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 June 30, 1999
Commission file number: 0-24071
Sovran Acquisition Limited Partnership
(Exact name of Registrant as specified in its charter)
Delaware 16-1481551
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5166 Main Street
Williamsville, New York 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 ____
Part I. Financial Information
Item 1. Financial Statements
SOVRAN ACQUISITION LIMITED PARTNERSHIP
BALANCE SHEETS
(unaudited)
June 30, December 31,
(dollars in thousands, except unit data) 1999 1998
----------- ------------
Assets
Investment in storage facilities:
Land ........................................... $ 110,693 $ 102,864
Building and equipment ......................... 435,378 399,638
--------- ---------
546,071 502,502
Less: accumulated depreciation ................. (27,188) (21,339)
--------- ---------
Investments in storage facilities, net ............ 518,883 481,163
Cash and cash equivalents ......................... 3,075 2,984
Accounts receivable ............................... 2,397 1,699
Prepaid expenses and other assets ................. 3,336 4,278
--------- ---------
Total Assets ...................................... $ 527,691 $ 490,124
========= =========
Liabilities
Line of credit .................................... $ 144,500 $ 112,000
Term note ......................................... 75,000 75,000
Accounts payable and accrued liabilities .......... 4,648 3,059
Deferred revenue .................................. 3,423 2,943
Accrued distributions ............................. 7,449 7,378
Mortgage payable .................................. 5,269 3,059
--------- ---------
Total Liabilities ............................... 240,289 203,439
Limited partners' capital interest
(853,037 units in 1999 and 863,037 in 1998),
at redemption value ............................... 22,978 21,683
Partners' Capital
General partner (219,567 units issued and
outstanding in 1999 and 1998) ................... 5,219 5,284
Limited partner (12,219,098 and 12,093,189
units issued and outstanding, respectively) ..... 259,205 259,718
--------- ---------
Total Partners' Capital ........................... 264,424 265,002
--------- ---------
Total Liabilities and Partners' Capital ........... $ 527,691 $ 490,124
========= =========
See notes to financial statements
SOVRAN ACQUISITION LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(unaudited)
April 1, 1999 April 1, 1998
to to
(dollars in thousands, except unit data) June 30, 1999 June 30, 1998
------------- -------------
Revenues:
Rental income .................................. $ 20,331 $ 16,171
Interest and other income ...................... 274 271
---------- ----------
Total revenues .............................. 20,605 16,442
Expenses:
Property operations and maintenance ............ 4,035 3,164
Real estate taxes .............................. 1,719 1,311
General and administrative ..................... 1,387 1,093
Interest ....................................... 3,631 2,153
Depreciation and amortization .................. 3,238 2,450
---------- ----------
Total expenses .............................. 14,010 10,171
---------- ----------
Net Income ....................................... $ 6,595 $ 6,271
========== ==========
Earnings per unit - basic ........................ $ 0.50 $ 0.49
========== ==========
Earnings per unit - diluted ...................... $ 0.50 $ 0.49
========== ==========
Units used in basic earnings
per unit calculation ........................... 13,282,928 12,775,737
Distributions declared per unit .................. $ 0.56 $ 0.54
========== ==========
See notes to financial statements
SOVRAN ACQUISITION LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(unaudited)
January 1, 1999 January 1, 1998
to to
(dollars in thousands, except unit data) June 30, 1999 June 30, 1998
--------------- ----------------
Revenues:
Rental income ............................ $ 39,573 $ 30,347
Interest and other income ................ 484 470
-------------- --------------
Total revenues ........................ 40,057 30,817
Expenses:
Property operations and maintenance ...... 8,076 5,983
Real estate taxes ........................ 3,295 2,498
General and administrative ............... 2,515 1,947
Interest ................................. 6,972 3,368
Depreciation and amortization ............ 6,341 4,547
-------------- --------------
Total expenses ........................ 27,199 18,343
-------------- --------------
Income before extraordinary item ........... 12,858 12,474
Extraordinary loss on extinguishment of debt - (350)
-------------- --------------
Net Income ................................. $ 12,858 $ 12,124
============== ==============
Earnings per unit before
extraordinary item - basic ............... 0.97 0.98
Extraordinary item ......................... - (0.03)
-------------- --------------
Earnings per unit - basic .................. $ 0.97 $ 0.95
============== ==============
Earnings per unit - diluted ................ $ 0.97 $ 0.95
============== ==============
Units used in basic
earnings per unit calculation ............ 13,252,577 12,754,524
Distributions declared per unit ............ $ 1.12 $ 1.08
============== ==============
See notes to financial statements.
Sovran Acquisition Limited Partnership
Statements of Cash Flow
January 1, 1999 January 1, 1998
to to
(dollars in thousands) June 30, 1999 June 30, 1998
--------------- --------------
Operating Activities
Net income .................................... $ 12,858 $ 12,124
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item .......................... - 350
Depreciation and amortization ............... 6,341 4,547
Restricted stock earned ..................... 50 7
Changes in assets and liabilities:
Accounts receivable ...................... (677) (474)
Prepaid expenses and other assets ........ 525 (462)
Accounts payable and other liabilities ... 1,440 2,767
Deferred revenue ......................... 223 649
------------ ------------
Net cash provided by operating activities ..... 20,760 19,508
------------ ------------
Investing Activities
Additions to storage facilities ............. (40,955) (115,337)
Additions to other assets ................... (22) (851)
------------ ------------
Net cash used in investing activities ......... (40,977) (116,188)
------------ ------------
Financing Activities
Net proceeds from issuance of common
stock through Dividend Reinvestment
and Stock Purchase Plan .................... 2,935 -
Proceeds from line of credit draw down ...... 32,500 112,000
Distributions paid .......................... (14,864) (13,738)
Purchase of treasury stock .................. - (954)
Redemption of operating partnership units ... (261) -
Mortgage principal payments ................. (2) (500)
------------ ------------
Net cash provided by financing activities ..... 20,308 96,808
------------ ------------
Net increase in cash .......................... 91 128
Cash at beginning of period ................... 2,984 2,567
------------ ------------
Cash at end of period ......................... $ 3,075 $ 2,695
============ ============
Supplemental cash flow information
Cash paid for interest ................... $ 6,669 $ 3,181
Sovran Acquisition Limited Partnership
Statements of Cash Flow
Supplemental cash-flow information for the six months ended June 30, 1999
(dollars in thousands)
- --------------------------------------------------------------------------------
Fair value of net liabilities assumed on
the acquisition of storage facilities $ 385
Storage facilities acquired through the
assumption of mortgages $ 2,212
- --------------------------------------------------------------------------------
Distributions declared but unpaid were $7,449 at June 30, 1999 and $7,378 at
December 31, 1998.
See notes to financial statements.
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements of Sovran Acquisition
Limited Partnership (the Operating Partnership) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month periods ended June 30, 1999 and 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
2. Organization
Sovran Acquisition Limited Partnership is the entity through which
Sovran Self Storage, Inc. (the Company) a self-administered and self-managed
real estate investment trust (a REIT), conducts substantially all of its
business and owns substantially all of its assets. On June 26, 1995, the Company
commenced operations, through the Operating Partnership, effective with the
completion of its initial public offering of 5,890,000 shares (the Offering).
The Operating Partnership has since purchased a total of 146 (fifteen in 1999,
fifty in 1998, 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 June 30,1999 to 220 properties, most of
which are in the eastern United States and Texas.
As of June 30, 1999, the Company was a 93.58% economic owner of the
Operating Partnership and controls it through Sovran Holdings, Inc. (Holdings) a
wholly-owned subsidiary of the Company and the sole general partner of the
Operating Partnership. The board of directors of Holdings, the members of which
are also members of the board of directors of the Company, manages the affairs
of the Operating Partnership by directing the affairs of Holdings. The Company's
limited partner and indirect general partner interest in the Operating
Partnership entitle it to share in the cash distributions from, and in the
profits and losses of, the Operating Partnership in proportion to its ownership
interest therein and entitle the Company to vote on all matters requiring a vote
of the limited partners.
The other limited partners of the Operating Partnership are persons who
contributed their direct or indirect interest in certain self-storage properties
to the Operating Partnership. The Operating Partnership is obligated to redeem
each unit of the limited partnership (Unit) at the request of the holder thereof
for cash equal to the fair value of a share of the Company's common stock
(Common Shares) at the time of such redemption, provided that the Company at its
options may elect to acquire any Unit presented for redemption for one Common
Share or cash. With each such redemption the Company's percentage ownership
interest in the Operating Partnership will increase. In addition, whenever the
Company issues Common Shares, the Company is obligated to contribute any net
proceeds therefrom to the Operating Partnership and the Operating Partnership is
obligated to issue an equivalent number of units to the Company. Such limited
partners'redemption rights are reflected in "limited partners'capital
interest"in the accompanying balance sheets at the cash redemption amount at the
balance sheet date.
3. Investment in Storage Facilities
The following summarizes activity in storage facilities during the period ended
June 30, 1999.
(dollars in thousands)
Cost:
Beginning balance .................. $ 502,502
Property acquisitions .............. 38,675
Improvements and equipment additions 5,002
Dispositions ....................... (108)
---------
Ending balance ........................ $ 546,071
=========
Accumulated Depreciation:
Beginning balance .................. $ 21,339
Additions during the period ........ 5,903
Dispositions ....................... (54)
---------
Ending balance ........................ $ 27,188
=========
4. Unsecured Line of Credit and Term Note
The Operating Partnership has a $150 million unsecured credit facility
that matures February 2001 and provides for funds at LIBOR plus 1.25%. At June
30, 1999, the outstanding balance on the credit facility was $144.5 million. In
1998 the Operating Partnership recorded an extraordinary loss on the
extinguishment of debt of $350,000 representing the unamortized financing costs
of the former $75 million revolving credit facility.
In December 1998, the Operating Partnership entered into a $75 million
unsecured term note that matures on December 22, 2000 and bears interest at
LIBOR plus 1.50%.
The Operating Partnership entered into interest rate swap and cap
agreements to manage its exposure to interest rate changes. The swap involves
the exchange of fixed and variable interest rate payments without exchanging the
notional principal amount. At June 30, 1999, the Operating Partnership had an
interest rate swap with a notional amount of $55 million through December 1999.
Under this agreement the Operating Partnership receives a floating interest rate
based upon LIBOR and pays a fixed interest rate of 5.12% on the $55 million
amount. The Operating Partnership also has a LIBOR-based interest rate cap on
$70 million of debt through June 2000 at 6.5%. Payments or receipts on the
agreements are recorded monthly as adjustments to interest expense. The net
carrying amount of the Operating Partnership's debt instruments approximates
fair value.
5. Commitments and Contingencies
The Operating Partnership's current practice is to conduct
environmental investigations in connection with property acquisitions. At this
time, the Operating Partnership is not aware of any environmental contamination
of any of its facilities which individually or in the aggregate would be
material to the Operating Partnership's overall business, financial condition,
or results of operations.
As of June 30, 1999, the Operating Partnership had entered into
contracts for the purchase of two facilities with expected costs of $5 million.
One of the facilities was purchased on August 2, 1999 for $2 million.
6. Pro Forma Financial Information
The following unaudited pro forma Condensed Statement of Operations is
presented as if the 15 storage facilities purchased during the six months ended
June 30, 1999, had occurred at January 1, 1999. Such unaudited pro forma
information is based upon the historical statements of operations of the
Operating Partnership. It should be read in conjunction with the financial
statements of the Operating Partnership 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
Operating Partnership 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.
Six Months Ended
(in thousands, except unit data) June 30,
1999
----------------
Revenues:
Rental income $ 41,000
Other income 501
----------------
Total revenues 41,501
Expenses:
Property operations & maintenance 8,287
Real estate taxes 3,495
General and administrative 2,538
Interest 7,661
Depreciation and amortization 6,606
----------------
Total expenses 28,587
----------------
Net Income $ 12,914
================
Earnings per unit -basic $ .97
================
Earnings per unit -diluted $ .97
================
Units used in basic earnings
per unit calculation 13,291,702
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. 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 $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 costs and any loss arising from the lawsuit.
The Operating Partnership 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 Operating Partnership does not
believe that the lawsuit will have a material adverse effect upon the Operating
Partnership.
8. Earnings Per Unit
The Operating Partnership reports earnings per unit in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."The
following table sets forth the computation of basic and diluted earnings per
unit:
Six Months Six Months
Ended Ended
June 30, June 30,
(in thousands, except per unit data) 1999 1998
--------- ---------
Numerator:
Net Income ............................................ $ 12,858 $ 12,124
Denominator:
Denominator for basic earnings
per unit -weighted average units ...................... 13,253 12,754
Effect of Dilutive Securities:
Stock options ......................................... 15 54
Denominator for diluted earnings
per unit-adjusted weighted average
units and assumed conversion .......................... 13,268 12,808
Basic earnings per unit ............................... $ .97 $ .95
Diluted earnings per unit ............................. $ .97 $ .95
9. Recent Accounting Pronouncements
In April 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities", that is effective for fiscal
years beginning after December 15, 1998. SOP 98-5 requires start-up activities
and organizational costs to be expensed as incurred. The pronouncement had no
effect on the Operating Partnership.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). In June 1999, the FASB issued SFAS 137, which defers the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS
133 establishes accounting and reporting standards for derivative instruments
and hedging activities. Under the statement certain derivatives are recognized
at fair market value and changes in fair market value are recognized as gains
and losses. The adoption of SFAS 133 is not expected to have a material impact
on the financial position or results of operations of the Operating Partnership.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following discussion and analysis of the 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, through the Operating Partnership, a portfolio of 220
self-storage facilities, providing storage space for business and personal use
to customers in 20 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 Act of 1933, and in
Section 21E of Securities Exchange Act of 1934. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Operating
Partnership to be materially different from those expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
effect of competition from new self-storage facilities, which would cause rents
and occupancy rates to decline; the Operating Partnership's ability to evaluate,
finance and integrate acquired businesses into the Operating Partnership's
existing business and operations; the Operating Partnership's ability to
effectively compete in the industries in which it does business; the Operating
Partnership's cash flow may be insufficient to meet required payments of
principal and interest; and tax law changes which may change the taxability of
future income.
Liquidity and Capital Resources
Revolving Credit Facility
The Operating Partnership has a $150 million unsecured credit facility
that matures February 2001 and provides for funds at LIBOR plus 1.25%. The
Operating Partnership intends to use funds available from this credit facility
to finance future acquisition and development plans described below. At June 30,
1999, the outstanding balance of the unsecured credit facility was $144.5
million.
Umbrella Partnership REIT
The Operating Partnership 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 Operating
Partnership may partially defer the seller's income-tax liability and obtain
more favorable pricing or terms. As of June 30, 1999, 853,037 units have been
issued in exchange for property at the request of the sellers.
Acquisition of Properties
The Operating Partnership's external growth strategy is to increase the
number of facilities it owns by acquiring suitable facilities in markets in
which it already has an operating presence or to expand into new markets by
acquiring several facilities at once in those new markets. In the three months
ended June 30, 1999, the Operating Partnership entered a new market by acquiring
nine properties in Arizona. The nine acquisitions added 501,000 square feet of
space and 5,160 rental units to the Operating Partnership's portfolio.
Future Acquisition and Development Plans
The Operating Partnership has contracts on two properties for an
aggregate purchase price of $5 million. One of the facilities was purchased in
August 1999. The closing of the second facility is subject to several customary
conditions including, among other things, satisfactory completion of due
diligence. The Operating Partnership also intends to improve certain of its
existing facilities by building additional storage buildings on presently vacant
land and by installing climate control and enhanced security systems at selected
sites.
Liquidity
As most of the Operating Partnership 's operating cash flow is expected
to be used to pay distributions, (see REIT Qualification and Distribution
Requirements), the funds required to acquire additional properties may be
provided by borrowings pursuant to the unsecured credit facility, a moderate
layer of secured debt, and/or a joint venture acquisition partnership.
On July 23, 1999, the Company completed the offering of 1.2 million
shares of 9.85% Series B Cumulative Redeemable Preferred Stock. The offering
price was $25 per share resulting in gross proceeds of $30 million. Net proceeds
were approximately $28.9 million which will be used to reduce outstanding
indebtedness on the Operating Partnership's credit facility.
At June 30, 1999, the Operating Partnership had $5.5 million available
under the unsecured credit facility.
REIT Qualification and Distribution Requirements
The Operating Partnership is treated as a partnership for Federal
income tax purposes and the Company is treated as a partner in the Operating
Partnership. As a partner, the Company is deemed to own its proportionate share
of the assets of the partnership and is deemed to be entitled to the income of
the partnership attributable to such share.
As a REIT, the Company is not required to pay federal income tax on
income that it distributes to its shareholders, provided that the amount
distributed is equal to at least 95% of taxable income. These distributions must
be made in the year to which they relate or in the following year if declared
before the Company files its federal income-tax return and if it is paid before
the first regular dividend of the following year.
As a REIT, the Company must derive at least 95% of its total gross
income from income related to real property, interest and dividends. In the
three months ended June 30,1999, 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
Operating Partnership as of June 30, 1999 and June 30, 1998.
For the period January 1, 1999 through June 30, 1999 (dollars in thousands)
The Operating Partnership reported revenues of $40,057 during the
period and incurred $11,371 in operating expenses, resulting in net operating
income of $28,686, or 71.6%. General and administrative expenses of $2,515,
interest expense of $6,972 and depreciation and amortization expenses of $6,341
resulted in net income of $12,858.
Three months ended June 30, 1999, compared to Three months ended June 30, 1998
(dollars in thousands)
The following discussion compares the activities of the Operating
Partnership for the three months ended June 30, 1999 with the activities of the
Operating Partnership for the three months ended June 30, 1998.
Total revenues increased from $16,442 for the three months ended June
30, 1998 to $20,605 for the three months ended June 30, 1999, an increase of
$4,163 or 25%. Of this, $3,544 resulted from the acquisition of 46 properties
during the period April 1, 1998 through June 30, 1999 and $619 was realized as a
result of increased rental rates at the 174 properties owned by the Operating
Partnership at April 1, 1998. Overall, same-store revenues grew 4.0% for the
three-month period ended June 30, 1999 as compared to the same period in 1998.
Property operating and real estate tax expense increased $1,279 or 29%
during the period. $1,072 was a result of absorbing additional expenses from
operating the newly acquired properties, and $207 related to the operations of
its sites operated more than one year.
General and administrative expenses increased $294 principally as a
result of the need for additional personnel and increased administrative costs
associated with managing the additional properties.
Interest expense increased $1,478 due to the $72 million drawn on the
Operating Partnership 's line of credit and term note during the last twelve
months.
Income before extraordinary item increased from $12,474 to
$12,858, an increase of $384 or 3%.
Inflation
The Operating Partnership 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
Operating Partnership with the opportunity to achieve increases in rental income
as each lease matures.
Seasonality
The Operating Partnership 's revenues typically have been higher in the
third and fourth quarters, primarily because the Operating Partnership 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
Operating Partnership 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 Operating Partnership does not expect seasonality to affect
materially distributions to unitholders.
Impact of the Year 2000
The Operating Partnership employs several different computer systems
for financial reporting, property management, asset control and payroll. These
systems are purchased by the Operating Partnership from third parties and
therefore there is no internally generated programming code. The Operating
Partnership has been assessing and testing its systems to determine if its
hardware and software will function properly with respect to dates in the Year
2000 and thereafter, and no significant problems were noted. The Operating
Partnership's critical applications relating to financial reporting, property
management and asset control have been updated to Year 2000 compliant versions
within the last year as part of the normal maintenance agreements.
The Operating Partnership communicates electronically with certain
outside vendors in the banking and payroll processing areas. The Operating
Partnership has been advised by these vendors that their systems are or will be
Year 2000 compliant. The Operating Partnership has identified and evaluated
certain other systems that may be impacted by the Year 2000, such as gates,
security systems and elevators. The Operating Partnership expects the
implementation of any required solutions to be completed by December 31, 1999,
and the cost to be less than $50,000. The Operating Partnership is not aware of
any other vendors or suppliers for whom the Year 2000 would materially impact
the Operating Partnership's business and there are no means of ensuring that
outside companies will be compliant.
The Operating Partnership will continue to address the Year 2000
throughout 1999 and has developed a contingency plan if the implementations are
not completed timely. Under a worst case scenario, the Operating Partnership
will have the ability to revert to a manual system to operate its self-storage
stores if any issues with the Year 2000 are encountered. Despite the approach
being taken to prevent a Year 2000 problem, the Operating Partnership cannot be
completely sure that issues will not arise, or events will not occur that could
have material adverse affects on the Operating Partnership 's results of
operations or financial condition.
Year 2000 costs and the date on which the Operating Partnership
believes that it will be Year 2000 compliant are based upon management's best
estimates that were derived utilizing numerous assumptions of future events.
There can be no assurance that these estimates are achievable and actual results
could differ materially from estimates.
Quantitative and Qualitative Disclosure About Market Risk
The Operating Partnership manages its exposure to interest rate changes
by entering into interest rate swap agreements. There have been no material
changes to the Operating Partnership's exposure to interest rate risk since
December 31, 1998.
Part II. Other Information
Item 1. 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 $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 costs and any loss arising from the lawsuit.
The Operating Partnership 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 Operating Partnership does not
believe that the lawsuit will have a material adverse effect upon the Operating
Partnership.
Item 2. Changes in Securities
No disclosure required.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
No disclosure required.
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K
1. (a) Exhibit 27 - Financial data schedule.
2. (b) Reports on From 8-K.
On April 19, 1999, the Operating Partnership filed a Current Report on
Form 8-K/A reporting the financial statements and exhibits for the acquisition
of eleven self-storage facilities previously reported on the Form 8-K filed
March 3, 1999.
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 Acquisition Limited Partnership
By: Sovran Holdings, Inc.
Its General Partner
August 12, 1999 By: /S/ David L. Rogers
- --------------- -----------------------
Date David L. Rogers,
Chief Financial Officer