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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 1997 Commission file number 0-23466
SHURGARD STORAGE CENTERS, INC.
(Exact name of registrant as specified in its charter)
Washington 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 July 31, 1997:
Class A Common Stock, $.001 par value, 27,690,308 shares
outstanding
Class B Common Stock, $.001 par value, 154,604 shares
outstanding
Series B Cumulative Redeemable Preferred Stock, $.001
par value, 2,000,000 shares outstanding
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Balance Sheets
(unaudited)
(Amounts in thousands except share data)
June 30, Dec. 31,
1997 1996
------- ---------
Assets:
Storage centers:
Land $ 151,341 $ 142,127
Buildings and equipment, net 572,962 538,180
Construction in progress 37,090 32,531
-------- ---------
761,393 712,838
Other real estate investments 34,674 27,769
Cash and cash equivalents 25,960 3,239
Restricted cash 8,902 6,814
Other assets 48,793 53,823
------- -------
Total assets $ 879,722 $ 804,483
======== ========
Liabilities and Shareholders' Equity:
Accounts payable and other liabilities $ 23,322 $ 29,964
Lines of credit 8,199 140,997
Notes payable 231,740 131,794
-------- --------
Total liabilities 263,261 302,755
-------- --------
Minority interest in other real estate
investments 17,819 3,217
Shareholders' equity:
Series B Cumulative Redeemable Preferred
Stock, $0.001 par value; 2,300,000
authorized; 2,000,000 shares issued and
outstanding 48,164
Class A common stock, $0.001 par value;
120,000,000 authorized; 27,688,545 and
25,509,348 shares issued and outstanding 575,980 516,796
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)
Accumulated distributions in excess
of earnings (24,416) (17,199)
-------- --------
Total shareholders' equity 598,642 498,511
-------- --------
Total liabilities and
shareholders' equity $ 879,722 $ 804,483
========= =========
<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
June 30, 1997 June 30, 1996
------------- -------------
Rental revenue $ 33,234 $ 24,982
Revenue from other
real estate investments (139) 461
Property management revenue 604 880
--------- -------
Total revenue 33,699 26,323
--------- --------
Operating expense 9,155 7,266
Depreciation and amortization 6,670 5,314
Real estate taxes 2,524 2,109
General and administrative 1,023 1,162
------- ------
Total expenses 19,372 15,851
------- ------
Income from operations 14,327 10,472
------- -------
Interest and other income 769 150
Interest expense (4,237) (2,821)
Total other income
(expense) (3,468) (2,671)
-------- --------
Net income $ 10,859 $ 7,801
========= =========
Net income per share $ 0.36 $ 0.34
========= =========
Distribution per share $ 0.48 $ 0.47
========= =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Net Income
(unaudited)
(Amounts in thousands except per share data)
For the six For the six
months ended months ended
June 30, 1997 June 30, 1996
------------- -------------
Rental revenue $ 64,266 $ 48,513
Revenue from other
real estate investments 144 895
Property management revenue 1,023 1,734
------- --------
Total revenue 65,433 51,142
------- --------
Operating expense 18,131 14,192
Depreciation and amortization 13,033 10,399
Real estate taxes 5,301 4,190
General and administrative 2,086 2,244
------- -------
Total expenses 38,551 31,025
------- -------
Income from operations 26,882 20,117
------- -------
Interest and other income 1,306 245
Interest expense (8,131) (5,248)
-------- --------
Total other income
(expense) (6,825) (5,003)
-------- --------
Net income $ 20,057 $ 15,114
========= =========
Net income per share $ 0.69 $ 0.65
========== =========
Distribution per share $ 0.95 $ 0.93
========= =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Cash Flows
(unaudited)
(Amounts in thousands)
Six months Six months
ended ended
June 30, June 30,
1997 1996
----------- -----------
Operating activities:
Net income $20,057 $15,114
Adjustments to reconcile earnings
to net cash provided by operating
activities:
Depreciation and amortization 13,033 10,399
Minority interest in earnings
of joint ventures (548) 39
Changes in other accounts:
Restricted cash (2,088) (465)
Other assets 6,172 (751)
Accounts payable and other
liabilities (2,964) (1,266)
-------- --------
Net cash provided by operating
activities 33,662 23,070
-------- --------
Investing activities:
Construction, acquisition and
improvement of storage centers (63,815) (27,106)
Purchase of other real estate
investments (7,503) (4,508)
Purchase of non-competition
agreements (1,254) (304)
Distributions in excess of earnings
from investment in joint
partnerships (744) 116
-------- --------
Net cash used in investing
activities (73,316) (31,802)
--------- --------
Financing activities:
Proceeds from notes payable 102,937 315
Proceeds (payments) on lines
of credit (135,789) 27,985
Return of capital invested 9,272
Payment of loan costs (1,341)
Proceeds from exercise of stock
options 238 165
Cancellation of Company stock (253)
Distributions paid (27,274) (21,574)
Proceeds from preferred stock
offering, net 48,164
Proceeds from stock offering, net 59,200
Contribution by minority interest 7,338
Distributions to minority partners (117) (94)
-------- --------
Net cash provided by
financing activities 62,375 6,797
-------- --------
Increase (decrease) in cash and
cash equivalents 22,721 (1,935)
Cash and cash equivalents at
beginning of year 3,239 5,683
------- --------
Cash and cash equivalents at
end of period $ 25,960 $ 3,748
========= =========
Supplemental schedule of cash flow information:
Cash paid during the period
for interest $ 8,146 $ 6,523
========== =========
<PAGE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
Six Months Ended June 30, 1997
(unaudited)
Note A _ Basis of Presentation
The consolidated financial statements include the accounts of
Shurgard Storage Centers, Inc. and its subsidiaries, including
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 our opinion, 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
our 1996 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 us 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 February 1, 1997, we adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share." We do not
believe adoption of this standard will have a material impact on
our financial statements.
Weighted average shares outstanding for the three months ended
June 30, 1997 and 1996 were 27,877,452 and 23,201,187,
respectively, and for the six months ended June 30, 1997 and 1996
were 27,633,731 and 23,199,023, respectively.
Certain amounts in the 1996 financial statements have been
reclassified to conform to the current presentation.
Note B _ Lines of Credit
We have an unsecured domestic line of credit to borrow up to $100
million at a spread over LIBOR, maturing September 1999. The
amount available and the spread vary based on the terms of the
agreement; as of June 30, 1997, the current available amount was
$100 million, of which none was outstanding and the spread is 100
basis points over LIBOR. In January 1997, we repaid $58.4
million on this line with a portion of the proceeds from the
issuance of Class A common stock. The remaining balance was
repaid in April with a portion of the proceeds from the issuance
of notes and Series B preferred stock.
Note C _ European Operations
In March 1997, we entered into a joint venture agreement with two
unaffiliated entities. We have a minority interest in this joint
venture, which borrowed $19 million to purchase a majority
limited partner interest in SSC Benelux & Co., SCS. This
transaction resulted in the return of $9.3 million of our cash
contribution and reduced our equity position from 85.6% to 12.5%.
We, together with one of our partners, have the right to increase
our participation in the joint venture through an equity
contribution.
Note D _ Equity
On April 16, 1997, we raised $50 million ($48.2 million in net
proceeds) through the sale of 2,000,000 shares of Series B
Cumulative Redeemable Preferred Stock at $25 per share. These
shares require quarterly distribution payments totaling 8.8% per
year and are callable at our option after five years.
Note E _ Long-Term Debt
On April 25, 1997, we issued $100 million in senior unsecured
notes, $50 million of which are seven year notes due April 2004
bearing interest at 7.5% and $50 million of which are ten year
notes due April 2007 bearing interest at 7.625%. The notes
require semi-annual interest due April 25th and October 25th.
Net proceeds totaled $98.7 million.
Note F _ Contingent Liability
As one of three general partners in a joint venture, we are
contingently liable for $19.3 million in debt at June 30, 1997
(See Note C).
Part I, Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
When used in this discussion and elsewhere in this Quarterly
Report on Form 10-Q, the words "believes," "anticipates," "projects"
and similar expressions are intended to identify forward-looking
statements regarding financial performance. Such statements are
subject to risks that could cause actual results to differ
materially including the risk that competition from new self storage
facilities or other storage alternatives may cause rent to decline
and may cause occupancy rates to drop. We are also at risk for
increases in labor, taxes, marketing, and other operating and
construction expenses. Other factors which could affect our
financial results are described below and in Item 1 (Business) of
our Annual Report on Form 10-K. Forward-looking statements are
based on estimates as of the date hereof. We disclaim any
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
During the second quarter of 1997, we continued our focus on
increasing net operating income from our existing real estate
assets. One of the ways we analyze our performance is to measure
year over year improvements in same store operating results. We
define "same stores" each quarter as those stabilized storage
centers which were owned for the entire quarter of both comparison
years. Other storage companies may define same stores differently,
which will affect comparability. The following tables summarize
same store operating performance for the first quarter and the first
six months of 1997 and 1996:
Dollars in thousands Quarter Ended June 30,
except average rent --------------------------
1997 1996 % Change
---- ----- --------
Rental revenue $26,164 $24,970 4.8%
Property operating 7,235 7,490 -3.4%
expenses (1) ------ -------
Net operating income $18,929 $17,480 8.3%
======= =======
Avg. annual rent per sq. $9.64 $9.08 6.2%
ft. (2)
Avg. sq. ft. occupancy 88% 89%
Total net rentable sq.ft. 11,400,000 11,400,000
# of properties (3) 169 169
_______________
(1)Includes all direct property expenses. Does not 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 90% of the operating results of one property in which
the Company owns a 90% interest (operating results for this
property are consolidated in the Company's financial
statements).
Dollars in thousands Six Months Ended June 30,
except average rent -------------------------
1997 1996 % Change
----- ------ -------
Rental revenue $51,198 $48,816 4.9%
Property operating 14,781 14,949 -1.1%
expenses (1) ------- -------
Net operating income $36,417 $33,867 7.5%
======= =======
Avg. annual rent per sq. $9.51 $9.17 3.7%
ft. (2)
Avg. sq. ft. occupancy 88% 87%
Total net rentable sq.ft. 11,400,000 11,400,000
# of properties (3) 169 169
_______________
(1)Includes all direct property expenses. Does not 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 90% of the operating results of one property in which
the Company owns a 90% interest (operating results for this
property are consolidated in the Company's financial
statements).
Net operating income for these centers has risen for both the
quarter and the first six months over the same period last year due
primarily to increases in revenue, which are a function of changes
in rental rates and occupancy. Revenue gains from 1996 to 1997 were
driven primarily by rent increases due to the revenue optimization
program discussed in our annual report. Operating expenses declined
below 1996 levels as lower repair and maintenance costs, yellow page
advertising expenses, and personnel expenses offset a slight
increase in real estate taxes. We have experienced tightening in
the labor markets in several areas of the US and, as a result,
expect to experience wage increases during the last half of 1997.
Although six month results showed no increase in total expenses, we
believe we will experience some operating expense increases during
the last half of 1997. Real estate taxes rose only 1.0% or $38,000
as assessment and tax rate increases at various properties
throughout the portfolio were partially offset by refunds received
for several California properties. Although we expect real estate
taxes to increase more in the third and fourth quarters, we
regularly review assessed values and appeal them when we believe it
is cost effective.
The following table is a geographical summary of the changes in
weighted average rents, rates and occupancies for the first six
months of the applicable year for the same store storage centers as
defined in the previous table:
% % Change
% Change Change in No. of
in Rents in Rate Sq. Ft.
per Sq. Ft. Occupied
--------- ----------- ----------
'96 to'97 '96 to '97 '96 to '97
--------- ----------- ----------
Arizona (2.7%) 0.6% (3.3%)
California 8.8 5.3 3.3
Florida 7.4 2.5 4.8
Illinois 5.8 6.2 (0.4)
Maryland 1.5 4.0 (2.5)
Michigan 1.2 5.2 (3.7)
New York 8.5 9.2 (0.7)
Oregon 1.6 8.4 (6.3)
Texas 1.0 0.2 0.8
Virginia 1.1 7.2 (5.7)
Washington 9.3 0.4 8.8
Other 2.6 3.4 (0.8)
---- ----- -----
Total 4.7% 3.7% 1.0%
We believe our diversified portfolio minimizes the impact of
individual market fluctuations that result from economic or
competitive changes within these markets. In general, rental rate
increases have driven the increase in revenues. Market conditions
in San Francisco, CA, Ft. Lauderdale, FL and Seattle, WA contributed
to above average revenue increases. The completion of significant
building improvements at our New York stores have improved our
product quality and allowed our managers to increase rates. New
York and Chicago, in particular, demonstrate our use of revenue
optimization; although occupancy declined in both markets, revenues
rose well above average due to rate increases. During the past
year, 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. The
decline in the Dallas, TX market was offset by gains in the Houston,
TX market. Although new competition in the San Antonio market forced
rate decreases during 1996, our stores in this market have shown
increases in year over year revenues for the second quarter. Many
of our older storage centers in the Dallas, TX. market are being
impacted by new competitors entering their immediate trade area. We
expect to see some continued softening of rates and occupancy
declines until the supply is absorbed. Our results in Houston, TX
show the recovery from a fire in 1995 which impacted 1996 revenues.
ACQUISITIONS
During the first half of 1997, we purchased nine storage
centers totaling 615,000 net rentable square feet for a total cost
of $29 million (including related non-competition agreements).
These acquisitions were located as follows: one in California, one
in Florida, two in Georgia, four in Texas, and one in Washington.
During 1996, we purchased 40 storage centers (four in which we
already owned a 30% interest) at a total cost of $128.2 million.
All of these properties were purchased in the third and fourth
quarters and therefore had no effect on our operations in the first
half of 1996. The following tables summarize the operating
performance of these properties during the second quarter and first
half of 1997:
Dollars in thousands Stores Acquired in 1997
except average rent -----------------------
Quarter Six months
ended ended
June 30, June 30,
1997 1997
--------- -----------
Rental revenue $482 $563
Property operating
expenses (2) 221 268
----- -----
Net operating income $261 $295
===== =====
Avg. annual rent per $6.52 $6.21
sq.ft. (3)
Avg. sq.ft. occupancy 75% 78%
Total net rentable 615,000 615,000
sq.ft.
Number of properties 9 9
# of property-months (4) 20 24
Dollars in thousands Stores Acquired in 1996(1)
except average rent -------------------------
Quarter Six months
ended ended
June 30, June 30,
1997 1997
---------- ------------
Rental revenue $5,054 $9,892
Property operating
expenses (2) 1,339 2,775
------ ------
Net operating income $3,715 $7,117
====== ======
Avg. annual rent per $9.20 $8.99
sq.ft. (3)
Avg. sq.ft. occupancy 88% 87%
Total net rentable 2,400,000 2,400,000
sq.ft.
Number of properties 40 40
# of property-months (4) 120 240
(1) Includes 70% of the operating results of the four properties
previously owned by Shurgard Joint Partners II through which
the Company owned a 30% interest.
(2) Includes all direct property expenses. Does not include any
allocation of joint expenses incurred by the Company such as
off-site management personnel.
(3) Average annual rent per square foot is calculated by dividing
actual rents collected by the average number of square feet
occupied during the period.
(4) Represents the sum of the number of months we operated each
property during the year.
DOMESTIC DEVELOPMENT
We opened nine domestic storage centers in the first half of
1997 (including four through joint ventures in Florida), thirteen
during 1996 (including one through a joint venture) and six during
1995 (including three through joint ventures). The nine projects
opened in 1997 will total approximately 523,000 net rentable square
feet when all phases are complete, with an estimated total cost of
$34.8 million, however, these stores have not been open long enough
to have significant operations. The following table summarizes
operating performance for those projects opened in 1996 and 1995.
<TABLE>
Number of Estimated Total Net Total 6/30/97 Average Projected
Properties Total Rentable Cost per Average Rental Rate Annual
Cost Sq. Ft. Sq.Ft. Occupancy per Sq. Ft. Yield(1)
---------- ------------- --------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Opened 13 $44.8 million 822,000 $55 63% $10.19 13%
in 1996
Opened 6 $18.2 million 379,000 $48 79% $10.39 14%
in 1995
</TABLE>
(1) The projected average annual yield on estimated total cost of
these projects assumes the projects are at 85% occupancy at current
rates.
In total, the thirteen storage centers opened in 1996 are
renting up ahead of plan; the average occupancy of these stores as
of June 30, 1997 was 63%. The average rental rate of these stores
for June 30, 1997 was $10.19 per square foot. Together, these
stores provided $992,000 in net operating income for the first half
of 1997 compared to a $42,000 loss for the first half of 1996. For
these 13 projects, total development costs, including land, averaged
$55 per net rentable square foot, which is 105% of our original
budgeted cost. The 1996 developments cost more per square foot than
the 1995 developments primarily because of differences in land
costs. We currently expect these stores to take an average of 18
months to reach maturity (defined as 85% occupancy) compared to our
original projections of 21 months. The projected average annual
yield on estimated total cost of these nine projects is 13%,
assuming the projects are at 85% occupancy at current rates.
In total, the six storage centers opened in 1995 are also
renting up ahead of plan; the average occupancy of these stores as
of June 30, 1997 was 79%. The average rental rate of these stores
for June 30, 1997 was $10.39 per square foot. These projects
together provided first six months net operating income of $586,000
for 1997 compared to $169,000 for 1996. For these six stores, total
development costs, including land, averaged $48 per net rentable
square foot, which is 102% of the original budgeted cost. The
projected average annual yield on the estimated total cost of these
six projects is 14%, assuming the projects reach 85% occupancy at
current rates.
There is of course no assurance that these projections
regarding 1995 and 1996 development projects will come to fruition
as numerous factors affect the actual yields and rent up periods.
These factors include the possible inability to reach and maintain
assumed occupancy levels and rates due to increased competition from
newly developed self storage properties, existing self storage
properties and other storage alternatives, and possible increases in
expenses such as property taxes, labor, and marketing, among others.
In addition to the above completed developments, we have 16
storage centers currently under construction (four of these are
being developed in Tennessee and Florida through joint ventures).
As a general rule, to limit the risks of development, we do not
purchase land until the permitting process is complete.
Construction usually begins shortly after we obtain title to the
land. The following table summarizes domestic development projects
in progress at June 30, 1997:
Estimated
Number of Completed Cost
Projects of Projects
---------- ------------
New Domestic Developments:
Construction in progress 16 $66.4 million
Land purchased pending 1 $3.4 million
construction
Expansion of Existing
Properties:
Opened during 1997 1 $0.4 million
Construction in progress 2 $1.3 million
In the current real estate environment, we believe that a long-
term strategy of growth through development will result in superior
returns over the long-term. A development strategy, however,
creates a short-term dilution of earnings during the rent-up phase
of a project. For further discussion of the effect of this
dilution, see our Annual Report.
EUROPEAN OPERATIONS
During the first half of 1997, two new stores were opened in
Belgium. When all phases are complete they will contain
approximately 141,000 net rentable square feet. We are evaluating
additional sites in Belgium, as well as opportunities in Sweden,
France, and England. Additionally, in March 1997, we entered into a
joint venture agreement with two unaffiliated entities. We have a
minority interest in this joint venture, which borrowed $19.3
million to purchase a majority limited partner interest in SSC
Benelux & Co., SCS. This transaction resulted in the return of $9.3
million of our cash contribution and reduced our equity position
from 85.6% to 12.5%. We, together with one of our partners, have
the right to increase our participation in the joint venture through
an equity contribution.
OTHER OPERATIONS
Income from other real estate investments for the first six
months of 1997 decreased $751,000 compared to the same period in
1996. As discussed in our Annual Report, we invested in Shurgard's
Storage To Go, Inc., a start-up containerized storage business that
opened its first two warehouses during the first quarter of 1997.
Our pro rata share of losses for the first six months of 1997 was
approximately $521,000. Additionally, in November 1996, we acquired
the remaining interest (70%) in SJPII and the earnings from the
properties previously owned by SJPII are now consolidated. Our pro
rata share of SJPII earnings in the first half of 1996 (30%) was
$142,000. Additionally, Tennessee and Florida development joint
ventures opened four new stores in 1997 which are creating negative
cashflow during this initial rent-up phase.
Property management revenues decreased $711,000 primarily due
to the purchase of the three IDS partnerships in November 1996. We
previously received fees for managing the properties owned by these
partnerships.
Interest expense increased $2.9 million due to an increase in
the outstanding debt balance (both lines of credit and notes
payable) from $171 million at June 30, 1996 to $240 million at June
30, 1997. Additionally, during 1997, we capitalized $1,525,000 in
interest related to the construction of storage centers while
$1,270,000 in interest was capitalized in the first half of 1996.
FUNDS FROM OPERATIONS
Funds from operations (FFO), pursuant to the National
Association of Real Estate Investment Trusts' (NAREIT) March, 1995,
White Paper on Funds from Operations, 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
real estate and amortization of intangible assets exclusive of
deferred financing costs less dividends paid to preferred
stockholders. 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. We believe FFO is a meaningful
disclosure as a supplement to net income because net income
implicitly assumes that the value of assets diminish predictably
over time while we believe 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 our 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
the NAREIT definition. The following table sets forth the
calculation of FFO in accordance with the NAREIT definition (in
thousands):
Quarter ended June 30, Six months ended June 30,
---------------------- ------------------------
1997 1996 1997 1996
------- ------- -------- -------
Net Income $10,859 $7,801 $20,057 $15,114
Preferred dividend (860) (860)
Depreciation/amortization 6,670 5,314 13,033 10,399
Adjustment for depreciation/ 25 47 (59) 125
amortization from
unconsolidated joint
ventures and subsidiaries
Deferred financing costs (265) (280) (545) (560)
------- ------- ------- -------
FFO as currently defined $16,429 $12,882 $31,626 $25,078
======== ======= ======= =======
FFO for the first half of 1997 rose $6.5 million over first
half of 1996 FFO. As previously discussed, this growth rate
reflects the improved performance of the original portfolio of
properties as well as the addition of properties acquired during the
past year. We believe future growth rates will slow until
development levels off, as the rent-up period on development
projects partially offsets operating results from current properties
and acquisitions. The negative effect on FFO from development and
containerized storage totaled $1,818,000 for the first half of 1997
compared to $1,083,000 for the first half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1997, we invested $63.8 million
in storage centers including approximately $33.7 million in
development projects, $29 million in acquisitions and $1.1 million
in capital improvements to our existing portfolio. The $7.5 million
investment in other real estate investments consists primarily of
$3.4 million invested in real estate limited partnership units, $1.7
million invested in our containerized storage operation and $2.4
million invested in joint ventures. Additionally, we received a
return of $9.3 million of our cash contribution in Benelux SCS
through the refinancing discussed above.
In January and February 1997, we raised $59.3 million through
the sale of 2.2 million shares of Class A common stock. On April
16, 1997, we raised $50 million ($48.2 million in net proceeds)
through the sale of 2,000,000 shares of Series B Cumulative
Redeemable Preferred Stock at $25 per share. These preferred shares
require quarterly distribution payments totaling 8.8% per year and
are callable at our option after five years.
On April 25, 1997, we issued $100 million in senior unsecured
notes, $50 million of which are seven year notes due April 2004
bearing interest at 7.5% and $50 million of which are ten year notes
due April 2007 bearing interest at 7.625%. The notes require semi-
annual interest due April 25th and October 25th. Net proceeds
totaled $98.7 million.
A portion of the proceeds from these offerings were used to pay
off the balance of our line of credit. The balance on the line of
credit declined $135.8 million from December 31, 1996 to June 30,
1997. At June 30, 1997, the Company's debt to total assets was 27%
and its debt to total market capitalization was 22%.
We anticipate that cash flow from operating activities,
available lines of credit and the proceeds from our equity offering
will continue to provide adequate capital for planned expansion,
principal payments and dividend payments in accordance with REIT
requirements. Cash provided by operating activities for the six
months of operations ended June 30, 1997 was $33.7 million compared
to $23.1 million for the same period of 1996. Capital available
from lines of credit at June 30, 1997 was approximately $100
million. On July 29, 1997, we declared a dividend of $0.48 per
share to be paid on August 20, 1997. This dividend is approximately
81% of second quarter FFO.
Part II, Item 4: Submissions of matters to a vote of Security
Holders
The Company's Annual Meeting of Shareholders was held on May 13,
1997. There were outstanding and entitled to vote at the meeting
27,850,582 shares of common stock, and the holders of at least
24,377,591 shares of common stock were present in person or by Proxy
(representing 87.5% of the Company shares entitled to vote at the
Meeting). The following are the results of the vote:
Proposal 1 - Election of Directors
Election of the following two nominees to serve as directors for
three-year terms or until their respective successors are elected
and qualified:
FOR AGAINST OR AUTHORITY
WITHHELD
--------------------------- ------------------------
In By Total In By Total
Person Proxy Person Proxy
------ -------- --------- ------ ------ -------
Harrell Beck 236 24,223,296 24,223,532 0 154,059 154,059
Wendell J. Smith 236 24,223,087 24,223,323 0 154,268 154,268
In addition, the following directors' terms of office continued
after the meeting:
Director Term Ends
- --------------- --------
Charles K. Barbo 1998
Donald W. Lusk 1998
Howard J. Johnson 1999
Greenlaw Grupe, 1999
Jr. (See Part
III, Item 5)
Proposal 2 - Reincorporation of the Company in the State of
Washington
Proposal to reincorporate the Company in the State of Washington
through a merger of the Company with a wholly owned Washington
subsidiary.
FOR AGAINST ABSTAIN
--------------- ---------------- ---------------
In By In By In By
Person Proxy Person Proxy Person Proxy
------ --------- ----- --------- ------ -------
236 14,897,906 0 4,405,065 0 886,043
Part III, Item 5: Other Information
Effective June 27, 1997, Greenlaw Grupe resigned from our Board of
Directors.
Part II, Item 6: Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 11 - Calculation of Net Income per Share
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K:
A report on Form 8-K dated April 16, 1997 was filed on April
17, 1997 containing exhibits related to the issuance of shares of
8.80% Series B Cumulative Redeemable Preferred Stock.
A report on Form 8-K dated April 22, 1997 was filed on April
23, 1997 containing exhibits related to the issuance of $50 million
principal amount of 7 1/2% Notes due 2004 and $50 million principle
amount of 7 5/8% Notes due 2007.
A Form 8-K dated May 14, 1997 was filed on May 20, 1997
relating to the change in our State of incorporation from the State
of Washington to the State of Delaware.
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: August 14, 1997 By: /s/ Harrell Beck
------------------
Harrell Beck
Chief Financial Officer, Chief Accounting
Officer and Authorized Signatory
Shurgard Storage Centers, Inc.
Exhibit (11.1) - Statement Re: Computation of Earnings per Share
Primary Net Income Per Quarter Ended Six Months Ended
Common and Common June 30, June 30,
Equivalent Share -------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
Net Income $10,859,000 $7,801,000 $20,057,000 $15,114,000
Preferred dividend (860,000) - (860,000) -
---------- --------- ---------- ----------
$9,999,000 $7,801,000 $19,197,000 $15,114,000
========= ========= ========== ==========
Weighted average common
and common equivalent shares
outstanding:
Weighted average common
shares outstanding 27,846,870 23,201,187 27,603,149 23,199,023
Net effect of dilutive
stock options based on
treasury stock method
using average market
price (1) 30,582 30,582
---------- ---------- ---------- ----------
Total 27,877,452 23,201,187 27,633,731 23,199,023
=========== ========== ========== ==========
Primary earnings per
common and common
equivalent share $ .36 $ .34 $ .69 $ .65
============ ============ ========== ===========
Fully-diluted Net Income Quarter Ended Six Months Ended
Per Common and Common June 30, June 30,
Equivalent Share --------------------- -------------------------
1997 1996 1997 1996
-------- --------- ---------- ----------
Net income $10,859,000 $7,801,000 $20,057,000 $15,114,000
Preferred dividend (860,000) - (860,000) -
---------- --------- ---------- ----------
$9,999,000 $7,801,000 $19,197,000 $15,114,000
========== ========== =========== ==========
Weighted average common
and common equivalent
shares outstanding:
Weighted average common
shares outstanding 27,846,870 23,201,187 27,603,149 23,199,023
Net effect of dilutive
stock options based
on treasury stock
method using average
market price(1) 38,268 38,268
---------- ----------- ---------- ----------
Total 27,885,138 23,201,187 27,641,418 23,199,023
=========== =========== =========== ==========
Fully-diluted earnings
per common and common
equivalent share $ .36 $ .34 $ .69 $ .65
=========== =========== =========== ==========
(1) No adjustment has been made in 1996 as the dilutive effect was immaterial.
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