FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number: 1-13820
Sovran Self Storage, Inc.
(Exact name of Registrant as specified in its charter)
Maryland 16-1194043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5166 Main Street
Williamsville, NY 14221
(Address of principal executive offices) (Zip code)
(716) 633-1850
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, $.01 par value per share. 12,272,963
Part I. Financial Information
Item 1. Financial Statements
SOVRAN SELF STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(dollars in thousands, except share data) 1998 1997
(unaudited)
- ------------------------------------------------------------------------------
Assets
Investment in storage facilities:
Land $ 100,801 $ 71,391
Building and equipment 388,800 261,645
------------ ------------
489,601 333,036
Less: accumulated depreciation (18,559) (11,639)
------------ ------------
Investments in storage facilities, net 471,042 321,397
Cash and cash equivalents 6,112 2,567
Accounts receivable 1,302 834
Prepaid expenses and other assets 3,135 2,275
------------ ------------
Total Assets $ 481,591 $ 327,073
============ =============
Liabilities
Line of credit and term note $ 176,500 $ 36,000
Accounts payable and accrued liabilities 5,123 2,167
Deferred revenue 2,882 1,994
Accrued dividends 6,873 6,599
Mortgage payable 3,059 3,559
------------ ------------
Total Liabilities 194,437 50,319
Minority interest 24,108 12,843
Shareholders' Equity
Common stock $.01 par value, 100,000,000
shares authorized, 12,272,963 shares
Issued (12,221,121 at December 31, 1997 123 122
Preferred stock, 10,000,000 shares
authorized, none issued and outstanding,
250,000 shares designated as Series A
Junior Participating Preferred Stock,
$.01 par value - -
Additional paid-in capital 273,797 269,982
Unearned restricted stock (450) (32)
Dividends in excess of net income (8,434) (6,161)
Treasury stock at cost, 75,700 shares (1,990) -
------------ ------------
Total Shareholders' Equity 263,046 263,911
------------ ------------
Total Liabilities and Shareholders' Equity $ 481,591 $ 327,073
============ ============
See notes to financial statements.
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
July 1, 1998 July 1, 1997
(dollars in thousands, to to
except share data) September 30, September 30,
1998 1997
- --------------------------------------------------------------------------------
Revenues:
Rental income $ 18,876 $ 13,161
Interest and other income 231 159
----------- -----------
Total revenues 19,107 13,320
Expenses:
Property operations and maintenance 3,905 2,571
Real estate taxes 1,481 1,056
General and administrative 1,173 697
Interest 3,080 592
Depreciation and amortization 2,830 1,845
----------- -----------
Total expenses 12,469 6,761
----------- -----------
Income before minority interest 6,638 6,559
Minority interest (438) (200)
----------- -----------
Net Income $ 6,200 $ 6,359
=========== ===========
Earnings per share - basic $ 0.51 $ 0.52
=========== ===========
Earnings per share - diluted $ 0.50 $ 0.52
=========== ===========
Common shares used in basic
earnings per-share calculation 12,273,535 12,220,921
Dividends declared per share $ 0.56 $ 0.54
=========== ===========
See notes to financial statements.
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
January 1, 1998 January 1, 1997
(dollars in thousands, to to
except share data) September 30, 1998 September 30, 1997
- --------------------------------------------------------------------------------
Revenues:
Rental income $ 35,464 $ 49,223
Interest and other income 701 527
----------- -----------
Total revenues 49,924 35,991
Expenses:
Property operations and maintenance 9,888 6,979
Real estate taxes 3,979 2,832
General and admintrative 3,120 2,027
Interest 6,448 1,410
Depreciation and amortization 7,377 5,061
----------- -----------
Total expenses 30,812 18,309
----------- -----------
Income before minority
interest and extraordinary item 19,112 17,682
Minority interest (862) (450)
----------- -----------
Income before extraordinary item 18,250 17,232
Extraordinary loss on
extinguishment of debt (350) -
----------- -----------
Net Income $ 17,232 $ 17,900
=========== ===========
Earnings per share before
extraordinary item - basic $ 1.48 $ 1.49
Extraordinary item (0.02) -
----------- -----------
Earnings per share - basic $ 1.46 $ 1.49
=========== ===========
Earnings per share - diluted $ 1.45 $ 1.48
=========== ===========
Common shares used in basic
earnings per-share calculation 12,297,622 11,602,877
Dividends declared per share $ 1.64 $ 1.58
=========== ===========
See notes to financial statements.
SOVRAN SELF STORAGE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
January 1, 1998 January 1, 1997
to to
(dollars in thousands) September 30, 1998 September 30, 1997
-------------------------------------------------
Operating Activities
Net income $ 17,900 $ 17,232
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss 350 -
Depreciation and amortization 7,377 5,061
Minority interest 862 450
Restricted stock earned 5 10
Changes in assets and liabilities:
Accounts receivable (409) (289)
Prepaid expenses and other assets (659) 17
Accounts payable and other liabilities 2,695 3,325
Deferred revenue 67 693
----------- -----------
Net cash provided by operating activities 28,188 26,499
----------- -----------
Investing Activities
Additions to storage facilities (140,924) (92,386)
Additions to other assets (866) (10)
----------- -----------
Net cash used in investing activities (141,790) (92,396)
----------- -----------
Financing Activities
Net proceeds from sale of common stock - 42,340
Proceeds from line of credit draw down 140,500 28,000
Dividends paid (19,899) (18,522)
Purchase of treasury stock (1,990) -
Minority interest distributions (964) (477)
Mortgage principal payments (500) -
----------- -----------
Net cash provided by financing activities 117,147 51,341
----------- -----------
Net increase (decrease) in cash 3,545 (14,556)
Cash at beginning of period 2,567 16,687
----------- -----------
Cash at end of period $ 6,112 $ 2,131
=========== ===========
Supplemental cash flow information
Cash paid for interest $ 5,940 $ 1,410
See notes to financial statements.
SOVRAN SELF STORAGE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Supplemental cash flow information for the nine months
ended September 30, 1998
(dollars in thousands)
- -------------------------------------------------------------------------------
Storage facilities acquired through the issuance of minority
interest in the operating partnership and common stock $ 14,703
Fair value of net liabilities assumed on the acquisition
of storage facilities $ 1,208
- -------------------------------------------------------------------------------
Dividends declared but unpaid were $6,873 at September 30, 1998 and $6,599 at
December 31, 1997
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements of Sovran Self Storage,
Inc. (the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine month periods ended September 30, 1998 and September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
2. Organization
Sovran Self Storage, Inc. (the "Company"), a self-administered and
self-managed real estate investment trust (a REIT), was formed on April 19, 1995
to own and operate self-storage facilities throughout the United States. On June
26, 1995, the Company commenced operations effective with the completion of its
initial public offering of 5,890,000 shares (the Offering). Contemporaneously
with the closing of the Offering, Sovran Self Storage, Inc. acquired, in a
transaction accounted for as a purchase, sixty-two self-storage facilities (the
Original Properties) which had been owned and managed by Sovran Capital, Inc.
and the Sovran Partnerships (Predecessors to the Company). Purchase accounting
was applied to the acquisition of the Original Properties to the extent cash was
paid to purchase 100% of the limited-partnership interests in the Sovran
Partnerships, prepay outstanding mortgages at the time of acquisition and for
related transaction costs. Additionally, the Company acquired on that date
twelve self-storage properties from unaffiliated third parties. The Company has
since purchased a total of 127 (forty-five in 1998, forty-four in 1997,
twenty-nine in 1996 and nine in 1995) self storage properties from unaffiliated
third parties, increasing the total number of self-storage properties owned at
September 30, 1998 to 201 properties, most of which are in the eastern United
States and Texas.
All of the Company's assets are owned by, and all its operations are
conducted through, Sovran Acquisition Limited Partnership (the Partnership).
Sovran Holdings, Inc., a wholly owned subsidiary of the Company (the
Subsidiary), is the sole general partner; and the Company is a limited partner
of the Partnership, and thereby controls the operations of the Operating
Partnership holding a 93.4% ownership interest therein as of September 30, 1998.
The remaining ownership interests in the Operating Partnership (the "Units") are
held by certain former owners of assets acquired by the Operating Partnership
subsequent to the Offerings. The consolidated financial statements of the
Company include the accounts of the Company, the Partnership, and the wholly
owned Subsidiary. All intercompany transactions and balances have been
eliminated.
3. Investment in Storage Facilities
The following summarizes activity in storage facilities during the period ended
September 30, 1998.
(dollars in thousands)
Cost:
Beginning balance $ 333,036
Property acquisitions 145,841
Improvements and equipment additions 10,890
Dispositions (166)
--------------
Ending balance $ 489,601
==============
Accumulated Depreciation:
Beginning balance $ 11,639
Additions during the period 6,962
Dispositions (42)
--------------
Ending balance $ 18,559
==============
4. Line of Credit
On February 20, 1998, the Company entered into a new $150 million
unsecured credit facility which replaced in its entirety the Company's $75
million revolving credit facility. The new facility matures February 2001 and
provides for funds at LIBOR plus 1.25%, savings of 65 basis points over the
Company's old facility. As a result of the new credit facility, in 1998 the
Company recorded an extraordinary loss on the extinguishment of debt of $350,000
representing the unamortized financing costs of the former revolving credit
facility.
In June 1998, the Company entered into a $30 million unsecured term
note which matured on September 24, 1998 and provided for funds at LIBOR plus
1.25%. The term note has been increased to $40 million and extended through
January 1999, and bears interest at LIBOR plus 1.50%.
To manage its exposure to interest rate fluctuations, the Company has
entered into LIBOR-based interest rate swap agreements in amounts of $75 million
through October 1998 and $40 million through June 1999. Net payments or receipts
under swap agreements are recorded as adjustments to interest expense. The net
carrying amount of the Company's debt instruments approximates the fair values.
5. Commitments and Contingencies
The Company's current practice is to conduct environmental
investigations in connection with property acquisitions. At this time, the
Company is not aware of any environmental contamination of any of its facilities
which individually or in the aggregate would be material to the Company's
overall business, financial condition, or results of operations.
As of September 30, 1998, the Company entered contracts for the
purchase of 10 self-storage facilities with expected costs of $24 million.
6. Pro Forma Financial Information
The following unaudited pro forma Condensed Statement of Operations is
presented as if the 45 storage facilities purchased during the nine months ended
September 30, 1998, had occurred at January 1, 1998. Such unaudited pro forma
information is based upon the historical combined statements of operations of
the Company. It should be read in conjunction with the financial statements of
the Company and notes thereto included elsewhere herein. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made. This unaudited pro forma statement does not purport to represent
what the actual results of operations of the Company would have been assuming
such transactions had been completed as set forth above nor does it purport to
represent the results of operations for future periods.
(in thousands, except per share data)
Nine Months Ended
September 30,
1998
-----------------
Revenues:
Rental income $ 55,534
Other income 828
----------------
Total revenues 56,362
Expenses:
Property operations & maintenance 11,398
Real estate taxes 4,547
General and administrative 3,170
Interest 9,329
Depreciation and amortization 8,031
----------------
Total Expenses 36,475
----------------
Income before minority interest and extraordinary item 19,887
Minority interest (1,284)
----------------
Income before extraordinary item 18,603
Extraordinary loss on extinguishment of debt (350)
-----------------
Net income $ 18,253
================
Earnings per share before extraordinary item - basic $ 1.52
Extraordinary item (.03)
-----------------
Earnings per share - basic $ 1.49
================
Earnings per share - diluted $ 1.48
================
Common shares used in basic earnings
per share calculation 12,272,963
7. Legal Proceedings
A former business associate (Plaintiff) of certain officers and
directors of the Company, including Robert J. Attea, Kenneth F. Myszka, David L.
Rogers and Charles E. Lannon, filed a lawsuit against the Company on June 13,
1995 in the United States District Court for the Northern District of Ohio in
connection with the formation of the Company as a REIT and related transactions,
as well as the Offering. On April 29, 1996, the Plaintiff filed a first amended
complaint and on September 24, 1997, a second amended complaint was filed. The
complaint alleges, among other things, breach of fiduciary duty, breach of
contract, breach of general partnership/joint venture arrangement, fraud and
deceit, breach of duty of good faith and other causes of action including
declaratory judgement as to the Plaintiff's continuing interest in the Company.
The Plaintiff is seeking money damages in excess of $15 million, as well as
punitive damages and declaratory and injunctive relief (including the imposition
of a constructive trust on assets of the Company in which the Plaintiff claims
to have a continuing interest) and an accounting. The amended complaint also
added Messrs. Attea, Myszka, Rogers and Lannon as additional defendants. The
parties are currently involved in discovery. The Company intends to vigorously
defend the lawsuit. Messrs. Attea, Myszka, Rogers and Lannon have agreed to
indemnify the Company for cost and any loss arising from the lawsuit. The
Company believes that the actual amount of the Plaintiff's recovery in this
matter if any, would be within the ability of these individuals to provide
indemnification. The Company does not believe that the lawsuit will have a
material adverse effect upon the Company.
8. Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." The following table sets forth the
computation of basic and diluted earnings per share:
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
------------- -------------
Numerator:
Net Income $ 17,900 $ 17,232
Denominator:
Denominator for basic earnings
per share - weighted average shares 12,298 11,603
Effect of Diluted Securities:
Stock options 30 61
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversion 12,328 11,664
Basic earnings per share $ 1.46 $ 1.49
Diluted earnings per share $ 1.45 $ 1.48
9. Recent Accounting Pronouncements
On March 19, 1998 the Financial Accounting Standards Board Emerging
Issues Task Force reached a consensus as to the accounting for internal
acquisition costs incurred in connection with real property. The Task Force
consensus indicates that internal costs related to the acquisition of operating
properties should be expensed as incurred. The Company has previously
capitalized such costs and will comply with the consensus prospectively. The
amount of internal acquisition costs capitalized in the nine-months ended
September 30, 1998 and 1997, was $222,000 and $600,000, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
financial statements and notes thereto included elsewhere in this report.
The Company operates as a Real Estate Investment Trust ("REIT") and
owns and operates a portfolio of 201 self-storage facilities, providing storage
space for business and personal use to customers in 19 states. The Company's
investment objective is to increase cash flow and enhance shareholder value by
aggressively managing its portfolio, to expand and enhance the facilities in
that portfolio and to selectively acquire new properties in geographic areas
that will either complement or efficiently grow the portfolio.
When used in this discussion and elsewhere in this document, the words
"intends," "believes," "anticipates," and similar expressions are intended to
identify "forward-looking statements" within the meaning of that term in Section
27A of the Securities Exchange Act of 1933, as amended, and in Section 21F of
Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Company to be
materially different from those expressed or implied by such forward-looking
statements. Such factors include the effect of competition from new self-storage
facilities, which would cause rents and occupancy rates to decline; the
Company's ability to evaluate, finance and integrate acquired businesses into
the Company's existing business and operations; the Company's ability to
effectively compete in the industries in which it does business; and tax law
changes which may change the taxability of future income.
Liquidity and Capital Resources
Revolving Credit Facility
On February 20, 1998, the Company entered into a new $150 million
unsecured credit facility which replaces in its entirety the Company's $75
million revolving credit facility. The new facility matures February 2001 and
provides for funds at LIBOR plus 1.25%, savings of 65 basis points over the
Company's old facility. The Company intends to use funds available from this
credit facility to finance future acquisition and development plans described
below. At September 30, 1998, the outstanding balance of the unsecured credit
facility was $150 million.
In June 1998, the Company entered into a $30 million term note that
matured on September 24, 1998 and provided for funds at LIBOR plus 1.25%. The
term note has been increased to $40 million and extended through January 1999,
and bears interest at LIBOR plus 1.50%. At September 30, 1998, there was $26.5
million outstanding on the term note. To manage its exposure to interest rate
fluctuations, the Company has entered into LIBOR-based interest rate swap
agreements in amounts of $75 million through October 1998 and $40 million
through June 1999.
Umbrella Partnership REIT
The Company was formed as an Umbrella Partnership Real Estate Trust
("UPREIT") and, as such, has the ability to issue operating partnership ("OP")
units in exchange for properties sold by independent owners. By utilizing such
OP units as currency in facility acquisitions, the Company may partially defer
the seller's income-tax liability and obtain more favorable pricing or terms. As
of September 30, 1998, 863,037 units have been issued in exchange for property
at the request of the sellers.
Acquisition of Properties
The Company's external growth strategy is to increase the number of
facilities it owns by acquiring suitable facilities in markets in which it
already has an operating presence or to expand into new markets by acquiring
several facilities at once in those new markets. In the three months ended
September 30, 1998, the Company acquired nine properties, increasing its
existing presence in Florida, North Carolina, and Texas. The nine acquisitions
in the three months ended September 30, 1998 added 640,000 square feet of space
and 7,000 rental units to the Company's portfolio.
Future Acquisition and Development Plans
In October, the Company continued its external growth strategy by
increasing the number of facilities it owns in Texas, and has contracts on
properties in Louisiana, Mississippi, Ohio, Rhode Island, and Texas with planned
closings in the fourth quarter of 1998 and the first quarter of 1999.
The Company also intends to improve certain of its existing facilities
by building additional storage buildings on presently vacant land and by
installing climate control and enhanced security systems at selected sites.
Common Stock Repurchase Program
On June 24, 1998, the Board of Directors authorized the repurchase of
up to 1,000,000 shares of outstanding common stock. The shares may be purchased
from time-to-time at the discretion of management in the open market or in
privately negotiated transactions. As of September 30, 1998, 75,700 common
shares had been repurchased.
Liquidity
As most of the Company's operating cash flow is expected to be used to pay
dividends, (see REIT Qualification and Distribution Requirements), the funds
required to acquire additional properties will be provided by borrowings
pursuant to the term note and the issuance of UPREIT units.
At September 30, 1998, the Company had $13.5 million available under the
term note. The Company has received a committment from a syndicate of banks for
a $75 million term note that will be used to repay the current $40 million term
note and provide financing for future acquisitions.
REIT Qualification and Distribution Requirements
As a REIT, the Company is not required to pay federal income tax on
income that it distributes to its shareholders, provided that the amount
distributed is equal to at least 95% of taxable income. These distributions must
be made in the year to which they relate or in the following year if declared
before the Company files its federal income-tax return and if it is paid before
the first regular dividend of the following year.
As a REIT, the Company must derive at least 95% of its total gross
income from income related to real property, interest and dividends. In the
three months ended September 30, 1998, the Company's percentage of revenue from
such sources exceeded 98%, thereby passing the 95% test, and no special measures
are expected to be required to enable the Company to maintain its REIT
designation.
Results of Operations
The following discussion is based on the financial statements of the
Company as of September 30, 1998 and September 30, 1997.
For the period January 1, 1998 through September 30, 1998 (dollars in
thousands)
The Company reported revenues of $49,924 during the period and incurred
$13,867 in operating expenses, resulting in net operating income of $36,057, or
72%. General and administrative expenses of $3,120, interest expense of $6,448
and depreciation and amortization expenses of 7,377 resulted in income of
$19,112 before minority interest and extraordinary item. An extraordinary loss
of $350 resulted from the write-off of the unamortized financing costs of the
revolving credit facility that was replaced in February 1998. Net income
amounted to $17,900.
Three months ended September 30, 1998, compared to Three months ended
September 30, 1997 (dollars in thousands)
The following discussion compares the activities of the Company for the
three months ended September 30, 1998 with the activities of the Company for the
three months ended September 30, 1997.
Total revenues increased from $13,320 for the three months ended September
30, 1997 to $19,107 for the three months ended September 30, 1998, an increase
of $5,787 or 43%. Of this, $5,290 resulted from the acquisition of 53 properties
during the period July 1, 1997 through September 30, 1998 and $497 was realized
as a result of increased rental rates at the 148 properties owned by the Company
at June 30, 1997. Overall, same-store revenues grew 3.8% for the three-month
period ended September 30, 1998 as compared to the same period in 1997.
Property operating and real estate tax expense increased $1,759 or 48%
during the period. $1,466 was a result of absorbing additional expenses from
operating the newly acquired properties, and $293 related to the operations of
its sites operated more than one year.
General and administrative expenses, which includes losses of $96 realized
as the result of replacement of equipment, increased $476 principally as a
result of the need for additional personnel and increased administrative costs
associated with managing the additional properties.
Interest expense increased $2,488 due to the $140.5 million drawn on the
Company's line of credit and term note during 1998. Income before minority
interest increased from $6,559 to $6,638, an increase of $79 or 1.2%.
Funds from Operations
The Company believes that Funds From Operations ("FFO") is helpful to
investors as a measure of the performance of an equity REIT because, when
considered in conjunction with cash flows from operating activities, financing
activities, and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and to
make capital expenditures. FFO is defined as net income, computed in accordance
with GAAP, plus depreciation of real estate assets and amortization of
intangible assets exclusive of deferred financing fees, and excluding gains
(losses) from debt restructuring and sales of property. FFO should not be
considered a substitute for net income or cash flows, nor should it be
considered an alternative to operating performance or liquidity. The following
table sets forth the calculation of FFO:
Three months ended Three months ended
September 30, September 30,
1998 1997
(in thousands) --------------------- ---------------------
Net income $ 6,200 $ 6,359
Minority interest 438 200
Depreciation of real estate
and amortization of intangible
assets exclusive of deferred
financing fees 2,788 1,715
Minority interest share of FFO (622) (252)
---------------- ----------------
FFO available to common shareholders $ 8,804 $ 8,022
================ ================
Inflation
The Company does not believe that inflation has had or will have a
direct adverse effect on its operations. Substantially all of the leases at the
facilities allow for monthly rent increases, which provide the Company with the
opportunity to achieve increases in rental income as each lease matures.
Seasonality
The Company's revenues typically have been higher in the third and
fourth quarters, primarily because the Company increases its rental rates on
most of its storage units at the beginning of May and, to a lesser extent,
because self-storage facilities tend to experience greater occupancy during the
late spring, summer and early fall months due to the greater incidence of
residential moves during these periods. However, the Company believes that its
tenant mix, diverse geographical locations, rental structure and expense
structure provide adequate protection against undue fluctuations in cash flows
and net revenues during off-peak seasons. Thus, the Company does not expect
seasonality to affect materially distributions to shareholders.
Part II. Other Information
Item 1. Legal Proceedings
7. Legal Proceedings
A former business associate (Plaintiff) of certain officers and
directors of the Company, including Robert J. Attea, Kenneth F. Myszka, David L.
Rogers and Charles E. Lannon, filed a lawsuit against the Company on June 13,
1995 in the United States District Court for the Northern District of Ohio in
connection with the formation of the Company as a REIT and related transactions,
as well as the Offering. On April 29, 1996, the Plaintiff filed a first amended
complaint and on September 24, 1997, a second amended complaint was filed. The
complaint alleges, among other things, breach of fiduciary duty, breach of
contract, breach of general partnership/joint venture arrangement, fraud and
deceit, breach of duty of good faith and other causes of action including
declaratory judgement as to the Plaintiff's continuing interest in the Company.
The Plaintiff is seeking money damages in excess of $15 million, as well as
punitive damages and declaratory and injunctive relief (including the imposition
of a constructive trust on assets of the Company in which the Plaintiff claims
to have a continuing interest) and an accounting. The amended complaint also
added Messrs. Attea, Myszka, Rogers and Lannon as additional defendants. The
parties are currently involved in discovery. The Company intends to vigorously
defend the lawsuit. Messrs. Attea, Myszka, Rogers and Lannon have agreed to
indemnify the Company for cost and any loss arising from the lawsuit. The
Company believes that the actual amount of the Plaintiff's recovery in this
matter if any, would be within the ability of these individuals to provide
indemnification. The Company does not believe that the lawsuit will have a
material adverse effect upon the Company.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit 27 - Financial data schedule.
(b.) Reports on Form 8-K
On July 6, 1998, the Company filed a Current Report on Form 8-K, reporting
the acquisition of ten self-storage facilities. In addition, an unaudited
Pro Forma Combined Balance Sheet and Statement of Operations at and for the
three months ended March 31, 1998 and the year ended December 31, 1997 was
presented.
On September 25, 1998, the Company filed a Current Report on Form 8-K
reporting the acquisition of four self-storage facilities. In addition, an
unaudited Pro Forma Combined Balance Sheet and Statement of Operations at
and for the six months ended June 30, 1998 and the year ended December 31,
1997 was presented.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Sovran Self Storage, Inc.
November 13, 1998 By: / S / David L. Rogers
- ------------------------------------------------------
Date David L. Rogers
Secretary, Chief Financial Officer