To our Shareholders:
As we enter our 20th year in the self-storage business, we are pleased with our Company’s
strength, our position in the industry, and our prospects for continued success.
The initiatives we introduced during the past few years have served us well. The Customer
Care Center, Uncle Bob’s Trucks, Dri-guard humidity control and a proprietary revenue
management system are the tools that have driven same store revenue increases of over
5% for two years running. We expect that our internal growth will remain strong in 2005.
We acquired 10 quality properties in 2004. Each has significant growth potential and will
strengthen our presence in our Houston, Austin, Tampa and Stamford markets. We sold
5 stores during the year; each of these was the only Sovran facility in the market, and
after several years of operation, we attained
neither economies of scale nor market
penetration. We achieved a strong gain on
these sales, and redeployed the proceeds
in core properties.
We remain focused
on creating value
and are committed to
disciplined growth.
We continue to improve our stores. In
a d d i t i o n t o n o r m a l u p k e e p a n d
maintenance, we invested over $7 million
in revenue enhancing projects such as
building expansions, installation of Dri-
guard and climate control systems and land
acquisitions. Beginning in 2005, we have
embarked on a 3 year, $40 million program
to add up to 600,000 square feet of new
rental space to our existing stores, and to
convert up to 300,000 square feet to climate
and humidity controlled space. Our
customers and their needs have become
more sophisticated; we will be there to meet
those needs.
Our capital position was greatly improved
in 2004. We retired $30 million of preferred stock, issued $49 million of common shares
and extended our debt maturities while lowering our borrowing costs. At the end of
2004, our debt outstanding was a conservative 28% of total market capitalization.
Sovran’s dividend was increased for the ninth straight year, which contributed to an
overall return on investment of 20% in 2004.
Our business is performing well. We remain focused on creating value and are committed
to disciplined growth. We look forward to the opportunities ahead.
Thank you for your continued support.
Robert J. Attea
Chief Executive Officer
Kenneth F. Myszka
Chief Operating Officer
David Rogers
Chief Financial Officer
6467 Main Street • Buffalo, New York 14221
www.sovranss.com
Sovran Self Storage, Inc.
Annual Report 2004
To our Shareholders:
As we enter our 20th year in the self-storage business, we are pleased with our Company’s
strength, our position in the industry, and our prospects for continued success.
The initiatives we introduced during the past few years have served us well. The Customer
Care Center, Uncle Bob’s Trucks, Dri-guard humidity control and a proprietary revenue
management system are the tools that have driven same store revenue increases of over
5% for two years running. We expect that our internal growth will remain strong in 2005.
We acquired 10 quality properties in 2004. Each has significant growth potential and will
strengthen our presence in our Houston, Austin, Tampa and Stamford markets. We sold
5 stores during the year; each of these was the only Sovran facility in the market, and
after several years of operation, we attained
neither economies of scale nor market
penetration. We achieved a strong gain on
these sales, and redeployed the proceeds
in core properties.
We remain focused
on creating value
and are committed to
disciplined growth.
We continue to improve our stores. In
a d d i t i o n t o n o r m a l u p k e e p a n d
maintenance, we invested over $7 million
in revenue enhancing projects such as
building expansions, installation of Dri-
guard and climate control systems and land
acquisitions. Beginning in 2005, we have
embarked on a 3 year, $40 million program
to add up to 600,000 square feet of new
rental space to our existing stores, and to
convert up to 300,000 square feet to climate
and humidity controlled space. Our
customers and their needs have become
more sophisticated; we will be there to meet
those needs.
Our capital position was greatly improved
in 2004. We retired $30 million of preferred stock, issued $49 million of common shares
and extended our debt maturities while lowering our borrowing costs. At the end of
2004, our debt outstanding was a conservative 28% of total market capitalization.
Sovran’s dividend was increased for the ninth straight year, which contributed to an
overall return on investment of 20% in 2004.
Our business is performing well. We remain focused on creating value and are committed
to disciplined growth. We look forward to the opportunities ahead.
Thank you for your continued support.
Robert J. Attea
Chief Executive Officer
Kenneth F. Myszka
Chief Operating Officer
David Rogers
Chief Financial Officer
6467 Main Street • Buffalo, New York 14221
www.sovranss.com
Sovran Self Storage, Inc.
Annual Report 2004
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission File Number: 1-13820
SOVRAN SELF STORAGE, INC.
(Exact name of Registrant as specified in its charter)
Maryland
(State of incorporation or organization)
16-1194043
(I.R.S. Employer Identification No.)
6467 Main Street
Buffalo, NY 14221
(Address of principal executive offices) (Zip code)
(716) 633-1850
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities
Common Stock, $.01 Par Value
Exchanges on which Registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the exchange
Act). Yes
No
As of June 30, 2004, 15,041,465 shares of Common Stock, $.01 par value per share, were outstanding, and the
aggregate market value of the Common Stock held by non-affiliates was approximately $549,886,190 (based on the
closing price of the Common Stock on the New York Stock Exchange on June 30, 2004).
As of March 1, 2005, 16,061,121 shares of Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Shareholders of the Company to be held on May 18, 2005
(Part III).
Exhibit Index is on Pages 47-49
1
By developing each product and service with the total customer
experience in mind, Uncle Bob’s Self Storage has emerged as
a leading brand in the storage industry. We strive to keep ahead
of our customer’s needs by
providing more than just
empty space.
The total customer experience is brought full circle by the
service provided by our employees. Uncle Bob’s managers,
customer service reps and field supervisors are extensively
trained to identify customer’s needs and to use our Company’s
advantages to provide solutions. They are a big part of our
success.
How do we
create value in
empty space?
Our fleet of 200 Uncle Bob’s
Trucks is available free to new
customers, providing them an
appreciated moving assistant.
At the same time, we have a
wide variety of moving and
storage supplies available in
our offices – an important
convenience to someone on
the move.
Internally, our use of technology is a key
advantage. Internet sales, rate
management, training facilities and our
centralized reservation center all
provide the foundation of our growth.
In the end, our innovative approach to
storage solutions and our conservative
business structure has won the
confidence of customers, employees
and shareholders alike.
Our customers need more
than just a variety of storage
sizes, so Uncle Bob’s provides
a wide range of environmental
solutions as well. Going beyond the industry standards of
traditional and climate controlled storage, we also offer our
unique Dri-guard dehumidified storage. Now available at over
70 stores, Dri-guard provides an unparalleled level of protection
for our customer’s belongings and a distinct point of difference
for Uncle Bob’s.
Number of
Stores
Square
Feet
Number of
Spaces
Alabama
Arizona
Connecticut
Florida
Georgia
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
New Hampshire
New York
North Carolina
Ohio
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Virginia
8
9
4
49
21
7
2
4
11
7
4
1
16
15
16
6
4
8
3
58
18
437,291
504,444
277,390
3,103,363
1,164,387
351,374
99,300
166,684
567,849
455,799
200,306
62,985
899,076
776,978
982,046
369,820
167,866
430,479
205,497
4,095,843
1,069,659
3,210
4,595
2,358
28,283
9,437
3,078
866
1,947
4,999
4,402
1,554
548
8,290
6,740
8,184
2,883
1,565
3,647
1,687
34,061
9,970
Total
271
16,388,436
142,304
(a) Includes 260 stores that are consolidated in our financial statements and 11 stores that are managed
under an agreement with an unconsolidated joint venture that is 45% owned by the Company.
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Officers & Directors
Robert J. Attea
(also Director)
Chairman of the Board and
Chief Executive Officer
Kenneth F. Myszka
(also Director)
President and
Chief Operating Officer
David Rogers
Chief Financial Officer
John E. Burns, CPA
President
Altus Capital, L.L.C.
Michael A. Elia
President and
Chief Executive Officer
Sevenson Environmental
Services, Inc.
Anthony P. Gammie
Chairman of the Board
Bowater Incorporated
(retired)
Charles E. Lannon
President
Strategic Capital, Inc.
Registrar and Transfer Agent
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, New York 10038
(718) 921-8200
Annual Meeting
May 18, 2005
The Courtyard by Marriott
4100 Sheridan Drive
Williamsville, New York 14221
11:00 a.m. (e.d.t.)
Investor Relations
Diane M. Piegza
(716) 633-1850
www.sovranss.com
Independent Auditors
Ernst & Young LLP
1400 Key Tower
Buffalo, New York 14202
Corporate Counsel
Phillips Lytle LLP
3400 HSBC Center
Buffalo, New York 14203
Exchange: New York Stock Exchange
Listing Symbol: SSS
Average Daily Volume in 2004: 64,804
The Chief Executive Officer has
previously filed with the New York
Stock Exchange (NYSE) the annual
CEO certification for 2004 as required
by section 303A.12(a) of the NYSE listed
company manual.
As of December 31, 2004, there were
approximately 1,600 shareholders of
record of the common stock, and 2
shareholders of record of the Series C
preferred stock.
Photography
Nathan Arnone
Doug Benz
Hundreds of Uncle Bob’s Associates
By developing each product and service with the total customer
experience in mind, Uncle Bob’s Self Storage has emerged as
a leading brand in the storage industry. We strive to keep ahead
of our customer’s needs by
providing more than just
empty space.
The total customer experience is brought full circle by the
service provided by our employees. Uncle Bob’s managers,
customer service reps and field supervisors are extensively
trained to identify customer’s needs and to use our Company’s
advantages to provide solutions. They are a big part of our
success.
How do we
create value in
empty space?
Our fleet of 200 Uncle Bob’s
Trucks is available free to new
customers, providing them an
appreciated moving assistant.
At the same time, we have a
wide variety of moving and
storage supplies available in
our offices – an important
convenience to someone on
the move.
Internally, our use of technology is a key
advantage. Internet sales, rate
management, training facilities and our
centralized reservation center all
provide the foundation of our growth.
In the end, our innovative approach to
storage solutions and our conservative
business structure has won the
confidence of customers, employees
and shareholders alike.
Our customers need more
than just a variety of storage
sizes, so Uncle Bob’s provides
a wide range of environmental
solutions as well. Going beyond the industry standards of
traditional and climate controlled storage, we also offer our
unique Dri-guard dehumidified storage. Now available at over
70 stores, Dri-guard provides an unparalleled level of protection
for our customer’s belongings and a distinct point of difference
for Uncle Bob’s.
Number of
Stores
Square
Feet
Number of
Spaces
Alabama
Arizona
Connecticut
Florida
Georgia
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
New Hampshire
New York
North Carolina
Ohio
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Virginia
8
9
4
49
21
7
2
4
11
7
4
1
16
15
16
6
4
8
3
58
18
437,291
504,444
277,390
3,103,363
1,164,387
351,374
99,300
166,684
567,849
455,799
200,306
62,985
899,076
776,978
982,046
369,820
167,866
430,479
205,497
4,095,843
1,069,659
3,210
4,595
2,358
28,283
9,437
3,078
866
1,947
4,999
4,402
1,554
548
8,290
6,740
8,184
2,883
1,565
3,647
1,687
34,061
9,970
Total
271
16,388,436
142,304
(a) Includes 260 stores that are consolidated in our financial statements and 11 stores that are managed
under an agreement with an unconsolidated joint venture that is 45% owned by the Company.
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Officers & Directors
Robert J. Attea
(also Director)
Chairman of the Board and
Chief Executive Officer
Kenneth F. Myszka
(also Director)
President and
Chief Operating Officer
David Rogers
Chief Financial Officer
John E. Burns, CPA
President
Altus Capital, L.L.C.
Michael A. Elia
President and
Chief Executive Officer
Sevenson Environmental
Services, Inc.
Anthony P. Gammie
Chairman of the Board
Bowater Incorporated
(retired)
Charles E. Lannon
President
Strategic Capital, Inc.
Registrar and Transfer Agent
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, New York 10038
(718) 921-8200
Annual Meeting
May 18, 2005
The Courtyard by Marriott
4100 Sheridan Drive
Williamsville, New York 14221
11:00 a.m. (e.d.t.)
Investor Relations
Diane M. Piegza
(716) 633-1850
www.sovranss.com
Independent Auditors
Ernst & Young LLP
1400 Key Tower
Buffalo, New York 14202
Corporate Counsel
Phillips Lytle LLP
3400 HSBC Center
Buffalo, New York 14203
Exchange: New York Stock Exchange
Listing Symbol: SSS
Average Daily Volume in 2004: 64,804
The Chief Executive Officer has
previously filed with the New York
Stock Exchange (NYSE) the annual
CEO certification for 2004 as required
by section 303A.12(a) of the NYSE listed
company manual.
As of December 31, 2004, there were
approximately 1,600 shareholders of
record of the common stock, and 2
shareholders of record of the Series C
preferred stock.
Photography
Nathan Arnone
Doug Benz
Hundreds of Uncle Bob’s Associates
By developing each product and service with the total customer
experience in mind, Uncle Bob’s Self Storage has emerged as
a leading brand in the storage industry. We strive to keep ahead
of our customer’s needs by
providing more than just
empty space.
The total customer experience is brought full circle by the
service provided by our employees. Uncle Bob’s managers,
customer service reps and field supervisors are extensively
trained to identify customer’s needs and to use our Company’s
advantages to provide solutions. They are a big part of our
success.
How do we
create value in
empty space?
Our fleet of 200 Uncle Bob’s
Trucks is available free to new
customers, providing them an
appreciated moving assistant.
At the same time, we have a
wide variety of moving and
storage supplies available in
our offices – an important
convenience to someone on
the move.
Internally, our use of technology is a key
advantage. Internet sales, rate
management, training facilities and our
centralized reservation center all
provide the foundation of our growth.
In the end, our innovative approach to
storage solutions and our conservative
business structure has won the
confidence of customers, employees
and shareholders alike.
Our customers need more
than just a variety of storage
sizes, so Uncle Bob’s provides
a wide range of environmental
solutions as well. Going beyond the industry standards of
traditional and climate controlled storage, we also offer our
unique Dri-guard dehumidified storage. Now available at over
70 stores, Dri-guard provides an unparalleled level of protection
for our customer’s belongings and a distinct point of difference
for Uncle Bob’s.
Number of
Stores
Square
Feet
Number of
Spaces
Alabama
Arizona
Connecticut
Florida
Georgia
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
New Hampshire
New York
North Carolina
Ohio
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Virginia
8
9
4
49
21
7
2
4
11
7
4
1
16
15
16
6
4
8
3
58
18
437,291
504,444
277,390
3,103,363
1,164,387
351,374
99,300
166,684
567,849
455,799
200,306
62,985
899,076
776,978
982,046
369,820
167,866
430,479
205,497
4,095,843
1,069,659
3,210
4,595
2,358
28,283
9,437
3,078
866
1,947
4,999
4,402
1,554
548
8,290
6,740
8,184
2,883
1,565
3,647
1,687
34,061
9,970
Total
271
16,388,436
142,304
(a) Includes 260 stores that are consolidated in our financial statements and 11 stores that are managed
under an agreement with an unconsolidated joint venture that is 45% owned by the Company.
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Officers & Directors
Robert J. Attea
(also Director)
Chairman of the Board and
Chief Executive Officer
Kenneth F. Myszka
(also Director)
President and
Chief Operating Officer
David Rogers
Chief Financial Officer
John E. Burns, CPA
President
Altus Capital, L.L.C.
Michael A. Elia
President and
Chief Executive Officer
Sevenson Environmental
Services, Inc.
Anthony P. Gammie
Chairman of the Board
Bowater Incorporated
(retired)
Charles E. Lannon
President
Strategic Capital, Inc.
Registrar and Transfer Agent
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, New York 10038
(718) 921-8200
Annual Meeting
May 18, 2005
The Courtyard by Marriott
4100 Sheridan Drive
Williamsville, New York 14221
11:00 a.m. (e.d.t.)
Investor Relations
Diane M. Piegza
(716) 633-1850
www.sovranss.com
Independent Auditors
Ernst & Young LLP
1400 Key Tower
Buffalo, New York 14202
Corporate Counsel
Phillips Lytle LLP
3400 HSBC Center
Buffalo, New York 14203
Exchange: New York Stock Exchange
Listing Symbol: SSS
Average Daily Volume in 2004: 64,804
The Chief Executive Officer has
previously filed with the New York
Stock Exchange (NYSE) the annual
CEO certification for 2004 as required
by section 303A.12(a) of the NYSE listed
company manual.
As of December 31, 2004, there were
approximately 1,600 shareholders of
record of the common stock, and 2
shareholders of record of the Series C
preferred stock.
Photography
Nathan Arnone
Doug Benz
Hundreds of Uncle Bob’s Associates
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission File Number: 1-13820
SOVRAN SELF STORAGE, INC.
(Exact name of Registrant as specified in its charter)
Maryland
(State of incorporation or organization)
16-1194043
(I.R.S. Employer Identification No.)
6467 Main Street
Buffalo, NY 14221
(Address of principal executive offices) (Zip code)
(716) 633-1850
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities
Common Stock, $.01 Par Value
Exchanges on which Registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the exchange
Act). Yes
No
As of June 30, 2004, 15,041,465 shares of Common Stock, $.01 par value per share, were outstanding, and the
aggregate market value of the Common Stock held by non-affiliates was approximately $549,886,190 (based on the
closing price of the Common Stock on the New York Stock Exchange on June 30, 2004).
As of March 1, 2005, 16,061,121 shares of Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Shareholders of the Company to be held on May 18, 2005
(Part III).
Exhibit Index is on Pages 47-49
1
Part I
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 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 move-in program for new customers 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, interest and
dividends; and tax law changes that may change the taxability of future income.
Item 1. Business
Sovran Self Storage, Inc. together with its direct and indirect subsidiaries and the consolidated joint venture, to
the extent appropriate in the applicable context, (the Company, We, Our, or Sovran ) 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, 2005, we owned and/or managed 272 Properties consisting of approximately 16.5 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 fifth 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 97.0% economic interest in the Partnership and unaffiliated third parties own
collectively a 3.0% limited partnership interest at December 31, 2004. 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 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 continue 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.
2
According to published data, of the approximately 39,000 facilities in the United States, less than 12% are
managed by the ten largest operators. The remainder of the industry is characterized by numerous small, local
operators. The shortage of skilled operators, the scarcity of 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
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 via our intranet
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 implemented 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;
Internet marketing, which provides customers information about all of our stores via numerous portals
and e-mail;
- A rate management system, which matches product availability with market demand for each type of
storage unit at each store, and determines appropriate pricing. The Company credits this program in
achieving higher yields and controlling discounting;
- 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; and
- Uncle Bob's trucks, which provide customers with convenient, affordable access to vehicles to help
move-in their goods, while serving as moving billboards to help advertise our storage facilities.
Ancillary Income:
Our stores are essentially retail operations and we have in excess of 115,000 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 incidental 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, it
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.
3
All of our properties are subject to regular and routine maintenance procedures, which are designed to maintain
Property maintenance:
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 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 and 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 that we believe 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, Shurgard, U-Haul, 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 disposition of Properties
from time to time. Should investment opportunities become available, we may look to acquire self-storage
4
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.
During 2004, as part of an asset management program, we sold five non-strategic storage facilities located in
Pennsylvania, Tennessee, Ohio, and South Carolina to unaffiliated parties for $11.7 million, resulting in a net gain
of $1.1 million. In 2000 and 2001, we "spun-off" non-core, slow-growth properties, into joint ventures. In cases
where we have a less than 50% controlling interest in a joint venture and certain other criteria are met (see Note 2,
Basis of Presentation, to our financial statements in Item 8), 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 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 and certain other criteria are met (see Note 2, Basis of
Presentation, to our financial statements in Item 8), 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.
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 our 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 our common shares.
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 the market value of our issued and outstanding Common and Preferred Stock plus our 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. In December 2004 we increased our line of credit capacity from $75 million to
5
$100 million, and provided for an additional $100 million of available borrowing capacity if the line of credit is
expanded in accordance with its terms. We also negotiated interest rate reductions on our $100 million five year
note from LIBOR plus 1.50% to LIBOR plus 1.2%, and on the line of credit from LIBOR plus 1.375% to LIBOR
plus 0.9%. Both the $100 million five year term note and the line of credit were extended by one year; the $100
million note now matures in September, 2009, and the line of credit expires in September 2007, with our option to
extend to 2008.
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 6 to the Consolidated
Financial Statements filed herewith.
Employees
We currently employ a total of 822 employees, including 272 Property Managers, 17 Regional Team Leaders,
and 429 assistant managers and part-time employees. At our headquarters, in addition to our three executive
officers, we employ 101 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
We file 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, 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 SEC. In addition,
our code of ethics is available free of charge on our website at 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 1A. Risk Factors
You should carefully consider the risks described below, together with all of the other information included in or
incorporated by reference into our Form 10-K, as part of your evaluation of the Company. If any of the following
risks actually occur, our business could be harmed. In such case, the trading price of our securities could decline,
and you may lose all or part of your investment.
Our Acquisitions May Not Perform as Anticipated
We have completed many acquisitions of self-storage facilities since our initial public offering of common stock
in June 1995. Our strategy is to continue to grow by acquiring additional self-storage facilities. Acquisitions entail
risks that investments will fail to perform in accordance with our expectations and that our judgments with respect to
the prices paid for acquired properties and the costs of any improvements required to bring an acquired property up
6
to standards established for the market position intended for that property will prove inaccurate. Acquisitions also
involve general investment risks associated with any new real estate investment.
We May Incur Problems With Our Real Estate Financing
Unsecured Credit Facility. We have a line of credit with a syndicate of financial institutions, which are our
"lenders." This unsecured credit facility is recourse to us and the required payments are not reduced if the economic
performance of any of the properties declines. The unsecured credit facility limits our ability to make distributions
to our shareholders, except for distributions required by the real estate investment trust provisions of the Internal
Revenue Code of 1986, which we refer to as the "Code" and in other limited circumstances. If there is an event of
default, our lenders may seek to exercise their rights under the unsecured credit facility, which could have a material
adverse effect on us and our ability to make expected distributions to shareholders.
Rising Interest Rates. Indebtedness that we incur under the unsecured credit facility bears interest at a variable
rate. Accordingly, increases in interest rates could increase our interest expense, which would reduce our cash
available for distribution and our ability to pay expected distributions to our shareholders. We manage our exposure
to rising interest rates using interest rate swaps and other available mechanisms. If the amount of our indebtedness
bearing interest at a variable rate increases, our unsecured credit facility may require us to use those arrangements.
Refinancing May Not Be Available. It may be necessary for us to refinance our unsecured credit facility through
additional debt financing or equity offerings. If we were unable to refinance this indebtedness on acceptable terms,
we might be forced to dispose of some of our properties upon disadvantageous terms, which might result in losses to
us and might adversely affect the cash available for distribution. If prevailing interest rates or other factors at the
time of refinancing result in higher interest rates on refinancings, our interest expense would increase, which would
adversely affect our cash available for distribution and our ability to pay expected distributions to shareholders.
Our Debt Levels May Increase
Our Board of Directors currently has a policy of limiting the amount of our debt at the time of incurrence to less
than 50% of the sum of the market value of our issued and outstanding common stock and preferred stock plus the
amount of our debt including the debt proposed to be incurred. However, our organizational documents do not
contain any limitation on the amount of indebtedness we might incur. Accordingly, our Board of Directors could
alter or eliminate the current policy limitation on borrowing without a vote of our shareholders. We could become
highly leveraged if this policy were changed. However, our ability to incur debt is limited by covenants in our bank
credit arrangements and in our securities purchase agreement with holders of our Series C preferred stock.
We are Subject to The Risks Posed by Fluctuating Demand and Significant Competition in the Self-Storage
Industry
Our properties are subject to all operating risks common to the self-storage industry. These risks include but are
not limited to the following:
- Decreases in demand for rental spaces in a particular locale;
- Changes in supply of or demand for similar or competing facilities in an area;
- Changes in market rental rates; and
- Inability to collect rents from customers.
Our current strategy is to acquire interests only in self-storage facilities. Consequently, we are subject to risks
inherent in investments in a single industry. Our Properties compete with other self-storage facilities in their
geographic markets. As a result of competition, the Properties could experience a decrease in occupancy levels and
rental rates, which would decrease our cash available for distribution. We compete in operations and for acquisition
opportunities with companies that have substantial financial resources. Competition may reduce the number of
7
suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell.
The self-storage industry has at times experienced overbuilding in response to perceived increases in demand. A
recurrence of overbuilding might cause us to experience a decrease in occupancy levels, limit our ability to increase
rents and compel us to offer discounted rents.
Our Real Estate Investments are Illiquid and are Subject to Uninsurable Risks and Government Regulations
General Risks. Our investments are subject to varying degrees of risk generally related to the ownership of real
property. The underlying value of our real estate investments and our income and ability to make distributions to
our shareholders are dependent upon our ability to operate the properties in a manner sufficient to maintain or
increase cash available for distribution. Income from our properties may be adversely affected by the following
factors:
- Changes in national economic conditions;
- Changes in general or local economic conditions and neighborhood characteristics;
- Competition from other self-storage facilities;
- Changes in interest rates and in the availability, cost and terms of mortgage funds;
- The impact of present or future environmental legislation and compliance with environmental laws;
- The ongoing need for capital improvements, particularly in older facilities;
- Changes in real estate tax rates and other operating expenses;
- Adverse changes in governmental rules and fiscal policies;
- Uninsured losses resulting from casualties associated with severe weather conditions, civil unrest, acts
of God, including natural disasters, and acts of war;
- Adverse changes in zoning laws; and
- Other factors that are beyond our control.
Illiquidity of Real Estate May Limit its Value. Real estate investments are relatively illiquid. Our ability to vary
our portfolio in response to changes in economic and other conditions is limited. In addition, provisions of the Code
may limit our ability to profit on the sale of properties held for fewer than four years. We may be unable to dispose
of a property when we find disposition advantageous or necessary and the sale price of any disposition may not
equal or exceed the amount of our investment.
Uninsured and Underinsured Losses Could Reduce the Value of our Properties. Some losses, generally of a
catastrophic nature, that we potentially face with respect to our properties may be uninsurable or not insurable at an
acceptable cost. For example, in 2004, our income was adversely affected by uninsured losses resulting from four
hurricanes that hit the Eastern United States. Our management uses its discretion in determining amounts, coverage
limits and deductibility provisions of insurance, with a view to acquiring appropriate insurance on our investments at
a reasonable cost and on suitable terms. These decisions may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost
investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors
also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed.
Under those circumstances, the insurance proceeds received by us might not be adequate to restore our economic
position with respect to a particular property.
Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of
8
removal or remediation of hazardous or toxic substances on, under or in that property. Those laws often impose
liability even if the owner or operator did not cause or know of the presence of hazardous or toxic substances and
even if the storage of those substances was in violation of a tenant's lease. In addition, the presence of hazardous or
toxic substances, or the failure of the owner to address their presence on the property, may adversely affect the
owner's ability to borrow using that real property as collateral. In connection with the ownership of the properties,
we may be potentially liable for any of those costs.
Americans with Disabilities Act. The Americans with Disabilities Act of 1990, or ADA, generally requires that
buildings be made accessible to persons with disabilities. A determination that we are not in compliance with the
ADA could result in imposition of fines or an award of damages to private litigants. If we were required to make
modifications to comply with the ADA, our results of operations and ability to make expected distributions to our
shareholders could be adversely affected.
There are Limitations on the Ability to Change Control of Sovran
Limitation on Ownership and Transfer of Shares. To maintain our qualification as a REIT, not more than 50%
in value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals,
as defined in the Code. To limit the possibility that we will fail to qualify as a REIT under this test, our Amended
and Restated Articles of Incorporation include ownership limits and transfer restrictions on shares of our capital
stock. Our Articles of Incorporation limit ownership of our issued and outstanding capital stock by any single
shareholder to 9.8% of the aggregate value of our outstanding capital stock, except that the ownership by some of
our shareholders is limited to 15%.
These ownership limits may:
- Have the effect of precluding an acquisition of control of Sovran by a third party without consent of our
Board of Directors even if the change in control would be in the interest of shareholders, and
- Limit the opportunity for shareholders to receive a premium for shares of our common stock they hold
that might otherwise exist if an investor were attempting to assemble a block of common stock in
excess of 9.8% or 15%, as the case may be, of the outstanding shares of our capital stock or to
otherwise effect a change in control of Sovran.
Our Board of Directors may waive the ownership limits if it is satisfied that ownership by those shareholders in
excess of those limits will not jeopardize our status as a REIT under the Code or in the event it determines that it is
no longer in our best interests to be a REIT. Waivers have been granted to the holders of our Series C preferred
stock. A transfer of our common stock and/or preferred stock to a person who, as a result of the transfer, violates the
ownership limits may not be effective under some circumstances.
Shareholder Rights Plan. We have a shareholder rights plan that grants the holders of our common stock rights
that generally become exercisable if a person:
- Becomes an "acquiring person" by acquiring 10% or more of our outstanding common stock, or
- Commences a tender offer that would result in that person owning 10% or more of our outstanding
common stock.
The shareholder rights plan generally provides that the initial holders of our Series C preferred stock are not
considered acquiring persons by reason of their purchase from us of the Series C preferred stock or other related
acquisitions, if those acquisitions are not made with the purpose or effect of changing or influencing control of
Sovran. In the event a person becomes an acquiring person, each holder of a right (other than the acquiring person)
would be entitled to acquire a number of shares of our Series A junior preferred stock that are equivalent to the
shares of our common stock having a value of twice the then-current exercise price of the right. If we are acquired
in a merger or other business combination transaction after that event, each holder of a right would then be entitled
to purchase, at the then-current exercise price, shares of the acquiring company's common stock having a value of
9
twice the exercise price of the right. Our shareholder rights plan may have the effect of delaying or preventing a
change in control of Sovran.
Other Limitations. Other limitations could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of our outstanding common stock might receive a premium for their shares of
our common stock that exceeds the then prevailing market price or that those holders might believe to be otherwise
in their best interest. The issuance of additional shares of preferred stock could have the effect of delaying or
preventing a change in control of Sovran even if a change in control were in the shareholders' interest. In addition,
the Maryland General Corporation Law, or MGCL, imposes restrictions and requires that specified procedures be
followed with respect to the acquisition of stated levels of share ownership and business combinations, including
combinations with interested shareholders. These provisions of the MGCL could have the effect of delaying or
preventing a change in control of Sovran even if a change in control were in the shareholders' interest. Waivers and
exemptions have been granted to the initial purchasers of our Series C preferred stock in connection with these
provisions of the MGCL. In addition, under the Operating Partnership's agreement of limited partnership, in
general, we may not merge, consolidate or engage in any combination with another person or sell all or substantially
all of our assets unless that transaction includes the merger or sale of all or substantially all of the assets of the
Operating Partnership, which requires the approval of the holders of 75% of the limited partnership interests thereof.
If we were to own less than 75% of the limited partnership interests in the Operating Partnership, this provision of
the limited partnership agreement could have the effect of delaying or preventing us from engaging in some change
of control transactions.
Our Failure to Qualify as a REIT Would Have Adverse Consequences
We intend to operate in a matter that will permit us to qualify as a REIT under the Code. Qualification as a
REIT involves the application of highly technical and complex Code provisions for which there are only limited
judicial and administrative interpretations. Continued qualification as a REIT depends upon our continuing ability
to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of
our assets, the sources of our income and the amount of our distributions to our shareholders. If we were to fail to
qualify as a REIT in any taxable year, we would not be allowed a deduction for distributions to shareholders in
computing our taxable income and would be subject to federal income tax (including any applicable alternative
minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief under certain Code
provisions, we also would be ineligible for qualification as a REIT for the four taxable years following the year
during which our qualification was lost. As a result, distributions to the shareholders would be reduced for each of
the years involved. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our
REIT election.
Market Interests Rates May Influence the Price of our Common Stock
One of the factors that may influence the price of our common stock is the annual yields on our common stock as
compared to yields on other financial instruments. An increase in market interest rates will result in higher yields on
other financial instruments, which could adversely affect the price of our common stock.
Regional Concentration of our Business May Subject us to Economic Downturns in the States of Texas and
Florida.
At December 31, 2004, 107 of our 271 self-storage facilities are located in the States of Texas and Florida. For
the year ended December 31, 2004, these facilities accounted for approximately 42% of our total revenues. This
concentration of business in Texas and Florida exposes us to potential losses resulting from a downturn in the
economies of those states. If economic conditions in those states deteriorate, we may experience a reduction in
existing and new business, which may have an adverse effect on our business, financial condition and results of
operations.
10
The Implementation of the Jobs and Growth Tax Relief Reconciliation Act of 2003 May Adversely Affect the
Value of Our Common Stock
On May 28, 2003, President Bush signed into law the Jobs and Growth Tax Relief and Reconciliation Act of
2003, which provides favorable income tax rates for certain corporate dividends received by individuals through
December 31, 2008. Under this new law, REIT dividends are not eligible for the preferential capital gain rates
applicable to dividends unless the dividends are attributable to income that has been subject to corporate-level tax.
As a result, substantially all of the distributions paid on shares of our stock are not expected to qualify for those
lower rates. This new law could cause stock in non-REIT corporations to be more attractive to investors relative to
stock in REITs, which may negatively affect the value of, and the market for, our common stock.
Terrorist Attacks and the Possibility of Armed Conflict May Have an Adverse Effect On Our Business,
Financial Condition and Operating Results and Could Decrease the Value of Our Assets
Terrorist attacks and other acts of violence or war, such as those that took place on September 11, 2001, or the
recent war with Iraq, could have a material adverse effect on our business and operating results. There may be
further terrorist attacks against the United States. Attacks or armed conflicts that directly impact one or more of our
properties could significantly affect our ability to operate those properties and, as a result, impair our ability to
achieve our expected results. Furthermore, we may not have insurance coverage for losses caused by a terrorist
attack. That insurance may not be available or, if it is available and we decide, or are required by our lenders, to
obtain terrorism coverage, the cost for the insurance may be significant in relationship to the risk covered. In
addition, the adverse effects terrorist acts and threats of future attacks could have on the U.S. economy could
similarly have a material adverse effect on our business, financial condition and results of operations. Finally,
further terrorist acts could cause the United States to enter into armed conflict, which could further impact our
business, financial and operating results.
Item 2. Properties
At December 31, 2004, we owned and/or managed a total of 271 Properties situated in twenty-one states. 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. A majority of the Properties are single-story, thereby providing customers with the convenience of
direct vehicle access to their storage units. Our stores range in size from 21,000 to 190,000 net rentable square feet,
with an average of approximately 60,000 net rentable square feet. The Properties generally are constructed of
masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. 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 spaces are
secured by a lock furnished by the customer to provide the customer with control of access to the space.
All of the Properties conduct business under the user-friendly trade name "Uncle Bob's Self-Storage."
11
The following table provides certain information regarding the Properties owned and/or managed as of December
31, 2004:
Number of
Stores at
December 31,
2004 (a)
Alabama ...............................................
Arizona.................................................
Connecticut ..........................................
Florida ..................................................
Georgia.................................................
Louisiana..............................................
Maine ...................................................
Maryland ..............................................
Massachusetts.......................................
Michigan ..............................................
Mississippi ...........................................
New Hampshire....................................
New York.............................................
North Carolina......................................
Ohio......................................................
Pennsylvania ........................................
Rhode Island ........................................
South Carolina......................................
Tennessee .............................................
Texas ....................................................
Virginia ................................................
Total ...................................................
8
9
4
49
21
7
2
4
11
7
4
1
16
15
16
6
4
8
3
58
18
271
Square
Feet
437,291
504,444
277,390
3,103,363
1,164,387
351,374
99,300
166,684
567,849
455,799
200,306
62,985
899,076
776,978
982,046
369,820
167,866
430,479
205,497
4,095,843
1,069,659
16,388,436
Number of
Spaces
3,210
4,595
2,358
28,283
9,437
3,078
866
1,947
4,999
4,402
1,554
548
8,290
6,740
8,184
2,883
1,565
3,647
1,687
34,061
9,970
142,304
Percentage
of Store
Revenue
2.2%
2.9%
2.0%
21.9%
6.7%
2.2%
0.7%
1.6%
4.5%
2.2%
1.3%
0.5%
8.1%
3.9%
5.6%
2.3%
1.5%
2.4%
0.7%
19.7%
7.1%
100.0%
(a) Includes 260 stores that are consolidated in our financial statements and 11 stores that are managed under an
agreement with an unconsolidated joint venture that is 45% owned by us. See attached Schedule III: Combined
Real Estate and Accumulated Depreciation for a list of the stores consolidated in our financial statements.
Item 3. Legal Proceedings
In the normal course of business, we are subject to various claims and litigation. While the outcome of any
litigation is inherently unpredictable, we do not believe that any of these matters will have a material adverse impact
on our financial condition, results of operations or cash flows.
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.
12
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our 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 our Common Stock for each full quarterly period within the two most recent fiscal
years.
Quarter 2003
1st................................................................................
2nd ..............................................................................
3rd ...............................................................................
4th ...............................................................................
Quarter 2004
1st................................................................................
2nd ..............................................................................
3rd ...............................................................................
4th ...............................................................................
High
29.0100
31.5000
33.4800
37.5600
High
41.7900
42.8000
41.4200
43.6000
Low
25.4100
27.9600
30.2300
32.6000
Low
35.3000
32.6600
37.7400
37.6000
As of March 1, 2005, there were approximately 1,627 holders of record of our 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 2004 represent 73% ordinary income and 27%
return of capital.
History of Dividends Declared on Common Stock
1st Quarter, 2003.........................................................
2nd Quarter, 2003 .......................................................
3rd Quarter, 2003 ........................................................
4th Quarter, 2003 ........................................................
$0.6000 per share
$0.6000 per share
$0.6025 per share
$0.6025 per share
1st Quarter, 2004.........................................................
2nd Quarter, 2004 .......................................................
3rd Quarter, 2004 ........................................................
4th Quarter, 2004 ........................................................
$0.6025 per share
$0.6025 per share
$0.6050 per share
$0.6050 per share
13
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31, 2004, with respect to equity compensation
plans under which shares of the Company s Common Stock may be issued.
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (#)
Weighted
average
exercise price
of outstanding
options,
warrants and
rights ($)
Number of
securities
remaining
available for
future issuance
(#)
222,415
25,000
21,116
N/A
$26.55
$30.92
N/A
N/A
334,158
38,144
23,884
N/A
Plan Category
Equity compensation plans approved by
shareholders:
1995 Award and Option Plan ................................
1995 Outside Directors' Stock Option Plan...........
Deferred Compensation Plan for Directors (1) .....
Equity compensation plans not approved by
shareholders:......................................................
(1) Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their
Directors fees that are otherwise payable in cash. Directors fees that are deferred under the Plan will be credited to
each Director s account under the Plan in the form of Units. The number of Units credited is determined by dividing
the amount of Directors fees deferred by the closing price of the Company s Common Stock on the New York
Stock Exchange on the day immediately preceding the day upon which Directors fees otherwise would be paid by
the Company. A Director is credited with additional Units for dividends on the shares of Common Stock
represented by Units in such Director Account. A Director may elect to receive the shares in a lump sum on a date
specified by the Director or in quarterly or annual installments over a specified period and commencing on a
specified date.
14
Item 6. Selected Financial Data
The following selected financial and operating information should be read in conjunction with Management s
Discussion and Analysis of Financial Condition and Results of Operations, and the financial statements and related
notes included elsewhere in this Annual Report on Form 10-K:
(dollars in thousands, except per
share data)
2004
2003
2002
2001
2000
At or For Year Ended December 31,
Operating Data
Operating revenues ................................................
Income from continuing operations .......................
Income from discontinued operation (1)................
Net income ............................................................
Income from continuing operations per
$123,286
30,698
1,306
32,004
common share
diluted................................
Net income per common share basic ..................
Net income per common share diluted ...............
Dividends declared per common share ..................
1.44
1.54
1.53
2.42
Balance Sheet Data
Investment in storage facilities at cost ...................
Total assets ............................................................
Total debt...............................................................
Total liabilities.......................................................
Series B preferred stock................................
Series C preferred stock................................
$811,516
719,573
289,075
315,108
-
53,227
Other Data
Net cash provided by operating
activities ............................................................
Net cash used in investing activities ......................
Net cash (used in) provided by financing
$53,867
(70,987)
$111,414
27,586
837
28,423
$100,507
25,526
775
26,301
1.40
1.47
1.46
2.41
$727,289
683,336
255,819
285,755
28,585
67,129
1.58
1.66
1.64
2.38
$698,334
652,213
252,452
278,631
28,585
67,129
$ 89,425
23,404
785
24,189
1.66
1.74
1.72
2.34
$598,961
567,717
241,190
255,878
28,585
-
$ 88,615
24,898
809
25,707
1.82
1.89
1.89
2.30
$550,577
547,015
231,223
246,185
28,585
-
$ 50,949
(31,230)
$ 44,544
(99,065)
$ 39,872
(17,567)
$ 38,386
(25,019)
activities ............................................................
(163)
(2,764)
53,814
(22,709)
(13,765)
Net cash provided by discontinued
operations ............................................................
287
1,083
887
866
787
(1) In 2004 we sold five stores whose operations and gain are classified as discontinued operations for all years
presented.
15
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 our actual results, performance or achievements 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; our ability to evaluate, finance and
integrate acquired businesses into our existing business and operations; our ability to effectively compete in the
industry in which we do business; our 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 our outstanding floating rate debt; our ability to
successfully extend our truck move-in program for new customers and Dri-guard product roll-out; our reliance on
our call center; our cash flow may be insufficient to meet required payments of principal, interest and dividends; and
tax law changes that may change the taxability of future income.
Business and Overview
We are the fifth largest operator of self-storage properties in the United States based on facilities owned or
managed. All of our stores are operated under the user-friendly trade name Uncle Bob s Self-Storage.
Operating Strategy:
Our operating strategy is designed to generate growth and enhance value by:
A.
Increasing operating performance and cash flow through aggressive management of our stores:
- Operating performance continues to improve as a result of revenue drivers implemented by us over the
past three years, including:
- The formation of our Customer Care Center, which answers sales inquiries and makes
reservations for all of our properties on a centralized basis,
- The rollout of the Uncle Bob s truck move-in program, under which, at present, 207 of our
stores offer a free Uncle Bob s truck to assist our customers in moving into their spaces, and
- An increase in internet marketing and sales.
-
In addition to increasing revenue, we have worked to improve services and amenities at our stores.
While this has caused operating expenses to increase over the past three years, it has resulted in a
superior storage experience for our customers. Our managers are better qualified and receive a
significantly higher level of training than they did three years ago, customer access and security are
greatly enhanced as a result of advances in technology, and property appearance and functionality has
been improved.
- Our customized property management systems enable us to improve our ability to track trends, set
optimal pricing levels, enjoy considerable economies of scale in vendor and supply pricing, and control
collections and accounts receivable.
B. Acquiring additional stores:
-
In markets where we already operate facilities, we seek to acquire new stores one or two at a time from
independent operators. By so doing, we can add to our existing base, which should improve market
penetration in those areas, and contribute to the benefits achieved from economies of scale.
16
- We will seek to enter new markets if we can do so by acquiring a group of stores in those markets. We
feel that our marketing efforts and control systems would enhance even those portfolios that have been
managed efficiently by independent operators, and that attractive returns can be generated by such
acquisitions.
C.
Expanding and enhancing our existing stores:
- We intend to continue to install climate controlled and Dri-guard space at select stores, providing our
customers with better storage solutions and improving yields on our portfolio.
- We intend to add buildings to a number of our stores, providing additional rental units of a size and
type to meet existing demand.
- We will seek to acquire parcels of land contiguous to some of our stores and add to the available rental
space at those stores.
- We intend to modify existing buildings to better match size and type of rental units to existing demand.
At some stores, this may be as simple as reconfiguring walls and doors; at others, it may entail
rebuilding in a configuration more in tune with market conditions.
- Over the next three years, we expect that the total of the expansions and enhancements discussed
above will add 450,000 to 600,000 square feet of rentable space at existing stores and convert up to an
additional 250,000 to 300,000 square feet to premium (climate and humidity controlled) space. The
projected cost of these revenue enhancing improvements is estimated at between $32 and $40 million.
Funding is expected to be provided primarily from borrowings on the Company s line of credit, and
issuance of common shares in our Dividend Reinvestment Program and Stock Purchase Plan.
Supply and Demand
We believe the supply and demand model in the self-storage industry is micro market specific in that a majority
of our business comes from within a five mile radius of our stores. However, the historically low interest rates
available to developers over the past three years have resulted in increased supply on a national basis. We have
experienced some of this excess supply in certain markets in Texas and New England, but because of the demand
model, we have not seen a widespread effect on our stores. We have also observed an increase in the sales price of
existing facilities as a result of the low interest rates, such that the capitalization rates on acquisitions (expected
annual return on investment) have decreased from approximately 10% four years ago to 8.5% today. In 2004, we
took advantage of these favorable capitalization rates by selling five stores for a gain of $1.1 million. With interest
rates now on the rise we expect the trend of decreasing capitalization rates to reverse in the coming years and are
forecasting acquisitions of $50 million in 2005 and no sales of existing stores.
Operating Trends
In 2004, the overall economy and our industry slowly gained momentum from the recovery that commenced in
2003. We experienced same store revenue growth of approximately 5% in each of 2004 and 2003. We attribute the
same store growth to implementation of the call center, the free truck program for new move-in customers, use of
improved technology and practices in the management of our rental rates and, to a lesser degree, general economic
factors. We expect conditions in most of our markets to remain stable and are forecasting 4% revenue growth on a
same store basis in 2005.
Expenses related to operating a self-storage facility have increased substantially over the last five years as a
result of expanded hours, increased health care costs, property insurance costs, and the costs of amenities (such as
Uncle Bob s trucks). We expect the trend of increasing costs to continue at a moderate pace and, while current
operating margins are expected to be sustained, it is unlikely that much improvement in operating margins will be
seen in the coming years as a result of cost reductions.
17
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 U.S. generally accepted accounting principles.
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 we believe 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 a 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 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, 2004 and 2003, no assets had been
determined to be impaired under this policy.
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 we 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, 2004 COMPARED TO
YEAR ENDED DECEMBER 31, 2003
We recorded rental revenues of $119.6 million for the year ended December 31, 2004, an increase of $11.1
million or 10.2% when compared to 2003 rental revenues of $108.5 million. Of this increase, $5.3 million resulted
from a 5% increase in rental revenues at the 244 core properties considered in same store sales (those properties
included in the consolidated results of operations since January 1, 2003). The increase in same store rental revenues
was achieved primarily through rate increases on select units, and a slight occupancy increase, which we believe
resulted from improved responsiveness to customer demand created by our centralized call center and the
availability of rental trucks at 207 of our stores. The remaining $5.8 million increase in rental revenues resulted
from the acquisition of ten stores during 2004 and from having the 2003 acquisitions included for a full year of
operations. Other income increased $0.8 million due to increased insurance sales and the additional incidental
revenue generated by truck rentals.
Property operating and real estate tax expense increased $4.7 million or 12.1% in 2004 compared to 2003. Of
this increase, $2.1 million was incurred by the facilities acquired in 2004 and from having the 2003 acquisitions
included for a full year of operations. $1.9 million of the increase was due to increased insurance, personnel, truck,
and maintenance expenses, and increased property taxes at the 244 core properties considered same stores. We also
incurred approximately $0.7 million of uninsured losses relating to the four hurricanes that hit the Eastern United
States in 2004. We expect the trend of increasing operating costs to continue at a moderate pace although we do not
expect the uninsured hurricane losses to occur annually.
18
General and administrative expenses increased $1.5 million or 15.1% from 2003 to 2004. The increase primarily
resulted from increased costs in our call center, professional fees related to the documentation, analysis, and testing
of internal controls required by Sarbanes-Oxley Section 404, and the increased costs associated with operating the
properties acquired in 2004 and 2003.
Depreciation and amortization expense increased to $19.9 million in 2004 from $18.7 million in 2003, primarily
as a result of additional depreciation taken on real estate assets acquired in 2004 and a full year of depreciation on
2003 acquisitions.
Income from operations increased from $44.6 million in 2003 to $49.1 million in 2004 as a result of the net
effect of the aforementioned items.
Interest expense increased from $15.1 million in 2003 to $17.4 million in 2004 as a result of higher interest rates
associated with the fixed rate debt entered into in September 2003 and additional borrowings under our line of credit
to purchase ten stores in 2004.
During 2004, the Company sold five non-strategic storage facilities for net cash proceeds of $11.7 million,
resulting in a gain of $1.1 million. The operations of these five facilities and the gain on sale in 2004 are reported as
discontinued operations.
On August 2, 2004, the Company redeemed all 1,200,000 outstanding shares of its 9.85% Series B Cumulative
Preferred Stock for $30 million plus accrued but unpaid dividends on those shares. The excess of the redemption
amount over the carrying value of the Series B Preferred Stock was $1.4 million and has been shown as a reduction
in net income available to common shareholders.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO
YEAR ENDED DECEMBER 31, 2002
We recorded rental revenues of $108.5 million for the year ended December 31, 2003, an increase of $10.1
million or 10.3% when compared to 2002 rental revenues of $98.3 million. Of this increase, $4.7 million resulted
from a 5% increase in rental revenues at the 225 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 slightly increased occupancy levels, which we
believe resulted from our improved responsiveness to customer demand created by our centralized call center and
the availability of rental trucks at 158 of our stores. Although the extensive discounting and promotional advertising
seen in 2002 diminished in 2003, 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 incidental revenue
generated by truck rentals.
Property operating and real estate tax expense increased $5.5 million or 16.8% 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 $3.8 million increase was due to increased insurance, personnel, truck
expense, maintenance, and increased property taxes at the 225 core properties considered same stores.
General and administrative expenses increased $1.0 million or 12.0% from 2002 to 2003. The increase primarily
resulted from increased costs 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 $18.7 million in 2003 from $17.1 million in 2002, 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 $41.8 million in 2002 to $44.6 million in 2003 as a result of the net
effect of the aforementioned items.
19
Interest expense increased from $14.7 million in 2002 to $15.1 million in 2003 as a result of higher interest rates
associated with the fixed rate debt entered into in September 2003.
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. FFO adds back historical cost depreciation, which assumes the value of real estate assets
diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions.
Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by
disregarding (or adding back) historical cost depreciation.
FFO 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 compared
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.
Reconciliation of Net Income to Funds From Operations
(dollars in thousands)
2004
For Year Ended December 31,
2002
2001
2003
2000
Net income ..............................................
Minority interest in income.....................
Depreciation of real estate and
amortization of intangible assets
exclusive of deferred financing
fees ......................................................
Depreciation of real estate included
$ 32,004
1,542
$ 28,423
1,790
$ 26,301
1,990
$ 24,189
1,617
$ 25,707
1,812
19,175
17,856
16,207
13,839
13,180
in discontinued operations...................
90
293
290
283
266
Depreciation and amortization from
unconsolidated joint ventures ..............
Gain on sale of real estate .......................
Preferred stock dividends........................
Redemption amount in excess of
carrying value of Series B
Preferred Stock ................................
Funds from operations allocable to
minority interest in Operating
Partnership...........................................
Funds from operations allocable to
minority interest in Locke
Sovran II..............................................
Funds from operations available to
473
(1,137)
(7,168)
460
-
(8,818)
400
-
(4,863)
633
-
(2,955)
202
(2,161)
(2,955)
(1,415)
-
-
-
-
(1,333)
(1,563)
(1,647)
(2,333)
(2,388)
(1,475)
(1,539)
(1,645)
(125)
-
common shareholders..........................
$ 40,756
$ 36,902
$ 37,033
$ 35,148
$ 33,663
20
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 2007, at which time
our revolving line of credit matures unless renewed at our option for one additional year.
Cash flows from operating activities were $53.9 million, $50.9 million and $44.5 million for the years ended
December 31, 2004, 2003, and 2002, 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. In December 2004, the agreements were amended by increasing the line of credit
availability from $75 million to $100 million (expandable to $200 million), reducing the interest rate from LIBOR
plus 1.375% to LIBOR plus 0.90%, increasing the maturity by one year to September 2007, and retaining a one year
extension option. In addition, the line of credit requires a facility fee of 0.20%. At December 31, 2004, there was
$57 million available on our line of credit. The amendment also reduced the interest rate on the $100 million term
note from LIBOR plus 1.50% to LIBOR plus 1.20%, and extended the maturity by one year to September 2009.
In addition to the line of credit and term note mentioned above, in 2003 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-) and Fitch (BBB-).
Our line of credit and term notes require us to meet certain financial covenants, including prescribed leverage,
fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend
payouts. As of December 31, 2004, we were in compliance with all covenants.
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 carrying value of $73.9 million
and $74.2 million at December 31, 2004 and 2003, respectively. The 10-year note bears interest at a fixed rate of
7.19%.
In July 1999, we issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. We
redeemed all outstanding shares of our Series B Preferred Stock on August 2, 2004 at a total cost of $30 million plus
accrued but unpaid dividends on those shares. 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 recorded a reduction of $1.4 million from 2004 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 redemption
amount.
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 our borrowings under the line of credit. On August 4, 2004, we
issued 306,748 shares of our common stock in connection with a written notice from one of the holders of our Series
C Preferred Stock requesting the conversion of 400,000 shares of Series C Preferred Stock into common stock. As a
result of this conversion, all such 400,000 shares of Series C Preferred Stock were retired leaving 2,400,000 shares
outstanding at December 31, 2004.
During 2004, we did not acquire any shares of our common stock via the Share Repurchase Program authorized
21
by the Board of Directors. From January 1, 2003 through December 31, 2003, we acquired 145,816 shares of our
common stock via this plan. From the inception of the Share Repurchase Program through December 31, 2004, 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 2004, we issued approximately 1,389,000 shares via our Dividend Reinvestment and Stock Purchase
Plan and Employee Stock Option Plan. We realized $49 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.
The following table summarizes our future contractual obligations:
CONTRACTUAL OBLIGATIONS
Contractual
obligations
Total
2005
2006-2007
2008-2009
2010 and
thereafter
Payments due by period
Line of credit............
$43.0 million
$200.0 million
Term notes ...............
Mortgage payable..... $46.1 million
Building lease...........
$2.0 million
Total ......................... $291.1 million
-
-
$0.8 million
$0.4 million
$1.2 million
$43.0 million
-
$1.8 million
$0.8 million
$45.6 million
-
$100.0 million
$2.1 million
$0.8 million
$102.9 million
-
$100.0 million
$41.4 million
-
$141.4 million
The above amounts for the line of credit, term notes and mortgage exclude interest.
ACQUISITION OF PROPERTIES
During 2004, we used operating cash flow and borrowings pursuant to the line of credit to acquire ten Properties
in Connecticut, Florida, Tennessee, and Texas comprising one million square feet from unaffiliated storage
operators. During 2003, we used operating cash flow, borrowings pursuant to the line of credit, and proceeds from
our Dividend Reinvestment and Stock Purchase Plan 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, 2004, we owned and/or operated 271 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, 2004, we were in negotiations to acquire five stores for approximately $20 million. One of
these stores was purchased on February 23, 2005 for $7.5 million.
In addition, we plan, over the next three years, to implement a program that will add 450,000 to 600,000 square
feet of rentable space at existing stores and convert up to an additional 250,000 to 300,000 square feet to premium
(climate and humidity controlled) space. The projected cost of these revenue enhancing improvements is estimated
at between $32 and $40 million. Funding of these and the above-mentioned improvements is expected to be
provided primarily from borrowings under our line of credit, and issuance of common shares through our Dividend
Reinvestment and Stock Purchase Plan.
22
DISPOSITION OF PROPERTIES
During 2004, as part of an asset management program, we sold five non-strategic storage facilities located in
Pennsylvania, Tennessee, Ohio, and South Carolina to unaffiliated parties for $11.7 million resulting in a net gain of
$1.1 million.
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 2005.
OFF-BALANCE SHEET ARRANGEMENTS
Our off-balance sheet arrangements include an ownership interest in Locke Sovran I, LLC, which owns 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%,
which was repaid in 2001, and a 45% interest in Locke Sovran I, LLC. For the year ended December 31, 2004, our
share of Locke Sovran I, LLC's income was $141,000, which is recorded as equity in income of joint ventures on
our consolidated statements of income. We manage the storage facilities for Locke Sovran I, LLC and received fees
of $322,000, $311,000, and $290,000, for the years ended 2004, 2003, and 2002, respectively.
We also have a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2004. During 2004,
Iskalo Office Holdings obtained long-term financing and used the proceeds to repay the note payable to us of $1.4
million. Our remaining investment includes a capital contribution of $49. For the year ended December 31, 2004,
our share of Iskalo Office Holdings, LLC's income was $27,000 and we received a distribution of $113,000. We
paid rent to Iskalo Office Holdings, LLC of $426,000 in 2004 and $393,000 in 2003, and $255,000 in 2002. Also,
during 2004 and 2003 we purchased land from Iskalo Office Holdings, LLC for $0.4 million and $1.2 million,
respectively.
A summary of the off-balance sheet arrangement s financial statements as of and for the year ended December
31, 2004 is as follows:
23
(dollars in thousands)
Locke Sovran I,
LLC
Iskalo Office
Holdings,
LLC
Balance Sheet Data:
Investment in storage facilities, net.....................................
Investment in office building ..............................................
Other assets .........................................................................
Total Assets.......................................................................
Due to the Company ...........................................................
Mortgage payable................................................................
Other liabilities....................................................................
Total Liabilities.................................................................
Unaffiliated partners' equity (deficiency)............................
Company equity (deficiency)..............................................
Total Liabilities and Partners' Equity (deficiency)............
Income Statement Data:
Total revenues.....................................................................
Total expenses.....................................................................
Net income ........................................................................
$ 38,798
-
1,637
$ 40,435
$ 2,593
29,755
686
33,034
4,014
3,387
$ 40,435
$ 6,441
6,128
$ 313
$ -
5,939
739
$ 6,678
$ -
7,627
271
7,898
(727)
(493)
$ 6,678
$ 1,049
993
$ 56
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. A summary of our cash flows arising from the
two off-balance sheet arrangements are as follows:
(dollars in thousands)
Statement of Operations
Other income (management fees income)...............................
General and administrative expenses (corporate office rent) ..
Equity in income (losses) of joint ventures.............................
Investing activities
Reimbursement of advances to (advances to) joint ventures ..
Financing activities
Distributions from unconsolidated joint ventures ...................
Year ended December 31,
2003
2004
2002
$322
426
207
958
602
$311
393
186
$290
255
(15)
(110)
(2,118)
646
1,032
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 2005 may be
applied toward our 2004 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 2004, our percentage of revenue from such sources exceeded 96%, thereby passing the 95% test,
and no special measures are expected to be required to enable us to maintain our REIT designation. Although we
24
currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.
INTEREST RATE RISK
We have entered into interest rate swap agreements in order to mitigate the effects of fluctuations in interest rates
on our floating rate debt. At December 31, 2004, 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 2007 enabling us to borrow funds at rates of LIBOR plus
0.9%, an unsecured term note at rates of LIBOR plus 1.2% through September 2009, 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 $43 million at 5.45%, and $7 million at
6.56%, through October 2006 on $50 million at 5.685%, and through September 2008 on $30 million at 6.005%.
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 $130 million of our debt
through the interest rate swap termination dates.
Through November 2005, $210 million of our $243 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 $243 million at December 31,
2004, a 1% increase in interest rates would have a $330,000 effect on our interest expense annually.
The table below summarizes our debt obligations and interest rate derivatives at December 31, 2004. The
estimated fair value of financial instruments is subjective in nature and is dependent on a number of important
assumptions, including discount rates and relevant comparable market information associated with each financial
instrument. The use of different market assumptions and estimation methodologies may have a material effect on the
reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of
the amounts we would realize in a current market exchange.
Expected Maturity Date
2005
2006
2007
2008
2009
Thereafter
Total
Fair Value
Line of credit - variable rate LIBOR + 0.9%
Notes Payable:
Term note
variable rate LIBOR+1.20%.....
Term note - variable rate LIBOR+1.50% .....
Term note - fixed rate 6.26% ........................
-
-
-
-
- $43,000
-
-
-
-
-
-
-
-
-
-
-
-
$ 43,000
$ 43,000
$100,000
-
$ 100,000
$100,000
-
-
$ 20,000
$ 20,000
$ 20,000
$ 80,000
$ 80,000
$ 80,656
Mortgage note
fixed rate 7.19% ................
$ 809
$ 870
$ 936
$997
$ 1,081
$ 41,382
$ 46,075
$ 48,090
Interest rate derivatives ................................
-
-
-
-
-
-
-
$ 3,425
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.
25
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 customer 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 PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ( 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) 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 have evaluated the impact of adopting
FIN 46-R applicable to entities that are not special purpose entities created prior to February 1, 2003 and do not
believe that any of our investments in joint ventures or partially owned subsidiaries require consolidation under the
provisions of FIN46-R.
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.
On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which
is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of
Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123.
However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an
alternative. Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in
periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on July 1,
2005.
As permitted by Statement 123, the company currently accounts for share-based payments to employees using
Opinion 25 s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock
26
options. Accordingly, the adoption of Statement 123(R) s fair value method will have an impact on our result of
operations, although it will have no impact on our overall financial position. The impact of adoption of Statement
123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the
future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have
approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per
share in Note 2 to our consolidated financial statements.
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.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Sovran Self Storage, Inc.
We have audited the accompanying consolidated balance sheets of Sovran Self Storage, Inc. as of December 31,
2004 and 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2004. 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 Company's
management. Our responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(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 financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Sovran Self Storage, Inc. at December 31, 2004 and 2003, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
March 4, 2005
Buffalo, New York
/s/ Ernst & Young LLP
27
SOVRAN SELF STORAGE, INC. CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
Assets
Investment in storage facilities:
Land ........................................................................................................................
Building and equipment ..........................................................................................
Less: accumulated depreciation ..............................................................................
Investment in storage facilities, net..........................................................................
Cash and cash equivalents........................................................................................
Accounts receivable .................................................................................................
Receivable from related parties................................................................................
Receivable from joint ventures ................................................................................
Investment in joint ventures.....................................................................................
Prepaid expenses......................................................................................................
Other assets ..............................................................................................................
Net assets of discontinued operations ......................................................................
Total Assets............................................................................................................
Liabilities
Line of credit............................................................................................................
Term notes ...............................................................................................................
Accounts payable and accrued liabilities .................................................................
Deferred revenue......................................................................................................
Fair value of interest rate swap agreements .............................................................
Accrued dividends ...................................................................................................
Mortgage payable.....................................................................................................
Total Liabilities......................................................................................................
Minority interest
Minority interest
Operating Partnership................................................................
consolidated joint venture .........................................................
December 31,
2004
2003
$ 148,341
663,175
811,516
(109,750)
701,766
3,105
1,530
90
2,593
1,113
3,282
6,094
-
$ 719,573
$43,000
200,000
9,121
3,824
3,425
9,663
46,075
315,108
12,007
15,007
$ 134,248
593,041
727,289
(90,682)
636,607
20,101
1,626
95
2,133
2,926
3,093
6,079
10,676
$ 683,336
$9,000
200,000
10,069
3,440
7,835
8,592
46,819
285,755
13,671
15,713
Shareholders' Equity
Series A Junior Participating Cumulative Preferred Stock, $.01 par value,
250,000 shares authorized and no shares issued and outstanding ........................
-
-
9.85% Series B Cumulative Preferred Stock, $.01 par value, 1,700,000 shares
authorized, no shares issued and outstanding at December 31, 2004,
(1,200,000 shares issued and outstanding at December 31, 2003) $30,000
liquidation value ...................................................................................................
8.375% Series C Convertible Cumulative Preferred Stock, $.01 par value,
2,400,000 shares issued and outstanding at December 31, 2004 (2,800,000
shares issued and outstanding at December 31, 2003) $60,000 liquidation
value .....................................................................................................................
Common stock $.01 par value, 100,000,000 shares authorized, 15,972,227
shares outstanding (14,259,863 at December 31, 2003).......................................
Additional paid-in capital.........................................................................................
Unearned restricted stock.........................................................................................
Dividends in excess of net income...........................................................................
Accumulated other comprehensive loss...................................................................
Treasury stock at cost, 1,171,886 shares..................................................................
Total Shareholders' Equity .....................................................................................
Total Liabilities and Shareholders' Equity .............................................................
See notes to financial statements.
-
28,585
53,227
67,129
171
418,007
(1,774)
(61,751)
(3,254)
(27,175)
377,451
$ 719,573
154
356,875
(1,722)
(48,069)
(7,580)
(27,175)
368,197
$ 683,336
28
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
2004
Year Ended December 31,
2003
2002
Revenues
Rental income ....................................................................
Other operating income......................................................
Total operating revenues...................................................
$ 119,605
3,681
123,286
$ 108,524
2,890
111,414
$ 98,389
2,118
100,507
Expenses
Property operations and maintenance ................................
Real estate taxes.................................................................
General and administrative ................................................
Depreciation and amortization ...........................................
Total operating expenses..................................................
32,166
11,014
11,071
19,895
74,146
Income from operations .....................................................
49,140
Other income (expenses)
Interest expense...................................................................
Interest income....................................................................
Write-off of unamortized financing fees due to
debt retirement ..................................................................
Minority interest Operating Partnership...........................
Minority interest consolidated joint venture ....................
Equity in income (losses) of joint ventures.........................
(17,408)
301
-
(1,043)
(499)
207
28,545
9,977
9,616
18,687
66,825
44,589
(15,102)
416
(713)
(1,176)
(614)
186
23,852
9,128
8,586
17,102
58,668
41,839
(14,664)
356
-
(1,180)
(810)
(15)
Income from continuing operations ....................................
Income from discontinued operations (including gain on
30,698
27,586
25,526
disposal in 2004 of $1,083) .............................................
1,306
837
775
Net Income
Redemption amount in excess of carrying value of Series B
Preferred Stock................................................................
Preferred stock dividends....................................................
Net income available to common shareholders...................
32,004
28,423
26,301
(1,415)
(7,168)
$ 23,421
-
(8,818)
$ 19,605
-
(5,093)
$ 21,208
Per Common Share - basic:
Continuing operations.........................................................
Discontinued operations......................................................
Earnings per common share basic ................................
Per Common Share - diluted:
Continuing operations.........................................................
Discontinued operations......................................................
Earnings per common share diluted .............................
$ 1.45
$ 0.09
$ 1.54
$ 1.44
$ 0.09
$ 1.53
Dividends declared per common share ...........................
$ 2.42
See notes to financial statements.
$ 1.41
$ 0.06
$ 1.47
$ 1.40
$ 0.06
$ 1.46
$ 2.41
$ 1.60
$ 0.06
$ 1.66
$ 1.58
$ 0.06
$ 1.64
$ 2.38
29
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
9.85%
Series B
Preferred
Stock
Shares
9.85% Series
B Preferred
Stock
Balance January 1, 2002....................................................
1,200,000
$ 28,585
Net proceeds from issuance of stock through Dividend
Reinvestment and Stock Purchase Plan..........................
Issuance of 8.375% Series C Convertible Preferred
Stock ..............................................................................
Exercise of stock options...................................................
Issuance of restricted stock ...............................................
Earned portion of restricted stock......................................
Deferred compensation outside directors ..........................
Purchase of treasury shares ...............................................
Carrying value less than redemption value on
redeemed partnership units ............................................
Net income ........................................................................
Change in fair value of derivatives....................................
Total comprehensive income.............................................
Dividends ..........................................................................
Balance December 31, 2002..............................................
Net proceeds from issuance of stock through Dividend
Reinvestment and Stock Purchase Plan..........................
Exercise of stock options...................................................
Earned portion of restricted stock......................................
Deferred compensation outside directors ..........................
Value of Series C Preferred Stock
placement certificate ......................................................
Purchase of treasury shares ...............................................
Net income ........................................................................
Change in fair value of derivatives....................................
Total comprehensive income.............................................
Dividends ..........................................................................
Balance December 31, 2003..............................................
Net proceeds from issuance of stock through Dividend
Reinvestment and Stock Purchase Plan..........................
Exercise of stock options...................................................
Issuance of restricted stock ...............................................
Earned portion of restricted stock......................................
Deferred compensation outside directors ..........................
Conversion of Series C Preferred Stock to common
stock and exercise of related stock warrants ..................
Exercise of Series C Preferred Stock placement
certificate .......................................................................
Carrying value less than redemption value on redeemed
partnership units.............................................................
Redemption of 9.85% Series B Preferred Stock................
Redemption amount in excess of carrying value of
9.85% Series B Preferred Stock .....................................
Net income ........................................................................
Change in fair value of derivatives....................................
Total comprehensive income.............................................
Dividends ..........................................................................
Balance December 31, 2004..............................................
See notes to financial statements.
-
-
-
-
-
-
-
-
-
-
-
-
1,200,000
-
-
-
-
-
-
-
-
-
-
1,200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,585
-
-
-
-
-
-
-
-
-
-
28,585
-
-
-
-
-
-
-
-
(1,200,000)
-
(28,585)
-
-
-
-
-
-
-
-
-
-
-
$ -
30
8.375%
Series C
Preferred
Stock
Shares
-
-
2,800,000
-
-
-
-
-
-
-
-
-
-
2,800,000
-
-
-
-
-
-
-
-
-
-
2,800,000
-
-
-
-
-
8.375%
Series C
Preferred
Stock
$ -
-
67,129
-
-
-
-
-
-
-
-
-
-
67,129
-
-
-
-
-
-
-
-
-
-
67,129
-
-
-
-
-
(400,000)
(8,871)
-
-
-
-
-
-
-
-
2,400,000
(5,031)
-
-
-
-
-
-
-
$ 53,227
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Unearned
Restricted
Stock
Dividends
in Excess
of Net
Income
Accumulated
Other
Comprehensive
Income (loss)
Treasury
Stock
Total
Equity
12,354,961
$ 132
$ 293,835
$ (1,978)
$ (25,746)
$ 373
$(18,037)
$277,164
-
16,446
549,720
-
247,775
18,500
-
-
(186,617)
-
-
-
-
-
12,984,339
1,098,230
323,110
-
-
-
(145,816)
-
-
-
-
14,259,863
1,163,651
225,750
12,058
-
-
310,905
-
-
-
6
-
2
-
-
-
-
-
-
-
-
-
140
11
3
-
-
-
-
-
-
-
-
154
12
2
-
-
-
3
-
-
-
16,440
977
5,646
586
-
89
-
(150)
-
-
-
-
317,423
34,588
7,726
-
96
(2,958)
-
-
-
-
-
356,875
43,482
5,500
463
-
129
8,868
2,958
(268)
-
-
-
-
(586)
430
-
-
-
-
-
-
-
(2,134)
-
-
412
-
-
-
-
-
-
-
(1,722)
-
-
(463)
411
-
-
-
-
-
-
(230)
-
-
-
-
-
-
26,301
-
-
(35,449)
(35,124)
-
-
-
-
-
-
28,423
-
-
(41,368)
(48,069)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(10,393)
-
-
(10,020)
-
-
-
-
-
-
-
2,440
-
-
(7,580)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,188)
-
-
-
-
-
$ (23,225)
-
-
-
-
-
(3,950)
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,972,227
-
-
-
-
-
$ 171
-
-
-
-
-
$ 418,007
-
-
-
-
-
$ (1,774)
(1,415)
32,004
-
-
(44,271)
$ (61,751)
-
-
4,326
-
-
$ (3,254)
-
-
-
-
-
$ (27,175)
31
67,876
5,648
-
430
89
(5,188)
(150)
26,301
(10,393)
15,908
(35,449)
$342,774
34,599
7,729
412
96
(2,958)
(3,950)
28,423
2,440
30,863
(41,368)
368,197
43,494
5,502
-
411
129
-
(2,073)
(268)
(28,585)
(1,415)
32,004
4,326
36,330
(44,271)
$377,451
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Operating Activities
Net income from continuing operations........................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Write-off of deferred financing costs ............................................................................
Depreciation and amortization ......................................................................................
Equity in (income) losses of joint ventures ...................................................................
Minority interest ............................................................................................................
Restricted stock earned ................................................................................................
Changes in assets and liabilities:
Accounts receivable......................................................................................................
Fees receivable from joint ventures..............................................................................
Prepaid expenses...........................................................................................................
Accounts payable and other liabilities..........................................................................
Deferred revenue ..........................................................................................................
Net cash provided by operating activities .....................................................................
Investing Activities
Acquisition of storage facilities....................................................................................
Improvements and equipment additions.......................................................................
Net proceeds from the sale of storage facilities ...........................................................
Reimbursement of advances to (advances to) joint ventures ......................................
Receipts from related parties ........................................................................................
Net cash used in investing activities..............................................................................
Financing Activities
Net proceeds from sale of common stock ....................................................................
Net proceeds from sale of preferred stock and common stock warrants .....................
Proceeds from line of credit..........................................................................................
Paydown of line of credit..............................................................................................
Proceeds from term notes .............................................................................................
Paydown of term notes ................................................................................................
Proceeds from mortgage financing...............................................................................
Financing costs .............................................................................................................
Dividends paid - common stock ...................................................................................
Dividends paid - preferred stock ..................................................................................
Distributions from unconsolidated joint venture..........................................................
Minority interest distributions ......................................................................................
Purchase of treasury stock ............................................................................................
Redemption of operating partnership units ................................................................
Redemption of Series B Preferred Stock......................................................................
Series C Preferred Stock placement certificate payment .............................................
Mortgage principal and capital lease payments ...........................................................
Net cash (used in) provided by financing activities ......................................................
Net (decrease) increase in cash from continuing operations.........................................
Cash provided by discontinued operations....................................................................
Cash at beginning of period...........................................................................................
Cash at end of period ....................................................................................................
2004
Year Ended December 31,
2003
2002
$ 30,698
$ 27,586
$ 25,526
-
19,895
(207)
1,542
411
103
-
(171)
1,644
(48)
53,867
(65,629)
(17,961)
11,640
958
5
(70,987)
49,125
-
74,000
(40,000)
-
-
-
(735)
(36,032)
(7,168)
602
(2,422)
-
(1,758)
(30,000)
(5,031)
(744)
(163)
(17,283)
287
20,101
$ 3,105
713
18,687
(186)
1,790
411
147
-
(419)
2,302
(82)
50,949
(8,187)
(22,936)
-
(110)
3
(31,230)
42,425
-
9,000
(128,000)
200,000
(75,000)
-
(2,927)
(31,750)
(8,818)
646
(2,752)
(3,950)
(462)
-
-
(1,176)
(2,764)
16,955
1,083
2,063
$ 20,101
-
17,102
15
1,990
430
(587)
-
15
215
(162)
44,544
(79,216)
(17,755)
-
(2,118)
24
(99,065)
22,034
67,876
-
(6,000)
-
(30,000)
48,000
(460)
(30,089)
(4,863)
1,032
(2,694)
(5,188)
(3,163)
-
-
(2,671)
53,814
(707)
887
1,883
$ 2,063
Supplemental cash flow information
Cash paid for interest .....................................................................................................
$ 17,403
$ 13,344
$ 14,465
Capital lease obligations incurred .................................................................................
Capital lease obligations discharged .............................................................................
-
-
Fair value of net liabilities assumed on the acquisition of storage facilities ................
744
1,529
(2,986)
212
2,183
-
559
Dividends declared but unpaid at December 31, 2004, 2003 and 2002 were $9,663, $8,592, and $7,791, respectively.
See notes to financial statements.
32
SOVRAN SELF STORAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sovran Self Storage, Inc. (the Company, We, Our, or Sovran ), 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. At December 31, 2004, we owned and/or managed 271 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 of the Operating Partnership; and the
Company is a limited partner of the Operating Partnership, and thereby controls the operations of the Operating
Partnership, holding a 97% ownership interest therein as of December 31, 2004. 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.
We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated
when we control the entity. We evaluate partially-owned subsidiaries and joint ventures held in partnership form in
accordance with the provisions of Statement of Positions (SOP) 78-9, Accounting for Investments in Real Estate
Ventures , to determine whether the rights held by other investors constitute important rights as defined therein.
For partially-owned subsidiaries or joint ventures held in corporate form (including limited liability companies with
governance provisions that are the functional equivalent of regular corporations), we consider the guidance of SFAS
No. 94 Consolidation of All Majority-Owned Subsidiaries and Emerging Issues Task Force (EITF) 96-16,
Investor s Accounting for an Investee When the Investor has a Majority of the Voting Interest but the Minority
Shareholder or Shareholders Have Certain Approval or Veto Rights , and in particular, whether rights held by other
investors would be viewed as participation rights as defined therein. To the extent that any minority investor has
important rights in a partnership or substantive participating rights in a corporation, including substantive veto
rights, the related entity will generally not be consolidated. We also consider the provisions of SFAS Interpretation
No. 46(R), "Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51" in evaluating whether
consolidation of entities which are considered to be variable interest entities is warranted and we are the primary
beneficiary of the expected losses or residual gains of such entities. Our consolidated financial statements 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 investments 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, 2004, 2003, and 2002 were $0.5 million, $0.6 million, and $0.6 million, respectively.
Other Income: Consists primarily of sales of storage-related merchandise (locks and packing supplies),
management fees, insurance commissions, and incidental truck rentals.
Investment in Storage Facilities: Storage facilities are recorded at cost. The purchase price of acquired facilities
is allocated to land, building, and equipment based on the fair value of each component. 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.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
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 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, 2004 and 2003, 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 net loan acquisition costs and a note receivable. The loan acquisition
costs were $4.4 million and $3.6 million at December 31, 2004, and 2003, respectively. Accumulated amortization
on the loan acquisition costs was approximately $1.1 million and $0.3 million at December 31, 2004, and 2003,
respectively. Loan acquisition costs are amortized over the terms of the related debt. Amortization expense was
$0.7 million, $0.9 million and $1.0 million for the periods ended December 31, 2004, 2003 and 2002, 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.
Accounts Payable and Accrued Liabilities: Accounts payable and accrued liabilities consists primarily of trade
payables, accrued interest, and property tax accruals. The Company accrues property tax expense based on estimates
and historical trends. Actual expense could differ from these estimates.
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, 2004, Operating Partnership minority interest
ownership was 494,269 Units, or 3.0%.
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 $36.3 million, $30.9 million and $15.9 million for the years ended December 31, 2004, 2003, and 2002,
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 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
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
January 31, 2003. In December 2003, the Financial Accounting Standards Board ( 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 has evaluated the impact of adopting FIN 46-R applicable to entities that are
not special purpose entities created prior to February 1, 2003 and does not believe that any of our investments in
joint ventures or partially owned subsidiaries require consolidation under the provisions of FIN46-R.
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.
Stock-Based Compensation: On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004),
Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. Statement 123(R) must be adopted no later than July 1, 2005. Early adoption
will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt
Statement 123(R) on July 1, 2005.
As permitted by Statement 123, in 2004 and previous years the Company accounted for share-based payments to
employees using Opinion 25 s intrinsic value method and, as such, generally recognized no compensation cost for
employee 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. Accordingly, the adoption of Statement 123(R) s fair value method will have an impact on
the Company s result of operations, although it will have no impact on the Company s overall financial position.
The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of
share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods,
the impact of that standard would have approximated the impact of Statement 123 as described below (in thousands,
except for earnings per share information):
(dollars in thousands, except per share data)
Net income available to common shareholders as reported .....................
Deduct: Total stock-based employee compensation
2004
$ 23,421
expense determined under fair value method for all
awards................................................................................................
Pro forma net income available to common shareholders........................
Earnings per common share
Basic - as reported................................................................
Basic - pro forma ................................................................
Diluted - as reported................................................................
Diluted - pro forma ................................................................
$ 1.54
$ 1.53
$ 1.53
$ 1.52
(155)
$ 23,266
Pro Forma
2003
$ 19,605
2002
$ 21,208
(200)
$ 19,405
(202)
$ 21,006
$ 1.47
$ 1.45
$ 1.46
$ 1.44
$ 1.66
$ 1.65
$ 1.64
$ 1.62
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
CONTINUED
SOVRAN SELF STORAGE, INC.
SOVRAN SELF STORAGE, INC.
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 4.4% for 2004, 3.5% for 2003, and 4.0%
for 2002; dividend yield of 6.6% for 2004, 7.0% for 2003, and 8.0% for 2002; volatility factor of the expected
market price of the Company's common stock of .20 for 2004, and .19 for 2003 and .21 for 2002; expected life of 7
years. The weighted average fair value of options granted was $3.53 in 2004, $2.21 in 2003, and $1.98 in 2002.
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.
Use of Estimates: The preparation of financial statements in conformity with U.S. 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.
Reclassification: Certain amounts from the 2003 and 2002 financial statements have been reclassified as a result
of the sale of five stores in 2004 that have been reclassified as discontinued operations (see Note 5).
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.
(Amounts in thousands, except per share data)
Numerator:
Net income available to common shareholders...............
2004
Year Ended December 31,
2003
2002
$ 23,421
$ 19,605
$ 21,208
Denominator:
Denominator for basic earnings per share -
weighted average shares ................................................
15,161
13,346
12,766
Effect of Dilutive Securities:
Stock options and warrants ...............................................
134
127
179
Denominator for diluted earnings per share
adjusted weighted - average shares and assumed
conversion ................................................................
15,295
Basic Earnings per Common Share................................
$ 1.54
Diluted Earnings per Common Share ...............................
$ 1.53
13,473
$ 1.47
$ 1.46
12,945
$ 1.66
$ 1.64
Potential common shares from the Series C Convertible Cumulative Preferred Stock (see Note 13) were
excluded from the 2004, 2003, and 2002 diluted earnings per share calculation because their inclusion would have
had an antidilutive effect on earnings per share.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the years ended December 31, 2004 and
December 31, 2003. This summary excludes the effect of storage facilities presented as discontinued operations
(see Note 5).
(dollars in thousands)
Cost:
Beginning balance...........................................................
Acquisition of storage facilities ......................................
Improvements and equipment additions .........................
Dispositions ....................................................................
Ending balance..................................................................
Accumulated Depreciation:
Beginning balance...........................................................
Additions during the year................................................
Dispositions ....................................................................
Ending balance..................................................................
2004
2003
$727,289
66,373
18,075
(221)
$811,516
$ 90,682
19,175
(107)
$109,750
$698,334
9,842
22,937
(3,824)
$727,289
$ 73,820
17,787
(925)
$ 90,682
During 2004 the Company acquired ten storage facilities for $66.4 million. Substantially all of the purchase
price of these facilities was allocated to land ($13.5 million), building ($51.8 million) and equipment ($1.1 million)
and the operating results of the acquired facilities have been included in the Company's operations since the
respective acquisition dates.
5. DISCONTINUED OPERATIONS
SFAS No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" addresses accounting for
discontinued operations. The Statement requires the segregation of all disposed components of an entity with
operations that (i) can be distinguished from the rest of the entity and (ii) will be eliminated from the ongoing
operations of the entity in a disposal transaction.
Based on the criteria of SFAS No. 144, five properties that have been sold by the Company require presentation
as discontinued operations as of December 31, 2004. The amounts in the 2003 and 2002 financial statements related
to the operations and the net assets of these properties have been reclassified and are presented as discontinued
operations and net assets from discontinued operations, respectively.
During 2004, the Company sold five non-strategic storage facilities located in Pennsylvania, Tennessee, Ohio,
and South Carolina for net cash proceeds of $11.7 million resulting in a gain of $1.1 million. The operations of
these five facilities and the gain on sale are reported as discontinued operations. The following is a summary of the
amounts reported as discontinued operations:
(dollars in thousands)
Total revenue ................................................................
Property operations and maintenance expense................
Real estate tax expense ...................................................
Depreciation and amortization expense ..........................
Net realized gain on properties sold................................
Total income from discontinued operations......................
2004
$ 544
(193)
(38)
(90)
1,083
$ 1,306
Year Ended December 31,
2003
$ 1,747
(476)
(141)
(293)
-
$ 837
2002
$ 1,633
(431)
(137)
(290)
-
$ 775
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
6. UNSECURED LINE OF CREDIT AND TERM NOTE
On September 4, 2003, the Company entered into agreements relating to new unsecured credit arrangements, and
received funds under those arrangements. In December 2004, the agreements were amended by increasing the line
of credit availability from $75 million to $100 million (expandable to $200 million), reducing the interest rate from
LIBOR plus 1.375% to LIBOR plus 0.90%, and increasing the maturity by one year to September 2007. In addition,
the line of credit requires a facility fee of 0.20%. The amendment also reduced the interest rate on the $100 million
term note from LIBOR plus 1.50% to LIBOR plus 1.20%, and extended the maturity by one year to September
2009. The Company also maintains 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, 2004 on the Company's line of credit before
the effect of interest rate swaps was approximately 3.3% (2.5% at December 31, 2003). At December 31, 2004,
there was $57 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. No such charge was incurred in
2004.
The table below summarizes the Company s debt obligations and interest rate derivatives at December 31, 2004.
The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important
assumptions, including discount rates and relevant comparable market information associated with each financial
instrument. The fair value of the fixed rate term note and mortgage note were estimated by discounting the future
cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. The use of different market assumptions and estimation methodologies may have
a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not
necessarily indicative of the amounts the Company would realize in a current market exchange.
Expected Maturity Date
2005
2006
2007
2008
2009
Thereafter
Total
Fair Value
Line of credit - variable rate LIBOR + 0.9%
Notes Payable:
Term note
variable rate LIBOR+1.20%.....
Term note - variable rate LIBOR+1.50% .....
Term note - fixed rate 6.26% ........................
-
-
-
-
- $43,000
-
-
-
-
-
-
-
-
-
-
-
-
$ 43,000
$ 43,000
$100,000
-
$ 100,000
$100,000
-
-
$ 20,000
$ 20,000
$ 20,000
$ 80,000
$ 80,000
$ 80,656
Mortgage note
fixed rate 7.19% (Note 7) .
$ 809
$ 870
$ 936
$997
$ 1,081
$ 41,382
$ 46,075
$ 48,090
Interest rate derivatives (Note 8) ..................
-
-
-
-
-
-
-
$ 3,425
7. 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 carrying value of $73.9 million
and $74.2 at December 31, 2004 and 2003, respectively. The 10-year mortgage bears interest at the fixed rate of
7.19%. The outstanding balance on the mortgage is $46.1 million and $46.8 million at December 31, 2004 and 2003
respectively.
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.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
CONTINUED
SOVRAN SELF STORAGE, INC.
SOVRAN SELF STORAGE, INC.
8. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable 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 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
Loss ("AOCL"). 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 2004 and 2003.
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. During 2004, 2003, and 2002, the net reclassification from AOCL to interest expense was $4.7
million, $4.8 million and $4.0 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 $3.7
million in 2005. 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 $3.4 million
and $7.8 million at December 31, 2004, and 2003 respectively.
9. 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
of the common shares at the date of grant. As of December 31, 2004, options for 222,415 shares were outstanding
under the Plan and options for 334,158 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 initial granting of options to purchase 3,500 shares of common stock and for the
annual granting of options to purchase 2,000 shares of common stock to each eligible director. Such options vest
over a one-year period for initial awards and immediately upon subsequent grants. In addition, effective in 2004
each outside director receives restricted shares annually equal to 80% of the annual fees paid to them. Such
restricted shares vest over a one-year period. The total shares reserved under the Non-employee Plan is 150,000.
The exercise price for options granted under the Non-employee Plan is equal to fair market value at date of grant. As
of December 31, 2004, options for 25,000 common shares and restricted shares of 2,356 were outstanding under the
Non-employee Plan and options for 38,144 shares of common stock were available for future issuance.
The Company has also issued 142,042 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 $39.475. The
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
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:
2004
2003
2002
Weighted
average
exercise
price
Weighted
average
exercise
price
Weighted
average
exercise
price
Options
Options
Options
Outstanding at beginning
of year:................................
443,665
$ 24.71
734,775
$ 23.08
902,550
$ 23.14
38,000
Granted...................................
Exercised................................ (225,750)
(8,500)
Forfeited................................
37.43
24.18
29.12
32,000
(323,110)
-
30.42
23.92
-
80,000
(247,775)
-
30.92
22.80
-
Outstanding at end of year ..... 247,415
$ 27.00
443,665
$ 24.71
734,775
$ 23.08
Exercisable at end of year ......
91,940
$ 25.25
174,415
$ 26.27
317,030
$ 25.39
At December 31, 2004, there were 151,915 options outstanding at exercise prices ranging from $19.07 to $29.99
and 95,500 options outstanding at exercise prices ranging from $30.00 to $43.09. The weighted average remaining
contractual life of those options is 6.67 years. As disclosed further in Note 14, warrants to purchase 357,500
common shares of the Company at a price of $32.60 per share are outstanding at December 31, 2004.
10. 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 $125,000, $119,000, and $92,000 for the
years ended December 31, 2004, 2003 and 2002, respectively.
11. 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.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
12. INVESTMENT IN JOINT VENTURES
Investment in joint ventures includes an ownership interest in Locke Sovran I, LLC, which owns 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% which 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 years ended December 31, 2004
and 2003, the Company's share of Locke Sovran I, LLC's income was $141,000 and $86,000, respectively, and the
amortization of the deferred gain was $40,000, each of which are recorded as equity in income of joint ventures on
the consolidated statements of operations. The Company manages the storage facilities for Locke Sovran I, LLC
and received fees of $322,000, $311,000, and $290,000, for the years ended 2004, 2003, and 2002, respectively.
The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2004. During
2004, Iskalo Office Holdings obtained long-term financing and used the proceeds to repay the note payable to the
Company of $1.1 million. The Company s remaining investment includes a capital contribution of $49. For the
years ended December 31, 2004 and 2003, the Company's share of Iskalo Office Holdings, LLC's income was
$27,000 and $59,000, respectively. The Company paid rent to Iskalo Office Holdings, LLC of $426,000 in 2004
and $393,000 in 2003, and $255,000 in 2002. Future minimum lease payments under the lease are $0.4 million per
year through 2009. Also, the Company purchased land from Iskalo Office Holdings, LLC for $0.4 million and $1.2
million in 2004 and 2003, respectively.
A summary of the unconsolidated joint ventures' financial statements as of and for the year ended December 31,
2004 is as follows:
(dollars in thousands)
Balance Sheet Data:
Investment in storage facilities, net.........................................
Investment in office building ..................................................
Other assets .............................................................................
Total Assets...........................................................................
Due to the Company ...............................................................
Mortgage payable....................................................................
Other liabilities........................................................................
Total Liabilities.....................................................................
Unaffiliated partners' equity (deficiency)................................
Company equity (deficiency)..................................................
Total Liabilities and Partners' Equity (deficiency)................
Income Statement Data:
Total revenues.........................................................................
Total expenses.........................................................................
Net income ............................................................................
Locke Sovran I,
LLC
Iskalo Office
Holdings, LLC
$ 38,798
-
1,637
$ 40,435
$ 2,593
29,755
686
33,034
4,014
3,387
$ 40,435
$ 6,441
6,128
$ 313
$ -
5,939
739
$ 6,678
$ -
7,627
271
7,898
(727)
(493)
$ 6,678
$ 1,049
993
$ 56
The Company does not guarantee the debt of Locke Sovran I, LLC or Iskalo Office Holdings, LLC.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
13. 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 11), 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. On August 2,
2004, the Company redeemed all 1,200,000 outstanding shares of its 9.85% Series B Cumulative Preferred Stock for
$30 million plus accrued but unpaid dividends on those shares. The excess of the redemption amount over the
carrying value of the Series B Preferred Stock was $1.4 million and has been shown as a reduction in net income
available to common shareholders in accordance with EITF Abstract Topic D-42, "The Effect on the Calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred Stock."
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. On August 4, 2004, the
Company issued 306,748 shares of its common stock in connection with a written notice from a holder of its Series
C Preferred Stock requesting the conversion of 400,000 shares of Series C Preferred Stock into common stock. As a
result of this conversion, all such 400,000 shares of Series C Preferred Stock were retired leaving 2,400,000 shares
outstanding at December 31, 2004.
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 ($60,000,000 aggregate at December 31,
2004) 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. During
2004, warrants for 21,666 were exercised leaving 357,500 remaining. 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. The placement certificate was exercised in 2004, resulting in a $5 million payment by the
Company.
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
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
SOVRAN SELF STORAGE, INC.
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.
14. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years ended December 31, 2004 and 2003
(dollars in thousands, except per share data).
Operating revenue (a).......................................
Income from continuing operations (a)............
Income from discontinued operations(a)..........
Net Income.......................................................
Net income available to common
shareholders ...................................................
Net Income Per Common Share
Basic...............................................................
Diluted ...........................................................
Operating revenue(a) .......................................
Income from continuing operations(a).............
Income from discontinued operations(a)..........
Net Income.......................................................
Net income available to common
shareholders ...................................................
Net Income Per Common Share
Basic...............................................................
Diluted ...........................................................
March 31
$ 28,504
$ 6,822
$ 753
$ 7,575
2004 Quarter Ended
Sept. 30
June 30
$ 30,214
$ 8,012
$ 42
$ 8,054
$ 32,421
$ 7,899
$ 513
$ 8,412
Dec. 31
$ 32,146
$ 7,962
$ -
$ 7,962
$ 5,371
$ 5,850
$ 5,494
$ 6,706
$ 0.37
$ 0.37
$ 0.39
$ 0.39
$ 0.36
$ 0.35
$ 0.42
$ 0.42
March 31
$ 26,638
$ 6,498
$ 187
$ 6,685
2003 Quarter Ended
Sept. 30
June 30
$ 27,495
$ 7,360
$ 202
$ 7,562
$ 28,740
$ 6,786
$ 227
$ 7,013
Dec. 31
$ 28,542
$ 6,943
$ 220
$ 7,163
$ 4,481
$ 5,358
$ 4,809
$ 4,958
$ 0.35
$ 0.34
$ 0.41
$ 0.41
$ 0.36
$ 0.35
$ 0.36
$ 0.35
(a) Figures as presented in this table differ from the amounts as presented in the Company s quarterly reports due to
the impact of discontinued operations accounting with respect to the five stores sold in 2004 as described in Note 5.
15. 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.
At December 31, 2004, the Company was in negotiations to acquire five stores for approximately $20 million.
One of these stores was purchased on February 23, 2005 for $7.5 million.
43
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9a. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management conducted an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures were effective at December 31, 2004. There have not been changes in the Company's internal controls
or in other factors that could significantly affect these controls during the quarter ended December 31, 2004.
Management s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of
December 31, 2004. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our system of internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Our management performed an assessment of the effectiveness of our internal control over financial reporting as
of December 31, 2004 based upon criteria in Internal Control
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (''COSO''). Based on our assessment, management
determined that our internal control over financial reporting was effective as of December 31, 2004 based on the
criteria in Internal Control-Integrated Framework issued by COSO.
Our management's assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as
stated in their report which appears herein.
/S/ Robert J. Attea
Chief Executive Officer
/S/ David L. Rogers
Chief Financial Officer
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Sovran Self Storage, Inc.
We have audited management s assessment, included in the accompanying Management s Report on Internal
Control Over Financial Reporting , that Sovran Self Storage, Inc. (the Company ) maintained effective internal
control over financial reporting as of December 31, 2004, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria ). The Company s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management s assessment and an opinion on the effectiveness of the
company s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management s assessment that the Company maintained effective internal control over financial
reporting as of December 31, 2004 is fairly stated, in all material respects, based on the COSO criteria. Also, in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of December 31, 2004 and 2003, and the related
consolidated statements of operations, shareholders equity, and cash flows for each of the three years in the period
ended December 31, 2004 and our report dated March 4, 2005 expressed an unqualified opinion thereon.
March 4, 2005
Buffalo, New York
/s/ Ernst & Young LLP
45
Item 10. Directors and Executive Officers of the Registrant
Part III
The information contained in the Proxy Statement for the Annual Meeting of Shareholders of the Company to be
held on May 18, 2005, 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. 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 18, 2005.
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 18, 2005.
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 18, 2005.
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 18, 2005.
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:
Part IV
1. The following consolidated financial statements of Sovran Self Storage, Inc. are included in Item 8.
Consolidated Balance Sheets as of December 31, 2004 and 2003.
(i)
(ii)
Consolidated Statements of Operations for Years Ended December 31, 2004, 2003, and 2002.
(iii) Consolidated Statements of Shareholders' Equity for Years Ended December 31, 2004, 2003, and 2002.
Consolidated Statements of Cash Flows for Years Ended December 31, 2004, 2003, and 2002.
(iv)
Notes to Consolidated Financial Statements.
(v)
2. The following financial statement Schedule as of the period ended December 31, 2004 is included in this
Annual Report on Form 10-K.
Schedule III Real Estate and Accumulated Depreciation.
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.
46
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.)
3.1(c)* 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.
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
10.7
Sovran Self Storage, Inc. 1995 Award and Option Plan, as Amended. (Incorporated by reference to the
same numbered exhibit to the Registrant's Proxy Statement filed April 12, 2001.)
Sovran Self Storage, Inc. 1995 Outside Directors' Stock Option Plan, as Amended. (Incorporated by
reference to the same numbered exhibit to the Registrant's Proxy Statement field April 8, 2004.)
10.8*
Sovran Self Storage Incentive Compensation Plan for Executive Officer.
10.10*
Form of Supplemental Representations, Warranties and Indemnification Agreement among the
Registrant and Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka and David L. Rogers.
10.11*
Form of Pledge Agreement among the Registrant and Robert J. Attea, Charles E. Lannon, Kenneth F.
Myszka and David L. Rogers.
10.12*
Form of Indemnification Agreement between the Registrant and certain Officers and Directors of the
Registrant.
10.13*
Form of Subscription Agreement (including Registration Rights Statement) among the Registrant and
subscribers for 422,171 Common Shares.
47
10.14*
10.16
****
10.17
****
10.18
****
Form of Registration Rights and Lock-Up Agreement among the Registrant and Robert J. Attea, Charles
E. Lannon, Kenneth F. Myszka and David L. Rogers.
Employment Agreement between the Registrant and Robert J. Attea.
Employment Agreement between the Registrant and Kenneth F. Myszka.
Employment Agreement between the Registrant and David L. Rogers.
10.19** Securities Purchase Agreement among Registrant, Sovran Acquisition Limited Partnership, The
Prudential Insurance Company of America, Teachers Insurance and Annuity Association of America and
other institutional investors.
10.20** Amendments to Agreement of Limited Partnership of Sovran Acquisition Limited Partnership.
10.21** Registration Rights Agreement.
10.22
Promissory Note between Locke Sovran II, LLC and PNC Bank, National Association. (Incorporated by
reference to the same numbered exhibit to Registrant's Form 10-K filed March 27, 2003.)
10.23
*****
Second Amended and Restated Revolving Credit and Term Loan Agreement among Registrant, the
Partnership, Fleet National Bank and other lenders named therein.
10.24
***
Note Purchase Agreement among Registrant, the Partnership and the purchaser named therein.
12.1
Statement Re: Computation of Earnings to Fixed Charges.
21
23
31.1
31.2
32
*
**
***
****
Subsidiary of the Company. The Company's only subsidiary is Sovran Holdings, Inc.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
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.
Incorporated by reference to the same numbered exhibits as filed in the Company's Registration
Statement on Form S-11 (File No. 33-91422) filed June 19, 1995.
Incorporated by reference to the same numbered exhibits as filed in the Company's Current Report on
Form 8-K, filed July 12, 2002.
Incorporated by reference to the same numbered exhibits as filed in the Company's Quarterly Report on
Form 10-Q, filed November 12, 2003.
Incorporated by reference to exhibits 10.19 to 10.21 as filed in the Company's Annual Report on Form
10-K/A, filed June 27, 2002.
48
*****
Incorporated by reference to Exhibit 10.25 filed in the Company s Current report on Form 8-K, filed
December 21, 2004.
(b)
Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated November 3, 2004, attaching a press
release announcing earnings for the quarter ended September 30, 2004.
The Company filed a Current Report on Form 8-K dated December 21, 2004, disclosing that it
had entered into a Second Amended and Restated Revolving credit and term Loan Agreement.
49
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.
SIGNATURES
March 15, 2005
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)
/s/ Kenneth F. Myszka
Kenneth F. Myszka
President, Chief Operating
Officer and Director
/s/ David L. Rogers
David L. Rogers
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 15, 2005
March 15, 2005
March 15, 2005
/s/ John Burns
Director
March 15, 2005
John Burns
/s/ Michael A. Elia
Director
Michael A. Elia
/s/ Anthony P. Gammie
Anthony P. Gammie
/s/ Charles E. Lannon
Charles E. Lannon
Director
Director
March 15, 2005
March 15, 2005
March 15, 2005
50
Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2004
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
ST
Encum-
brance
Land
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accumulated
Depreciation
Acquired
Boston-Metro I
Boston-Metro II
E. Providence
Charleston I
Lakeland I
Charlotte
Tallahassee I
Youngstown
Cleveland-Metro II
Tallahassee II
Pt. St. Lucie
Deltona
Middletown
Buffalo I
Rochester I
Salisbury
New Bedford
Fayetteville
Jacksonville I
Columbia I
Rochester II
Savannah I
Greensboro
Raleigh I
New Haven
Atlanta-Metro I
Atlanta-Metro II
Buffalo II
Raleigh II
Columbia II
Columbia III
Columbia IV
MA
MA
RI
SC
FL
NC
FL
OH
OH
FL
FL
FL
NY
NY
NY
MD
MA
NC
FL
SC
NY
GA
NC
NC
CT
GA
GA
NY
NC
SC
SC
SC
$ 363
$ 1,679
$ 337
$ 363
$ 2,016
$ 2,379
$ 475
6/26/95
680
345
416
397
308
770
239
701
204
395
483
224
423
395
164
367
853
152
268
230
463
444
649
387
844
302
315
321
361
189
488
1,616
301
1,268
269
1,516
324
1,424
230
1,102
436
2,734
1,732
1,110
365
1,659
534
734
788
1,501
392
1,752
496
808
715
1,531
1,449
1,404
203
760
295
1,325
339
3,057
415
728
272
1,248
248
847
240
1,684
1,336
1,613
382
2,329
517
1,402
433
2,021
491
1,103
222
745
877
1,150
319
1,331
323
719
444
1,188
332
51
680
344
416
397
308
770
239
701
204
395
483
224
497
395
164
367
853
152
268
234
463
444
649
387
844
303
315
321
374
189
488
1,917
1,538
1,840
1,654
1,538
4,466
1,475
2,193
1,522
1,893
2,248
1,523
2,906
1,607
1,055
1,664
3,472
1,000
1,496
1,083
3,020
1,995
2,846
1,835
2,512
1,324
1,622
1,469
1,641
1,163
1,520
2,597
1,882
2,256
2,051
1,846
5,236
1,714
2,894
1,726
2,288
2,731
1,747
3,403
2,002
1,219
2,031
4,325
1,152
1,764
1,317
3,483
2,439
3,495
2,222
3,356
1,627
1,937
1,790
2,015
1,352
2,008
444
6/26/95
368
6/26/95
465
6/26/95
413
6/26/95
346
6/26/95
946
6/26/95
383
6/26/95
494
6/26/95
290
6/26/95
491
6/26/95
536
6/26/95
357
6/26/95
649
6/26/95
389
6/26/95
239
6/26/95
452
6/26/95
805
6/26/95
285
6/26/95
404
6/26/95
266
6/26/95
633
6/26/95
523
6/26/95
687
6/26/95
414
6/26/95
581
6/26/95
360
6/26/95
284
6/26/95
360
6/26/95
419
6/26/95
289
6/26/95
399
6/26/95
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
Atlanta-Metro III
Orlando I
Sharon
Ft. Lauderdale
West Palm I
Atlanta-Metro IV
Atlanta-Metro V
Atlanta-Metro VI
Atlanta-Metro VII
Atlanta-Metro VIII
Baltimore I
Baltimore II
Augusta I
Macon I
Melbourne I
Newport News
Pensacola I
Augusta II
Hartford-Metro I
Atlanta-Metro IX
Alexandria
Pensacola II
Melbourne II
Hartford-Metro II
Atlanta-Metro X
Norfolk I
Norfolk II
Birmingham I
Birmingham II
Montgomery I
Jacksonville II
Pensacola II
Pensacola IV
Pensacola V
Tampa I
Tampa II
Tampa III
Jackson I
ST
GA
FL
PA
FL
FL
GA
GA
GA
GA
GA
MD
MD
GA
GA
FL
VA
FL
GA
CT
GA
VA
FL
FL
CT
GA
VA
VA
AL
AL
AL
FL
FL
FL
FL
FL
FL
FL
MS
Encum-
brance
Land
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
430
513
194
1,579
221
1,930
331
912
291
Land
430
513
194
1,503
3,619
517
1,503
398
423
483
308
170
413
154
479
357
231
883
316
632
315
715
304
1,035
171
1,015
258
1,166
195
1,116
354
786
999
555
303
493
499
1,742
867
1,296
421
1,081
266
2,104
1,399
1,471
595
2,962
787
1,139
437
1,695
433
1,118
551
398
424
483
308
174
413
306
479
357
231
883
316
651
315
715
304
1,375
3,220
867
1,376
244
834
234
256
313
278
307
730
863
326
369
244
226
901
241
2,066
180
861
1,642
1,244
1,001
1,462
645
1,004
1,415
223
353
1,725
430
2,041
483
1,515
290
1,358
1,429
1,128
147
1,046
458
244
835
612
256
313
278
307
730
863
326
369
244
226
1,088
2,597
777
1,088
526
672
343
1,958
555
2,439
446
1,580
220
526
672
343
52
Building,
Equipment
and
Improvements
Total
Accumulated
Depreciation
Acquired
1,800
2,261
1,203
4,136
1,206
1,272
1,361
1,470
1,085
1,492
902
2,609
1,717
1,347
3,503
2,066
3,730
1,576
2,128
1,669
4,086
1,142
2,245
2,125
2,245
2,107
1,227
1,768
2,155
2,524
1,805
2,787
1,275
1,504
3,374
2,513
2,885
1,800
2,230
2,774
1,397
5,639
1,604
1,696
1,844
1,778
1,259
1,905
1,208
3,088
2,074
1,578
4,386
2,382
4,381
1,891
2,843
1,973
5,462
1,386
3,080
2,737
2,501
2,420
1,505
2,075
2,885
3,387
2,131
3,156
1,519
1,730
4,462
3,039
3,557
2,143
488
6/26/95
584
6/26/95
297
6/26/95
1,024
6/26/95
341
6/26/95
334
6/26/95
363
6/26/95
412
6/26/95
297
6/26/95
401
6/26/95
209
6/26/95
549
6/26/95
407
6/26/95
335
6/26/95
760
6/26/95
505
6/26/95
945
6/26/95
371
6/26/95
493
6/26/95
396
6/26/95
944
6/26/95
345
6/26/95
648
6/26/95
310
6/26/95
414
6/26/95
479
6/26/95
348
6/26/95
432
6/26/95
537
6/26/95
603
6/26/95
437
6/26/95
534
6/26/95
353
6/26/95
381
6/26/95
812
6/26/95
652
6/26/95
714
6/26/95
475
6/26/95
Description
Jackson II
Richmond
Orlando II
Birmingham III
Macon II
Harrisburg I
Harrisburg II
Syracuse I
Ft. Myers
Ft. Myers II
Newport News II
Montgomery II
Charlestown II
Tampa IV
Arlington I
Arlington II
Ft. Worth
San Antonio I
San Antonio II
Syracuse II
Montgomery III
West Palm II
Ft. Myers III
Pittsburgh
Lakeland II
Springfield
Ft. Myers IV
Baltimore III
Jacksonville III
Jacksonville IV
Pittsburgh II
Jacksonville V
Charlotte II
Charlotte III
Orlando III
Rochester III
Youngstown II
Cleveland III
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Encum-
brance
(1)
ST
MS
VA
FL
AL
GA
PA
PA
NY
FL
FL
VA
AL
SC
FL
TX
TX
TX
TX
TX
NY
AL
FL
FL
PA
FL
MA
FL
MD
FL
FL
PA
FL
NC
NC
FL
NY
OH
OH
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
964
471
1,602
584
Land
209
443
2,755
786
1,162
Land
209
443
1,161
424
431
360
627
470
205
412
442
353
237
766
442
408
328
436
289
481
279
345
229
545
359
251
344
777
568
436
627
535
487
315
314
704
600
751
424
431
360
648
472
206
413
442
353
232
766
442
408
328
436
289
671
433
345
229
545
359
297
310
777
568
436
631
538
487
315
314
707
600
751
1,506
504
1,567
535
1,641
361
2,224
560
1,712
1,037
912
166
1,703
343
1,592
195
1,299
223
858
369
1,800
577
1,767
243
1,662
459
1,324
193
1,759
978
1,161
340
1,559
1,937
1,014
965
1,262
215
884
277
1,940
285
1,287
947
917
2,015
1,254
2,770
210
139
2,028
797
1,635
406
2,257
786
2,033
214
1,754
93
1,131
248
1,113
670
2,496
599
2,142
202
2,676
1,149
53
Building,
Equipment
and
Improvements
Total
Accumulated
Depreciation
Acquired
1,435
2,186
3,540
2,010
2,102
2,002
2,763
2,747
1,077
2,045
1,787
1,522
1,232
2,377
2,010
2,121
1,517
2,737
1,501
3,306
1,825
1,477
1,161
2,225
2,234
2,886
1,498
2,909
2,825
2,041
3,039
2,244
1,847
1,379
1,783
3,092
2,344
3,825
1,644
2,629
4,702
2,434
2,533
2,362
3,411
3,219
1,283
2,458
2,229
1,875
1,464
3,143
2,452
2,529
1,845
3,173
1,790
3,977
2,258
1,822
1,390
2,770
2,593
3,183
1,808
3,686
3,393
2,477
3,670
2,782
2,334
1,694
2,097
3,799
2,944
4,576
383
6/26/95
520
8/25/95
822
9/29/95
572
1/16/96
461
12/1/95
490
12/29/95
622
12/29/95
481
12/27/95
346
12/28/95
624
12/28/95
413
1/5/96
389
1/23/96
301
3/1/96
478
3/28/96
444
3/29/96
523
3/29/96
345
3/29/96
538
3/29/96
374
3/29/96
500
6/5/96
331
5/21/96
337
5/29/96
244
5/29/96
474
6/19/96
455
6/26/96
442
6/28/96
334
6/28/96
627
7/26/96
582
8/23/96
477
8/26/96
686
8/28/96
556
8/30/96
394
9/16/96
282
9/16/96
357
10/30/96
554
12/20/96
470
1/10/97
664
1/10/97
Description
Cleveland IV
Cleveland V
Cleveland VI
Cleveland VII
Cleveland VIII
Cleveland IX
Grand Rapids II
Holland
San Antonio III
Universal
San Antonio IV
Houston-Eastex
Houston-Nederland
Houston-College
Lynchburg-Lakeside
Lynchburg-Timberlake
Lynchburg-Amherst
Christiansburg
Chesapeake
Danville
Orlando-W 25th St.
Delray I-Mini
Savannah II
Delray II-Safeway
Cleveland X-Avon
Dallas-Skillman
Dallas-Centennial
Dallas-Samuell
Dallas-Hargrove
Houston-Antione
Atlanta-Alpharetta
Atlanta-Marietta
Atlanta-Doraville
Greensboro-Hilltop
GreensboroStgCch
Baton Rouge-Airline
Baton Rouge-Airline2
Harrisburg-Peiffers
ST
OH
OH
OH
OH
OH
OH
MI
MI
TX
TX
TX
TX
TX
TX
VA
VA
VA
VA
VA
VA
FL
FL
GA
FL
OH
TX
TX
TX
TX
TX
GA
GA
GA
NC
NC
LA
LA
PA
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Encum-
brance
Land
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accumulated
Depreciation
Acquired
(1)
(1)
(1)
(1)
(1)
725
637
495
761
418
606
219
451
474
346
432
634
566
293
335
328
155
245
260
326
289
491
296
921
301
960
965
570
370
515
2,586
839
2,918
764
1,781
487
2,714
748
1,921
1,219
2,164
337
790
660
1,830
1,067
1,686
167
1,236
151
1,560
1,427
2,565
1,020
2,279
194
1,357
230
1,342
829
1,315
590
710
239
1,120
145
1,043
933
1,488
54
1,160
324
1,756
520
1,196
139
3,282
326
1,214
1,063
3,847
960
3,864
2,285
985
440
1,486
337
2,074
324
725
641
495
761
418
606
219
451
474
346
432
634
566
293
335
328
152
245
260
326
290
491
296
921
304
960
943
570
370
515
1,033
3,753
295
1,033
769
735
268
89
396
282
635
2,788
101
3,429
135
1,097
149
376
935
1,831
294
1,303
166
2,550
127
771
735
268
89
396
282
637
54
3,425
3,678
2,268
3,462
3,140
2,501
1,450
2,897
1,853
1,387
2,987
3,585
2,473
1,587
2,171
1,905
952
1,265
1,976
1,542
1,483
2,276
1,335
3,608
2,274
4,807
4,871
2,725
1,823
2,398
4,048
2,887
3,564
1,246
1,311
2,125
1,469
2,675
4,150
4,319
2,763
4,223
3,558
3,107
1,669
3,348
2,327
1,733
3,419
4,219
3,039
1,880
2,506
2,233
1,104
1,510
2,236
1,868
1,773
2,767
1,631
4,529
2,578
5,767
5,814
3,295
2,193
2,913
5,081
3,658
4,299
1,514
1,400
2,521
1,751
3,312
674
1/10/97
816
1/10/97
454
1/10/97
714
1/10/97
599
1/10/97
510
1/10/97
291
1/17/97
637
1/17/97
371
1/30/97
288
1/30/97
453
1/30/97
599
3/26/97
481
3/26/97
313
3/26/97
385
3/31/97
386
3/31/97
212
3/31/97
253
3/31/97
279
3/31/97
303
3/31/97
281
3/31/97
478
4/11/97
277
5/8/97
721
5/21/97
329
6/4/97
997
6/30/97
979
6/30/97
602
6/30/97
438
6/30/97
526
6/30/97
833
7/24/97
572
7/24/97
688
8/21/97
242
9/25/97
193
9/25/97
424
10/9/97
307
11/21/97
485
12/3/97
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Encum-
brance
Land
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
542
620
540
864
2,210
177
2,532
794
2,211
163
3,994
527
Land
542
620
540
864
1,243
5,019
576
1,243
Description
Chesapeake-Military
Chesapeake-Volvo
Virginia Beach Shell
Virginia Beach Central
Norfolk-Naval Base
ST
VA
VA
VA
VA
VA
Tampa-E. Hillsborough
FL
Harriman
Greenboro-High Point
Lynchburg-Timberlake
Salem
Chattanooga-Lee Hwy.
Chattanooga-Hwy. 58
Ft. Oglethorpe
Birmingham-Walt
East Greenwich
Durham-Hillborough
Durham-Cornwallis
Salem-Policy
Warren-Elm
Warren-Youngstown
Waterford-Highland
Indian Harbor
Jackson 3 - I55
Katy-N. Fry
Hollywood-Sheridan
NY
NC
VA
MA
TN
TN
GA
AL
RI
NC
NC
NH
OH
OH
MI
FL
MS
TX
FL
Pompano Beach - Atlantic FL
Pompano Beach - Sample FL
Boca Raton-18th St.
Vero Beach
Humble
Houston-Old Katy
Webster
Carrollton
Hollywood-N. 21st.
San Marcos
Austin-McNeil
Austin-FM
Jacksonville-Center
FL
FL
TX
TX
TX
TX
FL
TX
TX
TX
NC
709
843
397
488
733
384
296
349
544
702
775
940
742
522
512
3,235
597
3,394
282
1,834
371
1,746
291
2,941
653
1,371
273
1,198
760
1,250
296
1,942
641
2,821
757
3,103
541
3,763
433
2,977
98
1,864
676
1,829
154
709
843
397
488
733
384
296
349
544
702
775
940
742
532
512
1,487
5,306
617
1,487
2,654
266
3,021
86
1,524
792
662
744
419
4,854
212
1,208
501
1,503
944
903
489
447
659
635
548
840
324
510
481
327
3,803
206
3,643
6,059
1,813
314
47
1,790
566
2,680
2,302
74
60
1,988
256
3,373
229
1,493
309
1,995
209
1,951
322
1,329
68
55
(1)
(1)
662
744
419
1,208
944
903
1,503
489
447
659
635
548
840
324
492
484
327
Building,
Equipment
and
Improvements
Total
Accumulated
Depreciation
Acquired
2,387
3,326
2,374
4,521
5,595
3,832
3,676
2,205
2,037
3,594
1,644
1,958
1,546
2,583
3,578
3,644
4,196
3,075
2,530
1,983
5,923
2,920
3,107
2,316
5,066
4,009
3,957
6,560
1,860
2,356
2,754
2,362
2,244
3,602
1,802
2,186
2,276
1,397
2,929
3,946
2,914
5,385
6,838
4,541
4,519
2,602
2,525
4,327
2,028
2,254
1,895
3,127
4,280
4,419
5,136
3,817
3,062
2,495
7,410
3,582
3,851
2,735
6,274
4,953
4,860
8,063
2,349
2,803
3,413
2,997
2,792
4,442
2,126
2,696
2,757
1,724
446
2/5/98
536
2/5/98
443
2/5/98
806
2/5/98
965
2/5/98
783
2/4/98
669
2/4/98
394
2/10/98
343
2/18/98
652
3/3/98
336
3/27/98
299
3/27/98
272
3/27/98
519
3/27/98
562
3/26/98
599
4/9/98
695
4/9/98
520
4/7/98
391
4/22/98
328
4/22/98
1,030
4/28/98
496
6/2/98
542
5/13/98
301
5/20/98
871
7/1/98
691
7/1/98
666
7/1/98
1,099
7/1/98
343
6/12/98
384
6/16/98
447
6/19/98
405
6/19/98
365
6/19/98
619
8/3/98
317
6/30/98
384
6/30/98
370
6/30/98
241
8/6/98
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
ST
Encum-
brance
Land
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accumulated
Depreciation
Acquired
Jacksonville-Gum Branch NC
Jacksonville-N. Marine
Euless
N. Richland Hills
Batavia
Jackson-N. West
Katy-Franz
W. Warwick
Lafayette-Pinhook 1
Lafayette-Pinhook 2
Lafayette-Ambassador
Lafayette-Evangeline
Lafayette-Guilbeau
Gilbert-Elliott Rd.
Glendale-59th Ave.
Mesa-Baseline
Mesa-E. Broadway
Mesa-W. Broadway
Mesa-Greenfield
Phoenix-Camelback
Phoenix-Bell
Phoenix-35th Ave.
Westbrook
Cocoa
Cedar Hill
Monroe
N. Andover
Seabrook
Plantation
Birmingham-Bessemer
Dracut
Methuen
Columbia
Myrtle Beach
Kingsland
Saco
Plymouth
Sandwich
NC
TX
TX
OH
MS
TX
RI
LA
LA
LA
LA
LA
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
ME
FL
TX
NY
MA
TX
FL
AL
MA
MA
SC
SC
GA
ME
MA
MA
(1)
(1)
(1)
(1)
(1)
(1)
(1)
508
216
550
670
390
460
507
447
556
708
314
188
963
651
565
330
339
291
354
453
872
849
410
667
335
276
633
633
384
254
1,035
1,024
883
552
470
534
1,004
670
1,815
171
782
398
1,998
591
2,407
801
1,570
196
1,642
316
2,058
102
1,776
655
1,951
770
2,860
165
1,095
517
652
649
3,896
364
2,600
605
2,596
372
1,309
82
1,346
360
1,026
158
1,405
121
1,610
399
3,476
534
3,401
364
1,626
376
2,373
529
1,521
194
1,312
2,573
2,617
65
101
101
1,422
112
1,059
89
3,737
137
3,649
130
3,139
173
1,970
257
1,902
424
1,914
74
508
216
550
670
390
460
507
447
556
708
314
188
963
772
565
326
339
291
354
453
872
849
410
667
335
276
633
633
384
254
1,035
1,024
883
552
470
534
4,584
131
1,004
3,060
137
670
56
1,986
1,180
2,589
3,208
1,766
1,958
2,160
2,431
2,721
3,025
1,612
1,301
4,260
3,084
2,968
1,395
1,706
1,184
1,526
2,009
4,010
3,765
2,002
2,902
1,715
1,377
2,674
2,718
1,534
1,148
3,874
3,779
3,312
2,227
2,326
1,988
4,715
3,197
2,494
1,396
3,139
3,878
2,156
2,418
2,667
2,878
3,277
3,733
1,926
1,489
5,223
3,856
3,533
1,721
2,045
1,475
1,880
2,462
4,882
4,614
2,412
3,569
2,050
1,653
3,307
3,351
1,918
1,402
4,909
4,803
4,195
2,779
2,796
2,522
5,719
3,867
336
8/17/98
252
9/24/98
353
9/29/98
428
10/9/98
309
11/19/98
423
12/1/98
341
12/15/98
347
2/2/99
540
2/17/99
461
2/17/99
346
2/17/99
284
2/17/99
611
2/17/99
419
5/18/99
402
5/18/99
207
5/18/99
220
5/18/99
175
5/18/99
222
5/18/99
265
5/18/99
616
5/18/99
520
5/21/99
278
8/2/99
410
9/29/99
264
11/9/99
177
2/2/00
333
2/15/00
356
3/1/00
207
5/2/00
128
11/15/00
310
12/1/01
295
12/1/01
278
12/1/01
197
12/1/01
208
12/1/01
158
12/3/01
358
12/19/01
255
12/19/01
Initial Cost to the Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Encum-
brance
Land
Building,
Equipment
and
Improvements
Building,
Equipment and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accumulated
Depreciation
Acquired
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
294
853
250
285
449
545
517
299
463
734
394
381
919
612
689
817
817
407
817
2,207
1,131
635
1,251
1,039
827
2,713
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,047
1,203
180
3,434
364
1,020
246
1,160
57
1,816
307
2,200
151
2,090
381
1,216
303
1,873
133
2,956
1,595
1,545
65
63
60
3,696
226
2,468
3,159
3,286
3,286
1,650
34
73
19
49
83
3,287
105
8,866
333
4,564
416
2,918
179
5,744
229
4,201
3,776
24
33
294
855
252
287
451
546
519
301
465
736
395
383
919
612
689
817
817
407
817
2,207
1,131
635
1,252
1,039
827
1,383
3,796
1,264
1,215
2,121
2,350
2,469
1,517
2,004
3,019
1,657
1,603
3,922
2,502
3,232
3,305
3,335
1,733
3,392
1,677
4,651
1,516
1,502
2,572
2,896
2,988
1,818
2,469
3,755
2,052
1,986
4,841
3,114
3,921
4,122
4,152
2,140
4,209
124
2/5/02
291
2/13/02
91
2/13/02
97
2/13/02
149
2/13/02
178
2/13/02
195
2/13/02
111
2/13/02
153
2/13/02
228
2/13/02
128
2/13/02
125
2/13/02
248
6/19/02
161
6/19/02
205
6/19/02
211
6/19/02
214
6/19/02
111
6/19/02
216
6/19/02
9,199
11,406
459
12/16/02
4,980
3,097
5,972
4,225
3,809
6,111
3,732
7,224
5,264
4,636
245
12/16/02
155
12/16/02
300
12/16/02
145
8/26/03
120
10/1/03
11,013
19
2,713
11,032
13,745
213
3/17/04
3,170
4,877
13
13
4,550
149
4,427
1,640
6,986
4,744
5,569
5,857
25
15
12
17
93
28
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,051
3,183
4,890
4,699
4,452
1,655
6,998
4,761
5,662
5,881
3,956
6,085
5,802
5,513
2,043
8,718
5,928
7,027
7,932
50
5/19/04
75
5/19/04
73
5/19/04
72
5/19/04
28
5/19/04
106
6/3/04
62
6/23/04
61
63
8/4/04
8/5/04
0
68
8,861 1,614
7,315
8,929
2,212
1/1/95
$145,539
$550,075 $115,902
$148,341
$663,175
$811,516
$109,750
Description
Syracuse
Houston-Westward
Houston-Boone
Houston-Cook
Houston-Harwin
Houston-Hempstead
Houston-Kuykendahl
Houston-Hwy 249
Mesquite-Hwy 80
Mesquite-Franklin
Dallas-Plantation
San Antonio-Hunt
Humble-5250 FM
Pasadena
League City
Montgomery
Texas City
Houston-Hwy 6
Lumberton
The Hamptons
The Hamptons
The Hamptons
The Hamptons
Dallas
Dallas
Stamford
Houston
Houston
Houston
Houston
Houston
Clearwater
Houston
Chattanooga
Austin
Corporate Office
ST
NY
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
NY
NY
NY
NY
TX
TX
CT
TX
TX
TX
TX
TX
FL
TX
TN
TX
NY
(1) These properties are encumbered through one mortgage loan with an outstanding balance of $46.1 million at December 31, 2004.
57
Cost:
Balance at beginning of period
Additions during period:
Acquisitions through foreclosure
Other acquisitions
Improvements, etc.
Deductions during period:
Cost of real estate sold
December 31, 2004
December 31, 2003
December 31, 2002
$ 739,836
$ 710,841
$ 611,289
$ -
66,373
18,075
$ -
11,007
21,812
$ -
81,819
17,934
84,448
32,819
99,753
(12,768)
(12,768)
(3,824)
(3,824)
(201)
(201)
Balance at close of period
$811,516
$739,836
$710,841
Accumulated Depreciation:
Balance at beginning of period
Additions during period:
Depreciation expense
Deductions during period:
Accumulated depreciation of real
estate sold
Balance at close of period
$ 92,498
$ 75,344
$ 59,091
$ 19,175
19,175
$ 18,079
18,079
$ 16,344
16,344
(1,923)
(1,923)
$ 109,750
(925)
(925)
$ 92,498
(91)
(91)
$ 75,344
58
Statement Re: Computation of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
Exhibit (12.1)
Amounts in thousands
Earnings:
Income from continuing
operations before
minority interest in
consolidated subsidiaries
and income or loss from
equity investees
Fixed charges
Preferred dividend
requirements of
consolidated subsidiaries
Earnings (1)
Fixed charges:
Interest expense
Amortization of financing
fees
Preferred stock dividends
Fixed charges (2)
Ratio of earnings to combined
fixed charges and preferred
stock dividends (1)/(2)
2004
2003
2002
2001
2000
$32,033
25,296
$29,190
25,534
$27,531
20,805
$25,123
17,955
$26,887
21,279
(7,168)
50,161
(8,818)
45,906
(5,093)
43,243
(2,955)
40,123
(2,955)
45,211
17,408
15,102
14,664
13,940
17,497
720
7,168
$25,296
1,614
8,818
$25,534
1,048
5,093
$20,805
1,060
2,955
$17,955
827
2,955
$21,279
1.98
1.80
2.08
2.23
2.12
59
Exhibit 23
Consent of Independent Registered Public Accounting Firm
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 No. 333-107464)
pertaining to the 1995 Outside Directors' Stock Option Plan of our reports dated March 4, 2005 with respect to the
consolidated financial statements and schedule of Sovran Self Storage, Inc., Sovran Self Storage, Inc. management s
assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control
over financial reporting of Sovran Self Storage, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 2004.
We also consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-51169 and
Form S-3 No. 333-118223) of Sovran Self Storage, Inc. and Sovran Acquisition Limited Partnership and in each
related Prospectus of our reports dated March 4, 2005 with respect to the consolidated financial statements and
schedule of Sovran Self Storage, Inc., Sovran Self Storage, Inc. management s assessment of the effectiveness of
internal control over financial reporting, and the effectiveness of internal control over financial reporting of Sovran
Self Storage, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2004.
March 11, 2005
Buffalo, New York
/s/ Ernst & Young LLP
60
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:
Exhibit 31.1
1.
2.
3.
4.
5.
I have reviewed this annual report on Form 10-K of Sovran Self Storage, Inc.;
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;
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;
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-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)),
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;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles;
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
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
b)
c)
d)
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
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.
b)
Date: March 15, 2005
/ S / Robert J. Attea
Robert J. Attea
Chairman of the Board and Chief Executive Officer
61
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:
Exhibit 31.2
1.
2.
3.
4.
5.
I have reviewed this annual report on Form 10-K of Sovran Self Storage, Inc.;
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;
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;
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-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)),
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;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles;
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
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
b)
c)
d)
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
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.
b)
Date: March 15, 2005
/ S / David L. Rogers
David L. Rogers
Secretary, Chief Financial Officer
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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)
2)
The Annual Report on Form 10-K of the Company for the annual period ended December
31, 2004 (the "Report") fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m); and
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Dated: March 15, 2005
/ 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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