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 June 30, 1998
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) 633-1850
(Registrant's telephone number
including area code)
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 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. 12,298,213 Common Shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
S0VRAN SELF STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in thousands) 1998 1997
- -------------------------------------- ---------------------------
<S> <C> <C>
Assets
Investment in storage facilities:
Land $ 93,757 $ 71,391
Building and equipment 358,334 261,645
--------- ---------
452,091 333,036
Less: accumulated depreciation (15,873) (11,639)
--------- ---------
Investments in storage facilities, net 436,218 321,397
Cash and cash equivalents 2,695 2,567
Accounts receivable 1,335 834
Prepaid expenses and other assets 3,030 2,275
--------- ---------
Total Assets $ 443,278 $ 327,073
========= =========
Liabilities
Line of credit $ 148,000 $ 36,000
Accounts payable and accrued liabilities 4,832 2,167
Deferred revenue 2,934 1,994
Accrued dividends 6,641 6,599
Mortgage payable 3,059 3,559
--------- ---------
Total Liabilities 165,466 50,319
Minority interest 13,060 12,843
Shareholders' Equity
Common stock $.01 par value, 100,000,000
shares authorized, 12,298,213 shares
issued
(12,221,121 at December 31, 1997) 123 122
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 ............... 273,369 269,982
Unearned restricted stock ................ (25) (32)
Dividends in excess of net income ........ (7,761) (6,161)
Treasury stock at cost, 35,000 shares ... (954) -
--------- ---------
Total shareholders' equity ............. 264,752 263,911
--------- ---------
Total Liabilities and Shareholders' Equity $ 443,278 $ 327,073
========= =========
</TABLE>
See notes to financial statements ..........
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
April 1, 1998 April 1, 1997
to to
(dollars in thousands, except share data) June 30, 1998 June 30, 1997
---------------------------------
<S> <C> <C>
Revenues:
Rental income $ 16,171 $ 11,724
Interest and other income 271 214
----------- ------------
Total revenues 16,442 11,938
Expenses:
Property operations and maintenance 3,164 2,254
Real estate taxes 1,311 918
General and administrative 1,093 586
Interest 2,153 306
Depreciation and amortization 2,450 1,685
----------- -----------
Total expenses 10,171 5,749
----------- -----------
Income before minority interest 6,271 6,189
Minority interest (219) (186)
----------- ------------
Net Income $ 6,052 $ 6,003
=========== ============
Earnings per share - basic $ 0.49 $ 0.50
=========== ============
Earnings per share - diluted $ 0.49 $ 0.50
=========== ============
Common shares used in basic
earnings per-share calculation 12,330,040 11,815,534
Dividends declared per share $ 0.54 $ 0.52
=========== ============
</TABLE>
See notes to financial statements
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1, 1998 January 1, 1997
to to
(dollars in thousands, except share data) June 30, 1998 June 30, 1997
--------------------------------
<S> <C> <C>
Revenues:
Rental income $ 30,347 $ 22,302
Interest and other income 470 368
----------- -------------
Total revenues 30,817 22,670
Expenses:
Property operations and maintenance 5,983 4,408
Real estate taxes 2,498 1,775
General and administrative 1,947 1,330
Interest 3,368 818
Depreciation and amortization 4,547 3,216
----------- -------------
Total expenses 18,343 11,547
----------- -------------
Income before minority
interest and extraordinary item 12,474 11,123
Minority interest (424) (250)
----------- -------------
Income before extraordinary item 12,050 10,873
Extraordinary loss on extinguishment of debt (350) -
----------- -------------
Net Income
$ 11,700 $ 10,873
=========== =============
Earnings per share before
extraordinary item - basic 0.98 0.96
Extraordinary item (0.03) -
----------- -------------
Earnings per share - basic $ 0.95 $ 0.96
=========== =============
Earnings per share - diluted $ 0.95 $ 0.96
=========== =============
Common shares used in basic
earnings per-share calculation 12,309,866 11,261,386
Dividends declared per share $ 1.08 $ 1.04
=========== =============
</TABLE>
See notes to financial statements.
SOVRAN SELF STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 1, 1998 January 1, 1997
to to
(dollars in thousands) June 30, 1998 June 30, 1997
---------------- --------------
<S> <C> <C>
Operating Activities
Net income $ 11,700 $ 10,873
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary loss 350 -
Depreciation and amortization 4,547 3,216
Minority interest 424 250
Restricted stock earned 7 6
Changes in assets and liabilities:
Accounts receivable (474) (202)
Prepaid expenses and other assets (462) 514
Accounts payable and other liabilities 2,767 2,594
Deferred revenue 649 683
---------- ----------
Net cash provided by operating activities 19,508 17,934
---------- ----------
Investing Activities
Additions to storage facilities (115,337) (76,521)
Additions to other assets (851) (10)
----------- ----------
Net cash used in investing activities (116,188) (76,531)
----------- ----------
Financing Activities
Net proceeds from sale of common stock - 42,419
Proceeds from line of credit draw down 112,000 15,000
Dividends paid (13,258) (11,923)
Purchase of treasury stock (954) -
Minority interest distributions (480) (270)
Mortgage principal payments (500) -
---------- ----------
Net cash provided by financing activities 96,808 45,226
---------- ----------
Net increase (decrease) in cash 128 (13,371)
Cash at beginning of period 2,567 16,687
---------- ----------
Cash at end of period $ 2,695 $ 3,316
========== ==========
Supplemental cash flow information
Cash paid for interest $ 3,181 $ 818
</TABLE>
See notes to financial statements.
SOVRAN SELF STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Supplemental cash flow information for the six months
ended June 30, 1998
(dollars in thousands)
- -------------------------------------------------------------------------------
<S> <C>
Storage facilities acquired through the issuance of minority
interest in the operating partnership and common stock $ 3,609
Fair value of net liabilities assumed on the acquisition
of storage facilities $ 424
- -------------------------------------------------------------------------------
Dividends declared but unpaid were $6,641 at June 30, 1998
and $6,599 at December 31, 1997
</TABLE>
See notes to financial statements
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
six month periods ended June 30, 1998 and June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
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). Contemporaneously
with the closing of the Offering, Sovran Self Storage, Inc. acquired, in a
transaction accounted for as a purchase, sixty-two 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
twelve self-storage properties from unaffiliated third parties. The Company has
since purchased a total of 117 (thirty-six in 1998, forty-four in 1997,
twenty-nine in 1996 and nine in 1995) self storage properties from unaffiliated
third parties, increasing the total number of self-storage properties owned at
June 30, 1998 to 192 properties, most of which are in the eastern United States
and Texas.
All of the Company's assets are owned by, and all its operations are
conducted through, Sovran Acquisition Limited Partnership (the Partnership).
Sovran Holdings, Inc., a wholly-owned subsidiary of the Company (the
Subsidiary), is the sole general partner; and the Company is a limited partner
of the Partnership, and thereby controls the operations of the Operating
Partnership holding a 96.4% ownership interest therein as of June 30, 1998. The
remaining ownership interests in the Operating Partnership (the "Units") are
held by certain former owners of assets acquired by the Operating Partnership
subsequent to the Offerings. The consolidated financial statements of the
Company include the accounts of the Company, the Partnership, and the
wholly-owned Subsidiary. All intercompany transactions and balances have been
eliminated.
3. Investment in Storage Facilities
The following summarizes activity in storage facilities during the period ended
June 30, 1998.
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Cost:
Beginning balance $ 333,036
Property acquisitions 110,940
Improvements and equipment additions 8,232
Dispositions (117)
----
Ending balance $ 452,091
==============
Accumulated Depreciation:
Beginning balance $ 11,639
Additions during the period 4,258
Dispositions (24)
---
Ending balance $ 15,873
==============
</TABLE>
4. Line of Credit
On February 20, 1998, the Company entered into a new $150 million
unsecured credit facility which replaced in its entirety the Company's $75
million revolving credit facility. The new facility matures February 2001 and
provides for funds at LIBOR plus 1.25%, a savings of 65 basis points over the
Company's old facility. As a result of the new credit facility, in 1998 the
Company recorded an extraordinary loss on the extinguishment of debt of $350,000
representing the unamortized financing costs of the former revolving credit
facility.
In June 1998, the Company entered into a $30 million unsecured term
note which matures on September 24, 1998 and provides for funds at LIBOR plus
1.25%.
To manage its exposure to interest rate fluctuations, the Company has
entered into LIBOR-based interest rate swap agreements in amounts of $75 million
through October 1998 and $40 million through June 1999. Net payments or receipts
under swap agreements are recorded as adjustments to interest expense. The net
carrying amount of the Company's debt instruments approximates the fair values.
5. 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 June 30, 1998, the Company had entered into contracts for the
purchase of 4 self-storage facilities which were purchased in July 1998 for a
total cost of $22.7 million.
6. Pro Forma Financial Information
The following unaudited pro forma Condensed Statement of Operations is
presented as if the 36 storage facilities purchased during the six months ended
June 30, 1998, had occurred at January 1, 1998. 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.
<TABLE>
<CAPTION>
(in thousands, except per share data)
Six Months
Ended June 30,
1998
<S> <C>
Rental income $ 34,011
Other income 535
----------------
Total revenues 34,546
Expenses:
Property operations & maintenance 6,836
Real estate taxes 2,800
General and administrative 1,995
Interest 5,236
Depreciation and amortization 4,939
----------------
Total Expenses 21,806
Income before minority interest and extraordinary item 12,740
Minority interest (441)
Income before extraordinary item 12,299
Extraordinary loss on extinguishment of debt (350)
-----------------
Net income $ 11,949
================
Earnings per share before extraordinary item - basic 1.00
Extraordinary item (.03)
----------------
Earnings per share - basic $ .97
================
Earnings per share - diluted $ .97
================
Common shares used in basic earnings
per share calculation 12,298,213
</TABLE>
<PAGE>
7. Legal Proceedings
A former business associate (Plaintiff) 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 Offering. On April 29, 1996, the Plaintiff filed a first amended
complaint and on September 24, 1997, a second amended complaint was filed. The
complaint alleges, among other things, breach of fiduciary duty, breach of
contract, breach of general partnership/joint venture arrangement, fraud and
deceit, breach of duty of good faith and other causes of action including
declaratory judgement as to the Plaintiff's continuing interest in the Company.
The Plaintiff is seeking money damages in excess of $15 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 the Plaintiff claims
to have a continuing interest) and an accounting. The 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
indemnify the Company for cost and any loss arising from the lawsuit. The
Company believes that the actual amount of the Plaintiff's recovery in this
matter if any, would be within the ability of these individuals to provide
indemnification. The Company does not believe that the lawsuit will have a
material adverse effect upon the Company.
8. Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Numerator:
Net Income $ 11,700 $ 10,873
Denominator:
Denominator for basic earnings
per share - weighted average shares 12,310 11,261
Effect of Diluted Securities:
Stock options 54 57
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversion 12,364 11,318
Basic earnings per share $ .95 $ .96
Diluted earnings per share $ .95 $ .96
</TABLE>
9. Recent Accounting Pronouncements
On March 19, 1998 the Financial Accounting Standards Board Emerging
Issues Task Force reached a consensus as to the accounting for internal
acquisition costs incurred in connection with real property. The Task Force
consensus indicates that internal costs related to the acquisition of operating
properties should be expensed as incurred. The Company has previously
capitalized such costs and will comply with the consensus prospectively. The
amount of internal acquisition costs capitalized in the six-months ended June
30, 1998 and 1997, was $222,000 and $400,000, respectively.
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 192 self-storage facilities, providing storage
space for business and personal use to customers in 19 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.
When used in this discussion and elsewhere in this document, the words
"intends," "believes," "anticipates," and similar expressions are intended to
identify "forward-looking statements" within the meaning of that term in Section
27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of
Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Company to be
materially different from those expressed or implied by such forward-looking
statements. Such factors include the effect of competition from new self-storage
facilities, which would cause rents and occupancy rates to decline; the
Company's ability to evaluate, finance and integrate acquired businesses into
the Company's existing business and operations; the Company's ability to
effectively compete in the industries in which it does business; and tax law
changes which may change the taxability of future income.
Liquidity and Capital Resources
Revolving Credit Facility
On February 20, 1998, the Company entered into a new $150 million
unsecured credit facility which replaces in its entirety the Company's $75
million revolving credit facility. The new facility matures February 2001 and
provides for funds at LIBOR plus 1.25%, a savings of 65 basis points over the
Company's old facility. The Company intends to use funds available from this
credit facility to finance future acquisition and development plans described
below. At June 30, 1998, the Company had remaining borrowing capacity of $2
million on the line.
In June 1998, the Company entered into a $30 million term note which
matures on September 24. 1998 and provides for funds at LIBOR plus 1.25%. At
June 30, 1998, there was no balance outstanding on the term note. To manage
its exposure to interest rate fluctuations, the Company has entered into LIBOR-
based interest rate swap agreements in amounts of $75 million through October
1998 and $40 million through June 1999.
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 June 30, 1998, 453,609 units have been issued in exchange for property at the
request of the sellers.
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 June
30, 1998, the Company acquired eighteen properties, increasing its existing
presence in Florida, Michigan, Missouri, North Carolina, Ohio, Tennessee and
Texas. The Company also entered a new market, New Hampshire. The eighteen
acquisitions in the three months ended June 30, 1998 added 1,169,000 square feet
of space and 11,000 rental units to the Company's portfolio.
Future Acquisition and Development Plans
In July, the Company continued its external growth strategy by
increasing the number of facilities it owns in Florida, and has contracts on
properties in Florida, North Carolina, and Texas with planned closings in the
third 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.
Common Stock Repurchase Program
On June 24, 1998, the Board of Directors authorized the repurchase of
up to 1,000,000 shares of outstanding common stock. The shares may be purchased
from time-to-time at the discretion of management in the open market or in
privately negotiated transactions. As of June 30, 1998, 35,000 common shares had
been repurchased.
Liquidity
At June 30, 1998, the Company's debt to equity ratio was 57%.
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 additional properties will be provided by borrowings
pursuant to the revolving line of credit and the issuance of UPREIT units. In
addition, the Company believes it has achieved a level of market capitalization
and critical mass to enable it to access the senior debt markets to fund a
portion of 1998 growth and to pay off the term note. The Company has filed a
registration statement and expects to access the capital markets in 1998.
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 June 30, 1998, 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.
Results of Operations
The following discussion is based on the financial statements of the
Company as of June 30, 1998 and June 30, 1997.
For the period January 1, 1998 through June 30, 1998 (dollars in thousands)
The Company reported revenues of $30,817 during the period and incurred
$8,481 in operating expenses, resulting in net operating income of $22,336, or
72%. General and administrative expenses of $1,947, interest expense of $3,368
and depreciation and amortization expenses of 4,547 resulted in income of
$12,474 before minority interest and extraordinary item. An extraordinary loss
of $350 resulted from the write-off of the unamortized financing costs of the
revolving credit facility that was replaced in February 1998. Net income
amounted to $11,700.
Three months ended June 30, 1998, compared to Three months ended June 30, 1997
(dollars in thousands)
The following discussion compares the activities of the Company for the
three months ended June 30, 1998 with the activities of the Company for the
three months ended June 30, 1997.
Total revenues increased from $11,938 for the three months ended June
30, 1997 to $16,442 for the three months ended June 30, 1998, an increase of
$4,504 or 38%. Of this, $4,200 resulted from the acquisition of 18 properties
during the period April 1, 1998 through June 30, 1998 and $304 was realized as a
result of increased rental rates at the 138 properties owned by the Company at
April 30, 1997. Overall, same-store revenues grew 3% for the three month period
ended June 30, 1998 as compared to the same period in 1997.
Property operating and real estate tax expense increased $1,303 or 41%
during the period. $1,112 was a result of absorbing additional expenses from
operating the newly acquired properties, and $191 related to the operations of
its sites operated more than one year.
General and administrative expenses, which includes losses of $66
realized as the result of replacement of equipment, increased $507 principally
as a result of the need for additional personnel and increased administrative
costs associated with managing the additional properties.
Interest expense increased $1,847 due to the $112 million drawn on the
Company's line of credit during 1998.
Income before minorit interest increased from $6,189 to $6,271, an increase of
$82 or 1.3%.
Funds from Operations
The Company believes that Funds From Operations ("FFO") is helpful to
investors as a measure of the performance of an equity REIT because, when
considered in conjunction with cash flows from operating activities, financing
activities, and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and to
make capital expenditures. FFO is defined as net income, computed in accordance
with GAAP, plus depreciation of real estate assets and amortization of
intangible assets exclusive of deferred financing fees, and excluding gains
(losses) from debt restructurings and sales of property. FFO should not be
considered a substitute for net income or cash flows, nor should it be
considered an alternative to operating performance or liquidity. The following
table sets forth the calculation of FFO:
<TABLE>
<CAPTION>
Three months Three months
ended June 30, ended June 30,
1998 1997
(in thousands) ------------- -------------
<S> <C> <C>
Net income $ 6,052 $ 6,003
Minority interest 219 186
Depreciation of real estate and amortization
of intangible assets exclusive of deferred
financing fees 2,395 1,566
Minority interest share of FFO (302) (233)
--------- ---------
FFO available to common shareholders $ 8,364 $ 7,522
========= =========
</TABLE>
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.
A former business associate (Plaintiff) 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. The
Plaintiff has since amended the complaint in the lawsuit alleging, breach of
fiduciary duty, breach of contract, breach of general partnership/joint venture
arrangement, fraud, breach of duty of good faith, fraud and deceit, and other
causes of action including a declaratory judgement as to Plaintiff's continuing
interest in the Company. The Plaintiff is seeking money damages in excess of $15
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 Plaintiff 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. Messers. Attea, Myszka, Rogers
and Lannon have agreed to indemnify the Company for cost and any loss arising
from the lawsuit. The Company believes that the actual amount of Plaintiff's
recovery in this matter, if any, would be within the ability of these
individuals to provide indemnification. The Company does not believe that the
lawsuit will have a material adverse effect upon the Company.
Item 2. Changes in Securities
No disclosure required.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
a.) The Annual Meeting of Shareholders was held on Tuesday, May 12, 1998.
<TABLE>
<CAPTION>
b.) Directors Votes For Votes Votes Abstentions Broker
Agains Withheld Nonvotes
<S> <C> <C> <C> <C> <C>
Robert J. Attea 10,518,162 0 38,438 0 1,774,363
Kenneth F. Myszka 10,521,088 0 35,512 0 1,774,363
Charles E. Lannon 10,521,088 0 35,512 0 1,774,363
John E. Burns 10,521,088 0 35,512 0 1,774,363
Michael A. Elia 10,521,088 0 35,512 0 1,774,363
Anthony P. Gammie 10,521,088 0 35,512 0 1,774,363
</TABLE>
<TABLE>
<CAPTION>
c.) Ratification of the appointment by the Board of Directors of Ernst &
Young LLP, as independent Accountants, to audit the accounts of the
Company for the year ending December 31, 1998.
<S> <C>
Votes For 10,484,769
Votes Against 15,721
Votes Withheld 0
Abstentions 56,110
Broker Nonvotes 1,774,363
</TABLE>
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K (a.) Exhibit 27 - Financial data
schedule.
(b.) Reports on Form 8-K
On April 17, 1998, the Company filed an amended Current Report on Form
8-K/A, which amended the Company's Form 8-K filed February 20, 1998. The
8-K/A filed April 17, 1998, included the financial statements for
twenty-four self storage facilities acquired. In addition, an unaudited Pro
Forma Combined Balance Sheet and Statement of Operations at and for the
year ended December 31, 1997 were presented.
On June 10, 1998, the Company filed a Current Report on Form 8-K reporting
the acquisition of eight self-storage facilities. In addition, an unaudited
Pro Forma Combined Balance Sheet and Statement of Operations at and for the
three months ended March 31, 1998 and the year ended December 31, 1997 were
presented.
<PAGE>
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.
August 13, 1998 By:/S/ David L. Rogers
- --------------- ----------------------
Date David L. Rogers
Secretary and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000944314
<NAME> SOVRAN SELF STORAGE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 2,695
<SECURITIES> 0
<RECEIVABLES> 1,335
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,060
<PP&E> 452,091
<DEPRECIATION> 15,873
<TOTAL-ASSETS> 443,278
<CURRENT-LIABILITIES> 165,466
<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 264,629
<TOTAL-LIABILITY-AND-EQUITY> 443,278
<SALES> 0
<TOTAL-REVENUES> 30,817
<CGS> 0
<TOTAL-COSTS> 8,481
<OTHER-EXPENSES> 6,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,368
<INCOME-PRETAX> 12,050
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,050
<DISCONTINUED> 0
<EXTRAORDINARY> 350
<CHANGES> 0
<NET-INCOME> 11,700
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
