FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 3/31/97
OR
o 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: 1-13820
Sovran Self Storage, Inc.
(Exact name of Registrant as specified in its charter)
Maryland 16-1194043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5166 Main Street
Williamsville, NY 14221
(Address of principal executive offices) (Zip code)
(716) 633-185
(Registrant's telephone number including area code)
Not applicable
er name, former address, and former fiscal year, if changed since last report)
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 ____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, $.01 par value per share 10708171 shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SOVRAN SELF STORAGE, INC ...
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March December
31, 31,
(dollars in thousands, except share data) 1997 1996
- ------------------------------------------------------ ---- ----
<S> <C> <C>
Assets
Investment in storage facilities:
Land $ 61,609 $ 49,591
Building and equipment 218,503 171,120
------- -------
280,112 220,711
-------- --------
Less: accumulated depreciation (6,780) (5,457)
-------- --------
Investments in storage facilities, net 273,332 215,254
Cash and cash equivalents 2,396 16,687
Accounts receivable 769 482
Prepaid expenses and other assets 2,673 2,992
----- -----
Total Assets $279,170 $235,415
======== ========
Liabilities
Line of credit $ 32,000 $ -
Accounts payable and
accrued liabilities 2,262 1,197
Deferred revenue 1,854 1,367
Accrued dividends 5,568 5,567
Mortgage payable 3,559 -
-------- --------
Total Liabilities
45,243 8,131
Minority interest 10,959 3,655
Shareholders' Equity
Common stock $.01 par value, 100,000
shares authorized, 10,708,171 shares
issued and outstanding
(10,706,671 at December 31, 1996) 107 107
Preferred stock, 10,000,000 shares
authorized, none issued and outstanding,
250,000 shares designated as Series A
Junior Participating Preferred Stock,
$.01 par value - -
Additional paid-in capital 227,751 227,719
Unearned restricted stock (35) (39)
Dividends in excess of net income (4,855) (4,158)
-------- --------
Total shareholders'equity 222,968 223,629
------- -------
Total Liabilities and Shareholders'
Equity $279,170 $235,415
======== ========
</TABLE>
See notes to financial statements ....................
<PAGE>
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
January 1,1997 January 1,1996
to to
(dollars in thousands, except
per share data) March 31,1997 March 31,1996
--------------- ---------------
<S> <C> <C>
Revenues:
Rental income $ 10,578 $ 6,857
Interest and other income 154 87
--------------- ---------------
Total revenues 10,732 6,944
Expenses:
Property operations & maintenance 2,154 1,514
Real estate taxes 857 513
General and administrative 744 507
Interest 512 278
Depreciation and amortization 1,530 980
--------------- ---------------
Total expenses 5,797 3,792
--------------- ---------------
Income before minority interest 4,935 3,152
Minority interest (64) -
--------------- ---------------
Net Income $ 4,871 $ 3,152
=============== ===============
Earnings per share $ 0.46 $ 0.42
=============== ===============
Common shares used in earnings per 10,707,238 7,542,171
share calculation
Dividends declared per share $ 0.52 $ 0.505
=============== ===============
</TABLE>
See notes to financial statements
<PAGE>
SOVRAN SELF STORAGE, INC.
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
January 1, 1997 January 1, 1996
(dollars in thousands, except to to
per share data) March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Operating Activities
Net income $ 4,871 $ 3,152
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,530 980
Minority interest 64 -
Restricted stock earned 4 -
Changes in assets and liabilities:
Accounts receivable (287) 18
Prepaid expenses and other assets 131 (82)
Accounts payable and other liabilities 1,065 46
Deferred revenue 487 177
--------------- ---------------
Net cash provided by operating activitie $ 7,865 $ 4,291
--------------- ---------------
Investing Activities
Additions to storage facilities (48,537) (18,745)
Additions to other assets (10) (3)
--------------- ---------------
Net cash used in investing activities $ (48,547) $ (18,748)
--------------- ---------------
Financing Activities
Net proceeds from sale of common stock 32 -
Proceeds from line of credit draw down 32,000 18,809
Dividends paid (5,568) (3,809)
Minority interest distributions (73) -
Proceeds from issuance of mortgages - -
Mortgage principal payments - -
Capital contributions - -
Cash distributions - -
--------------- -------------
Net cash provided by financing activities $ 26,391 $ 15,000
--------------- -------------
Net (decrease) increase in cash (14,291) 543
Cash at beginning of period 16,687 732
--------------- ---------------
Cash at end of period $ 2,396 $ 1,275
=============== ===============
Supplemental cash flow information
Cash paid for interest $ 512 $ 278
</TABLE>
See notes to financial statements
<PAGE>
SOVRAN SELF STORAGE, INC.
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Supplemental cash-flow information for the quarter
ended March 31, 1997
(dollars in thousands)
- --------------------------------------------------------------------------------------
<S> <C>
Storage facilities acquired through the issuance of
minority interest in the operating partnership $ 7,313
Fair value of net liabilities assumed on the acquisition
of storage facilities 3,559
- --------------------------------------------------------------------------------------
</TABLE>
Dividends declared but unpaid were $5,568 at March 31, 1997 and $5,567 at
December 31, 1996.
See notes to financial statements
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements of Sovran Self Storage,
Inc. (the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month periods ended March 31, 1997 and March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
2. Organization
Sovran Self Storage, Inc. (the Company), a self-administered and
self-managed real estate investment trust (a REIT), was formed on April 19, 1995
to own and operate self-storage facilities throughout the United States. On June
26, 1995, the Company commenced operations effective with the completion of its
initial public offering of 5,890,000 shares (the Offering). The Offering price
per share was $23.00, resulting in net proceeds to the Company, after
underwriting discount and other expenses, of $124.3 million. On July 25, 1995,
the underwriters exercised their over-allotment option granted in connection
with the Company's initial public offering and purchased 750,000 shares of the
Company's common stock at $23.00 per share, resulting in net proceeds to the
Company of approximately $16 million. Additionally, the Company received $10.1
million in proceeds from a private placement of 422,171 shares of its common
stock.
Contemporaneously with the closing of the Offering, Sovran Self
Storage, Inc. acquired, in a transaction accounted for as a purchase, 62
self-storage facilities (the Original Properties) which had been owned and
managed by Sovran Capital, Inc. and the Sovran Partnerships (Predecessors to the
Company). Purchase accounting was applied to the acquisition of the Original
Properties to the extent cash was paid to purchase 100% of the limited
partnership interests in the Sovran Partnerships, prepay outstanding mortgages
at the time of acquisition and for related transaction costs. Additionally, the
Company acquired on that date 12 self-storage properties (the Acquisition
Properties) from unaffiliated third parties. The Company has since purchased a
total of 64 (27in 1997, 29 in 1996 and 8 in 1995) self-storage properties from
unaffiliated third parties, increasing the total number of self-storage
properties owned at March 31, 1997 to 138 properties.
On October 1, 1996, the Company completed a public offering of
2,750,000 common shares at $26.00 per share. On October 8, 1996 the over
allotment of the public offering of 412,500 common shares was exercised at
$26.00 per share. Net of underwriting discounts and offering costs the Company
received $77 million in proceeds from this offering. The net proceeds have been
used to repay indebtedness under the line of credit, which was incurred in
property acquisitions, and to acquire additional self storage facilities.
3. Commitments and Contingencies
The Company's current practice is to conduct environmental
investigations in connection with property acquisitions. At this time, the
Company is not aware of any environmental contamination of any of its facilities
which individually or in the aggregate would be material to the Company's
overall business, financial condition, or results of operations.
As of March 31, 1997, the Company had entered into contract for the
purchase of a self-storage facility which was purchased on April 11, 1997 for a
total cost of $2.4 million and was under contract to purchase 10 additional
properties for a total cost of $25.8 million.
4. Pro Forma Financial Information
The following unaudited pro forma Condensed Statement of Operations is
presented as if the the purchase of 27 additional storage facilities had
occurred at the beginning of the periods presented. Such unaudited pro forma
information is based upon the historical combined statements of operations of
the Company. It should be read in conjunction with the financial statements of
the Company and notes thereto included elsewhere herein. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made. This unaudited pro forma statement does not purport to represent
what the actual results of operations of the Company would have been assuming
such transactions had been completed as set forth above nor does it purport to
represent the results of operations for future periods.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
<S> <C> <C>
1997 1996
Revenues:
Rental income $ 11,520 $ 10,772
Other income 174 124
---------------- ---------------
Total revenues 11,694 10,896
Expenses:
Property operations & maintenance 2,389 2,383
Real estate taxes 903 826
General and administrative 744 744
Interest 70 70
Depreciation and amortization 1,652 1,652
---------------- ---------------
Total Expenses 5,758 5,675
---------------- ---------------
Income before minority interest 5,936 5,221
Minority interest (203) (178)
----------------- ----------------
Net Income $ 5,733 $ 5,043
================= ================
Earnings per share $ .54 $ .47
================= ================
Common shares used in earnings
per share calculation 10,707,238 10,707,238
</TABLE>
5. Legal Proceedings
Robert J. Amsdell, a former business associate of certain officers and
directors of the Company, including Robert J. Attea, Kenneth F. Myszka, David L.
Rogers and Charles E. Lannon filed a lawsuit against the Company on June 13,
1995 in the United States District Court for the Northern District of Ohio, in
connection with the formation of the Company as a REIT and related transactions
, as well as the Initial Offering. On April 29, 1996, Mr. Amsdell filed a first
amended complaint in the lawsuit alleging breach of fiduciary duty, breach of
contract, breach of general partnership/joint venture arrangement, statutory
violations regarding dissolution of general partnership or joint venture, breach
of duty of good faith and fair dealing, fraud and deceit, interference with
prospective advantage, and violation of trademark/trade name rights. Mr. Amsdell
is seeking money damages in excess of $25 million, as well as punitive damages
and declaratory and injunctive relief (including the imposition of a
constructive trust on assets of the Company in which Mr. Amsdell claims to have
a continuing interest) and an accounting. The first amended complaint also added
Messrs. Attea, Myszka, Rogers and Lannon as additional defendants. The parties
are currently involved in discovery. The Company intends to vigorously defend
the lawsuit. Messrs. Attea, Myszka, Rogers and Lannon have agreed to idemnify
the Company for any loss arising from the lawsuit. The Company believes that the
actual amount of Mr. Amsdell's recovery in this matter, if any, would be within
the ability of these individuals to provide idemnification. The Company does not
believe that the lawsuit will have a material adverse effect upon the Company.
6. Subsequent Events
On April 16, 1997, the Company completed the offering of 1.5 million
shares of its common stock. The offering was priced at $29.625 per share
resulting in gross proceeds of $44.44 million. Net proceeds were approximately
$42.2 million which will be used to reduce outstanding indebtedness incurred
under the Company's $75 million credit facility. <PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
financial statements and notes thereto included elsewhere in this report.
The Company operates as a Real Estate Investment Trust ("REIT") and
owns and operates a portfolio of 138 self-storage facilities, providing storage
space for business and personal use to some 55,000 customers in 16 states. The
Company's investment objective is to increase cash flow and enhance shareholder
value by aggressively managing its portfolio, to expand and enhance the
facilities in that portfolio and to selectively acquire new properties in
geographic areas that will either complement or efficiently grow the portfolio.
Liquidity and Capital Resources
Revolving Credit Facility
In June, 1995, the Company entered into an agreement with a financial
institution to establish a revolving credit facility for up to $60 million,
secured by real estate. In August, 1996, the Company executed a modification of
the credit facility which increased the amount available to $75 million.
Interest on outstanding balances is payable monthly at 190 basis points above
LIBOR. The term of the agreement is for two years, expiring August 1998. The
Company intends to use funds available from this credit facility to finance
future acquisition and development plans described below. At March 31, 1997, the
Company had remaining borrowing capacity of $43 million on the line.
Umbrella Partnership REIT
The Company was formed as an Umbrella Partnership Real Estate Trust
("UPREIT") and, as such, has the ability to issue operating partnership ("OP")
units in exchange for properties sold by independent owners. By utilizing such
OP units as currency in facility acquisitions, the Company may partially defer
the seller's income-tax liability and obtain more favorable pricing or terms. As
of March 31, 1997, units totaling 379, 701 units have been issued in exchange
for property.
Acquisition of Properties
The Company's external growth strategy is to increase the number of
facilities it owns by acquiring suitable facilities in markets in which it
already has an operating presence or to expand into new markets by acquiring
several facilities at once in those new markets. In the three months ended March
31, 1997, the Company acquired eleven properties in new markets, central
Virginia and Michigan. The Company also increased its existing presence in
Orlando, Florida with the purchase of an additional site ; in Texas with the
purchase of 6 sites in the Houston and San Antonio markets and in the Cleveland,
Ohio market area with the acquisition of nine properties. Total acquisitions
in the three months ended March 31, 1997 added 1,364,983 square feet of space
and 11,817 rental units to the Company's portfolio.
Future Acquisition and Development Plans
The Company continued its external growth strategy by increasing the
number of facilities it owns in Florida in April and has contracts on properties
in Florida, Texas, Georgia and Ohio with planned closings in the second quarter.
The Company also intends to improve certain of its existing facilities
by building additional storage buildings on presently vacant land and by
installing climate control and enhanced security systems at selected sites.
Liquidity
At March 31, 1997, the Company's debt to equity ratio was 16%. In
April, 1997, the Company successfully completed a common stock
offering, resulting in the issuance of 1,500,000 shares, netting approximately
$42 million. The proceeds were used to pay down the outstanding balance on the
line of credit. Continued acquisition of existing properties represents the
Company's principal liquidity requirement. As most of the Company's operating
cash flow is expected to be used to pay dividends, (see REIT Qualification and
Distribution Requirements), the funds required to acquire these additional
properties will be provided by borrowings pursuant to the revolving line of
credit or other debt instruments and the issuance of UPREIT units. The Company
intends to incur additional borrowings for such purposes in a manner consistent
with its policy of limiting the Company's indebtedness at the time of incurrence
to not more than 50% of market capitalization.
REIT Qualification and Distribution Requirements
As a REIT, the Company is not required to pay federal income tax on
income that it distributes to its shareholders, provided that the amount
distributed is equal to at least 95% of taxable income. These distributions must
be made in the year to which they relate or in the following year if declared
before the Company files its federal income-tax return and if it is paid before
the first regular dividend of the following year.
As a REIT, the Company must derive at least 95% of its total gross
income from income related to real property, interest and dividends. In the
three months ended March 31, 1997, the Company's percentage of revenue from such
sources exceeded 98%, thereby passing the 95% test, and no special measures are
expected to be required to enable the Company to maintain its REIT designation.
<PAGE>
Results of Operations
The following discussion is based on the financial statements of the
Company as of March 31, 1997 and March 31, 1996.
For the period January 1, 1997 through March 31, 1997
The Company reported revenues of $10,732 during the period and incurred
$3,011 in operating expenses, resulting in net operating income of $7,721. The
gross operating margin of 72% is one of the highest in the industry and reflects
a corporate-wide effort to operate the business efficiently. General and
administrative expenses of $744, interest expense of $512 and depreciation and
amortization expenses of $1,530 were incurred during the period, resulting in a
income of $4,935 before minority interest.
Net Income after minority interest amounted to $4,871.
Three months ended March 31, 1997, compared to Three months ended March
31,1996. The following discussion compares the activities of the Company
for the three months ended March 31, 1997 with the activities of the Company for
the three months ended March 31, 1996.
Total revenues increased from $6,944 for the three months ended March
31, 1996 to $10,732 for the three months ended March 31, 1997, an increase of
$3,788 or 55%. Of this, $3,439 resulted from the acquisition of 56 properties
during the period January 1, 1996 through March 31, 1997 and $300 was realized
as a result of increased rental rates at the 82 properties owned by the Company
at December 31, 1995. Interest income increased by $49. Overall, same-store
revenues grew 4.48% for the three month period ended March 31, 1997 as compared
to the same period in 1996.
Property operating and real estate tax expense increased $983, or
48.5%, during the period. $1.046 was a result of absorbing additional expenses
from operating the newly acquired properties and increased real estate
valuations in Alabama and Mississippi, and a savings of $63 was realized from
the operations of its sites operated more than one year primarily from reduced
snow removal costs at the sites in the Northeast and to increased operating
efficiencies.
General and administrative expenses, which include losses of $42
realized as the replacement of equipment, increased $237 principally as a result
of the need for additional personnel and increased administrative costs
associated with managing the 56 additional properties.
Interest expense increased $234 due to an increase of $27,000 drawn on
the line of credit. A sum of $32,000 was borrowed pursuant to the Company's line
of credit during the first three months of 1997.
Income before minority interest increased from $3152 to $4935, an
increase of $1,783 or 56.6%.
Pro Forma Three Months Ended March 31, 1997 Compared to Pro Forma Three Months
Ended March 31, 1996.
The Company believes that pro forma results of operations are important
to provide an understanding of results of operations in its first year of
property operation. The pro forma information includes the results of the 27
properties acquired in 1997 as if they had been acquired on January 1, 1996.
Revenues for the three months ended March 31, 1997 were $11,694
compared to revenues of $10,896 for the same period in 1996, an increase of 7%.
This improvement is primarily due to an increase in overall occupancy, and from
rental rate increases ranging from 2% to 8% at the properties.
Property operating costs and property tax expense were $3,292 or 28% of
revenues for the three month period ended March 31, 1997 and $3,209 or 29% of
revenues for the period ended March 31, 1996. The Company believes the
efficiencies it obtains by "clustering" its properties in market areas, its
attention to cost saving measures and its persistence in protesting property tax
increases has enabled it to effectively contain its costs.
Operating income increased from $7,687 to $8,402, an
improvement of 9.3% as a result of the above
<PAGE>
Inflation
The Company does not believe that inflation has had or will have a
direct adverse effect on its operations. Substantially all of the leases at the
facilities allow for monthly rent increases, which provide the Company with the
opportunity to achieve increases in rental income as each lease matures.
Seasonality
The Company's revenues typically have been higher in the third and
fourth quarters, primarily because the Company increases its rental rates on
most of its storage units at the beginning of May and, to a lesser extent,
because self-storage facilities tend to experience greater occupancy during the
late spring, summer and early fall months due to the greater incidence of
residential moves during these periods. However, the Company believes that its
tenant mix, diverse geographical locations, rental structure and expense
structure provide adequate protection against undue fluctuations in cash flows
and net revenues during off-peak seasons. Thus, the Company does not expect
seasonality to affect materially distributions to shareholders.
Part II. Other Information
Item 1. Legal Proceedings
The Company is a party to proceedings arising in the ordinary
course of operation of self-storage facilities. However, the Company does not
believe that these matters, individually or in the aggregate, will have a
material adverse effect on the Company.
Robert J. Amsdell, a former business associate of certain officers and
directors of the Company, including Robert J. Attea, Kenneth F. Myszka, David L.
Rogers and Charles E. Lannon filed a lawsuit against the Company on June 13,
1995 in the United States District Court for the Northern District of Ohio, in
connection with the formation of the Company as a REIT and related transactions
, as well as the Initial Offering. On April 29, 1996, Mr. Amsdell filed a first
amended complaint in the lawsuit alleging breach of fiduciary duty, breach of
contract, breach of general partnership/joint venture arrangement, statutory
violations regarding dissolution of general partnership or joint venture, breach
of duty of good faith and fair dealing, fraud and deceit, interference with
prospective advantage, and violation of trademark/trade name rights. Mr. Amsdell
is seeking money damages in excess of $25 million, as well as punitive damages
and declaratory and injunctive relief (including the imposition of a
constructive trust on assets of the Company in which Mr. Amsdell claims to have
a continuing interest) and an accounting. The first amended complaint also added
Messrs. Attea, Myszka, Rogers and Lannon as additional defendants. The parties
are currently involved in discovery. The Company intends to vigorously defend
the lawsuit. Messrs. Attea, Myszka, Rogers and Lannon have agreed to idemnify
the Company for any loss arising from the lawsuit. The Company believes that the
actual amount of Mr. Amsdell's recovery in this matter, if any, would be within
the ability of these individuals to provide idemnification. The Company does not
believe that the lawsuit will have a material adverse effect upon the Company.
Item 6. Exhibits and Reports on Form 8-
1. None required.
SIGNATURES
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.
Sovran Self Storage, Inc.
May 14, 1997 By:___________________________________________
Date David L. Rogers,
Chief Financial Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000944314
<NAME> SOVRAN SELF STORAGE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 2,396
<SECURITIES> 0
<RECEIVABLES> 769
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<CURRENT-ASSETS> 5,838
<PP&E> 280,112
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<TOTAL-ASSETS> 279,170
<CURRENT-LIABILITIES> 56,202
<BONDS> 0
0
0
<COMMON> 107
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<TOTAL-LIABILITY-AND-EQUITY> 279,170
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<TOTAL-REVENUES> 10,732
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<TOTAL-COSTS> 3,011
<OTHER-EXPENSES> 2,338
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<INTEREST-EXPENSE> 512
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</TABLE>
