<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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)
WASHINGTON 91-1603837
---------- ----------
(State of organization) (IRS Employer Identification No.)
1155 Valley Street, Suite 400, Seattle, Washington 98109
--------------------------------------------------------
(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:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Class A Common Stock, par value $.001 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
8.8% Series B Cumulative Redeemable Preferred Stock,
par value $.001 per share New York Stock Exchange
8.7%Series C Cumulative Redeemable Preferred Stock,
par value $.001 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 (Section 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. [X]
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of February 25, 2000: $636,815,528
Class A Common Stock outstanding as of February 25, 2000: 29,099,552 shares
Class B Common Stock outstanding as of February 25, 2000: 154,604 shares
Documents incorporated by reference: Part III is incorporated by reference from
the Proxy Statement to be filed in connection with our Annual Shareholders
Meeting to be held May 9, 2000.
There are 24 pages.
<PAGE> 2
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except share data) DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS:
Storage centers:
Land $ 228,601 $ 212,154
Buildings and equipment, net 761,921 750,700
Construction in progress 49,939 81,043
----------- -----------
Total storage centers 1,040,461 1,043,897
Other real estate investments 33,929 33,057
Cash and cash equivalents 11,645 9,474
Restricted cash and investments 7,166 6,864
Other assets 60,025 60,615
----------- -----------
Total assets $ 1,153,226 $ 1,153,907
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and other liabilities $ 34,312 $ 41,312
Lines of credit 102,002 95,028
Notes payable 332,347 330,998
----------- -----------
Total liabilities 468,661 467,338
Minority interest in other real estate investments 40,763 34,759
Commitments and contingencies (Notes C, D, E, H,I and O)
Shareholders' equity:
Series B Cumulative Redeemable Preferred Stock,
$0.001 par value: 2,300,000 authorized; 2,000,000
shares issued and outstanding; liquidation
preference of $50,000,000 48,056 48,056
Series C Cumulative Redeemable Preferred Stock,
$0.001 par value: 2,000,000 authorized; 2,000,000
shares issued and outstanding; liquidation
preference of $50,000,000 48,115 48,115
Class A Common Stock, $0.001 par value;
120,000,000,authorized; 29,093,474 and 28,822,774
shares issued and outstanding 611,973 605,484
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 net income less distributions (63,256) (47,312)
Accumulated other comprehensive income (1,447)
----------- -----------
Total shareholders' equity 643,802 651,810
----------- -----------
Total liabilities and shareholders' equity $ 1,153,226 $ 1,153,907
=========== ===========
</TABLE>
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<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
(in thousands, except per share data) DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE:
Rental $ 175,045 $ 158,989 $ 137,746
Other real estate investments income (loss) (3,302) (1,628) 225
Property management 1,411 1,893 2,463
--------- --------- ---------
Total revenue 173,154 159,254 140,434
EXPENSES:
Operating 47,660 46,421 40,278
Depreciation and amortization 36,858 33,644 28,243
Real estates taxes 15,777 13,195 11,295
General, administrative and other 4,193 4,578 3,956
--------- --------- ---------
Total expenses 104,488 97,838 83,772
--------- --------- ---------
Income from operations 68,666 61,416 56,662
OTHER INCOME (EXPENSE):
Interest expense (22,445) (21,076) (17,096)
Interest and other income 2,826 1,431 1,481
--------- --------- ---------
Other income (expense), net (19,619) (19,645) (15,615)
Minority interest 2,724 2,963 1,264
--------- --------- ---------
Income before cumulative effect of a change
in accounting principle 51,771 44,734 42,311
Cumulative effect of a change in accounting
Principle (1,098)
--------- --------- ---------
Net income $ 50,673 $ 44,734 $ 42,311
========= ========= =========
Net income per common share:
Basic earnings per share:
Income before accounting change $ 1.48 $ 1.40 $ 1.40
Accounting change (.04)
--------- --------- ---------
Net income $ 1.44 $ 1.40 $ 1.40
========= ========= =========
Diluted earnings per share:
Income before accounting change $ 1.48 $ 1.39 $ 1.40
Accounting change (.04)
--------- --------- ---------
Net income $ 1.44 $ 1.39 $ 1.40
========= ========= =========
Distributions per common share $ 1.99 $ 1.95 $ 1.91
========= ========= =========
</TABLE>
-3-
<PAGE> 4
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands)
ACCUMULATED ACCUMULATED
LOANS TO NET INCOME OTHER
CLASS A CLASS B CLASS B LESS COMPREHENSIVE
PREFERRED STOCK COMMON STOCK COMMON STOCK SHAREHOLDERS DISTRIBUTIONS INCOME TOTAL
---------------- ----------------- ---------------- ------------ ------------- ------ -----
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 1, 1997 $ 25,509 $516,796 155 $2,916 $(4,002) $(17,199) $(508) $498,003
Comprehensive income:
Net income 42,311 42,311
Other comprehensive
income:
Foreign currency
translation (1,587) (1,587)
-----------
Total comprehensive
income 40,724
Issuance of Series B
Preferred Stock 2,000 48,056 48,056
Issuance of common
stock 2,923 78,473 78,473
Distributions
Preferred (3,060) (3,060)
Common (53,504) (53,504)
------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 1997 2,000 48,056 28,432 595,269 155 2,916 (4,002) (31,452) (2,095) 608,692
Comprehensive income:
Net income 44,734 44,734
Other comprehensive
income:
Foreign currency
translation 648 648
----------
Total comprehensive
income 45,382
Issuance of Series C
Preferred Stock 2,000 48,115 48,115
Issuance of common
stock 390 10,215 10,215
Distributions:
Preferred (4,690) (4,690)
Common (55,904) (55,904)
-------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1998 4,000 96,171 28,822 605,484 155 2,916 (4,002) (47,312) (1,447) 651,810
Comprehensive income:
Net income 50,673 50,673
Other comprehensive
income:
Foreign currency
translation 1,447 1,447
-----------
Total comprehensive
income 52,120
Issuance of Common
stock 271 6,489 6,489
Distributions:
Preferred (8,750) (8,750)
Common (57,867) (57,867)
-------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1999 4,000 $96,171 29,093 $611,973 155 $2,916 $(4,002) $(63,256) $ - $643,802
=============================================================================================================
</TABLE>
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<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
(in thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 50,673 $ 44,734 $ 42,311
Adjustments to reconcile earnings to net
cash provided by operating activities:
Cumulative change in accounting principle 1,098
Depreciation and amortization 36,858 33,644 28,243
Other (1,049) (294) (189)
Loss from other real estate investments 5,747 4,092 1,771
Minority interest in earnings from
investments in other real estate investments (2,724) (2,959) (1,264)
Changes in operating accounts:
Restricted cash (302) 164 (214)
Other assets (3,844) (4,682) 4,515
Accounts payable and other liabilities 2,212 4,350 1,925
--------- --------- ---------
Net cash provided by operating activities 88,669 79,049 77,098
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of real estate and equipment 14,421 2,000 482
Purchase of other real estate investments (8,172) (9,498) (16,993)
Purchase of non-competition agreements and
other amortizable assets (994) (3,175) (1,483)
Decrease in cash and cash equivalents as a
result of deconsolidation (Note B) (1,301)
Distributions in excess of earnings from other
real estate investments 999 5,860 205
Purchase of units of an affiliated partnership (1,191) (21,181)
Investment in limited partnerships (1,467)
(Increase) decrease in loans to affiliates (2,041) (5,950) 1,010
Construction, acquisition and improvements to
storage centers (125,556) (186,041) (163,462)
--------- --------- ---------
Net cash used in investing activities (123,835) (217,985) (181,708)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from preferred stock offerings, net 48,115 48,056
Proceeds from common stock offering, net 78,173
Proceeds from exercise of stock options and
dividend reinvestment plan 6,489 10,199 300
Distributions paid (66,617) (60,594) (56,564)
Net proceeds from (payments on) lines of credit 20,552 37,024 (83,520)
Proceeds from notes payable 58,342 90,765 107,700
Payments of financing costs (2,054) (1,166) (1,342)
Principal payments on notes payable (222) (26)
Contributions by minority partners 22,222 17,525 7,357
Return of capital invested in Europe 9,272
Distributions to minority partners (1,375) (748) (813)
--------- --------- ---------
Net cash provided by financing activities 37,337 141,094 108,619
Net effect of translation on cash 68
--------- --------- ---------
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
2,171 2,226 4,009
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period 9,474 7,248 3,239
--------- --------- ---------
Cash and cash equivalents at end of period $ 11,645 $ 9,474 $ 7,248
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 31,094 $ 28,102 $ 19,209
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING INFORMATION:
Note receivable in connection with non-compete
agreement $ 1,435
Liabilities incurred in connection with the
construction of storage centers $ 9,573 $ 11,035 $ 6,056
</TABLE>
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Shurgard Storage Centers, Inc. (SSCI), a Washington corporation, was
organized on July 23, 1993 to serve as a vehicle for investments in, and
ownership of, a professionally managed, internationally diverse real estate
portfolio consisting primarily of self-service storage properties which provides
month-to-month leases for business and personal use. We intend to qualify as a
real estate investment trust (REIT) as defined in Section 856 of the Internal
Revenue Code.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements include the
accounts of SSCI and its subsidiaries. All inter-company balances and
transactions have been eliminated upon consolidation.
In October 1999, a group of unaffiliated investors purchased a 42%
interest in SSC Benelux & Co., SCA (Benelux SCA, previously SSC Benelux & Co.,
SCS). As a result of this transaction, we no longer control Benelux SCA and for
the year ended December 31, 1999, our remaining 7.57% interest has been
accounted for under the equity method of accounting. (See Note E)
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 and 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.
On June 16, 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. Under this statement certain
derivatives are recognized at fair market value and changes in fair market value
are recognized as gains or losses. We are studying this pronouncement to
determine its effect on our financial statements.
On April 3, 1998, the AICPA Accounting Standards Executive Committee
(AcSEC) issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities", which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires start-up activities and organization
expenses to be expensed as incurred. We implemented SOP 98-5 in the first
quarter of 1999. The initial application is reported as a cumulative effect of
change in accounting principle.
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: We consolidate the accounts of those
joint ventures in which we have effective control as evidenced by, among other
factors, a majority interest in the investment
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<PAGE> 8
and the ability to cause a sale of assets, or in which we have a continuing
interest. All other investments in joint ventures are accounted for on the
equity method and are included in other real estate investments. As of December
31, 1999, investments accounted for under the equity method included 22 joint
ventures, Benelux SCA and Shurgard Storage to Go, a containerized storage
business. Also, included in other real estate investments are participating
mortgages, which are accounted for as loans.
Cash equivalents: Cash equivalents consist of money market instruments
and securities with original maturities of 90 days or less.
Restricted cash and investments: Restricted cash and investments consist
of cash deposits and securities held in trust in connection with certain notes
payable. Restricted cash deposits represent expense reserves required by
lenders. Restricted securities (Note I), per the loan agreement, must be held to
maturity and thus are carried at amortized cost. The premium is amortized over
the estimated remaining life of the security using the constant yield method.
Other assets: Other assets include financing costs, non-competition
agreements, and goodwill, which are presented net of accumulated amortization of
$18,748,000 and $14,788,000 as of December 31, 1999 and 1998, respectively.
Financing costs are amortized on the effective interest method over the life of
the related debt and the related expense is included in amortization.
Non-competition agreements and goodwill are amortized over their estimated
useful lives which range from three to 30 years. Also, included in other assets
are loans to affiliates.
Federal income taxes: To qualify as a REIT, we must distribute annually
at least 95% of our taxable income and meet certain other requirements.
Additionally, as a REIT, we will not be subject to federal income taxes to the
extent of distributions. We were not required to pay any federal income tax in
1997 or 1998 and we intend to make elections regarding distributions such that
we will not pay federal taxes for 1999. As a result, no provision for federal
income taxes has been made in our financial statements. We are subject to
certain international and state income taxes as well as certain franchise taxes;
however, these taxes are currently immaterial.
Revenue recognition: Revenue is recognized when earned under accrual
accounting principles.
Valuation of long-lived assets: Using our best estimates based on
reasonable and supportable assumptions and projections, we review storage
centers and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of our assets might not be
recoverable. At December 31, 1999, no assets had been impaired.
Financial instruments: The carrying values reflected on the balance
sheet at December 31, 1999, reasonably approximate the fair value of cash and
cash equivalents, other assets, accounts payable, lines of credit and other
liabilities. We estimate that the fair value of loans to shareholders is $3.5
million, and the fair value of participating mortgages is $13.4 million. Based
on the borrowing rates currently available to us for bank loans with similar
terms and average maturities, we estimate the fair value of fixed rate long-term
debt including swap arrangements is $328.3 million.
Environmental costs: Our policy is to accrue environmental assessments
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<PAGE> 9
and/or remediation costs when it is probable that such efforts will be required
and the related costs can be reasonably estimated. The majority of our real
estate facilities have undergone independent environmental investigations and
our policy is to have such investigations conducted on all new real estate
acquired. Although there can be no assurance that there is not environmental
contamination at our facilities of which we are unaware, we are not aware of any
such contamination of any of our facilities which individually or in aggregate
would be material to our business, financial condition, or results of
operations.
Reclassification: Certain amounts in the prior year financial statements
have been reclassified to conform to the current presentation.
NOTE C - STORAGE CENTERS
<TABLE>
<CAPTION>
(in thousands) DEC. 31, 1999 DEC. 31, 1998
------------- -------------
<S> <C> <C>
Land $ 228,601 $ 212,154
Buildings 861,192 826,626
Equipment & other 34,662 30,601
----------- -----------
1,124,455 1,069,381
Less accumulated depreciation (133,933) (106,527)
----------- -----------
990,522 962,854
Construction in progress, including land of
$14,193 and $24,801, respectively 49,939 81,043
----------- -----------
$ 1,040,461 $ 1,043,897
=========== ===========
</TABLE>
We have entered into 42 construction contracts for developments of new
or improvements to current storage centers. Outstanding commitments under these
contracts total $59.1 million. In 1999, 1998 and 1997, we capitalized
approximately $9.0 million, $7.6 million and $3.2 million, respectively, of
interest related to the development of storage centers.
NOTE D - ACQUISITIONS
In September 1997, we purchased from an unaffiliated third party, for
$2.1 million in cash, 1.9 limited partnership units in Shurgard Institutional
Fund LP II, an affiliated partnership. In March 1999, we purchased one
additional Limited Partner unit for $1.2 million in cash. We own 6.5 of the 9.5
units and are entitled to 67% of LP distributions. We continue to own a general
partnership interest in this partnership. Due to our majority interest, Shurgard
Institutional Fund LP II has been consolidated for financial statement purposes
since September 1997.
In 1997, we purchased, for $3.7 million in cash, three limited
partnership units in Shurgard Institutional Fund LP, an affiliated partnership.
In July 1998, we purchased an additional eighteen Limited Partner units for
$22.6 million in cash ($21.2 million, net of cash received). All purchases were
from unaffiliated third parties. Effective July 1, 1998, we owned 22 of 25 units
and are entitled to 88% of this partnership's limited partner distributions. As
this represents a majority interest, Shurgard Institutional Fund LP has been
consolidated for financial statement purposes since July 1998. We continue to
own a general partnership interest in this partnership.
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<PAGE> 10
We have entered into an agreement with a California developer under
which it will purchase sites in Southern California and construct storage
centers on them according to our specifications. Upon completion of the rent up
period, the storage centers are purchased by a joint venture in which we owned
77.3% as of December 31, 1999. Prior to such purchase, we have no ownership in
the properties and as such, they are not included in any discussions in our
operating results. The developer's interest in the entity will be based upon a
predetermined formula and the current value of the property. During the fourth
quarter of 1999, the joint venture purchased one of the completed storage
centers for $3.1 million. At December 31, 1999, we had guaranteed $20.9 million
in outstanding debt for three properties related to this agreement and will
guarantee additional amounts as future properties are developed.
NOTE E - OTHER REAL ESTATE INVESTMENTS
<TABLE>
<CAPTION>
(in thousands)
DEC. 31, 1999 DEC. 31, 1998
------------- -------------
<S> <C> <C>
Investments in participating mortgages $ 13,230 $ 13,325
Investments in joint ventures 25,624 19,778
Investment in European storage operations (2,237)
Investment in containerized storage
business (2,688) (46)
-------- --------
$ 33,929 $ 33,057
======== ========
</TABLE>
We invested $13.2 million in three participating mortgage loans. All
three mortgages are non-recourse to the borrower, bear interest at 8% per annum
and mature in January 2005. These loans are secured by real estate, including
four storage centers and office/warehouse space. Additionally, we receive
contingent interest payments from the mortgaged properties equal to 50% of both
operating cash flow and distributions from the gain on sale of real property, in
accordance with the terms of the applicable agreements. We have options to
purchase the properties at established prices, which are exercisable from
January 2000 to January 2005.
Pursuant to affiliation agreements with two storage operators, we have
entered into 22 joint ventures in which our economic interests range from 50% to
90%. As of December 31, 1999, we had invested a total of $24.2 million in these
joint ventures. We have guaranteed $27.8 million of loans, our pro-rata portion
of certain joint venture loans. The financial results for these projects are not
consolidated in our financial statements because each affiliation agreement
allows the local operator to control the daily operations of the property, and
all significant investment decisions require the approval of both parties
regardless of ownership percentage.
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 Benelux
SCA, thus reducing our equity position in Benelux SCA from 85.6% to 12.5%. This
transaction resulted in the return of $9.3 million for loans we had made to
Benelux SCA. In July 1998, we increased our participation in the joint venture
by purchasing an additional interest from a joint venture partner for $300,000,
thus, increasing our equity position in Benelux SCA to 13.06% from 12.5%. In
October 1999, a group of unaffiliated investors purchased a 42% interest in
Benelux SCA for 122 million Euro ($122.5 million in U.S. dollars at December 31,
1999). As a result of this agreement, we no longer have effective control of
Benelux SCA and our interest decreased to 7.57%.
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<PAGE> 11
As of December 31, 1999, we had invested $4.7 million in Shurgard
Storage to Go, Inc. (STG), a containerized storage business. Our investment was
offset by our portion of STG losses. We have committed to lend STG up to $11.5
million under three unsecured five year notes of which $10.7 million was
outstanding and included in other assets as of December 31, 1999. The
outstanding principal balances bear interest at the 12 month London Interbank
Offer Rate (LIBOR) plus 375 basis points per annum, and are due from July 15,
2002 to January 28, 2005. Additionally, we have currently guaranteed $10.2
million in lease obligations. We own only nonvoting stock in this start-up
venture which is not a qualified REIT subsidiary and is subject to corporate
level tax.
NOTE F - LINES OF CREDIT
We have an unsecured domestic line of credit to borrow up to $200
million at a spread over LIBOR, maturing September 30, 2001, with the option to
extend until September 2002. The amount available and the spread vary based on
the terms of the agreement; as of December 31, 1999, the current available
amount is $200 million, of which approximately $102 million is outstanding. At
December 31, 1999, the weighted average interest rate was 7.56%. Covenants on
this line of credit restrict our dividends to no more than 95% of funds from
operations (as defined by NAREIT) and require us to maintain certain financial
ratios.
NOTE G - NOTES PAYABLE
<TABLE>
<CAPTION>
(in thousands) Dec. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
Note payable to financial services company $122,580 $122,580
Senior notes payable 100,000 100,000
Mortgage notes payable 109,767 51,536
Notes payable to affiliated joint venture 56,882
-------- --------
$332,347 $330,998
======== ========
</TABLE>
The $122.6 million non-recourse note payable to a financial services
company requires monthly payments of interest only at 8.28% until it matures
June 2001 and is secured by 86 properties with a book value of $226 million. As
required by the loan agreement, we deposit cash in restricted accounts to fund
certain expenses including real estate taxes and insurance. Subsequent to the
establishment of this note, we have removed three properties from the assets
securing this note, and, as part of the defeasance, were required to place US
treasury notes costing $3.9 million into a trust account. These treasury notes
mature in June 2001 and carry an effective interest rate of 5.1%.
In April 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.
At December 31, 1999, there are five mortgage notes payable.
Shurgard/Fremont Partners I (SFPI), a consolidated partnership, formed on April
28, 1998, in which we own a 10% interest, has a non-recourse credit facility
from a commercial bank. As of December 31, 1999, $45.0 million was outstanding
on this note. The note matures May 2001, is secured by the 15 properties owned
by SFPI, and requires monthly payments of interest only at 200 basis points
above LIBOR. We have
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<PAGE> 12
swap agreements in effect for each borrowing which fix the weighted average
interest rate at 7.57% until May 2001 for the balances outstanding as of
December 31, 1999.
Shurgard/Fremont Partners II (SFPII), a consolidated partnership formed
on March 17, 1999, in which we own a 10% interest, has a non-recourse credit
facility from a commercial bank to borrow up to $64.7 million of which $49.3
million was outstanding as of December 31, 1999. The note matures March 2002, is
secured by the 15 properties owned by SFPII, and requires monthly payments of
interest only at 225 basis points above LIBOR. We have swap agreements in effect
for each borrowing which fix the weighted average interest rate at 8.56% until
March 2002 for the balances outstanding as of December 31, 1999.
K&S I, LLC, a consolidated entity, formed on October 15, 1999, in which
we own a 10% interest, has a non-recourse credit facility from a commercial bank
of $6.7 million. The note matures October 2001, is secured by the property owned
by K&S I, LLC, and requires monthly payments of interest only at 320 basis
points above LIBOR. As of December 31, 1999, the interest rate was 8.43%.
The remaining two mortgage notes are secured by a deed of trust on two
storage centers. The first is a recourse mortgage due in monthly installments of
$13,441, including principal and interest at 10.25%, and matures April 2001. The
second is a non-recourse participating mortgage for $7.3 million requiring fixed
monthly payments of interest only at 8% plus quarterly payments of 90% of excess
cash flow, as defined in the agreement. This mortgage also requires payment of
90% of the storage center's appreciation upon maturity, December 2003.
As of December 31, 1998, Benelux SCA had borrowed a total of $56.9
million with a weighted average interest rate of 7.44%. The notes are from an
affiliated joint venture in which we own a 9.15% interest and mature December
31, 2000. For the year ended December 31, 1999, Benelux SCA is no longer
consolidated and is reported under the equity method. (See Note E)
The maturities of principal on debt over the next five fiscal years are
approximately $176 million in 2001; $49.3 million in 2002; $57 million in 2004;
$50 million in 2007. Each of these notes contains covenants which require us to
submit financial information and maintain certain financial ratios.
NOTE H - LEASE OBLIGATIONS
We lease several parcels of land under operating leases with terms up to
50 years. The future minimum rental payments required under these leases are as
follows (in thousands):
<TABLE>
<S> <C>
2000 $ 1,311
2001 1,306
2002 1,371
2003 1,397
2004 1,414
Thereafter 32,902
-------
$39,701
=======
</TABLE>
-12-
<PAGE> 13
Expense under these leases was approximately $690,000, $600,000 and
$337,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
NOTE I - SHAREHOLDERS' EQUITY
In addition to the rights, privileges and powers of Class A Common
Stock, Class B common stockholders received loans from SSCI to fund certain
obligations to the 17 partnerships which comprise our predecessor. The loans are
due between 2000 and 2003 and are secured by the Class B Common Stock. Class B
Common Stock is convertible to Class A Common Stock at a one-to-one ratio as the
loans are repaid.
SSCI has 40 million shares of preferred stock authorized, of which 2.8
million shares have been designated as Series A Junior Participating Preferred
Stock (none are issued and outstanding at December 31, 1999); 2.3 million shares
have been designated as Series B Cumulative Redeemable Preferred Stock (2
million of which are issued and outstanding at December 31, 1999, as discussed
below); and 2 million shares have been designated as Series C Cumulative
Redeemable Preferred Stock (2 million of which are issued and outstanding at
December 31, 1999, as discussed below). 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.
In January and February 1997, we raised net proceeds after offering
costs of $59.3 million through the sale of 2.2 million shares of Class A Common
Stock. In April 1997, we raised $50 million ($48.2 million in net proceeds)
through the sale of 2 million shares of Series B Cumulative Redeemable Preferred
Stock. These preferred shares require quarterly distribution payments totaling
8.8% per year and are callable at our option after five years, at a redemption
price of $25 per share. In September 1997, we raised net proceeds after offering
costs of $18.9 million through the sale of 727,080 shares of Class A Common
Stock. On December 3, 1998, we raised net proceeds after offering costs of $48.1
million through the sale of 2 million shares of Series C Cumulative Redeemable
Preferred Stock. These preferred shares require quarterly distribution payments
totaling 8.7% per year and are callable at our option after five years, at a
redemption price of $25 per share.
On March 24, 1995, SSCI acquired Shurgard Incorporated (the Management
Company) through a merger. Under the Management Company Merger Agreement, we
were contingently obligated to issue additional shares as consideration for
certain partnership interests held by the Management Company which were not
valued at the time of the merger. On February 4, 1999, we issued 145,286 Class A
common shares for $3.8 million related to this obligation. We will be issuing
additional shares during 2000 as consideration for similar interests in two
other partnerships.
NOTE J - STOCK COMPENSATION AND BENEFIT PLANS
The 1993 Stock Option Plan (the 1993 Plan) provides for the granting of
options for up to 3% of our 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 1993
Plan must be
-13-
<PAGE> 14
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 1993 Plan expires
in 2003.
The 1995 Long-Term Incentive Compensation Plan (the 1995 Plan) provides
for the granting of options for up to 2% of the adjusted average shares of our
Class A Common Stock outstanding during the preceding calendar year, as well as
stock appreciation rights, stock awards (including restricted stock),
performance awards, other stock-based awards and distribution equivalent rights.
The 1995 Plan requires mandatory acceleration of vesting in the event of certain
mergers and consolidations or a sale of substantially all the assets or a
liquidation of SSCI, except where such awards are assumed or replaced in the
transaction. The 1995 Plan permits the plan administrator to authorize loans,
loan guarantees or installment payments to assist award recipients in acquiring
shares pursuant to awards and contains certain limitations imposed by recent tax
legislation. The 1995 Plan allows for grants to consultants and agents, as well
as our officers and key employees. The plan expires in July 2000.
In 1993, we also established the Stock Option Plan for Nonemployee
Directors (the Directors Plan) for the purpose of attracting and retaining the
services of experienced and knowledgeable outside directors. This plan was
amended during 1995 and provided current outside directors with 6,000 shares
each in 1995 and 3,000 shares each annually thereafter. Such options vest upon
continued service until our next annual meeting. In 1998, the Directors Plan was
amended and restated to provide for discretionary grants. The total number of
shares reserved under the Plan did not change and remains at 200,000. The
exercise price for options granted under the Directors Plan is equal to fair
market value at date of grant. As of December 31, 1999, 53,920 of these options
were outstanding.
We have an employee incentive savings and stock ownership plan, in which
substantially all employees are eligible to participate. Each year employees may
contribute an amount up to 15% of their annual compensation not to exceed the
maximum allowable by law. We match a portion of employee contributions and may
make annual discretionary contributions to purchase company stock. Our expense
for contributions to this plan was approximately $989,000, $921,000, and
$550,000 for 1999, 1998, and 1997, respectively. We do not offer post-employment
or post-retirement benefits.
In 1996, we established an Employee Stock Purchase Plan under which
employees can elect to purchase SSCI stock through regular periodic payroll
deductions without paying broker commissions. This plan provides for potential
price discounts of up to 15%. Effective January 2000, a 10% discount was offered
to employees under this plan.
The weighted average remaining contractual life of options outstanding
at December 31, 1999, was 8.8 years and option prices ranged from $18.90 to
$29.00 per share. The following table summarizes the outstanding and exercisable
options under all of our plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding, January 1, 1997 251,091 $23.32
Granted 254,045 28.25
Forfeited (14,245) 26.67
</TABLE>
-14-
<PAGE> 15
<TABLE>
<S> <C> <C>
Exercised (10,959) 23.58
---------
Outstanding, December 31, 1997 479,932 25.82
Granted 417,500 28.98
Forfeited (53,227) 23.53
Exercised (18,639) 27.50
---------
Outstanding, December 31, 1998 825,566 27.36
---------
Granted 1,582,270 23.14
Forfeited (150,685) 23.96
Exercised (9,575) 26.54
---------
Outstanding, December 31, 1999 2,247,576 24.46
=========
Exercisable, December 31, 1997 97,177 23.11
=========
Exercisable, December 31, 1998 231,278 25.57
=========
Exercisable, December 31, 1999 471,051 26.67
=========
</TABLE>
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Number of Options Weighted Average Number of Options
Outstanding Remaining Exercisable
Range of Exercise Prices December 31, 1999 Contractual Life December 31, 1999
------------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
$18.90 to $23.07 6,400 4.8 years 6,400
$20.75 to $23.00 132,310 5.8 years 110,210
$25.50 to $28.63 40,097 6.8 years 40,097
$28.25 to $28.25 209,848 7.9 years 144,285
$27.88 to $29.00 358,701 8.9 years 154,059
$21.63 to $27.56 1,500,220 9.5 years 16,000
--------- -------
2,247,576 471,051
========= =======
</TABLE>
During 1999, 8,696 shares were issued related to performance awards
granted in 1996, which were contingent on meeting performance objectives over a
three year period.
In January 1999, we granted 628,350 options at $25.25 per share and in
December 1999, we granted 930,000 options at $21.63 per share. These options
were granted at the market price at the time of grant and vest ratably over
three years.
In 1999, the Board approved a Vision 2003 bonus plan. Under the terms of
the Plan, employees of the Company will share a one time bonus payment of $50
million dollars. The bonus is an all or nothing bonus, earned upon achievement
of the equivalent of $5.00 funds from operations (FFO, as defined by NAREIT),
per share annually. The $5.00 FFO threshold will be measured by annualizing any
single quarter FFO; e.g. a fiscal quarter FFO of $1.25 is equivalent to $5.00
FFO annually. This goal must be achieved by December 31, 2003, or no bonus will
be paid. The bonus is payable to all employees based on length of service and
position within the Company, and is subject to adjustment by the board for
unplanned expansion of existing business or new business ventures.
-15-
<PAGE> 16
We have adopted the disclosure only provisions of the Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." No compensation cost has been recognized for the stock option
plans. Had compensation cost for options granted under our three stock option
plans been determined based on the fair value at the grant date for awards in
1997, 1998 and 1999 consistent with the provisions of SFAS No. 123, our net
income and net income per share would have been reduced to the pro forma amounts
indicated below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported $ 50,673 $ 44,734 $ 42,311
Pro forma 49,642 44,132 41,698
Dilutive net income per share:
As reported 1.44 1.39 1.40
Pro forma 1.40 1.37 1.38
Weighted average fair value of
options granted 2.38 2.90 2.55
</TABLE>
The fair value of options granted under our stock option plans during
1999, 1998 and 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used:
dividend yield of 8.64%, 6.76% and 6.8%; expected volatility of 22%, 21% and
17.61%; risk free interest rate of 6.39%, 4.64% and 5.77%; and expected life of
6.5, 6.5, and 5 years, respectively.
NOTE K - SHAREHOLDER RIGHTS PLAN
In March 1994, we adopted a Shareholder Rights Plan and declared a
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 SSCI) having a value equal to two times
the exercise price of the Right. In addition, if SSCI 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. We 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 distribution rights, and until they become
exercisable, have no dilutive effect on our earnings.
-16-
<PAGE> 17
NOTE L - NET INCOME PER SHARE
The following summarizes the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
(in thousands except WEIGHTED NET
per share data) AVERAGE INCOME
NET INCOME SHARES PER SHARE
--------- --------- ---------
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1997
Net income $ 42,311
Less: Preferred
dividends (3,060)
--------
Basic net income 39,251 27,947 $ 1.40
Effect of dilutive
stock options 53
-------- -------- ------
Diluted net income $ 39,251 28,000 $ 1.40
======== ======== ======
FOR THE YEAR ENDED
DECEMBER 31, 1998
Net income $ 44,734
Less: Preferred
dividends (4,690)
--------
Basic net income 40,044 28,693 $ 1.40
Effect of dilutive
stock options 31 ( .01)
-------- -------- ------
Diluted net income $ 40,044 28,724 $ 1.39
======== ======== ======
FOR THE YEAR ENDED
DECEMBER 31, 1999
Net income $ 50,673
Less: Preferred
dividends (8,750)
--------
Basic net income 41,923 29,087 $ 1.44
Effect of dilutive
stock options 43
-------- -------- ------
Diluted net income $ 41,923 29,130 $ 1.44
======== ======== ======
</TABLE>
-17-
<PAGE> 18
NOTE M - SEGMENT REPORTING
SSCI currently has two reportable segments; Same and New Stores. Our
definition of Same Stores includes existing stores acquired prior to January 1
of the previous year as well as developed properties that have been operating
for a full two years as of October 1 of the current year. We project that newly
developed properties will reach stabilization in an average of approximately 24
months. New Stores include existing domestic facilities that had not been
acquired as of January 1 of the previous year as well as domestic developed
properties that have not been operating a full two years as of October 1 of the
current year. Additionally, prior to 1999, we consolidated the European
operations and reported a third segment: European Stores. These European stores
are currently located in five countries: Belgium, France, Sweden, the
Netherlands, and the United Kingdom. Disposed represents properties sold during
1999.
These reportable segments allow us to focus on increasing net operating
income from our existing domestic real estate assets and renting up our new
domestic facilities. We evaluate each segment's performance based on net
operating income (NOI) which is defined as rental revenue less direct operating
expenses and real estate taxes. NOI does not include any allocation of off-site
management or overhead costs.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. There are no inter-segment
sales and transfers. SSCI does not allocate non-direct operating expenses,
depreciation & amortization, general, administrative and other, interest
expense, interest and other income (net) and minority interest to the segments.
Using the definition of Same Store and New Store described above, the
portfolio of assets reported in these segments changes from year to year. Assets
transition from New Store to Same Store over time. The following table
illustrates the results using the 1999 Same Store, New Store and European store
base for reportable segments as of and for the years ended December 31, 1999 and
1998. Same Stores includes all stores acquired prior to January 1, 1998, and
domestic developments opened prior to October 1, 1997. New Stores represents all
stores acquired after January 1, 1998, and domestic developments opened after
October 1, 1997:
-18-
<PAGE> 19
<TABLE>
<CAPTION>
(in thousands) EUROPEAN
SAME STORES NEW STORES STORES DISPOSED TOTAL
----------- ----------- -------- ----------- -----------
YEAR ENDED
DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C>
Rental revenue $ 166,291 $ 17,833 $ 1,840 $ 185,964
Less unconsolidated joint
ventures (7,619) (3,300) (10,919)
----------- ----------- ----------- -----------
Consolidated revenue 158,672 14,533 1,840 175,045
Operating expenses 47,472 7,878 697 56,047
Less unconsolidated joint
ventures (2,076) (1,654) (3,730)
----------- ----------- ----------- -----------
Consolidated operating
expenses 45,396 6,224 697 52,317
----------- ----------- ----------- -----------
Consolidated NOI $ 113,276 $ 8,309 $ 1,143 $ 122,728
=========== =========== =========== ===========
Total Assets $ 755,447 $ 281,152 $ 1,036,599
=========== =========== ===========
YEAR ENDED
DECEMBER 31, 1998
Rental revenue $ 159,451 $ 6,106 $ 4,243 $ 2,160 $ 171,960
Less unconsolidated joint
ventures (9,507) (3,464) (12,971)
----------- ----------- ------- ----------- -----------
Consolidated revenue 149,944 2,642 4,243 2,160 158,989
Operating expenses 46,394 2,896 2,545 963 52,798
Less unconsolidated joint
ventures (2,772) (1,642) (4,414)
----------- ----------- ------- ----------- -----------
Consolidated operating
expenses 43,622 1,254 2,545 963 48,384
----------- ----------- ------- ----------- -----------
Consolidated NOI $ 106,322 $ 1,388 $ 1,698 $ 1,197 $ 110,605
=========== =========== ======= =========== ===========
Total Assets $ 784,549 $ 164,082 $90,664 $ 1,039,295
=========== =========== ======= ===========
</TABLE>
The following table illustrates the results using the 1998 Same Store,
New Store and European store base for reportable segments as of and for the
years ended December 31, 1998 and 1997. Same Stores includes stores acquired
prior to January 1, 1997, and all domestic developments opened prior to
October 1, 1996. New Stores represents all stores acquired after January 1, 1997
and domestic developments opened after October 1, 1996:
-19-
<PAGE> 20
<TABLE>
<CAPTION>
EUROPEAN
(in thousands) SAME STORES NEW STORES STORES TOTAL
----------- ---------- ------ -----
YEAR ENDED
DECEMBER 31, 1998
<S> <C> <C> <C> <C>
Rental revenue $ 146,138 $ 21,579 $ 4,243 $ 171,960
Less unconsolidated joint
ventures (6,871) (6,100) (12,971)
----------- ----------- ----------- -----------
Consolidated revenue 139,267 15,479 4,243 158,989
Operating expenses 41,025 9,167 2,545 52,737
Less unconsolidated joint
ventures (1,721) (2,632) (4,353)
----------- ----------- ----------- -----------
Consolidated operating
expenses 39,304 6,535 2,545 48,384
----------- ----------- ----------- -----------
Consolidated NOI $ 99,963 $ 8,944 $ 1,698 $ 110,605
=========== =========== =========== ===========
Total Assets $ 673,164 $ 275,467 $ 90,664 $ 1,039,295
=========== =========== =========== ===========
YEAR ENDED
DECEMBER 31, 1997
Rental revenue $ 139,564 $ 7,193 $ 1,927 $ 148,684
Less unconsolidated joint
ventures (9,738) (1,200) (10,938)
----------- ----------- ----------- -----------
Consolidated revenue 129,826 5,993 1,927 137,746
Operating expenses 41,329 3,430 1,656 46,415
Less unconsolidated joint
ventures (2,270) (436) (2,706)
----------- ----------- ----------- -----------
Consolidated operating
expenses 39,059 2,994 1,656 43,709
----------- ----------- ----------- -----------
Consolidated NOI $ 90,767 $ 2,999 $ 271 $ 94,037
=========== =========== =========== ===========
Total Assets $ 682,559 $ 146,253 $ 40,080 $ 868,892
=========== =========== =========== ===========
</TABLE>
The following table reconciles the reportable segments' revenue per the
table above to consolidated total revenue for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Consolidated rental revenue $ 175,045 $ 158,989 $ 137,746
Other real estate investments
Income (loss) (3,302) (1,628) 225
Property management revenue 1,411 1,893 2,463
--------- --------- ---------
Total revenue $ 173,154 $ 159,254 $ 140,434
--------- --------- ---------
</TABLE>
-20-
<PAGE> 21
The following table reconciles the reportable segments' NOI per the
table above to consolidated net income for the years ending December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Consolidated NOI $ 122,728 $ 110,605 $ 94,039
Other real estate investments income
(loss) (3,302) (1,628) 225
Property management revenue 1,411 1,893 2,463
Other operating expenses (52,171) (49,454) (40,065)
Interest & other income (19,619) (19,645) (15,615)
Minority interest 2,724 2,963 1,264
Change in accounting principle (1,098)
--------- --------- ---------
Net income $ 50,673 $ 44,734 $ 42,311
========= ========= =========
</TABLE>
The following table reconciles the reportable segments' assets to
consolidated assets as of December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Segment assets $ 1,036,599 $ 1,039,295 $ 868,892
Unconsolidated joint ventures (70,771) (51,605) (59,259)
Corporate assets 187,398 166,217 145,855
----------- ----------- -----------
Consolidated assets $ 1,153,226 $ 1,153,907 $ 955,488
=========== =========== ===========
</TABLE>
NOTE N - SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
For the year ended December 31, 1999, European operations are no longer
being consolidated, but are now reported under the equity method. The revenue
and income from operations for 1999 reflects this reporting change, and
therefore, does not agree to the information previously reported in the
quarterly reports.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
(in thousands, except per share data) 1999 1999 1999 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue $40,016 $42,843 $45,272 $45,023
Income from operations 14,966 17,485 18,794 17,421
Net income 9,798 13,142 14,018 13,715
Net income per common share
Basic 0.26 0.38 0.41 0.39
Diluted 0.26 0.38 0.41 0.39
</TABLE>
-21-
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
(in thousands, except per share data) 1998 1998 1998 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue $37,115 $38,387 $41,549 $42,203
Income from operations 14,143 15,758 16,750 14,765
Net income 10,369 11,339 11,794 11,232
Net income per common share
Basic 0.32 0.36 0.37 0.35
Diluted 0.32 0.36 0.37 0.34
</TABLE>
NOTE O - CONTINGENT LIABILITIES AND COMMITMENTS
As a general partner, we are contingently liable for $126 million of an
unconsolidated joint venture's debt.
Under the terms of the SFPI agreement executed in connection with the
formation of SFPI, we were granted an option to acquire all fifteen of the
properties owned by SFPI. The purchase option is exercisable at certain times
between December 15, 2000, and December 31, 2002, depending upon the performance
of the properties. The purchase price for the properties upon exercise of the
option is based on a 9 1/4 capitalization rate applied to the net operating
income of the properties for the three or four-month period preceding the
exercise of the option. If the properties meet certain performance criteria, we
are committed to make an option payment of $7.5 million. If we choose to
exercise the option, the option payment will be applied toward the purchase
price of the properties. We intend to exercise our option in December 2000.
Under the terms of the SFPII agreement executed in connection with the
formation of SFPII, we were granted an option to acquire all fifteen of the
properties owned by SFPII. The purchase option is exercisable at certain times
between December 31, 2001 and October 31, 2003, depending upon the performance
of the properties. The purchase price for the properties upon exercise of the
option is based on a 9 1/4 capitalization rate applied to the net operating
income of the properties for the three or four-month period preceding the
exercise of the option subject to a collar. If the properties meet certain
performance criteria, we are committed to make an option payment of 15% of the
approved aggregate capital budget of the properties acquired by the Partnership.
If we choose to exercise the option, the option payment will be applied toward
the purchase price of the properties.
-22-
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Shurgard Storage Centers, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Shurgard Storage
Centers, Inc., and subsidiaries (the Company) as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company'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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
February 11, 2000
-23-
<PAGE> 24
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this amended
Annual Report on Form 10-K/A to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Seattle, State of Washington, on the
28th day of September 2000.
SHURGARD STORAGE CENTERS, INC.
By: /s/ Harrell Beck
---------------------------------
Harrell Beck
Senior Vice President
Chief Financial Officer
-24-
