Item 1.
Business
Sovran Self Storage, Inc. is a self-administered and self-managed real estate investment trust ("REIT") that acquires, owns and manages self-storage properties. We refer to the self-storage properties owned and/or managed by us as "Properties". We began operations on June 26, 1995. At March 1, 2004, we owned and/or managed 265 Properties consisting of approximately 15.5 million net rentable square feet, situated in 21 states. Eleven of the Properties are managed under an agreement with an unconsolidated joint venture that is 45% owned by us. We are the 5th largest operator of self-storage properties in the United States based on facilities owned and/or managed. Our Properties conduct business under the user-friendly trade name "Uncle Bob's Self-Storage."
We were formed to continue the business of our predecessor company, which had engaged in the self-storage business since 1985. We own an indirect interest in each of the Properties through a limited partnership (the "Partnership"). In total, we own a 96.35% economic interest in the Operating Partnership and unaffiliated third parties own collectively a 3.65% limited partnership interest at December 31, 2003. We believe that this structure, commonly known as an umbrella partnership real estate investment trust ("UPREIT"), facilitates our ability to acquire properties by using units of the Partnership as currency.
We were incorporated on April 19, 1995 under Maryland law. Our principal executive offices are located at 6467 Main Street, Buffalo, New York 14221, our telephone number is (716) 633-1850 and our web site is www.sovranss.com.
We seek to enhance shareholder value through internal growth and acquisition of additional storage properties. Internal growth is achieved through aggressive property management: increasing rents, increasing
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occupancy levels, controlling costs, maximizing collections and strategically expanding and improving the Properties. Should economic conditions warrant, we may develop new properties. We believe that there continues to be opportunities for growth through acquisitions, and constantly seek to acquire self-storage properties that are susceptible to realization of increased economies of scale and enhanced performance through application of our expertise.
Industry Overview
We believe that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed and secure storage space, many facilities also offer outside storage for automobiles, recreational vehicles and boats. Better facilities are usually fenced and well lighted with gates that are either manually operated or automated and have a full-time manager/leasing agent. 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, and the customer has sole control of access to the unit.
According to published data, of the approximately 37,000 facilities in the United States, less than 13% 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 equity capital available to small operators for acquisitions and expansions, and the potential for savings through economies of scale are factors that are leading to a consolidation in the industry. We believe that, as a result of this trend, significant growth opportunities exist for operators with proven management systems and sufficient capital resources.
Property Management
We believe that we have developed substantial expertise in managing self-storage facilities. Key elements of our management system include the following:
Personnel:
Property managers attend a thorough orientation program and undergo continuous training that emphasizes closing techniques, identification of selected marketing opportunities, networking with possible referral sources, and familiarization with our customized management information system. In addition to frequent contact with Regional Team Leaders 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.
Marketing and Sales:
Responding to the increased customer demand for services, we have initiated several programs expected to increase occupancy and profitability. These programs include:
-
A Customer Care Center (call center) that services new and existing customers' inquiries and facilitates the capture of sales leads that were previously lost;
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Internet marketing, providing information about all of our stores via numerous portals and e-mail;
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Dri-guard, providing humidity-controlled spaces. We became the first self-storage operator to utilize this humidity protection technology. These environmental control systems are a premium storage feature intended to protect metal, electronics, furniture, fabrics and paper from moisture;
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Uncle Bob's Trucks, provide customers with convenient, affordable access to vehicles to help move their goods, while serving as moving billboards to help advertise our storage facilities; and
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Flex-a-Space, an innovative construction design that allows us to easily reconfigure walls by using a track and roller mechanism, enabling customized storage space to fit the individual needs of the customer.
Ancillary Income:
Our stores are essentially retail operations and we have in excess of 100,000 customers. As a convenience to those customers, we sell items, such as locks, boxes, tarps, etc. to make their storage experience easier. We also offer renters insurance through a third party carrier, on which we earn a commission. Income from truck rentals, billboards and cell towers is also earned by our Company.
Information Systems:
Our customized computer system performs billing, collections and reservation functions for each Property, and also tracks information used in developing marketing plans based on occupancy levels, and tenant demographics and histories. The system generates daily, weekly and monthly financial reports for each Property that are transmitted to our 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 our 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 Regional Team Leaders. Our customized management information system permits us to add new facilities to our portfolio with minimal additional overhead expense.
Property maintenance:
All of our properties are subject to regular and routine maintenance procedures, designed to maintain the structure and appearance of our buildings and grounds. A staff headquartered in our principal office is responsible for the upkeep of the properties, and all maintenance service is contracted through local providers, such as lawn service, snowplowing, pest control, gate maintenance, HVAC repairs, paving, painting, roofing, etc. A codified set of specifications has been designed and is applied to all work performed on our Uncle Bob's stores. As with many other aspects of our Company, our size has allowed us to enjoy relatively low maintenance costs because we have the benefit of economies of scale in purchasing, travel and overhead absorption.
Environmental and Other Regulations
We are subject to federal, state, and local environmental regulations that apply generally to the ownership of real property and the operation of self-storage facilities. We have not received notice from any governmental
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authority or private party of any material environmental noncompliance, claim, or liability in connection with any of the Properties, and are not aware of any environmental condition with respect to any of the Properties that could have a material adverse effect on our 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. We believe that the Properties are in substantial compliance with all such regulations.
Insurance
Each of the Properties is covered by fire, property insurance, including comprehensive liability, and all-risk property insurance policies, which are provided by reputable companies and on commercially reasonable terms. In addition, we maintain a policy insuring against environmental liabilities resulting from tenant storage on terms customary for the industry, and title insurance insuring free title to the Company-owned Properties in an aggregate amount believed to be adequate.
Federal Income Tax
We operate, and intend 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 we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - REIT Qualification and Distribution Requirements."
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 customers' needs, and the manner in which the property is operated and marketed. We believe we compete successfully on these bases. The extent of competition depends in significant part on local market conditions. We seek to locate facilities so as not to cause our 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 our competitors, including Public Storage Management, Inc., Shurgard Incorporated, U-Haul International, and Storage USA, Inc., are larger and have substantially greater financial resources than we do. These larger operators may, among other possible advantages, be capable of greater leverage and the payment of higher prices for acquisitions.
Investment Policy
While we emphasize equity real estate investments, we may, at our discretion, invest in mortgage and other real estate interests related to self-storage properties in a manner consistent with our qualification as a REIT. We may also retain a purchase money mortgage for a portion of the sale price in connection with the
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disposition of Properties from time to time. Should investment opportunities become available, we may look to acquire self-storage properties via a joint-venture partnership or similar entity. We may or may not have a significant investment in such a venture, but would use such an opportunity to expand our portfolio of branded and managed properties.
Subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification, we 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
We periodically review the assets comprising our portfolio. 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 our portfolio, (iv) potential for, or existence of, environmental or regulatory issues, (v) alternative uses of capital, and (vi) maintaining qualification as a REIT.
As part of an asset management program, we have begun to "spin-off" non-core, slow-growth properties, into joint ventures. In cases where we have a less than 50% controlling interest in a joint venture, the Properties of that joint venture are removed from our balance sheet and an investment in the joint venture is recorded. We record only our percentage share of the operating results of unconsolidated joint ventures. These ventures may allow us to (i) increase incremental revenues through management fees, (ii) provide strong returns on our equity in the joint venture, and (iii) increase liquidity to allow redeployment of equity to repay debt, acquire stock, or buy higher growth properties. In 2000, we sold seven facilities for approximately $20 million to an unconsolidated joint venture in which we retained a 45% interest. All eleven properties in the unconsolidated joint venture are managed by us under an agreement. In cases where we are deemed to have a greater than 50% controlling interest, the joint venture is consolidated with our financial statements and a minority interest is recorded on the balance sheet and statement of operations for the portion of the joint venture not owned by us. On February 20, 2004, we sold our facility in Allentown, PA to an independent operator.
Distribution Policy
We intend to pay regular quarterly distributions to our shareholders. However, future distributions by us will be at the discretion of the Board of Directors and will depend on the actual cash available for distribution, our financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. In order to maintain its qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income (which does not include capital gains). Under certain circumstances, we 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.
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Borrowing Policy
Our Board of Directors currently limit the amount of debt that may be incurred by us to less than 50% of the sum of market value of the issued and outstanding Common and Preferred Stock plus the Company's debt (Market Capitalization). We, however, may from time to time re-evaluate and modify our 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.
On September 4, 2003, we entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. The new agreements provide for a $75 million (expandable to $100 million) revolving line of credit maturing September 2006 bearing interest at a variable rate equal to LIBOR plus 1.375%, a $100 million term note maturing September 2008 bearing interest at a variable rate equal to LIBOR plus 1.50%, a $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26% and a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.5%.
To the extent that we desire 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, we may utilize amounts available under the revolving line of credit, preferred stock offerings, floating or fixed rate debt financing, retention of cash flow (subject to satisfying our distribution requirements under the REIT rules) or a combination of these methods. Additional debt financing may also be obtained through mortgages on our Properties, which may be recourse, non-recourse, or cross-collateralized and may contain cross-default provisions. We have not established any limit on the number or amount of mortgages that may be placed on any single Property or on our portfolio as a whole. For additional information regarding borrowings, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and Note 5 to the Consolidated Financial Statements filed herewith.
Employees
We currently employ a total of 824 employees, including 265 Property Managers, 17 Regional Team Leaders, and 449 assistant managers and part-time employees. At our headquarters, in addition to the 3 executive officers, we employ 90 people engaged in various support activities, including accounting, customer care, and management information systems. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be excellent.
Available Information
The Company files with the U.S. Securities and Exchange Commission quarterly and annual reports on Forms 10-Q and 10-K, respectively, current reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. We file this information with the SEC electronically, and the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our annual reports on Form 10-K,
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quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our web site at http://www.sovranss.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities Exchange Commission. In addition, our code of ethics is available free of charge at our website http://www.sovranss.com.
Also, copies of our annual report will be made available, free of charge, upon written request to Sovran Self Storage, Inc., Attn: Investor Relations, 6467 Main Street, Buffalo, NY 14221.
Item 2.
Item 2.
Properties
At December 31, 2003, we owned and/or managed a total of 266 Properties situated in twenty-one states in the Eastern and Midwestern United States, Arizona and Texas. Eleven of the Properties are managed under an agreement with an unconsolidated joint venture that is 45% owned by us.
Our self-storage facilities offer inexpensive, easily accessible, enclosed storage space to residential and commercial users on a month-to-month basis. Most of our Properties are fenced with computerized gates and are well lighted. All but thirty-six 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. 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.
At March 1, 2004, all but two of the Properties conduct business under the user-friendly trade name "Uncle Bob's Self-Storage" and we intend to convert those to the "Uncle Bob's" name on or before September 1, 2004.
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The table below provides certain information regarding the Properties included in our consolidated financial statements:
Location
Year
Built
Sq. Ft.
Uncle
Bob's
Trade
Name
State
Occupancy
at
12/31/03
Acres
Units
Bldgs.
Floors
Mgr.
Apt.
Construction
Alabama
90%
Birmingham I
36,775
Y
2.7
Y
Masonry/Steel Roof
Birmingham II
52,135
Y
4.7
Y
Masonry/Steel Roof
Montgomery I
74,119
Y
5.0
Y
Masonry/Steel Roof
Birmingham III
72,290
Y
4.3
N
Masonry/Steel Roof
Montgomery II
42,166
Y
2.7
N
Masonry/Steel Roof
Montgomery III
41,610
Y
2.4
Y
Steel Bldg./Steel Roof
Birmingham-Walt
64,580
Y
3.3
Y
Masonry Wall/Metal Roof
Birmingham-Bessemer
44,070
Y
5.6
N
Metal Wall/Metal Roof
Arizona
79%
Gilbert-Elliot Rd.
66,845
Y
3.3
Y
Masonry Wall/Metal Roof
Glendale-59th Ave.
67,076
Y
4.6
Y
Masonry Wall/Metal Roof
Mesa-Baseline
39,100
Y
1.8
Y
Masonry Wall/Metal Roof
Mesa-E. Broadway
38,825
Y
1.8
Y
Masonry Wall/Metal Roof
Mesa-W. Broadway
36,655
Y
1.9
Y
Masonry Wall/Metal Roof
Mesa-Greenfield
48,343
Y
2.1
N
Masonry Wall/Metal Roof
Phoenix-Camelback
43,355
Y
2.0
Y
Masonry Wall/Metal Roof
Phoenix-Bell
96,630
Y
4.6
Y
Metal Wall/Metal Roof
Phoenix-35th Ave.
70,050
Y
4.3
Y
Masonry Wall/Metal Roof
Connecticut
73%
New Haven
47,680
Y
3.9
N
Masonry Wall/Steel Roof
Hartford-Metro I
56,570
Y
10.0
N
Steel Bldg./Steel Roof
Hartford-Metro II
39,190
Y
6.0
N
Steel Bldg./Steel Roof
Florida
91%
Lakeland 1
47,985
Y
3.5
Y
Masonry Wall/Steel Roof
Tallahassee I
139,880
Y
18.7
Y
Masonry Wall/Tar & Gravel Roof
Tallahassee II
51,270
Y
4.0
Y
Masonry Wall/Tar & Gravel Roof
Port St. Lucie
55,842
Y
4.0
N
Steel Bldg./Steel Roof
Deltona
63,602
Y
5.0
Y
Masonry Wall/Shingle Roof
Jacksonville I
40,032
Y
2.7
Y
Masonry Wall/Tar & Gravel Roof
Orlando I
50,520
Y
2.8
Y
Steel Bldg./Steel Roof
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Ft. Lauderdale
101,085
Y
7.6
Y
Steel Bldg./Steel Roof
West Palm 1
45,569
Y
3.2
N
Steel Bldg./Steel Roof
Melbourne I
83,539
Y
8.3
Y
Masonry Wall/Shingled Roof
Pensacola I
119,405
Y
7.5
Y
Steel Bldg./Steel Roof
Pensacola II
58,204
Y
3.4
Y
Steel Bldg./Steel Roof
Melbourne II
56,031
Y
3.4
N
Steel Bldg./Steel Roof
Jacksonville II
53,855
Y
4.4
Y
Masonry/Steel Roof
Pensacola III
84,380
Y
6.1
N
Steel Bldg./Steel Roof
Pensacola IV
38,850
Y
2.7
Y
Masonry/Steel Roof
Pensacola V
39,125
Y
2.6
Y
Masonry/Steel Roof
Tampa I
65,425
Y
3.3
N
Masonry/Steel Roof
Tampa II
60,470
Y
2.9
N
Masonry/Steel Roof
Tampa III
50,251
Y
2.2
N
Masonry/Steel Roof
Orlando II
133,935
Y
8.5
1,309
Y
Masonry Wall/Steel Roof
Ft. Myers I
27,724
Y
1.1
Y
Steel Bldg./Steel Roof
Ft. Myers II
1991/94
23,043
Y
1.9
Y
Masonry/Steel Roof
Tampa IV
58,215
Y
4.0
N
Masonry/Steel Roof
West Palm II
30,937
Y
2.3
Y
Masonry/Steel Roof
Ft. Myers III
36,052
Y
2.4
Y
Masonry/Steel Roof
Lakeland II
59,950
Y
4.0
N
Masonry Wall/Steel Roof
Ft. Myers IV
59,624
Y
4.5
Y
Masonry/Steel Roof
Jacksonville III
102,430
Y
5.9
Y
Masonry Wall/Shingle Roof
Jacksonville IV
38,205
Y
2.7
Y
Steel Bldg./Steel Roof
Jacksonville V
1987/92
54,037
Y
2.9
Y
Steel Bldg./Masonry Wall/Steel Roof
Orlando III
54,388
Y
3.2
N
Masonry Wall/Steel Roof
Orlando IV-W 25th St.
38,354
Y
2.8
Y
Steel Bldg/Steel Roof
Delray I-Mini
49,549
Y
3.5
Y
Masonry Wall/Concrete Roof
Delray II-Safeway
69,760
Y
4.3
Y
Masonry Wall/Concrete Roof
Tampa-E. Hillborough
84,470
Y
5.3
Y
Masonry Wall/Metal Roof
Ft. Myers-Mall
1991/94
22,211
Y
1.3
Y
Masonry/Steel Roof
Indian Harbor-Beach
66,211
Y
4.0
N
Masonry Wall/Metal Roof
Hollywood-Sheridan
130,733
Y
7.0
1,172
Y
Masonry Wall/Concrete Roof
Pompano Beach-Atlantic
75,222
Y
4.0
N
Masonry Wall/Concrete Roof
Pompano Beach-Sample
64,117
Y
3.6
N
Masonry Wall/Metal Roof
Boca Raton-18th St.
87,782
Y
6.2
N
Masonry Wall/Metal Roof
Vero Beach
34,450
Y
1.9
N
Masonry Wall/Metal Roof
Hollywood-N. 21st
58,881
Y
3.1
Y
Masonry Wall/Metal Roof
Cocoa
75,115
Y
2.5
Y
Masonry Wall/Metal Roof
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Plantation
42,171
Y
2.9
1&2
Y
Masonry Wall/Metal Roof
Georgia
85%
Savannah
73,480
Y
5.4
Y
Masonry Wall/Steel Roof
Atlanta-Metro I
69,890
Y
3.9
Y
Steel Bldg./Steel Roof
Atlanta-Metro II
45,300
Y
3.9
Y
Steel Bldg./Steel Roof
Atlanta-Metro III
57,035
Y
5.3
Y
Steel Bldg./Steel Roof
Atlanta-Metro IV
42,220
Y
3.5
Y
Steel Bldg./Steel Roof
Atlanta-Metro V
44,165
Y
4.2
Y
Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VI
50,775
Y
3.6
Y
Steel Bldg./Steel Roof
Atlanta-Metro VII
38,900
Y
2.5
Y
Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VIII
46,914
Y
3.3
Y
Masonry Wall/Tar & Gravel Roof
Augusta I
52,000
Y
4.0
Y
Steel Bldg./Steel Roof
Macon I
41,030
Y
3.2
Y
Steel Bldg./Steel Roof
Augusta II
46,325
Y
3.5
N
Masonry Wall/Steel Roof
Atlanta-Metro IX
56,196
Y
4.6
Y
Steel Bldg./Steel Roof
Atlanta-Metro X
46,815
Y
6.8
N
Steel Bldg./Steel Roof
Macon II
1989/94
67,670
Y
14.0
Y
Steel Bldg./Steel Roof
Savannah II
49,365
Y
2.6
Y
Masonry Wall/Steel Roof
Atlanta-Alpharetta
80,790
Y
5.8
1&2
Y
Steel Bldg./Steel Roof
Atlanta-Marietta-Roswell
59,475
Y
6.0
1&2
Y
Steel Bldg./Steel Roof
Atlanta-Doraville
68,820
Y
4.9
1&2
Y
Steel & Masonry Bldg./Steel Roof
Ft. Oglethorpe
45,642
Y
3.3
Y
Masonry Wall/Metal Roof
Kingsland
66,885
Y
4.1
N
Masonry Wall/Metal Roof
Louisiana
84%
Baton Rouge-Airline
71,720
Y
2.5
N
Masonry Wall/Metal Roof
Baton Rouge-Airline 2
44,895
Y
2.8
N
Masonry Wall/Steel Roof
Lafayette-Pinhook 1
56,625
Y
3.2
N
Masonry Wall/Metal Roof
Lafayette-Pinhook 2
1992/94
47,025
Y
2.4
Y
Metal Wall/Metal Roof
Lafayette-Ambassador
33,835
Y
2.0
N
Masonry Wall/Shingle Roof
Lafayette-Evangeline
34,630
Y
3.1
Y
Masonry Wall/Metal Roof
Lafayette-Guilbeau
63,685
Y
3.4
N
Metal Wall/Metal Roof
Maine
92%
Westbrook
45,820
Y
5.9
Y
Metal Wall/Metal Roof
Saco
53,750
Y
4.2
N
Masonry Wall/Metal Roof
Maryland
90%
Salisbury
33,585
Y
3.0
N
Masonry Wall/Tar & Gravel Roof
Baltimore I-Frederick
21,233
Y
1.9
N
Masonry Wall/Shingled Roof
Baltimore II-Gaithersburg
60,595
Y
2.2
Y
Masonry Wall/Tar & Gravel Roof
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Baltimore III-Landover
51,226
Y
3.1
Y
Steel Bldg./Steel Roof
Massachusetts
82%
New Bedford
42,308
Y
3.4
N
Steel Bldg./Steel Roof
Springfield
53,614
Y
4.7
1&2
N
Masonry Wall/Shingle Roof
Salem
53,325
Y
2.0
Y
Steel Wall/Metal Roof
Boston-Metro I
37,815
Y
2.0
Y
Masonry Wall/Tar & Gravel Roof
Boston-Metro II
38,575
Y
3.6
N
Masonry Wall/Tar & Gravel Roof
N. Andover
44,555
Y
3.0
N
Masonry & Metal Wall/Metal Roof
Dracut
45,926
Y
5.0
N
Masonry Wall/Metal Roof
Methuen
50,400
Y
3.4
N
Masonry Wall/Metal Roof
Plymouth
92,127
Y
7.7
N
Metal Wall/Metal Roof
Sandwich
47,970
Y
4.9
N
Metal Wall/Metal Roof
Michigan
78%
Grand Rapids II
43,500
Y
8.0
N
Masonry & Steel Walls
Holland
58,735
Y
13.6
Y
Masonry Wall/Steel Roof
Holland-Paw Paw
53,610
Y
5.3
Y
Masonry Wall/Steel Roof
Waterford-Highland
136,316
Y
16.6
1,648
Y
Masonry Wall/Metal Roof
Mississippi
92%
Jackson I
42,100
Y
2.0
Y
Masonry/Steel Roof
Jackson II
38,761
Y
2.1
Y
Masonry/Steel Roof
Jackson III-155
61,948
Y
1.3
N
Metal Wall/Metal Roof
Jackson-N. West
57,497
Y
5.2
Y
Masonry Wall/Metal Roof
New Hampshire
87%
Salem-Policy
62,955
Y
8.7
Y
Masonry Wall/Metal Roof
New York
84%
Middletown
33,865
Y
2.8
N
Steel Bldg./Steel Roof
Buffalo I
83,865
Y
5.1
Y
Steel Bldg./Steel Roof
Rochester I
41,834
Y
2.9
Y
Steel Bldg./Steel Roof
Rochester II
29,510
Y
3.5
N
Masonry Wall/Shingle Roof
Buffalo II
62,025
Y
6.2
Y
Steel Bldg./Steel Roof
Syracuse 1
77,715
Y
7.5
N
Steel Bldg./Steel Roof
Syracuse II
78,279
Y
3.6
Y
Steel Bldg./Shingled Roof
Rochester III
66,639
Y
2.7
N
Masonry Wall/Shingle Roof
Harriman
1989/95
74,340
Y
6.1
Y
Metal Wall/Metal Roof
Monroe
36,240
Y
13.3
N
Metal Wall/Metal Roof
Syracuse
35,060
Y
2.2
N
Metal Wall/Metal Roof
- 13 -
<page>
The Hamptons
1989/95
64,885
Y
3.2
N
Metal Wall/Metal Roof
The Hamptons
33,150
Y
1.1
N
Metal Wall/Metal Roof
The Hamptons
35,210
Y
1.9
N
Metal Wall/Metal Roof
The Hamptons
1994/98
64,900
Y
3.7
N
Metal Wall/Metal Roof
North Carolina
80%
Charlotte
37,815
Y
2.9
Y
Steel Bldg./Steel Roof
Fayetteville
84,228
Y
6.2
Y
Steel Bldg./Steel Roof
Greensboro
45,180
Y
3.4
Y
Steel Bldg./Mas. Wall/Steel Roof
Raleigh I
58,410
Y
5.0
Y
Steel Bldg./Steel Roof
Raleigh II
33,125
Y
2.5
Y
Steel Bldg./Steel Roof
Charlotte II
49,006
Y
5.6
Y
Masonry Wall/Steel Roof
Charlotte III
30,920
Y
2.9
Y
Masonry Wall/Steel Roof
Greensboro-Hilltop
32,153
Y
1.0
N
Metal Wall/Metal Roof
Greensboro-StageCoach
36,125
Y
2.5
N
Metal Wall/Metal Roof
Greensboro-High Point
57,567
Y
2.5
N
Steel Wall/Metal Roof
Durham-Hillborough
1988/91
68,031
Y
5.0
Y
Metal Wall/Metal Roof
Durham-Cornwallis
1990/96
78,645
Y
4.7
Y
Masonry Wall/Metal Roof
Jacksonville-Center
52,000
Y
5.0
Y
Metal Wall/Metal Roof
Jacksonville-Gum Branch
62,900
Y
5.0
Y
Metal Wall/Metal Roof
Jacksonville-N. Marine
47,810
Y
8.4
Y
Masonry Wall/Shingle Roof
Ohio
89%
Youngstown
54,830
Y
5.8
Y
Steel Bldg./Steel Roof
Cleveland-Metro I
49,200
Y
6.4
N
Steel Bldg./Steel Roof
Cleveland-Metro II
65,900
Y
4.8
Y
Steel Bldg./Steel Roof
Youngstown
55,750
Y
3.9
Y
Masonry Wall/Steel Roof
Akron
38,320
Y
3.4
N
Masonry Wall/Steel Roof
Cleveland III
68,535
Y
3.4
N
Masonry Wall/Steel Roof
Cleveland IV
72,750
Y
3.5
Y
Masonry Wall/Steel Roof
Cleveland V
75,212
Y
3.1
1&2
Y
Masonry Wall/Steel Roof
Cleveland VI
47,221
Y
2.6
Y
Masonry Wall/Steel Roof
Cleveland VII
70,170
Y
4.3
Y
Masonry Wall/Steel Roof
Cleveland VIII
47,605
Y
5.7
N
Masonry Wall/Steel Roof
Cleveland IX
54,880
Y
4.4
N
Masonry Wall/Steel Roof
Cleveland 10-Avon
46,898
Y
5.8
N
Metal Wall/Metal Roof
Warren-Elm
60,200
Y
7.3
Y
Masonry Wall/Metal Roof
Warren-Youngstown
58,987
Y
5.0
N
Masonry Wall/Metal Roof
- 14 -
<page>
Batavia
61,818
Y
5.5
N
Metal Wall/Steel Roof
Pennsylvania
94%
Allentown
40,800
Y
6.3
Y
Masonry Wall/Shingle Roof
Sharon
37,940
Y
3.0
Y
Steel Bldg./Steel Roof
Harrisburg I
49,120
Y
4.1
Y
Masonry Wall/Steel Roof
Harrisburg II
59,365
Y
9.2
Y
Masonry Wall/Steel Roof
Pittsburgh
57,365
Y
3.4
Y
Steel Bldg./Steel Roof
Pittsburgh II
102,330
Y
4.8
Y
Masonry Wall/Shingled Roof
Harrisburg-Peiffers
63,740
Y
4.1
Y
Masonry Wall/Metal Roof
Rhode Island
89%
East Greenwich
45,600
Y
2.9
Y
Metal Wall/Metal Roof
Frenchtown
31,310
Y
2.0
N
Metal Wall/Metal Roof
W. Warwick
1986/94
52,376
Y
2.3
N
Metal Wall/Steel Roof
Providence
38,550
Y
3.7
Y
Masonry Wall/Tar & Gravel Roof
South Carolina
82%
Charleston I
49,654
Y
3.3
Y
Steel Bldg./Mas. Wall/Steel Roof
Columbia I
47,800
Y
3.3
Y
Steel Bldg./Steel Roof
Columbia II
58,480
Y
6.0
N
Steel Bldg./Steel Roof
Columbia III
41,390
Y
3.5
Y
Steel Bldg./Steel Roof
Columbia IV
57,360
Y
5.6
Y
Steel Bldg./Steel Roof
Spartanburg
40,450
Y
3.6
Y
Steel Bldg./Steel Roof
Charlestown II
40,318
Y
2.2
Y
Masonry Wall/Steel Roof
Columbia
73,550
Y
5.0
Y
Masonry Wall/Steel Roof
Myrtle Beach
62,087
Y
4.8
N
Masonry Wall/Steel Roof
Tennessee
78%
Chattanooga-Lee Hwy
37,937
Y
3.3
N
Masonry Wall/Metal Roof
Chattanooga-Hwy 58
35,460
Y
2.4
Y
Masonry Wall/Metal Roof
Hendersonville
1986/97
93,955
Y
5.7
Y
Masonry Wall/Metal Roof
Texas
78%
Arlington I
45,815
Y
2.3
Y
Masonry Wall/Steel Roof
Arlington II
67,220
Y
3.8
Y
Masonry Wall/Steel Roof
Ft. Worth
40,850
Y
2.4
Y
Masonry Wall/Asphalt Roof
San Antonio I
48,200
Y
3.9
Y
Masonry Wall/Steel Roof
San Antonio II
39,870
Y
1.9
Y
Masonry Wall/Steel Roof
San Antonio III
48,782
Y
2.6
Y
Masonry Wall/Steel Roof
Universal
35,160
Y
2.4
Y
Masonry Wall/Steel Roof
San Antonio IV
62,870
Y
5.4
Y
Steel Bldg./Steel Roof
Houston-Eastex
1993/95
83,650
Y
6.4
Y
Metal Wall/Steel Roof
Houston-Nederland
61,731
Y
6.3
Y
Metal Wall/Steel Roof
- 15 -
<page>
Houston-College
35,650
Y
1.8
Y
Metal Wall/Steel Roof
Dallas-Skillman
121,026
Y
5.9
1,080
1&2
Y
Masonry Wall/Steel Roof
Dallas-Centennial
102,637
Y
6.7
1&2
Y
Masonry Wall/Steel Roof
Dallas-Samuell
79,046
Y
3.8
1&2
Y
Masonry Wall/Steel Roof
Dallas-Hargrove
71,879
Y
3.1
1&2
Y
Masonry Wall/Steel Roof
Houston-Antoine
76,620
Y
4.1
Y
Metal Wall/Metal Roof
Katy
43,995
Y
8.6
Y
Metal Wall/Metal Roof
Humble
63,599
Y
2.3
Y
Masonry Wall/Metal Roof
Houston-Old Katy
52,860
Y
3.0
Y
Masonry Wall/Shingle Roof
Webster-Hwy 3
55,350
Y
3.3
Y
Masonry Wall/Metal Roof
Carrollton
51,315
Y
3.2
Y
Masonry Wall/Metal Roof
San Marcos
61,590
Y
5.0
N
Metal Wall/Metal Roof
Austin-McNeil
73,115
Y
7.0
Y
Metal Wall/Metal Roof
Austin-FM
59,910
Y
4.9
Y
Metal Wall/Metal Roof
Euless
93,480
Y
7.5
Y
Metal Wall/Metal Roof
N. Richland Hills
86,890
Y
7.4
Y
Metal Wall/Metal Roof
Katy-Franz
67,235
Y
7.2
Y
Metal Wall/Metal Roof
Cedar Hill
52,735
Y
3.0
Y
Metal Wall/Metal Roof
Seabrook
61,225
Y
4.3
Y
Metal Wall/Metal Roof
Houston-Westward
125,844
Y
6.1
1,160
1&2
Y
Masonry Wall/Tar-Gravel Roof
Houston-Boone
45,460
Y
2.3
Y
Masonry Wall/Metal Roof
Houston-Cook
60,455
Y
3.0
Y
Masonry Wall/Metal Roof
Houston-Harwin
77,454
Y
2.8
1&2
Y
Masonry Wall/Tar-Gravel Roof
Houston-Hempstead
99,153
Y
3.5
1&2
Y
Masonry Wall/Metal Roof
Houston-Kuykendahl
102,550
Y
4.8
Y
Masonry Wall/Metal Roof
Houston-Hwy 249
54,996
Y
2.9
Y
Masonry Wall/Metal Roof
Mesquite-Hwy 80
63,440
Y
6.1
1&2
Y
Masonry Wall/Tar-Gravel Roof
Mesquite-Franklin
83,705
Y
3.2
Y
Masonry Wall/Metal Roof
Dallas-Plantation
61,865
Y
2.4
1&2
Y
Masonry Wall/Metal Roof
San Antonio-Hunt
63,645
Y
4.1
Y
Masonry Wall/Metal Roof
Humble
115,595
Y
5.9
N
Metal Wall/Metal Roof
Pasadena
55,360
Y
3.2
N
Metal & MasonryWall/Metal Roof
League City
72,070
Y
4.4
1&2
N
Metal & MasonryWall/Metal Roof
Montgomery
44,400
Y
2.5
N
Metal Wall/Metal Roof
Texas City
55,700
Y
3.4
N
Metal & Masonry Wall/Metal Roof
Houston-Hwy 6
47,475
Y
2.6
N
Metal Wall/Metal Roof
Lumberton
45,040
Y
4.1
N
Metal Wall/Metal Roof
Dallas-Duncanville
1995/99
81,735
N
5.0
Y
Masonry Wall/Metal Roof
Dallas-Harry Hines
1998/01
66,363
N
2.5
Y
Masonry Wall/Metal Roof
- 16 -
<page>
Virginia
87%
Newport News I
58,305
Y
3.2
Y
Steel Bldg./Steel Roof
Alexandria
76,240
Y
3.2
1,142
Y
Masonry Wall/Tar & Gravel Roof
Norfolk I
50,430
Y
2.7
Y
Steel Bldg./Steel Roof
Norfolk II
45,275
Y
2.1
Y
Masonry Wall/Steel Roof
Richmond
51,615
Y
2.7
Y
Masonry Wall/Steel Roof
Newport News II
1988/93
63,535
Y
4.7
Y
Steel Bldg./Steel Roof
Lynchburg-Lakeside
58,278
Y
5.3
N
Masonry Wall/Steel Roof
Lynchburg-Timberlake
43,830
Y
2.3
N
Masonry Wall/Steel Roof
Lynchburg-Amherst
23,618
Y
1.5
N
Masonry Wall/Metal Roof
Christiansburg
1985/90
37,468
Y
3.2
Y
Masonry Wall/Metal Roof
Chesapeake
1988/95
43,225
Y
12.0
Y
Metal Wall/Steel Roof
Danville
49,792
Y
3.2
N
Steel Wall/Metal Roof
Chesapeake-Military
58,505
Y
3.0
N
Masonry Wall/Metal Roof
Chesapeake-Volvo
73,975
Y
4.0
N
Masonry Wall/Metal Roof
Virginia Beach-Shell
52,626
Y
2.5
N
Masonry Wall/Metal Roof
Virginia Beach-Central
1993/95
96,031
Y
5.0
N
Masonry Wall/Metal Roof
Norfolk-Naval Base
126,358
Y
5.2
1,244
N
Masonry Wall/Metal Roof
Lynchburg-Timberlake
1990/96
50,165
Y
5.2
N
Masonry Wall/Metal Roof
Total for all Properties
14,853,829
85%
1,085
128,792
2,054
- 17 -
<page>
Item 3.
Item 3.
Legal Proceedings
In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, the Company does not believe that any of these matters will have a material adverse impact on the financial condition, results of operations or cash flows of the Company.
Item 4.
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.
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
1st
32.0700
28.8000
2nd
34.1700
29.8800
3rd
34.2000
27.9500
4th
30.4900
26.3800
Quarter
High
Low
1st
29.0100
25.4100
2nd
31.5000
27.9600
3rd
33.4800
30.2300
4th
37.5600
32.6000
As of March 1, 2004, there were approximately 1,122 holders of record of the Company's Common Stock.
We have paid quarterly dividends to our shareholders since our inception. Reflected in the table below are the dividends paid in the last two years.
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 2003 represent 65% ordinary income and 35% return of capital.
- 18 -
<page>
History of Dividends Declared on Common Stock
1st Quarter, 2002
$0.5900 per share
2nd Quarter, 2002
$0.5900 per share
3rd Quarter, 2002
$0.6000 per share
4th Quarter, 2002
$0.6000 per share
1st Quarter, 2003
$0.6000 per share
2nd Quarter, 2003
$0.6000 per share
3rd Quarter, 2003
$0.6025 per share
4th Quarter, 2003
$0.6025 per share
- 19 -
<page>
Item 6.
Item 6.
Selected Financial Data
(1) We believe that Funds from Operations ("FFO") provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be considered along with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.
Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions. See the reconciliation of net income to FFO in Management's Discussion and Analysis of Financial Condition and Results of Operations.
- 20 -
<page>
Item 7.
Item 7.
Management's Discussion and Analysis of Financial Condition 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.
When used in this discussion and elsewhere in this document, the words "intends," "believes," "expects," "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 and in Section 21F of the Securities 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 Company 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 Company's ability to evaluate, finance and integrate acquired businesses into the Company's existing business and operations; the Company's ability to form joint ventures and sell existing properties to those joint ventures and others; the Company's ability to effectively compete in the industry in which it does business; the Company's existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company's outstanding floating rate debt; the Company's ability to successfully extend its truck leasing program and Dri-Guard product roll-out; the Company's reliance on its call center; the Company's cash flow may be insufficient to meet required payments of principal and interest; and tax law changes that may change the taxability of future income.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in our financial statements and the accompanying notes. On an on-going basis, we evaluate our estimates and judgments, including those related to carrying values of storage facilities, bad debts, and contingencies and litigation. We base these estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Carrying value of storage facilities: We believe our judgment regarding the impairment of the carrying value of our storage facilities is a critical accounting policy. Our policy is to assess any impairment of value whenever events or circumstances indicate that the carrying value of our storage facility may not be recoverable. Such events or circumstances would include negative operating cash flow or significant declining revenue per storage facility. Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the storage facility, on a property by property basis. If the sum of the
- 21 -
<page>
undiscounted cash flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset. If cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable, impairment charges may be required at that time and could materially affect our operating results and financial position. At December 31, 2003 and 2002, no assets had been determined to be impaired under this policy, and, accordingly, this policy had no impact on our financial position or results of operations.
Estimated useful lives of long-lived assets: We believe that the estimated lives used for our depreciable, long-lived assets is a critical accounting policy. Changes in estimated useful lives of these assets could have a material adverse impact on our financial condition or results of operations.
Qualification as a REIT: We operate, and intend to continue to operate, 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 we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. If we fail to qualify as a REIT, any requirement to pay federal income taxes could have a material adverse impact on our financial conditions and results of operations.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO
YEAR ENDED DECEMBER 31, 2002
We recorded rental revenues of $110.2 million for the year ended December 31, 2003, an increase of $10.2 million or 10.2% when compared to 2002 rental revenues of $100.0 million. Of this increase, $4.8 million resulted from a 5% increase in rental revenues at the 230 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2002). The increase in same store rental revenues was achieved primarily through rate increases on select units, and improved responsiveness to customer demand created by our centralized call center and the availability of rental trucks at 158 of our stores. Occupancy levels grew slightly, and while the extensive discounting and promotional advertising seen in 2002 diminished, the storage industry as a whole was affected by a sluggish economy and a steady increase in supply of new storage units. The remaining $5.4 million increase in rental revenues resulted from the acquisition of two stores during 2003 and from having the 2002 acquisitions included for a full year of operations. Other income increased $0.8 million due to increased insurance sales and the additional revenue generated by truck rentals.
Property operating and real estate tax expense increased $5.6 million or 16.7% in 2003 compared to 2002. Of this, $1.7 million was incurred by the facilities acquired in 2003 and from having the 2002 acquisitions included for a full year of operations. The remaining $3.9 million increase was due to increased insurance, personnel, truck expense, maintenance, and increased property taxes at the 230 core properties considered same stores. While the trend of the past three years has been one of increasing operating costs, we expect this to subside in 2004 and 2005, as many of the new initiatives (increased store hours, truck availability and enhanced security and communication technologies) are now in place and related costs should not increase significantly. Nonetheless, the expenses related to operating a self-storage facility have increased substantially since 2001, and while current operating margins are expected to be sustained, it is not likely that much improvement will be seen in the coming years as a result of cost reductions.
- 22 -
<page>
General and administrative expenses increased $1.0 million or 12.0%. The increase primarily resulted from increased cost in our call center, new training center, and the increased costs associated with operating the properties acquired in 2003 and 2002.
Depreciation and amortization expense increased to $19.0 million from $17.4 million, primarily as a result of additional depreciation taken on real estate assets acquired in 2003 and a full year of depreciation on 2002 acquisitions.
Income from operations increased from $42.6 million in 2002 to $45.4 million in 2003 as a result of the aforementioned items.
Interest expense increased from $14.7 million to $15.1 million as a result of higher interest rates associated with the fixed rate debt entered into in September 2003.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO
YEAR ENDED DECEMBER 31, 2001
Rental revenues were $100.0 million for the year ended December 31, 2002, an increase of $10.9 million or 12.2% when compared to 2001 rental revenues of $89.1 million. Of this increase, $1.2 million resulted from a 1.3% increase in revenues at the 222 core properties considered in same store sales. The remaining $9.7 million increase in rental revenues resulted from the acquisition of 23 stores during 2002 and from having the 2001 acquisitions included for a full year of operations. Other income increased $0.2 million due to increased insurance sales and the additional revenue generated by truck rentals.
Property operating and real estate tax expense increased $5.1 million or 17.7% in 2002 compared to 2001. Of this, $3.5 million was incurred by the facilities acquired in 2002 and from having the 2001 acquisitions included for a full year of operations. The remaining $1.6 million increase was due to increased insurance, personnel, truck expense, and increased property taxes at the 222 core properties considered same stores.
General and administrative expenses increased $0.6 million or 7.0%. The increase includes additional costs of approximately $2.3 million, which primarily resulted from increased cost in our call center and the increased costs associated with operating the properties acquired in 2002. The 2001 general and administrative expenses included a $1.7 million expense in connection with the lawsuit settlement - see Note 15 of the financial statements. There was no such charge in 2002.
Depreciation and amortization expense increased to $17.4 million from $15.0 million, primarily as a result of additional depreciation taken on real estate assets acquired in 2002 and a full year of depreciation on 2001 acquisitions.
Income from operations increased from $39.5 million in 2001 to $42.6 million in 2002 as a result of the aforementioned items.
- 23 -
<page>
Interest expense increased from $13.9 million to $14.7 million as a result of higher rates associated with the mortgage debt incurred on the consolidated joint venture properties and the effect of interest rate swap agreements entered into during 2001.
- 24 -
<page>
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
We believe that Funds from Operations ("FFO") provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be considered along with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.
Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.
LIQUIDITY AND CAPITAL RESOURCES
Our ability to retain cash flow is limited because we operate as a REIT. In order to maintain our REIT status, a substantial portion of our operating cash flow must be used to pay dividends to our shareholders. We believe that our internally generated net cash provided by operating activities will continue to be sufficient to fund ongoing operations, capital improvements, dividends and debt service requirements through September 2006, at which time our revolving line of credit matures.
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Cash flows from operating activities were $52.1 million, $45.6 million and $40.9 million for the years ended December 31, 2003, 2002, and 2001, respectively. The increase for each year is primarily attributable to increased net income and increased non-cash charges for depreciation and amortization.
On September 4, 2003, we entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. Our new unsecured line of credit provides availability up to $75 million (expandable to $100 million), of which $9 million was drawn on December 31, 2003. The revolving line of credit facility matures in September 2006 and bears interest at a variable rate equal to LIBOR plus 1.375%. We also entered into a $100 million term note through September 2008 at a variable rate equal to LIBOR plus 1.50%.
In addition to the line of credit and term note mentioned above, we also issued a $80 million unsecured term note bearing interest at a fixed rate of 6.26% and a $20 million unsecured term note bearing interest at a variable rate equal to LIBOR plus 1.50%. The term notes mature September 2013.
The line of credit facility and term notes currently have investment grade ratings from Standard and Poor's (BBB-), Moody's (Baa3), and Fitch (BBB-).
In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year note bears interest at a fixed rate of 7.19%.
Principal maturities of the mortgage for the next five years are as follows: 2004, $0.7 million; 2005, $0.8 million; 2006, $0.9 million; 2007, $0.9 million; and 2008, $1.0 million.
In July 1999, we issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. The Series B Preferred Stock is currently rated by Standard and Poor's (BB+), Moody's (Ba2) and Fitch (BB+). We have the ability to retire our Series B Preferred Stock issue at any time after July 31, 2004. Should market conditions be favorable, and if by so doing our capital position would be enhanced, it is expected that this issue would be redeemed at a total cost of $30 million. If we elect to redeem this stock, we would use the proceeds from our Dividend Reinvestment and Direct Stock Purchase Plan to fund the redemption. In accordance with Emerging Issues Task Force ("EITF") Topic D-42, "The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock", we would expect to record a reduction of approximately $1.4 million from net income to arrive at net income available to common shareholders relating to the difference between the Series B Preferred Stock carrying value and the expected redemption amount should the issue be redeemed.
On July 3, 2002, we entered into an agreement providing for the issuance of 2,800,000 shares of 8.375% Series C Convertible Cumulative Preferred Stock and warrants to purchase 379,166 shares of common stock at $32.60 per share in a privately negotiated transaction. We immediately issued 1,600,000 shares of the Series C Preferred and issued the remaining 1,200,000 shares on November 27, 2002. The offering price was $25.00 per share and the net proceeds of $67.9 million were used to reduce indebtedness that was incurred in the June 2002 acquisition of seven self-storage properties and to repay a portion of the line of credit.
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From January 1, 2003 through December 31, 2003, we acquired 145,816 shares of our common stock via the Share Repurchase Program authorized by the Board of Directors. From the inception of the Share Repurchase Program through December 31, 2003, we have reacquired a total of 1,171,886 shares pursuant to this program. From time to time, subject to market price and certain loan covenants, we may reacquire additional shares.
During 2003, we issued approximately 1,421,000 shares via our Dividend Reinvestment and Stock Purchase Plan and Employee Stock Option Plan. We realized $42 million from the sale of such shares. We expect to issue shares when our share price and capital needs warrant such issuance.
Future acquisitions, share repurchases and repayment of the credit line are expected to be funded with the revolving line of credit, issuance of secured or unsecured term notes, issuance of common or preferred stock, sale of properties, private placement solicitation of joint venture equity and other sources of capital.
CONTRACTUAL OBLIGATIONS
The following table summarizes our future contractual obligations:
The above amounts for the line of credit and term notes exclude interest.
ACQUISITION OF PROPERTIES
During 2003, we used operating cash flow and borrowings pursuant to the line of credit to acquire two Properties in Texas comprising 148,098 square feet from unaffiliated storage operators. In 2002, we along with the consolidated joint venture used borrowings pursuant to the line of credit and a mortgage to acquire 23 Properties comprising 1.5 million square feet. At December 31, 2003, we owned and/or operated 266 self-storage facilities in 21 states. Of these facilities, 11 are managed by us for Locke Sovran I, LLC, an unconsolidated joint venture.
FUTURE ACQUISITION AND DEVELOPMENT PLANS
Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations, or to expand in new markets by acquiring several facilities at once in those new markets.
At December 31, 2003, we had no contracts to acquire additional properties.
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We also intend to expand and enhance certain of our existing facilities by building additional storage buildings on presently vacant land and by installing climate control and enhanced security systems at selected sites.
DISPOSITION OF PROPERTIES
During 2001, we sold eight Properties for approximately $24.5 million to Locke Sovran II, LLC. Because Locke Sovran II, LLC is a consolidated joint venture, no gain was recognized on the sale.
In 2000, we sold seven Properties for approximately $20 million, recognizing a gain of $2.1 million. The gain recognized represents the proportion of the total gain not related to our ongoing ownership interest. The Properties were sold to an unconsolidated joint venture in which we retained a 45% interest and whose properties we manage for an ongoing fee. We invested $5 million of the proceeds to fund our 45% interest in the venture and received a short-term promissory note of approximately $15 million. The note was repaid in 2001 and we used the proceeds to pay down our outstanding line of credit, freeing up working capital for acquisitions and expansions done in 2001.
We may seek to sell additional Properties to similar joint venture programs or third parties in 2004. On February 20, 2004, we sold our facility in Allentown, PA to an independent operator resulting in a gain of approximately $0.9 million and, at March 1, 2004, have negotiated agreements to sell two of our properties in Ohio to another independent operator.
INVESTMENT IN JOINT VENTURES
Investment in joint ventures includes an ownership interest in Locke Sovran I, LLC, which operates 11 self storage facilities throughout the United States, and an ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses our headquarters and other tenants.
In December 2000, we contributed seven self-storage properties to Locke Sovran I, LLC with a fair market value of $19.8 million, in exchange for a $15 million one year note receivable bearing interest at LIBOR plus 1.75% that was repaid in 2001, and a 45% interest in Locke Sovran I, LLC. For the year ended December 31, 2003, our share of Locke Sovran I, LLC's income was $86,000, which is recorded as equity in income of joint ventures on the consolidated statements of income. We manage the storage facilities for Locke Sovran I, LLC and received fees of $311,000, $290,000, and $413,000, for the years ended 2003, 2002, and 2001, respectively.
We also have a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2003. The majority of the $1.0 million investment relates to interest bearing loans made by us to the joint venture. For the year ended December 31, 2003, our share of Iskalo Office Holdings, LLC's income was $59,000. We paid rent to Iskalo Office Holdings, LLC of $393,000 in 2003 and $225,000 in 2002 and 2001. Also, during 2003 the Company purchased a tract of land from Iskalo Office Holdings, LLC for $1.2 million.
A summary of the unconsolidated joint ventures' financial statements as of and for the year ended December 31, 2003 is as follows:
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(dollars in thousands)
Locke Sovran I,
LLC
Iskalo Office
Holdings, LLC
Balance Sheet Data:
Investment in storage facilities, net
$ 39,333
$ -
Investment in office building
-
6,051
Other assets
1,691
Total Assets
$ 41,024
$ 6,443
Due to the Company
$ 2,133
$ 1,418
Mortgage payable
30,018
5,800
Other liabilities
Total Liabilities
32,843
7,308
Unaffiliated partners' equity (deficiency)
4,445
(458)
Company equity (deficiency)
3,736
(407
)
Total Liabilities and Partners' Equity (deficiency)
$ 41,024
$ 6,443
Income Statement Data:
Total revenues
$ 6,224
$ 994
Total expenses
6,032
Net income
$ 192
$ 121
We do not expect to have material future cash outlays relating to these joint ventures and we do not guarantee the debt of Locke Sovran I, LLC or Iskalo Office Holdings, LLC.
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS
As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that the amount distributed is equal to at least 90% of our taxable income. These distributions must be made in the year to which they relate, or in the following year if declared before we file our federal income tax return, and if it is paid before the first regular dividend of the following year. The first distribution of 2004 may be applied toward our 2003 distribution requirement.
As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends. In 2003, our percentage of revenue from such sources exceeded 97%, thereby passing the 95% test, and no special measures are expected to be required to enable us to maintain our REIT designation.
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INTEREST RATE RISK
At December 31, 2003, we have three outstanding interest rate swap agreements. The first, entered into in March 2001, effectively fixes the LIBOR base rate at 5.36% through November 2005 on $50 million notional amount. The second, entered in September 2001, effectively fixes the LIBOR base rate at 4.485% through October 2006 on another $50 million notional amount. The third, also entered in September 2001, effectively fixes the LIBOR base rate at 4.805% through September 2008 on $30 million notional amount. We have an unsecured credit facility in place through September 2006 enabling us to borrow funds at rates of LIBOR plus 1.375%, an unsecured term note at rates of LIBOR plus 1.5% through September 2008, and an unsecured term note at rates of LIBOR plus 1.5% through September 2013. As a result of the above described interest rate swap agreements, we have fixed our interest rate through November 2005 on $9 million at 6.735%, and $41 million at 6.86%, through October 2006 on $50 million at 5.985%, and through September 2008 on $29 million at 6.305%. Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we negotiate with the lenders; however, the LIBOR base rates have been contractually fixed on $129 million of our debt through the interest rate swap termination dates.
Through November 2005, all of our $209 million of unsecured debt is on a fixed rate basis after taking into account the interest rate swaps noted above. Based on our outstanding debt of $209 million at December 31, 2003, a 1% increase in interest rates would have no effect on our interest expense.
INFLATION
We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at the facilities are on a month-to-month basis which provides us with the opportunity to increase rental rates as each lease matures.
SEASONALITY
Our revenues typically have been higher in the third and fourth quarters, primarily because we increase rental rates on most of our storage units at the beginning of May and 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, we believe that our 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, we do not expect seasonality to affect materially distributions to shareholders.
RECENT ACCOUNTING PRONOUNCEMENT
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB 51." The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i)
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the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. We are currently evaluating the impact of adopting FIN 46-R applicable to Non-Special Purpose Entities created prior to February 1, 2003, but do not expect a material impact to our financial position, results of operations, and cash flows.
Effective June 2003, the Company adopted FASB Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (Statement No. 150). Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument within its scope as a liability. Many of these instruments were previously classified as equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB issued FASB Staff Position (FSP) SFAS 150-3, "Effective Date for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under SFAS 150", which defers certain provisions of Statement No. 150 as they apply to mandatorily redeemable noncontrolling interests. The deferral is expected to remain in effect while those issues are addressed in either Phase II of the FASB's Liabilities and Equity project or Phase II of the Business Combination project. Adoption of Statement No. 150 did not have a material effect on our consolidated financial statements.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The information required is incorporated by reference to the information appearing under the caption "Interest Rate Risk" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" above.
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<page>
Item 8.
Item 8.
Financial Statements and Supplementary Data
SOVRAN SELF STORAGE, INC. CONSOLIDATED BALANCE SHEETS
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<page>
Dividends in excess of net income
(48,069)
(35,124)
Accumulated other comprehensive income (loss)
(7,580)
(10,020)
Treasury stock at cost, 1,171,886 shares (1,026,070
shares at December 31, 2002)
(27,175)
(23,225)
Total Shareholders' Equity
368,197
342,774
Total Liabilities and Shareholders' Equity
$683,457
$652,337
See notes to financial statements.
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SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to financial statements.
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<page>
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
9.85% Series B
Preferred
Stock
Shares
9.85% Series B
Preferred
Stock
8.375% Series C
Preferred
Stock
Shares
8.375% Series C
Preferred
Stock
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Unearned
Restricted
Stock
Dividends in
Excess of
Net Income
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Total
Equity
Balance January 1, 2001
1,200,000
$ 28,585
-
$ -
12,028,687
$ 128
$ 283,745
$ (550)
$ (18,282)
$ -
$ (16,228)
$ 277,398
Net proceeds from issuance of
stock through Dividend
Reinvestment and Stock
Purchase Plan
-
-
-
-
221,303
5,207
-
-
-
-
5,209
Exercise of stock options
-
-
-
-
52,500
1,095
-
-
-
-
1,096
Issuance of restricted stock
-
-
-
-
78,365
1,851
(1,852)
-
-
-
-
Earned portion of restricted stock
-
-
-
-
-
-
-
-
-
-
Deferred compensation outside
directors
-
-
-
-
-
-
-
-
-
-
Purchase of treasury shares
-
-
-
-
(66,753)
-
-
-
-
-
(1,809)
(1,809)
Shares issued from conversion of
partnership units
-
-
-
-
40,859
-
1,091
-
-
-
-
1,091
Carrying value in excess of
redemption value on redeemed
partnership units
-
-
-
-
-
-
-
-
-
-
Net income
-
-
-
-
-
-
-
-
24,189
-
-
24,189
Increase in fair value of
derivatives
-
-
-
-
-
-
-
-
-
-
Total comprehensive income
-
-
-
-
-
-
-
-
-
-
-
24,562
Dividends
-
-
-
-
-
-
-
-
(31,653)
-
-
(31,653)
Balance December 31, 2001
1,200,000
28,585
-
-
12,354,961
293,835
(1,978)
(25,746)
(18,037)
277,164
Net proceeds from issuance of
stock through Dividend
Reinvestment and Stock
Purchase Plan
-
-
-
-
549,720
16,440
-
-
-
-
16,446
Issuance of 8.375% Series C
Convertible Preferred Stock
-
-
2,800,000
67,129
-
-
-
(230)
-
-
67,876
Exercise of stock options
-
-
-
-
247,775
5,646
-
-
-
-
5,648
Issuance of restricted stock
-
-
-
-
18,500
-
(586)
-
-
-
-
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Earned portion of restricted stock
-
-
-
-
-
-
-
-
-
-
Deferred compensation outside
directors
-
-
-
-
-
-
-
-
-
-
Purchase of treasury shares
-
-
-
-
(186,617)
-
-
-
-
-
(5,188)
(5,188)
Carrying value less than
redemption value on redeemed
partnership units
-
-
-
-
-
-
(150)
-
-
-
-
(150)
Net income
-
-
-
-
-
-
-
-
26,301
-
-
26,301
Change in fair value of
derivatives
-
-
-
-
-
-
-
-
-
(10,393)
-
(10,393)
Total comprehensive income
-
-
-
-
-
-
-
-
-
-
-
15,908
Dividends
-
-
-
-
-
-
-
-
(35,449
)
-
-
(35,449
)
Balance December 31, 2002
1,200,000
28,585
2,800,000
67,129
12,984,339
317,423
(2,134)
(35,124)
$(10,020)
$ (23,225)
$342,774
Net proceeds from issuance of
stock through Dividend
Reinvestment and Stock
Purchase Plan
-
-
-
-
1,098,230
34,588
-
-
-
-
34,599
Exercise of stock options
-
-
-
-
323,110
7,726
-
-
-
-
7,729
Earned portion of restricted stock
-
-
-
-
-
-
-
-
-
-
Deferred compensation outside
directors
-
-
-
-
-
-
-
-
-
-
Value of Series C Preferred
Stock placement certificate
-
-
-
-
-
-
(2,958)
-
-
-
-
(2,958)
Purchase of treasury shares
-
-
-
-
(145,816)
-
-
-
-
-
(3,950)
(3,950)
Net income
-
-
-
-
-
-
-
-
28,423
-
-
28,423
Change in fair value of
derivatives
-
-
-
-
-
-
-
-
-
2,440
-
2,440
Total comprehensive income
-
-
-
-
-
-
-
-
-
-
-
30,863
Dividends
-
-
-
-
-
-
-
-
(41,368
)
-
-
(41,368
)
Balance December 31, 2003
1,200,000
$ 28,585
2,800,000
$ 67,129
14,259,863
$ 154
$ 356,875
$ (1,722
)
$ (48,069
)
$ (7,580
)
$ (27,175)
$368,197
See notes to financial statements.
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SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
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<page>
Purchase of treasury stock
(3,950)
(5,188)
(1,809)
Redemption of operating partnership units
(462)
(3,163)
(3,778)
Mortgage principal and capital lease payments
(1,176)
(2,671)
(33)
Net cash (used in) provided by financing
Activities
(2,764)
53,814
(22,709)
Net increase in cash
18,038
Cash at beginning of period
2,063
1,883
1,421
Cash at end of period
$ 20,101
$ 2,063
$ 1,883
Dividends declared but unpaid at December 31, 2003, 2002 and 2001 were $8,592, $7,791, and $7,293, respectively.
See notes to financial statements.
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<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sovran Self Storage, Inc. - December 31, 2003
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. At December 31, 2003, the Company owned and/or managed 266 self-storage properties under the "Uncle Bob's Self Storage" Registered trade name in 21 states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: All of the Company's assets are owned by, and all its operations are conducted through, Sovran Acquisition Limited Partnership (the "Operating 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 Operating Partnership, and thereby controls the operations of the Operating Partnership, holding a 96.35% ownership interest therein as of December 31, 2003. 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 its formation.
The consolidated financial statements of the Company include the accounts of the Company, the Operating Partnership, and Locke Sovran II, LLC, which is a majority controlled joint venture. All intercompany transactions and balances have been eliminated. Investments in joint ventures that are not majority owned are reported using the equity method.
Cash and Cash Equivalents: The Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents.
Revenue and Expense Recognition: Rental income is recorded when earned. Rental income received prior to the start of the rental period is included in deferred revenue. Advertising costs are expensed as incurred and for the years ended December 31, 2003, 2002, and 2001 were $0.6 million, $0.6 million, and $0.4 million, respectively.
Other Income: Consists primarily of sales of storage-related merchandise (locks and packing supplies), management fees, insurance commissions, and 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 that extend the useful life of assets are capitalized. Repair and maintenance costs are expensed as incurred.
Whenever events or changes in circumstances indicate that the basis of the Company's property may not be recoverable, the Company's policy is to assess any impairment of value. Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash
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flows to the carrying value of the property, on a property by property basis. If the sum of the undiscounted cash flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. At December 31, 2003 and 2002, no assets had been determined to be impaired under this policy and, accordingly, this policy had no impact on the Company's financial position or results of operations.
Other Assets: Included in other assets are intangible assets of $3.3 million and a note receivable of $2.8 million. The intangible assets at December 31, 2003, consist primarily of loan acquisition costs of approximately $3.6 million, net of accumulated amortization of approximately $0.3 million. Loan acquisition costs are amortized over the terms of the related debt. Amortization expense was $0.9 million, $1.0 million and $1.1 million for the periods ended December 31, 2003, 2002 and 2001, respectively. The note receivable of $2.8 million represents a note from certain investors of Locke Sovran II, LLC. The note bears interest at LIBOR plus 2.4% and matures upon the dissolution of Locke Sovran II, LLC.
Stock-Based Compensation: In accordance with the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation," the Company has elected to continue applying the provisions of Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for its stock-based compensation plans. Accordingly, the Company does not recognize compensation expense for stock options when the stock option price at the grant date is equal to or greater than the fair market value of the stock at that date. The following illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 (in thousands, except for earnings per share information):
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No. 123. The fair value for the stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 3.5% for 2003, 4.0% for 2002, and 5.0% for 2001;
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dividend yield of 7.0% for 2003, 8.0% for 2002, and 10.7% for 2001; volatility factor of the expected market price of the Company's common stock of .19 for 2003, and .21 for 2002 and .23 for 2001. The average fair value of options granted was $2.21 in 2003, $1.98 in 2002, and $.93 in 2001.
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.
Minority Interest: The minority interest reflects the outside ownership interest of the limited partners of the Operating Partnership and the joint venture partner's interest in Locke Sovran II, LLC. Amounts allocated to these interests are reflected as an expense in the income statement and increase the minority interest in the balance sheet. Distributions to these partners reduce this balance. At December 31, 2003, Operating Partnership minority interest ownership was 540,745 Units, or 3.65%.
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 90% of its taxable income to its shareholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes in the accompanying financial statements.
Comprehensive Income: Comprehensive income consists of net income and the change in value of derivatives used for hedging purposes and is reported in the consolidated statements of shareholders' equity. Comprehensive income was $30.9 million, $15.9 million and $24.6 million for the years ended December 31, 2003, 2002, and 2001, respectively.
Derivative Financial Instruments: On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by reference to quoted market prices. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company's use of derivative instruments is limited to cash flow hedges, as defined in SFAS No. 133, of certain interest rate risks.
Recent Accounting Pronouncements: In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB 51." The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an
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entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The Company is currently evaluating the impact of adopting FIN 46-R applicable to entities that are not special purpose entities created prior to February 1, 2003 but does not expect a material impact.
Effective June 2003, the Company adopted FASB Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (Statement No. 150). Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument within its scope as a liability. Many of these instruments were previously classified as equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB issued FASB Staff Position (FSP) SFAS 150-3, "Effective Date for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under SFAS 150", which defers certain provisions of Statement No. 150 as they apply to mandatorily redeemable noncontrolling interests. The deferral is expected to remain in effect while those issues are addressed in either Phase II of the FASB's Liabilities and Equity project or Phase II of the Business Combination project. Adoption of Statement No. 150 did not have a material effect on the Company's consolidated 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
The Company reports earnings per share data in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." In computing earnings per share, the Company excludes preferred stock dividends from net income to arrive at net income available to common shareholders. The following table sets forth the computation of basic and diluted earnings per common share.
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Potential common shares from the Series C Convertible Cumulative Preferred Stock, see Note 12, were excluded from the 2003 and 2002 diluted earnings per share calculation because their inclusion would have had an antidilutive effect on earnings per share.
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the years ended December 31, 2003 and December 31, 2002.
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During 2003 the Company acquired two storage facilities, one in August for $5.2 million and one in October for $4.6 million. Substantially all of the purchase price of these two facilities was allocated to land and building and the operating results of the acquired facilities have been included in the Company's operations since the respective acquisition dates.
5. UNSECURED LINE OF CREDIT AND TERM NOTE
The Company had a $150 million revolving line of credit at LIBOR plus 1.375% and a $75 million term loan due November 2003 at LIBOR plus 1.75%. The facility was scheduled to mature November 2003; the facility was paid off in 2003 with the proceeds of the new debt agreements described below.
On September 4, 2003, the Company entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. The new agreements provide for a $75 million (expandable to $100 million) revolving line of credit maturing September 2006 bearing interest at a variable rate equal to LIBOR plus 1.375%, a $100 million term note maturing September 2008 bearing interest at a variable rate equal to LIBOR plus 1.50%, a $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26% and a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.5%. The weighted average interest rate at December 31, 2003 on the Company's line of credit before the effect of interest rate swaps was approximately 2.5% (3.0% at December 31, 2002). At December 31, 2003, there was $66 million available on the revolving line of credit excluding the amount available on the expansion feature.
The Company recorded an expense of $713,000 during 2003, representing the unamortized financing costs relating to the credit facilities that were replaced by the new credit arrangements.
The net carrying amount of the Company's debt instruments approximates fair value.
6. MORTGAGE PAYABLE AND CAPITAL LEASE OBLIGATIONS
In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year mortgage bears interest at the fixed rate of 7.19%. The outstanding balance on the mortgage is $46.8 million at December 31, 2003. Principal maturities of the mortgage for the next five years are as follows: 2004, $0.7 million; 2005, $0.8 million; 2006, $0.9 million; 2007, $0.9 million; and 2008, $1.0 million.
During 2002, the Company entered into lease agreements, qualifying as capital leases, for trucks to be used at its storage facilities. On December 31, 2003, the Company purchased the entity from which it was leasing the trucks. The purchase price of $3.3 million was allocated to the cost of the trucks. This purchase resulted in the discharge of the capital lease obligations.
7. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an
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amount equal to a variable rate of interest times the same notional amount. The notional amounts are not exchanged. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its fair value. The Company enters interest rate swaps with a number of major financial institutions to minimize counterparty credit risk.
The interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders' equity as Accumulated Other Comprehensive Income ("AOCI"). These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was immaterial in 2003 and 2002.
The Company has entered into three interest rate swap agreements, one in March 2001 for $50 million and two in September 2001 for $50 million and $30 million, to effectively convert a total of $130 million of variable-rate debt to fixed-rate debt. One of the $50 million interest rate swap agreements matures in November 2005, the other matures in October 2006, and the $30 million swap agreement matures in September 2008.
The 2001 interest rate swap agreements are the only derivative instruments, as defined by SFAS No. 133, held by the Company; as such, there was no impact upon adoption of SFAS No. 133 at January 1, 2001. During 2003, 2002, and 2001, the net reclassification from AOCI to interest expense was $4.8 million, $4.0 million and $1.1 million, respectively, based on payments made under the swap agreements. Based on current interest rates, the Company estimates that payments under the interest rate swaps will be approximately $4.8 million in 2004. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements including accrued interest was a liability of $7.8 million and $10.3 million at December 31, 2003, and 2002 respectively.
8. STOCK OPTIONS
The Company established the 1995 Award and Option Plan (the "Plan") for the purpose of attracting and retaining the Company's executive officers and other key employees. 1,500,000 shares were authorized for issuance under the Plan. The options vest ratably over four and five 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, 2003, options for 368,165 shares were outstanding under the Plan and options for 365,360 shares of common stock were available for future issuance.
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 3,500 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 150,000. The exercise price for options granted
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under the Non-employee Plan is equal to fair market value at date of grant. As of December 31, 2003, options for 75,500 shares were outstanding under the Non-employee Plan and options for 48,500 shares of common stock were available for future issuance.
The Company has also issued 132,340 shares of restricted stock to employees which vest over four to nine year periods. The fair market value of the restricted stock on the date of grant ranged from $20.38 to $31.65. The Company charges unearned restricted stock, a component of shareholders' equity, for the market value of shares as they are issued. The unearned portion is then amortized and charged to expense over the vesting period.
A summary of the Company's stock option activity and related information for the years ended December 31 follows:
At December 31, 2003, there were 245,500 options outstanding at exercise prices ranging from $19.07 to $24.99 and 198,165 options outstanding at exercise prices ranging from $25.00 to $33.40. The weighted average remaining contractual life of those options is 6.67 years. As disclosed further in Note 12, warrants to purchase 379,166 common shares of the Company at a price of $32.60 per share are outstanding at December 31, 2003.
9. RETIREMENT PLAN
Employees of the Company qualifying under certain age and service requirements are eligible to be a participant in a 401(k) Plan. The Company contributes to the Plan at the rate of 50% of the first 4% of gross wages that the employee contributes. Total expense to the Company was approximately $119,000, $92,000, and $63,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
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10. 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 the Company's common stock. If a person or group acquires more than 10% of the then outstanding shares of the Company's 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.
11. INVESTMENT IN JOINT VENTURES
Investment in joint ventures includes an ownership interest in Locke Sovran I, LLC, which operates 11 self-storage facilities throughout the United States, and an ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company's headquarters and other tenants.
In December 2000, the Company contributed seven self-storage properties to Locke Sovran I, LLC with a fair market value of $19.8 million, in exchange for a $15 million 1 year note receivable bearing interest at LIBOR plus 1.75% that was repaid in 2001, and a 45% interest in Locke Sovran I, LLC. This transaction resulted in a gain on the disposal of the properties of approximately $4.3 million; $1.9 million of this gain was deferred as a result of the Company's continuing ownership interest in Locke Sovran I, LLC, as such the initial investment, including cash funding, was recorded at $3.1 million. The deferred gain is being amortized over the life of the properties, consistent with the depreciation expense recorded by Locke Sovran I, LLC. For the year ended December 31, 2003, the Company's share of Locke Sovran I, LLC's income was $86,000 and the amortization of the deferred gain was $40,000, both of which are recorded as equity in income of joint ventures on the consolidated statements of income. The Company manages the storage facilities for Locke Sovran I, LLC and received fees of $311,000, $290,000, and $413,000, for the years ended 2003, 2002, and 2001, respectively.
The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2003. The $1.0 million investment relates to interest bearing loans made by the Company to the joint venture less the Company's share of losses incurred to date. For the year ended December 31, 2003, the Company's share of Iskalo Office Holdings, LLC's income was $59,000. The Company paid rent to Iskalo Office Holdings, LLC of $393,000 in 2003 and $255,000 in 2002 and 2001. Also, during 2003 the Company purchased a tract of land from Iskalo Office Holdings, LLC for $1.2 million.
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A summary of the unconsolidated joint ventures' financial statements as of and for the year ended December 31, 2003 is as follows:
(dollars in thousands)
Locke Sovran I,
LLC
Iskalo Office
Holdings, LLC
Balance Sheet Data:
Investment in storage facilities, net
$ 39,333
$ -
Investment in office building
-
6,051
Other assets
1,691
Total Assets
$ 41,024
$ 6,443
Due to the Company
$ 2,133
$ 1,418
Mortgage payable
30,018
5,800
Other liabilities
Total Liabilities
32,843
7,308
Unaffiliated partners' equity (deficiency)
4,445
(458)
Company equity (deficiency)
3,736
(407
)
Total Liabilities and Partners' Equity (deficiency)
$ 41,024
$ 6,443
Income Statement Data:
Total revenues
$ 6,224
$ 994
Total expenses
6,032
Net income
$ 192
$ 121
The Company does not guarantee the debt of Locke Sovran I, LLC or Iskalo Office Holdings, LLC.
12. PREFERRED STOCK
Series A
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 pursuant to the Shareholder Rights Plan (see note 10), 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.
Series B
On July 30, 1999, the Company issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. The offering price was $25 per share resulting in net proceeds of $28.6 million after expenses. The Series B Preferred Stock is not redeemable until on or after July 30, 2004, at which time the Company may redeem the shares at $25.00 per share ($30,000,000 aggregate), plus any accrued and unpaid dividends. The shares may be redeemed only with the proceeds of certain sales of equity securities. Dividends on the Series B Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears on the
last day of each March, June, September, and December at a rate of $2.4625 per annum per share.
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Holders of the Series B Preferred Stock generally have no voting rights. However, if the Company does not pay dividends on the Series B shares for six or more quarterly periods (whether or not consecutive), the holders of the shares, voting as a class with the holders of any other class or series of stock with similar voting rights, will be entitled to vote for the election of two additional directors to serve on the Board of Directors until all Series B dividends that have accrued are paid.
Series C
On July 3, 2002, the Company entered into an agreement providing for the issuance of 2,800,000 shares of 8.375% Series C Convertible Cumulative Preferred Stock ("Series C Preferred") in a privately negotiated transaction. The Company immediately issued 1,600,000 shares of the Series C Preferred and issued the remaining 1,200,000 shares on November 27, 2002. The offering price was $25.00 per share resulting in net proceeds for the Series C Preferred and related common stock warrants of $67.9 million after expenses.
The Series C Preferred has a fixed annual dividend rate equal to the greater of 8.375% or the actual dividend paid on the number of the Company's common shares into which the Series C Preferred is convertible. The Series C Preferred is convertible at a ratio of .76687 common shares for each Series C Preferred share and can be redeemed at the Company's option on or after November 30, 2007 at $25.00 per share ($70,000,000 aggregate) plus accrued and unpaid dividends. Dividends on the Series C Preferred are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September, and December at a rate of $2.09375 per annum per share.
Holders of the Series C Preferred generally have no voting rights. However, if the Company does not pay dividends on the Series C Preferred shares for six or more quarterly periods (whether or not consecutive), the holders of the shares, voting as a class with the holders of any other class or series of stock with similar voting rights, will be entitled to vote for the election of two additional directors to serve on the Board of Directors until the Series C Preferred dividends are paid.
In addition, the Company issued warrants to the Series C Preferred investors to purchase 379,166 common shares of the Company at a price of $32.60 per share that expire November 30, 2007. Using the Black-Scholes method, the warrants had a fair value at the issue date of $1.97 per common share covered by the warrants. Also, an entity related to one of the investors received a placement certificate that entitles it to receive cash from the Company in the amount of 650,000 multiplied by the excess of the fair market value of the Company's common stock over $32.60 on the date the certificate is exercised. This arrangement expires on November 30, 2007. Based upon the Company's common stock price at December 31, 2003, the Company has recorded a $3.0 million liability relating to the placement certificate arrangement.
The Company recorded a deemed dividend of $0.2 million in 2002 in connection with the issuance of the Series C Preferred. The deemed dividend represents the calculated value of the beneficial conversion feature that existed on July 3, 2002, the date of issuance of the Series C Preferred. The beneficial conversion feature is calculated as the excess of, on the date of issuance of the Series C Preferred, the fair value of the common stock into which the Series C Preferred is convertible, over the issuance amount allocated to the Series C Preferred.
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13. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years ended December 31, 2003 and 2002 (dollars in thousands, except per share data).
14. 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 that individually or in the aggregate would be material to the Company's overall business, financial condition, or results of operations.
15. LEGAL PROCEEDINGS
A former business associate (the "Plaintiff") of certain officers and directors of the Company, including Robert J. Attea, Kenneth F. Myszka, David L. Rogers and Charles E. Lannon (the "Founding Shareholders"), commenced a lawsuit against the Company on June 13, 1995 in the United States District Court for the Northern District of Ohio. The Plaintiff subsequently 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 judgment as to the Plaintiff's continuing interest in the Company. The parties agreed to settle the lawsuit and the Company paid $2,359,174 to the Plaintiff in settlement of all claims. In addition, legal fees and related expenses totaling $1,686,000 were paid by the Company in connection with the lawsuit, and $781,000 was paid in connection with its own counterclaim against the Plaintiff. Pursuant to
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their agreement with the Company to pay certain costs and losses arising from the lawsuit, the Founding Shareholders made payment to the Company in April 2001 of $1,785,000 and in November 2001 by the redemption of 46,528 shares of the Company's common stock owned by them having a market value of approximately $1,360,000. The cost to the Company, after indemnification by the Founding Shareholders, was $1.7 million.
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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, 2003 and 2002 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the management of Sovran Self Storage, Inc. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Buffalo, New York
January 28, 2004
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Item 9.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9a.
Item 9a.
Controls and Procedures
The Company's chief executive officer and chief financial officer have evaluated the Company's disclosure controls and procedures as of December 31, 2003. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective for the purpose of ensuring that material information required to be in this annual report is made known to them by others on a timely basis. There have not been changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation.
Part III
Item 10.
Item 10.
Directors and Executive Officers of the Registrant
The information contained in the Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 13, 2004, with respect to directors, executive officers, audit committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance, is incorporated herein by reference in response to this item.
	The Company has adopted a code of ethics that applies to all of its directors, officers, and employees. The Company has made the Code of Ethics available on its website at http://www.sovranss.com.
Item 11.
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 the Annual Meeting of Shareholders of the Company to be held on May 13, 2004.
Item 12.
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 the Annual Meeting of Shareholders of the Company to be held on May 13, 2004.
Item 13.
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 13, 2004.
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Item 14.
Item 14.
Principal Accountant Fees and Services
The information required herein is incorporated by reference to "Appointment of Independent Accountants" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2004.
Part IV
Item 15.
Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)
Documents filed as part of this Annual Report on Form 10-K:
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 Amended and Restated 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 8-A filed December 3, 1996.)
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3.1(c)**
Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant classifying and designating the 9.85% Series B Cumulative Redeemable Preferred Stock.
3.1(d)*
Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant classifying and designating the 8.375% Series C Convertible Cumulative Preferred Stock. (Incorporated by reference to Exhibit 1.6 to Registrant's Form 8-A filed July 29, 1999.)
3.2**
Bylaws of the Registrant.
4.1*
Shareholder Rights Plan. (Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A filed December 3, 1996.)
4.2**
Amendment No. 1 to Shareholders Rights Plan.
4.3**
Form of Investment Warrant Certificate.
4.4**
Placement Certificate.
10.1
Agreement of Limited Partnership of Sovran Acquisition Limited Partnership, as amended. (Incorporated by reference to Exhibit 3.1 of the General Form of Registration of Securities of the Partnership on Form 10.)
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, as Amended. (Incorporated by reference to the same numbered exhibit to the Registrant's Form 10-K filed March 28, 2002.)
10.7
Sovran Self Storage, Inc. 1995 Outside Directors' Stock Option Plan, as Amended. (Incorporated by reference to the same numbered exhibit to the Registrant's Form 10-K filed March 28, 2002.)
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.
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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.
March 12, 2004
SOVRAN SELF STORAGE, INC.
By: /s/ David L. Rogers
David L. Rogers,
Chief Financial Officer,
Secretary
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
Robert J. Attea
Chairman of the Board of Directors
Chief Executive Officer and Director
(Principal Executive Officer)
March 12, 2004
/s/ Kenneth F. Myszka
Kenneth F. Myszka
President, Chief Operating
Officer and Director
March 12, 2004
/s/ David L. Rogers
David L. Rogers
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 12, 2004
/s/ John Burns
John Burns
Director
March 12, 2004
/s/ Michael A. Elia
Michael A. Elia
Director
March 12, 2004
/s/ Anthony P. Gammie
Anthony P. Gammie
Director
March 12, 2004
/s/ Charles E. Lannon
Charles E. Lannon
Director
March 12, 2004
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Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2003
- 59 -
<page>
Raleigh I
NC
2,329
2,720
3,369
6/26/95
New Haven
CT
1,402
1,835
2,222
6/26/95
Atlanta-Metro I
GA
2,021
2,377
3,221
6/26/95
Atlanta-Metro II
GA
1,103
1,277
1,580
6/26/95
Buffalo II
NY
1,538
1,853
6/26/95
Raleigh II
NC
1,150
1,427
1,748
6/26/95
Columbia II
SC
1,331
1,627
2,001
6/26/95
Columbia III
SC
1,038
1,227
6/26/95
Columbia IV
SC
1,188
1,502
1,990
6/26/95
Atlanta-Metro III
GA
1,579
1,778
2,208
6/26/95
Orlando I
FL
1,930
2,213
2,726
6/26/95
Spartanburg
SC
1,209
1,362
1,693
6/26/95
Sharon
PA
1,167
1,361
6/26/95
Ft. Lauderdale
FL
1,503
3,619
1,503
4,045
5,548
6/26/95
West Palm I
FL
1,035
1,196
1,594
6/26/95
Atlanta-Metro IV
GA
1,015
1,265
1,689
6/26/95
Atlanta-Metro V
GA
1,166
1,360
1,843
6/26/95
Atlanta-Metro VI
GA
1,116
1,451
1,759
6/26/95
Atlanta-Metro VII
GA
1,067
1,241
6/26/95
Atlanta-Metro VIII
GA
1,432
1,845
6/26/95
Baltimore I
MD
6/26/95
Baltimore II
MD
1,742
2,543
3,022
6/26/95
Augusta I
GA
1,296
1,705
2,062
6/26/95
Macon I
GA
1,081
1,310
1,541
6/26/95
Melbourne I
FL
2,104
1,369
3,473
4,356
6/26/95
Newport News
VA
1,471
2,015
2,331
6/26/95
Pensacola I
FL
2,962
3,701
4,352
6/26/95
Augusta II
GA
1,139
1,550
1,865
6/26/95
Hartford-Metro I
CT
1,695
2,113
2,828
6/26/95
Atlanta-Metro IX
GA
1,118
1,637
1,941
6/26/95
Alexandria
VA
1,375
3,220
1,376
4,013
5,389
6/26/95
Pensacola II
FL
1,133
1,377
6/26/95
Melbourne II
FL
2,066
2,242
3,077
6/26/95
Hartford-Metro II
CT
1,044
1,527
2,139
6/26/95
Atlanta-Metro X
GA
1,244
1,494
1,750
6/26/95
Norfolk I
VA
1,462
2,013
2,326
6/26/95
Norfolk II
VA
1,004
1,225
1,503
6/26/95
Birmingham I
AL
1,415
1,739
2,046
6/26/95
Birmingham II
AL
1,725
2,117
2,847
6/26/95
Montgomery I
AL
2,041
2,462
3,325
6/26/95
Jacksonville II
FL
1,515
1,801
2,127
6/26/95
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<page>
Pensacola II
FL
1,358
1,056
2,414
2,783
6/26/95
Pensacola IV
FL
1,128
1,271
1,515
6/26/95
Pensacola V
FL
1,046
1,498
1,724
6/26/95
Tampa I
FL
1,088
2,597
1,088
3,267
4,355
6/26/95
Tampa II
FL
1,958
2,500
3,026
6/26/95
Tampa III
FL
2,439
2,867
3,539
6/26/95
Jackson I
MS
1,580
1,772
2,115
6/26/95
Jackson II
MS
1,366
1,575
6/26/95
Richmond
VA
1,602
2,139
2,582
8/25/95
Orlando II
FL
1,161
2,755
1,162
3,453
4,615
9/29/95
Birmingham III
AL
1,506
2,003
2,427
1/16/96
Macon II
GA
1,567
2,088
2,519
12/1/95
Harrisburg I
PA
1,641
1,993
2,353
12/29/95
Harrisburg II
PA
(1)
2,224
2,756
3,404
12/29/95
Syracuse I
NY
1,712
2,635
3,107
12/27/95
Ft. Myers
FL
1,059
1,265
12/28/95
Ft. Myers II
FL
1,703
2,021
2,434
12/28/95
Newport News II
VA
1,592
1,721
2,163
1/5/96
Montgomery II
AL
1,299
1,512
1,865
1/23/96
Charlestown II
SC
1,219
1,451
3/1/96
Tampa IV
FL
1,800
2,328
3,094
3/28/96
Arlington I
TX
1,767
2,001
2,443
3/29/96
Arlington II
TX
1,662
2,046
2,454
3/29/96
Ft. Worth
TX
1,324
1,495
1,823
3/29/96
San Antonio I
TX
1,759
2,599
3,035
3/29/96
San Antonio II
TX
1,161
1,494
1,783
3/29/96
Syracuse II
NY
1,559
1,557
2,926
3,597
6/5/96
Montgomery III
AL
1,014
1,210
1,643
5/21/96
West Palm II
FL
1,262
1,440
1,785
5/29/96
Ft. Myers III
FL
1,149
1,378
5/29/96
Pittsburgh
PA
1,940
2,140
2,685
6/19/96
Lakeland II
FL
1,287
2,216
2,575
6/26/96
Springfield
MA
1,387
2,258
2,555
6/28/96
Ft. Myers IV
FL
1,254
1,474
1,818
6/28/96
Baltimore III
MD
2,770
2,904
3,681
7/26/96
Jacksonville III
FL
2,028
2,750
3,318
8/23/96
Jacksonville IV
FL
1,635
2,032
2,468
8/26/96
Pittsburgh II
PA
2,257
3,001
3,632
8/28/96
Jacksonville V
FL
2,033
2,214
2,752
8/30/96
Charlotte II
NC
1,754
1,846
2,333
9/16/96
Charlotte III
NC
1,131
1,370
1,685
9/16/96
- 61 -
<page>
Orlando III
FL
1,113
1,679
1,993
10/30/96
Rochester III
NY
2,496
2,969
3,676
12/20/96
Youngstown II
OH
2,142
2,317
2,917
1/10/97
Akron
OH
1,478
1,608
2,021
1/10/97
Cleveland III
OH
2,676
3,224
3,975
1/10/97
Cleveland IV
OH
2,586
3,415
4,140
1/10/97
Cleveland V
OH
(1)
2,918
3,624
4,265
1/10/97
Cleveland VI
OH
1,781
2,182
2,677
1/10/97
Cleveland VII
OH
2,714
3,304
4,065
1/10/97
Cleveland VIII
OH
1,921
2,906
3,324
1/10/97
Cleveland IX
OH
2,164
2,435
3,041
1/10/97
Grand Rapids II
MI
1,423
1,642
1/17/97
Holland
MI
1,830
1,027
2,857
3,308
1/17/97
San Antonio III
TX
(1)
1,686
1,847
2,321
1/30/97
Universal
TX
1,236
1,376
1,722
1/30/97
San Antonio IV
TX
1,560
1,391
2,951
3,383
1/30/97
Houston-Eastex
TX
2,565
3,455
4,089
3/26/97
Houston-Nederland
TX
2,279
2,434
3,000
3/26/97
Houston-College
TX
1,357
1,552
1,845
3/26/97
Lynchburg-Lakeside
VA
1,342
2,161
2,496
3/31/97
Lynchburg-Timberlake
VA
1,315
1,887
2,215
3/31/97
Lynchburg-Amherst
VA
1,071
3/31/97
Christiansburg
VA
1,120
1,262
1,507
3/31/97
Chesapeake
VA
1,043
1,517
1,777
3/31/97
Danville
VA
1,488
1,535
1,861
3/31/97
Orlando-W 25th St.
FL
1,160
1,481
1,771
3/31/97
Delray I-Mini
FL
1,756
2,266
2,757
4/11/97
Savannah II
GA
1,196
1,331
1,627
5/8/97
Delray II-Safeway
FL
3,282
3,595
4,516
5/21/97
Cleveland X-Avon
OH
1,214
2,080
2,384
6/4/97
Dallas-Skillman
TX
3,847
4,738
5,698
6/30/97
Dallas-Centennial
TX
3,864
4,826
5,769
6/30/97
Dallas-Samuell
TX
(1)
2,285
2,716
3,286
6/30/97
Dallas-Hargrove
TX
1,486
1,780
2,150
6/30/97
Houston-Antione
TX
2,074
2,390
2,905
6/30/97
Atlanta-Alpharetta
GA
1,033
3,753
1,033
4,044
5,077
7/24/97
Atlanta-Marietta
GA
(1)
2,788
2,873
3,644
7/24/97
Atlanta-Doraville
GA
3,429
3,560
4,295
8/21/97
Greensboro-Hilltop
NC
1,097
1,241
1,509
9/25/97
GreensboroStgCch
NC
1,306
1,395
9/25/97
Baton Rouge-Airline
LA
(1)
1,831
2,121
2,517
10/9/97
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<page>
Baton Rouge-Airline2
LA
1,303
1,434
1,716
11/21/97
Harrisburg-Peiffers
PA
2,550
2,670
3,307
12/3/97
Chesapeake-Military
VA
2,210
2,370
2,912
2/5/98
Chesapeake-Volvo
VA
2,532
3,287
3,907
2/5/98
Virginia Beach Shell
VA
2,211
2,347
2,887
2/5/98
Virginia Beach Central
VA
3,994
4,506
5,370
2/5/98
Norfolk-Naval Base
VA
1,243
5,019
1,243
5,574
6,817
2/5/98
Tampa-E. Hillsborough
FL
3,235
3,824
4,533
2/4/98
Harriman
NY
3,394
3,657
4,500
2/4/98
Greenboro-High Point
NC
1,834
2,189
2,586
2/10/98
Lynchburg-Timberlake
VA
1,746
2,021
2,509
2/18/98
Salem
MA
2,941
3,569
4,302
3/3/98
Chattanooga-Lee Hwy.
TN
1,371
1,612
1,996
3/27/98
Chattanooga-Hwy. 58
TN
1,198
1,755
2,051
3/27/98
Ft. Oglethorpe
GA
1,250
1,517
1,866
3/27/98
Birmingham-Walt
AL
1,942
2,505
3,049
3/27/98
East Greenwich
RI
2,821
3,430
4,132
3/26/98
Durham-Hillborough
NC
3,103
3,569
4,344
4/9/98
Durham-Cornwallis
NC
3,763
4,153
5,093
4/9/98
Hendersonville
TN
1,050
4,203
1,050
4,371
5,421
4/9/98
Salem-Policy
NH
2,977
3,052
3,794
4/7/98
Warren-Elm
OH
(1)
1,864
2,028
2,560
4/22/98
Warren-Youngstown
OH
1,829
1,953
2,465
4/22/98
Waterford-Highland
MI
1,487
5,306
1,487
5,894
7,381
4/28/98
Indian Harbor
FL
2,654
2,853
3,515
6/2/98
Jackson 3 - I55
MS
3,021
3,080
3,824
5/13/98
Katy-N. Fry
TX
1,524
2,033
2,452
5/20/98
Hollywood-Sheridan
FL
1,208
4,854
1,208
5,025
6,233
7/1/98
Pompano Beach - Atlantic
FL
3,803
4,003
4,947
7/1/98
Pompano Beach - Sample
FL
3,643
3,939
4,842
7/1/98
Boca Raton-18th St.
FL
1,503
6,059
1,503
6,520
8,023
7/1/98
Vero Beach
FL
1,813
1,853
2,342
6/12/98
Humble
TX
1,790
2,335
2,782
6/16/98
Houston-Old Katy
TX
(1)
2,680
2,739
3,398
6/19/98
Webster
TX
2,302
2,357
2,992
6/19/98
Carrollton
TX
1,988
2,234
2,782
6/19/98
Hollywood-N. 21st.
FL
3,373
3,591
4,431
8/3/98
San Marcos
TX
1,493
1,800
2,124
6/30/98
Austin-McNeil
TX
1,995
2,166
2,676
6/30/98
Austin-FM
TX
1,951
2,100
2,581
6/30/98
Jacksonville-Center
NC
1,329
1,392
1,719
8/6/98
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<page>
Jacksonville-Gum Branch
NC
1,815
1,984
2,492
8/17/98
Jacksonville-N. Marine
NC
1,124
1,340
9/24/98
Euless
TX
1,998
2,117
2,667
9/29/98
N. Richland Hills
TX
2,407
3,186
3,856
10/9/98
Batavia
OH
1,570
1,722
2,112
11/19/98
Jackson-N. West
MS
1,642
1,952
2,412
12/1/98
Katy-Franz
TX
2,058
2,146
2,653
12/15/98
W. Warwick
RI
1,776
2,420
2,867
2/2/99
Lafayette-Pinhook 1
LA
1,951
2,701
3,257
2/17/99
Lafayette-Pinhook 2
LA
2,860
2,999
3,707
2/17/99
Lafayette-Ambassador
LA
1,095
1,550
1,864
2/17/99
Lafayette-Evangeline
LA
1,267
1,455
2/17/99
Lafayette-Guilbeau
LA
3,896
4,004
4,967
2/17/99
Gilbert-Elliott Rd.
AZ
2,600
3,082
3,854
5/18/99
Glendale-59th Ave.
AZ
2,596
2,718
3,283
5/18/99
Mesa-Baseline
AZ
1,309
1,390
1,720
5/18/99
Mesa-E. Broadway
AZ
1,346
1,474
1,813
5/18/99
Mesa-W. Broadway
AZ
1,026
1,178
1,469
5/18/99
Mesa-Greenfield
AZ
1,405
1,519
1,873
5/18/99
Phoenix-Camelback
AZ
1,610
1,770
2,223
5/18/99
Phoenix-Bell
AZ
3,476
3,750
4,622
5/18/99
Phoenix-35th Ave.
AZ
3,401
3,752
4,601
5/21/99
Westbrook
ME
1,626
1,971
2,381
8/2/99
Cocoa
FL
2,373
2,869
3,536
9/29/99
Cedar Hill
TX
1,521
1,707
2,042
11/9/99
Monroe
NY
1,312
1,352
1,628
2/2/00
N. Andover
MA
2,573
2,666
3,299
2/15/00
Seabrook
TX
2,617
2,705
3,338
3/1/00
Plantation
FL
1,422
1,512
1,896
5/2/00
Birmingham-Bessemer
AL
1,059
1,134
1,388
11/15/00
Dracut
MA
(1)
1,035
3,737
1,035
3,839
4,874
12/1/01
Methuen
MA
(1)
1,024
3,649
1,024
3,716
4,740
12/1/01
Columbia
SC
(1)
3,139
3,243
4,126
12/1/01
Myrtle Beach
SC
(1)
1,970
2,175
2,727
12/1/01
Kingsland
GA
(1)
1,902
2,302
2,772
12/1/01
Saco
ME
(1)
1,914
1,974
2,508
12/3/01
Plymouth
MA
1,004
4,584
1,004
4,715
5,719
12/19/01
Sandwich
MA
(1)
3,060
3,195
3,865
12/19/01
Syracuse
NY
(1)
1,203
1,376
1,670
2/5/02
Houston-Westward
TX
(1)
3,434
3,769
4,624
2/13/02
Houston-Boone
TX
(1)
1,020
1,054
1,306
2/13/02
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<page>
Houston-Cook
TX
(1)
1,160
1,206
1,493
2/13/02
Houston-Harwin
TX
(1)
1,816
1,864
2,315
2/13/02
Houston-Hempstead
TX
(1)
2,200
2,301
2,847
2/13/02
Houston-Kuykendahl
TX
(1)
2,090
2,457
2,976
2/13/02
Houston-Hwy 249
TX
(1)
1,216
1,450
1,751
2/13/02
Mesquite-Hwy 80
TX
(1)
1,873
1,974
2,439
2/13/02
Mesquite-Franklin
TX
(1)
2,956
3,010
3,746
2/13/02
Dallas-Plantation
TX
(1)
1,595
1,642
2,037
2/13/02
San Antonio-Hunt
TX
(1)
1,545
1,584
1,967
2/13/02
Humble-5250 FM
TX
3,696
3,918
4,837
6/19/02
Pasadena
TX
2,468
2,491
3,103
6/19/02
League City
TX
3,159
3,186
3,875
6/19/02
Montgomery
TX
3,286
3,305
4,122
6/19/02
Texas City
TX
3,286
3,331
4,148
6/19/02
Houston-Hwy 6
TX
1,650
1,726
2,133
6/19/02
Lumberton
TX
3,287
3,362
4,179
6/19/02
The Hamptons
NY
2,207
8,866
2,207
9,063
11,270
12/16/02
The Hamptons
NY
1,131
4,564
1,131
4,867
5,998
12/16/02
The Hamptons
NY
2,918
3,050
3,685
12/16/02
The Hamptons
NY
1,251
5,744
1,252
5,942
7,194
12/16/02
Dallas
TX
1,039
4,201
1,039
4,209
5,248
8/26/03
Dallas
TX
3,776
3,781
4,608
10/1/03
Corporate Office
NY
7,072
1,170
5,970
7,140
1,035
1/1/95
$134,179
$505,889
$ 99,768
$136,424
$603,412
$739,836
$ 92,498
(1) These properties are encumbered through one mortgage loan with an outstanding balance of $46.8 million at December 31, 2003.
- 65 -
<page>
- 66 -
<page>
Exhibit (12.1)
Statement Re: Computation of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
Amounts in thousands
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<page>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-21679) and the Registration Statement (Form S-8 No. 333-42272) pertaining to the 1995 Award and Option Plan and to the 1995 Outside Directors' Stock Option Plan, the Registration Statement (Form S-8 No. 333-42270) pertaining to the Deferred Compensation Plan for Directors of Sovran Self Storage, Inc., the Registration Statement (Form S-3 No. 333-64735) pertaining to the Dividend Reinvestment and Stock Purchase Plan of Sovran Self Storage, Inc., the Registration Statement (Form S-8 No. 333-73806) pertaining to the 1995 Award and Option Plan, the Registration Statement (Form S-3 No. 333-97715) pertaining to the Series C Convertible Cumulative Preferred Stock; Common Stock underlying the Series C Convertible Cumulative Preferred Stock; Common Stock Warrants and Common Stock underlying the Common Stock Warrants, and the Registration Statement (Form S-8 333-107464) pertaining to the 1995 Outside Directors' Stock Option Plan of our report dated January 28, 2004 with respect to the consolidated financial statements and schedule of Sovran Self Storage, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2003.
We also consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-51169) of Sovran Self Storage, Inc. and Sovran Acquisition Limited Partnership and in the related Prospectus of our report dated January 28, 2004 with respect to the consolidated financial statements and schedule of Sovran Self Storage, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2003.
/s/ Ernst & Young LLP
Buffalo, New York
March 11, 2004
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<page>
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended
I, Robert J. Attea, certify that:
1.
I have reviewed this annual report on Form 10-K of Sovran Self Storage, Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and
c)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: March 12, 2004
/ S / Robert J. Attea
Robert J. Attea
Chairman of the Board and Chief Executive Officer
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<page>
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended
I, David L. Rogers, certify that:
1.
I have reviewed this annual report on Form 10-K of Sovran Self Storage, Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and
c)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: March 12, 2004
/ S / David L. Rogers
David L. Rogers
Secretary, Chief Financial Officer
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<page>
Exhibit 32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Each of the undersigned of Sovran Self Storage, Inc. (the "Company") does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1)
The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 12, 2004
/ S / Robert J. Attea
Robert J. Attea
Chairman of the Board
Chief Executive Officer
/ S / David L. Rogers
David L. Rogers
Chief Financial Officer
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