FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to_______________
Commission file number 0-23466
SHURGARD STORAGE CENTERS, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1603837
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1155 VALLEY STREET, SUITE 400, SEATTLE, WASHINGTON 98109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 206-624-8100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares outstanding at May 1, 2000:
Class A Common Stock, $.001 par value, 29,183,530 shares
outstanding
Class B Common Stock, $.001 par value, 154,604 shares outstanding
<TABLE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Balance Sheets
(Amounts in thousands except share data)
<CAPTION>
March 31,
2000 December 31,
(unaudited) 1999
------------ -----------
<S> <C> <C>
Assets
Storage centers:
Land $ 229,517 $ 228,601
Buildings and equipment, net 771,482 761,921
Construction in progress 56,659 49,939
----------- ---------
Total storage centers 1,057,658 1,040,461
Other real estate investments, net 35,611 33,929
Cash and cash equivalents 11,120 11,645
Restricted cash and investments 9,335 7,166
Other assets 56,531 60,025
----------- ---------
Total assets $ 1,170,255 $1,153,226
=========== ==========
Liabilities and Shareholders' Equity
Accounts payable and other liabilities $ 33,825 $ 34,312
Lines of credit 125,005 102,002
Notes payable 332,125 332,347
----------- ---------
Total liabilities 490,955 468,661
----------- ---------
Minority interest in other real
estate investments 39,113 40,763
Commitments and contingencies
(Notes D, E, and F)
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 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 48,115 48,115
Class A Common Stock, $0.001 par value;
120,000,000 authorized; 29,183,429 and,
29,093,474 issued and outstanding 613,874 611,973
Class B Common Stock, $0.001 par value;
500,000 authorized, 154,604 issued
and outstanding; net of loans to
shareholders of $4,002 (1,086) (1,086)
Accumulated net income less distributions (68,772) (63,256)
----------- ---------
Total shareholders' equity 640,187 643,802
----------- ---------
Total liabilities and
shareholders' equity $ 1,170,255 $1,153,226
=========== ==========
</TABLE>
<TABLE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Net Income
(unaudited)
(Amounts in thousands except per share data)
<CAPTION>
For the three For the three
months ended months ended
March 31, 2000 March 31, 1999
------------- -------------
<S> <C> <C>
Revenue
Rental $ 44,767 $ 40,809
Other real estate investments, net (894) (1,148)
Property management 386 355
----------- ----------
Total revenue 44,259 40,016
----------- ----------
Expenses
Operating 12,871 11,371
Depreciation and amortization 9,902 9,048
Real estate taxes 4,268 3,640
General, administrative and other 1,132 991
----------- ----------
Total expenses 28,173 25,050
----------- ----------
Income from operations 16,086 14,966
----------- ----------
Interest and other income 772 289
Interest expense (6,967) (4,887)
------------ -----------
Other income (expense), net (6,195) (4,598)
------------ -----------
Minority interest 1,408 528
----------- ----------
Income before cumulative effect of
a change in accounting principle 11,299 10,896
Cumulative effect of a change in
accounting principle (1,098)
----------- ----------
Net income $ 11,299 $ 9,798
=========== ==========
Basic net income per common share:
Income before change in accounting
principle $ 0.31 $ 0.30
Cumulative effect of a change in
accounting principle (.04)
----------- -----------
Net income $ 0.31 $ 0.26
=========== ===========
Diluted net income per common share:
Income before change in accounting
principle $ 0.31 $ 0.30
Cumulative effect of a change in
accounting principle (.04)
----------- -----------
Net income $ 0.31 $ 0.26
=========== ===========
Distributions per common share: $ 0.50 $ 0.49
=========== ===========
</TABLE>
<TABLE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Consolidated Statements of Cash Flows
(unaudited)
(Amounts in thousands)
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 11,299 $ 9,798
Adjustments to reconcile earnings to net cash
provided by operating activities:
Cumulative change in accounting principle 1,098
Depreciation and amortization 9,902 9,048
Loss from other real estate investments 1,447 1,691
Minority interest in earnings from
investments in other real estate
investments (1,408) (528)
Changes in operating accounts:
Restricted cash and investments (2,169) (81)
Other assets 1,120 812
Accounts payable and other liabilities 3,352 196
----------- -----------
Net cash provided by operating activities 23,543 22,034
----------- -----------
Investing activities:
Construction, acquisition and improvements
to storage centers (29,764) (24,762)
Purchase of other real estate investments (1,400) (3,736)
Purchase of non-competition agreements
and other amortizable assets (54) (40)
Decrease in cash and cash equivalents as
a result of deconsolidation (Note A) (1,301)
(Increase) decrease in loans to affiliates (505) 1,280
Purchase of additional interest in an
affiliated partnership (1,176)
Distributions in excess of earnings from
other real estate investments 31
----------- -----------
Net cash used in investing activities (31,692) (29,735)
----------- -----------
Financing activities:
Net (payments on) proceeds from notes payable (222) 855
Net proceeds from lines of credit 23,003 21,935
Payment of loan costs (40)
Proceeds from issuance of common stock 1,898 1,211
Distributions paid (16,813) (16,388)
Contributions received from minority partners 68
Distributions paid to minority partners (310) (253)
----------- -----------
Net cash provided by financing activities 7,624 7,320
Decrease in cash and cash equivalents (525) (381)
Cash and cash equivalents at beginning of period 11,645 9,474
----------- -----------
Cash and cash equivalents at end of period $ 11,120 $ 9,093
============ ============
Supplemental schedule of cash flow information:
Cash paid for interest $ 6,832 $ 5,503
============ =============
</TABLE>
Shurgard Storage Centers, Inc.
Part I, Item 1: Notes to Consolidated Financial Statements
Three Months Ended March 31, 2000
(unaudited)
Note A - Basis of Presentation
The consolidated financial statements include the accounts of Shurgard
Storage Centers, Inc. and its subsidiaries. All intercompany balances and
transactions have been eliminated upon consolidation.
For the year ended December 31, 1999, European operations are no
longer being consolidated, but are reported under the equity method. All
financial information for 1999 reflects this change.
The consolidated financial statements included in this report are
unaudited. In our opinion, all adjustments necessary for a fair
presentation of such financial statements have been included and such
adjustments consisted only of normal recurring items. The interim
financial statements should be read in conjunction with our 1999 Annual
Report. Interim results are not necessarily indicative of results for a
full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
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 a change in accounting principle.
Basic average shares outstanding for the three months ended March 31,
2000 and 1999 were 29,277,702 and 28,996,520, respectively. Diluted
average shares outstanding for the three months ended March 31, 2000 and
1999 were 29,333,692 and 29,015,055, respectively.
Certain amounts in the 1999 financial statements have been
reclassified to conform to the current presentation.
Note B - Lines of Credit
We have an unsecured domestic line of credit to borrow up to
$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 March 31, 2000, the current
available amount is $200 million. At March 31, 2000, the weighted average
interest rate was 7.29%. Covenants on this line of credit restrict our
dividends to no more than 95% of funds from operations (as defined by the
National Association of Real Estate Investment Trusts) and require us to
maintain certain financial ratios.
NOTE C - Notes Payable
<TABLE>
<CAPTION>
(in thousands) March 31, 2000 Dec. 31, 1999
-------------- -------------
<S> <C> <C>
Note payable to financial $ 122,580 $ 122,580
services company
Senior notes payable 100,000 100,000
Mortgage notes payable 109,545 109,767
---------- ----------
$ 332,125 $ 332,347
========== ===========
</TABLE>
The maturities of principal on debt over the next five fiscal years
are approximately $175.5 million in 2001; $49.3 million in 2002;
$57.3 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. For a further discussion see NOTE G-Notes
Payable in our 1999 Annual Report on Form 10-K.
Note D - Storage Centers
Building and equipment are presented net of accumulated depreciation
of $142.6 million and $133.9 million as of March 31, 2000 and December 31,
1999, respectively. We have entered into 42 construction contracts for
developments of new or improvements to existing storage centers.
Outstanding commitments under these contracts total $54 million.
Note E - Shareholders' Equity
During the first three months of 2000, 70,270 shares of Class A common
stock were issued in connection with our Dividend Reinvestment Plan (the
Plan). The Plan offers shareholders an opportunity to invest cash
dividends in additional shares at a 2% discount from the current market
price. All shareholders are eligible to participate. Additionally, 19,685
shares were issued in connection with the exercise of employee stock
options and the Employee Stock Purchase Plan.
On April 27, 2000, the Board approved the extension of maturity dates
of certain promissory notes to Class B common stockholders to March 1,
2003. The notes require quarterly payments of interest only at 200 basis
points above LIBOR beginning September 1, 2000.
Note F -Contingent Liability and Commitments
As a general partner, we are contingently liable for the debt of a
European joint venture, which at March 31, 2000 totaled $129 million. We
have also guaranteed all or portions of the debt of certain domestic joint
ventures and joint venture partners, which at March 31, 2000 totaled $30.6
million.
Additionally, we have guaranteed $10.1 million in lease obligations
for Shurgard Storage to Go, Inc., a containerized storage business. We own
only nonvoting stock in this start-up venture which is not a qualified REIT
subsidiary and is subject to corporate level tax.
Under the March 24, 1995 merger agreement between us and Shurgard
Incorporated, we are contingently obligated to issue additional shares of
common stock as consideration for certain partnership interests held by
Shurgard Incorporated which were not valued at the time of the merger. The
final issuance of shares related to this obligation will be made in June
2000 and we currently estimate that those shares will total between 1.3% to
1.5% of outstanding common shares at March 31, 2000.
Note G - Segment Reporting
We have 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 January 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 January 1 of the current year. In the tables below, 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. We do not allocate non-direct operating
expenses, depreciation and 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
tables illustrate the results using the 2000 Same Store and New Store base
for reportable segments as of and for the three months ended March 31, 2000
and 1999. Same Stores includes all stores acquired prior to January 1,
1999, and domestic developments opened prior to January 1, 1998. New
Stores represents all stores acquired after January 1, 1999, and domestic
developments opened after January 1, 1998:
<TABLE>
<CAPTION>
(in thousands)
Same Stores New Stores Disposed Total
Quarter ended ----------- ---------- -------- --------
March 31, 2000
<S> <C> <C> <C> <C>
Rental revenue $ 43,033 $ 4,760 $47,793
Less unconsolidated
joint ventures (2,429) (597) (3,026)
------- --------- --------
Consolidated revenue 40,604 4,163 44,767
Operating expenses 12,805 2,158 14,963
Less unconsolidated
joint ventures (763) (391) (1,154)
--------- --------- ---------
Consolidated
operating expenses 12,042 1,767 13,809
--------- --------- ---------
Consolidated NOI $ 28,562 $ 2,396 $ 30,958
======== ======== ========
Quarter ended
March 31, 1999
Rental revenue $ 40,969 $ 1,617 $ 604 $ 43,190
Less unconsolidated
joint ventures (2,254) (127) (2,381)
-------- -------- ------- --------
Consolidated revenue 38,715 1,490 604 40,809
Operating expenses 11,842 1,012 242 13,096
Less unconsolidated
joint ventures (669) (98) (767)
-------- -------- ------- --------
Consolidated
operating expenses 11,173 914 242 12,329
-------- -------- ------- --------
Consolidated NOI $ 27,542 $ 576 $ 362 $ 28,480
======== ======== ======= ========
</TABLE>
The following table reconciles the reportable segments' rental revenue
per the table above to consolidated total revenue for the quarters ended
March 31, 2000 and 1999.
<TABLE>
<CAPTION>
(in thousands) Three months ended
March 31,
---------------------------
2000 1999
------------ -------------
<S> <C> <C>
Consolidated rental revenue $ 44,767 $ 40,809
Other real estate investments
income (loss) (894) (1,148)
Property management revenue 386 355
--------- --------
Total revenue $ 44,259 $ 40,016
========= ========
</TABLE>
The following table reconciles the reportable segments' NOI per the
table above to consolidated net income for the quarters ended March 31,
2000 and 1999.
<TABLE>
<CAPTION>
(in thousands) Three months ended
March 31,
--------------------------
2000 1999
--------- ----------
<S> <C> <C>
Consolidated NOI $ 30,958 $28,480
Other real estate investments
income (loss) (894) (1,148)
Property management revenue 386 355
Other operating expenses (21,331) (17,608)
Interest & other income 772 289
Minority interest 1,408 528
Change in accounting principle (1,098)
-------- -------
Net income $ 11,299 $ 9,798
-------- -------
</TABLE>
Part I, Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
When used in this discussion and elsewhere in this Quarterly Report on
Form 10-Q, the words "believes," "anticipates," "projects" and similar
expressions are intended to identify forward-looking statements regarding
financial performance. 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) and Item 7A of our most recent
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
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 January 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 tables summarize Same Store
operating performance for the first quarter of 2000 and 1999:
<TABLE>
Same Store Results
<CAPTION>
(dollars in thousands except Three months ended March 31, <F1>
average rent) ----------------------------------
2000 1999 % Change
------------ ---------- --------
<S> <C> <C> <C>
Rental revenue $43,033 $40,969 5.0%
Property operating expenses <F2> 12,805 11,842 8.1%
--------- ---------
Net operating income $30,228 $29,127 3.8%
========= =========
Avg. annual rent per sq. ft. <F3> $ 10.55 $ 10.17 3.7%
Avg. sq. ft. occupancy 85% 84%
Total net rentable sq. ft. 18,009,000 18,008,000
Number of properties 277 277
<FN>
<F1> Table includes the total operating results of each store regardless of
our ownership interest in that store. Note G to the consolidated financial
statements reconciles Same Store results to our consolidated net income.
<F2> Includes all direct property expenses. Does not include any
allocation of joint expenses incurred by the Company such as off-site
management personnel.
<F3> Average annual rent per square foot is calculated by dividing actual
rent collected by the average number of square feet occupied during the
period.
</TABLE>
In order to accelerate revenue growth, we undertook a number of sales
and marketing initiatives during the first quarter of 2000. As indicated
in our Annual Report on Form 10-K, the kick off of these initiatives was
expected to result immediately in higher expenses with revenue gains
growing over the first three quarters of 2000. Initiative related expenses
for the first quarter are on target, but the acceleration of revenue growth
has been slower than we had anticipated. We believe the full impact of
these initiatives could, in time, result in year over year same store
revenue gains in the range of 8% to 9%.
Although we are just beginning to see results for some of the new
initiatives, first quarter 2000 Same Store revenue is up 5% over the same
quarter in 1999. This compares to first quarter gains of 3.3% from 1998 to
1999 and year over year gains of 4.3% from 1998 to 1999. We attribute
these improvements to the new initiatives. Revenue gains were primarily a
function of a 3.7% increase in rental rates, but occupancy has also been
increasing compared to the same period last year. As of March 31, 2000,
occupancy was up 1.9 percentage points over the same month last year.
Increases in rental revenues were partially offset by a decline in late
fees due to fee adjustments made during the quarter.
First quarter revenues were partially offset by an 8.1% increase in
direct property operating costs resulting in a 3.8% increase in net
operating income (NOI) over the same quarter last year. Direct operating
expenses increased primarily due to higher marketing costs to fund new
sales initiatives and increases in real estate tax assessments (most of
which took effect during the second quarter of 1999). We expect year over
year percentage expense increases to decline to approximately 6 to 6.5%
over the rest of 2000 primarily due to increases in 1999 expense levels
during the last three quarters of the year.
In addition to the increase in direct property operating expenses that
are included in NOI, indirect operating expenses increased $648,000.
Although over one third of this increase is the result of new consolidated
joint ventures in which we only own a 10% interest, most of the remaining
increase represents marketing, information technology and indirect
operations management costs necessary to carry out the new initiatives
previously discussed.
Statements regarding the expected impact of our new sales initiatives
on revenues and expenses are based on several assumptions and actual
results could differ materially from those indicated. The risks and
uncertainties that may cause these statements to be incorrect include the
risks that the revenue initiatives will not be successful, that revenue
gains will not be as great as anticipated or realized in the time frame
expected, and that our expenses or revenues will be affected by other
factors not specifically related to the new initiatives.
New Store Results
Our definition of New Stores, as shown in the table below, includes
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 January 1 of the current year.
<TABLE>
<CAPTION>
(dollars in thousands) Three months Ended
March 31, <F1>
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Rental revenue $ 4,760 $ 1,617
Property operating 2,158 1,012
expenses <F2> --------- ---------
Net operating income $ 2,602 $ 605
========= =========
No. of properties 56 27
No. of property months <F3> 150 76
<FN>
<F1> Table includes the total operating results of each store regardless of
our ownership interest in that store. Note G to the consolidated financial
statements reconciles New Store results to our consolidated net income.
<F2> Includes all direct property expenses. Does not include any
allocation of joint expenses incurred by us such as off-site management
personnel.
<F3> Represents the sum of the number of months we operated each property
during the year.
</TABLE>
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.
Acquisitions and development properties are evaluated based on comparisons
of actual results to projected 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
During the first quarter of 2000, we purchased one additional storage
center in Texas with 64,500 net rentable square feet for a cost of $3.3
million. This property was purchased on March 28, 2000, and therefore, did
not contribute to NOI for the first quarter.
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. All 1999
acquisitions were purchased subsequent to March 31, 1999; therefore, there
are no results for the three months ended March 31, 1999 for these
properties.
<TABLE>
Results for 1999 Acquisitions <F1>
<CAPTION>
Three months ended
(dollars in thousands except March 31, 2000
average rent) -----------------
<S> <C>
Rental revenue $ 492
Property operating expenses <F2> 171
------
Net operating income $ 321
======
Avg. annual rent per sq.ft. <F3> $11.42
Avg. sq.ft. occupancy 78%
Total net rentable sq.ft. 209,000
Number of properties 5
Number of property-months <F4> 15
Purchase price 13,251
<FN>
<F1> Table includes the total operating results of each store regardless of
our ownership interest in that store.
<F2> Includes all direct property expenses. Does not include any
allocation of joint expenses incurred by us such as off-site management
personnel.
<F3> Average annual rent per square foot is calculated by dividing actual
rents collected by the average number of square feet occupied during the
period.
<F4> Represents the sum of the number of months we operated each property
during the applicable period.
</TABLE>
The current average yield for these 1999 acquisitions is 9.7%
(calculated as actual net operating income for the first three months of
2000, annualized, then divided by purchase price).
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. During 1999, the joint
venture (JV) purchased one of the completed storage centers for $3.1
million, which is included in the results above. Subsequent to the end of
the first quarter, the joint venture purchased a second completed storage
center for $11.0 million. For a further discussion of this agreement see
our 1999 Annual Report on Form 10-K. At March 31, 2000, we had guaranteed
$20.9 million in outstanding debt for three properties related to this JV
and will guarantee additional amounts as future properties are developed.
Domestic Development
We opened four domestic storage centers in the first three months of
2000, and, when all phases are complete, these projects will total
approximately 299,000 net rentable square feet with an estimated total cost
of $17.8 million.
We opened 21 domestic storage centers in 1999, and, when all phases
are complete, these 21 projects will total approximately 1,454,000 net
rentable square feet with an estimated total cost of $113.5 million. Six
of these storage centers were developed through our Florida joint ventures
and nine were contributed to Shurgard/Fremont Partners II in which we own a
10% interest (see DEVELOPMENT FINANCING ARRANGEMENTS in our 1999 Annual
Report on Form 10-K). These 1999 developments together generated $512,000
in net operating income for the first three months of 2000. For the month
of March 2000, these developments had NOI of $145,000, which represents 13%
of projected monthly NOI at maturity, and averaged 40% occupancy. The
operating results of these 1999 developments are included in the New Store
Results in the previous section.
We opened 23 storage centers in 1998, representing approximately
1,600,000 net rentable square feet. Of the 23 stores opened, 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 (see DEVELOPMENT FINANCING ARRANGEMENTS in our 1999 Annual Report
on Form 10-K). These 1998 developments together generated $1,519,000 in
net operating income for the first three months of 2000. For the month of
March 2000, these developments had NOI of $492,000, which represents 49% of
projected monthly NOI at maturity, and averaged 65% occupancy. The
operating results of these 1998 developments are included in the New Store
Results in the previous section.
In addition to the above completed developments, we had 18 storage
centers under construction (three of these are being developed through
joint ventures) as of March 31, 2000. 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. We currently anticipate opening 20-30 domestic developments by
the end of 2000. The actual number of projects could be reduced by various
conditions both within and beyond our control. For a further discussion of
these risks, see our 1999 Annual Report on Form 10-K. The following table
summarizes domestic development projects in progress at March 31, 2000.
<TABLE>
<CAPTION>
Estimated Total Cost to
Number Completed Cost Date as of
of of Projects March. 31, 2000
Projects <F1><F2> <F1>
-------- -------------- --------------
<S> <C> <C> <C>
Consolidated
Developments:
Construction in progress 15 $67.1 million $33.1 million
Land purchased pending 1 $5.4 million $1.7 million
construction
Unconsolidated
Developments:
Construction in progress 3 $11.1 million $4.5 million
Expansion of Existing
Properties:
Construction in progress 2 $1.8 million $1.8 million
<FN>
<F1> Table includes 100% of the costs of projects regardless of our
ownership percentage.
<F2> 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 our 1999 Annual Report on Form 10-K.
</TABLE>
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 $665,000 (net operating
income of $569,000 less $1,234,000 of interest at 8.5% interest on invested
capital) for the first three months of 2000 compared to $607,000 for the
same period in 1999. For further discussion of the effect of this
dilution, see our 1999 Annual Report on Form 10-K.
EUROPEAN OPERATIONS
As of March 31, 2000, SSC Benelux & Co., SCA (Benelux SCA), in which
we have a 7.57% equity position, was operating in Belgium, Sweden, France,
the Netherlands, and the United Kingdom. For a detailed discussion of this
investment see EUROPEAN OPERATIONS in our 1999 Annual Report on Form 10-K.
Our pro rata portion of operating losses before the cumulative effect
of a change in accounting principle for European operations was $357,000
and $255,000 for the quarters ended March 31, 2000, and March 31, 1999,
respectively. In order to take advantage of the investment opportunity
Benelux SCA is accelerating its 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 the European operations are not consolidated in our financial
statements, but rather our interest is accounted for under the equity
method of accounting. The data included in the following discussion and
tables reflect total European operations, not our pro rata percentage.
European Business Summary
Since 1995, Benelux SCA has tested the self storage product on local
consumers and has tailored its product to meet the needs of European
consumers. As of March 31, 2000, Benelux SCA had 30 storage centers
operating in 5 countries. The following tables include selective financial
and operating information that illustrates the performance and growth of
Benelux SCA.
<TABLE>
Summary of European Properties:
<CAPTION>
March 31,
Number Total March 31, 2000 2000
of Net Estimated ---------------- % Rate
Open Rentable Total Occ. Rates Increases
Properties Sq.Ft.<F1> Cost <F1> <F2> <F2><F3> <F4>
-------- -------- ------------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Country
Belgium 11 689,000 $37.3 million 67% $11.39 14%
France 5 247,000 $16.2 million 86% $21.05 9%
1 61,000 $5.3 million
Netherlands
Sweden 9 547,000 $39.4 million 66% $15.94 3%
United 4 223,000 $27.0 million
Kingdom
30 1,767,000 $125.2 million
<FN>
<F1> Total net rentable square feet and estimated total cost when all
phases are complete.
<F2> Includes stores that have been operating more than 12 months.
<F3> Average annual rent per square foot is calculated by dividing actual
rent collected by the average number of square feet occupied during the
period.
<F4> In the respective local currencies
</TABLE>
Selected Financial Data of Benelux SCA
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Total Revenue $2.8 million $1.7 million
Total Assets $186.5 million $96.0 million
Total Bank Debt <F1> $146.2 million $78.7 million
<FN>
<F1>Includes unsecured debt between Benelux SCA and affiliates of $89.5 and
$66.0 million as of March 31, 2000 and 1999, respectively.
</TABLE>
The self-storage industry is not well established in much of Europe
and we believe this presents Benelux SCA 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 significant 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 January 1 of
the current year. The following table summarizes Same Store operating
performance for the quarters ended March 31, 2000 and March 31, 1999.
<TABLE>
<CAPTION>
(dollars in thousands Three months ended March 31,
except average rent) -----------------------------
2000 1999 % Change
-------- ------- -------
<S> <C> <C> <C>
Rental revenue $1,456 $1,322 10.1%
Property operating 631 586 7.7%
expenses <F1> ------ ------
Net operating income $ 825 $ 736 12.1%
====== ======
Avg. annual rent per $14.30 $14.03 1.9%
sq.ft. <F2>
Avg. sq.ft. occupancy 82% 77%
Total net rentable 492,000 492,000
sq.ft.
# of properties 9 9
<FN>
<F1> Includes all direct property expenses. Does not include any allocation
of joint expenses incurred, such as off-site management personnel
<F2> Average annual rent per square foot is calculated by dividing
actual rent collected by the average number of square feet occupied
during the period.
</TABLE>
In the first quarter of 2000, revenue increases resulted primarily
from a five percentage point increase in occupancy. Revenue growth in US
dollars was reduced due to a change in currency exchange rates from the
first quarter of 1999 to the same period in 2000. Same Store rental rates
rose an average of 2% when measured in U.S. dollars and 16% in local
currency.
European Development
The following table summarizes European developments by country in
U.S. dollars:
<TABLE>
<CAPTION>
Total Net
Rentable Sq. Ft.
Number of Estimated when all phases
Properties Total Cost <F1> are complete
----------- -------------- ---------------
<S> <C> <C> <C>
Opened in 2000
France 1 $6.0 million 68,000
United Kingdom 1 $7.1 million 44,000
Opened in 1999
Belgium 2 $6.1 million 137,000
France 1 $3.9 million 54,000
Netherlands 1 $5.3 million 61,000
Sweden 5 $22.4 million 287,000
United Kingdom 3 $19.9 million 139,000
Opened in 1998
Belgium 3 $9.7 million 185,000
Sweden 4 $17.0 million 260,000
<FN>
<F1> The actual completed cost of this project 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 our 1999 Annual Report
on Form 10-K.
</TABLE>
During the first quarter of 2000, Benelux SCA opened 2 storage centers
with an estimated total cost of $13.1 million and net rentable square feet
of 112,000 when all phases are complete. After 2 months of operation, these
stores have an average occupancy of 9% and generated $179,000 in net
operating losses for the first quarter of 2000.
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 $57.6 million and net rentable square feet of 678,000 when all phases
are complete. These storage centers generated $616,000 in net operating
losses for the quarter ended March 31, 2000.
The seven storage centers opened during 1998 had an average occupancy
of 52% after an average of 17 months of operations and together generated
$393,000 in net operating income for the quarter ended March 31, 2000. For
the month ended March 31, 2000, net operating income for these developments
represented 38% of projected monthly NOI at stabilization (as measured in
the relevant local currency).
In addition to the above completed developments, Benelux SCA has eight
European storage centers currently under construction and has purchased
land for a ninth center. These developments are located as follows: three
in France, three in the Netherlands, one in Sweden, one in Belgium and one
in the United Kingdom. Additionally, they have purchased nine sites in
France, 10 in Sweden and one in Belgium in which construction has not yet
started. The following table summarizes European development projects in
progress at March 31, 2000:
<TABLE>
<CAPTION>
Estimated Total Cost
Number Completed to
of Cost of Date as of
Projects Projects <F1> March. 31, 2000
-------- ------------ ---------------
<S> <C> <C> <C>
New Developments
Construction in Progress
France 3 $14.1 million $5.5 million
Netherlands 3 $12.4 million $5.0 million
Sweden 1 $4.1 million $0.2 million
United Kingdom 1 $8.5 million $6.5 million
Land purchased pending
construction
Belgium 1 $4.0 million $1.8 million
<FN>
<F1> 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 our 1999 Annual Report
on Form 10-K.
</TABLE>
In the current state of the European self storage market, we believe
that a strategy of growth through development will result in higher 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 in our 1999
Annual Report on Form 10-K.
OTHER REAL ESTATE INVESTMENTS
The following table shows income (loss) from unconsolidated real
estate investments for the three months ended March 31, 2000 and 1999. All
income and loss amounts reflect our pro rata ownership percentage.
<TABLE>
Income (Loss) from Other Real Estate Investments
<CAPTION>
(dollars in thousands) Three months ended
March 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Containerized storage $(503) $ (771)
Unconsolidated joint (391) (188)
ventures
Participating mortgages 387 397
European Operations (387) (586)
------ -------
Total $ (894) $ (1,148)
====== ========
</TABLE>
Containerized Storage
As discussed in our 1999 Annual Report on Form 10-K, we have invested
in Shurgard Storage To Go, Inc., (STG) a containerized storage business.
We own nonvoting stock in this start-up venture which is not a qualified
REIT subsidiary and is subject to corporate level tax. As of March 31,
2000, our gross investment in STG was $5.0 million and we have committed to
lend up to $12.2 million under three unsecured five-year notes to fund
negative cash flow during the rent up phase. At March 31, 2000, $11.2
million was outstanding. Our pro rata portion of STG losses was $503,000
for the three months ended March 31, 2000, and $771,000 for the three
months ended March 31, 1999, which includes the write-off of start-up costs
in accordance with SOP 98-5 totaling $92,000. Although containerized
storage revenues are up 32% over the first quarter of 1999, we expect
expenses will continue to exceed revenues in 2000. We currently estimate
that our pro rata portion of 2000 losses will total $1.6 million, including
$1 million of depreciation. However, we expect earnings before interest,
taxes and depreciation to turn positive some time during the last half of
the year. There is, of course, no assurance that this expectation will be
met as numerous factors affect profitability. For a detailed discussion of
those factors, see our Annual Report on Form 10-K. Additionally, we
currently guarantee $10.1 million in lease obligations for STG.
Unconsolidated Joint Ventures
Pursuant to our affiliation agreements with two storage operators, we
have entered into 23 joint ventures in which our economic interests range
from 50% to 90%. As of March 31, 2000, we had invested a total of $24.4
million in these joint ventures. Our pro rata portion of joint venture
losses totaled $391,000 ($116,000 of income before depreciation and
amortization) for the three months ended March 31, 2000, as losses from new
properties added during the previous and current year offset earnings from
stabilized properties. Our pro rata portion of losses for these joint
ventures totaled $188,000 ($209,000 of income before depreciation and
amortization) for the three months ended March 31, 1999. We have
guaranteed our pro-rata portion of certain joint venture loans totaling
$30.6 million. Performance related to stores developed through these joint
ventures is included in the appropriate tables and section discussions
elsewhere in this Quarterly Report on Form 10-Q (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, that are exercisable from January 2000 until January
2005.
OTHER OPERATIONS
Interest expense for the first three months of 2000 increased $2.1
million over the first three months of 1999 due to an increase in our
outstanding debt balance from $378.5 million at March 31, 1999 to $457.3
million at March 31, 2000. Additionally, during the first three months of
2000, we capitalized $2.0 million in interest related to the construction
of domestic storage centers, while $2.1 million in interest was capitalized
in the first quarter of 1999.
FUNDS FROM OPERATIONS
Funds from operations (FFO), pursuant to the National Association of
Real Estate Investment Trusts' (NAREIT) October, 1999, White Paper on Funds
from Operations, is defined as net income (calculated in accordance with
GAAP) including non-recurring events, except for those defined as
"extraordinary items" under GAAP and gains and losses from sales of
depreciable operating property, 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. Our 1999 financial
information has been restated to reflect the new definition. The following
table sets forth the calculation of FFO in accordance with the NAREIT
definition (in thousands):
<TABLE>
<CAPTION>
Quarter ended March. 31,
--------------------------
2000 1999
----------- ----------
<S> <C> <C>
Net income $11,299 $ 9,798
Non-recurring 1,545
revenue/expenses
Preferred dividend (2,188) (2,188)
Depreciation/amortization 9,902 9,048
Depreciation/amortization
from unconsolidated joint
ventures and subsidiaries (409) 116
Deferred financing costs (256) (280)
------- -------
FFO as currently defined $18,348 $18,039
======= =======
</TABLE>
FFO for the first three months of 2000 rose $0.3 million over FFO for
the first three months of 1999. As previously discussed, this growth
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 offset by financing costs and increased
expenses in marketing and real estate taxes. Additionally, improvements in
the operating performance of our containerized storage business contributed
$172,000 to this increase. Non-recurring revenue and expenses for 1999 in
the table above includes the effect of cumulative change in accounting
princple relating to SOP 98-5 for both consolidated entities and our pro-
rata potion of unconsolidated joint ventures. (See Note A)
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 2000, we invested $25.1 million in
domestic development and expansion projects, $3.3 million on acquisitions
and $1.4 million in capital improvements to our existing portfolio and
other capital improvements. The $1.4 million increase in other real estate
investments consists primarily of $1.2 million invested in unconsolidated
joint ventures and $0.2 million invested in our containerized storage
operation.
As part of our efforts to identify alternative capital funding options
for our on going development, we entered into a definitive term sheet with
a major institutional investor. The joint venture, when fully funded, will
be capitalized with approximately $160 million financed through a
combination of senior mortgage debt and equity. We expect the joint venture
agreement will be executed in the next 30 days, with the contribution of
initial properties to the joint venture expected to happen in the second
quarter of 2000.
The balance on the domestic line of credit increased $23.0 million
from December 31, 1999 to March 31, 2000. Draws on the line of credit were
used to fund development and acquisition activity, as well as 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 March 31, 2000,
the current available amount is $200 million, of which approximately $125.0
million was outstanding. At March 31, 2000, the weighted average interest
rate was 7.3%. At March 31, 2000, the ratio of the Company's debt to total
assets before depreciation was 35% and its debt to total market
capitalization was 35%.
We anticipate funding 2000 growth and our ongoing 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 three months
ended March 31, 2000 was $23.5 million compared to $22.0 million for the
same period of 1999. On April 27, 2000, we declared a dividend of $0.51
per share to be paid on May 26, 2000. This dividend is approximately 81%
of first quarter FFO.
Part II, Item 5: Other Information
Supplemental Financial Data
<TABLE>
Pro Rata Statement of Assets and Liabilities at Historical Cost <F1>
March 31, 2000
<CAPTION>
(Unaudited) Consoli- Unconsoli-
dated dated Total European
(in thousands) Domestic Domestic Domestic Self
Operations Operations Operations Storage Total
---------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Operating storage $962,963 $ 66,828 $1,029,791 $ 9,578 $1,039,369
centers
Construction in
progress 58,698 6,501 65,199 1,611 66,810
Containerized storage
assets 3,839 3,839 3,839
Corp. Office 14,238 1,816 16,054 16,054
Accumulated
depreciation (131,350) (5,738) (137,088) (484) (137,572)
---------- --------- --------- -------- ---------
Storage assets, net 904,549 73,246 977,795 10,705 988,500
Participating
mortgages 13,202 13,202 13,202
Cash and Other assets 70,959 5,159 76,118 517 76,635
Amortizable assets 29,428 1,845 31,273 31,273
--------- -------- --------- ------ ---------
Total assets 1,018,138 80,250 1,098,388 11,222 1,109,610
========= ======== ========= ====== =========
Accounts payable and 30,316 3,071 33,387 3 33,390
other liabilities
Lines of credit 125,005 38,843 163,848 163,848
Notes payable 241,358 30,827 272,185 272,185
--------- -------- -------- ------ ---------
Total liabilities 396,679 72,741 469,420 3 469,423
========= ======== ======== ====== =========
<FN>
<F1> The information is presented on a combined basis and represents both
consolidated and unconsolidated entities at pro rata ownership percentages.
</TABLE>
<TABLE>
Other Selected Pro Rata Self Storage Operating Data <F1>
For the 3 months ended March 31, 2000
<CAPTION>
Historical
NOI Cost
--------- ----------
<S> <C> <C>
Domestic:
Same store $ 28,562 $ 893,536
New store 2,397 136,255
---------- ----------
30,959 1,029,791
========== ==========
European:
Same store 62 2,099
New store (44) 7,479
---------- ----------
18 9,578
========== ==========
<FN>
<F1> The information is presented on a combined basis and
represents both consolidated and unconsolidated entities at pro
rata ownership percentages.
</TABLE>
<TABLE>
Summary of Operating Self Storage Properties at March 31, 2000
<CAPTION>
Domestic European Total
------------------- ---------------- -----------------
Number Net Number Net Number Net
of Rentable of Rentable of Rentable
Proper- Square Proper- Square Proper- Square
ties Feet ties Feet ties Feet
------ ---------- ------ ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
100% owned 260 17,097,000 - - 260 17,097,000
Partially owned,
consolidated 47 2,993,000 - - 47 2,993,000
Partially owned,
unconsolidated 22 1,351,000 30 1,767,000 52 3,118,000
Fee managed
33 1,851,000 - - 33 1,851,000
------ ---------- ------ --------- ----- ----------
362 23,292,000 30 1,767,000 392 25,059,000
====== ========== ====== ========= ===== ==========
</TABLE>
Part II, Item 6: Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 10.1- Third Amendment to the Second Amended and Restated Loan
Agreement
Exhibit 27 - Financial Data Schedule
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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SHURGARD STORAGE CENTERS, INC.
Date: May 10, 2000 By: /s/ Harrell Beck
Harrell Beck
Chief Financial Officer, Chief Accounting
Officer and Authorized Signatory
THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN
AGREEMENT (this "Third Amendment") is made as of March __, 2000
by and among BANK OF AMERICA, N.A., a national banking
association, BANK ONE, NA, 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, 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, and by that certain Second Amendment to Second Amended
and Restated Loan Agreement dated as of December 16, 1999. Such
Loan Agreement, as so amended and as amended from time to time,
is referred to in this Third Amendment as the "Loan Agreement."
B. The parties hereto are entering into this Third
Amendment to amend certain provisions of the Loan Agreement as
set forth herein.
NOW, THEREFORE, Lenders, Agent and Borrower agree as
follows:
AGREEMENT
1. Capitalized Terms. Capitalized terms not otherwise
defined in this Third Amendment (including, without limitation,
Schedule 6 hereto) shall have the meanings set forth in the Loan
Agreement.
2. Amendments to Definitions in Loan Agreement.
a. The definition of "Available Amount" is amended
and restated to read as follows:
"Available Amount" means, on any date during any
Applicable Measurement Period, the lesser of (a) the amount,
if any, by which 50% of the Unencumbered Property Value
(calculated with respect to the full fiscal quarter
immediately preceding the first day of such Applicable
Measurement Period) exceeds the Deducted Liabilities as of
the end of such fiscal quarter, calculated in accordance
with generally accepted accounting principles; and (b) the
Commitment in effect as of such date. The "Available
Amount" shall be calculated as set forth in the Quarterly
Compliance Certificate.
b. The following are added as new definitions:
"Deducted Liabilities" means, as of the end of any
fiscal quarter: (i) all Unsecured Liabilities of Borrower
and the Consolidated Subsidiaries (other than the
Subsidiaries referred to in clauses (ii), (iii) and (iv) of
the definition of "Relevant Subsidiaries") then outstanding
(including, without limitation, Borrower's obligations with
respect to the principal amount then outstanding of all
Liabilities of Recom & Co., S.N.C.); less (ii) all
obligations referred to in Schedule 6 hereto as such
Schedule 6 may be amended from time to time with the prior
written consent of Majority Lenders and Borrower.
"Guaranty Obligations" means, with respect to any
Person, without duplication, any obligations (other than
endorsements in the ordinary course of business of
negotiable instruments for deposit or collection)
guaranteeing or intended to guarantee any Liabilities of any
other Person in any manner, whether direct or indirect, and
including without limitation any obligation, whether or not
contingent, (a) to purchase any such Liabilities or any
property constituting security therefor, (b) to advance or
provide funds or other support for the payment or purchase
of such Liabilities or to maintain working capital, solvency
or other balance sheet condition of such other Person
(including, without limitation, maintenance agreements,
comfort letters, take or pay arrangements, put agreements or
similar agreements or arrangements) for the benefit of the
holder of Liabilities of such other Person, (c) to lease or
purchase property, securities or services primarily for the
purpose of assuring the owner of such Liabilities or (d) to
otherwise assure or hold harmless the owner of such
Liabilities or obligation against loss in respect thereof.
The amount of any Guaranty Obligation hereunder shall
(subject to any limitations set forth therein) be deemed to
be an amount equal to the outstanding principal amount (or
maximum principal amount, if larger) of the Liabilities in
respect of which such Guaranty Obligation is made.
"Liabilities" of any Person means, without
duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (c) all
obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by
such Person to the extent of the value of such property
(other than customary reservations or retention of title
under agreements with suppliers entered into in the ordinary
course of business), (d) all obligations, other than
intercompany items, of such Person issued or assumed as the
deferred purchase price of property or services purchased by
such Person which would appear as liabilities on a balance
sheet of such Person, (e) all Guaranty Obligations of such
Person, (f) the principal portion of all obligations of such
Person under (i) capital leases of real property and (ii)
any synthetic lease of real property, any tax retention
operating lease of real property, and any off-balance sheet
loan or similar off-balance sheet financing product of such
Person where, in each case, such transaction relates to real
property and is considered borrowed money indebtedness for
tax purposes but is classified as an operating lease in
accordance with generally accepted accounting principles,
(g) the maximum amount of all performance and standby
letters of credit issued or bankers' acceptances facilities
created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent
unreimbursed), and (h) all preferred stock issued by such
Person after the date of the Third Amendment and required by
the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date. The
Liabilities of any Person shall include the Liabilities of
any partnership or unincorporated joint venture in which
such Person is legally obligated or has a reasonable
expectation of being liable with respect thereto.
"Third Amendment" means the Third Amendment to
Second Amended and Restated Loan Agreement dated as of March
31, 2000 (the "Third Amendment") among Lenders, Agent and
Borrower.
"Unsecured Liabilities" means all Liabilities to
the extent not secured by Lien on any property of Borrower
or any Consolidated subsidiary.
3. Amendments to Other Provisions of Loan Agreement.
a. The second sentence of Section 7.12 of the Loan
Agreement is amended and restated to read as follows:
As used in this Section, "Total Indebtedness" means, with
respect to any fiscal quarter, the sum of (a) all
Indebtedness of Borrower and the Consolidated Subsidiaries
as of the end of such fiscal quarter; plus (b) Borrower's
Pro Rata Share of all the Indebtedness of each of the
Unconsolidated Subsidiaries and of the end of such fiscal
quarter; less (c) the consolidated accounts payable and
consolidated accrued liabilities of Borrower and its
Consolidated Subsidiaries as of the end of such fiscal
quarter.
b. The following is added as a new Section 7.23 to
the Loan Agreement.
Section 7.23 Accounts Payable and Accruals.
Borrower shall, at all times during each Applicable
Measurement Period, cause the sum of the consolidated
accounts payable plus the consolidated accrued liabilities
of Borrower and its Consolidated Subsidiaries to be less
than or equal to 7.5% of the consolidated total assets of
Borrower and its Consolidated Subsidiaries.
4. Conditions to Effectiveness. Notwithstanding anything
contained herein to the contrary, this Third 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
Third 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.
5. 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 Third 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.
6. No Further Amendment. Except as expressly modified by
this Third Amendment, the Loan Agreement and the other Loan
Documents shall remain unmodified and, as modified hereby, shall
remain 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 Third Amendment, the other amendment documents in connection
with this Third Amendment ("Amendment Documents"), and the
closing of the transactions contemplated hereby and thereby.
7. Miscellaneous.
(a) Entire Agreement. This Third 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 Third 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 Third Amendment.
(c) Governing Law. This Third 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
Third 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 Chief Financial Officer
Address: 1155 Valley Street
Suite 400
Seattle, WA 98109-4426
Attn: Chris McKay
Telephone:(206) 652-3854
Telefax: (206) 652-3710
LENDERS:
BANK OF AMERICA, N.A.
By /s/ William P. Stivers
Its Vice President
Address: Bank of America Tower
701 Fifth Avenue, Floor 12
WA1-102-12-07
Seattle, WA 98104
Attn: William P. Stivers
Commercial Banking Division
Telephone:(206) 358-8582
Telefax: (206) 585-1794
BANK ONE, NA
By /s/ Timothy J. Carew
Its First Vice President
Address: Bank One NA
1 Bank One Plaza
Chicago, IL 60670
Attn: Timothy Carew
Telephone:(312) 732-5419
Telefax: (312) 732-1117
KEYBANK NATIONAL ASSOCIATION
By /s/ Mary K. Young
Its Assistant Vice President
Address: 700 Fifth Avenue, Floor 46
Seattle, WA 98104
Attn: Mary K. Young
Telephone:(206) 684-6085
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
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
THE BANK OF NOVA SCOTIA
By /s/ Patrik Norris
Its Director
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 Brown
Its Vice President
Address: Bank of America Tower
701 Fifth Ave., Floor 16
WA1-102-16-20
Seattle, WA 98104-7001
Attn: Dora A. Brown
Agency Management Services
Telephone:(206) 358-0101
Telefax: (206) 358-0971
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 Third Amendment to Second Amended and
Restated Loan Agreement (the "Third Amendment") and the other
Loan Documents described in the Loan Agreement. The Guarantor
hereby acknowledges that it has received a copy of the Third
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 Third Amendment.
DATED: March 31, 2000
GUARANTOR: SHURGARD TEXAS LIMITED PARTNERSHIP,
By: Shurgard
Storage Centers, Inc., its General
Partner
By /s/ Harrell Beck
Its Senior Vice President
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 Third Amendment to Second Amended and
Restated Loan Agreement (the "Third Amendment") and the other
Loan Documents described in the Loan Agreement. The Guarantor
hereby acknowledges that it has received a copy of the Third
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 Third Amendment.
DATED: March 31, 2000
GUARANTOR: SHURGARD EVERGREEN LIMITED PARTNERSHIP,
By: Shurgard
Storage Centers, Inc., its General
Partner
By /s/ Harrell Beck
Its Senior Vice President
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
Third Amendment to Second Amended and Restated Loan Agreement
(the "Third Amendment") and the other Loan Documents described in
the Loan Agreement. The Guarantor hereby acknowledges that it
has received a copy of the Third 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 Third Amendment.
DATED: March 31, 2000
GUARANTOR: SSC EVERGREEN, INC.
By /s/ Harrell Beck
Its Senior Vice President
SCHEDULE 6
(to Third Amendment to Second Amended
and Restated Loan Agreement)
OBLIGATIONS EXCLUDED FROM DEDUCTED LIABILITIES
1. Borrower's obligation as guarantor of the obligations now or
hereafter owing by Resco Self-Storage, LLC under that
certain Loan Agreement dated as of January 27, 1998 among
Resco Self-Storage, LLC, as Borrower, Bank of America, N.A.,
Keybank National Association, U.S. Bank National Association
and LaSalle Bank National Association in the amount of
$30,000,000
2. Borrower's obligations with respect to the Debt now or
hereafter owing by the Joint Venture or the Second Joint
Venture whether as general partner, guarantor or otherwise.
3. Borrower's obligations with respect to the Debt now or
hereafter owing by the various Mikkelson entities or Freeman
entities identified in the Quarterly Compliance Certificate
dated December 31, 1999 and any other entities that may be
formed from time to time hereafter pursuant to the existing
joint venture agreements between Borrower and Mikkelson or
between Borrower and Freeman as such joint venture
agreements may be amended from time to time.
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
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0
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