) for the Common
Stock being purchased.
The Plan Administrator can determine at any time before
exercise that additional forms of payment will be permitted.
To the extent permitted by the Plan Administrator and
applicable laws and regulations (including, but not limited
to, federal tax and securities laws and regulations and state
corporate law) in the option grant agreement or at any time
before exercise, an option may be exercised by:
(a) delivery of shares of stock of the Company held
by an Optionee having a fair market value equal to the
exercise price, such fair market value to be determined in
good faith by the Plan Administrator; provided, however, that
payment in stock held by an Optionee shall not be made unless
the stock shall have been owned by the Optionee for a period
of at least six months;
(b) delivery of a full-recourse promissory note
executed by the Optionee in an amount which shall not exceed
that portion of the exercise price which is in excess of the
amount determined to be stated capital pursuant to Section 154
of the Delaware General Corporation Law; provided that
(i) such note delivered in connection with an ISO shall, and
such note delivered in connection with a nonqualified stock
option may, in the sole discretion of the Plan Administrator,
bear interest at a rate specified by the Plan Administrator,
but in no case less than the rate required to avoid imputation
of interest (taking into account any exceptions to the imputed
interest rules) for federal income tax purposes, and (ii) the
Plan Administrator in its sole discretion shall specify the
term and other provisions of such note at the time an ISO is
granted or at any time prior to exercise of a nonqualified
stock option, and (iii) the Plan Administrator may require
that the Optionee pledge the Optionee's shares to the Company
for the purpose of securing the payment of such note and may
require that the certificate representing such shares be held
in escrow in order to perfect the Company's security interest,
and (iv) the Plan Administrator in its sole discretion may at
any time restrict or rescind this right upon notification to
the Optionee; or
(c) delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker,
all in accordance with the regulations of the Federal Reserve
Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal,
state or local withholding tax obligations that may arise in
connection with the exercise.
5.5 Withholding Tax Requirement
The Company or any related corporation shall have the
right to retain and withhold from any payment of cash or
Common Stock under this Plan the amount of taxes required by
any government to be withheld or otherwise deducted and paid
with respect to such payment. At its discretion, the Company
may require an Optionee receiving shares of Common Stock to
reimburse the Company for any such taxes required to be
withheld by the Company and withhold any distribution in whole
or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any
other cash amounts due or to become due from the Company to
the Optionee an amount equal to such taxes. The Company may
also retain and withhold or the Optionee may elect, subject to
approval by the Company at its sole discretion, to have the
Company retain and withhold a number of shares having a market
value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such
taxes and cancel (in whole or in part) any such shares so
withheld. In order to qualify such election for exemption
under Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, any election made by an officer or director who
is subject to Section 16 of the Exchange Act must be an
irrevocable election made six months prior to the date the
option exercise becomes taxable or such irrevocable election
must become effective during the quarterly 10-day window
period required under Section 16(b) of the Exchange Act for
exercises of stock appreciation rights.
5.6 Holding Periods
If a director or officer subject to Section 16 of the
Exchange Act sells shares of Common Stock obtained upon the
exercise of a stock option within six months after the date
the option was granted, the option grant will no longer be
exempt from Section 16(b) and will retroactively be deemed a
nonexempt purchase as of the date of the option grant.
5.7 Nontransferability of Options
Options granted under this Plan and the rights and
privileges conferred hereby may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of
law or otherwise) other than by will or by the applicable laws
of descent and distribution and shall not be subject to
execution, attachment or similar process. Any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of
any option under this Plan or of any right or privilege
conferred hereby, contrary to the Code or to the provisions of
this Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby shall
be null and void. Notwithstanding the foregoing, if the
Company permits, an Optionee may, during the Optionee's
lifetime, designate a person who may exercise the option after
the Optionee's death by giving written notice of such
designation to the Plan Administrator. Such designation may
be changed from time to time by the Optionee by giving written
notice to the Plan Administrator revoking any earlier
designation and making a new designation.
5.8 Termination of Relationship
If the Optionee's relationship with the Company or any
related corporation ceases for any reason other than
termination for death or total disability, and unless by its
terms the option sooner terminates or expires, then the
Optionee may exercise, for a three-month period, that portion
of the Optionee's option which is exercisable at the time of
such cessation, but the Optionee's option shall terminate at
the end of such period following such cessation as to all
shares for which it has not theretofore been exercised, unless
such provision is waived in the agreement evidencing the
option. In no event shall an Optionee have a period of less
than thirty days within which to exercise the option, unless
by its terms it sooner expires. At any time prior to the
expiration of the option, the Plan Administrator shall have
sole discretion in a particular circumstance to extend the
exercise period following such cessation to any date up to the
termination or expiration of the option. If, however, in the
case of an ISO, the Optionee does not exercise the Optionee's
option within three months after cessation of employment, the
option will no longer qualify as an ISO under the Code.
If an Optionee's relationship with the Company or any
related corporation ceases because of a total disability, the
Optionee's option shall not terminate or, in the case of an
ISO, cease to be treated as an ISO until the end of the 12-
month period following such cessation (unless by its terms it
sooner terminates and expires). As used in this Plan, the
term "total disability" refers to a mental or physical
impairment of the Optionee which is expected to result in
death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the
Optionee to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the
Company and to be engaged in any substantial gainful activity.
Total disability shall be deemed to have occurred on the first
day after the Company and the two independent physicians have
furnished their opinion of total disability to the Plan
Administrator.
Options granted under this Plan shall not be affected by
any change of relationship with the Company so long as the
Optionee continues to be an employee, director or officer of
the Company or of a related corporation. The Plan
Administrator, in its absolute discretion, may determine all
questions of whether particular leaves of absence constitute a
termination of services; provided, however, that with respect
to ISOs, such determination shall be subject to any
requirements contained in the Code. The foregoing
notwithstanding, with respect to ISOs, employment shall not be
deemed to continue beyond the first 90 days of such leave,
unless the Optionee's reemployment rights are guaranteed by
statute or by contract.
5.9 Death of Optionee
If an Optionee dies while he or she has a relationship
with the Company or any related corporation or within the
three-month period (or 12-month period in the case of totally
disabled Optionees) following cessation of such relationship,
any option held by such Optionee to the extent that the
Optionee would have been entitled to exercise such option, may
be exercised within one year after his or her death by the
personal representative of his or her estate or by the person
or persons to whom the Optionee's rights under the option
shall pass by will or by the applicable laws of descent and
distribution.
5.10 No Status as Stockholder
Neither the Optionee nor any party to which the
Optionee's rights and privileges under the option may pass
shall be, or have any of the rights or privileges of, a
stockholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this
Plan unless and until such option has been exercised;
provided, however, that the Company shall make annual
financial statements available to the Optionee.
5.11 Continuation of Relationship
Nothing in this Plan or in any option granted pursuant to
this Plan shall confer upon any Optionee any right to continue
in the employ or other relationship of the Company or of a
related corporation, or to interfere in any way with the right
of the Company or of any such related corporation to terminate
his or her employment or other relationship with the Company
or any related corporation at any time.
5.12 Modification and Amendment of Option
Subject to the requirements of Code Section 422 with
respect to ISOs and to the terms and conditions and within the
limitations of this Plan, the Plan Administrator may modify or
amend outstanding options granted under this Plan. The
modification or amendment of an outstanding option shall not,
without the consent of the Optionee, impair or diminish any of
his or her rights or any of the obligations of the Company
under such option. Except as otherwise provided in this Plan,
no outstanding option shall be terminated without the consent
of the Optionee. Unless the Optionee agrees otherwise, any
amendments to this Plan or any changes or adjustments made to
outstanding ISOs granted under this Plan shall be made in such
a manner so as not to constitute a "modification" as defined
in Code Section 425(h) and so as not to cause any ISO issued
hereunder to fail to continue to qualify as an ISO as defined
in Code Section 422(b).
5.13 Limitation on Value for ISOs
As to all ISOs granted under the terms of this Plan, to
the extent that the aggregate fair market value of the stock
(determined at the time the ISO is granted) with respect to
which ISOs are exercisable for the first time by the Optionee
during any calendar year (under this Plan and all other ISO
plans of the Company, a related corporation or a predecessor
corporation) exceeds $100,000, such options shall be treated
as nonqualified stock options. The previous sentence shall
not apply if the Internal Revenue Service issues a public
rule, issues a private ruling to the Company, any Optionee or
any legatee, personal representative or distributee of an
Optionee or issues regulations changing or eliminating such
annual limit.
Section 6. Greater Than 10% Stockholders
6.1 Exercise Price and Term of Stock Options
If stock options are granted under this Plan to employees
who own more than 10% of the total combined voting power of
all classes of stock of the Company or any related
corporation, the term of ISOs granted to such persons shall
not exceed five years and the exercise price of ISOs and
nonqualified stock options shall be not less than 110% of the
fair market value of the Common Stock at the time the stock
option is granted. This provision shall control
notwithstanding any contrary terms contained in an option
agreement or any other document.
6.2 Attribution Rule
For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the stock owned,
directly or indirectly, by or for his or her brothers,
sisters, spouse, ancestors and lineal descendants. Stock
owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or
beneficiaries. If an employee or a person related to the
employee owns an unexercised option or warrant to purchase
stock of the Company, the stock subject to that portion of the
option or warrant which is unexercised shall not be counted in
determining stock ownership. For purposes of this Section 6,
stock owned by an employee shall include all stock actually
issued and outstanding immediately before the grant of the ISO
to the employee.
Section 7. Adjustments Upon Changes in Capitalization
The aggregate number and class of shares for which
options may be granted under this Plan, the number and class
of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each
such option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment or the
payment of any stock dividend.
7.1 Effect of Liquidation or Reorganization
7.1.1 Cash, Stock or Other Property for Stock
Except as provided in subsection 7.1.2, upon a merger
(other than a merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization
(other than a mere reincorporation or the creation of a
holding company) or liquidation of the Company, as a result of
which the stockholders of the Company receive cash, stock or
other property in exchange for or in connection with their
shares of Common Stock, any option granted hereunder shall
terminate, but the Optionee shall have the right immediately
prior to any such merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation
to exercise such Optionee's option in whole or in part whether
or not the vesting requirements set forth in the option
agreement have been satisfied.
7.1.2 Conversion of Options on Stock for Stock
Exchange
If the stockholders of the Company receive capital stock
of another corporation ("Exchange Stock") in exchange for
their shares of Common Stock in any transaction involving a
merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have
the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation or
reorganization (other than a mere reincorporation or the
creation of a holding company), all options granted hereunder
shall be converted into options to purchase shares of Exchange
Stock unless the Company and the corporation issuing the
Exchange Stock, in their sole discretion, determine that any
or all such options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead
shall terminate in accordance with the provisions of
subsection 7.1.1. The amount and price of converted options
shall be determined by adjusting the amount and price of the
options granted hereunder in the same proportion as used for
determining the number of shares of Exchange Stock the holders
of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or
reorganization. The converted options shall be fully vested
whether or not the vesting requirements set forth in the
option agreement have been satisfied.
7.2 Fractional Shares
In the event of any adjustment in the number of shares
covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option
shall cover only the number of full shares resulting from such
adjustment.
7.3 Determination of Board to Be Final
All Section 7 adjustments shall be made by the Board, and
its determination as to what adjustments shall be made, and
the extent thereof, shall be final, binding and conclusive.
Section 8. Securities Regulation
Shares shall not be issued with respect to an option
granted under this Plan unless the exercise of such option and
the issuance and delivery of such shares pursuant thereto
shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration
for the issuance and sale of any shares hereunder. Inability
of the Company to obtain from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to
be necessary for the lawful issuance and sale of any shares
hereunder or the unavailability of an exemption from
registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained. THIS PROVISION SHALL
NOT OBLIGATE THE COMPANY TO UNDERTAKE OR MAINTAIN REGISTRATION
OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same
class as the stock subject to options granted hereunder be
listed on a national securities exchange, all stock issued
hereunder if not previously listed on such exchange shall be
authorized by that exchange for listing thereon prior to the
issuance thereof.
Section 9. Amendment and Termination
9.1 Board Action
To the extent required by applicable law or regulation,
the Plan Administrator and the Board may not amend this Plan
without the approval of the stockholders of the Company,
including any amendment which would (a) materially increase
the number of securities that may be issued under the Plan to
Insider Participants; (b) materially modify the requirements
as to eligibility for participation in the Plan to add a class
of Insider Participants; or (c) otherwise materially increase
the benefits accruing under the Plan to Insider Participants;
provided, however, that any increase in the number of shares
available under this Plan for grant as ISOs and any change in
the designation of the group of employees eligible to receive
ISOs under this Plan shall be subject to stockholder approval
in accordance with Section 422 of the Code.
9.2 Term of Plan
Unless sooner terminated by the Board, this Plan shall
terminate 10 years from the earlier of (a) the date on which
this Plan is adopted by the Board or (b) the date on which
this Plan is approved by the stockholders of the Company. No
option may be granted after such termination or during any
suspension of this Plan. The amendment or termination of this
Plan shall not, without the consent of the option holder,
alter or impair any rights or obligations under any option
theretofore granted under this Plan.
Section 10. Section 16(b) Compliance and Bifurcation of
Plan
It is the intention of the Company that, if any of the
Company's equity securities are registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, this Plan shall
comply in all respects with Rule 16b-3 under the Exchange Act
and, if any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed
null and void, and in all events this Plan shall be construed
in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in this Plan to the contrary, the
Board, in its absolute discretion, may bifurcate this Plan so
as to restrict, limit or condition the use of any provision of
this Plan to participants who are officers and directors
subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning this Plan with respect
to other participants.
Section 11. Effectiveness of This Plan
This Plan shall become effective upon adoption by the
Board so long as it is approved by a majority of stock
represented by stockholders voting either in person or by
proxy at a duly held stockholders' meeting any time within 12
months before or after the adoption of this Plan.
Plan adopted by the Board of Directors on July 24, 1993 and
approved by the stockholders on July 24, 1993.
Shurgard Storage Centers, Inc.
Exhibit 11.1 - Statement Re: Computation of Earnings per Share
<TABLE>
Year Ended
Primary Earnings per Share Dec. 31, 1994
--------------------------------------- -------------
<S> <C>
Net income $ 17,821,000
-----------
Weighted average common and common
equivalent shares outstanding:
Weighted average common
shares outstanding 16,983,887
Net effect of dilutive stock options -
based on treasury stock method
using average market price <F1>
-----------
Total 16,983,887
===========
Primary earnings per common and common
equivalent share $1.05
===========
<FN>
<F1> No adjustment has been made as the option price exceeded the market
price of the Company's stock for substantially all of the fourth quarter
of 1994.
</FN>
</TABLE>
Fully-diluted Net Income Per Common and Common
Equivalent Share
The Company has no further dilutive securities.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-76248 of Shurgard Storage Centers, Inc. on
form S-8 of our report dated February 9, 1995 (March 24,
1995 as to Notes E and N), appearing in this Annual Report
on Form 10-K of Shurgard Storage Centers, Inc. for the year
ended December 31, 1994.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ALL INFORMATION PROVIDED REPRESENTS TEN MONTHS OF OPERATING ACTIVITY FOR
159 STORAGE CENTERS AND 2 BUSINESS PARKS, AS WELL AS FOUR MONTHS OF
OPERATING ACTIVITY FOR THE 20 STORAGE CENTERS ACQUIRED ON SEPTEMBER 1,
1994. PRIOR TO MARCH 1, 1994, THE COMPANY WAS INACTIVE.
</LEGEND>
<CIK> 0000906933
<NAME> SHURGARD STORAGE CENTERS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 13,162
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 462,780
<DEPRECIATION> 11,384
<TOTAL-ASSETS> 494,590
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 316,348
0
0
<OTHER-SE> 497
<TOTAL-LIABILITY-AND-EQUITY> 494,590
<SALES> 0
<TOTAL-REVENUES> 66,921
<CGS> 0
<TOTAL-COSTS> 37,058
<OTHER-EXPENSES> 2,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,105
<INCOME-PRETAX> 19,001
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,001
<DISCONTINUED> 0
<EXTRAORDINARY> (1,180)
<CHANGES> 0
<NET-INCOME> 17,821
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
