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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[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.
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-1603837
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(State of organization) (IRS Employer Identification No.)
1155 Valley Street, Suite 400, Seattle, Washington 98109
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(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
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<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 77 pages.
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PART I
ITEM 1 - BUSINESS
OVERVIEW
Shurgard Storage Centers, Inc. (the Company or SSCI) is a fully
integrated, self-administered and self-managed real estate investment trust
(REIT) that develops, acquires, owns and manages self storage centers and
related operations. Our self storage centers offer easily accessible storage
space for personal and business uses. We are one of the four largest operators
of self storage centers in the United States. As of December 31, 1999, we
operated a network of 382 storage centers and three business parks located
throughout the United States and in Europe. Of these properties, we own,
directly and through our subsidiaries and joint ventures, 352 properties
containing approximately 22.6 million net rentable square feet. Of the 352
properties, 324 are located in 19 states in the U.S., and 28 are located in
Europe. We also manage for third parties 32 self storage centers and one
business park containing approximately 1.9 million net rentable square feet. For
the year ended December 31, 1999, our self storage centers had a weighted
average annual net rentable square foot occupancy rate of 82% and a weighted
average rent per net rentable square foot of $10.30.
We were incorporated in Delaware on July 23, 1993 and began operations
through the consolidation on March 1, 1994 of 17 publicly held real estate
limited partnerships (the Consolidation) that were sponsored by Shurgard
Incorporated (the Management Company). On March 24, 1995, the Management Company
merged with and into the Company (the Merger) and we became self-administered
and self-managed. In May 1997, we reincorporated in the state of Washington.
BUSINESS STRATEGY
Our mission is to become the global leader in storage products and
services by (i) emphasizing customer service and satisfaction, (ii) maintaining
a portfolio of convenient and secure stores, (iii) optimizing revenue through
efficient rent pricing and collection policies, (iv) pursuing marketing and
sales programs, and (v) integrating our property management systems and
procedures. Of these factors, the most important is the quality of our
employees' interaction with customers.
Commitment to Customer Service and Satisfaction
Our goal is to achieve a high level of customer satisfaction, and we
view the quality of customers' interaction with employees as critical to our
long-term success. Accordingly, we emphasize teamwork in our employee training
programs. Through our emphasis on training, personnel development and
decentralized decision-making, we believe we attract well-qualified, highly
motivated employees committed to providing superior levels of customer service.
Convenient and Secure Stores
Our stores are located for easy access, offer a range of storage
products and services for customer convenience, and emphasize security and
product quality. We believe that our strategy of offering high-quality,
convenient stores strengthens the brand image of Shurgard, attracts customers
and enables the Company to maintain premium rents.
- - Store Location and Hours. Our stores are generally located in major
metropolitan areas along retail and high-traffic corridors for easy
customer access, and usually have significant road frontage for high
visibility.
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Although hours vary from store to store, customers can generally access
their individual units between 6 a.m. and 9 p.m.
- - One-Stop Convenience. Our stores offer a range of storage products and
ancillary services, including supplies such as packing and storage
materials, locks and boxes, as well as services such as property
insurance referrals, moving company referrals, and Ryder truck rentals
that conveniently and efficiently address customers' storage needs. In
addition, we generally offer premium features such as
computer-controlled access and electronic security systems. Finally, a
number of our stores offer climate-controlled storage space.
- - Property Security. A variety of measures are used at our stores, as
appropriate, to enhance security. Such measures may include, among
others, on-site personnel, electronic devices such as intrusion and fire
alarms, access controls, video and intercom surveillance devices,
individual unit alarms, perimeter beams, fencing and lighting. Customers
are assigned a designated personal identification number for use in
connection with a computerized gate access system. Each access is logged
into a computer database. In addition, we have developed and plan to
continue to improve our package of security controls, including
software, video and interactive communication.
- - Capital Expenditures and Maintenance. We budget for a level of capital
expenditures consistent with our commitment to maintaining attractive,
well-maintained and secure self storage centers, which enables us to
pursue a premium pricing strategy. In addition, capital expenditures for
consistent signage and color scheme among our properties strengthens the
brand image of Shurgard. (See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital
Expenditures)
- - Selective Disposition. We regularly review our portfolio compared to
established internal standards, identify those properties which can not
meet these standards and dispose of such properties. We intend to
continue this policy.
Marketing and Sales Programs
We employ various means to increase our share of the self storage
market. We place prominent advertisements in the yellow pages and seek to
promote customer awareness of our stores through highly visible store locations,
site signage and architectural features. We locate our stores along retail and
high-traffic corridors, usually with significant road frontage to increase
visibility. We build on most newly developed stores a distinctive "lighthouse"
office to distinguish ourself from competitors and to increase customer
awareness of the Shurgard brand.
Primary marketing emphasis is placed on providing managers with sales
skills to elicit customer needs and turn prospects into customers. We also have
a national call center to field telephone sales calls from individual
properties. Employees at the national call center are able to rent a unit at the
store most convenient to the customer. Beginning in the first quarter of 2000,
we plan to implement additional sales and marketing programs to broaden our
distribution channels. These programs include enhancing our e-commerce business
and expanding our commercial accounts and our direct sales force in selected
markets.
We maintain an extensive market research database on our primary markets
and closely track occupancy levels, rental rates and other operational data
regarding self storage properties within these markets. We have also conducted
focus group research and telephone surveys, and utilize customer comment cards
to identify the primary considerations in customers' self storage choices and
satisfaction so that we can better attract and service customers.
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Property Management Systems/Management Information Systems
We have integrated property management systems and procedures for
marketing, advertising, leasing, operations, maintenance and security of
properties and the management of on-site personnel. Our computerized management
information system links our corporate office with each store. During 1997, we
completed the development and installation of proprietary software that
expedites internal auditing, financial statement and budget preparations, allows
the daily exchange of information with our corporate office, and manages
detailed information with respect to the tenant mix, demographics, occupancy
levels, rental rates, revenue optimization, payroll and other information
relating to each store. Additionally, we purchased a new network-based
accounting package that has aided in the compilation and dissemination of
information from and to our stores. During 1998, as part of our move to our new
corporate offices, we installed an enterprise wide-area network and remote
access capability. We believe that this new information system is adequate to
support the management of our currently owned properties as well as planned
future growth. During 1999, we were recognized for our centralized sales
management software (Aladdin) under Microsoft's Best Business Operations
Solution award. This software enables our national sales center, commercial
accounts, and our corporate employees to have remote sales access to the entire
Shurgard network of stores.
Other Activities
The Company also manages, under the Shurgard name, self storage
properties owned by others that meet our quality standards. Management of such
properties enables us to spread the cost of overhead across a greater number of
properties. Additionally, it enables us to expand our presence in the markets in
which we operate, to offer customers a broader geographic selection of self
storage properties to suit their needs and it enables Shurgard to establish
relationships with property owners that may lead to future acquisitions.
Management fees earned by the Company are not qualifying income for REIT
qualification purposes. Accordingly, we closely monitor the level of these
activities to ensure our continued qualification as a REIT.
For financial information about industry segments, see the Consolidated
Financial Statements and the notes thereto, including NOTE M. For financial
information about foreign and domestic operations, see the Consolidated
Financial Statements and the notes thereto, including NOTE E.
GROWTH STRATEGIES
Our growth strategies are designed to maximize shareholder value by
increasing funds from operations through increases in revenue and operating
efficiencies at existing stores and the development of new self storage
properties and the acquisition of additional self storage properties. We have an
integrated real estate and storage operations management team which combines its
experience to implement our growth plan. We believe that the experience of our
management team in operating, developing and acquiring self storage properties
and our access to capital markets strongly contribute to our ability to execute
these strategies.
Internal Growth Strategy
Our internal growth strategy is to increase same store cash flow by
achieving the highest rental rate structure consistent with strong occupancy
rates, cost containment, improved operating leverage, and expansion of our
existing stores.
- - Revenue Optimization. We seek to optimize our revenue by achieving the
highest rental rate structure for our stores, consistent with strong
levels of occupancy, through the use of teams of store employees and
market managers who are trained and authorized to set rental rates and
make rental rate changes based on their analysis of demand and
availability at a particular store. We empower local market personnel to
change marginal rental rates in order to ensure a fast, flexible
response to changing market conditions. Market
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personnel evaluate their property's rental rates on a periodic basis,
based on unit demand and unit availability, and can quickly change
marginal rental rates to ensure that revenue is optimized.
- - Cost Containment and Improved Operating Leverage. We seek to maximize
cash flow by carefully containing operating expenses. For example, we
aggressively appeal our real estate tax assessments. In addition, as we
increase the number of properties in our targeted markets, we achieve
larger economies of scale and lessen the impact of corporate overhead
expense. We believe that our management and operational procedures,
which can be implemented over a large number of properties, enable us to
add new properties with little additional overhead expense.
- - Strategic Build-Outs. We seek to maximize revenue by building out
additional rentable storage space at suitable stores either through on
site expansion or acquisition of property adjacent to existing stores.
We receive high incremental returns on such build-out investments,
because resulting revenue increases are achieved with little increase in
fixed operating costs.
External Growth Strategy
Our external growth strategy is to develop new, high-quality self
storage properties and to selectively acquire additional self storage properties
that meet or can be upgraded to our standards. In general, we plan to develop or
acquire new properties primarily in our existing markets and in new markets that
create economies of scale with our current network of stores. In most markets,
we seek to own at least 15 stores in order to realize operating and marketing
efficiencies and increase brand awareness. We believe that the experience of our
management team in developing and acquiring self storage properties strengthens
our ability to pursue our external growth strategy.
We favor development or acquisition of self storage properties in major
metropolitan markets, located near retail or high-traffic corridors, usually
with significant road frontage to increase visibility. We rely on our market
personnel to target areas in which to develop and acquire new stores. We utilize
our staff of real estate professionals in various markets to develop and acquire
new stores in the markets presenting the best opportunities. We have developed
comprehensive market expansion plans for each of our target markets, and use
these plans as the basis for selecting new store locations and acquisition
targets. The market expansion plans utilize a demographic analysis of an area
along with an evaluation of competitors' locations, rates and product quality to
determine the optimum number and location of new stores. Management believes
that, under current market conditions, development will generally provide
superior long-term returns when compared to acquisitions of similar size,
quality and location. Based on this belief, our current growth plan focuses
heavily on property development; however, management continually analyzes market
conditions and acquisition opportunities.
Development. We believe that several factors favor our development
strategy:
- - Development Expertise. We have substantial construction management and
architectural experience that was acquired over the past 26 years. Along
with our predecessors, we developed more than a third of the properties
we currently own or manage, and, since 1972, we have maintained an
internal development staff, which currently employs 32 people.
- - Strategic Site Selection to Maximize Revenue. To obtain the best store
locations, we target sites for development in urban areas and up-scale
retail areas that often require rezoning and other complex development
measures. We believe that the difficulties of developing storage
properties in such in-fill areas may discourage competitors from
locating nearby and, as a result, enable us to operate in underserved
areas. This in turn enables us to charge higher rental rates.
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- - Focus on Quality and Brand Image Development. We have greater control of
quality and brand image by developing our own self storage properties.
This enables us to focus on excellent construction and a consistent and
inviting building design. We believe our focus on quality and
consistency will enable us to further strengthen awareness of the
Shurgard brand, obtain repeat business, maintain premium prices and
differentiate ourself from our competitors.
The historical results of development properties completed from 1989 to
1997 by us or our predecessors demonstrate the level of superior returns
possible through development. They are currently returning 11% on original
property costs. There can be no assurance, however, that we will achieve such
returns on our more recently opened development properties. Future development
may differ materially from results of past development properties. Factors that
may lead to different results include, but are not limited to, the possibility
of more competition to our new developments than was experienced in the periods
in which these partnerships were renting up their developments, the quality and
location of the competing projects being built, and the possibility that the
metropolitan markets in which we are developing may have less favorable supply
and demand characteristics.
Acquisitions. We also selectively acquire high-quality properties that
are consistent with our business plan. Additional acquisitions allow us to
spread overhead and certain management, marketing and advertising costs over a
greater number of revenue-producing assets. As a result, we can achieve
increasing economies of scale with each new property acquired. We complete a
thorough analysis of each property that we intend to acquire, including, but not
limited to, a review of capital expenditures that will be required for the
property to meet our standards and, at a minimum, a Phase I environmental
assessment report.
European Investment. The strategies mentioned above also apply to our
European investment. During the past seven years our European partners have
cautiously tested the product on local consumers and have tailored their self
storage product to meet the needs of European consumers. During that time they
built the infrastructure necessary to support an accelerated expansion program.
Today, these European operations employ over 140 employees with a senior
management team made up of seasoned managers with substantial local development,
finance, operations and marketing experience. As of December 31, 1999, they had
28 storage centers operating in five countries.
Shurgard Storage To Go, Inc. (STG) Our customer service focus means that
we are continually exploring new ways to serve our customers' storage needs. One
of the ways we have broadened our ability to meet customer needs is by bringing
storage directly to the customer through containerized storage through Shurgard
Storage To Go. Weatherized 8'x5'x8' storage containers are delivered to
customers for packing. The containers are then picked up and delivered to a
warehouse for storage. Customers may access their storage container in a
showroom at the warehouse or have it redelivered to their home. In addition to
the monthly rental charge, service fees may be charged for transportation of the
container. This business venture is currently operating in the Seattle,
Portland, San Francisco, Atlanta, and Chicago markets.
As of December 31, 1999, our gross investment in Shurgard Storage to Go,
Inc. (STG) was $4.7 million. We have committed to lend up to $11.5 million under
three unsecured five year notes of which $10.7 million was outstanding at
December 31, 1999. Additionally, we have 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.
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CAPITAL STRATEGY
During the past year, there has been a net outflow of capital from the
REIT sector which has resulted in depressed common equity prices for many REITs,
including us. As a result, we do not believe it is an attractive time to raise
common equity. Accordingly, we anticipate funding 2000 growth and our on-going
development program primarily through a combination of our lines of credit, long
term debt, preferred equity, and alternative capital sources. We intend to
pursue joint ventures with private institutions and public pension funds to
provide these alternative sources of capital. Additionally, we anticipate
reducing our payout ratio in order to retain cash flow for growth.
To fund development and acquisitions, we have a revolving domestic
credit facility of up to $200 million. We anticipate that cash flow from
operating activities will continue to provide adequate capital for debt service
payments until maturity, as well as for distribution payments in accordance with
REIT requirements. We anticipate refinancing outstanding debt upon maturity
through long-term debt or equity or some combination thereof.
In order to mitigate our currency exchange and interest rate risk, we
contract with financial institutions for hedging, exchanging, or entering into
swap transactions. Our policy specifically prohibits us from entering into any
such contract solely to secure profit by speculating on the direction of
currency exchange rates if unrelated to capital borrowed, lent or invested by
us.
THE SELF STORAGE INDUSTRY
The self storage industry serves an important function in the commercial
and residential real estate markets. Self-storage properties were first
developed in the early 1960's in the southwestern United States in response to
the growing need for low-cost, accessible storage. A number of factors
accelerated the demand for low-cost storage, including, among others, a more
mobile society, with individuals moving to new homes and new cities needing
short-term storage for their belongings, the increasing cost of housing
(resulting in smaller houses), the increased popularity of apartments and
condominiums, more individuals with growing discretionary income (resulting in
the purchase of items such as boats and recreational vehicles that often cannot
be stored at residences), the growing number of small businesses and the
escalating cost of other storage alternatives. As the demand for such storage
increased, and the acceptance of self storage became more widespread, self
storage properties were built throughout the United States. Generally, such
properties were constructed along major thoroughfares that provided ready access
and public visibility or in outlying areas where land was inexpensive. In
certain areas of the country, where new construction was impractical because of
construction costs, lack of suitable sites or other restrictions, older
structures have been converted into self storage properties.
We believe, based on our experience, that the self storage industry is
characterized by fragmented ownership, high gross margins, low levels of price
sensitivity and increasing customer demand. Typical customers of a self storage
property include individuals, ranging from homeowners to college students, and
commercial users, such as sales representatives and distributors, who require
frequent access, and business owners requiring seasonal storage. A single
customer rarely occupies more than 1% or 2% of the net rentable area in any
particular store.
Capital expenditures are generally less for self storage properties as
compared to other types of commercial real estate due to the properties'
structural simplicity and durable materials and the lack of tenant improvement
demands. Capital expenditures include periodic expenditures for replacing roofs
and pavement, as well as improvements such as expansions and unit
reconfigurations. Expense items include repairing asphalt, doors, fences and
masonry walls, maintaining landscaping, and repairing damage caused by customer
vehicles. Minimal maintenance is required to a storage unit when vacated to
prepare it for the next customer.
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COMPETITION
Competition exists in every market in which our stores are located. We
compete with, among others, national, regional and local self storage operators
and developers. The primary factors on which competition is based are location,
rental rates, security, suitability of the property's design to prospective
tenants' needs and the manner in which the property is operated and marketed. We
believe that the primary competition for potential customers of any of our self
storage centers comes from other self storage properties within a three- to
five-mile radius of that store. We have positioned our stores within their
respective markets as a high-quality operator that emphasizes customer service
and security. We do not seek to be the lowest-price storage provider.
Entry into the self storage business through acquisition of existing
properties is relatively easy for persons or institutions with the required
initial capital. Some of our competitors may have more resources than the
Company. Competition may be accelerated by any increase in availability of funds
for investment in real estate. Decreases in interest rates tend to increase the
availability of funds and therefore can increase the growth of competition. Due
to increased new supply in the last few years, we anticipate that increased
available storage space will continue to reduce occupancy levels per storage
property in certain markets in 2000 and further intensify competition among
storage providers for available tenants in those markets. The extent to which we
are affected by competition will depend in significant part on local market
conditions. Development starts have generally stabilized and we believe, given
our geographic diversification, that there continues to be both internal and
external growth opportunities.
REGULATION
Environmental Regulations
The Company is subject to federal, state and local environmental
regulations that apply to the ownership, management and development of real
property, including regulations affecting both construction activities and the
operation of self storage properties.
In developing properties and constructing improvements, we utilize
environmental consultants and/or governmental data to determine whether there
are any flood plains, wetlands or environmentally sensitive areas that are part
of the property to be developed. If any such areas are identified, development
and construction are planned in conformance with federal, state, and local
environmental and land-use requirements.
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real property may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property.
Such laws may impose liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. The
presence of hazardous substances on a property may adversely affect the owner's
ability to sell the property or to borrow using the property as collateral, and
may cause the owner or manager of the property to incur substantial remediation
costs. In addition to claims for cleanup costs, the presence of hazardous
substances on a property could result in the owner or manager incurring
substantial liabilities as a result of a claim by a private party for personal
injury or a claim by an adjacent property owner for property damage.
We have notified the Missouri Department of Natural Resources (MDNR) of
elevated levels of hydrocarbons found in groundwater monitoring wells on a
property in St. Louis, Missouri. We have been monitoring in accordance with a
work plan approved by the MDNR. During 1998, a quarterly monitoring report
revealed continued contamination in the groundwater samples. The source of the
contamination is still unknown. The MDNR notified us that it will continue
requiring quarterly groundwater monitoring. During 1999, at MDNR's request, a
work plan was developed to address their question on whether on-site
contamination might be spreading to adjacent properties. The work plan
encompasses a broader scope of monitoring, including
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installation of four additional monitoring wells on adjacent properties. We are
contacting neighboring property owners to attempt to obtain permission to
install the four new wells. In the event significant contamination has spread to
adjacent properties, the MDNR could be more aggressive in the future, and may
require off-site delineation of the groundwater contaminant plume and
construction of a groundwater/soil-vapor extraction remediation system. Except
for this property in St. Louis, we have not been notified by any governmental
authority of any current, material environmental noncompliance, claim or
liability in connection with any of the properties we own or manage. We have not
been notified of a current claim for personal injury or property damage by a
private party in connection with environmental conditions at any of our
properties. We have obtained a Phase I environmental assessment report prepared
by an independent environmental consultant for each of the properties we own.
We are not aware of any environmental condition with respect to the
properties we own or manage, including the Missouri property discussed above,
that could have a material adverse effect on our financial condition or results
of operations. We cannot give assurance however, that any environmental
assessments undertaken with respect to the properties have revealed all
potential environmental liabilities, that any prior owner or operator of the
properties did not create any material environmental condition not known to us,
or that an environmental condition does not otherwise exist as to any one or
more of the properties that could have a material adverse effect on our
financial condition or results of operation. In addition, we cannot give
assurance that (i) future laws, ordinances or regulations will not impose any
material environmental liability, (ii) the current environmental condition of
our owned or managed properties will not be affected by the condition of
properties in the vicinity of such properties (such as the presence of leaking
underground storage tanks) or by third parties unrelated to us, or (iii) tenants
will not violate their leases by introducing hazardous or toxic substances into
our owned or managed properties that could expose us to liability under federal
or state environmental laws.
Americans With Disabilities Act; Fire and Safety Regulations
Under the ADA, all public accommodations are required to meet certain
federal requirements relating to physical access and use by disabled persons.
Compliance might require, among other things, removal of access barriers. A
determination that we are not in compliance with the ADA could result in the
imposition of fines, injunctive relief, damages or attorneys' fees. If we were
required to make modifications to comply with the ADA, our ability to make
expected distributions to our shareholders could be adversely affected; however,
management believes that such effect would not be material. In addition, we are
required to operate our properties in compliance with fire and safety
regulations, building codes and other land use regulations, as they may be
adopted by governmental agencies and bodies and become applicable to our
properties. Compliance with such requirements may require substantial capital
expenditures, which would reduce money otherwise available for distribution to
shareholders.
INSURANCE
We believe that our self storage properties are covered by adequate
fire, flood, wind, earthquake and property insurance, as well as business
interruption insurance, provided by reputable companies and with commercially
reasonable deductibles and limits. We purchase title insurance on all of our
properties at the time of acquisition. We use our discretion in determining
amounts, coverage limits and deductibility provisions of title, casualty and
other insurance, based on the purchase price paid for such property, in each
case with a view to obtaining appropriate insurance coverage on our properties
at a reasonable cost and on suitable terms.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 937 persons.
None of our employees are covered by a collective bargaining agreement. We
believe that our relations with our employees are good.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company as of December 31, 1999.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AGE WITH THE COMPANY
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<S> <C> <C>
Charles Barbo 58 Chairman of the Board, President and Chief Executive Officer
Harrell Beck 43 Director, Senior Vice President, Chief Financial Officer and
Treasurer
David Grant 46 Executive Vice President
Michael Rowe 43 Executive Vice President
Christine McKay 38 Senior Vice President, Secretary and General Counsel
Donald Favreau 47 Senior Vice President, Operations
John Steckler 42 Senior Vice President, Marketing
Steve Tyler 47 Senior Vice President, Operations
</TABLE>
For Mr. Barbo's and Mr. Beck's biographies, see our proxy statement for
the annual meeting of shareholders to be held on May 9, 2000.
David Grant has served as our Executive Vice President and Director of
Real Estate Investment since July 1993. In February 1996, Mr. Grant transferred
to Brussels, Belgium. He became Managing Director of SSC Benelux & Co., SCA
(formerly SSC Benelux & Co., SCS) effective January 1, 1996. Mr. Grant joined
Shurgard Incorporated in November 1985 as Director of Real Estate Investment
and continued to serve in that capacity until the Merger. He also served as an
Executive Vice President of Shurgard Incorporated. Mr. Grant was previously
a manager with Touche Ross & Co., where he was employed for approximately 10
years providing financial consulting, accounting and auditing services primarily
to clients in the real estate, construction and engineering industries. Mr.
Grant has a Bachelor of Arts degree in Business Administration and a Bachelor of
Science degree in Accounting, both from Washington State University.
Michael Rowe served as our Executive Vice President from July 1993
through January 2000. Mr. Rowe also served as Chief Operating Officer from
January 1996 through October 1999. Prior to the Merger, he served as Executive
Vice President and Director of Storage Operations of Shurgard Incorporated. Mr.
Rowe has a Bachelor of Arts degree in Business Administration from Washington
State University.
Christine McKay was named Senior Vice President, Secretary and General
Counsel in October 1999. She joined Shurgard Incorporated in June 1993, as an
Assistant General Counsel. She has served as our Assistant Secretary since
October 1998, and as Assistant Secretary and Division Counsel for Shurgard
Storage To Go, Inc., since July 1997. Ms. McKay was previously an attorney with
Williams, Kastner & Gibbs, in Seattle where her practice focused on real estate,
general business and international fisheries transactions. She has a Bachelor of
Arts degree in Business Administration from Chadron State College, and a Juris
Doctorate, with honors, from Creighton University. She is a member of the
Washington State Bar Association and the Corporate Counsel Section of the
Washington State Bar Association.
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Donald Favreau joined Shurgard Incorporated in November 1987. He began
his Shurgard career as a District Manager for the Phoenix area and continued in
that capacity until 1989 when he accepted the position of Regional Manager. In
1992 he became a Regional Vice President of Operations for the Western United
States, and in 1993 he accepted the additional responsibility for the National
Sales Center. At the end of 1999, Mr. Favreau was promoted to Senior Vice
President. Prior to joining Shurgard, he was an Interstate Director for the
Cardon Oil Company, supervising a portfolio of out-of-state truck stops and
convenience stores. He has a Bachelor of Arts degree in Communications from
Brigham Young University and a Masters degree in business administration from
the University of Phoenix.
John Steckler was named Senior Vice President, Marketing in October
1999. He joined SSCI in April 1996 as Vice President of Marketing. During his
tenure, Mr. Steckler has been focused on implementing many new products, brand
strategies, expanded distribution channels, direct sales programs and the
establishment of local, regional and national partnerships. Prior to Shurgard,
Mr. Steckler was Vice President of Sales and Marketing for Pro-Tec Sport Helmets
and Gargoyles Performance Eyewear, where he was responsible for new product
development and expanded sales and distribution. He has a Bachelor of Arts
degree in Communications from the University of Washington. He is a member of
the American Marketing Association and Sales Marketing Executives.
Steve Tyler joined SSCI in May 1996 as Vice President of Operations
covering the midwest and east coast markets. In October 1999, he was promoted to
Senior Vice President of Operations. Prior to joining Shurgard, he was a
Regional Operations Manager with Victoria's Secret (a division of the Limited),
Casual Corner (a division of US Shoe), and a District Operating manager with The
Gap and Sears. All of these positions were in the retail industry. He has a
Bachelor of Arts degree in Business Administration from the University of
Minnesota-Duluth.
ITEM 2 - PROPERTIES
The Company owns, as of December 31, 1999, directly and through its
subsidiaries and joint ventures, 352 properties (including 350 self storage
properties), 324 of which are located in 19 states and 28 which are located in
Europe. Our self storage properties are designed to offer accessible storage
space for personal and business use. Individuals typically rent individual units
in self storage properties for storage of personal belongings such as furniture,
appliances, boats and other household and recreational goods. Businesses
typically rent space for storage of business property such as equipment,
seasonal goods, records and fixtures. We believe that it is desirable to have
commercial customers because they tend to rent larger units, stay for longer
terms, are more reliable payers and are less sensitive to price increases.
Accordingly, we have marketing and direct sales programs that target commercial
users. We estimate that commercial users account for approximately 21-35% of our
total customer base.
Our self storage properties are divided into a number of self-enclosed
rental units that generally range in size from 25 to 360 square feet. Many
properties have uncovered storage outside the buildings for parking motor
vehicles, boats, campers and other similar items suitable for outside storage.
Additionally, a number of our properties include climate-controlled storage
units for which we charge rents at substantial premiums.
Customers of self storage properties are generally responsible for
delivering and retrieving their goods. Many leased spaces can be accessed
directly by automobile or truck, but some properties, in particular the
multistory buildings, have separate loading docks and elevators available for
delivery and retrieval of stored goods. Customers generally have access to their
unit without additional charge during normal business hours and control access
to such space through the use of their personal padlocks. We offer Ryder truck
rentals at a
-11-
<PAGE> 12
majority of our properties for added convenience to our customers and to
differentiate our stores from most of our competitors. In addition to truck
rentals, we sell locks, boxes and packing and storage materials at our stores.
The leasing, maintenance and operation of our stores are the
responsibility of store managers. The property's security is provided through a
variety of systems that may include, among others, on-site personnel, electronic
devices such as intrusion and fire alarms, access controls, video and intercom
surveillance devices, property fencing and lighting.
Although our stores range considerably in size, most properties consist
of one or more single-story buildings that are located on a site of 1.5 to 5
acres. The smallest store has approximately 23,000 net rentable square feet,
while the largest store has approximately 290,000 net rentable square feet. The
properties generally are constructed with concrete block or tilt-up concrete
panels, with steel columns or precast concrete columns that rest on concrete
footings and slabs, and have built-up tar roofs or pitched truss roofs with
shingles or standing seam metal roofs. The interior walls are generally
constructed with metal studs and partitions or other construction materials that
are secure but readily movable. The parking areas and driveways are generally
asphalt or cement. All stores have fencing, floodlights, and electronic gates.
In some cases, multistory buildings able to bear substantial weight
loads, such as warehouses and newspaper plants, have been converted into self
storage properties. In addition, similar multistory buildings for self storage
have been constructed in dense urban areas where land costs, zoning and other
development considerations make it impractical or undesirable to construct
single-story buildings.
The following table provides information regarding the year developed or
acquired, year built, approximate net rentable square feet and acreage of each
of the self storage properties and business parks owned by us as of December 31,
1999. Each of these properties has been used as collateral for various borrowing
agreements. We own additional properties which are under development, but not
reflected in this table. This table includes stores in which we own an interest,
but whose results are not consolidated for financial reporting purposes. There
are 300 stores whose results are consolidated in the financial statements. These
stores represent 19.5 million net rentable square feet and are built on
approximately 1,131 acres of land.
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Ahwatukee (6)(8) Phoenix AZ 1998 1998 70 4.1
Airpark Scottsdale AZ 1997 1997 49 1.3
Arrowhead (6)(8) Phoenix AZ 1997 1997 67 3.2
Chandler Chandler AZ 1986 1986 71 4.0
Colonade (2)(8) Phoenix AZ 1998 1997 30 2.7
Dobson Ranch Mesa AZ 1996 1978 58 4.2
Mesa Mesa AZ 1987 1985 99 4.8
Mill Avenue (8) Tempe AZ 1999 1998 30 0.6
Phoenix Phoenix AZ 1985 1984 78 2.7
Phoenix East Phoenix AZ 1987 1984 66 2.0
Scottsdale Scottsdale AZ 1985 1976/85 47 3.0
Scottsdale North Scottsdale AZ 1985/87 1985 112 4.1
Shea Scottsdale AZ 1997 1996 43 1.3
Speedway (8) Tucson AZ 1998 1998 71 3.0
Tempe Tempe AZ 1984 1976 54 3.0
</TABLE>
-12-
<PAGE> 13
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Union Hills (8) Phoenix AZ 1998 1998 65 3.8
Val Vista (6)(8) Gilbert AZ 1999 1999 52 5.5
Warner (1) Mesa AZ 1995 1985 61 3.1
Alicia Parkway (8) Laguna Hills CA 1998 1991 100 4.5
Aliso Viejo Aliso Viejo CA 1996 1996 86 3.5
Bloomington Bloomington CA 1997 1983 50 2.8
Blossom Valley (6)(8) San Jose CA 1998 1998 64 1.4
Castro Valley Castro Valley CA 1996 1975 50 2.3
Colton Colton CA 1985 1984 73 3.8
Costa Mesa (8) Costa Mesa CA 1999 1998 40 1.5
Culver City Los Angeles CA 1988 1989 77 1.4
Daly City Daly City CA 1995 1989 96 5.2
El Cajon El Cajon CA 1986 1977 129 6.0
El Cerrito Richmond CA 1986 1987 62 1.5
Fontana Sierra Fontana CA 1987 1980/85 85 3.6
Hayward/Union City (3) Hayward CA 1985 1985 90 5.7
Huntington Beach Huntington Beach CA 1988 1986 99 3.3
Kearney-Balboa San Diego CA 1986 1984 90 2.3
La Habra La Habra CA 1986 1979/91 95 7.1
Martinez (1) Martinez CA 1995 1987 56 3.0
Mountain View Mountain View CA 1987 1986 28 0.7
Newark Newark CA 1996 1991 61 3.1
Ontario Ontario CA 1996 1984 57 2.1
Orange Orange CA 1996 1985 89 2.8
Palo Alto Palo Alto CA 1986 1987 48 1.4
Pinole (1) Pinole CA 1995 1988 37 2.5
S. San Francisco San Francisco CA 1987 1985 56 2.1
Sacramento Sacramento CA 1996 1991 53 2.6
San Leandro San Leandro CA 1996 1991 59 2.7
San Lorenzo San Lorenzo CA 1996 1990 54 1.9
Santa Ana Santa Ana CA 1986 1975/86 167 8.1
Solana Beach (2) Solana Beach CA 1987 1984 87 4.5
Sunnyvale Sunnyvale CA 1986 1974/75 101 6.5
Tracy Tracy CA 1996 1986 70 3.0
Van Ness(8) San Francisco CA 1999 1934/99 84 1.6
Walnut Walnut CA 1996 1986 97 3.6
Westwood Santa Monica CA 1986 1988 64 0.3
Lakewood Golden CO 1986 1985 67 2.7
Northglenn Northglenn CO 1987 1979 75 5.5
Tamarac Denver CO 1984 1977 25 1.9
Thornton Denver CO 1984 1984 41 2.4
Windermere Littleton CO 1984 1977/79 80 5.3
Blue Heron West Palm Beach FL 1987 1975 167 11.8
Brandon (1)(8) Brandon FL 1999 1999 69 9.5
</TABLE>
-13-
<PAGE> 14
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Carrollwood (1)(8) Tampa FL 1999 1999 62 2.1
Davie (1) Davie FL 1996 1990 76 5.5
Daytona Beach (1)(8) Daytona Beach FL 1999 1999 74 7.2
Delray Beach Delray Beach FL 1996 1986 77 4.5
Eau Galllie (1)(8) Melbourne FL 1999 1999 59 3.7
Hyde Park (1)(8) Tampa FL 1999 1999 62 2.5
Lauderhill Lauderhill FL 1997 1986 62 4.0
Maitland (1) Orlando FL 1997 1997 78 8.7
Margate Margate FL 1996 1984 75 4.0
Military Trail West Palm Beach FL 1987 1981 124 9.4
Oakland Park Ft. Lauderdale FL 1985 1974/78 290 13.4
Ormond Beach (1)(8) Ormond Beach FL 1999 1999 60 6.8
Oviedo (1) Orlando FL 1997 1997 65 9.0
Red Bug (1)(8) Seminole County FL 1997 1997 75 4.3
S. Semoran (1)(8) Orlando FL 1997 1997 68 5.2
Seminole Seminole FL 1986 1984/85 61 2.7
South Orange (1) Orlando FL 1997 1997 71 5.0
Vineland (1)(8) Orlando FL 1999 1998 48 3.3
West Town (1)(8) Altamonte Springs FL 1998 1998 50 2.8
Ansley Park Atlanta GA 1995 1991 69 1.4
Brookhaven Atlanta GA 1995 1992 66 2.0
Clairemont Atlanta GA 1996 1990 41 1.1
Decatur Atlanta GA 1995 1992 65 2.5
Forest Park Forest Park GA 1996 1980 65 7.9
Gwinnett Lawrenceville GA 1996 1996 71 4.4
Jones Bridge (6)(8) Atlanta GA 1997 1997 75 5.3
Lawrenceville (6)(8) Lawrenceville GA 1997 1997 74 3.4
Morgan Falls Dunwoody GA 1996 1990 76 3.7
Norcross Norcross GA 1996 1984 62 9.3
Peachtree Duluth GA 1997 1996 100 6.2
Perimeter Atlanta GA 1996 1996 72 3.3
Roswell Roswell GA 1986 1986 57 3.8
Sandy Plains (6)(8) Marietta GA 1998 1998 68 6.9
Satellite Blvd. Duluth GA 1997 1994 75 5.2
Stone Mountain Stone Mountain GA 1996 1985 61 10.1
Tucker Tucker GA 1996 1987 60 4.6
Alsip Alsip IL 1982 1980 79 4.6
Bolingbrook Bolingbrook IL 1997 1997 68 1.5
Bridgeview Bridgeview IL 1985 1983 75 4.1
Country Club Hills (6)(8) Country Club Hills IL 1999 1999 74 4.9
Dolton Calumet City IL 1982 1979 79 3.0
Fox Valley (6)(8) Chicago IL 1998 1998 71 4.6
Hillside Hillside IL 1988 1988 66 5.3
Lisle Lisle IL 1986 1976/86 53 3.4
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Lombard Lombard IL 1982 1980 53 3.1
Oak Forest Orland Park IL 1995 1991 87 3.9
Rolling Meadows Rolling Meadows IL 1982 1980 71 4.5
Schaumburg Schaumburg IL 1982 1980 71 4.3
Schaumburg South (6)(8) Schaumburg IL 1999 1999 72 5.2
Willowbrook Willowbrook IL 1986 1979/82 44 3.3
Allisonville Indianapolis IN 1997 1987 90 7.4
Carmel Carmel IN 1996 1996 61 4.3
Castleton (8) Indianapolis IN 1998 1988 48 3.6
College Park Indianapolis IN 1986 1984 68 6.0
County Line (2)(6)(8) SouthPort IN 1998 1998 72 4.5
Eaglecreek (6)(8) Indianapolis IN 1998 1998 73 5.1
East Washington (8) Indianapolis IN 1999 1999 69 4.7
Georgetown Indianapolis IN 1996 1996 72 4.2
Glendale Indianapolis IN 1986 1985 60 5.6
Annapolis (2)(6)(8) Annapolis MD 1998 1998 69 3.2
Briggs Chaney Silver Spring MD 1994 1987 28 2.0
Clinton Clinton MD 1986 1985 30 2.0
Crofton Gambrills MD 1988 1985 40 2.1
Frederick Frederick MD 1994 1987 32 1.7
Gaithersburg Gaithersburg MD 1994 1986 77 5.4
Germantown Germantown MD 1994 1988 45 1.9
Laurel Laurel MD 1988 1984 30 2.0
Oxon Hill Ft. Washington MD 1994 1987 28 1.3
Suitland Suitland MD 1987 1985 45 2.7
Ann Arbor Ann Arbor MI 1988 1977 62 3.9
Canton Canton MI 1988 1986 56 3.3
Clinton Township (6)(8) Clinton Township MI 1999 1999 70 5.0
Flint East Flint MI 1997 1977 45 2.7
Fraser Fraser MI 1988 1985 73 5.2
Grand Rapids Grand Rapids MI 1983 1978 45 3.2
Jackson Jackson MI 1997 1978 49 3.1
Kalamazoo Kalamazoo MI 1980 1980 41 3.0
Lansing Lansing MI 1983 1978/79 40 2.5
Livonia Livonia MI 1988 1985 67 4.8
Madison Heights Detroit MI 1995 1977 66 4.1
Plymouth Canton Township MI 1985 1979 62 5.3
Rochester Utica MI 1996 1989 57 4.8
Saginaw Saginaw MI 1997 1978 57 3.1
Southfield Southfield MI 1983 1976 76 4.3
Sterling Heights Sterling Heights MI 1996 1986 105 8.9
Taylor Taylor MI 1995 1980 83 4.2
Troy East Troy MI 1981 1975/77 81 4.8
Troy West Troy MI 1983 1979 88 5.2
</TABLE>
-15-
<PAGE> 16
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Walled Lake Walled Lake MI 1985/89 1984 69 4.3
Warren Warren MI 1988 1985 68 4.6
SouthHaven (1)(8) Memphis MS 1998 1998 43 7.7
Capital Blvd. Raleigh NC 1994 1984 34 2.1
Cary Cary NC 1994 1984 58 4.7
Creedmoor (6)(8) Raleigh NC 1997 1997 72 5.1
Garner Garner NC 1994 1987 28 3.1
Glenwood Raleigh NC 1994 1983 31 1.9
Morrisville Morrisville NC 1994 1988 40 3.3
Old Bridge Matawan NJ 1987 1987 77 6.1
Commack(8) Huntington NY 1999 1999 80 5.2
Gold Brooklyn NY 1986 1940 102 0.4
Melville (6)(8) Long Island NY 1998 1998 74 7.4
Northern (2) Long Island City NY 1987 1940 76 1.9
Utica Brooklyn NY 1986 1964 75 1.1
Van Dam Long Island City NY 1986 1925 56 0.5
Yonkers Yonkers NY 1986 1928 100 1.6
16th and Sandy (1) Portland OR 1995 1973 26 0.5
Allen Blvd. Beaverton OR 1996 1973 42 2.6
Barbur Boulevard Portland OR 1995 1993 67 2.8
Beaverton Beaverton OR 1985 1974 25 2.0
Denny Road Beaverton OR 1989 1988 65 6.2
Division (1) Portland OR 1996 1992 47 2.0
Gresham Portland OR 1996 1996 64 4.4
Hillsboro Portland OR 1996 1996 65 8.9
King City Tigard OR 1987 1986 83 4.9
Liberty Road Salem OR 1995 1993 54 4.4
Milwaukie (1) Milwaukie OR 1996 1990 62 3.3
Oregon City Portland OR 1995 1992 57 3.2
Portland Portland OR 1988 1988 49 2.1
Salem Salem OR 1983 1979/81 67 3.8
Airport Philadelphia PA 1986 1985 96 6.7
Edgemont Philadelphia PA 1995 1992 64 5.5
Painter's Crossing (6)(8) Philadelphia PA 1998 1998 49 3.3
West Chester (2) West Chester PA 1986 1980 84 7.0
Franklin (1) Nashville TN 1995 1995 55 3.3
Hermitage (1) Nashville TN 1995 1995 65 2.8
Hickory Hollow (1) Nashville TN 1997 1997 46 2.5
Medical Center (1) Nashville TN 1994 1995 60 2.3
Rivergate (1) Nashville TN 1996 1996 46 4.7
Stones River (1)(8) Murfeesboro TN 1998 1998 39 3.3
Sycamore (1)(8) Memphis TN 1998 1984/88 45 3.1
Winchester (1)(8) Memphis TN 1998 1988 65 8.9
Wolfchase (1)(8) Memphis TN 1997 1997 39 1.8
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Arlington/Forum 303 Arlington TX 1986 1984 57 2.7
Bandera Road San Antonio TX 1988 1981 75 3.6
Bedford Bedford TX 1985 1984 69 2.7
Bee Caves Road (6)(8) Austin TX 1999 1999 68 11.0
Beltline Road Irving TX 1989 1985/86 68 6.3
Blanco Road San Antonio TX 1988 1989/91 66 3.6
Champions (6)(8) Houston TX 1998 1998 65 3.7
Cinco Ranch (8) Houston TX 1999 1998 57 3.0
Cityplace (6)(8) Dallas TX 1999 1999 60 2.8
East Lamar Arlington TX 1996 1996 43 3.0
Federal Houston TX 1988 1988 55 3.4
Fredicksburg San Antonio TX 1987 1978/82 82 4.5
Georgetown Austin TX 1997 1996 58 4.1
Greenville (6)(8) Dallas TX 1998 1998 61 2.8
Henderson Street (6)(8) Fort Worth TX 1999 1999 66 0.9
Henderson Pass(8) San Antonio TX 1998 1995 46 2.5
Highway 78 (8) San Antonio TX 1998 1997 55 4.4
Hill Country Village San Antonio TX 1985 1982 79 4.0
Hillcroft (2) Houston TX 1991 1988 59 3.4
Hurst Hurst TX 1987 1974 67 4.7
Imperial Valley Houston TX 1988 1987 54 3.1
Irving/MacArthur Blvd. (3) Irving TX 1985 1975/84 141 11.4
Kingwood Kingwood TX 1988 1988 54 3.3
Lewisville Dallas TX 1997 1997 62 4.0
McArthur Crossing Irving TX 1996 1996 65 4.1
Medical Center Houston TX 1989 1989 57 2.6
Mission Bend Houston TX 1995 1995 69 4.1
Nacodoches (8) San Antonio TX 1998 1996 39 2.5
North Austin Austin TX 1986 1982 67 5.9
Oak Farm Dairy (6)(8) Houston TX 1999 1999 65 1.8
Oak Hill (8) Austin TX 1999 1999 65 2.9
Park Cities East Dallas TX 1995 1995 68 4.3
Parker Road Dallas TX 1995 1995 65 3.5
Preston Road Dallas TX 1997 1997 62 3.2
Quarry (8) San Antonio TX 1999 1999 66 1.4
River Oaks (1) Houston TX 1996 1989 67 2.4
Round Rock Austin TX 1997 1995 55 3.6
San Antonio NE San Antonio TX 1985 1982 74 3.6
Slaughter Lane Austin TX 1997 1994 76 4.6
South Cooper Arlington TX 1996 1996 66 3.7
Southlake (6)(8) Dallas TX 1998 1998 66 4.6
Sugarland Sugarland TX 1988 1987 55 3.0
T.C. Jester Houston TX 1996 1990 64 2.8
Thousand Oaks San Antonio TX 1986 1987 53 2.9
</TABLE>
-17-
<PAGE> 18
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Universal City (1) San Antonio TX 1995 1985 82 5.1
Valley Ranch Coppell TX 1997 1995 94 5.1
West U Houston TX 1989 1988 60 1.8
Westheimer Houston TX 1986 1977 73 3.7
Windcrest San Antonio TX 1996 1975 87 6.3
Woodforest Houston TX 1996 1996 54 6.2
Woodlands Houston TX 1988 1988 64 3.8
Bayside Virginia Beach VA 1988 1984 28 1.7
Burke Fairfax VA 1996 1984 32 1.7
Cascades (6)(8) Sterling VA 1998 1998 63 7.7
Cedar Road Chesapeake VA 1994 1989 36 2.1
Charlottesville Charlottesville VA 1994 1984 32 2.1
Chesapeake Chesapeake VA 1996 1986 58 5.2
Crater Road Petersburg VA 1994 1987 36 3.8
Dale City Dale City VA 1994 1986 31 1.6
Fairfax Fairfax VA 1986 1980 62 5.6
Falls Church Falls Church VA 1987 1988 93 1.5
Gainesville Gainesville VA 1994 1988 31 2.0
Herndon Herndon VA 1988 1985 39 3.0
Holland Road Virginia Beach VA 1994 1985 34 3.9
Jeff Davis Hwy Richmond VA 1994 1990 35 5.2
Kempsville Virginia Beach VA 1989 1985 33 2.0
Laskin Road Virginia Beach VA 1994 1984 39 2.5
Leesburg Leesburg VA 1996 1986 28 1.6
Manassas E. & W. (3) Manassas VA 1988 1984 69 3.5
McLean (2) McLean VA 1997 1997 38 4.2
Merrifield (6)(8) Fairfax VA 1999 1999 73 4.7
Midlothian Turnpike Richmond VA 1996 1984 44 2.9
Newport News North Newport News VA 1996 1986 59 3.8
Newport News. S Newport News VA 1985/92 1985 59 3.9
North Richmond Richmond VA 1988 1984 37 2.6
Old Towne (8) Alexandria VA 1999 1999 77 0.9
Potomac Mills (6)(8) Potomac Mills VA 1997 1997 69 3.8
Princess Anne Road Virginia Beach VA 1994 1985 40 2.2
S. Military Highway Virginia Beach VA 1996 1984 48 2.7
Temple Avenue Petersburg VA 1994 1989 34 4.0
Virginia Beach Virginia Beach VA 1989 1985 65 2.3
Auburn Auburn WA 1996 1996 62 7.3
Bellefield Bellevue WA 1996 1978 65 2.9
Bellevue East & West (3) Bellevue WA 1984 1975 165 10.8
Bellingham Bellingham WA 1981 1981 74 5.7
Bremerton Bremerton WA 1997 1976 41 2.5
Burien Seattle WA 1985 1974 92 5.3
Burien II Seattle WA 1985 1979 60 3.0
</TABLE>
-18-
<PAGE> 19
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Canyon Park JV (1) Bothell WA 1996 1990 58 4.4
Canyon Rd. Puyallup WA 1996 1986 28 1.7
Capitol Hill (1) Seattle WA 1987 1988 71 0.7
E. Bremerton Bremerton WA 1996 1985 66 3.1
East Lynnwood Lynnwood WA 1986 1978 80 3.8
Edmonds Edmonds WA 1984 1974/75 121 6.5
Everett Everett WA 1981 1978 63 4.2
Factoria Bellevue WA 1984 1984 57 3.8
Factoria Square Bellevue WA 1996 1989 70 1.9
Federal Way Federal Way WA 1984 1975 134 5.7
Fife (4) Tacoma WA 1984 1977 63 3.9
Gig Harbor (8) Gig Harbor WA 1999 1980 35 2.7
Hazel Dell (1) Vancouver WA 1996 1989 56 3.4
Highland Hill Tacoma WA 1981 1982 60 3.9
Issaquah Issaquah WA 1985 1986 56 4.7
Kennydale Renton WA 1996 1991 57 2.8
Kent Kent WA 1997 1977 44 2.5
Lacey Olympia WA 1997 1977 25 1.4
Lake Union (7)(8) Seattle WA 1998 1998 68 2.1
Lakewood 512 (4) Tacoma WA 87/88/91 1979/81 130 12.2
Lynnwood Lynnwood WA 1997 1979 54 4.0
Mill Creek (6)(8) Everett WA 1998 1998 68 3.1
North Spokane Spokane WA 1984 1976 78 4.1
Parkland Tacoma WA 1997 1980 52 4.2
Pier 57 (6)(8) Seattle WA 1986 1912 59 0.3
Pt. Orchard Pt. Orchard WA 1997 1991 46 3.0
Redmond (6)(8) Redmond WA 1998 1998 52 3.0
Renton Renton WA 1984 1979/89 80 4.5
Salmon Creek Vancouver WA 1997 1997 68 2.6
Sammamish (6)(8) Redmond WA 1998 1998 76 5.0
Shoreline/Aurora N. (3) Seattle WA 1986 1978 136 6.1
Smokey Point Arlington WA 1987 1984/87 35 2.2
South Center Renton WA 1985 1979 68 4.1
South Hill Seattle WA 1995 1980 45 2.8
South Tacoma Tacoma WA 1987 1975 46 3.1
Spokane Spokane WA 1997 1976 49 2.6
Sprague (1) Tacoma WA 1996 1950/89 52 2.8
Totem Lake Kirkland WA 1984 1978 61 2.6
Vancouver Mall Vancouver WA 1980 1982 46 3.3
West Olympia Olympia WA 1997 1978 30 2.2
West Seattle Seattle WA 1997 1997 66 3.4
Whitecenter Seattle WA 1980 1981 48 3.4
Woodinville Woodinville WA 1984 1982/84 70 3.5
Interbay Seattle WA 1987 1988 84 0.4
</TABLE>
-19-
<PAGE> 20
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY NET RENTABLE
STATE/ OWNED YEAR SQUARE FEET
PROPERTY NAME PROPERTY LOCATION COUNTRY SINCE BUILT (IN THOUSANDS) ACREAGE
- ------------- ----------------- ------- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Lake City(1) Seattle WA 1995 1987 51 1.1
Aartselaar(5) Brussels Belgium 1997 1997 76 1.7
Forest(5) Brussels Belgium 1995 1995 49 0.4
Machalein(5) Brussels Belgium 1997 1997 65 1.5
Molenbeek(5) Brussels Belgium 1995 1995 34 0.5
Waterloo(5) Brussels Belgium 1995 1995 86 3.5
Zaventem(5) Brussels Belgium 1996 1996 75 3.0
Leuven(5) Brussels Belgium 1998 1998 63 1.7
Overijse(5) Brussels Belgium 1998 1998 49 1.4
Ghent(5) Brussels Belgium 1998 1998 72 1.7
Kortrijk(5) Brussels Belgium 1999 1999 63 1.5
Brugge(5) Brussels Belgium 1999 1999 74 1.7
Montrouge(5) Paris France 1997 1996 59 1.4
Nice(5) Nice France 1997 1991 42 1.0
Varlin(5) Paris France 1997 1997 23 0.5
Pontault-Combault(5) Paris France 1999 1999 54 1.2
Den Haag(5) Den Haag Netherlands 1999 1999 61 1.4
Jacobsberg(5) Stockholm Sweden 1998 1998 60 2.6
Kungens Kurva(5) Stockholm Sweden 1998 1998 72 6.8
Taby(5) Stockholm Sweden 1998 1998 60 2.5
Rissne(5) Stockholm Sweden 1998 1998 67 2.3
Sodermalm(5) Stockholm Sweden 1999 1999 26 0.6
Handen(5) Stockholm Sweden 1999 1999 65 1.5
Solna(5) Stockholm Sweden 1999 1999 69 1.6
Molndal(5) Gothenburg Sweden 1999 1999 65 1.5
Uppsala(5) Stockholm Sweden 1999 1999 63 1.5
Croydon(5) London UK 1999 1999 67 1.5
Norbury(5) London UK 1999 1999 45 1.0
Hayes(5) London UK 1999 1999 67 1.5
===========================================================================================================================
Total 22,586 1,295
===========================================================================================================================
</TABLE>
- -------------
(1) We own between 50-90% of these properties.
(2) We do not have fee title, but have a long-term lease, with respect to
the land on which this property is located.
(3) These properties are now operated as one property.
(4) Property is a business park.
(5) We own a 7.57% interest in this unconsolidated property
(6) We own a 10% interest in this consolidated property.
(7) Does not include 51,000 in square feet currently used for corporate
office and future expansion space.
(8) This property is included in our New Store operating results. All other
domestic properties are included in our Same Store operating results.
(See Note M)
-20-
<PAGE> 21
The following table sets forth information by state regarding weighted
average occupancy and weighted average rent per square foot for the domestic
self storage properties owned by the Company for the years ended December 31,
1999, 1998 and 1997.
<TABLE>
<CAPTION>
% OF 1999 AVERAGE OCCUPANCY AVERAGE RENT PER SQUARE FOOT
--------- ----------------- ----------------------------
STATE REVENUE 1999 1998 1997 1999 1998 1997
- ----- ------- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona 5% 76% 77% 78% $9.45 $9.38 $9.19
California 15 89 91 89 11.63 10.97 10.38
Florida 7 78 83 85 10.09 9.80 9.00
Georgia 5 74 75 83 10.07 9.87 10.07
Illinois 4 84 85 90 10.12 9.60 9.25
Michigan 6 86 89 89 8.72 8.23 7.88
New York 4 83 88 88 18.99 18.35 17.25
Oregon 4 85 84 81 9.29 9.19 8.81
Texas 13 82 84 81 9.11 8.69 8.27
Virginia 9 81 84 87 11.24 10.60 9.75
Washington 17 84 87 90 10.39 9.90 8.87
Other 11 78 78 77 9.79 9.72 9.40
--- -- -- -- ----- ----- -----
Weighted Average 100% 82% 84% 86% $10.30 $9.90 $9.37
</TABLE>
The following table sets forth information for all domestic properties
owned by the Company regarding weighted average occupancy and weighted average
rent per square foot for the years ended December 31, 1999 through December 31,
1995.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy (1) 82% 84% 86% 87% 88%
Weighted average rent per square foot $10.30 $9.90 $9.37 $9.23 $8.84
</TABLE>
(1) As a result of expanding our development activity during this
five year period, average occupancies are adversely effected as
development properties got through rent up.
Leasing of Properties. Rental units are usually rented on a
month-to-month basis. The average rental period for a tenant is approximately
1.5 years. This average is comprised of the rental periods of business tenants,
who tend to lease space for longer periods (approximately two to three years),
and those of residential customers, who tend to lease space for shorter periods
(approximately six months to a year). Rental income from leased space
constitutes the primary revenue from such properties, but additional revenue is
received from incidental services rendered at the properties, such as lock and
box sales and truck rentals. Rental rates vary substantially depending on the
size of the storage space, the property location, the quality of the property
and the proximity of competition.
Other Properties. The Company owns two business parks, both of which are
located near Tacoma, Washington. The business parks were built in 1977 and 1979
and contain an aggregate of approximately 191,000 net rentable square feet. We
also manage one additional business park for an unaffiliated owner. In addition,
we own a property in downtown Seattle, Washington that, until 1997, was leased
to a records storage company affiliated with our management, on terms approved
by our disinterested directors. The building was then converted to self-storage
and reopened for operations in 1998.
-21-
<PAGE> 22
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of 1999.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NYSE under the symbol "SHU."
As of February 25, 2000 there were 21,283 holders of record of our common stock
and the reported NYSE closing price per share of common stock was $23.06.
The table below sets forth for the fiscal periods indicated the high and
low closing prices per share of Common Stock as reported in published financial
sources, and distributions declared.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK
-------------------- DISTRIBUTIONS
HIGH LOW DECLARED(1)
------ ------ -------------
<S> <C> <C> <C>
1999
Fourth Quarter................................. $24.69 $20.94 $.50
Third Quarter.................................. 27.31 24.63 .50
Second Quarter................................. 27.63 24.88 .50
First Quarter.................................. 25.88 24.00 .50
1998
Fourth Quarter................................. $27.25 $24.50 $.49
Third Quarter.................................. 29.38 24.38 .49
Second Quarter................................. 29.00 27.31 .49
First Quarter.................................. 29.56 27.50 .49
</TABLE>
(1) Distributions declared by the Board of Directors based on financial
results for the quarter specified.
Holders of shares of common stock are entitled to receive distributions
when declared by our Board of Directors out of any assets legally available for
payment. Our bank line of credit limits our dividends to no more than 95% of
funds from operations. (See Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations FUNDS FROM OPERATIONS) We are
required to distribute annually to our shareholders at least 95% of our "REIT
taxable income," which, as defined by the relevant tax statutes and regulations,
is generally equivalent to net taxable ordinary income.
In December 1999, legislation was passed to reduce the taxable income
distribution requirements for a REIT from 95% to 90%. This change applies to
distributions made beginning in 2001.
-22-
<PAGE> 23
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere in this Form 10-K.
(in thousands, except per share data)
<TABLE>
<CAPTION>
AT OR FOR YEAR
ENDED DEC. 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue $ 173,154(1) $ 159,254 $ 140,434 $ 110,399 $ 96,771
Income before cumulative
effect of a change in
accounting principle 51,771 44,734 42,311 32,785 29,572
Income before accounting change per common share:
Basic 1.48 1.40 1.40 1.39 1.43
Diluted 1.48 1.39 1.40 1.39 1.43
Distributions per common share: 1.99 1.95 1.91 1.41(2) 2.38(3)
BALANCE SHEET DATA:
Total assets 1,153,226(1) 1,153,907 955,488 804,483 610,394
Total borrowings 434,349(1) 426,026 296,971 272,791 142,840
</TABLE>
- ----------
(1) For 1999, the Company's European operations are no longer being
consolidated, but are now reported under the equity method. This reporting
change has been made retroactive to January 1999.
(2) Does not include the distribution of $.47 per share declared in January
1997 based on financial results for the quarter ended December 31, 1996.
Reflects only three quarterly distributions due to a change in our policy
regarding the timing of dividend declaration.
(3) Includes distribution of $.44 per share declared in January 1995 based on
financial results for the quarter ended December 31, 1994 as well as the
special distribution of $.10 declared in November 1995.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Shurgard Storage Centers, Inc. is a fully integrated, self-administered,
self-managed REIT headquartered in Seattle, Washington, specializing in all
aspects of the self storage industry. As of December 31, 1999, we operated a
network of 382 storage centers and three business parks located throughout the
United States and in Europe. Of these properties, we own, directly and through
our subsidiaries and joint ventures, 352 operating properties containing
approximately 22.6 million net rentable square feet. Of the 352 operating
properties, 324 are located in 19 states in the U.S. and 28 are located in
Europe. We also manage for third parties, 32 self storage centers and one
business park containing approximately 1.9 million net rentable square feet.
Self storage properties offer low-cost, easily accessible storage space for
personal and business uses.
-23-
<PAGE> 24
Our investment objective is to maximize shareholder value by increasing
funds from operations through internal growth and through the acquisition and
development of additional self storage properties. We believe that the
experience of our management team in acquiring, developing, and operating self
storage properties, our geographic diversification and our emphasis on quality
will enhance our ability to achieve this objective.
Our mission is to be the global leader in storage products and services.
We believe we can obtain this goal by focusing on providing exceptional customer
service and the highest quality products to our customers.
As part of our focus on providing the highest quality products to our
customers, we look for those storage centers that are located in well-populated
retail areas. When entering a market, we seek dominant locations within specific
three to five mile trade areas. "Dominant locations" refers to highly visible
and accessible locations in retail corridors which create customer awareness.
Through multiple locations of this kind within a metropolitan area, we establish
brand recognition as well as economies of scale in operating our stores. In most
markets, we seek to own at least 15 stores in order to realize these
efficiencies. To further enhance brand recognition, we strive to achieve a
uniform look to our properties. This is accomplished through the use of signage,
color schemes, quality of the building and our trademark "lighthouse" office
design in new developments.
During 1999, we acquired 5 and developed 21 new domestic centers
directly or through joint ventures. Additionally, our European partners opened
12 developments in Europe during 1999. These developments are located as
follows: two in Belgium, one in France, one in the Netherlands, five in Sweden,
and three in the United Kingdom. The following discussion of operations provides
additional comparative financial information and discussion of each of the areas
of growth, including internal or Same Store growth, direct acquisitions,
domestic development, European operations, property management operations and
other forms of real estate investments. A discussion of capital expenditures,
financing transactions and liquidity is also included.
********************************************************************************
When used in this discussion and elsewhere in this Annual Report on Form
10-K, the words "believes," "anticipates," "projects" and similar expressions
are intended to identify forward-looking statements regarding financial
performance. ACTUAL RESULTS MAY DIFFER MATERIALLY DUE TO UNCERTAINTIES 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,
TAX LAW CHANGES MAY CHANGE THE TAXABILITY OF FUTURE INCOME, INCREASES IN
INTEREST RATES MAY INCREASE THE COST OF REFINANCING LONG TERM DEBT, AND WE MAY
BE AFFECTED BY LITIGATION OR LEGISLATION RELATING TO LATE FEES. ACTUAL RESULTS
MAY DIFFER IF INCREASES IN LABOR, TAXES, MARKETING AND OTHER OPERATING AND
CONSTRUCTION EXPENSES OCCUR. Other factors which could affect our financial
results are described below and in Item 1 (Business) of this Annual Report on
Form 10-K. Forward-looking statements are based on estimates as of the date of
this report. The Company disclaims any obligation to publicly release the
results of any revisions to these forward-looking statements reflecting new
estimates, events or circumstances after the date of this report.
********************************************************************************
INTERNAL GROWTH
SAME STORES
-24-
<PAGE> 25
In 1999, we continued our focus on increasing net operating income from
our existing real estate assets. The primary way we analyze our performance is
to measure year over year improvements in Same Store operating results. 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. Please note that our definition of Same Stores results in the addition
of stores each year as new acquisitions and developments meet the criteria for
inclusion, and that we then include these stores in the previous year's
comparable data. Other storage companies may define Same Stores differently,
which will affect the comparability of the data. The following table summarizes
Same Store operating performance as defined at December 31, 1999 and 1998.
SAME STORE RESULTS
(dollars in thousands except average rent)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
% %
1999 1998 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue $ 166,291 $ 159,451 4.3% $ 146,138 $ 139,564 4.7%
Property operating expenses (1) 47,472 46,394 2.3% 41,025 41,329 (0.7)%
----------- ----------- ----------- -----------
Net operating income $ 118,819 $ 113,057 5.1% $ 105,113 $ 98,235 7.0%
=========== =========== =========== ===========
Avg. annual rent per sq.ft. (2) $ 10.37 $ 9.93 4.4% $ 10.08 $ 9.65 4.5%
Avg. sq.ft. occupancy 86% 86% 88% 87%
Total net rentable sq.ft 17,300,000 17,300,000 15,300,000 15,300,000
No. of properties 264 264 232 232
</TABLE>
---------------
(1) Includes all direct property expenses. Does not include any allocation
of joint expenses we incurred 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.
Similar to last year, the business trends in most of our markets
continue to be positive. This is a direct reflection of the strength of the
demand in most of our trade areas and the quality of our stores and our people.
During 1999, we experienced increased competition in several of our markets
where competitors have opened in the vicinity of some of our stores. Markets
impacted by this increased competition include Atlanta, Houston, and South
Florida. We believe that the quality of our storage centers as well as our
geographic diversity helps mitigate the impact of competition in individual
markets. Market conditions in central Florida, Indiana, Tennessee and Virginia
contributed to above average revenue and net operating income increases.
Various programs are utilized to obtain and keep storage customers and
thus maximize property revenue. Providing the best customer service requires
exceptional employees and on-going customer service and sales training.
Personnel are trained in all aspects of storage operations from operating the
computer system and renting a unit to analyzing demand and pricing strategies.
These training and personnel programs are continually evaluated and improved
upon to help in the retention and recruitment of store level employees. Since
1997, we have been faced with increased challenges in recruiting store level
employees. We responded by improving our benefits and compensation programs in
order to attract and retain quality store managers. As a result, our turnover
and retention rates improved 15.4% in 1998 over 1997 and 16.8% in 1999 over
1998. We are seeing continuing tight labor markets, which may in turn affect
future labor costs.
-25-
<PAGE> 26
Net operating income has risen over the last three years due to
increases in revenue, which are a function of changes in rental rates and
occupancy. While the storage business is seasonal, spring and summer being peak
occupancy periods, the cycle is annual and the annual revenue trend from
1997 to 1999 reflects general market changes. Revenue gains from 1998 to 1999
resulted entirely from rental rate increases, while gains from 1997 to 1998
resulted primarily from rate increases with slight occupancy improvements.
Over the past two years the storage and other industries have been
involved in lawsuits challenging their late fees policies. Shurgard is currently
not a party to any such late fee litigation. However, we have reevaluated our
late fee structures in each state and plan, where appropriate, to reduce the
late fees charged to customers. We anticipate that this will decrease late fee
revenue by approximately $1.1-$1.75 million annually. The actual result of the
adjustment in late fees may differ materially based on outcomes of litigation
and changes in state law. We cannot accurately project the net effect of the
late fee policy change as the late fee revenue reduction may be offset by more
aggressive collection efforts by managers or may impact customer behaviors such
that more customers become delinquent.
Direct operating expenses were up 2.3% in 1999 as compared to 1998 due
to several factors. Declines in personnel costs, which include decreased workers
compensation costs and lower on-site employee bonuses, were offset by increases
in real estate taxes, costs of retail goods, and repair and maintenance
expenditures. For 1998, direct operating expenses were slightly down as compared
to 1997. Increases in personnel costs were offset by decreases in repairs and
maintenance due to lower weather related expenditures in 1998 when compared to
1997. Additionally, property insurance for 1998 was slightly down due to
improved rates and market conditions.
In the first quarter of 2000, we plan to begin implementation of several
new sales initiatives. These initiatives involve the roll out of an enhanced
e-commerce program to allow on line sales of all of our products and services.
Other sales initiatives expected to be implemented beginning in the first
quarter of 2000 include the expansion of our commercial accounts, the
telemarketing sales force and the direct sales force. Additionally, we plan to
expand our strategic alliance with The Automobile Association of America (AAA)
and pursue other additional strategic alliances. These new sale initiatives are
expected to result in increased direct operating costs, beginning in 2000, that
will be higher than we have experienced in prior years. However, we anticipate
these higher expenses will be offset by revenue growth beginning in the second
and third quarters of 2000.
The above statements regarding implementation and expected impact of our
sales initiatives on our revenues and expenses constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
These forward-looking statements are based on several assumptions. If any of
these assumptions are not satisfied or prove to be incorrect, actual results
could differ materially from those indicated in the forward-looking statements.
The risks and uncertainties that may cause these forward-looking statements to
prove to be incorrect include the risks that the sales initiatives will not be
successful and that the Company's expenses or revenues may be affected by other
factors, such as 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, or may cause delays in rent up of newly developed properties, and
the risk that the Company may experience increases in labor, taxes, marketing
and other operating and construction expenses.
NEW STORES
Our definition of New Stores, as shown in the table below, includes
existing domestic facilities that had not been acquired as of January 1 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. The following
table summarizes New Store operating performance as defined at December 31,
1999, and 1998.
NEW STORE RESULTS
-26-
<PAGE> 27
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Rental revenue $17,833 $ 6,106 $21,579 $ 7,193
Property operating expenses(1) 7,878 2,896 9,167 3,430
------- ------- ------- -------
Net operating income $ 9,955 $ 3,210 $12,412 $ 3,763
======= ======= ======= =======
No. of properties 65 65 69 69
No. of property months(2) 561 241 667 245
</TABLE>
- -------
(1) Includes all direct property expenses. Does not include any allocation
of joint expenses we incurred such as off-site management personnel.
(2) Represents the sum of the number of months we operated each property
during the year.
Increases from year to year in net operating income (NOI) for the new
store portfolio reflect the greater number of property months included for the
periods presented. Although this increase gives some indication of how much of
our overall NOI growth results from this segment, it is not a good method of
evaluating the performance of assets within this segment. We use several
different methods when evaluating the performance of assets in this segment.
Acquisitions and development properties are evaluated based on comparisons of
actual results to pro forma NOI for the appropriate period from opening or at
maturity. The performance of our acquisitions and developments are discussed in
the sections that follow.
DOMESTIC ACQUISITIONS
Although availability of capital and competition has in many cases
driven acquisition prices up, we have continued to selectively seek acquisition
opportunities for high quality storage centers that meet our investment
standards. We have limited our efforts to pursue only those centers that enhance
our existing network of stores (i.e. establish greater market presence or expand
an established market to create greater economies of scale) and thus can be
efficiently managed and operated. The operating results of our acquisitions are
presented in the tables below in order to show the impact of our operating
strategies since the acquisition date.
<TABLE>
<CAPTION>
RESULTS OF 1999 ACQUISITIONS
(dollars in thousands except average rent) YEAR ENDED
DEC. 31, 1999
-------------
<S> <C>
Rental revenue $ 774
Property operating expenses(1) 263
--------
Net operating income $ 511
========
Avg. annual rent per sq.ft.(2) $ 10.36
Avg. sq.ft. occupancy 80%
Total net rentable sq.ft 209,000
Number of properties 5
Number of property-months(3) 25
Purchase price $ 13,251
</TABLE>
- ---------------
(1) Includes all direct property expenses. Does not include any allocation
of joint expenses incurred such as off-site management personnel.
(2) Average annual rent per square foot is calculated by dividing actual
rents collected by the average number of square feet occupied during the
period.
(3) Represents the sum of the number of months we operated each property
during the year.
-27-
<PAGE> 28
During 1999, we purchased five storage centers totaling 209,000 net
rentable square feet for a total cost of $13.3 million (including the cost
associated with the related non-competition agreements). These properties are
located in Arizona, California, Florida, Texas and Washington. The 2000
projected yield on these properties is 11%-12% (calculated as projected 2000 net
operating income divided by purchase price). These projections are based on
numerous assumptions and actual results may vary due to the factors discussed in
the OVERVIEW. For a discussion of purchases of partnership units, see INVESTING
TRANSACTIONS.
Additionally, 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 of operating results under INTERNAL GROWTH. The developer's interest
in the newly formed corporation will be based upon a predetermined formula and
the current value of each property at the time of purchase. During the fourth
quarter of 1999, the joint venture purchased one of the completed storage
centers for $3.1 million. At December 31, 1999, this developer had two
properties under construction in connection with this agreement and one
completed store in rent up. 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.
<TABLE>
<CAPTION>
RESULTS OF 1998 ACQUISITIONS
(dollars in thousands except average rent) YEAR ENDED DEC. 31,
-------------------------------------
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Rental revenue $ 3,560 $ 1,552 129%
Property operating expenses(1) 1,237 587 111%
-------- --------
Net operating income $ 2,323 $ 965 141%
======== ========
Avg. annual rent per sq.ft.(2) $ 9.10 $ 8.40
Avg. sq.ft. occupancy 83% 91%
Total net rentable sq.ft.(3) 467,000 347,000
Number of properties 8 7
Number of property-months(4) 96 53
Purchase price $ 24,908
</TABLE>
- --------
(1) Includes all direct property expenses. Does not include any allocation
of joint expenses we incurred such as off-site management personnel.
(2) Average annual rent per square foot is calculated by dividing actual
rents collected by the average number of square feet occupied during the
period.
(3) The California property was purchased on December 22, 1998, and
therefore had no material impact on our operations and has been excluded
from the 1998 data. The inclusion of this property in 1999, as well as
build outs on two properties, represents the increase in total net
rentable square feet for 1999.
(4) Represents the sum of the number of months we operated each property
during the year.
During 1998, we purchased seven storage centers totaling 426,000 net
rentable square feet for a total cost of $23.8 million (including the cost
associated with the related non-competition agreements). We also acquired a
leasehold in an existing self storage center containing 41,000 net rentable
square feet for $1.2 million. These acquisitions were located as follows: one in
Arizona, one in California, one in Indiana, two in Tennessee and three in Texas.
RESULTS OF 1997 ACQUISITIONS
-28-
<PAGE> 29
<TABLE>
<CAPTION>
(dollars in thousands
except average rent) YEAR ENDED DEC. 31 YEAR ENDED DEC. 31
------------------------------------ -------------------------------------
% %
1999 1998 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue $ 9,866 $ 9,353 5.5% $ 9,353 $ 4,142 126%
Property operating expenses(1) 3,335 3,206 4.0% 3,206 1,600 100%
---------- ---------- ---------- ----------
Net operating income $ 6,531 $ 6,147 6.2% $ 6,147 2,542 142%
========== ========== ========== ==========
Avg. annual rent per sq.ft.(2) $ 8.21 $ 7.85 $ 7.85 $ 7.83
Avg. sq.ft. occupancy 85% 83% 83% 81%
Total net rentable sq.ft 1,314,000 1,314,000 1,314,000 1,314,000
Number of properties 23 23 23 23
Number of property-months(3) 276 276 276 128
Purchase price $ 65,600
</TABLE>
- ----------
(1) Includes all direct property expenses. Does not include any allocation
of joint expenses we incurred such as off-site management personnel.
(2) Average annual rent per square foot is calculated by dividing actual
rents collected by the average number of square feet occupied during the
period.
(3) Represents the sum of the number of months we operated each property
during the year.
During 1997, we purchased 23 storage centers totaling 1.3 million net
rentable square feet for a total cost of $65.6 million (including related
non-competition agreements). These acquisitions were located as follows: two in
Arizona, one in California, one in Florida, two in Georgia, one in Indiana, one
in Illinois, three in Michigan, four in Texas and eight in Washington.
DOMESTIC DEVELOPMENT
Our long-term growth plan includes significant development of new
storage centers in markets in which we currently operate. This is primarily due
to our focus on maintaining high quality standards and consistent building
design to develop brand awareness. Implementation of this development strategy
is expected to continue at least through 2000. Each development project
progresses through a series of review processes from initial review, through due
diligence, final review and finally to the land purchase and construction. We
believe the success of this strategy has been greatly enhanced as a result of
the substantial experience we, or our predecessors, have gained through the
development of over one third of our properties.
We opened 21 domestic storage centers in 1999, and, when all phases are
complete, these 21 projects will total approximately 1,438,000 net rentable
square feet with an estimated total cost of $114.5 million. Six of these storage
centers were developed through our Florida joint ventures and nine were
contributed to Shurgard/Fremont Partners II. (For a further discussion of
Shurgard/Fremont Partners II, see DEVELOPMENT FINANCING ARRANGEMENTS)
We opened 24 storage centers in 1998, representing approximately
1,600,000 net rentable square feet. Of the 24 stores opened, one was developed
through our California joint venture, three were developed through our Tennessee
and Florida joint ventures, and 16 were contributed to either Shurgard/Fremont
Partners I (SFPI) or Shurgard/Fremont Partners II (SFPII), joint ventures in
which we own a 10% interest. These 1998 developments together generated
$4,092,000 in net operating income for the 12 months of 1999. For the month of
December 1999, these developments had NOI of $526,000, which represents 49% of
projected monthly NOI at maturity, and averaged 60% occupancy. The operating
results of these 1998 developments are included in the New Store Results in the
previous section. We intend to finance the majority of our on-going development
through similar relationships. The 2000 projected yield on these properties is
12%-13% (calculated as projected net operating income at stabilization divided
by invested cost).
-29-
<PAGE> 30
The 17 storage centers opened in 1997 (five of which were contributed to
SFPI and seven of which were developed through our Tennessee and Florida joint
ventures), representing approximately 1,155,000 net rentable square feet,
averaged 77% occupancy for the month of December 1999. These 1997 developments
together generated $6,597,000 in net operating income for the 12 months of 1999.
The operating results of each of these 1997 developments are included in either
the Same Store Results or the New Store Results in the previous section
depending on whether they have met the criteria for inclusion in Same Stores.
Total cost to develop these properties was $67.7 million. These 17 properties
are, on average operating substantially at their projected NOI at stabilization.
We can give no assurance that these projections regarding the 1998
development projects will occur. Actual occupancy levels and rates could be
lower if we experience competition from other self storage properties and other
storage alternatives in close proximity to our developments. Actual yields may
also be lower if major expenses such as property taxes, labor and marketing,
among others, increase more than projected.
In addition to the above completed developments, we had 13 storage
centers under construction (two of these are being developed in Tennessee and
Florida through unconsolidated joint ventures) as of December 31, 1999. 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 December 31, 1999.
<TABLE>
<CAPTION>
Number Estimated Total Cost to
of Completed Cost Date as of
Projects of Projects(1)(2) Dec. 31, 1999(1)
-------- ----------------- ----------------
<S> <C> <C> <C>
CONSOLIDATED DEVELOPMENTS:
Construction in progress 11 $46.4 million $25.0 million
Land purchased pending
construction 4 $15.3 million $3.7 million
UNCONSOLIDATED DEVELOPMENTS:
Construction in progress 2 $7.4 million $3.3 million
EXPANSION OF EXISTING PROPERTIES:
Opened during 1999 6 $9.0 million $8.2 million
Construction in progress 2 $2.0 million $1.3 million
</TABLE>
(1) Table includes 100% of the costs of projects regardless of our ownership
percentage
(2) The actual completed cost of projects could vary due to delays during
construction caused by weather, unforeseen site conditions and problems
with subcontractors or contractors. For a further discussion of events
that could impact this estimate, see the discussion below.
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.
Although certain costs, including real estate taxes and interest, are
capitalized during the construction period, net operating income does not
generally exceed interest expense on development projects for at least the first
year of operations. This rent-up deficit for our pro-rata interest in
developments was $1,872,000 (net operating income of $1,522,000 less $3,394,000
of interest at an estimated 8.5% on invested capital) for 1999 compared to
$1,489,000 in 1998 and $2,507,000 in 1997. The rent-up deficit for a typical
$4.0 million project, assuming it takes an average of approximately 24 months to
rent up and is financed with debt at 8.5%, is estimated to be approximately
$332,000 in the first year of operations. The total cost of a development varies
significantly based on the cost of the land. The cost of some future projects
may be higher than the typical project described above based on the markets in
which we develop those future sites. The amount of rent-up deficit and the
timing of positive cash flow cannot be predicted with certainty as it is based
on a number of
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<PAGE> 31
factors including length of rent up, ability to collect stated rental rates on
leased units, actual operating expenses incurred, and the time of year a
property opens. Another result of this rent-up period is a decrease in our
operating margins as new property expenses are added but the related revenue
stream does not hit stabilized levels until occupancy reaches 85%.
We currently anticipate opening 20-30 domestic developments in 2000
including the 17 listed in the table above. The actual number of projects could
be reduced by zoning and permitting delays outside of our control, increased
competition for sites, delays during construction caused by, among other things,
weather, unforeseen site conditions, labor shortages, personnel turnover,
scheduling problems with contractors, subcontractors or suppliers, or resource
constraints.
In addition to utilizing the experience of our in-house real estate
development personnel, in the past few years we have begun establishing
relationships with quality storage operators outside our current markets. We
believe that the most efficient way to operate storage centers is to saturate a
market to create brand awareness and allow certain economies of scale in
operation processes and advertisement. These relationships create an instant
presence in a new market as affiliate owned centers begin using the "Shurgard"
name. In exchange for the use of our name, computer systems and general
operations support services, the affiliate pays us an affiliation fee of 2% of
revenue. Additionally, these affiliation agreements provide the framework for
the joint development of additional storage centers, allowing us to take
advantage of the local operator's market knowledge. We have signed three such
affiliation agreements, which include (1) an agreement with a Tennessee
developer that opened three jointly developed centers in 1995, one in 1996, two
in 1997, two in 1998 and had one under construction in 1999 (2) an agreement
with a Florida developer that opened five jointly developed centers in 1997, one
in 1998 and six in 1999, and (3) an agreement with a San Antonio developer to
develop properties in Oklahoma and Texas. As of December 31, 1999, no properties
were under construction or opened in connection with this third affiliation
agreement.
DEVELOPMENT FINANCING ARRANGEMENTS
In order to expand our development capacity, broaden our access to
capital and minimize the effect of the rent-up deficit on funds from operations
(FFO), we have been pursuing alternative financing options. In connection with
this initiative, during the past two years we have formed two joint ventures,
SFPI in May 1998 and SFPII in March 1999. The terms of these joint ventures are
very similar and are consolidated in our financial statements. We have a 10%
equity interest and our partner has a 90% equity interest in each joint venture.
All major decisions by the joint ventures require approval of both partners.
Under the terms of the agreements executed in connection with the
formation of these joint ventures, properties are contributed by a 100% owned
Shurgard subsidiary to the joint venture shortly after completion of development
of the properties by Shurgard. Shurgard is reimbursed at cost for all expenses,
up to certain limits, it incurred in developing the properties contributed to
the Partnership (including a reimbursement for internal costs). Each joint
venture has an anticipated capitalization of 30% equity and 70% debt.
Each joint venture has granted Shurgard an option to acquire all of the
properties owned by the joint venture. The purchase options are exercisable at
certain times described below, 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 (NOI) of the
properties for the three or four-month period preceding the exercise of the
option. The option related to SFPII is subject to a collar, which provides
downside protection to the seller if the properties do not reach proforma NOI,
and provides an upside benefit to Shurgard if the properties exceed proforma
stabilized NOI.
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<PAGE> 32
Under a Management Services Agreement between Shurgard and the joint
ventures, Shurgard will act as property manager for the properties owned by the
joint ventures, and Shurgard will receive a monthly management fee equal to the
greater of $2,000 per property or 5% of gross revenues, as well as certain other
fees relating to accounting and administrative services that Shurgard will
perform on behalf of the joint ventures.
<TABLE>
<CAPTION>
Dollars in thousands SFPI SFPII
- -------------------- ----------- -------------------------------
ESTIMATED UPON
AT 12/31/99 AT 12/31/99 COMPLETION
----------- ----------- ----------
<S> <C> <C> <C>
Total equity contributions $20,083 $20,934 Up to $27,700
Total debt $45,050 $49,345 Up to $64,700
Properties contributed at 15 15 16
December 31, 1999
Purchase option exercise December 2000 to December 2001 to
period December 2002 October 2003
</TABLE>
We anticipate exercising our option on SFPI in December 2000.
EUROPEAN OPERATIONS
In March 1997, we entered into a joint venture agreement with two
unaffiliated entities. We have a minority interest (9.15%) in this joint
venture, which borrowed $19 million to purchase a majority limited partner
interest in SSC Benelux & Co., SCA (Benelux SCA, previously SSC Benelux & Co.,
SCS), 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. We, together with one of our partners, have the right to increase
our participation in the joint venture through an equity contribution. In July
1998, we increased our participation in the joint venture by purchasing an
additional interest from a joint venture partner for $300,000, which raised our
equity position in Benelux SCA to 13.06%. Through December 31, 1999, we had
invested $3.5 million in Benelux SCA.
On October 12, 1999, we along with the other existing investors of
Benelux SCA, entered into a European joint venture agreement with certain
unaffiliated third party investors. The new investors have committed 122 million
Euro to Benelux SCA, in exchange for a 43% interest in this company.
Concurrently, Benelux SCA established a 140 million Euro credit facility with a
commercial bank group. The additional financial resources provided by these
agreements will be used to execute our European expansion plan.
Under the terms of the joint venture agreement, the 122 million Euro in
equity capital will be funded through periodic contributions between now and
December 31, 2001. Additionally, the terms of the agreement provide for an earn
out that allows the original Benelux SCA shareholders to receive up to 10
million Euro in additional equity based on exceeding certain development targets
prior to December 31, 2001. Benelux SCA is managed by a board of managers which
consists of all the parties of the transaction. Substantially all material
decisions of the board require agreement of at least two thirds of the parties.
We now own 7.57% of Benelux SCA.
As a result of SSCI's investment in Europe, we face certain risks
inherent in international business operations, including currency risks,
unexpected changes in regulatory requirements, longer accounts receivable
payment cycles, difficulties in staffing and managing international operations,
potentially adverse tax burdens,
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<PAGE> 33
obstacles to the repatriation of earnings and cash, and the burdens of complying
with different permitting standards and a wide variety of foreign laws.
Our pro rata portion of operating losses before the cumulative effect of
a change in accounting principle for European operations was $1,059,000,
$412,000 and $402,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. In order to take advantage of the investment opportunity we are
accelerating our expansion rate in Europe. Although the operations of existing
stores are improving, this expansion will produce losses for the next three to
four years as financing costs, start up losses from the additional stores and
overhead costs necessary to carry out current expansion plans will continue to
exceed operating income. The results of our European operations were
consolidated in our financial statements for the years ended December 31, 1997
and 1998. For the year ended December 31, 1999, the results are no longer
consolidated due to the October 12th transaction discussed previously, and our
remaining interest has been accounted for under the equity method of accounting.
This reporting change has been made retroactive to January 1, 1999. The data
included in the following discussion and tables reflect total European
operations, not our pro rata percentage.
European Business Summary
Since 1992, Benelux SCA has tested the self storage product on local
consumers and has tailored its product to meet the needs of European consumers.
European consumers tend to live in more crowded population densities and smaller
living spaces which make self storage an attractive option. Our partners have
learned that government regulations, cultural differences, building practices
and marketing techniques are all factors to be considered in each country.
Through experience, they have built an infrastructure necessary to support an
accelerated expansion program. As of December 31, 1999, Benelux SCA had 28
storage centers operating in five countries. Today, Benelux SCA employs over 140
employees with a senior management team with substantial local development,
finance, operations and marketing experience. The following tables include
selective financial and operating information which illustrates the performance
and growth of Benelux SCA.
SUMMARY OF EUROPEAN PROPERTIES:
<TABLE>
<CAPTION>
Number of Total Net Estimated 1999 %
Open Rentable Total Rate
Properties Sq. Ft.(1) Cost(1) Occupancy(2) Rates(2)(3) Increases(4)
---------- ---------- ------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
COUNTRY
Belgium 11 706,000 $39.6 million 73% $13.11 21%
France 4 178,000 $10.7 million 87% $20.19 6%
Netherlands 1 61,000 $ 5.5 million
Sweden 9 547,000 $38.0 million 63% $16.93 5%
United Kingdom 3 179,000 $22.4 million
--------- ----------- ---------------
28 1,671,000 $116.2 million
</TABLE>
- ---------------
(1) Total net rentable square feet and estimated total cost when all phases
are complete.
(2) Includes stores that have been operating more than 12 months.
(3) Average annual rent per square foot is calculated by dividing actual
rent collected by the average number of square feet occupied during the
period.
(4) In the respective local currencies
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<PAGE> 34
SELECTED FINANCIAL DATA OF BENELUX SCA
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total Revenue $ 9.2 million $4.3 million $ 1.9 million
Total Assets $168.9 million $90.7 million $40.1 million
Total Bank Debt(1) $133.8 million $70.5 million $20.7 million
</TABLE>
(1) Does not include unsecured debt between Benelux SCA and affiliates.
The self-storage industry is not yet well established in much of Europe
and we believe this presents us with the opportunity to become a dominant player
throughout Western Europe. Although we are seeing other industry players
entering the European markets, we believe the supply being added to the market
still leaves plenty of opportunity when compared to the overall size of the
market. Benelux SCA and its subsidiaries have established expansion plans that
focus in four markets: the Benelux region (which includes Belgium, Luxembourg
and the Netherlands), France, Scandinavia and the UK. The following sections
discuss in detail the performance of existing stores as well as our progress in
carrying out these expansion plans.
European Same Store Operations
Our definition for European 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. The following table summarizes Same Store operating performance as defined
at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
(dollars in thousands except YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
average rent) --------------------------------- -------------------------------
1999 1998 % CHANGE 1998 1997 % CHANGE
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue $5,660 $4,369 30% $2,018 $1,220 65%
Property operating expenses(1) 2,442 2,606 (6)% 897 780 15%
----- ----- --- ---
Net operating income $3,218 $1,763 83% $1,121 $440 154%
===== ===== ===== =====
Avg. annual rent per sq.ft.(2) $14.39 $12.99 11% $11.00 $9.50 16%
Avg. sq.ft. occupancy 83% 70% 86% 75%
Total net rentable sq.ft. 492,000 492,000 234,000 234,000
# of properties 9 9 4 4
</TABLE>
---------------
(1) Includes all direct property expenses. Does not include any allocation of
joint expenses incurred, 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.
In 1999, we increased rental rates of Same Stores an average of 11% when
measured in U.S. dollars and 16% in local currency. These rate increases, as
well as increases in occupancy, resulted in the 30% revenue increase from 1998
to 1999. Property operating expenses decreased 6% in 1999 over 1998 due to
improved expense controls, decreases in repair and maintenance expenses due to
renegotiation of maintenance contracts, and improved operating efficiencies
resulting from economies of scale.
European Development
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<PAGE> 35
Benelux SCA's strategy is to quickly dominate markets they enter by
building a network of high quality storage centers that can be managed with
economies of scale. There are few storage centers available for acquisition, so
our European joint venture has focused on a strategy of in-house development for
most of their European stores. Through this strategy, they are able to maintain
high quality standards and consistent building design to develop brand and
product awareness. Each development project progresses through a series of
review processes from initial review, through due diligence, final review and
finally to the land purchase and construction. We believe the success of this
strategy has been greatly enhanced as a result of the substantial experience we
gained through the development of over 80% of our European properties, as well
as one third of our U.S. properties. Benelux SCA opened 12 storage centers in
1999, seven in 1998 and two in 1997. The following table summarizes European
development by country in U.S. dollars:
<TABLE>
<CAPTION>
Total Net
Rentable Sq.
Ft. when all
Number of Estimated phases are
Properties Total Cost (1) complete
--------------------------------------------------
<S> <C> <C> <C>
OPENED IN 1999
Belgium 2 $6.3 million 137,000
France 1 $4.1 million 54,000
Netherlands 1 $5.5 million 61,000
Sweden 5 $21.2 million 287,000
United Kingdom 3 $22.4 million 139,000
OPENED IN 1998
Belgium 3 $10.9 million 185,000
Sweden 4 $16.8 million 260,000
</TABLE>
(1) The actual completed cost of projects could vary due to delays during
construction caused by weather, unforeseen site conditions and problems
with subcontractors or contractors. For a further discussion of events
that could impact this estimate, see DOMESTIC DEVELOPMENT.
Of the 12 storage centers opened in 1999, 11 opened in the last two
months of the year. These 12 storage centers have an estimated total cost of
$59.5 million and net rentable square feet of 678,000 when all phases are
complete. These storage centers generated $651,000 in net operating losses for
the year ended December 31, 1999.
The seven storage centers opened during 1998 had an average occupancy of
46% after an average of 14 months of operations and together generated $695,000
in net operating income for the 12 months of 1999. For the month ended December
31, 1999, these developments had net operating income of $173,000 which
represents 52% of projected monthly NOI at stabilization (as measured in the
relevant local currency).
Because of the newness of storage to the European market, the rent-up
period for storage centers developed prior to 1998 has been longer than that of
domestic development projects. During the rent up and initial product
introduction period, rental rates are below those we anticipate at
stabilization. As each center reaches stabilized occupancy, management's focus
will change from increasing occupancy to increasing rates. The proforma average
annual yield on the estimated total cost of the projects in the above table is
11% to 15% assuming the projects reach 85% occupancy at current rates.
There can be no assurance that these projections regarding European
development projects will occur. Assumed occupancy levels and rates could be
adversely affected if we experience competition from other self-
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<PAGE> 36
storage properties and other storage alternatives in close proximity to our
developments. Actual yields may also be lower if major expenses such as property
taxes, labor and marketing, among others, increase more than projected or if
there are significant changes in the exchange rates.
In addition to the above completed developments, Benelux SCA has five
European storage centers currently under construction. These developments are
located as follows: two in France, one in the Netherlands, one in Sweden and one
in the United Kingdom. Additionally, they have purchased one site in the United
Kingdom, one in the Netherlands and one in Belgium in which construction has not
yet started. In order to compete for sites in the United Kingdom, they have
departed from their general policy of purchasing land only after the permitting
process is complete. As a result, they have undertaken the additional risk that
they may be unable to complete the permitting process and cannot sell the
property at a profit. The following table summarizes European development
projects in progress at December 31, 1999:
<TABLE>
<CAPTION>
Estimated Total Cost to
Number of Completed Date as of
Projects Cost of Projects(1) Dec. 31, 1999
--------------------------------------------------
<S> <C> <C> <C>
NEW DEVELOPMENTS
Construction in Progress
France 2 $10.4 million $4.6 million
Netherlands 1 $4.5 million $2.0 million
Sweden 1 $4.2 million $0.1 million
United Kingdom 1 $7.9 million $5.5 million
Land purchased pending construction
Belgium 1 $4.0 million $1.8 million
Netherlands 1 $4.7 million $2.6 million
United Kingdom 1 $8.8 million $5.7 million
</TABLE>
(1) The actual completed cost of projects could vary due to delays during
construction caused by weather, unforeseen site conditions and problems
with subcontractors or contractors. For a further discussion of events
that could impact this estimate, see the discussion below.
In the current state of the European self storage market, we believe
that a strategy of growth through development will result in superior returns
over the long-term. However, as discussed earlier, this development strategy
creates a short-term dilution of earnings during the rent-up phase of a project.
For further discussion, see DOMESTIC DEVELOPMENT.
We currently anticipate that our European partners will open 15 to 20
developments in 2000 including the five listed in the table above. The actual
number of projects could be reduced due to zoning and permitting delays outside
of our control, increased competition for sites, delays during construction
caused by, among other things, weather, unforeseen site conditions, labor
shortages, personnel turnover, scheduling problems with contractors,
subcontractors or suppliers, or resource constraints.
OTHER REAL ESTATE INVESTMENTS
The following table shows income (loss) from unconsolidated real estate
investments for the years ended December 31, 1999, 1998 and 1997. All income and
loss amounts reflect our pro rata ownership percentage.
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<PAGE> 37
<TABLE>
<CAPTION>
INCOME (LOSS) FROM OTHER REAL ESTATE INVESTMENTS
(dollars in thousands) YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Containerized storage $(2,654) $(3,133) $(1,423)
Unconsolidated joint ventures (684) (135) (172)
Participating mortgages 1,631 1,639 1,591
European Operations (1,595) (136) (81)
Other partnership investments 137 310
------- ------- -------
Total $(3,302) $(1,628) $ 225
======= ======= =======
</TABLE>
Containerized Storage
Shurgard Storage To Go, Inc. (STG) is operating in five major U.S.
markets, including Seattle, Portland, San Francisco, Atlanta and Chicago. During
2000, STG does not intend to open any additional warehouses, but will
concentrate on maximizing revenue growth through effective marketing and pricing
strategies and optimizing warehouse capacity and logistics. At December 31,
1999, STG had 5,036 containers rented with an average rental rate of $56 per
container, compared to 3,631 containers rented at December 31, 1998, with an
average rental rate of $61 per container. STG has adjusted its rate structures
in order to be more competitive and to maximize revenues. The decrease in
average rental rate per container from 1998 to 1999 was offset by increased
pickup and delivery fees charged in 1999.
At December 31, 1999, our gross investment in STG was $4.7 million. SSCI
owns only nonvoting stock in STG, which is not a qualified REIT Subsidiary and
is subject to corporate level tax. We have committed to lend up to $11.5 million
under three unsecured five year notes to fund negative cash flow during the rent
up stage. At December 31, 1999, $10.7 million was outstanding. We also currently
guarantee $10.2 million in lease obligations. In 1999, our pro rata percentage
of STG losses was $2,654,000 which includes a $92,000 cumulative effect of a
change in accounting principle reflecting the write-off of start-up costs in
accordance with SOP 98-5, compared to losses of $3,133,000 for the 12 months
ended December 1998. We expect to reduce our pro-rata portion of these losses to
$1.0 million for 2000, including $1.0 million for depreciation. This projected
2000 loss is based on several assumptions, including meeting the projected
number of container rentals and lengthening the average customer rental period.
There is, of course, no assurance that this expectation will be met as numerous
factors affect profitability. These factors include, among other things, the
possible inability to attract new customers, the expense of sales and marketing
efforts, the potential of new competition (both containerized and other forms of
storage) entering our markets and the possibility that customers may not be
willing to pay the rates projected.
Unconsolidated Joint Ventures
Pursuant to our affiliation agreements with two storage operators, we
have entered into 22 joint ventures in which our economic interests ranges from
50% to 90%. As of December 31, 1999, we had invested a total of $24.2 million in
these joint ventures. Our pro rata portion of joint venture losses totaled
$684,000 ($1,025,000 of income before depreciation and amortization) for the 12
months ended December 31, 1999, as losses from new properties added during the
previous and current year offset earnings from stabilized properties. Our pro
rata
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<PAGE> 38
portion of losses for these joint ventures totaled $135,000 ($1,176,000 of
income before depreciation and amortization) and $172,000 ($398,000 of income
before depreciation and amortization) for 1998 and 1997, respectively. Six new
properties were added in both 1999 and 1998, and seven properties were added in
1997. We have guaranteed our pro-rata portion of certain joint venture loans
totaling $27.8 million. Performance related to stores developed through these
joint ventures is included in the appropriate tables and section discussions
(SAME STORES, DOMESTIC ACQUISITIONS or DOMESTIC DEVELOPMENT) under INTERNAL
GROWTH.
Participating Mortgages
We have $13.2 million invested 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. 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, as defined.
We have options to purchase the properties at established prices, which are
exercisable from January 2000 until January 2005.
Other
Income from other partnership investments for 1998 and 1997 represents
income from investments in Shurgard Institutional Fund LP and Shurgard
Institutional Fund LP II. Shurgard Institutional Fund LP and Shurgard
Institutional Fund LP II were consolidated for financial statement purposes
beginning September 1998 and September 1997, respectively. For a further
discussion of investments in partnership units, see INVESTING TRANSACTIONS.
OTHER INCOME AND EXPENSES
Domestic interest expense increased $5.3 million from 1997 to 1999 due
to an increase in the outstanding debt balance. This rise represents borrowings
to purchase partnership units and to fund development of new storage centers and
acquisitions. Additionally, during 1999, we capitalized $9.0 million in interest
related to the construction of domestic storage centers while $6.6 million and
$3.1 million were capitalized in 1998 and 1997, respectively. Benelux SCA
capitalized $2.6 million, $1.0 million and $0.1 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In accordance with Emerging Issues Task Force 97-11 (EITF 97-11),
"Accounting for Internal Costs Related to Real Estate Property Acquisitions",
SSCI has expensed all internal pre-acquisition costs beginning in April 1998.
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 was 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. This initial application for consolidated entities is reported
as a cumulative effect of change in accounting principle.
On June 16, 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), which is effective for fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for derivative
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<PAGE> 39
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.
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 assets 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. Effective January 1, 2000,
FFO will include both recurring and non-recurring results of operations per
NAREIT's revised White Paper on FFO. We expect this change to have a positive
effect on our FFO. The following table sets forth the calculation of FFO in
accordance with the NAREIT definition (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income $ 50,673 $ 44,734 $ 42,311
Non-recurring (revenue)/expenses 1,091 (416) (189)
Preferred dividend (8,750) (4,690) (3,060)
Depreciation/amortization 36,858 33,644 28,243
Depreciation/amortization from unconsolidated
joint ventures and subsidiaries
(59) (252) (231)
Deferred financing costs (1,209) (1,120) (1,105)
-------- -------- --------
FFO $ 78,604 $ 71,900 $ 65,969
======== ======== ========
</TABLE>
FFO for 1999 increased $6.7 million over 1998 FFO, which had risen $5.9
million over 1997. As previously discussed, this growth rate reflects the
improved performance of the original portfolio of properties as well as the
addition of properties over the past three years through acquisitions and
developments. For 1999, non-recurring revenue and expenses in the table above
includes the effect of the cumulative change in accounting principle relating to
SOP 98-5 for both consolidated entities and our pro-rata portion of
unconsolidated joint ventures (See NOTE B). In 2000, assuming we continue to
finance development through off balance sheet agreements and STG meets
expectation, we expect FFO to increase 7-8%. This expectation regarding FFO
growth constitutes a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act and is based on several assumptions. If any of
these assumptions are not satisfied or prove to be incorrect, actual results
could differ materially from those indicated in the statement. The risks and
uncertainties that may cause these assumptions and this forward-looking
statement to prove to be incorrect include the risks that competition from new
self storage facilities or other storage alternatives may cause rents to
decline, occupancy
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<PAGE> 40
rates to drop, or delays in rent up of newly developed properties. We may
experience increases in labor, taxes, marketing and other operating and
construction expenses. For a discussion of the factors that might cause these
assumptions not to occur see INTERNAL GROWTH, DOMESTIC DEVELOPMENT and
Containerized Storage.
INVESTING TRANSACTIONS
In 1999, we invested $13.3 million in the acquisition of five storage
centers, $106.0 million in domestic development and expansion projects, and $6.3
million in capital improvements to our existing portfolio. The $8.2 million
increase in other real estate investments reflects primarily the $8.0 million
invested in joint ventures and the $0.2 million invested in our containerized
storage operation. Additionally, during 1999, loans to affiliates increased $2.0
million primarily due to the loan we made to our containerized storage
operation.
During 1999, we purchased one Limited Partner unit in Shurgard
Institutional Fund LP II, from an unaffiliated third party, for $1.2 million in
cash. We now own 6.5 of 9.5 limited partner units and are entitled to 67% of
limited partner distributions. We continue to own a general partnership interest
in this partnership which is consolidated in our financial statements.
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. In 1998, we recorded the issuance of 145,286 shares related to this
obligation. Additional shares are expected to be issued during 2000 as
consideration for similar interests in two other partnerships.
During 1998, we invested $24.9 million in the acquisition of eight
storage centers, $111.9 million in domestic development and expansion projects,
$44.1 million in European development projects, and $5.1 million in capital
improvements to our existing portfolio. The $9.5 million increase in other real
estate investments reflects primarily the $9.3 million invested in joint
ventures and the $0.2 million invested in our containerized storage operation.
Additionally, during 1998, loans to affiliates increased $6 million due to the
loan we made to our containerized storage operation.
During 1998, we purchased 18 Limited Partner units in Shurgard
Institutional Fund LP, from unaffiliated third parties, for $22.6 million in
cash ($21.2 million, net of cash received). We now own 22 of 25 units and are
entitled to 88% of this partnership's limited partner distributions. Three out
of these 22 units were purchased in 1997 from an unaffiliated third party, for
$3.7 million in cash. We continue to own a general partnership interest in this
partnership. Due to our majority interest, effective September 24, 1998,
Shurgard Institutional Fund LP is consolidated for financial statement purposes.
Prior to this date, earnings were included in income from other real estate
investments.
During 1997, we invested $65.6 million in the acquisition of 23 storage
centers, $90.4 million in domestic development and expansion projects, $2.2
million in European development projects, and $5.3 million in capital
improvements to our existing portfolio. The $17.0 million increase in other real
estate investments reflects primarily $3.7 million invested in limited
partnership units, $6.6 million in joint ventures, and $4.2 million invested in
STG.
During 1997, we purchased from an unaffiliated third party, for $2.1
million in cash, two limited partnership units in Shurgard Institutional Fund LP
II, an affiliated partnership. We owned 5.5 units and were entitled to 57% of
limited partner distributions. Due to our majority interest, effective September
16, 1997,
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<PAGE> 41
Shurgard Institutional Fund LP II is consolidated for financial statement
purposes. Prior to this date, earnings were included in income from other real
estate investments.
CAPITAL EXPENDITURES
In addition to continued investments in acquisitions and developments,
we invest in improving our current portfolio of real estate. Investments in
existing storage properties include primarily expansions, conversions (i.e.,
size of units or climate control) and certain recurring improvements to roofs,
pavement, sealant and other items such as security upgrades that we believe are
necessary to maintain our quality standards and our ability to generate premium
returns.
Of the $6.2 million in capital improvements expended during 1999
(excluding signage), $1.9 million was for roofs, pavement and sealant,
representing approximately $.10 per net rentable square foot, while $1.8 million
out of a total of $5 million was spent for these items during 1998 representing
approximately $0.09 per net rentable square foot. During 1997, $2.2 million out
of $4.5 million was spent for these items, representing approximately $0.13 per
net rentable square foot. Specifically identified capital improvements expected
for 2000 total $6.6 to $7.4 million, of which $1.6 to $2.4 million represents
roofs, pavement and sealant. During 1996, we completed an extensive research and
evaluation program through which we selected an updated logo. In order to
maintain our brand awareness across all Shurgard businesses, we implemented a
process to replace signs, awnings, etc. to incorporate our new logo over 1997
and 1998. During 1999, we re-signed five stores at a cost of approximately
$45,000, while 132 stores and 134 stores were re-signed in 1998 and 1997 at a
cost of about $1.1 million and $0.8 million, respectively.
FINANCING TRANSACTIONS
The balance on the domestic line of credit increased $20.6 million from
December 31, 1998 to December 31, 1999. Draws on the line were used to fund
acquisitions, the purchase of a partnership unit, development activity and
general corporate purposes. 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 $102.0 million
was outstanding. At December 31, 1999, the weighted average interest rate was
7.6%.
During 1999, SFPI borrowed an additional $2.3 million under its
non-recourse credit facility. At December 31, 1999, $45.0 million was
outstanding under this credit facility. Additionally, during 1999, SFPII
obtained 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 May 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 under both of these credit
facilities, which at December 31, 1999 fixed our weighted average interest rates
at 7.57% and 8.56% for SFPI and SFPII, respectively. We have a 10% equity
interest in both of these partnerships.
Additionally, K&S I, LLC, a partnership, 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%.
In December 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
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<PAGE> 42
distribution payments totaling 8.7% per year and are callable at our option
after five years at a redemption price of $25 per share.
Net borrowings under the domestic line of credit during 1998 totaled $37
million. Draws on the line were used to fund acquisitions, purchases of
partnership units, development activity, and general corporate purposes. As of
December 31, 1998, $81.5 million was outstanding, and the interest rate spread
was 95 basis points over LIBOR.
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 8.8% 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. 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.
Additionally, during 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.
Net repayments on the domestic lines of credit during 1997 totaled $83.5
million as proceeds from senior unsecured notes were used to repay previously
outstanding balances. At December 31, 1997, approximately $44.5 million was
outstanding, and the spread was 100 basis points over LIBOR.
European notes payable increased $49.1 million from December 31, 1997 to
December 31, 1998 in order to fund development and operating cash needs. At
December 31, 1998, we had seven European credit lines (denominated in local
currencies) to borrow up to a total of $14.7 million of which $13.5 million was
outstanding. At December 31, 1997, we had four European credit lines
(denominated in local currencies) with a total available of $13.0 million of
which all was outstanding. For the year ended December 31, 1999, the Company's
European results are no longer consolidated and are now reported under the
equity method of accounting. This reporting change has been made retroactive to
January 1, 1999. Even though our European operations are no longer consolidated
on our balance sheet, we are contingently liable for $125.9 million.
SHORT-TERM AND LONG-TERM LIQUIDITY
Cash balances increased from $7.2 million at December 31, 1997 to $11.6
million at December 31, 1999 as capital expenditures were funded primarily
through cash flow and financing alternatives obtained by forming joint ventures
as discussed previously in DEVELOPMENT FINANCING ARRANGEMENTS. The following
table summarizes certain information regarding our liquidity and capital
resources:
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<PAGE> 43
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
1999 1998(1) 1997(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Debt to total assets 38% 37% 31%
Total market capitalization(2) $1,194 million $1,274 million $1,179 million
Debt to total market capitalization(2) 36% 33% 25%
Weighted avg. interest rate(3) 7.56% 7.2% 7.58%
Available lines of credit -Domestic $98 million $69 million $56 million
</TABLE>
- ----------------
(1) Includes European operations. For 1999, the Company's European operations
are no longer being consolidated, but are now reported under the equity
method. This reporting change has been made retroactive to January 1999.
(2) Total market capitalization is based on the closing market price of the
Class A Common Stock, Series B Preferred Stock, and the Series C Preferred
Stock multiplied by their respective total number of outstanding shares
plus total debt.
(3) Represents domestic weighted average interest rate on the domestic line of
credit
Our total domestic debt at December 31, 1999 was $434.3 million, of
which $325.6 million is fixed rate debt or variable rate debt fixed by swap
agreements. We limit our use of variable rate debt, however, at times balances
could be significant enough that fluctuations in interest rates would impact our
earnings. We believe that we will be able to minimize the impact of such rate
fluctuations through the use of interest rate caps, refinancing or other
strategies.
During the past year, there has been a net outflow of capital from the
REIT sector which has resulted in depressed common equity prices for many REITs,
including us. As a result, we do not believe it is an attractive time to raise
common equity. Accordingly, unless there is a change in the equity market, we
anticipate funding 2000 growth and our on-going development program primarily
through a combination of our lines of credit, long term debt, preferred equity,
and alternative capital sources. We intend to pursue joint ventures with private
institutions and public pension funds to provide these alternative sources of
capital. Additionally, we anticipate reducing our payout ratio in order to
retain cash flow for growth. We believe that our cash flow in 2000 will be
sufficient to make required principal payments and distribution payments in
accordance with REIT requirements. Cash provided by operating activities for the
years ended December 31, 1999, 1998 and 1997 was $88.7 million, $79.1 million
and $77.1 million, respectively.
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS
As a REIT, we are not required to pay federal income tax on annual
taxable income that we currently distribute to our shareholders, provided that
we distribute an amount equal to at least 95% of our taxable income. Such
distributions must be made in the taxable year to which they relate or in the
following taxable year if declared before the REIT timely files its tax return
for such years and is paid on or before the first regular distribution payment
date after such declaration. For the years ended December 31, 1999, 1998 and
1997, 1.8%, 7.1% and 5.8% of distributions were return of capital, respectively.
As a REIT, we must derive at least 95% of our total gross income from
specified classes of income related to real property, distributions, interest or
certain gains from the sale or other disposition of stock or other securities.
Our revenue from truck rentals, sales of locks and boxes and management services
performed for other owners of properties do not qualify under this 95% gross
income test. Such nonqualifying income was approximately 3% of gross revenue in
1999 and we expect to meet the 95% test in 2000. Our acquisition of additional
properties will tend to reduce the percentage of nonqualifying income, while
additional management contracts, including those with off balance sheet joint
ventures and partnerships, and the sales of properties from the existing
portfolio will tend to increase the percentage of nonqualifying income. While we
intend to manage
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<PAGE> 44
our activities so that we continue to satisfy the 95% test in the future, we can
provide no assurance that nonqualifying income will not exceed 5% in future
years.
In December 1999, legislation was passed to reduce the taxable income
distribution requirements for a REIT from 95% to 90%. This change applies to
distributions made beginning in the year 2001.
YEAR 2000
During 1999, we evaluated our potential risks related to the Year 2000
issue, and implemented solutions to mitigate those identified risks. As part of
our plan, we replaced non-compliant systems which included our network software,
certain computer hardware, and older non-compliant gate control systems at
certain stores. The total cost to replace these non-compliant systems was
$341,000, which included replacing 51 of the gate control systems. Additionally,
we contacted our third party service providers to confirm their Year 2000
compliance or inquire about their plan to perform any necessary adjustments, as
well as developed a Year 2000 contingency plan with respect to our store
operations. Overall, we experienced no material events relating to Year 2000
issues.
ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE RATE RISK
Our primary market risks are interest rate exposure and foreign currency
exchange rate exposure. We do not enter into speculative derivative transactions
or leveraged swap agreements. The derivative instruments that we own are not
held as investments and it is our intent to hold such instruments for their
respective terms. Therefore, changes in their values will not have a significant
effect on our operations, cash flows or financial position.
We have foreign currency exposures related to our investment in the
construction, acquisition, and operation of storage centers in countries outside
the US to the extent such activities are financed with financial instruments or
equity denominated in non-functional currencies. Since all foreign debt is
denominated in the corresponding functional currency, our currency exposure is
limited to our equity investment in those countries. Countries in which we have
exposure to foreign currency fluctuations include Belgium, France, the
Netherlands, Sweden, and the United Kingdom. Our gross investment in these
foreign operations at December 31, 1999 was $3.5 million and is not considered
material. At December 31, 1999, cumulative losses, including depreciation
expense, have exceeded our gross investment by $400,000. During 1999, all
foreign investments are accounted for under the equity method.
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including loans to shareholders, debt obligations and interest
rate swaps. For loans to shareholders, the table presents contractual principal
cash flows to be received and the weighted average interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by
contractual maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract.
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<PAGE> 45
<TABLE>
<CAPTION>
(In thousands)
Expected Maturity There- Fair
Date 2000 2001 2002 2003 2004 after Total Value
- ------------------------ ----------- ---------- --------- --------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Lines of Credit:
Variable Rate (US$) $102,002 $102,002 $102,002
Interest rate 6.00%
Notes Payable:
Fixed Rate (US$) $19 $123,958 $57,275 $50,000 $231,252 $237,932
Interest rate 7.92% 7.92% 7.92% 7.92% 7.51% 7.63%
Variable Rate (US$) $51,750 $49,345 $101,095 $101,095
Interest rate 8.34% 8.77%
EQUITY
Loans to
shareholders $665 $1,836 $1,339 $162 $4,002 $3,464
Interest rate 0.00% 0.00% 0.00% 0.00% 0.00%
INTEREST RATE
DERIVATIVES
Interest Rate Swaps:
Variable to Fixed (US$) $45,050 $49,345 $94,345 $(2,831)
Avg. pay rate 7.57% 8.56%
Avg. received rate 8.19% 8.77%
</TABLE>
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<PAGE> 46
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> 47
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>
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<PAGE> 48
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> 49
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>
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<PAGE> 50
<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> 51
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
-51-
<PAGE> 52
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> 53
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.
-53-
<PAGE> 54
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%.
-54-
<PAGE> 55
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
-55-
<PAGE> 56
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>
-56-
<PAGE> 57
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
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<PAGE> 58
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>
-58-
<PAGE> 59
<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.
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<PAGE> 60
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 39,677 38,829 41,698
Dilutive net income per share:
As reported 1.44 1.39 1.40
Pro forma 1.36 1.35 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.
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<PAGE> 61
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>
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<PAGE> 62
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:
-62-
<PAGE> 63
<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:
-63-
<PAGE> 64
<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>
-64-
<PAGE> 65
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>
-65-
<PAGE> 66
<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.
-66-
<PAGE> 67
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
-67-
<PAGE> 68
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Registrant's executive officers called for by
Part III Item 10 is set forth in Item I of Part I herein under the caption
"Executive Officers of the Registrant." Information regarding directors of the
Company and Section 16 reporting is set forth in our proxy statement for the
annual meeting of shareholders to be held May 9, 2000, and is incorporated
herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth in our proxy
statement for the annual meeting of shareholders to be held May 9, 2000, and is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is set forth in our proxy statement for the annual meeting of
shareholders to be held May 9, 2000, and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
set forth in our proxy statement for the annual meeting of shareholders to be
held May 9, 2000, and is incorporated herein by reference.
-68-
<PAGE> 69
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Consolidated Balance Sheets at December 31, 1999 and 1998. 49
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income 50
Consolidated Statements of Shareholders' Equity 51
Consolidated Statements of Cash Flows 52-53
Notes to Consolidated Financial Statements 54-70
Independent Auditors' Report 71
</TABLE>
2. Financial Statement Schedules
All schedules have been omitted because either they are not
applicable or the required information is shown in the financial
statements.
3. Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Registrant(1)
3.2 Designation of Rights and Preferences of Series A Junior
Participating Preferred Stock (Exhibit 3.2)(2)
3.3 Designation of Rights and Preferences of 8.8% Series B
Cumulative Redeemable Preferred Stock (Exhibit 3.3)(2)
3.4 Restated Bylaws of the Registrant (Exhibit 3.4)(2)
3.5 Designation of Rights and Preferences of 8.7% Series C
Cumulative Redeemable Preferred Stock (Exhibit 3)(3)
4.1 Rights Agreement between the Registrant and Gemisys Corporation
dated as of March 17, 1994 (Exhibit 2.1)(4)
4.2 First Amendment to Rights Agreement between the Registrant and
Gemisys Corporation dated May 13, 1997 (Exhibit 4.2)(5)
4.3 Indenture between the Registrant and LaSalle National Bank, as
Trustee, dated April 25, 1997, (Exhibit 10.4)(6)
4.4 Supplemental Indenture dated July 11, 1997
4.5 Form of 7 1/2% Notes due 2001 (Exhibit 4.1)(7)
4.6 Form of 7 5/8% Notes due 2007 (Exhibit 4.2)(7)
10.1 Amended and Restated Loan Agreement between Nomura Asset
Capital Corp., as Lender, and SSC Property Holdings, Inc., as
Borrower, dated as of June 8, 1994 (Exhibit 10.4)(8)
10.2 Amended and Restated Collection Account and Servicing Agreement
</TABLE>
-69-
<PAGE> 70
<TABLE>
<S> <C>
among SSC Property Holdings, Inc., Pacific Mutual Life
Insurance Company, LaSalle National Bank and Nomura Asset
Capital Corp. dated as of June 8, 1994 (Exhibit 10.5)(8)
10.3 Amended and Restated Loan Agreement among Shurgard Storage
Centers, Inc., Seattle-First National Bank, KeyBank of
Washington, U.S. Bank of Washington and LaSalle National Bank
dated September 9, 1996 (Exhibit 99.40)(9)
10.4 First Amendment to Amended and Restated Loan Agreement dated as
of November 14, 1996 (Exhibit 10.8)(5)
10.5 Second Amendment to Amended and Restated Loan Agreement dated
as of March 12, 1997 (Exhibit 10.10)(10)
10.6 Third Amendment to Amended and Restated Loan Agreement dated as
of July 27, 1997 (Exhibit 10.6)(11)
10.7 Fourth Amendment to Amended and Restated Loan Agreement dated
as of January 30, 1998 (Exhibit 10.7)(11)
10.8 Fifth Amendment to Amended and Restated Loan Agreement dated as
of May 1, 1998 (Exhibit 10.1)(12)
10.9 Sixth Amendment to Amended and Restated Loan Agreement dated as
of October 27, 1998 (Exhibit 10.1)(13)
10.10 Agreement and Plan of Merger between the Registrant and
Shurgard Incorporated dated as of December 19, 1994 (Exhibit
10.7)(14)
*10.11 Amended and Restated 1993 Stock Option Plan (Exhibit 10.7)(11)
*10.12 Amended and Restated Stock Incentive Plan for Nonemployee
Directors (Exhibit 10.7)(15)
*10.13 1995 Long-Term Incentive Compensation Plan(16)
*10.14 Form of Business Combination Agreement, together with schedule
of actual agreements
10.15 Partnership Agreement, dated April 28, 1998, between Shurgard
Development I, Inc. and Fremont Storage Partners I, L.P.
forming Shurgard/Fremont Partners I (Exhibit 1.1)(17)
10.16 Seventh Amendment to Amended and Restated Loan Agreement dated
as of April 28, 1999 (Exhibit 10.3)(18)
10.17 Partnership Agreement, dated March 17, 1999, between Shurgard
Development II, Inc. and Fremont Storage Partners II, L.L.C,
forming Shurgard/Fremont Partners II (Exhibit 10.1)(18)
10.18 First Amendment to Partnership Agreement between Shurgard
Development II, Inc. and Fremont Storage Partners II, L.L.C,
forming Shurgard/Fremont Partners II as of April 27, 1999.
(Exhibit 10.2)(18)
10.19 Second Amended and Restated Loan Agreement among Shurgard
Storage
</TABLE>
-70-
<PAGE> 71
<TABLE>
<S> <C>
Centers, Inc., Bank of America, N.A., Key Bank National
Association, U.S. Bank National Association, and LaSalle Bank
National Association, dated September 30, 1999. (Exhibit 10.1)
(19)
10.20 First Amendment to Second Amended and Restated Loan agreement
among Shurgard Storage Centers, Inc., Bank of America, N.A.,
Key Bank National Association, U.S. Bank National Association,
and LaSalle Bank National Association, dated September 30,
1999.
10.21 Second Amendment to Second Amended and Restated Loan agreement
among Shurgard Storage Centers, Inc., Bank of America, N.A.,
Key Bank National Association, U.S. Bank National Association,
LaSalle Bank National Association, The Bank of Novia Scotia,
and Bank One, dated December 16, 1999.
10.22 Separation Agreement and Mutual General Release among Shurgard
Storage Centers, Inc. and Michael and Tina Rowe, dated January
26, 2000.
12.1 Statement Re: computation of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
</TABLE>
-----------------
(1) Incorporated by reference to Exhibit B contained in the
Definitive Additional Proxy Materials on Form DEF14A filed on
April 29, 1997.
(2) Incorporated by reference to designated exhibit filed with the
Registrant's Current Report on Form 8-K dated May 14, 1997.
(3) Incorporated by reference to designated exhibit filed with
Registrant's Registration Statement on Form 8-A filed on
December 4, 1998.
(4) Incorporated by reference to designated exhibit filed with the
Registrant's Registration Statement on Form 8-A filed on March
17, 1994.
(5) Incorporated by reference to designated exhibit filed with the
Registrant's Form 8-B Registration on July 16, 1997.
(6) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1997.
(7) Incorporated by reference to designated exhibit filed with the
Registrant's Current Reports on Form 8-K dated April 22, 1997.
(8) Incorporated by reference to designated exhibit filed with the
Registrant's Registration Statement on Form S-4, Amendment No.
1, filed on January 25, 1995.
(9) Incorporated by reference to designated exhibit filed with the
Registrant's Schedule 13E-3/A Amendment No. 11 filed on
October 12, 1996.
(10) Incorporated by reference to designated exhibit filed with the
Registrant's Annual Report on Form 10-K for the year-ended
December 31, 1996.
-71-
<PAGE> 72
(11) Incorporated by reference to designated exhibit filed with the
Registrant's Annual Report on Form 10-K for the year-ended
December 31, 1997.
(12) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1998.
(13) Incorporated by reference to designated exhibit filed with the
Registrant's Current Report on Form 8-K filed December 3,
1998.
(14) Incorporated by reference to Appendix I filed as part of the
Registrant's definitive Proxy Statement/Prospectus dated
February 15, 1995.
(15) Incorporated by reference to designated exhibit filed with the
Registrant's Annual Report on Form 10-k filed on March 31,
1995.
(16) Incorporated by reference to Appendix B filed as part of the
Registrant's definitive Proxy Statement dated June 8, 1995.
(17) Incorporated by reference to designated exhibit filed with the
Registrant's Current Reports on Form 8-K dated May 29, 1998
(18) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1999.
(19) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended September 30,
1999.
* Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
On February 8, 2000, we filed Form 8-K which disclosed the Company's
operating results for the fourth quarter and year ended December 31, 1999.
-72-
<PAGE> 73
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 Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Seattle, State of Washington, on the 6th day of
March 2000.
SHURGARD STORAGE CENTERS, INC.
By: /s/ Harrell Beck
---------------------------------
Harrell Beck
Senior Vice President
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed by the following
persons in the capacities indicated below on the 6th day of March 2000.
<TABLE>
<CAPTION>
Signature Title
- -------------------------------------------- -----------------------------------------------
<S> <C>
/s/ Charles K. Barbo Chairman of the Board, President and Chief
- -------------------------------------------- Executive Officer (Principal Executive Officer)
Charles K. Barbo
/s/ Harrell Beck Senior Vice President, Treasurer,
- -------------------------------------------- Chief Financial Officer and Director
Harrell Beck (Principal Financial and Accounting Officer)
/s/ George Hutchinson Director
- --------------------------------------------
George Hutchinson
/s/ Raymond Johnson Director
- --------------------------------------------
Raymond Johnson
/s/ W. J. Smith Director
- --------------------------------------------
W. J. Smith
/s/ W. Thomas Porter Director
- --------------------------------------------
W. Thomas Porter
</TABLE>
-73-
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Registrant(1)
3.2 Designation of Rights and Preferences of Series A Junior
Participating Preferred Stock (Exhibit 3.2)(2)
3.3 Designation of Rights and Preferences of 8.8% Series B
Cumulative Redeemable Preferred Stock (Exhibit 3.3)(2)
3.4 Restated Bylaws of the Registrant (Exhibit 3.4)(2)
3.5 Designation of Rights and Preferences of 8.7% Series C
Cumulative Redeemable Preferred Stock (Exhibit 3)(3)
4.1 Rights Agreement between the Registrant and Gemisys Corporation
dated as of March 17, 1994 (Exhibit 2.1)(4)
4.2 First Amendment to Rights Agreement between the Registrant and
Gemisys Corporation dated May 13, 1997 (Exhibit 4.2)(5)
4.3 Indenture between the Registrant and LaSalle National Bank, as
Trustee, dated April 25, 1997, (Exhibit 10.4)(6)
4.4 Supplemental Indenture dated July 11, 1997
4.5 Form of 7 1/2% Notes due 2001 (Exhibit 4.1)(7)
4.6 Form of 7 5/8% Notes due 2007 (Exhibit 4.2)(7)
10.1 Amended and Restated Loan Agreement between Nomura Asset
Capital Corp., as Lender, and SSC Property Holdings, Inc., as
Borrower, dated as of June 8, 1994 (Exhibit 10.4)(8)
10.2 Amended and Restated Collection Account and Servicing Agreement
among SSC Property Holdings, Inc., Pacific Mutual Life
Insurance Company, LaSalle National Bank and Nomura Asset
Capital Corp. dated as of June 8, 1994 (Exhibit 10.5)(8)
10.3 Amended and Restated Loan Agreement among Shurgard Storage
Centers, Inc., Seattle-First National Bank, KeyBank of
Washington, U.S. Bank of Washington and LaSalle National Bank
dated September 9, 1996 (Exhibit 99.40)(9)
10.4 First Amendment to Amended and Restated Loan Agreement dated as
of November 14, 1996 (Exhibit 10.8)(5)
10.5 Second Amendment to Amended and Restated Loan Agreement dated
as of March 12, 1997 (Exhibit 10.10)(10)
10.6 Third Amendment to Amended and Restated Loan Agreement dated as
of July 27, 1997 (Exhibit 10.6)(11)
10.7 Fourth Amendment to Amended and Restated Loan Agreement dated
as of January 30, 1998 (Exhibit 10.7)(11)
10.8 Fifth Amendment to Amended and Restated Loan Agreement dated as
of May 1, 1998 (Exhibit 10.1)(12)
10.9 Sixth Amendment to Amended and Restated Loan Agreement dated as
of October 27, 1998 (Exhibit 10.1)(13)
10.10 Agreement and Plan of Merger between the Registrant and
Shurgard Incorporated dated as of December 19, 1994 (Exhibit
10.7)(14)
*10.11 Amended and Restated 1993 Stock Option Plan (Exhibit 10.7)(11)
*10.12 Amended and Restated Stock Incentive Plan for Nonemployee
Directors (Exhibit 10.7)(15)
*10.13 1995 Long-Term Incentive Compensation Plan(16)
</TABLE>
-74-
<PAGE> 75
<TABLE>
<S> <C>
*10.14 Form of Business Combination Agreement, together with schedule
of actual agreements
10.15 Partnership Agreement, dated April 28, 1998, between Shurgard
Development I, Inc. and Fremont Storage Partners I, L.P.
forming Shurgard/Fremont Partners I (Exhibit 1.1)(17)
10.16 Seventh Amendment to Amended and Restated Loan Agreement dated
as of April 28, 1999 (Exhibit 10.3)(18)
10.17 Partnership Agreement, dated March 17, 1999, between Shurgard
Development II, Inc. and Fremont Storage Partners II, L.L.C,
forming Shurgard/Fremont Partners II (Exhibit 10.1)(18)
10.18 First Amendment to Partnership Agreement between Shurgard
Development II, Inc. and Fremont Storage Partners II, L.L.C,
forming Shurgard/Fremont Partners II as of April 27, 1999.
(Exhibit 10.2)(18)
10.19 Second Amended and Restated Loan Agreement among Shurgard
Storage
Centers, Inc., Bank of America, N.A., Key Bank National
Association, U.S. Bank National Association, and LaSalle Bank
National Association, dated September 30, 1999. (Exhibit 10.1)
(19)
10.20 First Amendment to Second Amended and Restated Loan agreement
among Shurgard Storage Centers, Inc., Bank of America, N.A.,
Key Bank National Association, U.S. Bank National Association,
and LaSalle Bank National Association, dated September 30,
1999.
10.21 Second Amendment to Second Amended and Restated Loan agreement
among Shurgard Storage Centers, Inc., Bank of America, N.A.,
Key Bank National Association, U.S. Bank National Association,
LaSalle Bank National Association, The Bank of Novia Scotia,
and Bank One, dated December 16, 1999.
10.22 Separation Agreement and Mutual General Release among Shurgard
Storage Centers, Inc. and Michael and Tina Rowe, dated January
26, 2000.
12.1 Statement Re: computation of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
</TABLE>
-----------------
(1) Incorporated by reference to Exhibit B contained in the
Definitive Additional Proxy Materials on Form DEF14A filed on
April 29, 1997.
(2) Incorporated by reference to designated exhibit filed with the
Registrant's Current Report on Form 8-K dated May 14, 1997.
-75-
<PAGE> 76
<TABLE>
<S> <C>
(3) Incorporated by reference to designated exhibit filed with
Registrant's Registration Statement on Form 8-A filed on
December 4, 1998.
(4) Incorporated by reference to designated exhibit filed with the
Registrant's Registration Statement on Form 8-A filed on March
17, 1994.
(5) Incorporated by reference to designated exhibit filed with the
Registrant's Form 8-B Registration on July 16, 1997.
(6) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1997.
(7) Incorporated by reference to designated exhibit filed with the
Registrant's Current Reports on Form 8-K dated April 22, 1997.
(8) Incorporated by reference to designated exhibit filed with the
Registrant's Registration Statement on Form S-4, Amendment No.
1, filed on January 25, 1995.
(9) Incorporated by reference to designated exhibit filed with the
Registrant's Schedule 13E-3/A Amendment No. 11 filed on
October 12, 1996.
(10) Incorporated by reference to designated exhibit filed with the
Registrant's Annual Report on Form 10-K for the year-ended
December 31, 1996.
(11) Incorporated by reference to designated exhibit filed with the
Registrant's Annual Report on Form 10-K for the year-ended
December 31, 1997.
(12) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1998.
(13) Incorporated by reference to designated exhibit filed with the
Registrant's Current Report on Form 8-K filed December 3,
1998.
(14) Incorporated by reference to Appendix I filed as part of the
Registrant's definitive Proxy Statement/Prospectus dated
February 15, 1995.
(15) Incorporated by reference to designated exhibit filed with the
Registrant's Annual Report on Form 10-k filed on March 31,
1995.
(16) Incorporated by reference to Appendix B filed as part of the
Registrant's definitive Proxy Statement dated June 8, 1995.
(17) Incorporated by reference to designated exhibit filed with the
Registrant's Current Reports on Form 8-K dated May 29, 1998
(18) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1999.
(19) Incorporated by reference to designated exhibit filed with the
Registrant's Form 10-Q for the quarter ended September 30,
1999.
* Management contract or compensatory plan or arrangement
</TABLE>
-76-
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this
"First Amendment") is made as of September 30, 1999, by and among BANK OF
AMERICA, N.A., a national banking association, KEYBANK NATIONAL ASSOCIATION, a
national banking association, U.S. BANK NATIONAL ASSOCIATION, a national banking
association, LASALLE BANK NATIONAL ASSOCIATION, a national banking association
(each individually a "Lender" and collectively the "Lenders"), BANK OF AMERICA,
N.A., a national banking association, as agent for Lenders (the "Agent"), and
SHURGARD STORAGE CENTERS, INC., a Washington corporation ("Borrower").
RECITALS
A. Lenders, Agent and Borrower are parties to that certain Second
Amended and Restated Loan Agreement dated as of September 30, 1999 (the "Loan
Agreement").
B. Lenders, Agent and Borrower enter into this First Amendment to
clarify the intended meaning of certain provision of the Loan Agreement with the
intent that such clarified meaning be effective as of September 30, 1999.
NOW, THEREFORE, Lenders, Agent and Borrower agree as follows:
AGREEMENT
1. Capitalized Terms. Capitalized terms not otherwise defined in this
First Amendment shall have the meanings set forth in the Loan Agreement.
2. Amendments to Definitions in Loan Agreement.
a. The definition of "Development Asset Value" shall be amended
to read as follows:
"Development Asset Value" means, with respect to any fiscal
quarter, the Borrower's Pro Rata Share of 80% of the cost of all
Properties that were Development Properties as of the end of such fiscal
quarter. For purposes of this definition, during any time period when
generally accepted accounting principles require that 100% of the
liabilities of the Joint Venture and the Second Joint Venture be
included as liabilities on Borrower's balance sheet, "Borrower's Pro
Rata Share" shall equal 100% in the case of any Development Properties
owned by the Joint Venture or the Second Joint Venture so that, during
any such time period, the full 80% of the cost of such Properties shall
be included in "Development Asset Value."
1
<PAGE> 2
b. The definition of "Stabilized Asset Value" shall be amended
to read as follows:
"Stabilized Asset Value" means, with respect to any fiscal
quarter, the Borrower's Pro Rata Share of the NOI for all Properties
that were Stabilized Properties as of the end of such fiscal quarter
multiplied by 4 and divided by a capitalization rate of 9.25% (adjusted
for property acquisitions and dispositions). For purposes of this
definition, during any time period when generally accepted accounting
principles require that 100% of the liabilities of the Joint Venture and
the Second Joint Venture be included as liabilities on Borrower's
balance sheet, "Borrower's Pro Rata Share" of the NOI of any Stabilized
Properties that are owned by the Joint Venture or the Second Joint
Venture shall equal 100%.
3. Conditions to Effectiveness. Notwithstanding anything contained
herein to the contrary, this First Amendment shall not become effective until
each of the following conditions is fully and simultaneously satisfied:
(a) Delivery of Amendment. Borrower, Agent and each Lender shall
have executed and delivered counterparts of this First Amendment to Agent.
(b) Consent of Guarantors. Shurgard Texas Limited Partnership, a
Washington limited partnership, Shurgard Evergreen Limited Partnership, a
Delaware limited partnership, and SSC Evergreen, Inc., a Delaware corporation,
shall have executed the Guarantor's Consents attached hereto.
4. Representations and Warranties. Borrower hereby represents and
warrants to Lenders and Agent that each of the representations and warranties
set forth in Article 6 of the Loan Agreement is true and correct in each case as
if made on and as of the date of this First Amendment and Borrower expressly
agrees that it shall be an additional Event of Default under the Loan Agreement
if any representation or warranty made hereunder shall prove to have been
incorrect in any material respect when made.
5. No Further Amendment. Except as expressly modified by this First
Amendment, the Loan Agreement and the other Loan Documents shall remain
unmodified and in full force and effect and the parties hereby ratify their
respective obligations thereunder. Without limiting the foregoing, Borrower
expressly reaffirms and ratifies its obligation to pay or reimburse Agent and
Lenders on request for all reasonable expenses, including legal fees, actually
incurred by Agent or such Lender in connection with the preparation of this
First Amendment, the other amendment documents in connection with this First
Amendment ("Amendment Documents"), and the closing of the transactions
contemplated hereby and thereby.
2
<PAGE> 3
6. Miscellaneous.
(a) Entire Agreement. This First Amendment and the other
Amendment Documents comprise the entire agreement of the parties with respect to
the subject matter hereof and supersedes all prior oral or written agreements,
representations or commitments.
(b) Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same First Amendment.
(c) Governing Law. This First Amendment and the other agreements
provided for herein and the rights and obligations of the parties hereto and
thereto shall be construed and interpreted in accordance with the laws of the
State of Washington.
(d) Oral Agreements Not Enforceable.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their respective officers or agents thereunto duly authorized
as of the date first above written.
BORROWER:
SHURGARD STORAGE CENTERS, INC.
By /s/ Harrell Beck
------------------------------------------
Its Sr. V.P
-----------------------------------------
Address: 1155 Valley Street
Suite 400
Seattle, WA 98109-4426
Attn: Chris McKay
Telephone: (206) 652-3854
Telefax: (206) 652-3710
3
<PAGE> 4
LENDERS:
BANK OF AMERICA, N.A.
By /s/ William P. Stivers
------------------------------------------
Its V.P.
-----------------------------------------
Address: Bank of America Tower
Floor 11
701 Fifth Avenue
Seattle, WA 98104
Attn: Robert Peters
Commercial Banking Division
Telephone: (206) 358-3133
Telefax: (206) 585-1794
KEYBANK NATIONAL ASSOCIATION
By /s/ Richard J. Ameny, Jr.
------------------------------------------
Its Assistant Vice President
-----------------------------------------
Address: 700 Fifth Avenue, Floor 46
Seattle, WA 98104
Attn: Richard J. Ameny, Jr.
Telephone: (206) 684-6014
Telefax: (206) 684-6035
U.S. BANK NATIONAL ASSOCIATION
By /s/ Miles Silverthorn
------------------------------------------
Its Vice President
-----------------------------------------
Address: 1420 Fifth Avenue,
Floor 11, WWH733
Seattle, WA 98101
Attn: Miles Silverthorn
Telephone: (206) 344-4278
Telefax: (206) 344-2332
4
<PAGE> 5
LASALLE BANK NATIONAL ASSOCIATION
By /s/ Klay Schmeisser
------------------------------------------
Its Assistant Vice President
-----------------------------------------
Address: 135 South LaSalle Street
Suite 1225
Chicago, Illinois 60603
Attn: Klay Schmeisser
Telephone: (312) 904-0647
Telefax: (312) 904-6991
AGENT:
BANK OF AMERICA, N.A.
By /s/ Dora A. Brown
------------------------------------------
Its Vice President
-----------------------------------------
Address: Bank of America, N.A.
701 Fifth Ave., Floor 16
WA1-102-16-20
Seattle, WA 98104-7001
Attn: Agency Management Services
Telephone: (206) 358-0101
Telefax: (206) 358-0971
5
<PAGE> 6
GUARANTOR'S CONSENT
Shurgard Texas Limited Partnership, a Washington limited partnership
(the "Guarantor"), is a guarantor of the indebtedness, liabilities and
obligations of Shurgard Storage Centers, Inc., a Washington corporation (the
"Borrower"), under the Second Amended and Restated Loan Agreement referred to in
the within and foregoing First Amendment to Second Amended and Restated Loan
Agreement (the "First Amendment") and the other Loan Documents described in the
Loan Agreement. The Guarantor hereby acknowledges that it has received a copy of
the First Amendment and hereby consents to its contents, including all prior and
current amendments to the Loan Agreement, and the other Loan Documents described
therein (notwithstanding that such consent is not required). The Guarantor
hereby confirms that its guarantee of the obligations of Borrower remains in
full force and effect, and that the obligations of Borrower under the Loan
Documents shall include the obligations of Borrower under the Loan Documents as
amended by the First Amendment.
EFFECTIVE DATE: September 30, 1999
GUARANTOR: SHURGARD TEXAS LIMITED PARTNERSHIP,
By: Shurgard Storage Centers, Inc.,
its General Partner
By /s/ Harrell Beck
------------------------------------
Its SR VP
-----------------------------------
<PAGE> 7
GUARANTOR'S CONSENT
Shurgard Evergreen Limited Partnership, a Delaware limited partnership
(the "Guarantor"), is a guarantor of the indebtedness, liabilities and
obligations of Shurgard Storage Centers, Inc., a Washington corporation (the
"Borrower"), under the Second Amended and Restated Loan Agreement referred to in
the within and foregoing First Amendment to Second Amended and Restated Loan
Agreement (the "First Amendment") and the other Loan Documents described in the
Loan Agreement. The Guarantor hereby acknowledges that it has received a copy of
the First Amendment and hereby consents to its contents, including all prior and
current amendments to the Loan Agreement, and the other Loan Documents described
therein (notwithstanding that such consent is not required). The Guarantor
hereby confirms that its guarantee of the obligations of Borrower remains in
full force and effect, and that the obligations of Borrower under the Loan
Documents shall include the obligations of Borrower under the Loan Documents as
amended by the First Amendment.
EFFECTIVE DATE: September 30, 1999
GUARANTOR: SHURGARD EVERGREEN LIMITED PARTNERSHIP,
By: Shurgard Storage Centers, Inc.,
its General Partner
By /s/ Harrell Beck
------------------------------------
Its SR VP
-----------------------------------
<PAGE> 8
GUARANTOR'S CONSENT
SSC Evergreen, Inc., a Delaware corporation (the "Guarantor"), is a
guarantor of the indebtedness, liabilities and obligations of Shurgard Storage
Centers, Inc., a Washington corporation (the "Borrower"), under the Second
Amended and Restated Loan Agreement referred to in the within and foregoing
First Amendment to Second Amended and Restated Loan Agreement (the "First
Amendment") and the other Loan Documents described in the Loan Agreement. The
Guarantor hereby acknowledges that it has received a copy of the First Amendment
and hereby consents to its contents, including all prior and current amendments
to the Loan Agreement, and the other Loan Documents described therein
(notwithstanding that such consent is not required). The Guarantor hereby
confirms that its guarantee of the obligations of Borrower remains in full force
and effect, and that the obligations of Borrower under the Loan Documents shall
include the obligations of Borrower under the Loan Documents as amended by the
First Amendment.
EFFECTIVE DATE: September 30, 1999
GUARANTOR: SSC EVERGREEN, INC.
By /s/ Harrell Beck
------------------------------------
Its SR VP
-----------------------------------
<PAGE> 1
EXHIBIT 10.21
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT
(this "Second Amendment") is made as of December 16, 1999, by and among BANK OF
AMERICA, N.A., a national banking association, BANK ONE, NA, KEYBANK NATIONAL
ASSOCIATION, a national banking association, U.S. BANK NATIONAL ASSOCIATION, a
national banking association, LASALLE BANK NATIONAL ASSOCIATION, a national
banking association, THE BANK OF NOVA SCOTIA, a Canadian chartered bank (each
individually a "Lender" and collectively the "Lenders"), BANK OF AMERICA, N.A.,
a national banking association, as agent for Lenders (the "Agent"), and SHURGARD
STORAGE CENTERS, INC., a Washington corporation ("Borrower").
RECITALS
A. Lenders, Agent and Borrower are parties to that certain Second
Amended and Restated Loan Agreement dated as of September 30, 1999 which was
amended by that certain First Amendment to Second Amended and Restated Loan
Agreement dated as of September 30, 1999. Such Loan Agreement, as so amended and
as amended from time to time, is referred to in this Second Amendment as the
"Loan Agreement."
B. Concurrently with the execution and delivery of this Second
Amendment, the parties hereto are entering into two Assignment and Assumption
Agreements through which Bank of America, N.A., KeyBank National Association,
U.S. Bank National Association and LaSalle Bank National Association (the
"Existing Lenders") are assigning and delegating to Bank One, NA and The Bank of
Nova Scotia (the "New Lenders") a portion of each Existing Lender's rights and
obligations under the Loan Agreement.
C. The parties hereto are entering into this Second Amendment to add the
New Lenders as Lenders under the Loan Agreement and otherwise to conform the
Loan Agreement to the assignment and assumption contemplated by such Assignment
and Assumption Agreements.
D. Upon giving effect to this Second Amendment and such Assignment and
Assumption Agreements, KeyBank National Association, U.S. Bank National
Association and Bank One, NA shall become Co-Agents and Bank of America, N.A.
shall become Administrative Agent and Lead Arranger under the Loan Agreement.
NOW, THEREFORE, Lenders, Agent and Borrower agree as follows:
AGREEMENT
1. Capitalized Terms. Capitalized terms not otherwise defined in this
Second Amendment shall have the meanings set forth in the Loan Agreement.
1
<PAGE> 2
2. Amendments to Definitions in Loan Agreement.
a. The definition of "Agent" shall be amended to read as
follows:
"Agent" means Bank of America as administrative agent and any
successor agent selected pursuant to Section 10.6, it being understood
and agreed that "Agent" shall not include any co-agents such as KeyBank
National Association, U.S. Bank National Association or Bank One, NA
unless such co-agents are selected as successor agent pursuant to
Section 10.6.
b. The definition of "Commitment" shall be amended to read as
follows:
"Commitment" means Two Hundred Million Dollars ($200,000,000).
c. The definition of "Lenders" shall be amended to read as
follows:
"Lenders" means Bank of America, N.A., Bank One, NA, KeyBank
National Association, U.S. Bank National Association, LaSalle Bank
National Association, and The Bank of Nova Scotia, and their respective
Successors, and any additional lenders to whom any of the foregoing
Lenders assigns its interest in the Loan Documents pursuant to this
Agreement.
d. The definition of "Pro Rata Share" shall be amended to read
as follows:
"Pro Rata Share" means, with respect to each Lender, the
percentage set forth opposite such Lender's signature on the signature
pages at the end of the Second Amendment.
e. The following is added as a new definition:
"Second Amendment" means the Second Amendment to Second Amended
and Restated Loan Agreement dated as of December 16, 1999 (the "Second
Amendment") among Lenders, Agent and Borrower.
3. Amendments to Sections in the Loan Agreement.
a. Notes. The Second sentence of Section 2.6 of the Loan
Agreement is amended to read as follows:
SECTION 2.6 NOTES. Each Lender's Revolving Loans shall be
evidenced by a promissory note of Borrower substantially in the form
attached to the Second Amendment as Exhibit A-1, A-2, A-3, A-4, A-5 or
A-6, as applicable, payable to the order of such Lender, in the face
amount of such Lender's Pro Rata Share of the Commitment (the "Notes").
2
<PAGE> 3
b. Addition of Lenders. Section 11.13 of the Loan Agreement is
hereby deleted.
4. Commitment Fee. Upon execution of this Second Amendment, Borrower
shall pay to each of Bank One, NA and The Bank of Nova Scotia for its own
account an amount equal to 0.2% of such Lender's Commitment. Such payment shall
satisfy any obligation Borrower may have to such Lenders under clause (i) of
Section 2.8(a) of the Loan Agreement. The other Lenders shall be entitled to
retain the full amount previously paid to them under clause (i) of Section
2.8(a) of the Loan Agreement. Amounts owing under clause (ii) of Section 2.8(a)
of the Loan Agreement shall be paid to Agent for the account of all Lenders
(including the New Lenders) as provided therein.
5. Conditions to Effectiveness. Notwithstanding anything contained
herein to the contrary, this Second Amendment shall not become effective until
each of the following conditions is fully and simultaneously satisfied:
(a) Delivery of Amendment. Borrower, Agent and each Lender shall
have executed and delivered counterparts of this Second Amendment to Agent.
(b) Delivery of Notes. Borrower shall have executed and
delivered the applicable Note to each Lender.
(c) Consent of Guarantors. Shurgard Texas Limited Partnership, a
Washington limited partnership, Shurgard Evergreen Limited Partnership, a
Delaware limited partnership, and SSC Evergreen, Inc., a Delaware corporation,
shall have executed the Guarantor's Consents attached hereto.
6. Representations and Warranties. Borrower hereby represents and
warrants to Lenders and Agent that each of the representations and warranties
set forth in Article 6 of the Loan Agreement is true and correct in each case as
if made on and as of the date of this Second Amendment and Borrower expressly
agrees that it shall be an additional Event of Default under the Loan Agreement
if any representation or warranty made hereunder shall prove to have been
incorrect in any material respect when made.
7. No Further Amendment. Except as expressly modified by this Second
Amendment, the Loan Agreement and the other Loan Documents shall remain
unmodified and in full force and effect and the parties hereby ratify their
respective obligations thereunder. Without limiting the foregoing, Borrower
expressly reaffirms and ratifies its obligation to pay or reimburse Agent and
Lenders on request for all reasonable expenses, including legal fees, actually
incurred by Agent or such Lender in connection with the preparation of this
Second Amendment, the other amendment documents in connection with this Second
Amendment ("Amendment Documents"), and the closing of the transactions
contemplated hereby and thereby.
3
<PAGE> 4
8. Miscellaneous.
(a) Entire Agreement. This Second Amendment and the other
Amendment Documents comprise the entire agreement of the parties with respect to
the subject matter hereof and supersedes all prior oral or written agreements,
representations or commitments.
(b) Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same Second Amendment.
(c) Governing Law. This Second Amendment and the other
agreements provided for herein and the rights and obligations of the parties
hereto and thereto shall be construed and interpreted in accordance with the
laws of the State of Washington.
(d) Oral Agreements Not Enforceable.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed by their respective officers or agents thereunto duly authorized
as of the date first above written.
BORROWER:
SHURGARD STORAGE CENTERS, INC.
By /s/ Harrell Beck
------------------------------------------
Its SR VP
-----------------------------------------
Address: 1155 Valley Street
Suite 400
Seattle, WA 98109-4426
Attn: Chris McKay
Telephone: (206) 652-3854
Telefax: (206) 652-3710
4
<PAGE> 5
LENDERS:
Pro Rata Share of
Commitment
BANK OF AMERICA, N.A.
$45,450,001 22.725%
By /s/ William P. Stivers
------------------------------------------
Its V.P.
-----------------------------------------
Address: Bank of America Tower
Floor 11
701 Fifth Avenue
Seattle, WA 98104
Attn: Robert Peters
Commercial Banking Division
Telephone: (206) 358-3133
Telefax: (206) 585-1794
BANK ONE, NA
$38,233,333 19.1166665%
By /s/ Timothy J. Carew
------------------------------------------
Its First Vice President
-----------------------------------------
Address: Bank One, NA
1 Bank One Plaza
Chicago, Ill. 60670
Attn: Timothy Carew
Telephone: (312) 732-5419
Telefax: (312) 732-1117
5
<PAGE> 6
KEYBANK NATIONAL ASSOCIATION
$38,233,333 19.1166665%
By /s/ Richard J. Ameny, Jr.
------------------------------------------
Its Assistant Vice President
-----------------------------------------
Address: 700 Fifth Avenue, Floor 46
Seattle, WA 98104
Attn: Richard J. Ameny, Jr.
Telephone: (206) 684-6014
Telefax: (206) 684-6035
U.S. BANK NATIONAL ASSOCIATION
$38,233,333 19.1166665%
By /s/ Miles Silverthorn
-----------------------------------------
Its Vice President
-----------------------------------------
Address: 1420 Fifth Avenue,
Floor 11, WWH733
Seattle, WA 98101
Attn: Miles Silverthorn
Telephone: (206) 344-4278
Telefax: (206) 344-2332
6
<PAGE> 7
LASALLE BANK NATIONAL ASSOCIATION
$29,850,000 14.925%
By /s/ Klay Schmeisser
------------------------------------------
Its AVP
----------------------------------------
Address: 135 South LaSalle Street
Suite 1225
Chicago, Illinois 60603
Attn: Klay Schmeisser
Telephone: (312) 904-0647
Telefax: (312) 904-6991
THE BANK OF NOVA SCOTIA
$10,000,000 5.000%
By /s/ Michael Brown
-----------------------------------------
Its VP
----------------------------------------
Address: 888 S.W. 5th Avenue, Suite 750
Portland, OR 97204-2078
Attn: Patrik Norris
Telephone: (503) 222-3148
Telefax: (503) 222-5502
AGENT:
BANK OF AMERICA, N.A.
By /s/ Dora A. Brown
-----------------------------------------
Its Vice President
----------------------------------------
Address: Bank of America, N.A.
701 Fifth Ave., Floor 16
WA1-102-16-20
Seattle, WA 98104-7001
Attn: Agency Management Services
Telephone: (206) 358-0101
Telefax: (206) 358-0971
7
<PAGE> 8
GUARANTOR'S CONSENT
Shurgard Texas Limited Partnership, a Washington limited partnership
(the "Guarantor"), is a guarantor of the indebtedness, liabilities and
obligations of Shurgard Storage Centers, Inc., a Washington corporation (the
"Borrower"), under the Second Amended and Restated Loan Agreement referred to in
the within and foregoing Second Amendment to Second Amended and Restated Loan
Agreement (the "Second Amendment") and the other Loan Documents described in the
Loan Agreement. The Guarantor hereby acknowledges that it has received a copy of
the Second Amendment and hereby consents to its contents, including all prior
and current amendments to the Loan Agreement, and the other Loan Documents
described therein (notwithstanding that such consent is not required). The
Guarantor hereby confirms that its guarantee of the obligations of Borrower
remains in full force and effect, and that the obligations of Borrower under the
Loan Documents shall include the obligations of Borrower under the Loan
Documents as amended by the Second Amendment.
DATED: December 16, 1999
GUARANTOR: SHURGARD TEXAS LIMITED PARTNERSHIP,
By: Shurgard Storage Centers, Inc.,
its General Partner
By /s/ Harrell Beck
--------------------------------------
Its SR. V.P.
-----------------------------------
1
<PAGE> 9
GUARANTOR'S CONSENT
Shurgard Evergreen Limited Partnership, a Delaware limited partnership
(the "Guarantor"), is a guarantor of the indebtedness, liabilities and
obligations of Shurgard Storage Centers, Inc., a Washington corporation (the
"Borrower"), under the Second Amended and Restated Loan Agreement referred to in
the within and foregoing Second Amendment to Second Amended and Restated Loan
Agreement (the "Second Amendment") and the other Loan Documents described in the
Loan Agreement. The Guarantor hereby acknowledges that it has received a copy of
the Second Amendment and hereby consents to its contents, including all prior
and current amendments to the Loan Agreement, and the other Loan Documents
described therein (notwithstanding that such consent is not required). The
Guarantor hereby confirms that its guarantee of the obligations of Borrower
remains in full force and effect, and that the obligations of Borrower under the
Loan Documents shall include the obligations of under the Loan Documents as
amended by the Second Amendment.
DATED: December 16, 1999
GUARANTOR: SHURGARD EVERGREEN LIMITED PARTNERSHIP,
By: Shurgard Storage Centers, Inc.,
its General Partner
By /s/ Harrell Beck
--------------------------------------
Its SR. V.P.
-----------------------------------
1
<PAGE> 10
GUARANTOR'S CONSENT
SSC Evergreen, Inc., a Delaware corporation (the "Guarantor"), is a
guarantor of the indebtedness, liabilities and obligations of Shurgard Storage
Centers, Inc., a Washington corporation (the "Borrower"), under the Second
Amended and Restated Loan Agreement referred to in the within and foregoing
Second Amendment to Second Amended and Restated Loan Agreement (the "Second
Amendment") and the other Loan Documents described in the Loan Agreement. The
Guarantor hereby acknowledges that it has received a copy of the Second
Amendment and hereby consents to its contents, including all prior and current
amendments to the Loan Agreement, and the other Loan Documents described therein
(notwithstanding that such consent is not required). The Guarantor hereby
confirms that its guarantee of the obligations of Borrower remains in full force
and effect, and that the obligations of Borrower under the Loan Documents shall
include the obligations of Borrower under the Loan Documents as amended by the
Second Amendment.
DATED: December 16, 1999
GUARANTOR: SSC EVERGREEN, INC.
By /s/ Harrell Beck
--------------------------------------
Its SR. V.P.
-----------------------------------
1
<PAGE> 11
EXHIBIT A-1
REVOLVING PROMISSORY NOTE
$45,450,001 Date: December 16, 1999
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Washington corporation ("Borrower"), hereby promises to pay to the order of BANK
OF AMERICA, N.A. ("Lender"), the unpaid principal balance of all Revolving Loans
evidenced by this Note in a maximum amount not to exceed Forty-Five Million Four
Hundred Fifty Thousand and One Dollars ($45,450,001), together with interest
thereon from the date advanced until due as hereinafter provided. This Note
replaces that certain Revolving Promissory Note dated September 30, 1999 by
Borrower in favor of Lender in the amount of $60,600,000, and is one of the
Revolving Notes issued by the Borrower pursuant to that certain Second Amended
and Restated Loan Agreement of September 30, 1999 (as the same may be amended,
renewed, modified or supplemented from time to time, the "Loan Agreement"), by
and among Lender, KeyBank National Association, U.S. Bank National Association,
LaSalle Bank National Association, Bank One, NA and The Bank of Nova Scotia as
Lenders, Bank of America, N.A., as Agent for the Lenders, and Borrower.
Capitalized terms not otherwise defined in this Note shall have the meanings set
forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of Forty-Five
Million Four Hundred Fifty Thousand and One Dollars ($45,450,001), at any time
on or before the Revolving Loan Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all
Revolving Loans evidenced by this Note from the date hereof until due at a per
annum rate equal to the Applicable Interest Rate, and if default shall occur in
the payment when due of principal of any such Loan, from maturity until it is
paid in full at a per annum rate equal to three percent (3%) above the Prime
Rate (changing as the Prime Rate changes). Notwithstanding anything herein to
the contrary, in no event shall interest accrue at a rate which exceeds the
maximum rate permitted by applicable law. Accrued but unpaid interest shall be
payable on dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
Exhibit A-1 - 1
<PAGE> 12
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
10. This Note is issued in connection with and is subject to the terms
of the Loan Agreement.
11. This Note amends, restates and continues that certain Revolving
Promissory Note made by Borrower in favor of Lender dated as of May 1, 1998.
SHURGARD STORAGE CENTERS, INC
By:___________________________
Its:__________________
Exhibit A-1 - 2
<PAGE> 13
EXHIBIT A-2
REVOLVING PROMISSORY NOTE
$38,233,333 Date: December 16, 1999
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS,
INC., a Washington corporation ("Borrower"), hereby promises to pay to the order
of KEYBANK NATIONAL ASSOCIATION ("Lender") the unpaid principal balance of all
Revolving Loans evidenced by this Note in a maximum amount not to exceed
Thirty-Eight Million Two Hundred Thirty-Three Thousand Three Hundred and
Thirty-Three Dollars ($38,233,333), together with interest thereon from the date
advanced until due as hereinafter provided. This Note replaces that certain
Revolving Promissory Note dated September 30, 1999 by Borrower in favor of
Lender in the amount of $49,800,000, and is one of the Revolving Notes issued by
the Borrower pursuant to that certain Second Amended and Restated Loan Agreement
of September 30, 1999 (as the same may be amended, renewed, modified or
supplemented from time to time, the "Loan Agreement"), by and among Lender, Bank
of America, N.A., U.S. Bank National Association, LaSalle Bank National
Association, Bank One, NA and The Bank of Nova Scotia, as Lenders, Bank of
America, N.A., as Agent for the Lenders, and Borrower. Capitalized terms not
otherwise defined in this Note shall have the meanings set forth in the Loan
Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of
Thirty-Eight Million Two Hundred Thirty-Three Thousand Three Hundred and
Thirty-Three Dollars ($38,233,333), at any time on or before the Revolving Loan
Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all
Revolving Loans evidenced by this Note from the date hereof until due at a per
annum rate equal to the Applicable Interest Rate, and if default shall occur in
the payment when due of principal of any such Loan, from maturity until it is
paid in full at a per annum rate equal to three percent (3%) above the Prime
Rate (changing as the Prime Rate changes). Notwithstanding anything herein to
the contrary, in no event shall interest accrue at a rate which exceeds the
maximum rate permitted by applicable law. Accrued but unpaid interest shall be
payable on dates set forth in Section 2.5(a) of the Loan Agreement.
Exhibit A-2 - 1
<PAGE> 14
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
10. This Note is issued in connection with and is subject to the terms
of the Loan Agreement.
11. This Note amends, restates and continues that certain Revolving
Promissory Note made by Borrower in favor of Lender dated as of May 1, 1998.
SHURGARD STORAGE CENTERS, INC.
By:________________________________
Its:____________________________
Exhibit A-2 - 2
<PAGE> 15
EXHIBIT A-3
REVOLVING PROMISSORY NOTE
$38,233,333 Date: December 16, 1999
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Washington corporation ("Borrower"), hereby promises to pay to the order of U.S.
BANK NATIONAL ASSOCIATION ("Lender") the unpaid principal balance of all
Revolving Loans evidenced by this Note in a maximum amount not to exceed
Thirty-Eight Million Two Hundred Thirty Three Thousand Three Hundred and
Thirty-Three Dollars ($38,233,333), together with interest thereon from the date
advanced until due as hereinafter provided. This Note replaces that certain
Revolving Promissory Note dated September 30, 1999 by Borrower in favor of
Lender in the amount of $49,800,000, and is one of the Revolving Notes issued by
the Borrower pursuant to that certain Second Amended and Restated Loan Agreement
of September 30, 1999 (as the same may be amended, renewed, modified or
supplemented from time to time, the "Loan Agreement"), by and among Lender, Bank
of America, N.A., KeyBank National Association, LaSalle Bank National
Association, Bank One, NA and The Nova Scotia Bank, as Lenders, Bank of America,
N.A., as Agent for the Lenders, and Borrower. Capitalized terms not otherwise
defined in this Note shall have the meanings set forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of
Thirty-Eight Million Two Hundred Thirty-Three Thousand Three Hundred and
Thirty-Three Dollars ($38,233,333), at any time on or before the Revolving Loan
Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all
Revolving Loans evidenced by this Note from the date hereof until due at a per
annum rate equal to the Applicable Interest Rate, and if default shall occur in
the payment when due of principal of any such Loan, from maturity until it is
paid in full at a per annum rate equal to three percent (3%) above the Prime
Rate (changing as the Prime Rate changes). Notwithstanding anything herein to
the contrary, in no event shall interest accrue at a rate which exceeds the
maximum rate permitted by applicable law. Accrued but unpaid interest shall be
payable on dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
Exhibit A-3 - 1
<PAGE> 16
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
10. This Note is issued in connection with and is subject to the terms
of the Loan Agreement.
11. This Note amends, restates and continues that certain Revolving
Promissory Note made by Borrower in favor of Lender dated as of May 1, 1998.
SHURGARD STORAGE CENTERS, INC.
By:________________________________
Its:____________________________
Exhibit A-3 - 2
<PAGE> 17
EXHIBIT A-4
REVOLVING PROMISSORY NOTE
$29,850,000 Date: December 16, 1999
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Washington corporation ("Borrower"), hereby promises to pay to the order of
LASALLE BANK NATIONAL ASSOCIATION ("Lender") the unpaid principal balance of all
Revolving Loans evidenced by this Note in a maximum amount not to exceed
Twenty-Nine Million Eight Hundred Fifty Thousand Dollars ($29,850,000), together
with interest thereon from the date advanced until due as hereinafter provided.
This Note replaces that certain Revolving Promissory Note dated September 30,
1999 by Borrower in favor of Lender in the amount of $39,800,000, and is one of
the Revolving Notes issued by the Borrower pursuant to that certain Second
Amended and Restated Loan Agreement of September 30, 1999 (as the same may be
amended, renewed, modified or supplemented from time to time, the "Loan
Agreement"), by and among Lender, Bank of America, N.A., KeyBank National
Association, U.S. Bank National Association, Bank One, NA and The Bank of Nova
Scotia, as Lenders, Bank of America, N.A., as Agent for the Lenders, and
Borrower. Capitalized terms not otherwise defined in this Note shall have the
meanings set forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of Twenty-Nine
Million Eight Hundred Fifty Thousand Dollars ($29,850,000), at any time on or
before the Revolving Loan Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all
Revolving Loans evidenced by this Note from the date hereof until due at a per
annum rate equal to the Applicable Interest Rate, and if default shall occur in
the payment when due of principal of any such Loan, from maturity until it is
paid in full at a per annum rate equal to three percent (3%) above the Prime
Rate (changing as the Prime Rate changes). Notwithstanding anything herein to
the contrary, in no event shall interest accrue at a rate which exceeds the
maximum rate permitted by applicable law. Accrued but unpaid interest shall be
payable on dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
Exhibit A-4 - 1
<PAGE> 18
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
10. This Note is issued in connection with and is subject to the terms
of the Loan Agreement.
11. This Note amends, restates and continues that certain Revolving
Promissory Note made by Borrower in favor of Lender dated as of May 1, 1998.
SHURGARD STORAGE CENTERS, INC.
By:________________________________
Its:____________________________
Exhibit A-4 - 2
<PAGE> 19
EXHIBIT A-5
REVOLVING PROMISSORY NOTE
$38,233,333 Date: December 16, 1999
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Washington corporation ("Borrower"), hereby promises to pay to the order of BANK
ONE, NA ("Lender") the unpaid principal balance of all Revolving Loans evidenced
by this Note in a maximum amount not to exceed Thirty-Eight Million Two Hundred
Thirty-Three Thousand Dollars ($38,233,333), together with interest thereon from
the date advanced until due as hereinafter provided. This Note is one of the
Revolving Notes issued by the Borrower pursuant to that certain Second Amended
and Restated Loan Agreement of September 30, 1999 (as the same may be amended,
renewed, modified or supplemented from time to time, the "Loan Agreement"), by
and among Lender, Bank of America, N.A., KeyBank National Association, U.S. Bank
National Association, LaSalle Bank National Association and The Bank of Nova
Scotia, as Lenders, Bank of America, N.A., as Agent for the Lenders, and
Borrower. Capitalized terms not otherwise defined in this Note shall have the
meanings set forth in the Loan Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of
Thirty-Eight Million Two Hundred and Thirty-Three Thousand Three Hundred and
Thirty-Three Thousand Dollars ($38,233,333), at any time on or before the
Revolving Loan Maturity Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all
Revolving Loans evidenced by this Note from the date hereof until due at a per
annum rate equal to the Applicable Interest Rate, and if default shall occur in
the payment when due of principal of any such Loan, from maturity until it is
paid in full at a per annum rate equal to three percent (3%) above the Prime
Rate (changing as the Prime Rate changes). Notwithstanding anything herein to
the contrary, in no event shall interest accrue at a rate which exceeds the
maximum rate permitted by applicable law. Accrued but unpaid interest shall be
payable on dates set forth in Section 2.5(a) of the Loan Agreement.
Exhibit A-5 - 1
<PAGE> 20
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
10. This Note is issued in connection with and is subject to the terms
of the Loan Agreement.
SHURGARD STORAGE CENTERS, INC.
By:________________________________
Its:____________________________
Exhibit A-5 - 2
<PAGE> 21
EXHIBIT A-6
REVOLVING PROMISSORY NOTE
$10,000,000 Date: December 16, 1999
FOR VALUE RECEIVED, the undersigned SHURGARD STORAGE CENTERS, INC., a
Washington corporation ("Borrower"), hereby promises to pay to the order of THE
BANK OF NOVA SCOTIA ("Lender") the unpaid principal balance of all Revolving
Loans evidenced by this Note in a maximum amount not to exceed Ten Million
Dollars ($10,000,000), together with interest thereon from the date advanced
until due as hereinafter provided. This Note is one of the Revolving Notes
issued by the Borrower pursuant to that certain Second Amended and Restated Loan
Agreement of September 30, 1999 (as the same may be amended, renewed, modified
or supplemented from time to time, the "Loan Agreement"), by and among Lender,
Bank of America, N.A., KeyBank National Association, U.S. Bank National
Association, LaSalle Bank National Association and Bank One, NA, as Lenders,
Bank of America, N.A., as Agent for the Lenders, and Borrower. Capitalized terms
not otherwise defined in this Note shall have the meanings set forth in the Loan
Agreement.
Borrower further agrees as follows:
1. This Note evidences a revolving line of credit to Borrower from
Lender and, subject to the terms and conditions of the Loan Agreement, Borrower
may borrow, repay and reborrow up to the maximum principal amount of Ten Million
Dollars ($10,000,000), at any time on or before the Revolving Loan Maturity
Date.
2. Borrower shall repay the principal balance of the Revolving Loans
evidenced hereby on or before the Revolving Loan Maturity Date.
3. Interest shall accrue on the unpaid principal balance of all
Revolving Loans evidenced by this Note from the date hereof until due at a per
annum rate equal to the Applicable Interest Rate, and if default shall occur in
the payment when due of principal of any such Loan, from maturity until it is
paid in full at a per annum rate equal to three percent (3%) above the Prime
Rate (changing as the Prime Rate changes). Notwithstanding anything herein to
the contrary, in no event shall interest accrue at a rate which exceeds the
maximum rate permitted by applicable law. Accrued but unpaid interest shall be
payable on dates set forth in Section 2.5(a) of the Loan Agreement.
4. The unpaid principal balance shall be the total amount advanced
hereunder, less the amount of the principal payments made hereon. This Note is
given to avoid the execution of an individual note for each Revolving Loan by
Lender to Borrower.
Exhibit A-6 - 1
<PAGE> 22
5. All payments of principal and of interest on this Note shall be made
to the Agent at its Commercial Loan Processing Center, in U.S. Dollars, as
provided in Section 2.7(a) of the Loan Agreement.
6. Each maker, surety, guarantor and endorser of this Note expressly
waives all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, protest and notice of protest as to this
Note.
7. In the event this Note is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings, then Borrower agrees and promises to
pay reasonable attorney's fees and collection costs, including all out-of-pocket
expenses incurred by Agent or Lenders.
8. Moneys received from or for account of the Borrower shall be applied
in accordance with the terms of the Loan Agreement.
9. Upon the occurrence of an Event of Default, the entire remaining
unpaid balance of the principal and interest may, in accordance with Section 9.2
of the Loan Agreement, be declared to be immediately due and payable.
10. This Note is issued in connection with and is subject to the terms
of the Loan Agreement.
SHURGARD STORAGE CENTERS, INC.
By:________________________________
Its:____________________________
Exhibit A-6 - 2
<PAGE> 1
EXHIBIT 10.22
SEPARATION AGREEMENT
AND MUTUAL GENERAL RELEASE
This Separation Agreement and Mutual General Release ("Agreement") is made and
entered into as of the 26th day of January, 2000, at Seattle, Washington by and
among SHURGARD STORAGE CENTERS, INC., a Washington corporation ("Shurgard"), on
the one hand; and MICHAEL ROWE, an individual ("Rowe") and TINA ROWE, an
individual, on the other hand.
R E C I T A L S
A. Rowe has been employed by Shurgard or its predecessor from October 1, 1982
through the present, most recently as Executive Vice President and Chief
Operating Officer and as an officer and director of various affiliates and
subsidiaries of Shurgard.
B. Shurgard and Rowe have determined that Rowe will end his employment as an
officer of Shurgard, and as an officer and/or director of Shurgard's
subsidiaries and affiliates effective January 27, 2000.
C. Rowe and Shurgard desire to determine their respective rights, benefits,
duties and obligations, and therefore enter into this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and agreements herein contained, the parties hereto agree as
follows:
A G R E E M E N T
1. Payments to Rowe. Commencing January 28, 2000 or such other date as the
parties may agree (the "Commencement Date"), Shurgard shall pay Rowe (i) salary
continuation benefits equal to his 1999 base salary ($240,000.00) in equal
bi-weekly monthly payments for twelve (12) months, each installment to be paid
on Shurgard's regular payroll dates, and (ii) an amount necessary for Rowe to
continue medical benefits for himself and his dependents on the same basis as
Rowe currently receives such benefits as of the date of execution of this
Agreement in accordance with COBRA. All payments made under this Section 1 shall
be subject to ordinary withholding and payroll taxes. In the event that Rowe
accepts employment with an employer offering medical benefits substantially
similar to those he currently receives at Shurgard, Shurgard may discontinue the
COBRA payments following Rowe's enrollment in such benefit program. Rowe will
cease to accrue vacation, sick leave or other paid leave benefits as of January
27, 2000.
2. Benefits. In addition to the compensation described above, Rowe shall be
entitled to the following additional benefits:
(a) Rowe shall be eligible to participate in Shurgard's bonus
program for calendar year 1999 as approved by Shurgard's Board of Directors, to
be paid in accordance with standard company procedures. Rowe shall also be
entitled to any vested benefits under Shurgard's 401(k) plan and ESOP plan
contributed to and/or earned in 1999, to be distributed to Rowe in accordance
with standard company procedure for departing employees.
(b) Rowe shall be eligible for performance awards under
Shurgard's 1995 Long-Term Incentive Compensation Plan based on Shurgard's
<PAGE> 2
business results for the measurement period commencing January 1, 1997 and
ending December 31, 1999, to be paid in accordance with standard company
procedures.
(c) Rowe will be reimbursed the balance of his community-giving
fund established by him, which balance is approximately $6,500.00.
(d) The post-termination exercise period of all of Rowe's
nonqualified stock options which have vested as of the Commencement Date will be
extended to January 27, 2001, unless the options by their respective terms
expire sooner. In the event Rowe wishes to sell more than 15,000 shares of
Shurgard stock at one time, Rowe agrees to cooperate with Shurgard in the
orderly disposition of such shares.
(e) Rowe will be entitled to reimbursement for outplacement
services to be given by Lee Hecht Harrison or other provider reasonably
acceptable to Shurgard, up to a maximum of $11,000.00.
3. Status of Other Agreements. Rowe shall be entitled to his proportional share
of the remaining proceeds to be distributed from Shurgard Institutional I and II
in accordance with his status as a shareholder of Shurgard. The provisions of
this Agreement shall supercede the Senior Management Business Combination
Agreement previously entered into between Rowe and Shurgard.
4. Change of Control. In the event of a "change of control," as defined below,
(i) all payments pursuant to Section 1 of this Agreement shall immediately
become due and payable, and (ii) the noncompetition provisions of Paragraph 8
below shall be deemed void. For purposes of this Agreement, "change of control"
shall mean (i) the sale of fifty percent (50%) or more of the common stock or
assets of Shurgard by any party not approved by the Board of Directors of
Shurgard, or (ii) during any twelve (12) month period, the replacement of more
than half of the incumbent Board members with people nominated other than by the
incumbent Board.
5. General Release of Shurgard. Except for the obligations set forth herein and
any obligation to indemnify Rowe imposed by operation of law or provided in
Shurgard's Certificate of Incorporation or Bylaws, Rowe and Tina Rowe hereby
acknowledge full and complete satisfaction of and do hereby release and fully
discharge Shurgard, its predecessor, successor, parent, subsidiary and
affiliated entities, past and present as well as its partners, officers,
directors, shareholders, agents, servants, employees, representatives,
attorneys, heirs, successors and assigns, past and present, and each of them
(collectively referred to as the "Shurgard Releasees"), from any and all claims,
demands, and causes of action of every kind and nature (including, without
limitation, claims for damages, costs, expenses, loss of services, loss of
consortium, and attorneys' and accountants' fees and expenses), whether known or
unknown, suspected or unsuspected, which Rowe and Tina Rowe now owns or holds or
at any time heretofore has owned or held against the Shurgard Releasees, or any
of them, arising out of, resulting from, or in any way related to any
transaction, agreement, occurrence, act, or omission whatsoever occurring,
existing, or omitted at any time before the date hereof, including, without
limiting the generality of the foregoing, such claims, demands, and causes of
action:
(a) Arising out of or in any way connected with Rowe's
employment by Shurgard.
(b) Arising out of any federal, state or other government
statute or ordinance, including without limitation, Title VII of the Civil
-2-
<PAGE> 3
Discrimination in Employment Act of 1967 (29 U.S.C. Section 21 et seq.), the
California Fair Employment and Housing Act, or any other legal limitation on the
employment relationship.
6. Review and Revocation Period; Effective Date. Shurgard and Rowe agree that
Rowe shall have twenty-one (21) days to review this Agreement and consult legal
counsel if he so chooses, during which time the proposed terms of this Agreement
shall not be amended, modified or revoked by Shurgard. Rowe may revoke this
Agreement if he so chooses by providing notice of his decision to revoke the
Agreement to Shurgard within seven days following the date he signs this
Agreement. This Agreement shall become effective and enforceable upon expiration
of such seven (7)-day revocation period. Rowe acknowledges and agrees that the
compensation and benefits he is receiving pursuant to this Agreement is greater
than the compensation and benefits to which he would otherwise have been
entitled to upon termination of his employment with Shurgard.
7. General Release of Rowe. Except for the obligations set forth herein, any
claims for willful misconduct or fraud, and any loans or borrowings by Rowe from
any deferred compensation plan or agreement, Shurgard for itself and for its
subsidiaries and affiliate corporations hereby acknowledges full and complete
satisfaction of and does hereby release and fully discharge Rowe, his agents,
servants, employees, representatives, attorneys, heirs, successors and assigns,
past and present, and each of them (collectively referred to as the "Rowe
Releasees"), from any and all claims, demands, and causes of action of every
kind and nature (including, without limitation, claims for damages, costs,
expenses, loss of services, and attorneys' and accountants' fees and expenses),
whether known or unknown, suspected or unsuspected, which Shurgard or its
subsidiary or affiliate corporations now own or hold or at any time heretofore
has owned or held against the Rowe Releasees, or any of them, arising out of,
resulting from, or in any way related to any transaction, agreement, occurrence,
act, or omission whatsoever occurring, existing, or omitted at any time before
the date hereof, including, without limiting the generality of the foregoing,
such claims, demands, and causes of action arising out of or in any way
connected with Rowe's employment by Shurgard.
8. Noncompetition.
(a) As used herein, the term "Competitive Activity" shall mean
any participation in, assistance of business from, engagement in business with,
or assistance, promotion or organization of, any person, partnership,
corporation, firm, association or other business organization, entity or
enterprise by Rowe (other than the Company) which, directly or indirectly, is
engaged in, or hereinafter engages in the acquisition, development, and/or
operation of self storage facilities, containerized or other portable storage
activities (other than ownership not to exceed two percent in any publicly
traded company).
(b) During the period commencing on January 28, 2000 and ending
on the later of (i) the termination of this Agreement, or (ii) January 27, 2001,
Rowe shall not engage in any Competitive Activity in (i) any of the metropolitan
statistical areas listed on Exhibit "A" attached to this Agreement and hereby
incorporated by reference, or (ii) any of the following countries: (A) Belgium;
(B) Canada; (C) Denmark; (D) Finland; (E) France; (F) Germany; (G) Italy; (H)
Norway; (I) Spain; (J) Sweden, (K) Switzerland, and (L) the United Kingdom.
(c) Solicitation of Customers. During the period commencing on
the execution of this Agreement and ending on the later of (i) the termination
of this Agreement, or (ii) January 27, 2001, Rowe shall not directly or
indirectly, either for his own benefit or purposes or for the benefit or
purposes of any other person, solicit, call on, interfere with, accept any
-3-
<PAGE> 4
business from, attempt to divert or entice away any person or firm who was or
is a customer of the Company, if such business involves the development,
operation, and/or disposition of self storage facilities.
(d) Solicitation of Employees. During the period commencing on
the execution of this Agreement and ending on the later of (i) the termination
of this Agreement, or (ii) January 27, 2001, Rowe shall not directly or
indirectly, employ or offer to employ, call on, solicit, interfere with, attempt
to direct or entice away any current employee or independent contractor of the
Company in any capacity if that person possesses or has knowledge of any trade
secrets.
(e) Trade Secrets. Rowe shall not, without the prior written
consent of the Company, except as may be required by law, governmental rules and
regulations or litigation between the parties, disclose or use, in any way, any
confidential business or technical information or trade secret of the Company,
whether or not conceived of or prepared by Rowe (the "Trade Secrets"), including
without limitation any information concerning any procedures, operations,
investments, techniques, data, compilations of information, records, financing,
costs, employees, purchasing, accounting, marketing, merchandising, sales,
customers, salaries, pricing, profits, plans for future development, and the
identity, requirements, preferences, practices and methods of doing business of
specific parties with whom the Company transacts business, and all other
information which is related to any service or business of the Company; all of
which Trade Secrets are the exclusive and valuable property of the Company.
(f) Injunctive Relief. Rowe hereby acknowledges and agrees that
it would be difficult to fully compensate the Company for damages resulting from
the breach or threatened breach of the foregoing provisions and, accordingly,
that the Company, without being required to post any bond, shall be entitled to
(i) discontinue any severance and/or benefit payments due to Rowe; and (ii)
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions.
This provision with respect to injunctive relief shall not, however, diminish
the Company's right to claim and recover damages. Notwithstanding the foregoing,
the Company agrees that in the event that Rowe engages in the development,
operation and/or disposition of self storage facilities, containerized or other
portable storage activities in violation of subsection (a) above, and further
providing that Rowe has not violated any other subsection of this Section 8, and
is not otherwise in default of this Agreement, the Company's remedy for such
violation shall be limited to (i) immediate discontinuance of any further
severance and/or benefit payments in excess of three (3) months' worth of
severance and/or benefit payments which Rowe shall be entitled to retain, due to
Rowe, and recovery of any severance and/or benefits paid to Rowe from the
commencement date of such violation, and (ii) in the event that such a breach
occurs after April 3, 2000, Rowe shall no longer be entitled to exercise any
vested but unexercised stock options.
9. Consultation With Counsel. Each party hereto acknowledges and represents that
he or it has consulted with legal counsel before effecting this settlement and
executing this Agreement and that he or it understands its meaning, including
the release of any claims under the Age Discrimination in Employment Act of 1967
(20 U.S.C. Section 21, et. seq.), and expressly consents that this Agreement
shall be given full force and effect according to each and all of its express
terms and provisions, including those relating to the release of unknown and
unsuspected claims, demands, and causes of action.
10. No Admissions. This Agreement is part of the compromise and settlement of
contested claims. No action taken by the parties hereto, either previously or in
connection with the compromise reflected in this Agreement, shall be deemed or
construed to be an admission of the truth or falsity of any matter pertaining to
any claim, demand, or cause of action referred to herein or relating to the
subject matter of this Agreement, or any acknowledgment by them, or any of them,
of any fault or liability to any party hereto or to any other person in
connection with any matter or thing.
-4-
<PAGE> 5
11. Non-Disparagement. Rowe shall not disparage or negatively criticize
Shurgard, its management, its products, or any of its employees to any other
person in any manner whatsoever. Shurgard shall not disparage or negatively
criticize Rowe in any manner whatsoever.
12. No Assignments. Each party hereto represents and warrants to each other
party hereto, and each of them, that no portion of any claim, demand, cause of
action, or other matter released herein, nor any portion of any recovery or
settlement to which one party might be entitled from another party, has been
assigned or transferred to any other person or entity, either directly or by way
of subrogation or operation of law. Each party hereby agrees to indemnify,
defend, and hold harmless each other party, and each of them, from all loss,
cost, claim, or expense (including, but not limited to, all expenses of
investigation and defense of any such claim or action, including reasonable
attorneys' and accountants' fees and expenses) arising out of any claim made or
action instituted by any person or entity who claims to be the beneficiary of
such assignment or transfer, and to pay and satisfy any judgment resulting from
or any settlement of any such claim or action.
13. Governing Law. This Agreement and its terms and conditions shall be governed
by the laws and construed solely in accordance with the laws of the of State of
Washington.
14. Failure or Delay Not a Waiver. No failure or delay on the part of any party
to exercise any right hereunder, nor any other indulgence of such party, shall
operate as a waiver of any other rights hereunder, nor shall any single exercise
by any party of any right hereunder preclude any other or further exercise
thereof. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
15. No Representations. Each party hereto acknowledges that he or it has relied
wholly upon his or its own judgment, belief and knowledge of the existence,
nature and extent of each claim, demand, or cause of action that he or it may
have against another which is hereby released and that he or it has not been
influenced to any extent in entering into this Agreement by any representations
or statements regarding any such claim, demand, or cause of action made by any
other party hereto. Each party acknowledges that he or it is executing and
delivering this Agreement after having received from legal counsel of his or its
own choosing legal advice as to her or its rights hereunder and the legal effect
hereof.
16. Attorneys' Fees and Costs. In the event any litigation, arbitration or other
proceeding is brought for the interpretation or enforcement of this Agreement,
or because of an alleged dispute, default, misrepresentation, or breach arising
out of or relating to any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees, costs, and expenses actually incurred in connection therewith, in addition
to any other relief to which she, it, or they may be entitled.
17. Integration. This Agreement constitutes the entire understanding between the
parties hereto pertaining to the subject matter hereof and fully supersedes any
and all prior agreements and understandings, whether written or oral, between
the parties hereto pertaining to the subject matter hereof.
18. Amendments. No changes in, additions to, or modifications of this Agreement
shall be valid unless set forth in writing executed by all parties hereto.
-5-
<PAGE> 6
19. Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective parties and their heirs,
executors, administrators, agents, representatives, successors, and assigns.
20. Additional Documents. The parties hereto agree to execute such additional
documents and perform such further acts as may be reasonably necessary to
effectuate the purpose of this Agreement.
21. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
22. Headings. The Headings in this Agreement are for convenience or reference
only, and shall not limit or otherwise affect the meaning hereof.
23. Authority to Execute. Each individual signing this Agreement, and any other
documents executed in connection with this Agreement, whether signed
individually or on behalf of any person or entity, warrants and represents that
he or he has full authority to so execute the Agreement on behalf of the parties
on whose behalf he so signs. Each separately acknowledges and represents that
this representation and warranty is an essential and material provision of this
Agreement and shall survive execution of this Agreement. Shurgard represents and
warrants that it has the authority and capacity to perform each of its
obligations under this Agreement or that it will cause such obligation to be
fulfilled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first written above.
SHURGARD STORAGE CENTERS, INC.
a Washington corporation
By: /s/ Charles K. Barbo
--------------------------------
Name: Charles K. Barbo
Its: Chairman & CEO
Date Signed: 1/26/2000
-6-
<PAGE> 7
/s/ Michael Rowe
-----------------------------------
MICHAEL ROWE
Date Signed: 1/26/2000
/s/ Tina Rowe
-----------------------------------
TINA ROWE
Date Signed: 1/26/2000
-7-
<PAGE> 1
SHURGARD STORAGE CENTERS, INC.
EXHIBIT (12.1)- STATEMENT RE: COMPUTATION OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999 (1) 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before cumulative effect of a
change in accounting principle $51,771 $44,734 $42,311 $32,785 $29,572
Fixed charges:
Interest 22,445 21,076 17,096 12,829 12,038
Preferred dividends 8,750 4,690 3,060
Amortization of loan costs 1,209 1,120 1,105 1,120 1,120
------- ------- ------- ------- -------
32,404 26,886 21,261 13,949 13,158
Income before cumulative effect of a
change in accounting principle and
fixed charges 84,175 71,620 63,572 46,734 42,730
Divided by fixed charges(2) 41,358 34,463 24,493 16,734 14,265
------- ------- ------- ------- -------
Ratio of earnings to fixed charges 2.04 2.08 2.60 2.79 3.00
</TABLE>
(1) For 1999, the Company's European operations are no longer consolidated, but
are now reported under the equity method. This reporting change has been
retroactive to January 1999.
(2) Fixed charges includes capitalized interest that was not deducted when
arriving at net income.
<PAGE> 1
EXHIBIT 21.1
Shurgard Storage Centers, Inc.
Exhibit (21.1) -Subsidiaries of the Registrant
(i) SSC Property Holdings, Inc.;
(ii) SSC Benelux Inc.;
(iii) SSC Evergreen Inc.
(iv) Shurgard Development I, Inc.
(v) Shurgard Development II, Inc.
(vi) Shurgard Development III, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-
21273 of Shurgard Storage Centers, Inc. on Form S-3 of our report dated February
11, 2000, appearing in this Annual Report on Form 10-K of Shurgard Storage
Centers, Inc. for the year ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Seattle,Washington
March 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,645
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,174,394
<DEPRECIATION> 133,933
<TOTAL-ASSETS> 1,153,226
<CURRENT-LIABILITIES> 0
<BONDS> 332,347
0
96,171
<COMMON> 610,887
<OTHER-SE> (63,256)
<TOTAL-LIABILITY-AND-EQUITY> 1,153,226
<SALES> 0
<TOTAL-REVENUES> 173,154
<CGS> 0
<TOTAL-COSTS> 100,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,445
<INCOME-PRETAX> 51,771
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,098)
<NET-INCOME> 50,673
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.44
</TABLE>
