SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number: 1-13820
Sovran Self Storage, Inc.
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(Exact name of Registrant as specified in its charter)
Maryland 16-1194043
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5166 Main Street
Williamsville, NY 14221
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(Address of principal executive offices)
(Zip code)
(716) 633-1850
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Exchanges on which Registered
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Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 26, 1998, 12,330,963 shares of Common Stock,
$.01 par value per share were outstanding, and the aggregate
market value of the Common Stock held by non-affiliates was
approximately $364,534,093 (based on the closing price of the
Common Stock on the New York Stock Exchange on March 26, 1998).
Exhibit Index is on Pages 12 and 13
DOCUMENTS INCORPORATED BY REFERENCE
1997 Annual Report to Shareholders of the Company
(Part II).
Notice of Annual Meeting of Shareholders and Proxy Statement
for Annual Meeting of Shareholders of the Company to be held on
May 12, 1998 (Part III).
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Part I
Item 1. Business
Sovran Self Storage, Inc.(the "Company") is a self-
administered and self managed real estate investment trust
("REIT") which acquires, owns and manages self-storage
properties. (The Company's self-storage properties are
hereinafter referred to collectively as the "Properties" and
individually as a "Property"). The Company was formed on June
26, 1995. As of March 26, 1998 the Company owned and operated
173 self-storage properties consisting of approximately 9.4
million net rentable square feet, situated in 18 states,
primarily the Eastern United States and Texas. As of February
28, 1998, the Properties have a weighted average occupancy of
87.1% and a weighted average annual rent per occupied square foot
of $7.33. The Company believes that it is one of the largest
operators of self-storage properties in the United States based
on facilities owned.
The Company seeks to increase cash flow and enhance
shareholder value through aggressive management of the Properties
and selective acquisitions of new self-storage properties.
Aggressive property management entails increasing rents,
increasing occupancy levels, strictly controlling costs,
maximizing collections, strategically expanding and improving the
Properties and, should economic conditions warrant, developing
new properties. The Company believes that there continues to be
significant opportunities for growth through acquisitions, and
constantly seeks to acquire self-storage properties located
primarily in the Eastern United States that are susceptible to
realization of increased economies of scale and enhanced
performance through application of the Company's management
expertise.
The Company was formed to continue the business of its
predecessor company which had engaged in the self-storage
business since 1985. The Company owns an indirect interest in
each of the Properties through a limited partnership (the
"Partnership") of which the Company holds in total 96.53%
economic and unaffiliated third parties own collectively a 3.47%
limited partnership interest. The Partnership owns a 100% fee
simple interest in each of the Properties. The Company believes
that this structure, commonly known as an umbrella partnership
real estate investment trust ("UPREIT"), facilitates the
Company's ability to acquire properties by using units of the
Partnership as currency in property acquisitions.
The Company was incorporated on April 19, 1995 under
Maryland law. The Company's principal executive offices are
located at 5166 Main Street, Williamsville, New York 14221, and
its telephone number is (716) 633-1850. The Company also
maintains a regional office in Atlanta, Georgia.
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Industry Overview
The Company believes that self storage facilities offer
inexpensive storage space to residential and commercial users.
In addition to fully enclosed and secure storage space, some
operators, including the Company, also offer outside storage for
automobiles, recreational vehicles and boats. The storage sites
are usually fenced and well lighted with gates that are either
manually operated or automated. Most facilities have a full time
manager who resides in an apartment located on the property.
Customers have access to their storage area during business hours
and in certain circumstances are provided with 24 hour access.
Individual storage units are secured by the customer's lock,
which may be purchased from the Company, but the customer has
control of access to the unit.
The Company believes that the self-storage industry is
characterized by a trend toward consolidation, continuing
increase in demand, relatively slow growth in supply and a
targeted market of primarily residential customers.
According to published data, of the approximately 25,000
facilities in the United States, only 12% are managed by the ten
largest operators. The remainder of the industry is
characterized by numerous small, local operators. The shortage
of skilled operators, the scarcity of financing available to
small operators for acquisitions and expansions and the potential
for savings through economies of scale are factors which are
leading to a consolidation in the industry. The Company believes
that as a result of this trend, significant growth opportunities
exist for operators with proven management systems and sufficient
capital resources.
The self-storage industry has also experienced relatively
slow growth in supply in recent years, due to such factors, as
well as restrictive zoning and other regulations and the
substantial start up costs associated with the construction and
lease-up of new facilities. Demand for self-storage service has
increased significantly as indicated by an increase in industry-
wide average rents and in industry average occupancy. It is
expected to remain strong because it is slow to react to changing
conditions and because of various other factors, including,
population growth, increased mobility, expansion of condominium,
townhouse and apartment living, and increasing consumer
awareness, particularly by commercial users. Commercial
customers tend to rent larger areas for longer terms, are more
reliable payers and are less sensitive to price increases. The
Company estimates that commercial users account for approximately
30-35% of its total occupancy, which is substantially higher than
the reported industry average of 23%.
Property Management
The Company believes that it has developed substantial
expertise in managing self-storage facilities. Key elements of
the Company's management system include:
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- Recruiting, training and retaining capable, aggressive
on-site Property Managers;
- Motivating Property Managers by providing incentive-
based compensation;
- Developing and maintaining an integrated marketing plan
for each Property;
- Minimizing maintenance costs; and
- Linking all facilities to a central customized
management information system.
Each Property is managed by a full-time Property Manager and
one or more assistant managers. The Property Manager typically
resides on-site in an apartment furnished by the Company. Each
Property Manager is responsible for most operational decisions
with respect to his or her Property, including rent charges and
maintenance, subject to certain monetary limits. Assistant
managers enable Property Managers to have sufficient time to
perform marketing functions. Each Property Manager reports to an
Area Manager who in turn reports to a Regional Vice President.
The Company currently employs four Regional Vice Presidents who
primarily focus on marketing and overall supervision of the Area
Managers. The Area Managers are responsible for overseeing site
operations.
Property Managers attend a thorough orientation program and
undergo continuous training which emphasizes telephone skills,
closing techniques, identification of selected marketing
opportunities, networking with possible referral sources, and
familiarization with the Company's customized management
information system. In addition to frequent contact with Area
Managers and other Company personnel, Property Managers receive
periodic newsletters regarding a variety of operational issues,
and from time to time attend "roundtable" seminars with other
Property Managers.
The Company annually develops a written marketing plan for
each of its Properties which is highly dependent upon local
conditions. The focus of each marketing plan is, in part,
determined by occupancy rates. If all storage units of a same
size at a Property are at or near 90% occupancy, then the plan
will generally include increases in rental rates. If a Property
has excess capacity, then the marketing plan will target selected
markets such as local military bases, colleges, apartment and
condominium complexes, industrial parks, medical centers, retail
shopping malls and office suites. The Company primarily uses
telephone directories to advertise its services, including a map
and when possible, listing Properties in the same marketplace in
a single advertisement. The Company also conducts quarterly
surveys of its competitors' practices, which include "shopping"
competing facilities.
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The Company's customized computer system performs billing,
collections and reservation functions for each Property, and also
tracks information used in developing marketing plans regarding
occupancy levels, and tenant demographics and histories. The
system generates daily, weekly and monthly financial reports for
each Property that are immediately transmitted to the Company's
principal office each night. The system also requires a Property
Manager to input a descriptive explanation for all debit and
credit transactions, paid-to-date changes, and all other
discretionary activities, which allows the accounting staff at
the Company's principal office to promptly review all such
transactions. Late charges are automatically imposed. More
sensitive activities such as rental rate changes and unit size or
number changes are completed only by Area Managers. The
Company's customized management information system permits it to
add new facilities to its portfolio with minimal additional
overhead expense.
The Company's Regional Vice Presidents, Area Managers and
Property Managers are compensated with a base salary and may, in
addition, earn incentive compensation. The Company annually
establishes a target gross income and net operating income for
each Property. As incentive compensation, Property Managers earn
a percentage of all gross income in excess of the target level;
and Regional Vice Presidents earn a percentage of the combined
net operating incomes in excess of the targeted levels for all
facilities reporting to them. The Area Managers receive bonuses
from the Regional Vice President they work under. This incentive
compensation program is not subject to any caps or increment
requirements. It is not unusual for any manager to earn in
excess of 25% of the base salary as incentive compensation. The
Company believes that the structure of these programs causes its
managers to exercise their operational autonomy in a manner to
maximize income through increased rental rates.
Environmental and Other Regulations
The Company is subject to federal, state, and local
environmental regulations that apply generally to the ownership
of real property and the operation of self-storage facilities.
The Company has not received notice from any governmental
authority or private party of any material environmental
noncompliance, claim, or liability in connection with any of the
Properties, and is not aware of any environmental condition with
respect to any of the Properties that could have a material
adverse effect on the Company's financial condition or results of
operations.
The Properties are also generally subject to the same types
of local regulations governing other real property, including
zoning ordinances. The Company believes that the Properties are
in material compliance with all such regulations.
Insurance
Each of the Properties is covered by fire, flood and
property insurance, including comprehensive liability, all-risk
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property insurance, provided by reputable companies and with
commercially reasonable terms. In addition, the Company
maintains a policy insuring against environmental liabilities
resulting from tenant storage on terms customary for the
industry, and title insurance insuring fee title to the
Properties in an aggregate amount believed to be adequate.
Federal Income Tax
The Company has operated, and intends to continue to
operate, in such a manner as to continue to qualify as a REIT
under the Internal Revenue Code of 1986 (the Code), but no
assurance can be given that it will at all times so qualify. To
the extent that the Company continues to qualify as a REIT, it
will not be taxed, with certain limited exceptions, on the
taxable income that is distributed to its shareholders. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - REIT
Qualification and Distribution Requirements" appearing on page 28
of the Company's 1997 Annual Report to Shareholders, submitted
herewith as an exhibit and incorporated by reference.
Competition
The primary factors upon which competition in the self-
storage industry is based are location, rental rates, suitability
of the property's design to prospective tenants' needs, and the
manner in which the property is operated and marketed. The
Company believes it competes successfully on these bases. The
extent of competition depends in significant part on local market
conditions. The Company seeks to locate its facilities so as not
to cause its own Properties to compete with one another for
customers, but the number of self-storage facilities in a
particular area could have a material adverse effect on the
performance of any of the Properties.
Several of the Company's competitors, including Public
Storage Management, Inc., Shurgard Incorporated, U-Haul
International, Storage Trust Realty and Storage USA, Inc., are
larger and have substantially greater financial resources than
the Company. These larger operators may, among other possible
advantages, be capable of greater leverage and the payment of
higher prices for acquisitions.
Investment Policy
While the Company emphasizes equity real estate investments,
it may, in its discretion, invest in mortgage and other real
estate interest related to self-storage properties consistent
with its qualification as a REIT. The Company may also retain a
purchase money mortgage for a portion of the sale price in
connection with the disposition of Properties from time to time.
Also, while the Company does not have any current intention of
acquiring any interests other than direct equity ownership in
self-storage facilities, subject to the percentage of ownership
limitations and gross income tests necessary for REIT
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qualification, the Company also may invest in securities of
entities engaged in real estate activities or securities of other
issuers, including for the purpose of exercising control over
such entities.
Disposition Policy
Management periodically reviews the assets comprising the
Company's portfolio. The Company has no current intention to
dispose of any of the Properties, although it reserves the right
to do so. Any disposition decision will be based on a variety of
factors, including, but not limited to, the (i) potential to
continue to increase cash flow and value, (ii) sale price, (iii)
strategic fit with the rest of the Company's portfolio, (iv)
potential for, or existence of, environmental or regulatory
issues, (v) alternative uses of capital, and (vi) maintaining
qualification as a REIT.
Distribution Policy
The Company intends to pay regular quarterly distributions
to its shareholders. However, future distributions by the
Company will be at the discretion of the Board of Directors and
will depend on the actual cash available for distribution, the
Company's financial condition and capital requirements, the
annual distribution requirements under the REIT provisions of the
Code and other such factors as the Board of Directors deems
relevant. In order to maintain its qualification as a REIT, the
Company must make annual distributions to shareholders of at
least 95% of its REIT taxable income (which does not include
capital gains). Under certain circumstances, the Company may be
required to make distributions in excess of cash available for
distribution in order to meet this requirement.
The Board of Directors declared a dividend distribution of
one preferred share purchase right for each outstanding common
share to shareholders of record at the close of business on
December 16, 1996. These rights will become exercisable if a
person becomes an "acquiring person" by acquiring 10% or more of
the common shares of Sovran Self Storage, Inc. or if a person
commences a tender offer that would result in that person owning
10% or more of the common shares.
Borrowing Policy
The Board of Directors of the Company currently limits the
amount of debt that may be incurred by the Company to less than
50% of the sum of market value of the issued and outstanding
Common Stock plus the Company's debt (Market Capitalization).
The Company, however, may from time to time re-evaluate and
modify its borrowing policy in light of then current economic
conditions, relative costs of debt and equity capital, market
values of properties, growth and acquisition opportunities and
other factors.
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The Company obtained an increase in the amount available
under the Credit Facility to $75 million from $45 million in
1996. In connection with the increase, the interest rate was
reduced from 30-day LIBOR plus 2.6 % to 30-day LIBOR plus 1.9%
and the maturity date was extended from June 1997 to August 1998.
The Credit Line is to be used for development, acquisitions and
general corporate purposes. On February 20, 1998, the Company
entered into a new $150 million unsecured credit facility which
replaces in its entirety the $75 million revolving credit
facility. The new facility matures February 2001 and provides
for funds at LIBOR plus 1.375%, a savings of 52.5 basis points
over the Company's old facility. As a result of the new credit
facility, in 1998 the Company will record an extraordinary loss
on the extinguishment of debt of $312,000, representing the
unamortized financing costs of the revolving credit facility.
To the extent that the Company desires to obtain additional
capital to pay distributions, to provide working capital, to pay
existing indebtedness or to finance acquisitions, expansions or
development of new properties, the Company may utilize public and
private equity offerings, floating or fixed rate debt financing,
retention of cash flow (subject to satisfying the Company's
distribution requirements under the REIT rules) or a combination
of these methods. Additional debt financing may also be obtained
through mortgages on its Properties which may be recourse, non-
recourse, or cross-collateralized and may contain cross-default
provisions. The Company has not established any limit on the
number or amount of mortgages that may be placed on any single
Property or on its portfolio as a whole. For additional
information regarding borrowings, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and Note 5 to the Consolidated
Financial Statements appearing in the Company's 1997 Annual
Report to Shareholders, submitted herewith as an exhibit and
incorporated by reference.
Employees
The Company currently employs a total of 460 employees,
including 152 Property Managers, 8 Area Managers, 4 Regional Vice
Presidents and 260 part time employees. At the Company's
headquarters, in addition to the 3 senior executive officers, the
Company employs 33 people engaged in various support activities
such as accounting and management information systems. None of
the Company's employees is covered by a collective bargaining
agreement. The Company considers its employee relations to be
excellent.
Item 2. Properties
Overview
At December 31, 1997, the Company, owned 100% fee simple
interests in, and operated, a total of 155 Properties, consisting
of approximately 8.3 million net rentable square feet, situated
in seventeen states in the Eastern and Midwestern United States
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and Texas. As of December 31, 1997, the Properties had a
weighted average occupancy of 85.11% and a weighted average
annual rent per square foot of $7.67. The Company believes that
it is one of the largest operators of self-storage properties in
the United States based on facilities owned.
The Company's self-storage facilities offer inexpensive,
easily-accessible, enclosed storage space to residential and
commercial users on a month-to-month basis. Most of the
Company's Properties are fenced with computerized gates and are
well lighted. All but twenty-two of the Properties are single-
story, thereby providing customers with the convenience of direct
vehicle access to their storage units. All Properties have a
Property Manager on-site during business hours and, in most
cases, the Property Manager resides in an apartment at the
facility. Customers have access to their storage areas during
business hours, and some commercial customers are provided 24-
hour access. Individual storage units are secured by a lock
furnished by the customer to provide the customer with control of
access to the unit.
Currently, 141 of the Properties conduct business under the
user-friendly trade name "Uncle BoB's Self-Storage" and the
remainder are operated under various names acquired with the
Properties. The Company intends to convert all of the Properties
to the "Uncle BoB's" trade name.
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The table below provides certain information regarding the properties:
Uncle
BoB's Occupancy
Year Trade at Mgr.
Location Built Sq. Ft. Name 12/31/97 Acres Units Bldgs. Floors Apt. Construction
_______________________________________________________________________________________________________________________________
Alabama
Birmingham I 1990 37,075 Y 80% 2.7 297 9 1 Y Masonry/Steel Roof
Birmingham II 1990 52,155 Y 92% 4.7 414 8 1 Y Masonry/Steel Roof
Montgomery I 1982 75,000 Y 81% 5.0 625 16 1 Y Masonry/Steel Roof
Birmingham III 1970 72,050 Y 80% 4.3 409 6 1 N Masonry/Steel Roof
Montgomery II 1984 42,100 Y 93% 2.7 300 10 1 N Masonry/Steel Roof
Montgomery III 1988 41,550 Y 92% 2.4 392 9 1 Y Steel Bldg./Steel Roof
Connecticut
New Haven 1985 36,000 Y 96% 3.9 340 5 1 N Masonry Wall/Steel Roof
Hartford-Metro I 1988 47,650 Y 96% 10.0 339 10 1 N Steel Bldg./Steel Roof
Hartford-Metro II 1992 40,275 Y 95% 6.0 313 7 1 N Steel Bldg./Steel Roof
Florida
Lakeland l 1985 45,725 Y 94% 3.5 444 11 1 Y Masonry Wall/Steel Roof
Tallahassee I 1973 149,600 Y 82% 18.7 730 21 1 Y Masonry Wall/Tar & Gravel Roof
Tallahassee II 1975 43,600 Y 98% 4.0 236 7 1 Y Masonry Wall/Tar & Gravel Roof
Port St. Lucie 1985 60,000 Y 77% 4.0 599 12 1 N Steel Bldg./Steel Roof
Deltona 1984 60,000 Y 84% 5.0 452 5 1 Y Masonry Wall/Shingle Roof
Jacksonville I 1985 40,000 Y 93% 2.7 296 14 1 Y Masonry Wall/Tar & Gravel Roof
Orlando I 1988 53,875 Y 90% 2.8 603 3 2 Y Steel Bldg./Steel Roof
Ft. Lauderdale 1985 103,000 Y 91% 7.6 646 7 1 Y Steel Bldg./Steel Roof
West Palm l 1985 49,000 Y 84% 3.2 412 6 1 N Steel Bldg./Steel Roof
Melbourne I 1986 61,787 Y 95% 8.3 605 11 1 Y Masonry Wall/Shingled Roof
Pensacola I 1983 105,127 Y 80% 7.5 976 13 1 Y Steel Bldg./Steel Roof
Pensacola II 1986 57,355 Y 88% 3.4 509 9 1 Y Steel Bldg./Steel Roof
Melbourne II 1986 55,755 Y 93% 3.4 657 11 1 N Steel Bldg./Steel Roof
Jacksonville II 1987 53,225 Y 100% 4.4 465 11 1 Y Masonry/Steel Roof
Pensacola III 1986 63,250 Y 81% 6.1 510 12 1 N Steel Bldg./Steel Roof
Pensacola IV 1990 39,825 Y 91% 2.7 280 9 1 Y Masonry/Steel Roof
Pensacola V 1990 38,850 Y 66% 2.6 324 4 1 Y Masonry/Steel Roof
Tampa I 1989 60,202 Y 93% 3.3 889 6 1 N Masonry/Steel Roof
Tampa II 1985 55,911 Y 86% 2.9 794 10 1 N Masonry/Steel Roof
Tampa III 1988 45,507 Y 91% 2.2 689 14 1 N Masonry/Steel Roof
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Orlando II 1986 135,000 Y 74% 8.5 1,359 20 1 Y Masonry Wall/Steel Roof
Ft. Myers I 1988 28,068 Y 78% 1.1 272 6 2 Y Steel Bldg./Steel Roof
Ft. Myers II 1991/94 41,728 Y 81% 3.2 602 6 1 Y Masonry/Steel Roof
Tampa IV 1985 60,675 Y 77% 4.0 633 10 1 Y Masonry/Steel Roof
West Palm II 1986 33,120 Y 89% 2.3 395 9 1 Y Masonry/Steel Roof
Ft. Myers III 1986 35,435 Y 84% 2.4 261 9 1 Y Masonry/Steel Roof
Lakeland II 1988 41,860 Y 96% 4.0 446 9 1 N Masonry Wall/Steel Roof
Ft. Myers IV 1987 60,000 Y 94% 4.5 289 4 1 Y Masonry/Steel Roof
Jacksonville III 1987 102,500 Y 78% 5.9 786 13 1 Y Masonry Wall/Shingle Roof
Jacksonville IV 1985 43,865 Y 83% 2.7 527 7 1 Y Steel Bldg./Steel Roof
Jacksonville V 1987/92 55,400 Y 97% 2.9 514 13 2 Y Steel Bldg./Masonry Wall/Steel
Roof
Orlando III 1975 60,000 Y 89% 3.2 487 8 2 N Masonry Wall/Steel Roof
Orlando lV 1984 37,372 N 90% 2.8 341 6 1 Y Steel Bldg/Steel Roof
Delray I-Mini 1969 50,395 Y 99% 3.5 495 3 1 Y Masonry Wall/Concrete Roof
Delray II-Safeway 1980 71,218 Y 94% 4.3 774 17 1 Y Masonry Wall/Concrete Roof
Georgia
Savannah 1981 58,781 Y 82% 5.4 527 11 1 Y Masonry Wall/Steel Roof
Atlanta-Metro I 1988 69,075 Y 81% 3.9 539 5 1 Y Steel Bldg./Steel Roof
Atlanta-Metro II 1988 45,100 Y 82% 3.9 375 6 1 Y Steel Bldg./Steel Roof
Atlanta-Metro III 1988 55,475 Y 84% 5.3 483 9 1 Y Steel Bldg./Steel Roof
Atlanta-Metro IV 1989 41,724 Y 92% 3.5 304 7 1 Y Steel Bldg./Steel Roof
Atlanta-Metro V 1988 38,082 Y 84% 4.2 372 3 1 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VI 1986 51,375 Y 79% 3.6 458 7 1 Y Steel Bldg./Steel Roof
Atlanta-Metro VII 1981 43,400 Y 77% 2.5 324 9 2 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VIII 1975 41,400 Y 85% 3.3 452 6 2 Y Masonry Wall/Tar & Gravel Roof
Augusta I 1988 52,300 Y 85% 4.0 407 13 1 Y Steel Bldg./Steel Roof
Macon I 1989 40,700 Y 92% 3.2 356 14 1 Y Steel Bldg./Steel Roof
Augusta II 1987 45,700 Y 87% 3.5 377 4 1 Y Masonry Wall/Steel Roof
Atlanta-Metro IX 1988 56,725 Y 81% 4.6 409 6 1 Y Steel Bldg./Steel Roof
Atlanta-Metro X 1988 45,425 Y 88% 6.8 391 9 1 N Steel Bldg./Steel Roof
Macon II 1989/94 58,750 Y 88% 14.0 535 11 1 Y Steel Bldg./Steel Roof
Savannah II 1988 50,975 N 75% 2.6 484 8 1 Y Masonry Wall/Steel Roof
Atlanta-Alpharetta 1994 80,265 N 76% 5.8 555 8 1&2 Y Steel Bldg./Steel Roof
Atlanta-Marietta 1996 59,450 N 95% 6.0 451 8 1&2 Y Steel Bldg./Steel Roof
Atlanta-Doraville 1995 67,275 N 90% 4.9 632 8 1&2 Y St&Masonry Bldg/Steel Roof
Louisiana
Baton Rouge-1 1982 72,100 N 97% 2.5 419 12 1 Y Masonry Wall/Metal Roof
Baton Rouge-2 1985 44,735 N 98% 2.8 443 9 1 N Masonry Wall/Steel Roof
Massachusetts
New Bedford 1982 41,980 Y 90% 3.4 408 7 1 Y Steel Bldg./Steel Roof
Springfield 1986 41,339 Y 80% 4.7 337 5 1 N Masonry Wall/Shingle Roof
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Boston-Metro I 1980 37,575 Y 92% 2.0 403 3 2 N Masonry Wall/Tar & Gravel Roof
Boston-Metro II 1986 36,900 Y 97% 3.6 428 8 2 N Masonry Wall/Tar & Gravel Roof
Maryland
Salisbury 1979 34,350 Y 70% 3.0 418 10 1 N Masonry Wall/Tar & Gravel Roof
Baltimore I 1984 22,233 Y 85% 1.9 347 2 3 N Masonry Wall/Shingled Roof
Baltimore II 1988 63,915 Y 93% 2.2 526 2 4 Y Masonry Wall/Tar & Gravel Roof
Baltimore III 1990 53,171 Y 80% 3.1 686 8 1 Y Steel Bldg./Steel Roof
Michigan
Grand Rapids 1976 57,900 N 85% 5.4 526 9 1 Y Masonry Wall/Steel Roof
Grand Rapids II 1983 32,300 N 83% 8.0 296 6 1 N Masonry & Steel Walls
Kalamazoo 1978 58,214 Y 78% 11.6 607 14 1 Y Steel Bldg/Steel & Shingle Roof
Lansing 1987 43,943 Y 87% 3.8 426 9 1 Y Steel Bldg/Steel Roof
Holland 1978 95,088 Y 76% 13.6 676 18 1 Y Masonry Wall/Steel Roof
Mississippi
Jackson I 1990 41,900 Y 92% 2.0 344 6 1 Y Masonry/Steel Roof
Jackson II 1990 38,775 Y 86% 2.1 308 9 1 Y Masonry/Steel Roof
North Carolina
Charlotte 1986 37,051 Y 86% 2.9 337 6 1 Y Steel Bldg./Steel Roof
Fayetteville 1980 92,800 Y 66% 6.2 1,1601 2 1 Y Steel Bldg./Steel Roof
Greensboro 1986 42,900 Y 66% 3.4 415 5 1 Y Steel Bldg./Mas. Wall/Steel Roof
Raleigh I 1985 57,750 Y 84% 5.0 569 8 2 Y Steel Bldg./Steel Roof
Raleigh II 1985 33,150 Y 77% 2.5 329 8 1 Y Steel Bldg./Steel Roof
Charlotte II 1995 48,750 Y 58% 5.6 494 7 1 Y MasonryWall/Steel Roof
Charlotte III 1995 31,200 Y 73% 2.9 346 6 1 Y MasonryWall/Steel Roof
Greensboro1 1995 32,198 N 83% 1.0 312 7 1 N Metal Wall/Metal Roof
Greensboro2 1997 9,755 N 74% 2.5 92 2 1 N Metal Wall/Metal Roof
New York
Middletown 1988 30,000 Y 95% 2.8 281 4 1 N Steel Bldg./Steel Roof
Buffalo I 1981 61,200 Y 93% 5.1 507 10 1 Y Steel Bldg./Steel Roof
Rochester I 1981 43,000 Y 82% 2.9 407 5 1 Y Steel Bldg./Steel Roof
Rochester II 1980 39,000 Y 88% 3.5 250 9 1 N Masonry Wall/Shingle Roof
Buffalo II 1984 53,525 Y 96% 6.2 430 12 1 Y Steel Bldg./Steel Roof
Syracuse l 1987 70,200 Y 83% 7.5 767 16 1 N Steel Bldg./Steel Roof
Syracuse II 1983 54,590 Y 78% 3.6 422 10 1 Y Steel Bldg./Shingled Roof
Rochester III 1990 51,826 Y 92% 2.7 421 1 1 N Masonry Wall/Shingle Roof
Ohio
Youngstown 1980 48,825 Y 94% 5.8 380 5 1 Y Steel Bldg./Steel Roof
Cleveland- I 1980 48,250 Y 73% 6.4 359 9 1 Y Steel Bldg./Steel Roof
Cleveland II 1987 60,500 Y 86% 4.8 453 4 1 Y Steel Bldg./Steel Roof
Cincinnati 1988 48,830 Y 94% 2.8 496 7 1 Y Masonry Wall/Steel Roof
Dayton 1988 61,875 Y 87% 3.6 615 8 1 Y Masonry Wall/Steel Roof
Youngstown II 1988 55,525 N 69% 3.9 497 7 1 N Masonry Wall/Steel Roof
- 13 -
Akron 1990 37,720 Y 90% 3.4 296 12 1 Y Masonry Wall/Steel Roof
Cleveland III 1986 68,110 Y 89% 3.4 570 12 1 Y Masonry Wall/Steel Roof
Cleveland IV 1978 65,125 Y 97% 3.5 554 5 1 Y Masonry Wall/Steel Roof
Cleveland V 1979 73,450 Y 89% 3.1 646 9 1&2 Y Masonry Wall/Rolled Roof
Cleveland VI 1979 46,625 Y 91% 2.6 361 8 1 Y Masonry Wall/Concrete Roof
Cleveland VII 1977 69,750 Y 92% 4.3 628 13 1 Y Masonry Wall/Steel Roof
Cleveland VIII 1970 45,275 Y 80% 5.7 395 6 1 Y Masonry Wall/Steel Roof
Cleveland IX 1982 53,748 Y 80% 4.4 291 5 1 Y Masonry Wall/Steel Roof
Cleveland X 1989 47,050 Y 84% 5.8 380 6 1 N Metal Wall/Metal Roof
Pennsylvania
Allentown 1983 30,000 Y 98% 6.3 277 7 1 Y Masonry Wall/Shingle Roof
Sharon 1975 37,200 Y 91% 3.0 314 5 1 Y Steel Bldg./Steel Roof
Harrisburg I 1983 48,746 Y 92% 4.1 475 9 1 Y Masonry Wall/Steel Roof
Harrisburg II 1985 58,800 Y 89% 9.2 299 10 1 Y Masonry Wall/Steel Roof
Pittsburgh 1990 57,375 Y 87% 3.4 551 6 1 Y Steel Bldg./Steel Roof
Pittsburgh II 1983 75,875 Y 84% 4.8 732 4 2 Y Masonry Wall/Shingled Roof
Harrisburg 111 1984 63,740 N 95% 4.1 614 9 1 Y Masonry Wall/Metal Roof
Rhode Island
Providence 1984 37,825 Y 84% 3.7 397 7 1 Y Masonry Wall/Tar & Gravel Roof
South Carolina
Charleston I 1985 51,445 Y 87% 3.3 421 11 1 Y Steel Bldg./Mas. Wall/Steel Roof
Columbia I 1985 47,650 Y 69% 3.3 410 7 1 Y Steel Bldg./Steel Roof
Columbia II 1987 59,000 Y 81% 6.0 464 8 1 N Steel Bldg./Steel Roof
Columbia III 1989 41,200 Y 77% 3.5 354 5 2 Y Steel Bldg./Steel Roof
Columbia IV 1986 56,000 Y 83% 5.6 446 7 1 Y Steel Bldg./Steel Roof
Spartanburg 1989 49,500 Y 83% 3.6 350 6 1 Y Steel Bldg./Steel Roof
Charleston II 1985 41,038 Y 96% 2.2 335 10 1 Y Masonry Wall/Steel Roof
Texas
Arlington I 1987 45,965 Y 92% 2.3 411 7 1 Y Masonry Wall/Steel Roof
Arlington II 1986 67,100 Y 75% 3.8 330 11 1 Y Masonry Wall/Steel Roof
Ft. Worth 1986 40,825 Y 86% 2.4 356 3 1 Y Masonry Wall/Asphalt Roof
San Antonio I 1986 48,280 Y 84% 3.9 486 12 1 Y Masonry Wall/Steel Roof
San Antonio II 1986 40,550 Y 81% 1.9 287 7 1 Y Masonry Wall/Steel Roof
San Antonio lll 1981 48,782 Y 84% 2.6 495 5 1 Y Masonry Wall/Steel Roof
Universal 1985 35,100 Y 87% 2.4 427 8 1 Y Masonry Wall/Steel Roof
San Antonio IV 1995 44,600 Y 67% 5.4 372 11 1 Y Steel Bldg/Steel Roof
Houston1 1993/95 69,650 Y 70% 6.4 543 5 1 Y Metal Wall/Steel Roof
Houston-2 1995 61,861 Y 86% 6.3 541 1 1 Y Metal Wall/Steel Roof
Houston 3 1995 35,600 Y 69% 1.8 332 1 1 Y Metal Wall/Steel Roof
Dallas-Skillman 1975 121,707 Y 85% 5.9 1,111 8 1&2 Y Masonry Wall/Steel Roof
Dallas-Cent. 1977 104,303 Y 84% 6.7 1,125 8 1&2 Y Masonry Wall/Steel Roof
Dallas-Samuell 1975 79,056 Y 93% 3.8 796 6 1&2 Y Masonry Wall/Steel Roof
- 14 -
Dallas-Hargrove 1975 71,938 Y 88% 3.1 747 5 1&2 Y Masonry Wall/Steel Roof
Houston-4 1984 75,500 N 85% 4.1 670 9 1 Y Metal Wall/Metal Roof
Virginia
Newport News I 1988 52,944 Y 93% 3.2 451 7 1 Y Steel Bldg./Steel Roof
Alexandria 1984 77,310 Y 78% 3.2 1,105 4 2 Y Masonry Wall/Tar & Gravel Roof
Norfolk I 1984 49,950 Y 89% 2.7 357 7 1 Y Steel Bldg./Steel Roof
Norfolk II 1989 45,375 Y 91% 2.1 363 4 1 Y Masonry Wall/Steel Roof
Richmond 1987 52,035 Y 84% 2.7 524 5 1 Y Masonry Wall/Steel Roof
Newport News II 1988/93 63,125 Y 95% 4.7 384 8 1 Y Steel Bldg./Steel Roof
Lynchburg1 1982 47,200 Y 85% 5.3 429 10 1 Y Masonry Wall/Steel Roof
Lynchburg-2 1985 41,250 Y 66% 2.3 380 4 1 Y Masonry Wall/Steel Roof
Lynchburg 3 1987 22,000 Y 81% 1.5 182 3 1 N Masonry Wall/Metal Roof
Christiansburg 1985/90 36,673 Y 84% 3.2 327 6 1 Y Masonry Wall/Metal Roof
Chesapeake 1988/95 35,901 Y 81% 12.0 271 7 1 Y Metal Wall/Steel Roof
Danville 1988 49,776 Y 81% 3.2 408 8 1 N Steel Wall/Metal Roof
Total for all Properties 8,299,783 666. 1,240
73,864
Average for all Properties 85.33%
Weighted Average 85.11%
- 15 -
Item 3. Legal Proceedings
Robert J. Amsdell, a former business associate of certain
officers and directors of the Company, including Robert J. Attea,
Charles E. Lannon, Kenneth F. Myszka and David L. Rogers, 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 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 a declaratory judgment as to Mr.
Amsdell's continuing interest in the Company. 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, Lannon, Myszka and Rogers as additional defendants. The
parties are currently involved in discovery. The Company intends
to vigorously defend the lawsuit. Messers. Attea, Lannon, Myszka
and Rogers have agreed to indemnify 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
indemnification. The Company does not believe that the lawsuit
will have a material adverse effect upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders,
through the solicitation of proxies or otherwise.
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded on the New York Stock
Exchange under the symbol "SSS". Set forth below are the high
and low sales prices for the Company's Common Stock for each full
quarterly period within the two most recent fiscal years.
Quarter High Low
1996
1st 27.5 25
2nd 27.125 24.625
3rd 27 24.625
4th 31.25 25.625
1997
1st 32 29.375
2nd 30.875 28
3rd 31.75 28.625
4th 32.4375 28.6875
- 16 -
As of March 24, 1998, there were approximately 388 holders
of record of the Company's Common Stock.
As reflected in the table below, the Company has paid
quarterly dividends to its shareholders since the Initial
Offering.
For Federal Income Tax purposes distributions to
shareholders are treated as ordinary income, capital gain, return
of capital or a combination thereof. Distributions to
shareholders for 1997 represent 100% ordinary income.
History of Dividends Declared on Common Stock
2nd Quarter, 1995 $0.025 per share
3rd Quarter, 1995 $0.505 per share
4th Quarter, 1995 $0.505 per share
_________________________________________
1st Quarter, 1996 $0.505 per share
2nd Quarter, 1996 $0.505 per share
3rd Quarter, 1996 $0.520 per share
4th Quarter, 1996 $0.520 per share
_________________________________________
1st Quarter, 1997 $0.520 per share
2nd Quarter, 1997 $0.520 per share
3rd Quarter, 1997 $0.540 per share
4th Quarter, 1997 $0.540 per share
Item 6. Selected Financial Data
The information required is incorporated by reference to the
Company's 1997 Annual Report to Shareholders on page 9.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information required is incorporated by reference to the
Company's 1997 Annual Report to Shareholders on pages 24 to 26.
Item 8. Financial Statements and Supplementary Data
The information required is incorporated by reference to the
Company's 1997 Annual Report on pages 10 to 23.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required is incorporated by reference to
"Election of Directors" and "Executive Officers of the Company"
- 17 -
in the Company's Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on May 12, 1998.
Information concerning the Company's other executive officers can
be found in Part I of this report.
Item 11. Executive Compensation
The information required is incorporated by reference to
"Executive Compensation" and "Compensation of Directors" in the
Company's Proxy Statement for Annual Meeting of Shareholders of
the Company to be held May 12, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required herein is incorporated by reference
to "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement for Annual Meeting of
Shareholders of the Company to be held on May 12, 1998.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference
to "Certain Transactions" in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on May 12, 1998.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Documents filed as part of this Annual Report on Form
10-K:
1. Financial Statements filed as part of this Annual Report on
Form 10-K are included in the 1997 Annual Report to
Shareholders and incorporated by reference.
(i) Consolidated Balance Sheets for Years Ended
December 31, 1997 and 1996.
(ii) Consolidated Statements of Operations of the Company
and Combined Statements of Operations of the
Predecessors for Years Ended December 31, 1997 and
1996, January 1, 1995 to June 25, 1995 and June 26,
1995 to December 31, 1995.
(iii) Combined Statement of Owners' Equity of the
Predecessor/Consolidated Statements of Shareholders'
Equity of the Company for January 1, 1995 to June 25,
1995 and June 26, 1995 to December 31, 1997.
(iv) Consolidated Statements of Cash Flows for Years Ended
December 31, 1997 and 1996, January 1, 1995 to June 25,
1995 and June 26, 1995 to December 31, 1995.
(v) Selected Financial Data.
2. The following financial statement Schedule as of the period
ended December 31, 1997 is included in this Annual Report on
From 10-K.
Schedule III Real Estate and Accumulated Depreciation.
- 18 -
All other Consolidated financial schedules are omitted
because they are inapplicable, not required, or the information
is included elsewhere in the consolidated financial Statements or
the notes thereto.
3. Exhibits
The exhibits required to be filed as part of this Annual
Report on Form 10-K have been included as follows:
3.1(a)* Amended and Restated Articles of Incorporation of the
Registrant.
3.1(b) Articles Supplementary to the Articles of Incorporation
of the Registrant classifying and designating the
series A Junior Participating Cumulative Preferred
Stock. Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 8A filed December 3, 1996.
3.2* Bylaws of the registrant.
4.1 Shareholder Rights Plan; incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8A filed
December 3, 1996.
10.1* Form of Agreement of Limited Partnership of Sovran
Acquisition Limited Partnership.
10.2* Form of Non-competition Agreement between the
Registrant and Charles E. Lannon.
10.3* Form of Non-competition Agreement between the
Registrant and Robert J. Attea.
10.4* Form of Non-competition Agreement between the
Registrant and Kenneth F. Myszka.
10.5* Form of Non-competition Agreement between the
Registrant and David L. Rogers
10.6* Sovran Self Storage, Inc. 1995 Award and Option Plan.
10.7* 1995 Sovran Self Storage, Inc. Directors' Option Plan.
10.8* Sovran Self Storage Incentive Compensation Plan for
Executive Officer.
10.9* Restricted Stock Agreement between the Registrant and
David L. Rogers.
10.10* Form of Supplemental Representations, Warranties and
Indemnification Agreement among the Registrant and
Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka
and David L. Rogers.
10.11* Form of Pledge Agreement among the Registrant and
Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka
and David L. Rogers.
- 19 -
10.12* Form of Indemnification Agreement between the
Registrant and certain Officers and Directors of the
Registrant.
10.13* Form of Subscription Agreement (including Registration
Rights Statement) among the Registrant and subscribers
for 422,171 Common Shares.
10.14* Form of Registration Rights and Lock-Up Agreement among
the Registrant and Robert J. Attea, Charles E. Lannon,
Kenneth F. Myszka and David L. Rogers.
10.15* Form of Facilities Services Agreement between the
Registrant and Williamsville Properties, Inc.
13 1997 Annual Report to Shareholders. (Except for those
portions which are expressly incorporated by reference
to the Annual Report on Form 10-K, this exhibit is
furnished for the information of the Securities and
Exchange Commission and is not deemed to be filed as
part of this Annual Report on Form 10-K).
21 Subsidiary of the Company. The Company's only
subsidiary is Sovran Holdings, Inc.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Report on Form 8-K:
The Company filed a report on Form 8-K dated
October 24, 1997 reporting pursuant to items 5
and 7.
* Incorporated by reference to the same numbered exhibits as
filed in the Company's Registration Statement on Form S-11
(File No. 33-91422) filed June 19, 1995.
- 20 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 27, 1998 By:/s/ David L. Rogers
David L. Rogers,
Chief Financial Officer,
Secretary, Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/Robert J. Attea Chairman of the March 27, 1998
Robert J. Attea Board of Directors,
Chief Executive
Officer and Director
(Principal Executive
Officer)
/s/Kenneth F. Myszka President, Chief March 27, 1998
Kenneth F. Myszka Operating Officer
and Director
/s/David L. Rogers Chief Financial March 27, 1998
David L. Rogers Officer (Principal
Financial and
Accounting Officer)
/s/John Burns Director March 27, 1998
John Burns
/s/Michael A. Elia Director March 27, 1998
Michael A. Elia
/s/Anthony P. Gammie Director March 27, 1998
Anthony P. Gammie
/s/Charles E. Lannon Director March 27, 1998
Charles E. Lannon
- 21 -
Sovran Self Storage, Inc. Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 1997
Cost
Capitalized
Initial Subsequent to Gross Amount at Which
Cost to Company Acquisition Carried at Close of Period
Building, Building, Building
Equipment Equipment Equipment
and and Land and Accumulated
Description ST Land Improvements Improvements Land Improvements Total Depreciation Acquired
_________________________________________________________________________________________________________________________________
Charleston I SC 416 1,516 12 416 1,528 1,944 102 6/26/95
Lakeland I FL 397 1,424 33 397 1,457 1,854 96 6/26/95
Charlotte NC 308 1,102 42 308 1,144 1,452 71 6/26/95
Tallahassee I FL 770 2,734 222 770 2,956 3,726 180 6/26/95
Youngstown OH 239 1,110 69 239 1,179 1,418 73 6/26/95
Cleveland-Metro I OH 179 836 144 179 980 1,159 57 6/26/95
Cleveland-Metro II OH 701 1,659 8 701 1,667 2,368 107 6/26/95
Tallahassee II FL 204 734 31 204 765 969 48 6/26/95
Pt. St. Lucie FL 395 1,501 97 395 1,598 1,993 114 6/26/95
Deltona FL 483 1,752 157 483 1,909 2,392 119 6/26/95
Middletown NY 224 808 38 224 846 1,070 55 6/26/95
Buffalo I NY 423 1,531 435 497 1,892 2,389 104 6/26/95
Rochester I NY 395 1,404 17 395 1,421 1,816 89 6/26/95
Salisbury MD 164 760 63 164 823 987 52 6/26/95
New Bedford MA 367 1,325 31 367 1,356 1,723 86 6/26/95
Fayetteville NC 853 3,057 59 853 3,116 3,969 197 6/26/95
Allentown PA 199 921 65 203 982 1,185 63 6/26/95
Jacksonville I FL 152 728 64 152 792 944 53 6/26/95
Columbia I SC 268 1,248 5 268 1,253 1,521 83 6/26/95
Rochester II NY 230 847 87 234 930 1,164 60 6/26/95
Savannah I GA 463 1,684 58 463 1,742 2,205 112 6/26/95
Greensboro NC 444 1,613 30 444 1,643 2,087 107 6/26/95
Raleigh I NC 649 2,329 75 649 2,404 3,053 152 6/26/95
New Haven CT 387 1,402 14 387 1,416 1,803 92 6/26/95
Atlanta-Metro I GA 844 2,021 58 844 2,079 2,923 133 6/26/95
Atlanta-Metro II GA 302 1,103 9 303 1,111 1,414 74 6/26/95
- 22 -
Buffalo II NY 315 745 110 315 855 1,170 50 6/26/95
Raleigh II NC 321 1,150 15 321 1,165 1,486 74 6/26/95
Columbia II SC 361 1,331 42 374 1,360 1,734 91 6/26/95
Columbia III SC 189 719 26 189 745 934 52 6/26/95
Columbia IV SC 488 1,188 12 488 1,200 1,688 79 6/26/95
Atlanta-Metro III GA 430 1,579 18 430 1,597 2,027 106 6/26/95
Orlando I FL 513 1,930 75 513 2,005 2,518 137 6/26/95
Spartanburg SC 331 1,209 25 331 1,234 1,565 82 6/26/95
Sharon PA 194 912 37 194 949 1,143 64 6/26/95
Ft. Lauderdale FL 1,503 3,619 105 1,503 3,724 5,227 248 6/26/95
West Palm I FL 398 1,035 40 398 1,075 1,473 80 6/26/95
Atlanta-Metro IV GA 423 1,015 10 423 1,025 1,448 68 6/26/95
Atlanta-Metro V GA 483 1,166 35 483 1,201 1,684 77 6/26/95
Atlanta-Metro VI GA 308 1,116 31 308 1,147 1,455 76 6/26/95
Atlanta-Metro VII GA 170 786 49 170 835 1,005 54 6/26/95
Atlanta-Metro VIII GA 413 999 22 413 1,021 1,434 68 6/26/95
Baltimore I MD 154 555 38 154 593 747 40 6/26/95
Baltimore II MD 479 1,742 85 479 1,827 2,306 119 6/26/95
Augusta I GA 357 1,296 77 357 1,373 1,730 87 6/26/95
Macon I GA 231 1,081 7 231 1,088 1,319 72 6/26/95
Melbourne I FL 883 2,104 33 883 2,137 3,020 144 6/26/95
Newport News VA 316 1,471 13 316 1,484 1,800 98 6/26/95
Pensacola I FL 632 2,962 96 632 3,058 3,690 199 6/26/95
Augusta II GA 315 1,139 71 315 1,210 1,525 73 6/26/95
Hartford-Metro I CT 715 1,695 25 715 1,720 2,435 113 6/26/95
Atlanta-Metro IX GA 304 1,118 49 304 1,167 1,471 77 6/26/95
Alexandria VA 1,375 3,220 46 1,375 3,266 4,641 205 6/26/95
Pensacola II FL 244 901 6 244 907 1,151 63 6/26/95
Melbourne II FL 834 2,066 26 834 2,092 2,926 148 6/26/95
Hartford-Metro II CT 234 861 7 234 868 1,102 59 6/26/95
Atlanta-Metro X GA 256 1,244 4 256 1,248 1,504 85 6/26/95
Norfolk I VA 313 1,462 27 313 1,489 1,802 97 6/26/95
Norfolk II VA 278 1,004 12 278 1,016 1,294 67 6/26/95
Birmingham I AL 307 1,415 33 307 1,448 1,755 92 6/26/95
Birmingham II AL 730 1,725 38 730 1,763 2,493 114 6/26/95
Montgomery I AL 863 2,041 78 863 2,119 2,982 137 6/26/95
Jacksonville II FL 326 1,515 49 326 1,564 1,890 103 6/26/95
Pensacola III FL 369 1,358 42 369 1,400 1,769 90 6/26/95
Pensacola IV FL 244 1,128 32 244 1,160 1,404 75 6/26/95
Pensacola V FL 226 1,046 32 226 1,078 1,304 70 6/26/95
Tampa I FL 1,088 2,597 42 1,088 2,639 3,727 175 6/26/95
- 23 -
Tampa II FL 526 1,958 58 526 2,016 2,542 140 6/26/95
Tampa III FL 672 2,439 32 672 2,471 3,143 164 6/26/95
Jackson I MS 343 1,580 26 343 1,606 1,949 102 6/26/95
Jackson II MS 209 964 22 209 986 1,195 64 6/26/95
Richmond VA 443 1,602 51 443 1,653 2,096 101 8/25/95
Orlando II FL 1,161 2,755 64 1,162 2,818 3,980 162 9/29/95
Birmingham III AL 424 1,506 47 424 1,553 1,977 76 1/16/96
Macon II GA 431 1,567 19 431 1,586 2,017 87 12/1/95
Harrisburg I PA 360 1,641 62 360 1,703 2,063 87 12/29/95
Harrisburg II PA 627 2,224 25 627 2,249 2,876 115 12/29/95
Syracuse I NY 470 1,712 40 472 1,750 2,222 93 12/27/95
Ft. Myers FL 205 912 26 206 937 1,143 70 12/28/95
Ft. Myers II FL 412 1,703 36 413 1,738 2,151 113 12/28/95
Newport News II VA 442 1,592 27 442 1,619 2,061 84 1/5/96
Montgomery II AL 353 1,299 48 353 1,347 1,700 72 1/23/96
Charleston II SC 237 858 63 237 921 1,158 45 3/1/96
Tampa IV FL 766 1,800 50 766 1,850 2,616 83 3/28/96
Arlington I TX 442 1,767 21 442 1,788 2,230 80 3/29/96
Arlington II TX 408 1,662 27 408 1,689 2,097 77 3/29/96
Ft. Worth TX 328 1,324 35 328 1,359 1,687 61 3/29/96
San Antonio I TX 436 1,759 27 436 1,786 2,222 80 3/29/96
San Antonio II TX 289 1,161 24 289 1,185 1,474 53 3/29/96
Syracuse II NY 481 1,559 300 496 1,844 2,340 70 6/5/96
Montgomery III AL 279 1,014 21 279 1,035 1,314 44 5/21/96
West Palm II FL 345 1,262 47 345 1,309 1,654 57 5/29/96
Ft. Myers III FL 229 884 37 229 921 1,150 40 5/29/96
Pittsburgh PA 545 1,940 18 545 1,958 2,503 76 6/19/96
Lakeland II FL 359 1,287 57 359 1,344 1,703 52 6/26/96
Springfield MA 251 917 174 300 1,042 1,342 41 6/28/96
Ft. Myers IV FL 344 1,254 83 344 1,337 1,681 54 6/28/96
Cincinnati OH 557 1,988 17 557 2,005 2,562 73 7/23/96
Dayton OH 667 2,379 15 667 2,394 3,061 87 7/23/96
Baltimore III MD 777 2,770 36 777 2,806 3,583 102 7/26/96
Jacksonville III FL 568 2,028 229 568 2,257 2,825 76 8/23/96
Jacksonville IV FL 436 1,635 32 436 1,667 2,103 64 8/26/96
Pittsburgh II PA 627 2,257 79 632 2,331 2,963 79 8/28/96
Jacksonville V FL 535 2,033 19 538 2,049 2,587 78 8/30/96
Charlotte II NC 487 1,754 16 487 1,770 2,257 58 9/16/96
Charlotte III NC 315 1,131 12 315 1,143 1,458 38 9/16/96
Orlando III FL 314 1,113 88 314 1,201 1,515 35 10/30/96
Rochester III NY 704 2,496 18 708 2,510 3,218 63 12/20/96
- 24 -
Youngstown II OH 600 2,142 25 600 2,167 2,767 55 1/10/97
Akron OH 413 1,478 12 413 1,490 1,903 38 1/10/97
Cleveland III OH 751 2,676 204 751 2,880 3,631 70 1/10/97
Cleveland IV OH 725 2,586 179 725 2,765 3,490 68 1/10/97
Cleveland V OH 637 2,918 324 637 3,242 3,879 78 1/10/97
Cleveland VI OH 495 1,781 227 495 2,008 2,503 48 1/10/97
Cleveland VII OH 761 2,714 171 761 2,885 3,646 71 1/10/97
Cleveland VIII OH 418 1,921 193 418 2,114 2,532 51 1/10/97
Cleveland IX OH 606 2,164 43 606 2,207 2,813 56 1/10/97
Grand Rapids I MI 455 1,631 14 455 1,645 2,100 38 1/17/97
Grand Rapids II MI 219 790 34 219 824 1,043 19 1/17/97
Kalamazoo MI 516 1,845 65 516 1,910 2,426 44 1/17/97
Lansing MI 327 1,332 5 327 1,337 1,664 31 1/17/97
Holland MI 451 1,830 99 451 1,929 2,380 45 1/17/97
San Antonio III TX 474 1,686 87 474 1,773 2,247 40 1/30/97
Universal TX 346 1,236 38 346 1,274 1,620 29 1/30/97
San Antonio IV TX 432 1,560 30 432 1,590 2,022 38 1/30/97
Houston-Eastex TX 634 2,565 4 634 2,569 3,203 50 3/26/97
Houston-Nederland TX 566 2,279 4 566 2,283 2,849 44 3/26/97
Houston-College TX 293 1,357 4 293 1,361 1,654 27 3/26/97
Lynchburg-Lakeside VA 335 1,342 30 335 1,372 1,707 26 3/31/97
Lynchburg -
Timberlake VA 328 1,315 10 328 1,325 1,653 25 3/31/97
Lynchburg-Amherst VA 155 710 16 155 726 881 14 3/31/97
Christiansburg VA 245 1,120 9 245 1,129 1,374 21 3/31/97
Chesapeake VA 260 1,043 33 260 1,076 1,336 20 3/31/97
Danville VA 326 1,488 14 326 1,502 1,828 28 3/31/97
Orlando-W 25th St FL 289 1,160 33 289 1,193 1,482 23 3/31/97
Delray I-Mini FL 491 1,756 53 491 1,809 2,300 35 4/11/97
Savannah II GA 296 1,196 84 296 1,280 1,576 22 5/8/97
Delray II-Safeway FL 921 3,282 70 921 3,352 4,273 49 5/21/97
Cleveland X-Avon OH 301 1,214 72 301 1,286 1,587 19 6/4/97
Dallas-Skillman TX 960 3,847 37 960 3,884 4,844 49 6/30/97
Dallas-Centennial TX 965 3,864 35 965 3,899 4,864 49 6/30/97
Dallas-Samuell TX 570 2,285 34 570 2,319 2,889 29 6/30/97
Dallas-Hargrove TX 370 1,486 2 370 1,488 1,858 19 6/30/97
Houston-Antoine TX 515 2,074 5 515 2,079 2,594 27 6/30/97
Atlanta-Alpharetta GA 1,033 3,753 22 1,033 3,775 4,808 41 7/24/97
Atlanta-Marietta GA 769 2,788 8 769 2,796 3,565 31 7/24/97
Atlanta-Doraville GA 735 3,429 17 735 3,446 4,181 30 8/21/97
GreensboroHilltop NC 268 1,097 5 268 1,102 1,370 7 9/25/97
- 25 -
GreensboroStgCch NC 89 376 3 89 379 468 3 9/25/97
Baton Rouge-
Airline LA 396 1,831 4 396 1,835 2,231 12 10/9/97
Baton Rouge-
Airline2 LA 282 1,303 1 282 1,304 1,586 3 11/21/97
Harrisburg-
Peiffers PA 635 2,550 5 635 2,555 3,190 5 12/3/97
Corporate Office NY 0 68 282 0 350 350 12 01/1/95
Boston-Metro I MA 363 1,679 76 363 1,755 2,118 113 6/26/95
Boston-Metro II MA 680 1,616 28 680 1,644 2,324 108 6/26/95
E. Providence RI 345 1,268 90 345 1,358 1,703 88 6/26/95
0
____________________ _____ ____________________________________________ ______
71,214 253,311 8,511 71,391 261,645 333,036 11,639
==================== ===== ============================================ ======
- 26 -
December 31, 1997 December 31, 1996 December 31, 1995
Balance at beginning
of period $220,711 $159,461 $ -
Additions during period:
Acquisitions through
foreclosure $ - $ - $ -
Other acquisitions 106,926 58,626 158,698
Improvements, etc. 5,527 2,640 763
Other (describe) - 112,453 - 61,266 - 159,461
________ _______ ________
Deductions during period:
Cost of real
estate sold - - - -
Other (describe) (128) (128) (16) (16) - -
________ _______ ________ _______ ________ ________
Balance at close
of period $333,036 $220,711 $159,461
- 27 -
Exhibit 13
1997 Annual Report to Shareholders
The story of Sovran Self Storage is one where words become actions. It's
characterized by talent, discipline, hard work, inspiration, timing,
marketing, dedication, and strong returns. It's a complex plot
interweaving experience and expertise to assure you, our shareholders, that
our growth is rooted in sound real estate fundamentals and business
practices. It's a story that never ends, with each chapter focused on one
prevailing certainty: continued growth.
"SUCCESS IS NOT A STATUS: IT IS A PROCESS."
-AVERONDA
To Our Shareholders
Continued Growth
That's what it all comes down to at Sovran. Our plan is controlled
growth-at a strong and steady pace- to create long-term profitability.
But like all good stories, ours is one that moves across time and
tense, unraveling the scope of past, and carefully managing the details of
the present to project a strong vision for the future.
That's the Sovran Story. And that's the foundation of this report.
Over the next several pages, we will outline our Company's
accomplishments in 1997: including expansion in both number of stores and
market exposure, a strengthened balance sheet, management centralization,
store improvement programs, vacant land utilization, brand identity
enhancement and expanded investor relations. We also project how these
accomplishments fit into our overall mission for long-term growth.
Take a closer look.
Looking Back
More Stores, More Markets
1997 was a year of many accomplishments at Sovran. And through these
achievements, we have both fostered our overall growth mission and
positioned the company for future profitability. Our key focus has been to
manage growth in a responsible and orchestrated manner. To that end, we
entered four new markets -Houston, Northern Michigan, Central Virginia and
Baton Rouge-typically opening five new stores in each area. We've invested
in properties that exhibit proven performance and excellent potential.
Continuing our commitment to expand presence in existing markets, we
purchased twenty-eight stores in cities where we have enjoyed successful
operations. We acquired nine properties in Cleveland, three in the Fort
Lauderdale area and five in Dallas/Fort Worth to strengthen our presence in
those cities. As a result we have the marketing power and economies of
scale to generate significant returns on these assets.
TEXAS
Arlington
Dallas
Ft. Worth
Houston
San Antonio
Universal
ALABAMA
Birmingham
Montgomery
LOUISIANA
Baton-Rouge
MISSISSIPPI
Jackson
MICHIGAN
Grand Rapids
Holland
Kalamazoo
Lansing
OHIO
Akron
Cincinnati
Cleveland
Dayton
Youngstown
FLORIDA
Delray
Deltona
Lakeland
Ft. Lauderdale
Ft. Myers
Jacksonville
Melbourne
Orlando
Pensacola
Port St. Lucie
Springfield
Tallahassee
Tampa
West Palm Beach
NEW YORK
Buffalo
Middletown
Rochester
Syracuse
CORPORATE
HEADQUARTERS
Williamsville, New York
MASSACHUSETTS
Boston
New Bedford
RHODE ISLAND
Providence
CONNECTICUT
Hartford
New Haven
PENNSYLVANIA
Allentown
Harrisburg
Pittsburgh
Sharon
MARYLAND
Frederick
Gaithersburg
Landover
Salisbury
VIRGINIA
Alexandria
Chesapeake
Christiansburg
Danville
Lynchburg
Newport News
Norfolk
Richmond
NORTH CAROLINA
Charlotte
Fayetteville
Greensboro
Raleigh
SOUTH CAROLINA
Charleston
Columbia
Spartanburg
GEORGIA
Atlanta
Augusta
Macon
Savannah
Distribution of Properties as of December 31, 1997
# PROPERTIES % SQ. FEET % # OF UNITS %
Alabama 6 3.87% 319,930 3.85% 2,437 3.30%
Connecticut 3 1.94 123,925 1.49 992 1.34
Florida 35 22.58 2,098,230 25.28 19,297 26.13
Georgia 19 12.26 1,001,977 12.07 8,431 11.41
Louisiana 2 1.29 116,835 1.41 862 1.17
Massachusetts 4 2.58 157,794 1.90 1,576 2.13
Maryland 4 2.58 173,669 2.09 1,977 2.68
Michigan 5 3.22 287,445 3.46 2,531 3.43
Mississippi 2 1.29 80,675 0.97 652 0.88
North Carolina 9 5.81 385,554 4.65 4,054 5.49
New York 8 5.16 403,341 4.86 3,485 4.72
Ohio 15 9.68 830,658 10.01 6,921 9.37
Pennsylvania 7 4.52 371,736 4.48 3,262 4.42
Rhode Island 1 0.64 37,825 0.46 397 0.54
South Carolina 7 4.52 345,833 4.17 2,780 3.76
Texas 16 10.32 990,817 11.94 9,029 12.22
Virginia 12 7.74 573,539 6.91 5,181 7.01
___________________________________________________________________________
Total 155 100.00 8,299,783 100.00 73,864 100.00
A Strengthened Balance Sheet
More Flexibility Leads to More Growth
In April, 1997, we issued an additional 1,500,000 shares of common
stock. During 1997 we also issued 303,679 Operating Partnership Units in
exchange for properties. These transactions significantly bolstered our
balance sheet, reducing our debt to market capitalization to just 7
percent. This gives us significant and welcomed financial flexibility, and
provides a great base to leverage the Company for strong growth in 1998 and
beyond.
New Marketing Initiatives
Property Management Centralization
To better facilitate our growth, we centralized property supervision
and marketing efforts at the Company's headquarters, and divided the
portfolio into four geographical regions. Each region is under the
direction of a regional vice president, who is assisted by a number of area
managers. We envision that this strategy will make us even more responsive
to our customers, and will continue building the relationships that have
helped shape our business. This will also allow us to maintain our
leadership position while leveraging industry trends and specific market
conditions.
Store Improvement Program
Attracting Customers through Better Curb Appeal
In the fourth quarter of 1997, we kicked off an extensive program to
enhance the curb appeal of approximately fifty of our stores. We also
introduced a new color scheme, improved landscaping, and an amenities
package as part of an overall marketing plan to attract both commercial and
residential customers. To enhance our Uncle Bob's Self Storage brand
identity, we've developed a new logo and sign and will be implementing them
throughout the portfolio. The new design reinforces the friendly,
accessible nature of an Uncle Bob's store, and coordinates well with the
new color scheme selected for our stores.
Expansion and Improvements
Broadening Our Horizons for Growth
Many of our properties include vacant land adjoining our storage
facilities. In 1997, we converted some of these unused assets into
valuable resources. What's more, we've significantly expanded our
facilities in Buffalo, Cleveland and Syracuse, and converted several of our
buildings in Florida, Georgia, North Carolina and Texas to climate control.
These projects generally increase the rent roll of each of the respective
properties, and provide for quality asset growth with minimal cost and
risk.
Investor Relations and Communications
Focusing on the Bigger Picture: You
In the interest of expanding shareholder distribution, our growth is
aligned in a threefold mission. We established a company website
(www.sovranss.com), we are creating a Dividend Reinvestment Program (DRIP)
and have increased our exposure to the investment community.
www.sovranss.com
Looking Ahead
New Goals, Continued Growth
Our vision of the future is strategically aligned for great success:
for our customers, our shareholders, and our entire team. We are never
content to rest with our past success. We will create a future that's
bigger and better. You have our word.
Robert J. Attea
Chairman of the Board and
Chief Executive Officer
Keys for Success in 1998
Prophet for Profits
Acquire fifty-plus properties in existing and new markets.
Expand and enhance a significant portion of our existing
portfolio, uncovering additional value.
Enter into joint venture property development programs
to build and open new stores in high-growth markets.
Continue marketing initiatives via ongoing manager training,
improved curb appeal, and enhanced company image.
Obtain an investment-grade credit rating and utilize
the strength of our balance sheet to
leverage the Company to facilitate strong growth.
Build upon our reputation and strength by issuing
Operating Partnership Units to fund the purchase
of up to 20 percent of new acquisitions.
Utilize the Dividend Reinvestment Program (DRIP)
and Stock Purchase Program when implemented
to raise equity in 1998, as well as attract a
new cache of retail investors to our shareholder base.
SELECTED FINANCIAL DATA
Predecessor(a) Company
_________________________________ __________________________________
For Period For Period At or for At or for
At or for Year Ended from from Year Year
December 31, 1/1/95 to 6/26/95 to Ended Ended
(Dollars in thousands, 1993 1994 6/25/95 12/31/95 12/31/96 12/31/97
except per share data)
__________________________________________________________ __________________________________
Operating Data:
Operating revenues $13,660 $18,530 $9,532 $12,942 $33,597 $49,354
Earnings (losses) (825) 1,836 311 6,744 15,659 23,119
Net income per common
share-basic - - - 0.91 1.88 1.97
Net income per common
share-diluted - - - 0.91 1.87 1.96
Dividends declared per
common share - - - 1.04 2.05 2.12
___________________________________________________________ __________________________________
Balance Sheet Data:
Total Assets $78,918 $82,733 $84,527 $160,437 $235,415 $327,073
Total Debt 61,550 66,340 69,102 5,000 - 36,000
Total Liabilities 64,096 69,014 71,311 10,697 8,131 50,319
___________________________________________________________ __________________________________
Other Data:
Net cash provided by
operating activities $ 1,470 $ 5,428 $2,003 $ 7,188 20,152 $ 31,159
Net cash used in
investing activities (15,217) (6,609) (3,340) (157,965) (59,146) (98,765)
Net cash provided by
financing activities 14,283 1,030 507 151,509 54,949 53,486
Funds from operations
available to common
shareholders (b) - - - 9,904 19,793 29,487
___________________________________________________________ __________________________________
(a) The Company was not formed until April 19, 1995, and has no historical results of operations.
All historical results of operations are those of Sovran Capital, Inc. and the Sovran Partnerships.
(b) Funds from operations ("FFO") means income (loss) before minority interest (computed in
accordance with GAAP) adjusted as follows: (i) plus depreciation of real estate assets and
amortization of intangible assets exclusive of deferred financing costs and (ii) less FFO
attributable to minority interest. FFO is a supplemental performance measure for REITs as defined
by the National Association of Real Estate Investment Trusts, Inc. FFO is presented because analysts
consider FFO to be one measure of the performance of the Company. FFO does not take into
consideration scheduled principal payments on debt, capital improvements and other obligations of
the Company. Accordingly, FFO is not a substitute for the Company's cash flow or net income as a
measure of the Company's liquidity or operating performance or ability to pay dividends.
FINANCIAL INFORMATION
Consolidated Balance Sheets - Sovran Self Storage, Inc.
December 31,
____________________________________________
(Dollars in thousands,
except share data) 1997 1996
Assets
Investment in storage facilities:
Land $ 71,391 $ 49,591
Building and equipment 261,645 171,120
_________________________________________________________________________
333,036 220,711
Less accumulated depreciation (11,639) (5,457)
_________________________________________________________________________
Investments in storage facilities,
net 321,397 215,254
Cash and cash equivalents 2,567 16,687
Accounts receivable 834 482
Prepaid expenses and other assets 2,275 2,992
_________________________________________________________________________
Total Assets $327,073 $235,415
_________________________________________________________________________
Liabilities
Line of credit $36,000 $ -
Accounts payable and accrued
liabilities 2,167 1,197
Deferred revenue 1,994 1,367
Accrued dividends 6,599 5,567
Mortgage payable 3,559 -
_________________________________________________________________________
Total Liabilities $50,319 $8,131
Minority interest 12,843 3,655
_________________________________________________________________________
Shareholders' Equity
Common stock $.01 par value,
100,000,00 shares authorized,
12,221,121 shares issued and
outstanding (10,706,671 at
December 31, 1996) 122 107
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 269,982 227,719
Unearned restricted stock (32) (39)
Dividends in excess of net income (6,161) (4,158)
_________________________________________________________________________
Total shareholder' equity $263,911 $223,629
_________________________________________________________________________
Total liabilities and
shareholders' equity $327,073 $235,415
_________________________________________________________________________
See notes to financial statements.
Sovran Self Storage, Inc. (the Company) and Sovran Capital, Inc. and Sovran
Partnerships (the Predecessors to the Company)
Consolidated Statements of Operations of the Company and Combined
Statements of Operations of the Predecessors
Company Predecessors
___________________________________ ____________
Year Ended Year Ended For Period For Period
Dollars in thousands, December 31, December 31, 6/26/95 to 1/1/95 to
except per share data) 1997 1996 12/31/95 6/25/95
_________________________________________________________________________
Revenues:
Rental income $ 48,584 $ 32,946 $12,557 $9,260
Interest and other income 770 651 385 272
_________________________________________________________________________
Total revenues 49,354 33,597 12,942 9,532
_________________________________________________________________________
Expenses:
Property operations and
maintenance 9,708 6,662 2,533 2,061
Real estate taxes 3,955 2,464 861 708
General and administrative 2,757 2,282 974 1,574
Interest 2,166 1,924 131 3,268
Depreciation and
amortization 7,005 4,583 1,699 1,610
_________________________________________________________________________
Total expenses 25,591 17,915 6,198 9,221
_________________________________________________________________________
Income before minority
interest 23,763 15,682 6,744 311
Minority interest 644 23 - -
_________________________________________________________________________
Net income $ 23,119 $ 15,659 $ 6,744 $ 311
_________________________________________________________________________
Earnings per share -
basic $ 1.97 $ 1.88 $ 0.91 -
_________________________________________________________________________
Earnings per share -
diluted $ 1.96 $ 1.87 $ 0.91 -
_________________________________________________________________________
Dividends declared
per share $ 2.12 $ 2.05 $ 1.04 -
_________________________________________________________________________
(See notes to financial statements.)
Sovran Capital, Inc. and Sovran Partnerships (the Predecessors to the Company)
Combined Statement of Owners' Equity
Common Additional Accumulated Dividend
Stock Common Paid-in Owners' Treasury in Excess of Total
(Dollars in thousands) Shares Stock Capital Equity Stock Net Income Equity
________________________________________________________________________________________________________________
Balance January 1, 1995 400 - - $ 13,794 $(75) - $ 13,719
Cash distributions - - - (1,779) - - (1,779)
Cash contributions - - - 965 - - 965
Net income - - - 311 - - 311
________________________________________________________________________________________________________________
Balance June 25, 1995 400 $ - $ - $ 13,291 $(75) $ - $13,216
________________________________________________________________________________________________________________
Sovran Self Storage Inc. (the Company)
Consolidated Statements of Shareholders' Equity
Common Additional Unearned Dividend
Stock Common Paid in Restricted in Excess of Total
(Dollars in thousands) Shares Stock Capital Stock Net Income Equity
_______________________________________________________________________________________________________________
Balance June 26, 1995 - $ - $ - $ - $ - $ -
Issuance of common stock -
initial public offering 5,890,000 59 124,273 - - 124,332
Issuance of common stock -
private placement 422,171 4 10,128 - - 10,132
Issuance of over-allotment shares 750,000 7 16,035 - - 16,042
Issuance of shares to principal
shareholders in exchange for
their interest in Sovran
Capital, Inc. 480,000 5 291 - - 296
Net Income - - - - 6,744 6,744
Dividends - - - - (7,806) (7,806)
______________________________________________________________________________________________________________
Balance December 31, 1995 7,542,171 $75 $150,727 $ - $(1,062) $149,740
Issuance of common stock 3,162,500 32 76,941 - - 76,973
Issuance of restricted stock 2,000 - 51 (51) - -
Earned portion of restricted stock - - - 12 - 12
Net income - - - - 15,659 15,659
Dividends - - - - (18,755) (18,755)
______________________________________________________________________________________________________________
Balance December 31, 1996 10,706,671 $107 $227,719 $(39) $(4,158) $223,629
Issuance of common stock 1,500,000 15 41,929 - - 41,944
Exercise of stock options 14,250 - 328 - - 328
Issuance of restricted stock 200 - 6 (6) - -
Earned portion of restricted stock - - - 13 - 13
Net income - - - - 23,119 23,119
Dividends - - - - (25,122) (25,122)
______________________________________________________________________________________________________________
Balance December 31, 1997 12,221,121 $122 $269,982 $(32) $(6,161) $263,911
______________________________________________________________________________________________________________
(See notes to financial statements.)
Sovran Self Storage, Inc. (the Company) and Sovran Capital, Inc. and Sovran Partnerships (the
Predecessors to the Company)
Consolidated Statements of Cash Flows of the Company and Combined Statements of Cash Flows of the
Predecessors
Company Predecessors
______________________________________________________ _________________
Year Ended Year Ended For Period For Period
(Dollars in thousands) December 31, 1997 December 31, 1996 6/26/95 to 12/31/95 1/1/95 to 6/25/95
_________________________________________________________________________________ _________________
Operating Activities
Net income $23,119 $15,659 $6,744 $311
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation and
amortization 7,005 4,583 1,699 1,610
Minority interest 644 23 - -
Restricted stock earned 13 12 - -
Changes in assets and
liabilities:
Account receivable (162) (145) (40) (46)
Prepaid expenses and other
assets (283) (182) 37 (849)
Accounts payable and other
liabilities 894 157 (1,225) 891
Deferred revenue (71) 45 (27) 86
_________________________________________________________________________________ ________________
Net cash provided by
operating activities $31,159 $20,152 $7,188 $2,003
_________________________________________________________________________________ ________________
Investing Activities
Additions to storage
facilities (98,970) (57,160) (156,780) (3,478)
Other assets 205 (1,986) (1,185) -
Restricted cash - - - 138
_________________________________________________________________________________ ________________
Net cash used in investing
activities $(98,765) $(59,146) $(157,965) $(3,340)
_________________________________________________________________________________ ________________
Financing Activities
Net proceeds from sale
of common stock 42,273 76,973 150,506 -
Proceeds from (payments
on) line of credit 36,000 (5,000) 5,000 -
Dividends paid (24,090) (16,997) (3,997) -
Minority interest
distributions (697) (27) - -
Proceeds from issuance
of mortgages - - - 2,821
Mortgage principal
payments - - - (1,500)
Capital contributions - - - 965
Cash distributions - - - (1,779)
_________________________________________________________________________________ _________________
Net cash provided by financing
activities $53,486 $54,949 $151,509 $507
_________________________________________________________________________________ _________________
Net (decrease) increase
in cash (14,120) 15,955 732 (830)
Cash at beginning
of period 16,687 732 - 1,045
_________________________________________________________________________________ _________________
Cash at end of period $2,567 $16,687 $732 $215
_________________________________________________________________________________ _________________
Supplemental cash flow
information
Cash paid for interest $2,238 $1,842 $234 $3,268
_________________________________________________________________________________ _________________
(See notes to financial statements.)
Sovran Self Storage, Inc. (the Company) and Sovran Capital, Inc. and Sovran
Partnerships (the Predecessors to the Company)
Consolidated Statements of Cash Flows of the Company and Combined
Statements of Cash Flows of the Predecessors
Supplemental cash-flow information for the years ended December 31, 1997,
and 1996.
(Dollars in thousands)
___________________________________________________________________________
1997 1996
_____________________
Storage facilities acquired through the issuance
of minority interest in the operating partnership $9,240 $3,659
Storage facilities acquired through assumption of
mortgage 3,559 -
Fair value of net liabilities assumed on the
acquisition of storage facilities 4,144 434
___________________________________________________________________________
Dividends declared but unpaid at December 31, 1997,
1996 and 1995 were $6,599, $5,567 and $3,809, respectively.
Supplemental cash-flow information for the period June 26,1995 to
December 31, 1995
(Dollars in thousands)
___________________________________________________________________________
Cash paid for partnership interest $42,865
Cash paid for acquisition properties 45,121
Cash paid to retire partnership mortgages 67,602
Prepayment penalties and closing costs 860
Cash paid for building improvements 332
___________________________________________________________________________
Cash paid for storage facilities per statement of cash flows $156,780
Fair value of net liabilities assumed of the partnerships
and Sovran Capital, Inc. 2,681
___________________________________________________________________________
Investment in storage facilities per financial statements $159,461
___________________________________________________________________________
(See notes to financial statements.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sovran Self Storage, Inc. - December 31, 1997
1. 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 eighty-one (forty-four in 1997,
twenty-nine in 1996 and eight in 1995) self storage properties from
unaffiliated third parties, increasing the total number of self-storage
properties owned at December 31, 1997 to 155 properties, most of which are
in the eastern United States and Texas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Company was formed on April 19, 1995, and
commenced operations effective with the completion of the Offering on June
25, 1995. Accordingly, the Company's results of operations are presented
from June 26, 1995, the date following the completion of the Offering and
the establishment of REIT status, through December 31, 1997.
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 96.5% ownership interest therein as of
December 31, 1997. 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.
The combined statements of operations for the period ended June 25,
1995 reflect the assets, liabilities and results of operations of the
Sovran Capital, Inc. and the Sovran Partnerships (the Predecessors). Such
financial statement has been presented on a combined basis, because the
entities were the subject of the business combination described in Note 1.
All intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents: The Company considers all highly liquid debt
instruments purchased with maturity of three months or less to be cash
equivalents.
Revenue Recognition: Rental income is recorded when earned. Rental income
received prior to the start of the rental period is included in deferred
revenue.
Interest and Other Income: Other income consists primarily of interest
income, sales of storage-related merchandise (locks and packing supplies)
and commissions from truck rentals.
Investment in Storage Facilities: Storage facilities are recorded at cost.
Depreciation is computed using the straight line method over estimated
useful lives of forty years for buildings and improvements, and five to
twenty years for furniture, fixtures and equipment. Expenditures for
significant renovations or improvements which extend the useful life of
assets are capitalized. Repair and maintenance costs are expensed as
incurred.
Prepaid Expenses and Other Assets: Included in prepaid expenses and other
assets are prepaid expenses and intangible assets. The intangible assets at
December 31, 1997, consist primarily of loan acquisition costs of
approximately $1,155, net of accumulated amortization of approximately
$771; organizational costs of approximately $63, net of accumulated
amortization of approximately $29; and covenants not to compete of $785,
net of accumulated amortization of $350. Loan acquisition costs are
amortized over the terms of the related debt; organization costs are
amortized over five years; and the covenants are amortized over the
contract periods. Amortization expense was $794 and $620 for the periods
ended December 31, 1997 and 1996, respectively.
Minority Interest: The minority interest reflects the outside ownership
interest of the limited partners of the operating Partnership. Amounts
allocated to these interests are reflected as an expense in the income
statement and increases the minority interest in the balance sheet.
Distributions to these partners reduce this balance. At December 31, 1997,
minority interest ownership was 443,609 partnership units or 3.5%.
Income Taxes: The Company qualifies as a REIT under the Internal Revenue
Code of 1986, as amended, and will generally not be subject to corporate
income taxes to the extent it distributes at least 95% of its taxable
income to its shareholders and complies with certain other requirements.
Accordingly, no provision has been made for income taxes in the
accompanying financial statements.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." All prior period per share data
has been restated to conform with the provisions of this statement. The
following table sets forth the computation of basic and diluted earnings
per share.
Year Ended Year Ended For Period
(Dollars in thousands, December 31, 1997 December 31, 1996 6/26/95 to 12/31/95
except per share data)
_________________________________________________________________________________________
Numerator:
Net Income $ 23,119 $ 15,659 $ 6,744
_________________________________________________________________________________________
Denominator:
Denominator for basic
earnings per share -
weighted average shares 11,759 8,329 7,430
_________________________________________________________________________________________
Effect of Dilutive Securities:
Stock options 62 35 10
Denominator for diluted
earnings per share -
adjusted weighted - average
shares and assumed
conversion 11,821 8,364 7,440
_________________________________________________________________________________________
Basic Earnings per Share $ 1.97 $ 1.88 $ .91
_________________________________________________________________________________________
Diluted Earnings per Share $ 1.96 $ 1.87 $ .91
_________________________________________________________________________________________
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the years
ended December 31, 1997 and December 31, 1996
(Dollars in Thousands) 1997 1996
___________________________________________________________________________
Cost:
Beginning balance $220,711 $159,461
Property acquisitions 106,926 58,626
Improvements and equipment additions 5,527 2,640
Dispositions (128) (16)
___________________________________________________________________________
Ending balance $333,036 $220,711
___________________________________________________________________________
Accumulated Depreciation:
Beginning balance $5,457 $1,497
Additions during the year 6,211 3,964
Dispositions (29) (4)
___________________________________________________________________________
Ending balance $ 11,639 $5,457
___________________________________________________________________________
5. LINE OF CREDIT
At December 31, 1997, the Company maintained a $75 million revolving-
credit facility of which $36 million was outstanding and secured by
specific storage facilities. At December 31, 1997, the Company had
identified and pledged properties sufficient to provide $75 million of such
borrowings. Interest on outstanding balances is payable monthly at 190
basis points above LIBOR. The commitment fee was $225,000 and there is a
facility fee attached to the line at the following rates: i) .25% if the
unused commitment (UC) is less than $30 million, or ii) .375% if UC is
greater than $30 million. At December 31, 1997, the Company was at the
.375% rate.
On February 20, 1998, the Company entered into a new $150 million
unsecured credit facility which replaces in its entirety the $75 million
revolving credit facility. The new facility matures February 2001 and
provides for funds at LIBOR plus 1.375%, a savings of 52.5 basis points
over the Company's old facility. As a result of the new credit facility, in
1998 the Company will record an extraordinary loss on the extinguishment of
debt of $ 312,000, representing the unamortized financing costs of the
revolving credit facility.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information shows the results of
operations as though the acquisitions of storage facilities in 1997 and
1996, and the common stock offerings in 1997 and 1996 had all occurred as
of the beginning of 1996.
Year ended December 31,
______________________________
(Dollars in thousands, except share data) 1997 1996
_______________________________________________________________________
Total revenues $54,085 $51,455
_______________________________________________________________________
Total expenses (28,789) (27,175)
_______________________________________________________________________
Minority interest (885) (850)
_______________________________________________________________________
Net Income $ 24,411 $23,430
_______________________________________________________________________
Earnings per share - basic $ 2.00 $ 1.92
_______________________________________________________________________
Common shares used in basic earnings
per share calculation 12,221,121 12,221,121
_______________________________________________________________________
Such unaudited pro forma information is based upon the historical
consolidated statements of operations of the Company. It should be read in
conjunction with the financial statements of the Company and the
predecessors and notes thereto. 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.
7. STOCK OPTIONS
The Company continues to account for stock-based compensation using
the measurement prescribed by APB Opinion No. 25 which does not recognize
compensation expense because the exercise price of the stock options equals
the market price of the underlying stock on the date of grant. SFAS 123
requires companies that choose not to adopt the new fair value accounting
rules to disclose pro forma net income and earnings per share under the new
method.
The Company has established the 1995 Award and Option Plan (the Plan)
for the purpose of attracting and retaining the Company's executive
officers and other employees. The options vest ratably over four years, and
must be exercised within ten years from the date of grant. The exercise
price for qualified incentive stock options must be at least equal to the
fair market value at the date of grant. As of December 31, 1997, options
for 306,000 shares had been granted under the Plan. The total options
available under the plan is 400,000.
The Company also established the 1995 Outside Directors' Stock Option
Plan (the Non-employee Plan) for the purpose of attracting and retaining
the services of experienced and knowledgeable outside directors. The Non-
employee Plan provides for the annual granting of options to purchase 2,500
shares of common stock to each eligible director. Such options vest over a
one year period for initial awards and immediately upon subsequent grants.
The total shares reserved under the Non-employee Plan is 50,000. The
exercise price for options granted under the Non-employee Plan is equal to
fair market value at date of grant. As of December 31, 1997, options for
30,000 shares had been granted under the Non-employee Plan.
The Company has also issued 2,200 shares of restricted stock to
employees which vest over a four-year period. The fair value of the
restricted stock on the date of grant ranged from $25.38 to $29.19.
The fair value for these options was $2.30, which was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997: risk-free interest rate of 6%;
dividend yield of 7%, volatility factor of the expected market price of the
Company's common stock of .16.
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information for the year ended December 31, 1997
follows (in thousands, except for earnings per share information).
Pro forma net income $ 22,976
Pro forma earnings per share: Basic $ 1.96
Diluted $ 1.95
The pro forma effect on earnings for the years ended December 31, 1996 and
1995 was immaterial.
A summary of the Company's stock option activity and related information for the years ended
December 31 follows:
1997 1996 1995
________________________________________________________________________________
Weighted average Weighted average Weighted average
Options exercise price Options exercise price Options exercise price
____________________________________________________________________________________________________
Outstanding at
beginning of year: $293,500 $ 23.97 $268,000 $23.00 - $ -
Granted 34,000 29.93 28,000 25.92 274,000 23.00
Exercised (14,250) 23.00 - - - -
Forfeited (18,000) 24.53 (2,500) 23.00 (6,000) 23.00
____________________________________________________________________________________________________
Outstanding at end
of year 295,250 $ 25.36 293,500 $23.97 268,000 $ 23.00
____________________________________________________________________________________________________
Exercisable at end
of year 146,750 $ 25.12 82,000 $23.48 - -
____________________________________________________________________________________________________
Exercise prices for options outstanding as of December 31, 1997 ranged from $23.00 to $30.63. The
weighted average remaining contractual life of those options is 8.07 years.
8. RETIREMENT PLAN
Employees of the Company qualifying under certain age and service
requirements are eligible to be a participant in a 401(K) Plan which was
effective September 1, 1997. The Company contributes to the Plan at the
rate of 50% of the first 4% of gross wages. Total expense to the Company
was approximately $15,000 for the year ended December 31, 1997.
9. SHAREHOLDER RIGHTS PLAN
In November 1996, the Company adopted a Shareholder Rights Plan and
declared a dividend distribution of one Right for each outstanding share of
common stock. Under certain conditions, each Right may be exercised to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $75, subject to adjustment. The
Rights will be exercisable only if a person or group has acquired 10% or
more of the outstanding shares of common stock, or following the
commencement of a tender or exchange offer for 10% or more of such
outstanding shares of common stock. If a person or group acquires more than
10% of the then outstanding shares of common stock, each Right will entitle
its holder to receive, upon exercise, common stock having a value equal to
two times the exercise price of the Right. In addition, if the Company is
acquired in a merger or other business combination transaction, each Right
will entitle its holder to purchase that number of the acquiring Company's
common shares having a market value of twice the Right's exercise price.
The Company will be entitled to redeem the Rights at $.01 per Right at any
time prior to the earlier of the expiration of the Rights in November 2006
or the time that a person has acquired a 10% position. The Rights do not
have voting or dividend rights, and until they become exercisable, have no
dilutive effect on the Company's earnings.
As of December 31, 1997, the Company had entered into contracts for
the purchase of ten facilities. These facilities were acquired in January
and February, 1998 for a total cost of $34,145,000.
10. PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, of
which 250,000 shares have been designated as Series A Junior Participating
Cumulative Preferred Stock with a $.01 par value. Upon issuance, the Series
A Junior Preferred Stock will have certain voting, dividend and liquidation
preferences over common stock, as described in the form 8-K filed December
3, 1996.
11. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the fiscal quarters since the
consummation of the offering on June 26, 1995 (dollars in thousands, except per share data)
1997 Quarter Ended
______________________________________________________
March 31 June 30 Sept. 30 Dec. 31
______________________________________________________
Revenue $10,732 $11,938 $13,320 $13,364
Net Income $ 4,871 $ 6,003 $ 6,359 $ 5,886
Net Income Per Common Share (Note 3):
Basic $ 0.46 $ 0.50 $ 0.52 $ 0.49
Diluted $ 0.46 $ 0.50 $ 0.52 $ 0.48
_____________________________________________________________________________________________
1996 Quarter Ended
______________________________________________________
March 31 June 30 Sept. 30 Dec. 31
______________________________________________________
Revenues $ 6,944 $ 7,960 $ 9,034 $ 9,659
Net Income $ 3,152 $ 3,610 $ 3,644 $ 5,253
Net Income Per Common Share (Note 3):
Basic $ 0.42 $ 0.48 $ 0.48 $ 0.50
Diluted $ 0.42 $ 0.48 $ 0.48 $ 0.49
_____________________________________________________________________________________________
1995 Quarter Ended
______________________________________________________
June 30* Sept. 30 Dec. 31
_______________________________________
Revenues $ 352 $ 6,343 $ 6,247
Net Income $ 164 $ 3,213 $ 3,367
Net Income Per Common Share (Note 3):
Basic and Diluted $ 0.02 $ 0.44 $ 0.45
____________________________________________________________________________________________
(*) Includes results for the period June 26, 1995 (Formation) to June 30, 1995.
12. 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 December 31, 1997, the Company had entered into contracts for
the purchase of ten facilities. These facilities were acquired in January
and February, 1998 for a total cost of $34,145,000.
13. 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. 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, breach of duty of good
faith, fraud and deceit, 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 $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 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.
14. INTERNAL PROPERTY ACQUISITION COSTS
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 such costs capitalized in 1997 and 1996 were
$728,000 and $755,000, respectively.
Report of Independent Auditors
The Board of Directors and Shareholders
Sovran Self Storage, Inc.:
We have audited the accompanying consolidated balance sheets of Sovran
Self Storage, Inc. as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows
for the years ended December 31, 1997 and 1996 and the period from June 26,
1995 to December 31, 1995. We have also audited the combined statements of
operations, owners' equity and cash flows of Sovran Capital, Inc. and
Sovran Partnerships for the period from January 1, 1995 to June 25, 1995.
These financial statements are the responsibility of the management of
Sovran Self Storage, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Sovran Self Storage, Inc. as of December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for the years
ended December 31, 1997 and 1996 and the period from June 25, 1995 through
December 31, 1995, and the combined results of operations and cash flows of
Sovran Capital, Inc. and Sovran Partnerships from January 1, 1995 to June
25, 1995 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Buffalo, New York
January 29, 1998, except for Notes 5 & 14 for which
the date is March 24, 1998
MANAGEMENT DISCUSSION AND ANALYSIS FOR FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
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 following discussion is based on the financial statements of the
Company as of December 31, 1997, December 31, 1996, December 31, 1995, and
for the period from June 26, 1995 (commencement of operations) to December
31, 1995; and the combined statements of Sovran Capital, Inc. and the
Sovran Partnerships for the period from January 1, 1995 to June 25, 1995.
Sovran Capital, Inc. and the Sovran Partnerships are considered the
predecessor entity to the Company, and the combined financial statements
are presented for comparative purposes.
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.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 compared to Year Ended December 31, 1996
Rental revenues improved from $32.9 million for the year ended
December 31, 1996 to $48.6 million for the year ended December 31, 1997, an
increase of $15.7 million, or 48%. Of this, $10.4 million resulted from the
acquisition of forty-four properties during 1997, $4.3 million resulted
from having the 1996 acquisitions included for a full year of operations,
and $1 million resulted from increased revenues at the eighty-two core
properties considered in same store sales. For this core group, revenues
increased 3.5%, primarily as the result of rental rate increases, as
average occupancy was unchanged from 1996's level of 87.8%. Interest and
other income increased just slightly to $0.8 million in 1997.
Property operating and real estate tax expense increased $4.5 million
or 49% during the period. Of this, $3.1 million was incurred by the
facilities acquired in 1997, $1.3 million resulted from the having the 1996
acquisitions included for a full year of operations, and $0.1 million
additional cost was incurred in the operation of the eighty-two core
properties.
General and administrative expenses increased $0.5 million, primarily
as a result of increased supervisory and accounting costs associated with
the operation of an increased number of properties.
Interest expense of $2.2 million in 1997 resulted primarily from
borrowings on the Company's line of credit facility (a mortgage loan
assumed in an acquisition transaction required interest payments of $0.2
million). The Company had borrowings outstanding of $42 million before
paying off the balance with the proceeds of a common stock offering in
April 1997. The credit facility was then utilized throughout the balance of
the year to fund further acquisitions, so that by the end of the year, the
amount outstanding on the line was $36 million.
Depreciation and amortization expense increased to $7 million from
$4.6 million, primarily as a result of the additional depreciation taken on
the $112 million of real estate assets acquired in 1997 and a full year of
depreciation on 1996 acquisitions.
Earnings before interest, depreciation and amortization, and minority
interest increased $10.7 million or 48%, in 1997 as a result of the
aforementioned items.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Rental revenues improved from $21.8 million for the year ended
December 31, 1995 to $32.9 million for the year ended December 31, 1996, an
increase of $11.1 million, or 51%. Of this, $5.1 million resulted from the
acquisition of twenty-nine properties during 1996, $ 4.9 million resulted
from having 1995 acquisitions included for a full year of operations, and
$1.1 million resulted from increased occupancy levels and rental rates.
Interest and other income remained unchanged at approximately $0.7 million.
Property operating and real estate tax expense increased $3 million or
48% during the period. Of this, $1.5 million was incurred by the facilities
acquired in 1996, $1.4 million resulted from having the 1995 acquisitions
included for a full year of operations, and $0.1 million of additional cost
was incurred in the operation of the sixty facilities owned by the Company
since January 1, 1995.
General and administrative expenses decreased $0.3 million, primarily
as a result of non-recurring legal, accounting and other professional fees
associated with the winding up of partnership activities and the merger and
formation transactions.
Interest expenses of $1.9 million in 1996 resulted exclusively from
borrowings on the Company's line of credit facility. The Company has
borrowings outstanding of $59.3 million before paying off the balance with
the proceeds of a common stock offering in October 1996. Interest expenses
in 1995 was $3.4 million, or $1.5 million higher than in 1996. This was
primarily due to the fact that until the Initial Public Offering in June
1995, the Predecessors had incurred substantial mortgage debt as a means to
finance its acquisitions, and paid approximately $3.3 million to cary that
debt through June 1995. Upon completion of the Initial Public Offering,
this mortgage debt was paid in full, and there was only a line of credit
borrowing of $5 million outstanding at the end of 1995.
Depreciation and amortization expense increased to $4.6 million from
$3.3 million, primarily as a result of the additional depreciation taken on
the $60 million or real estate assets acquired in 1996.
Earnings before interest, depreciation, amortization and minority
interest increased $8.4 million or 61% in 1996 as a result of the
aforementioned items.
Pro Forma Year Ended December 31, 1997 compared to Pro Forma Year Ended
December 31, 1996
The following unaudited pro forma information shows the results of
operations as though the acquisitions of storage facilities in 1997 and
1996, and the common stock offerings in 1997 and 1996 had all occurred as
of the beginning of 1996.
Year Ended December 31,
(Dollars in thousands) 1997 1996
____________________________________________________________________
Revenues:
Rental income $53,264 $50,663
Interest and other income 821 792
____________________________________________________________________
Total revenues 54,085 51,455
____________________________________________________________________
Expenses:
Property operations and
maintenance 10,728 9,918
Real estate taxes 4,352 3,688
General and administrative 2,800 2,660
Interest 3,167 3,167
Depreciation and amortization 7,742 7,742
____________________________________________________________________
Total expenses 28,789 27,175
____________________________________________________________________
Income before minority interest 25,296 24,280
____________________________________________________________________
Minority interest (885) (850)
____________________________________________________________________
Net income $ 24,411 $ 23,430
____________________________________________________________________
Rental revenue of $53.3 million in 1997 was increased by 5.1% over
1996's revenues of $50.7 million, primarily as a result of rate increases
at the 73 properties acquired in 1997 and 1996, and a 4% increase in
average occupancy of the new properties.
Operating expenses and real estate taxes in 1997 were $15.1 million,
as compared to $13.6 million in 1996, an increase of 11%. While cost
efficiencies were enjoyed regarding insurance and yellow-page advertising,
these savings were offset by the Company's paying higher wages to attract
professional managers, and start-up costs relating to the acquisition of
the 73 properties. Despite the increase in expenses, operating margins
improved from 71.7% to 72.0% in 1997.
General and administrative costs were determined by the Company's
historical costs incurred in the management of 155 properties, and
operating as a publicly owned REIT.
Interest expense in both years was determined by applying the year-end
rate and the applicable non-usage fee associated with the Company's $75
million credit facility.
Such unaudited pro forma information is based upon the historical
consolidated statements of operations of the Company. It should be read in
conjunction with the financial statements of the Company and the
predecessors and notes thereto. 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.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources and Establishment of Line of Credit
The Company has relied principally on equity capital since inception
and has raised net proceeds of $269 million from its initial public
offering on June 25, 1995, and additional offerings in 1996 and 1997. The
Company used the proceeds of the offerings to repay indebtedness, to
purchase additional properties, and to acquire limited partners' interest
in the Sovran Partnerships.
The equity offerings have been supplemented with borrowings on the
Company's $75 million line of credit which was replaced on February 20,
1998, by a three-year, $150 million unsecured line. The commitment fee on
the new line was $750,000, and interest is payable monthly at 137.5 basis
points above LIBOR, with a provision for reduction should the Company
attain an investment-grade rating. This will reduce the Company's borrowing
costs from what it would have been under the old agreement.
In addition to the equity and debt capital, the Company issued $3.6
million and $9.2 million of Operating Partnership Units in 1996 and 1997,
respectively, in exchange for self storage facilities at the request of
sellers.
As a result of its limited use of debt and the replacement of the
secured credit facility with the unsecured line of credit, 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 1998 growth.
Acquisition of Properties
Since the Initial Offering, the Company used the balance of the
proceeds from the underwriter's over-allotment option, the follow-on public
offerings, issuance of Operating Partnership Units and borrowings pursuant
to the line of credit to acquire properties from unaffiliated storage
operators in Virginia, Florida, Georgia, New York, Pennsylvania, Texas,
Alabama, Maryland, Massachusetts, Michigan, Ohio and Louisiana. In 1995,
following the Initial Public Offering, the Company added 8 facilities and
550,000 square feet of storage space to its portfolio. In 1996, twenty-nine
facilities comprising 1,490,000 square feet, and in 1997, forty-four
facilities totaling 2.5 million square feet were acquired. At December 31,
1997, a total of 155 facilities and 8,300,000 square feet of net rentable
storage space was owned and operated by the Company.
Internal Property Acquistion Costs
As a result of a recent consensus reached by the Financial Accounting
Standards Board Emerging Issues Task Force, the Company will no longer
capitalize internal costs related to the acquisition of operating
properties. The amount of such costs capitalized in 1997 and 1996 were
$728,000 and $755,000, respectively.
Future Acquisition and Development Plans
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 operations, or to expand in new markets by acquiring several
facilities at once in those new markets.
Since the Initial Public Offering, the Company has increased its
presence in the Boston, Washington, Cleveland, Atlanta, Norfolk, Charlotte,
Greensboro, Orlando, Jacksonville, Pensacola, Orlando and Ft.
Lauderdale/Palm Beach markets. Properties acquired in these cities were
added to improve the Company's presence and enhance visibility of its
operations. Economies of scale are enjoyed via this strategy, as yellow-
page costs, maintenance expenses and relief payroll costs can be shared
among numerous facilities.
The Company has also entered new markets with great impact. Sixteen
stores were acquired in Texas, giving us a strong presence in San Antonio,
Dallas and Houston. Six properties were acquired in Tampa, five in Northern
Michigan, four each in Ft. Myers and St. Petersburg, three each in
Birmingham and Montgomery, and two each in Newport News, Pittsburgh, Baton
Rouge, Syracuse and Jackson.
At December 31, 1997, the Company had contracts to acquire additional
properties in Norfolk, Newport News, Boston, Greensboro, and St.
Petersburg.
The Company will continue to aggressively pursue the acquisition of
quality self-storage properties in markets where it already operates, and
in strategic new markets where a substantial property base can be quickly
established.
The Company also intends to expand and enhance 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.
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. The first
distribution of 1998 may be applied toward the Company's 1997 distribution
requirement.
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
1997, the Company's percentage of revenue from such sources exceeded 97%,
thereby passing the 95% test, and no special measures are expected to be
required to enable the Company to maintain its REIT designation.
INFLATION
The Company does not believe that inflation has had or will have a
direct 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 quarter, 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 geographic 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.
IMPACT OF YEAR 2000
Based on a preliminary assessment and limited testing, the Company
believes it has made all changes to its software so that its computer
system will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with these modifications,
the Year 2000 issue will not pose significant operational problems for its
computer systems.
The Company has initiated formal communications with third parties to
determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues.
The Company anticipates completing the Year 2000 project in 1998,
which is prior to any expected impact on its operating system. The
Company's total Year 2000 project costs, which are expected to be
immaterial, and the anticipated time frame, are based on presently
available information. These estimates were derived utilizing numerous
assumptions of future events, including the availability of certain
resources, third-party modification plans and other factors. However, there
can be no guarantee that the estimated time of completion will be achieved
and actual results could differ materially from those anticipated.
OFFICERS DIRECTORS
ROBERT J. ATTEA
(also Director)
Chairman of the Board and
Chief Executive Officer
KENNETH F. MYSZKA
(also Director)
President and
Chief Operating Officer
DAVID L. ROGERS
Chief Financial Officer
JOHN BURNS, CPA
President
Sterling, Ltd., Co.
MICHAEL A. ELIA
President and
Chief Executive Officer
Sevenson Environmental
Services, Inc.
ANTHONY GAMMIE
Chairman of the Board
Bowater Incorporated
(retired)
CHARLES E. LANNON
President
Strategic Capital, LLC.
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
5166 Main Street
Williamsville, New York 14221
716-633-1850
REGISTRAR AND TRANSFER AGENT
American Stock Transfer
& Trust Company
40 Wall Street
New York, New York 10005
718-921-8200
ANNUAL MEETING
May 12, 1998
1285 Avenue of the Americas
New York, New York
11:00 a.m. (e.d.t.)
SOVRAN'S WEBSITE
http://www.sovranss.com
FORM 10-K REPORT
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Securities Exchange Commission, will be
furnished to shareholders without charge upon written request.
Please contact Christine M. Aguglia, 716-633-1850
INVESTOR RELATIONS
For more information or to receive Sovran's quarterly reports, please
contact Joan M. Light, 716-633-1850
INDEPENDENT AUDITORS
Ernst & Young LLP
1400 Key Tower
50 Fountain Plaza
Buffalo, New York 14202
716-843-5000
STOCK INFORMATION
Exchange: New York Stock Exchange
Listing Symbol: SSS
Average Daily Trading Volume: 29,616
The following table sets forth the high and low sales prices of the Common
Stock on the New York Stock Exchange composite tapes for the period from
June 26, 1995 (formation) to December 31, 1997.
Range
Quarter High Low
_________________________________________________________________________
1995
_________________________________________________________________________
2nd 23 23
3rd 25.75 22.38
4th 26.75 23.13
_________________________________________________________________________
1996
_________________________________________________________________________
1st 27.5 25
2nd 27.125 24.625
3rd 27 24.625
4th 31.25 25.625
_________________________________________________________________________
1997
_________________________________________________________________________
1st 32 29.375
2nd 30.875 28
3rd 31.75 28.625
4th 32.4375 28.6875
_________________________________________________________________________
As of December 31, 1997 there were approximately 388 shareholders of record
of the common stock.
WRITING & DESIGN
The Wolf Group, Buffalo, NY
PRINTING
Boncraft, Buffalo, NY
Exhibit 23
Consent and Report of Independent Auditors
Board of Directors
Sovran Self Storage, Inc.
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Sovran Self Storage, Inc. of our report dated January 29,
1998, included in the 1997 Annual Report to Shareholders of Sovran Self
Storage, Inc.
Our audits also included the financial statement schedule of Sovran Self
Storage, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the financial information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-21679) pertaining to the 1995 Award and Option
Plan and the 1995 Directors' Stock Option Plan of Sovran Self Storage, Inc.
of our reports dated January 29, 1998, with respect to the consolidated
financial statements incorporated herein by reference, and our report
included in the preceding paragraph with respect to the financial statement
schedule included in this Annual Report (Form 10-K) of Sovran Self Storage,
Inc.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-08883) of Sovran Self Storage, Inc. and in the
related Prospectus of our reports dated February 6, 1997, with respect to
the consolidated financial statements incorporated herein by reference, and
our report included in this Annual Report (Form 10-K) of Sovran Self
Storage, Inc.
ERNST & YOUNG LLP
Buffalo, New York
March 26, 1998