FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1201 3RD AVENUE, SUITE 2200, SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 206-624-8100
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Shares outstanding at October 21, 1996:
Class A Common Stock, $.001 par value, 23,046,906 shares outstanding
Class B Common Stock, $.001 par value, 154,604 shares outstanding
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Balance Sheets
(unaudited)
(Amounts in thousands except share data)
Sept. 30, Dec. 31,
1996 1995
--------- ---------
Assets:
Storage centers:
Land $ 114,224 $ 105,224
Buildings and equipment, net 426,044 404,329
Construction in progress 28,058 20,942
--------- ---------
568,326 530,495
Other real estate investments 70,101 21,407
Cash and cash equivalents 4,696 5,683
Restricted cash 6,136 5,551
Other assets, net 50,173 47,258
--------- ---------
Total assets $ 699,432 $ 610,394
========= =========
Liabilities and Shareholders' Equity:
Accounts payable and other liabilities $ 22,986 $ 19,101
Dividends payable 10,669
Lines of credit 104,757 10,905
Notes payable 131,751 131,935
--------- ---------
Total liabilities 259,494 172,610
--------- ---------
Minority interest in other
real estate investments 2,942 3,288
Shareholders' equity:
Class A common stock, $0.001 par value;
120,000,000 authorized; 23,046,906 and
23,039,317 shares issued and outstanding 453,018 452,852
Class B common stock, $0.001 par value;
500,000 shares authorized, 154,604
issued and outstanding; net of loans
to shareholders of $4,002 (1,086) (1,086)
Cumulative dividends in excess
of cumulative earnings (14,936) (17,270)
--------- ---------
Total shareholders' equity 436,996 434,496
--------- ---------
Total liabilities and
shareholders' equity $ 699,432 $ 610,394
========= =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Net Income
(unaudited)
(Amounts in thousands except per share data)
For the three For the three
months ended months ended
Sept. 30, 1996 Sept. 30, 1995
------------- -------------
Rental revenue $ 26,510 $ 24,768
Revenue from other
real estate investments 704 315
Property management revenue 837 1,005
--------- ---------
Total revenue 28,051 26,088
--------- ---------
Operating expense 7,695 6,630
Depreciation and amortization 4,979 4,578
Real estate taxes 2,139 1,985
General and administrative 1,142 1,412
--------- ---------
Total expenses 15,955 14,605
--------- ---------
Income from operations 12,096 11,483
--------- ---------
Interest and other income 220 101
Interest expense (3,287) (2,363)
--------- ---------
Total other income (expense) (3,067) (2,262)
--------- ---------
Net income $ 9,029 $ 9,221
========= =========
Net income per share $ 0.39 $ 0.40
========= =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Net Income
(unaudited)
(Amounts in thousands except per share data)
For the nine For the nine
months ended months ended
Sept. 30, 1996 Sept. 30, 1995
------------ -------------
Rental revenue $ 75,023 $ 68,511
Revenue from other
real estate investments 1,599 1,016
Property management revenue 2,571 2,036
--------- ---------
Total revenue 79,193 71,563
--------- ---------
Operating expense 21,887 17,945
Management fees 1,320
Depreciation and amortization 15,378 12,609
Real estate taxes 6,329 5,678
General and administrative 3,386 3,648
--------- ---------
Total expenses 46,980 41,200
--------- ---------
Income from operations 32,213 30,363
--------- ---------
Interest and other income 465 496
Interest expense (8,535) (9,646)
--------- ---------
Total other income (expense) (8,070) (9,150)
--------- ---------
Net income $ 24,143 $ 21,213
========= =========
Net income per share $ 1.04 $ 1.07
========= =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Cash Flows
(unaudited)
(Amounts in thousands)
Nine months Nine months
ended ended
Sept. 30, Sept. 30,
1996 1995
--------- ---------
Operating activities:
Net income $ 24,143 $21,213
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 15,378 12,609
Minority interest in earnings
of joint ventures (65) 168
Changes in other accounts:
Restricted cash (585) 723
Other assets (3,134) 1,864
Accounts payable and
other liabilities 1,104 (349)
-------- --------
Net cash provided by
operating activities 36,841 36,228
-------- --------
Investing activities:
Construction, acquisition and
improvement of storage centers (49,280) (25,531)
Purchase of other real estate
investments (49,453) (7,180)
Purchase of non-competition agreements (929)
Purchase of amortizable assets (200)
Investment in property management company (480)
Investment in limited partnership (35,308)
Distributions in excess of earnings from
investment in joint partnerships 45 244
-------- --------
Net cash used in
investing activities (99,617) (68,455)
-------- --------
Financing activities:
Proceeds from stock offering 106,080
Proceeds from notes payable 315
Net proceeds from (payments on)
line of credit 93,852 (46,337)
Payment of financing costs (1,600)
Principal payments on notes payable (499) (525)
Proceeds from exercise of stock options 166
Dividends paid (32,478) (23,681)
Contributions by minority partners 542
Distributions to minority partners (109) (205)
-------- --------
Net cash provided by
financing activities 61,789 33,732
-------- --------
(Decrease) increase in cash
and cash equivalents (987) 1,505
Cash and cash equivalents
at beginning of year 5,683 13,162
-------- --------
Cash and cash equivalents
at end of period $ 4,696 $14,667
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period
for interest $ 10,119 $9,657
======== ========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1996
(unaudited)
Note A _ Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, including both U.S. and Belgian
subsidiaries. All intercompany balances and transactions have been
eliminated upon consolidation.
The consolidated financial statements included in this report are
unaudited. In the opinion of the Company, all adjustments necessary
for a fair presentation of such financial statements have been
included and such adjustments consisted only of normal recurring
items. The interim financial statements should be read in
conjunction with the Company's 1995 Annual Report. Interim results
are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Adoption of this standard had no impact on the Company's financial
statements.
Weighted average shares outstanding for the three months ended
September 30, 1996 and 1995 were 23,201,451 and 23,133,515,
respectively. Weighted average shares outstanding for the nine
months ended September 30, 1996 and 1995 were 23,199,838 and
19,807,707, respectively.
Note B _ Purchase of Partnership Units
In September 1996, the Company purchased limited partnership units
in three affiliated public partnerships for $40.6 million.
Subsequent to the end of the quarter, the general partner of each of
these partnerships began soliciting votes from the limited partners
in these partnerships to approve the merger of the partnerships with
the Company. Under the terms of the acquisition agreement between
the Company and the partnerships, Company shares would be issued to
the remaining partners equal to their interest in the partnership's
net asset value as defined in the agreement (approximately $65.2
million). The Company has paid or accrued $2.8 million in
transaction costs and litigation defense costs related to this
transaction.
Note C _ Lines of Credit
In September 1996, the Company negotiated a two year, secured line
of credit to borrow up to $175 million at a spread over LIBOR. The
available amount and the spread vary based on certain financial
covenants; the current available amount is approximately $111
million, of which approximately $98 million is outstanding, and the
current spread is 1.625%. This line replaced one of the Company's
$50 million lines of credit. The available amount under this line
of credit is capped at $125 million until the Company cancels its
second line of credit at which time it increases to the maximum of
$175 million. The new line will become unsecured once the Company
meets certain requirements of the agreement which include, among
other things, completion of the pending acquisition described in
Note B. During 1996, the Company borrowed an additional $89.6
million on its domestic lines of credit. Proceeds were used to fund
the purchase of partnership units, the construction of storage
centers and the purchase of several parcels of undeveloped land on
which the Company intends to build storage centers. Additionally,
during 1996, the Company obtained an additional $10.9 million of
available credit under its European lines bringing the total
available to $13.8 million. Of the total available, the Company has
borrowed approximately $7.2 million (approximately $4.3 million
during 1996) to fund development and operating cash needs.
Note D _ Accounting for Stock Options
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation." This
statement provides that the measure of compensation cost be based on
the value of the award and be recognized over the service period.
Companies may elect to adopt the stock-based compensation accounting
recognition method under the new standard or continue accounting for
it under current guidance, Accounting Principles Board Opinion No.
25 (APB No. 25), "Accounting for Stock Issued to Employees." The
Company adopted the new standard on January 1, 1996 and has elected
to continue accounting for stock-based compensation under APB No.
25.
<PAGE>
Part I, Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
When used in this discussion, the words "believes," "anticipates,"
"projects" and similar expressions are intended to identify forward-
looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
those projected. Factors which could affect the Company's financial
results are described below and in the Company's most recent Annual
Report on Form 10-K. Forward-looking statements are based on estimates
as of the date hereof; estimates are likely to change over time as
additional information becomes known. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements reflecting new estimates, events or
circumstances after the date hereof.
INTERNAL GROWTH
In 1996, management continued its efforts to maximize internal
growth, i.e., increase net operating income from its existing real
estate assets through revenue optimization and cost containment. The
following table summarizes the operating performance of the stablized
storage centers owned as of the beginning of the third quarter of 1995:
Dollars in thousands Quarter Ended Sept. 30, Nine Months Ended Sept. 30,
except average rent ----------------------- ---------------------------
1996(3) 1995(3) Change 1996(3) 1995(3) Change
------- ------- ------ ------- -------- ------
Rental revenue $25,148 $24,088 4.4% $67,765 $65,168 4.0%
Property operating 7,143 6,771 5.5% 20,167 19,322 4.4%
expenses (1) ------- ------- ----- ------- ------- -----
Net operating income $18,005 $17,317 4.0% $47,598 $45,846 3.8%
======= ======= ===== ======= ======= =====
Avg. annual rent per $9.38 $9.03 3.9% $9.14 $8.85 3.3%
sq.ft. (2)
Avg. sq.ft. occupancy 90% 90% 89% 88%
Total net rentable 10,900,000 10,900,000 10,900,000 10,900,000
sq.ft.
# of properties 169 169 169 169
_______________
(1)Includes all direct property expenses. Does not include property
management fees previously charged by Shurgard Incorporated, who
managed the Company's properties prior to its merger with the
Company, nor does it include any allocation of joint expenses
incurred by the Company such as off-site management personnel.
(2)Average annual rent per square foot is calculated by dividing
actual rent collected by the average number of square feet occupied
during the period.
(3)Includes 30% of the operating results of four properties in which
the Company owns a 30% interest (operating results for these
properties are not consolidated in the Company's financial
statement), as well as 74% of the operating results of three
properties in which the Company owns 74% interest and 90% of the
operating results of one property in which the Company owns a 90%
interest (operating results for those properties are consolidated
in the Company's financial statements). Nine month data includes
only operating results for the three months ended September 30,
1995 and 1996 for the fifteen properties purchased prior to July 1,
1995.
Net operating income (NOI) for these centers has risen over the
same quarter last year due to increases in revenue, which are a
function of changes in rental rates and occupancy. Third quarter, as
well as nine month revenue gains from 1995 to 1996, were driven
primarily by rent increases with slight increases in occupancy over the
same periods. The same store growth rate of revenue and NOI has slowed
compared to the last several years as the significant increases in
occupancy levels which helped drive the historical growth rates have
slowed. Management believes that occupancy in the high 80's to low 90's
is "full" for the self storage industry. Because occupancies have
reached these levels in most markets, management believes that future
growth will result primarily from rate increases. The Company's
ability to increase rates may be negatively affected by increasing
competition in certain markets.
Revenue increases were partially offset by higher operating
expenses. Personnel costs rose $267,000 for the quarter and $700,000
for the nine months due to increasing wages and higher cost of
benefits, which primarily represented a workers' compensation insurance
refund received in the third quarter of 1995. Remaining increases
relate to repair and maintenance expenses, costs of goods sold and
yellow page advertising rates.
The following table is a geographical summary of the changes in
average revenues, rates and occupancies from the third quarter of 1995
to the third quarter of 1996 for the storage centers held by the
Company throughout both quarters:
% % Change
% Change Change in # of
in Rents in Rate Sq. Ft.
per Sq.Ft. Occupancied
--------- ---------- ---------
'95 to '96 '95 to '96 '95 to'96
---------- ---------- ---------
Arizona (7.0%) (0.7%) (6.4%)
California 8.8 4.1 4.6
Colorado (3.4) 6.4 (9.2)
Florida 4.0 2.1 1.9
Illinois 4.8 2.2 2.5
Michigan 7.1 10.6 (3.1)
New York 2.3 7.4 (4.8)
Oregon 11.9 10.9 0.9
Texas (3.6) (3.0) (0.7)
Virginia 6.1 4.1 1.8
Washington 7.7 4.8 2.7
Other 6.3 4.5 1.7
-------- ------- ------
Total 4.5% 3.9% 0.6%
======= ======= ======
The Company maintains a diversified portfolio that it believes
offers protection against the individual market fluctuations that
result in geographical performance differences. In general, rental
rate increases have driven the increase in revenues. Arizona has
experienced new competition in certain trade areas and a leveling off
of demand. Demand had been high in this market due to the long waiting
periods for housing; as these waits have shortened, so has the average
length of storage in this market. Additionally, the conversion of
units to climate controlled space at one facility has created a drop in
occupancy. During the construction phase of this project it was
necessary to vacate these units, but they are expected to command
higher rent. The conversion of these units was completed in late
August. In Colorado, occupancy declines offset rate increases
resulting in lower revenue. The decline in Colorado is the result of
competition and a leveling off of demand in the Denver market area.
The San Antonio, TX market has declined as new competition (ten
additional storage centers within our trade areas in the last year) has
forced rate decreases; storage development in this market continues
with five new projects under construction by competitors and management
expects the market will continue to be negatively impacted by this
development. The Houston, TX market declined due to a fire in 1995;
revenue replacement insurance coverage has expired and new market
competition has slowed the rent up of the reconstructed space.
ACQUISITIONS
During the third quarter of 1996, the Company purchased three
storage centers. The first two, located in Washington, were purchased
in July for $3.8 million and the third, located in Georgia, was
purchased in September for $2.5 million. These properties added
approximately 135,000 net rentable square feet to the Company's
portfolio and contributed approximately $61,000 to the Company's third
quarter net operating income.
DOMESTIC DEVELOPMENT
To date, the Company has opened nine storage centers in 1996, and
has twelve additional storage centers under construction (five of these
are being developed through joint venture partnerships). The seven
projects opened in the first half of 1996 are renting up ahead of plan;
the average occupancy of these centers as of September 30, 1996 was
51%. The average rental rate of these stores for the month of
September was $9.48 per square foot. Together, the centers provided
$158,000 in net operating income for the current quarter. For these
seven projects, final construction costs averaged $49 per square foot.
Although the current rent up pace of the storage centers opened through
the second quarter of 1996 would indicate a shorter rent up period if
projected on a straight-line basis, the rent up pace in the first
months after opening a new facility is generally greater than in later
months. The Company currently expects these centers to take
approximately 18 months to reach maturity compared to the original
projections of 21 months. The average yield on cost of these seven
projects is 12%, assuming the projects reach 85% occupancy at current
rates. There is of course no assurance that these projections will
come to fruition as numerous factors affect the actual yields and rent
up periods, including the various market conditions and competition,
the ability to collect stated rental rates, and the ability to maintain
expenses at the current level.
The six storage centers opened in 1995 are also renting up ahead
of plan; the average occupancy of these centers as of September 30,
1996 was 70%. The average rental rate of these stores for the month of
September was $10.13 per square foot. Each of these projects provided
positive net operating income and together provided net operating
income of $357,000 for the current quarter. For these six projects,
final construction costs averaged $48 per square foot. The storage
centers opened in 1995 are renting up at an impressive rate and, if
they continue at that rate, they will reach maturity in an average of
16 months compared to the projected 21 month rent-up. The average
yield on cost of these seven projects is 13%, assuming the projects
reach 85% occupancy at current rates. There is of course no assurance
that these projections will come to fruition as numerous factors affect
the actual yields and rent up periods, including the various market
conditions and competition, the ability to collect stated rental rates,
and the ability to maintain expenses at the current level.
The Company's development projects were funded from stock offering
proceeds, operating cash flow and proceeds from the Company's line of
credit. Because the annualized yield on these development projects for
the current quarter was only 4.7% compared to the Company's borrowing
rate of approximately 8.3%, they negatively impacted the Company's FFO
for the quarter ended September 30, 1996 by an estimated $400,000. For
further discussion regarding the potential impact of development, refer
to the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission. The following table summarizes domestic
development and expansion activity as of September 30, 1996:
Estimated
Completed Cost
# of Projects of Projects
------------- ----------------
New Developments:
Opened in 1995 6 $17 million
Opened year to date Sept. 30, 9 $33 million
1996
Construction in progress 12 $41 million
Expansion of existing
properties:
Opened year to date Sept. 30, 3 $2 million
1996
Construction in progress 3 $6 million
The Company still believes it will open a total of 14 to 16 new storage
centers during 1996 and anticipates opening an additional 30 to 35
during 1997. The projected number of projects to be opened in 1996 and
1997 could be reduced by zoning and permitting delays outside of the
control of the Company, increased competition for sites, delays during
construction caused by, among other things, weather, unforeseen site
conditions, labor shortages, scheduling problems with contractors,
subcontractors or suppliers, or resource constraints.
EUROPEAN OPERATIONS
During 1996, the Company has invested an additional $6.9 million
in SSC Benelux, the Belgian subsidiary in which it owns a 85.6%
interest. The Company is currently operating four storage centers in
Brussels; the fourth store opened phase I at the end of September with
construction continuing on the remaining property. A fifth storage
center is under construction and two more are in the permitting
process. The operating storage centers provided $157,000 in revenues
for the quarter; however, operating and administrative expenses
exceeded revenues creating a $331,000 net loss before depreciation
expense of $94,000. This translates into a $283,000 reduction of the
Company's current quarter FFO.
PROPERTY MANAGEMENT OPERATIONS
In connection with the merger of the Company and Shurgard
Incorporated (the Management Company) in March 1995, the Company
internalized the management of its own properties as well as acquired
certain management contracts and relationships under which it provides
property management services to outside parties. Prior to the merger,
the Company paid a property management fee equal to 6% of revenues to
the Management Company. The Company now incurs the actual costs of
property management and receives property management fees from
affiliated partnerships and outside parties. As the Company acquires
properties currently managed for third parties, revenues from this
service related business will decrease.
OTHER OPERATIONS
Income from other real estate investments for the third quarter of
1996 has increased $389,000 over the same quarter in 1995 due primarily
to the Company's investment in partnership units made at the end of
1995 and throughout 1996. These investments increased the Company's
interest in five affiliated partnerships for which the Company manages
storage centers. The increase for the nine months ended September 30,
1996 is also primarily a result of these investments.
Interest expense increased $924,000 due to a rise in the average
outstanding balance on the lines of credit from the third quarter of
1995 to the third quarter of 1996. This rise represents borrowing to
purchase partnership units and to fund development of new storage
centers. Additionally, during the third quarter of 1996, the Company
capitalized $594,000 in interest related to the construction of storage
centers while only $435,000 in interest was capitalized in the third
quarter of 1995. The decline in interest expense for the nine months
ended September 30, 1996 reflects a decrease in debt balances resulting
from the issuance of stock in June 1995 as well as an increase in
capitalized interest. Interest capitalized for the nine months ended
September 30, 1996 was $1,584,000 compared to $636,000 for the same
period in 1995.
Net income per share decreased for the three and nine months ended
September 30, 1996 compared to the same periods in 1995 primarily due
to the development projects opened during the last year. The Company's
planned development will continue to impact net income and net income
per share. The issuance of 4.9 million shares in late June and early
July 1995 also impacted the nine month per share data. Proceeds from
this stock issuance were used to repay short term loans and although
interest expense declined, outstanding shares increased.
FUNDS FROM OPERATIONS
Funds from operations (FFO), as promulgated by the National
Association of Real Estate Investment Trusts (NAREIT) in its March 1995
White Paper on FFO, is defined as net income (calculated in accordance
with GAAP) excluding gains or losses from debt restructuring and sales
of real estate, plus depreciation of rental real estate and
amortization of intangible assets exclusive of deferred financing
costs. Contributions to FFO from unconsolidated entities in which the
reporting entity holds an active interest are to be reflected in FFO on
the same basis. The Company believes FFO is meaningful disclosure as a
supplement to net income because net income implicitly assumes that
the value of assets diminish predictably over time while the Company
believes that real estate values have historically risen or fallen with
market conditions. FFO is not a substitute for net cash provided by
operating activities or net income computed in accordance with GAAP,
nor should it be considered an alternative indication of the Company's
operating performance or liquidity. In addition, FFO is not comparable
to "funds from operations" reported by other REITs that do not define
funds from operations in accordance with NAREIT's definition. The
following table reconciles the Company's net income before
extraordinary items to the definition of FFO used by the Company and
NAREIT (in thousands):
Quarter ended Nine months ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
---------- -------- -------- ----------
Net income before
extraordinary item $ 9,029 $ 9,221 $ 24,143 $ 21,213
Depreciation/amortization 5,108 4,560 15,632 12,702
(including JV)
Less deferred financing (280) (280) (840) (840)
costs -------- -------- -------- ---------
FFO as currently defined $ 13,857 $ 13,501 $ 38,935 $ 33,075
======== ======== ======== =========
FFO for the third quarter of 1996 rose approximately $356,000 over
the same quarter of 1995. FFO for the nine months ended Sept. 30, 1996
rose $5.9 million over the same period in 1995. As previously
discussed, this growth rate reflects the improved performance of the
original portfolio of properties as well as the addition of properties
acquired and constructed during the year.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1996, the Company invested $49.3
million in storage centers, including approximately $40.8 million in
development projects, $6.3 million in acquisitions and $2.2 million in
capital improvements to its existing portfolio. The $49.5 million
increase in other real estate investments consists primarily of $42.5
million invested in affiliated partnerships and $6.5 million invested
in joint venture developments.
The Company has borrowed $93.8 million during 1996 under its lines
of credit to finance development and investment activity described
above as well as general operating needs. In September 1996, the
Company negotiated a two year, secured line of credit to borrow up to
$175 million at a spread over LIBOR. The available amount and the
spread vary based on certain financial covenants; the current available
amount is approximately $111 million and the current spread is 1.625%.
This line replaced one of the Company's $50 million lines of credit.
The available amount under this line of credit is capped at $125
million until the Company cancels its second line of credit at which
time it increases to the maximum of $175 million. The new line will
become unsecured once the Company meets certain requirements of the
agreement which include, among other things, completion of the pending
acquisition described below. At September 30, 1996, the Company's debt
to total assets was 34% and its debt to total market capitalization was
28%.
The Company anticipates that cash flow from operating activities,
available lines of credit, and the proceeds from future debt or equity
offerings, if any, will continue to provide adequate capital for
planned portfolio growth, principal payments and dividend payments in
accordance with REIT requirements. Cash provided by operating
activities for the nine months of operations ended September 30, 1996
was $37 million. Remaining borrowing capacity available from lines of
credit at September 30, 1996 was $70 million (including $6.6 million
from the Belgian lines). On October 31, 1996, the Company declared a
dividend of $0.47 per share to be paid on November 21, 1996. This
dividend is approximately 79% of third quarter FFO.
PENDING ACQUISITION
In September 1996, the Company purchased limited partnership units
in three affiliated public partnerships for $40.6 million. Subsequent
to the end of the quarter, the general partner of each of these
partnerships began soliciting votes from the limited partners in these
partnerships to approve the merger of the partnerships with the
Company. Under the terms of the acquisition agreement between the
Company and the partnerships, Company shares would be issued to the
remaining partners equal to their interest in the partnership's net
asset value as defined in the agreement (approximately $65.2 million).
The Company has paid or accrued $2.8 million in transaction costs and
litigation defense costs related to this transaction.
PART II, Item 1: Legal Proceedings
On July 16, 1996, Irving and Roberta B Schuman (the Plaintiffs),
unitholders of IDS/Shurgard Income Growth Partners L.P. II (IDS 2) ,
filed a purported class and derivative action complaint (the Complaint)
on behalf of themselves and all other unitholders of IDS /Shurgard
Income Growth Partners, L.P., IDS2 and IDS/Shurgard Income Growth
Partners L.P. III (together, the Partnerships) and derivatively on
behalf of the Partnerships in the Superior Court of the State of
Washington in and for the County of King naming the Company, Charles K.
Barbo, Arthur W. Buerk, Donald B. Daniels, Kristin H. Stred, Harrell L.
Beck, Michael Rowe, Mark Hall, Shurgard Associates L.P., Shurgard
Associates L.P. II, Shurgard Associates L.P. III and Shurgard General
Partner, Inc. as Defendants and the Partnerships as Nominal Defendants.
In the Complaint, the Plaintiffs asserted claims for breach of
fiduciary duty, aiding and abetting a breach of fiduciary duty, breach
of contract and fraud against each of the Defendants. The Plaintiffs
seek monetary damages and equitable relief, including an order
enjoining the consummation of the Company's tender offers for units of
limited partnership interest in the Partnership (the Offers), or
alternatively, an order requiring the Defendants to issue disclosures
to correct allegedly false and misleading statements and omissions of
material facts in all documents prepared, filed with the SEC, issued or
disseminated to the unitholders of the Partnerships by Defendants in
connection with the Offers.
The Plaintiffs filed a motion to preliminarily enjoin, among other
things, the Unitholders' vote at the Special Meetings. A hearing was
held on September 25, 1996, in the Superior Court regarding this
motion. On October 3, 1996, the Superior Court issued in an order
denying the Plaintiffs' motion for preliminary injunction. The
Defendants intend to continue to vigorously defend the lawsuit.
Item 6a Exhibits
Exhibit 27 Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SHURGARD STORAGE CENTERS, INC.
Date: November 4, 1996 By: /s/ Harrell Beck
--------------------
Harrell Beck
Chief Financial Officer and Authorized Signatory
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<PERIOD-END> SEP-30-1996
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0
0
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