1
satisfi ed customer at a time
10
years listed on the NYSE
20
years as an innovator in self storage
21
states in which we do business
219
moving trucks in the Uncle Bob’s fl eet
285
stores across the United States
17,369,342
square feet of space
150,666
rental spaces
Countless
opportunities for growth
Sovran Self Storage, Inc.
6467 Main Street
Buffalo, New York 14221
www.sovranss.com
Sovran Self Storage, Inc.
Annual Report 2005
“ The discipline, innovation and
ability shown over the past
two decades will continue to
serve us well...”
Dear Fellow Shareholder:
2005 was a wonderful year for Sovran Self Storage. Demand for our product was healthy, revenues were
up, costs were contained and profi ts were strong. We acquired 14 excellent properties in markets we believe
in. We embarked on a signifi cant expansion and enhancement program to create additional value to our
portfolio. Our continued emphasis on marketing initiatives, revenue management and use of technology
was a big factor in 2005’s positive results, and gives us an ongoing competitive edge. We increased our
common stock dividend for the 10th straight year and we celebrated two signifi cant anniversaries – 20
years in the self storage business, and 10 years as a publicly traded entity.
Since 1985, Sovran has been at the vanguard of what was then a young and rather unheralded industry.
During these exciting 20 years:
We established the Uncle Bob’s brand as one of the stalwarts of a fragmented industry, earning the
confi dence of customers, employees, sellers of property and investors.
We utilized technology to a greater extent than anyone in the industry, and the resulting improved controls
and processes have helped us achieve consistent year over year growth in sales and operating profi ts.
We have been consistently innovative – Sovran was a leader in Dri-guard, Flex-a-Space, Corporate Alliance,
internet marketing, Uncle Bob’s trucks, an in-house call center and revenue optimization tools.
We acquired properties with the goal of adding value to our Company – not just size.
We created a corporate culture that is both entrepreneurial and ethical.
We have, in 10 years as a public company, earned a total return on investment of over 360% and have
done so utilizing a fl exible and conservative capital structure.
We’re proud of our accomplishments, and the manner in which we’ve achieved them. As 2006 unfolds,
we see great potential in our industry and we expect to capitalize on acquisition opportunities in new
and existing markets as well as expansions and enhancements within our current portfolio. The discipline,
innovation and ability shown over the past two decades will continue to serve us well as we work to add
value to our Company during these exciting times.
Robert J. Attea
Kenneth F. Myszka
David Rogers
Chairman and CEO
President and COO
CFO
1
satisfi ed customer at a time
10
years listed on the NYSE
20
years as an innovator in self storage
21
states in which we do business
219
moving trucks in the Uncle Bob’s fl eet
285
stores across the United States
17,369,342
square feet of space
150,666
rental spaces
Countless
opportunities for growth
Sovran Self Storage, Inc.
6467 Main Street
Buffalo, New York 14221
www.sovranss.com
Sovran Self Storage, Inc.
Annual Report 2005
“ The discipline, innovation and
ability shown over the past
two decades will continue to
serve us well...”
Dear Fellow Shareholder:
2005 was a wonderful year for Sovran Self Storage. Demand for our product was healthy, revenues were
up, costs were contained and profi ts were strong. We acquired 14 excellent properties in markets we believe
in. We embarked on a signifi cant expansion and enhancement program to create additional value to our
portfolio. Our continued emphasis on marketing initiatives, revenue management and use of technology
was a big factor in 2005’s positive results, and gives us an ongoing competitive edge. We increased our
common stock dividend for the 10th straight year and we celebrated two signifi cant anniversaries – 20
years in the self storage business, and 10 years as a publicly traded entity.
Since 1985, Sovran has been at the vanguard of what was then a young and rather unheralded industry.
During these exciting 20 years:
We established the Uncle Bob’s brand as one of the stalwarts of a fragmented industry, earning the
confi dence of customers, employees, sellers of property and investors.
We utilized technology to a greater extent than anyone in the industry, and the resulting improved controls
and processes have helped us achieve consistent year over year growth in sales and operating profi ts.
We have been consistently innovative – Sovran was a leader in Dri-guard, Flex-a-Space, Corporate Alliance,
internet marketing, Uncle Bob’s trucks, an in-house call center and revenue optimization tools.
We acquired properties with the goal of adding value to our Company – not just size.
We created a corporate culture that is both entrepreneurial and ethical.
We have, in 10 years as a public company, earned a total return on investment of over 360% and have
done so utilizing a fl exible and conservative capital structure.
We’re proud of our accomplishments, and the manner in which we’ve achieved them. As 2006 unfolds,
we see great potential in our industry and we expect to capitalize on acquisition opportunities in new
and existing markets as well as expansions and enhancements within our current portfolio. The discipline,
innovation and ability shown over the past two decades will continue to serve us well as we work to add
value to our Company during these exciting times.
Robert J. Attea
Kenneth F. Myszka
David Rogers
Chairman and CEO
President and COO
CFO
The numbers
speak for themselves.
Sovran is focused on acquiring stores in markets with strong growth potential. Over the past 20 years,
the Company has assembled an impressive portfolio of 285 high-end stores in 21 states.
Consistently Strong Revenue Growth
History of Store Net Operating Income Growth
285 Stores Nationwide
2
1
18
14
4
5
4
6
18
15
7
16
3
9
8
22
49
9
STATES WITH STORES
SELECTED MAJOR MARKETS
63
4
8
$9.82
$9.46
$89.9
$80.1
$67.5
$72.9
$61.4
$8.94
$8.59
$8.61
Q4 2001
Q4 2002
Q4 2003
Q4 2004
Q4 2005
2001
2002
2003
2004
2005
Annualized rent per occupied square foot.
Store Net Operating Income is defi ned as revenues less property
operating expenses and real estate taxes (shown in millions).
Conservative Capital Structure
History of Dividend Growth
27.5%
28.0%
72.0%
72.5%
27.8%
72.2%
34.9%
33.5%
65.1%
66.5%
$2.41 $2.42
$2.44
$2.38
$2.34
$2.30
$2.26
$2.20
$2.12
$2.05
Number of Stores in Selected Major Markets
33 H O U S TO N
14 AT L A N TA
9 C L E V EL A N D
16 DALLAS / FT. WORTH
8 TA M PA
9 P H O EN I X
9 BO S TO N
17 SOUTHEAST FLORIDA
2001
2002
2003
2004
2005
1996 1997 1998 1999 2000 2001
2002 2003 2004
2005
Equity (at year-end market value)
Debt
Ratio shown is debt to enterprise value, defi ned as the total of outstanding debt plus
equity at market valuation.
Dividends paid per common share.
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Offi cers & Directors
Robert J. Attea
Director
Chairman of the Board and
Chief Executive Offi cer
Kenneth F. Myszka
Director
President and
Chief Operating Offi cer
David Rogers
Chief Financial Offi cer
John E. Burns, CPA
Director
President
Altus Capital, L.L.C.
Michael A. Elia
Director
President and
Chief Executive Offi cer
Sevenson Environmental
Services, Inc.
Anthony P. Gammie
Director
Chairman of the Board
Bowater Incorporated
(retired)
Charles E. Lannon
Director
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, 2006
Buffalo Niagara Marriott
1340 Millersport Hwy.
Amherst, 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 2005: 82,827
The Chief Executive Offi cer has
previously fi led with the New York
Stock Exchange (NYSE) the annual
CEO certifi cation for 2005 as required
by section 303A.12(a) of the NYSE listed
company manual.
As of December 31, 2005, there were
approximately 1,600 shareholders of
record of the common stock, and 1
shareholder of record of the Series C
preferred stock.
The numbers
speak for themselves.
Sovran is focused on acquiring stores in markets with strong growth potential. Over the past 20 years,
the Company has assembled an impressive portfolio of 285 high-end stores in 21 states.
Consistently Strong Revenue Growth
History of Store Net Operating Income Growth
285 Stores Nationwide
2
1
18
14
4
5
4
6
18
15
7
16
3
9
8
22
49
9
STATES WITH STORES
SELECTED MAJOR MARKETS
63
4
8
$9.82
$9.46
$89.9
$80.1
$67.5
$72.9
$61.4
$8.94
$8.59
$8.61
Q4 2001
Q4 2002
Q4 2003
Q4 2004
Q4 2005
2001
2002
2003
2004
2005
Annualized rent per occupied square foot.
Store Net Operating Income is defi ned as revenues less property
operating expenses and real estate taxes (shown in millions).
Conservative Capital Structure
History of Dividend Growth
27.5%
28.0%
72.0%
72.5%
27.8%
72.2%
34.9%
33.5%
65.1%
66.5%
$2.41 $2.42
$2.44
$2.38
$2.34
$2.30
$2.26
$2.20
$2.12
$2.05
Number of Stores in Selected Major Markets
33 H O U S TO N
14 AT L A N TA
9 C L E V EL A N D
16 DALLAS / FT. WORTH
8 TA M PA
9 P H O EN I X
9 BO S TO N
17 SOUTHEAST FLORIDA
2001
2002
2003
2004
2005
1996 1997 1998 1999 2000 2001
2002 2003 2004
2005
Equity (at year-end market value)
Debt
Ratio shown is debt to enterprise value, defi ned as the total of outstanding debt plus
equity at market valuation.
Dividends paid per common share.
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Offi cers & Directors
Robert J. Attea
Director
Chairman of the Board and
Chief Executive Offi cer
Kenneth F. Myszka
Director
President and
Chief Operating Offi cer
David Rogers
Chief Financial Offi cer
John E. Burns, CPA
Director
President
Altus Capital, L.L.C.
Michael A. Elia
Director
President and
Chief Executive Offi cer
Sevenson Environmental
Services, Inc.
Anthony P. Gammie
Director
Chairman of the Board
Bowater Incorporated
(retired)
Charles E. Lannon
Director
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, 2006
Buffalo Niagara Marriott
1340 Millersport Hwy.
Amherst, 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 2005: 82,827
The Chief Executive Offi cer has
previously fi led with the New York
Stock Exchange (NYSE) the annual
CEO certifi cation for 2005 as required
by section 303A.12(a) of the NYSE listed
company manual.
As of December 31, 2005, there were
approximately 1,600 shareholders of
record of the common stock, and 1
shareholder of record of the Series C
preferred stock.
The numbers
speak for themselves.
Sovran is focused on acquiring stores in markets with strong growth potential. Over the past 20 years,
the Company has assembled an impressive portfolio of 285 high-end stores in 21 states.
Consistently Strong Revenue Growth
History of Store Net Operating Income Growth
285 Stores Nationwide
2
1
18
14
4
5
4
6
18
15
7
16
3
9
8
22
49
9
STATES WITH STORES
SELECTED MAJOR MARKETS
63
4
8
$9.82
$9.46
$89.9
$80.1
$67.5
$72.9
$61.4
$8.94
$8.59
$8.61
Q4 2001
Q4 2002
Q4 2003
Q4 2004
Q4 2005
2001
2002
2003
2004
2005
Annualized rent per occupied square foot.
Store Net Operating Income is defi ned as revenues less property
operating expenses and real estate taxes (shown in millions).
Conservative Capital Structure
History of Dividend Growth
27.5%
28.0%
72.0%
72.5%
27.8%
72.2%
34.9%
33.5%
65.1%
66.5%
$2.41 $2.42
$2.44
$2.38
$2.34
$2.30
$2.26
$2.20
$2.12
$2.05
Number of Stores in Selected Major Markets
33 H O U S TO N
14 AT L A N TA
9 C L E V EL A N D
16 DALLAS / FT. WORTH
8 TA M PA
9 P H O EN I X
9 BO S TO N
17 SOUTHEAST FLORIDA
2001
2002
2003
2004
2005
1996 1997 1998 1999 2000 2001
2002 2003 2004
2005
Equity (at year-end market value)
Debt
Ratio shown is debt to enterprise value, defi ned as the total of outstanding debt plus
equity at market valuation.
Dividends paid per common share.
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Offi cers & Directors
Robert J. Attea
Director
Chairman of the Board and
Chief Executive Offi cer
Kenneth F. Myszka
Director
President and
Chief Operating Offi cer
David Rogers
Chief Financial Offi cer
John E. Burns, CPA
Director
President
Altus Capital, L.L.C.
Michael A. Elia
Director
President and
Chief Executive Offi cer
Sevenson Environmental
Services, Inc.
Anthony P. Gammie
Director
Chairman of the Board
Bowater Incorporated
(retired)
Charles E. Lannon
Director
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, 2006
Buffalo Niagara Marriott
1340 Millersport Hwy.
Amherst, 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 2005: 82,827
The Chief Executive Offi cer has
previously fi led with the New York
Stock Exchange (NYSE) the annual
CEO certifi cation for 2005 as required
by section 303A.12(a) of the NYSE listed
company manual.
As of December 31, 2005, there were
approximately 1,600 shareholders of
record of the common stock, and 1
shareholder of record of the Series C
preferred stock.
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, 2005
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [ X ] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act. Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer (as defined in Rule 12b-2 of the exchange Act).
Large Accelerated Filer [ X ]
Accelerated Filer [ ]
Non-accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes [ ] No [ X ]
1
As of June 30, 2005, 16,419,848 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 $716,215,799 (based on
the closing price of the Common Stock on the New York Stock Exchange on June 30, 2005).
As of March 1, 2006, 17,624,870 shares of Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on
May 18, 2006 (Part III).
Exhibit Index is on Pages 47-49
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, 2006, we owned and/or managed 290 Properties consisting of
approximately 17.6 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 sixth 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 97.3% economic interest in the Partnership and unaffiliated third parties own
collectively a 2.7% limited partnership interest at December 31, 2005. 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
2
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.
According to published data, of the approximately 41,000 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 120,000 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.
3
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.
Property maintenance:
All of our properties are subject to regular and routine maintenance procedures, which are designed to
maintain the structure and appearance of our buildings and grounds. A staff headquartered in our principal office is
responsible for the upkeep of the properties, and all maintenance service is contracted through local providers, such
as lawn service, snowplowing, pest control, gate maintenance, HVAC repairs, paving, painting, roofing, etc. A
codified set of specifications has been designed and is applied to all work performed on our Uncle Bob's stores. As
with many other aspects of our Company, our size has allowed us to enjoy relatively low maintenance costs because
we have the benefit of economies of scale in purchasing, travel and overhead absorption.
Environmental and Other Regulations
We are subject to federal, state, and local environmental regulations that apply generally to the ownership
of real property and the operation of self-storage facilities. We have not received notice from any governmental
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 significantly
on local market conditions. We seek to locate facilities so as not to cause our Properties to compete with one
4
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 Extra Space Storage, 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 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.
No storage facilities were sold in 2005, but 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
5
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 $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 867 employees, including 290 Property Managers, 17 Regional Team
Leaders, and 448 assistant managers and part-time employees. At our headquarters, in addition to our three
executive officers, we employ 109 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 and Charters of our Governance, Audit Committee, and Compensation Committee are available
free of charge on our website at http://www.sovranss.com.
Also, copies of our annual report and Charters of our Governance, Audit Committee, and Compensation
Committee will be made available, free of charge, upon written request to Sovran Self Storage, Inc., Attn: Investor
Relations, 6467 Main Street, Buffalo, NY 14221.
6
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 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.
7
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
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
8
-
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 2005 and 2004, our income was adversely affected by uninsured losses resulting
from hurricanes that hit the 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 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.
9
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
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 manner 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
10
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, 2005, 112 of our 285 self-storage facilities are located in the States of Texas and Florida.
For the year ended December 31, 2005, these facilities accounted for approximately 42.5% 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.
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 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
At December 31, 2005, we owned and/or a total of 285 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.
11
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 spaces.
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."
The following table provides certain information regarding the Properties owned and/or managed as of
December 31, 2005:
Number of
Stores at
December 31,
2005 (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 ....................................................
9
9
5
49
22
8
2
4
14
7
4
1
18
15
16
6
4
8
3
63
18
285
Square
Feet
586,843
506,340
295,119
3,100,761
1,221,658
460,070
98,600
166,596
782,907
454,291
200,331
62,055
968,819
769,718
992,073
369,830
168,016
432,040
211,434
4,461,010
1,060,831
17,369,342
Number of
Spaces
4,452
4,513
2,776
28,307
10,021
3,878
845
1,948
6,870
4,341
1,555
546
9,141
6,770
8,289
2,884
1,563
3,631
1,790
36,722
9,824
150,666
Percentage
of Store
Revenue
2.6%
2.9%
2.5%
22.0%
6.5%
2.2%
0.7%
1.4%
4.9%
2.0%
1.2%
0.4%
7.8%
3.8%
5.3%
2.0%
1.3%
2.3%
1.1%
20.5%
6.6%
100.0%
(a) Includes 274 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
2004
1st .................................................................................
2nd................................................................................
3rd ................................................................................
4th.................................................................................
Quarter
2005
1st .................................................................................
2nd................................................................................
3rd ................................................................................
4th.................................................................................
High
41.7900
42.8000
41.4200
43.6000
High
43.2400
46.9300
49.7000
50.5200
Low
35.3000
32.6600
37.7400
37.6000
Low
37.8000
38.5600
44.0900
43.5000
As of March 1, 2006, there were approximately 1,592 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 2005 represent 85% ordinary income
and 15% return of capital.
History of Dividends Declared on Common Stock
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
1st Quarter, 2005..........................................................
2nd Quarter, 2005 ........................................................
3rd Quarter, 2005 .........................................................
4th Quarter, 2005 .........................................................
$0.6050 per share
$0.6050 per share
$0.6150 per share
$0.6150 per share
13
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31, 2005, with respect to equity
compensation plans under which shares of the Company’s Common Stock may be issued.
Plan Category
Equity compensation plans approved by
shareholders:
2005 Award and Option Plan
1995 Award and Option Plan
1995 Outside Directors' Stock Option Plan
Deferred Compensation Plan for Directors (1)
Equity compensation plans not approved by
shareholders:
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (#)
Weighted average
exercise price of
outstanding
options, warrants
and rights ($)
Number of
securities
remaining for
available future
issuance (#)
24,000
102,900
16,000
25,154
N/A
$46.55
$28.31
$39.78
N/A
N/A
1,476,000
0
28,388
19,846
N/A
(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 Directors’ 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 Directors’ 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)
Operating Data
Operating revenues .....................................
Income from continuing operations ............
Income from discontinued operation (1).....
Net income ..................................................
Income from continuing operations per
common share – diluted ..........................
Net income per common share – basic .......
Net income per common share – diluted ....
Dividends declared per common share .......
Balance Sheet Data
Investment in storage facilities at cost ........
Total assets..................................................
Total debt ....................................................
Total liabilities ............................................
Series B preferred stock ..............................
Series C preferred stock ..............................
Other Data
Net cash provided by operating activities...
Net cash used in investing activities ...........
Net cash provided by (used in)
At or For Year Ended December 31,
2005
2004
2003
2002
2001
$ 138,305
34,790
-
34,790
$ 123,286
30,698
1,306
32,004
$ 111,414 $ 100,507
25,526
775
26,301
27,586
837
28,423
$ 89,425
23,404
785
24,189
1.84
1.86
1.84
2.44
1.44
1.54
1.53
2.42
1.40
1.47
1.46
2.41
1.58
1.66
1.64
2.38
1.66
1.74
1.72
2.34
$893,980
784,376
339,144
365,037
-
26,613
$811,516
719,573
289,075
315,108
-
53,227
$727,289
683,336
255,819
285,755
28,585
67,129
$698,334
652,213
252,452
278,631
28,585
67,129
$598,961
567,717
241,190
255,878
28,585
-
$60,234
(79,156)
$53,914
(71,034)
$ 51,003
(31,284)
$ 44,544
(99,065)
$ 39,872
(17,567)
financing activities ................................
20,728
(163)
(2,764)
53,814
(22,709)
Net cash provided by discontinued
operations ..................................................
-
287
1,083
887
866
(1) In 2004 we sold five stores whose operations and gain are classified as discontinued operations for all previous
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.
Disclosure Regarding Forward-Looking Statements
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 sixth 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 four 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, 219 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 four 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 four 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.
16
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.
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.
As announced in 2004, we have begun 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 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% five years ago to 7.5% 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 $100 million in 2006.
Operating Trends
In 2005, the overall economy and our industry gained momentum from the recovery that commenced in
2003. We experienced same store revenue growth of approximately 5% in each of the last three years. 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 5% revenue
growth on a same store basis in 2006.
17
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.
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, 2005 and 2004, 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, 2005 COMPARED TO
YEAR ENDED DECEMBER 31, 2004
We recorded rental revenues of $133.9 million for the year ended December 31, 2005, an increase of $14.3 million or
11.9% when compared to 2004 rental revenues of $119.6 million. Of this increase, $6.4 million resulted from a 5.5% increase in
rental revenues at the 250 core properties considered in same store sales (those properties included in the consolidated results of
operations since January 1, 2004). 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 219 of our stores. The remaining $7.9 million increase in rental revenues
resulted from the acquisition of fourteen stores during 2005 and from having the 2004 acquisitions included for a full year of
operations. Other income increased $0.8 million due to increased merchandise and insurance sales and the additional incidental
revenue generated by truck rentals.
Property operating and real estate tax expense increased $5.2 million or 12.0% in 2005 compared to 2004. Of this
increase, $3.4 million was incurred by the facilities acquired in 2005 and from having the 2004 acquisitions included for a full year
of operations. $1.8 million of the increase was due to increased personnel, utilities, maintenance expenses, and increased
18
property taxes at the 250 core properties considered same stores. We also incurred approximately $0.3 million of uninsured
losses relating to the hurricanes that hit the United States in 2005 as compared to $0.7 million uninsured losses from
hurricanes in 2004. We expect the trend of increasing operating costs to continue at a moderate pace with upward pressure
related to utilities and property insurance costs.
General and administrative expenses increased $1.8 million or 16.2% from 2004 to 2005. The increase primarily
resulted from bonuses earned by our home office personnel including our executive officers, increased costs in our call center,
and the increased costs associated with operating the properties acquired in 2005 and 2004.
Depreciation and amortization expense increased to $21.2 million in 2005 from $19.2 million in 2004, primarily as
a result of additional depreciation taken on real estate assets acquired in 2005 and a full year of depreciation on 2004
acquisitions.
Income from operations increased from $49.9 million in 2004 to $55.9 million in 2005 as a result of the net effect of
the aforementioned items.
Interest expense increased from $18.1 million in 2004 to $20.2 million in 2005 as a result of higher interest
additional borrowings under our line of credit to purchase fourteen stores in 2005.
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. No storage facilities were sold in 2005.
The decrease in preferred stock dividends from 2004 to 2005 was a result of the redemption of all 1,200,000
outstanding shares of our 9.85% Series B Cumulative Preferred Stock in August of 2004 and the conversion of 1,200,000
shares of our Series C Preferred Stock to 920,244 shares of common stock in 2005.
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.
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 $19.2 million in 2004 from $17.8 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 $45.5 million in 2003 to $49.9 million in 2004 as a result of the net effect of
the aforementioned items.
19
Interest expense increased from $16.0 million in 2003 to $18.1 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.
On August 2, 2004, we redeemed all 1,200,000 outstanding shares of our 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.
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)
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 in
discontinued operations........................
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
For Year Ended December 31,
2001
2004
2003
2002
2005
$34,790
1,529
$32,004
1,542
$28,423
1,790
$ 26,301
1,990
$ 24,189
1,617
21,222
19,175
17,856
16,207
13,839
-
90
293
290
283
484
-
(4,123)
473
(1,137)
(7,168)
460
-
(8,818)
400
-
(4,863)
633
-
(2,955)
-
(1,415)
-
-
-
(1,519)
(1,333)
(1,563)
(1,647)
(2,333)
minority interest in Locke Sovran II ....
(1,499)
(1,475)
(1,539)
(1,645)
(125)
Funds from operations available to
common shareholders...........................
$50,884
$40,756
$36,902
$ 37,033
$ 35,148
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 $60.2 million, $53.9 million and $51.0 million for the years
ended December 31, 2005, 2004, and 2003, respectively. The increase for each year is primarily attributable to
increased net income and increased non-cash charges for depreciation and amortization.
Cash used in investing activities was $79.2 million, $71.0 million, and $31.3 million for the years ended
December 31, 2005, 2004, and 2003 respectively. The increase in cash used from 2003 to 2004 was attributable to
increased acquisition activity in 2004. The increase from 2004 to 2005 was due to the proceeds from the sale of 5
facilities in 2004 that offset the acquisition activity that was comparable in these two years.
Cash provided by financing activities was $20.7 million in 2005 compared to uses of $0.2 and $2.7 in 2004
and 2003, respectively. 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, 2005, there was $10 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-).
In January 2006, we entered into a $25 million term note with a bank bearing interest at LIBOR plus 1.20%
and maturing July 2006. Our intention is to replace this term note and to pay down our revolving line of credit with
$100 to $150 million of 10 year term notes prior to July 2006.
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, 2005, 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 $72.9
million and $73.9 million at December 31, 2005 and 2004, 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.
21
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. 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. During 2005, we issued 920,244
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 1,200,000 shares of Series C Preferred Stock into common stock. In 2004, we
issued 306,748 shares of our common stock in connection the conversion of 400,000 shares of Series C Preferred
Stock into common stock. All converted shares of Series C Preferred Stock were retired leaving 1,200,000 shares
outstanding at December 31, 2005.
During 2005 and 2004, we did not acquire any shares of our common stock via the Share Repurchase
Program authorized by the Board of Directors. From the inception of the Share Repurchase Program through
December 31, 2005, 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 2005, we issued 426,172 shares via our Dividend Reinvestment and Stock Purchase Plan and
Employee Stock Option Plan. We realized $15.2 million from the sale of such shares. We expect to issue shares
when our share price and capital needs warrant such issuance.
Future acquisitions, share repurchases and repayment of the credit line are expected to be funded with the
revolving line of credit, issuance of secured or unsecured term notes, issuance of common or preferred stock, sale of
properties, private placement solicitation of joint venture equity and other sources of capital.
CONTRACTUAL OBLIGATIONS
The following table summarizes our future contractual obligations:
Contractual
obligations
Total
2006
2007-2008
2009-2010
2011 and thereafter
Payments due by period
Line of credit ............
Term notes ................
Mortgages payable ...
Interest payments......
Building lease ...........
Total..........................
$90.0 million
$200.0 million
$49.1 million
$96.0 million
$2.1 million
$437.2 million
-
-
$1.0 million
$20.2 million
$0.5 million
$21.7 million
$90.0 million
-
$2.2 million
$33.5 million
$0.9 million
$126.6 million
-
$100.0 million
$2.5 million
$22.3 million
$0.7 million
$125.5 million
-
$100.0 million
$43.4 million
$20.0 million
-
$163.4 million
ACQUISITION OF PROPERTIES
During 2005, we used operating cash flow, borrowings pursuant to the line of credit, and proceeds from our
Dividend Reinvestment and Stock Purchase Plan to acquire fourteen Properties in Alabama, Connecticut, Georgia,
Louisiana, Massachusetts, New York, and Texas comprising one million square feet from unaffiliated storage
operators. 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. At December 31, 2005, we owned and/or operated 285 self-
storage facilities in 21 states. Of these facilities, 11 are managed by us for Locke Sovran I, LLC, an unconsolidated
joint venture.
22
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, 2005, we were in negotiations to acquire eleven stores for approximately $33 million.
Five of these stores were purchased in January and February 2006 for $18.9 million.
In addition, as announced in 2004, we have begun 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.
We also expect to accelerate, by two to three years, the required capital expenditures on 50 to 70 of our
Properties. This includes repainting, paving, and remodeling of the office buildings at these facilities. Typically we
spend $4 to $5 million per year on such improvements; for 2006 and 2007, we expect to spend approximately $15
million per year.
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. No sales took place in 2005.
Also, 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.
We may seek to sell additional Properties to similar joint venture programs or third parties in 2006.
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,
2005, our share of Locke Sovran I, LLC's income was $171,000, 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 $332,000, $322,000, and $311,000, for the years ended 2005, 2004, and 2003, respectively.
We also have a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2005. During
2004, Iskalo Ofice 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,
2005, our share of Iskalo Office Holdings, LLC's loss was $8,000. We paid rent to Iskalo Office Holdings, LLC of
$445,000 in 2005 and $426,000 in 2004, and $393,000 in 2003. 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, 2005 is as follows:
23
(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 ........................................................................
Locke Sovran I,
LLC
Iskalo Office
Holdings, LLC
$ 38,226
-
1,398
$ 39,624
$ 2,780
29,463
704
32,947
$ -
6,057
626
$ 6,683
$ -
7,522
350
7,872
Unaffiliated partners' equity (deficiency) ..................................
Company equity (deficiency).....................................................
Total Liabilities and Partners' Equity (deficiency) ..................
3,609
3,068
$ 39,624
(688)
(501)
$ 6,683
Income Statement Data:
Total revenues ............................................................................
Total expenses............................................................................
Net income (loss) .....................................................................
$ 6,648
6,268
$ 380
$ 1,137
1,154
$ (17)
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)
Year ended December 31,
2005
2004
2003
Statement of Operations
Other income (management fees income) ..............................
General and administrative expenses (corporate office rent)..
Equity in income of joint ventures..........................................
$332
445
202
$322
426
207
$311
393
186
Investing activities
(Advances to) reimbursement of advances to joint ventures ..
(187)
958
(110)
Financing activities
Distributions from unconsolidated joint ventures...................
490
602
646
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 2006 may be
applied toward our 2005 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 2005, 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 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.
24
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, 2005, we have five outstanding interest rate swap agreements as
summarized below:
Notional Amount
Effective Date
Expiration Date
Fixed
Rate Paid
Floating Rate
Received
$50 Million
$30 Million
$50 Million
$20 Million
$50 Million – forward start
9/28/01
9/28/01
11/14/05
9/4/05
10/10/06
10/2/06
9/30/08
9/1/09
9/4/13
9/1/09
5.685%
5.705%
5.590%
5.935%
5.680%
1 month LIBOR
1 month LIBOR
1 month LIBOR
6 month LIBOR
1 month LIBOR
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 $150 million of our debt
through the interest rate swap termination dates.
Through September 2008, $230 million of our $290 million of unsecured debt is on a fixed rate basis after
taking into account the interest rate swaps noted above. Based on our outstanding unsecured debt of $290 million at
December 31, 2005, a 1% increase in interest rates would have a $600,000 effect on our interest expense annually.
The table below summarizes our debt obligations and interest rate derivatives at December 31, 2005. 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
2006
2007
2008
2009
2010
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% ........................
-
-
-
-
$90,000
-
-
-
-
-
-
-
-
$100,000
-
-
-
-
-
-
-
-
$ 90,000
$ 90,000
$ 100,000
$100,000
$ 20,000
$ 20,000
$ 20,000
$ 80,000
$ 80,000
$ 81,003
Mortgage note – fixed rate 7.19% ................
$ 870
$ 936
$ 997
$ 1,081
$ 1,163
$ 40,208
$ 45,255
$ 48,471
Mortgage note – fixed rate 5.40% ................
$ 120
$ 126
$ 133
$ 141
$ 149
$ 3,220
$ 3,889 $ 3,824
Interest rate derivatives - asset .....................
-
-
-
-
-
-
-
$ 1,411
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.
Our revenues typically have been higher in the third and fourth quarters, primarily because we increase
SEASONALITY
25
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 March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations. Interpretation 47 clarifies that the term conditional asset retirement obligation as used in FASB
Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or
may not be within the control of the entity. However, the obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing and (or) method of settlement. Interpretation 47
requires that the uncertainty about the timing and (or) method of settlement of a conditional asset retirement
obligation should be factored into the measurement of the liability when sufficient information exists. Interpretation
47 is effective no later than for fiscal years ending after December 15, 2005 (December 31, 2005 for the Company).
The application of Interpretation 47 does not have a material impact on the Company's financial position or results
of operations.
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 January 1, 2006.
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 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.
In June 2005, the FASB ratified the EITF’s consensus on Issue No. 04-5 “Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights.” This consensus established the presumption that general partners in a limited
partnership control that limited partnership (or similar entity like an LLC) regardless of the extent of the general
partners’ ownership interest in the limited partnership. The consensus further establishes that the rights of the limited
partners can overcome the presumption of control by the general partners, if the limited partners have either (a) the
substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without
cause or (b) substantive participating rights. EITF 04-5 is effective for all agreements entered into or modified after
June 29, 2005. For pre-existing agreements that are not modified, the consensus is effective as of the beginning of
the first fiscal reporting period beginning after December 15, 2005. The Company does not expect that the
implementation of this standard will have a material effect on its consolidated financial position or results of
operations.
26
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
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, 2005 and 2004, and the related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2005. 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 schedules
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, 2005 and 2004, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Sovran Self Storage, Inc.’s internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2006 expressed an
unqualified opinion thereon.
Buffalo, New York
February 21, 2006
/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 .............................................................................................
Fair value of interest rate swap agreements....................................................
Other assets .....................................................................................................
Total Assets...................................................................................................
Liabilities
Line of credit...................................................................................................
Term notes ......................................................................................................
Accounts payable and accrued liabilities........................................................
Deferred revenue.............................................................................................
Fair value of interest rate swap agreements....................................................
Accrued dividends ..........................................................................................
Mortgages payable ..........................................................................................
Total Liabilities .............................................................................................
December 31,
2005
2004
$ 162,900
731,080
893,980
(130,550)
763,430
4,911
1,643
75
2,780
825
3,075
1,411
6,226
$ 784,376
$90,000
200,000
10,865
4,227
-
10,801
49,144
365,037
$ 148,341
663,175
811,516
(109,750)
701,766
3,105
1,530
90
2,593
1,113
3,136
-
6,240
$ 719,573
$43,000
200,000
9,121
3,824
3,425
9,663
46,075
315,108
Minority interest – Operating Partnership ......................................................
Minority interest – consolidated joint venture ................................................
11,132
14,122
12,007
15,007
Shareholders' Equity
Series A Junior Participating Cumulative Preferred Stock, $.01 par value,
250,000 shares authorized and no shares issued and outstanding...............
8.375% Series C Convertible Cumulative Preferred Stock, $.01 par value,
1,200,000 shares issued and outstanding at December 31, 2005
(2,400,000 shares issued and outstanding at December 31, 2004)
$30,000 liquidation value ............................................................................
Common stock $.01 par value, 100,000,000 shares authorized, 17,563,046
shares outstanding (15,972,227 at December 31, 2004) .............................
Additional paid-in capital ...............................................................................
Unearned restricted stock................................................................................
Dividends in excess of net income..................................................................
Accumulated other comprehensive income (loss) ..........................................
Treasury stock at cost, 1,171,886 shares.........................................................
Total Shareholders' Equity............................................................................
Total Liabilities and Shareholders' Equity....................................................
See notes to financial statements.
-
-
26,613
53,227
187
466,839
(1,838)
(71,995)
1,454
(27,175)
394,085
$ 784,376
171
418,007
(1,774)
(61,751)
(3,254)
(27,175)
377,451
$ 719,573
28
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Revenues
Rental income .........................................................................
Other operating income...........................................................
Total operating revenues........................................................
Expenses
Property operations and maintenance .....................................
Real estate taxes ......................................................................
General and administrative .....................................................
Depreciation and amortization................................................
Total operating expenses.......................................................
2005
Year Ended December 31,
2004
2003
$ 133,856
4,449
138,305
$ 119,605
3,681
123,286
$ 108,524
2,890
111,414
35,954
12,407
12,863
21,222
82,446
32,166
11,014
11,071
19,175
73,426
28,545
9,977
9,616
17,786
65,924
Income from operations ..........................................................
55,859
49,860
45,490
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 of joint ventures...........................................
Income from continuing operations .........................................
Income from discontinued operations (including gain on
(20,229)
487
-
(1,039)
(490)
202
(18,128)
301
-
(1,043)
(499)
207
(16,003)
416
(713)
(1,176)
(614)
186
34,790
30,698
27,586
disposal in 2004 of $1,083) ..................................................
-
1,306
837
Net Income ..............................................................................
Redemption amount in excess of carrying value of Series
B Preferred Stock..............................................................
Preferred stock dividends.........................................................
Net income available to common shareholders .......................
34,790
32,004
28,423
-
(4,123)
$ 30,667
(1,415)
(7,168)
$ 23,421
-
(8,818)
$ 19,605
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....................................
$ 1.86
$ -
$ 1.86
$ 1.84
$ -
$ 1.84
$ 1.45
$ 0.09
$ 1.54
$ 1.44
$ 0.09
$ 1.53
$ 1.41
$ 0.06
$ 1.47
$ 1.40
$ 0.06
$ 1.46
Dividends declared per common share ................................
$ 2.44
$ 2.42
$ 2.41
See notes to financial statements.
29
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
Balance January 1, 2003..................................................
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............................................
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 .................................................
Net income ......................................................................
Change in fair value of derivatives..................................
Total comprehensive income...........................................
Dividends ........................................................................
Balance December 31, 2005............................................
See notes to financial statements.
9.85%
Series B
Preferred Stock
Shares
9.85%
Series B
Preferred Stock
8.375%
Series C
Preferred Stock
Shares
8.375% Series C
Preferred
Stock
1,200,000
$28,585
2,800,000
$67,129
-
-
-
-
-
-
-
-
-
-
2,800,000
-
-
-
-
-
(400,000)
-
-
-
-
-
-
-
-
2,400,000
-
-
-
-
-
(1,200,000)
-
-
-
-
1,200,000
-
-
-
-
-
-
-
-
-
-
67,129
-
-
-
-
-
(8,871)
(5,031)
-
-
-
-
-
-
-
53,227
-
-
-
-
-
(26,614)
-
-
-
-
$ 26,613
-
-
-
-
-
-
-
-
-
-
1,200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,585
-
-
-
-
-
-
-
-
(1,200,000)
-
(28,585)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
30
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
12,984,339
$140
$317,423
$(2,134)
$(35,124)
$( 10,020)
$ (23,225)
$342,774
1,098,230
323,110
-
-
(145,816)
-
-
-
-
14,259,863
1,163,651
225,750
12,058
-
-
310,905
-
-
-
-
-
-
-
-
15,972,227
283,379
129,015
13,778
-
-
1,164,647
-
-
-
-
17,563,046
11
3
-
-
-
-
-
-
-
-
154
12
2
-
-
-
3
-
-
-
-
-
-
-
-
171
3
1
-
-
-
12
-
-
-
-
$ 187
34,588
7,726
-
96
(2,958)
-
-
-
-
-
356,875
43,482
5,500
463
-
129
8,868
2,958
(268)
-
-
-
-
-
-
418,007
11,929
3,238
582
-
125
32,958
-
-
-
-
$ 466,839
-
-
412
-
-
-
-
-
-
-
(1,722)
-
-
(463)
411
-
-
-
-
-
-
-
-
-
-
(1,774)
-
-
(582)
518
-
-
-
-
-
-
$ (1,838)
-
-
-
-
-
-
-
-
-
-
-
28,423
-
-
(41,368)
(48,069)
-
-
2,440
-
-
(7,580)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,950)
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
(1,415)
32,004
-
-
(44,271)
(61,751)
-
-
4,326
-
-
(3,254)
-
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
34,790
-
-
(45,034)
$ (71,995)
-
4,708
-
-
$ 1,454
-
-
-
-
$ (27,175)
31
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
11,932
3,239
-
518
125
6,356
34,790
4,708
39,498
(45,034)
$394,085
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 of joint ventures ................................................................................
Minority interest ............................................................................................................
Restricted stock earned..................................................................................................
Changes in assets and liabilities:
Accounts receivable .....................................................................................................
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............................................................
(Advances to) reimbursement of advances to joint ventures........................................
Other assets ..................................................................................................................
Receipts from related parties ........................................................................................
Net cash used in investing activities..............................................................................
Financing Activities
Net proceeds from sale of common stock ....................................................................
Proceeds from line of credit .........................................................................................
Paydown of line of credit .............................................................................................
Proceeds from term notes .............................................................................................
Paydown of term notes .................................................................................................
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 provided by (used in) financing activities ......................................................
Net increase (decrease) in cash from continuing operations .........................................
Cash provided by discontinued operations....................................................................
Cash at beginning of period...........................................................................................
Cash at end of period ....................................................................................................
Year Ended December 31,
2003
2004
2005
$ 34,790
$ 30,698
$ 27,586
-
22,012
(202)
1,529
518
(74)
183
1,445
33
60,234
(60,681)
(17,885)
-
(187)
(418)
15
(79,156)
21,652
56,000
(9,000)
-
-
(352)
(39,773)
(4,123)
490
(2,567)
-
(722)
-
-
(877)
20,728
1,806
-
3,105
$ 4,911
-
19,895
(207)
1,542
411
103
(124)
1,644
(48)
53,914
(65,629)
(17,961)
11,640
958
(47)
5
(71,034)
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
(365)
2,302
(82)
51,003
(8,187)
(22,936)
-
(110)
(54)
3
(31,284)
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
Supplemental cash flow information
Cash paid for interest.....................................................................................................
$ 19,097
$ 17,403
$ 13,344
Capital lease obligations incurred .................................................................................
Capital lease obligations discharged .............................................................................
Fair value of assets assumed on the acquisition of storage facilities.............................
-
-
167
Fair value of liabilities assumed on the acquisition of storage facilities ......................
4,487
-
-
91
835
1,529
(2,986)
5
217
Dividends declared but unpaid at December 31, 2005, 2004 and 2003 were $10,801, $9,663, and $8,592, respectively.
See notes to financial statements.
32
SOVRAN SELF STORAGE, INC. - DECEMBER 31, 2005
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, 2005, we owned and/or managed 285 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 97.3% ownership interest therein as of December 31, 2005. 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, 2005, 2004, and 2003 were $0.6 million, $0.5 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
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, 2005 and 2004, 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 $4.7 million and $4.4 million at December 31, 2005, and 2004, respectively. Accumulated
amortization on the loan acquisition costs was approximately $1.9 million and $1.1 million at December 31, 2005,
and 2004, respectively. Loan acquisition costs are amortized over the terms of the related debt. Amortization
expense was $0.8 million, $0.7 million and $0.9 million for the periods ended December 31, 2005, 2004 and 2003,
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, 2005, Operating Partnership minority interest
ownership was 479,277 Units, or 2.7%. 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 $39.5 million, $36.3 million and $30.9 million for the years ended December 31, 2005,
2004, and 2003, 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 March 2005, the FASB issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations. Interpretation 47 clarifies that the term conditional asset retirement obligation as
used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may
not be within the control of the entity. However, the obligation to perform the asset retirement activity is unconditional even
though uncertainty exists about the timing and (or) method of settlement. Interpretation 47 requires that the uncertainty about
the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement
of the liability when sufficient information exists. Interpretation 47 is effective no later than for fiscal years ending after
December 15, 2005 (December 31, 2005 for the Company). The application of Interpretation 47 does not have a material
impact on the Company's financial position or results of operations.
34
In June 2005, the FASB ratified the EITF’s consensus on Issue No. 04-5 “Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights.” This consensus established the presumption that general partners in a limited
partnership control that limited partnership (or similar entity like an LLC) regardless of the extent of the general
partners’ ownership interest in the limited partnership. The consensus further establishes that the rights of the limited
partners can overcome the presumption of control by the general partners, if the limited partners have either (a) the
substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without
cause or (b) substantive participating rights. EITF 04-5 is effective for all agreements entered into or modified after
June 29, 2005. For pre-existing agreements that are not modified, the consensus is effective as of the beginning of
the first fiscal reporting period beginning after December 15, 2005. The Company does not expect that the
implementation of this standard will have a material effect on its consolidated financial position or results of
operations.
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 January 1,
2006. The Company expects to adopt Statement 123(R) on January 1, 2006 using the modified prospective method
in which compensation cost is based on the requirements of SFAS No. 123 (R) for all share-based payments granted
after the effective date, and based on the requirements of SFAS No. 123 for all awards granted to employees prior to
the effective date of SFAS 123 (R) that remain unvested on the effective date.
As permitted by Statement 123, in 2005 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 .....................
Add: Total stock-based compensation expense recorded .........................
Deduct: Total stock-based employee compensation expense
Pro Forma
2005
2004
2003
$ 30,667
518
$ 23,421
411
$ 19,605
411
determined under fair value method for all awards...............................
Pro forma net income available to common shareholders ........................
(657)
$ 30,528
(566)
$ 23,266
(611)
$ 19,405
Earnings per common share
Basic - as reported..................................................................................
Basic - pro forma ...................................................................................
Diluted - as reported...............................................................................
Diluted - pro forma ................................................................................
$ 1.86
$ 1.85
$ 1.85
$ 1.84
$ 1.54
$ 1.53
$ 1.53
$ 1.52
$ 1.47
$ 1.45
$ 1.46
$ 1.44
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 4.2% for 2005, 4.4% for 2004,
and 3.5% for 2003; dividend yield of 5.4% for 2005, 6.6% for 2004, and 7.0% for 2003; volatility factor of the
35
expected market price of the Company's common stock of .20 for 2005, and .20 for 2004 and .19 for 2003; expected
life of 7 years. The weighted average fair value of options granted was $5.46 in 2005, $3.53 in 2004, and $2.21 in
2003.
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 2004 and 2003 financial statements have been reclassified to
conform to the current year presentation.
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)
Year Ended December 31,
2005
2004
2003
Numerator:
Net income available to common shareholders .............
$ 30,667
$ 23,421
$ 19,605
Denominator:
Denominator for basic earnings per share - weighted
average shares...............................................................
16,506
15,161
13,346
Effect of Dilutive Securities:
Stock options and warrants and unvested restricted
stock .................................................................................
127
134
127
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversion......
16,633
Basic Earnings per Common Share ................................
$ 1.86
Diluted Earnings per Common Share ..............................
$ 1.84
15,295
$ 1.54
$ 1.53
13,473
$ 1.47
$ 1.46
Potential common shares from the Series C Convertible Cumulative Preferred Stock (see Note 13) were
excluded from the 2005, 2004, and 2003 diluted earnings per share calculation because their inclusion would have
had an antidilutive effect on earnings per share.
36
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the years ended December 31, 2005 and
December 31, 2004. This summary excludes the effect of storage facilities presented as discontinued operations
(see Note 5).
(Dollars in thousands)
2005
2004
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...................................................................
$811,516
65,001
18,236
(773)
$893,980
$ 109,750
21,222
(422)
$130,550
$727,289
66,373
18,075
(221)
$811,516
$ 90,682
19,175
(107)
$109,750
During 2005 the Company acquired fourteen storage facilities for $65.0 million. Substantially all of the
purchase price of these facilities was allocated to land ($12.8 million), building ($51.3 million) and equipment ($0.9
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 were sold by the Company in 2004 required
presentation as discontinued operations as of December 31, 2004. The amounts in the 2003 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. There were no property sales in
2005.
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 ......................
2005
$ -
-
-
-
-
$ -
Year Ended December 31,
2004
2003
$ 544
(193)
(38)
(90)
1,083
$ 1,306
$ 1,747
(476)
(141)
(293)
-
$ 837
37
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, 2005 on the Company's line of
credit before the effect of interest rate swaps was approximately 5.4% (3.3% at December 31, 2004). At December
31, 2005, there was $10 million available on the revolving line of credit excluding the amount available on the
expansion feature.
In January 2006, the Company entered into a $25 million unsecured term note with a bank bearing interest
at LIBOR plus 1.20% and maturing July 2006.
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 or 2005.
The table below summarizes the Company’s debt obligations and interest rate derivatives at December 31,
2005. 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
2006
2007
2008
2009
2010
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% ........................
-
-
-
-
$90,000
-
-
-
-
-
-
-
-
$100,000
-
-
-
-
-
-
-
-
$ 90,000
$ 90,000
$ 100,000
$100,000
$ 20,000
$ 20,000
$ 20,000
$ 80,000
$ 80,000
$ 81,003
Mortgage note - fixed rate 7.19% ................
$ 870
$ 936
$ 997
$ 1,081
$ 1,163
$ 40,208
$ 45,255
$ 48,471
Mortgage note - fixed rate 5.40% ................
$ 120
$ 126
$ 133
$ 141
$ 149
$ 3,220
$ 3,889 $ 3,824
Interest rate derivatives - asset .....................
-
-
-
-
-
-
-
$ 1,411
7. MORTGAGES PAYABLE
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 $72.9
million and $73.9 at December 31, 2005 and 2004, respectively. The 10-year mortgage bears interest at the fixed
rate of 7.19%. The outstanding balance on the mortgage is $45.3 million and $46.1 million at December 31, 2005
and 2004 respectively.
38
The Company assumed a 7.25% mortgage note in connection with the acquisition of a storage facility in
June 2005. The mortgage was recorded at its fair value of $3.9 million based upon the estimated market rate of
5.4% as compared to the actual outstanding balance of $3.6 million. The premium of approximately $0.3 million
over the principal balance of the mortgage payable will be amortized over the remaining term of the mortgage based
on the effective interest method. The note is secured by the aforementioned acquired property with a carrying value
of $6.1 million at December 31, 2005. The outstanding balance on the mortgage is $3.9 million at December 31,
2005.
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 Income ("AOCI"). These deferred gains and losses are amortized into interest expense during the
period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate
swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the
ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was immaterial in 2005
and 2004.
The Company has entered into five interest rate swap agreements as detailed below to effectively convert a
total of $150 million of variable-rate debt to fixed-rate debt.
Notional Amount
Effective Date
Expiration Date
Fixed
Rate Paid
Floating Rate
Received
$50 Million
$30 Million
$50 Million
$20 Million
$50 Million – forward start
9/28/01
9/28/01
11/14/05
9/4/05
10/10/06
10/2/06
9/30/08
9/1/09
9/4/13
9/1/09
5.685%
5.705%
5.590%
5.935%
5.680%
1 month LIBOR
1 month LIBOR
1 month LIBOR
6 month LIBOR
1 month LIBOR
The interest rate swap agreements are the only derivative instruments, as defined by SFAS No. 133, held by
the Company. During 2005, 2004, and 2003, the net reclassification from AOCL to interest expense was $2.2
million, $4.7 million and $4.8 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 $0.5
million in 2006. 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 an asset of $1.4 million and
a liability of $3.4 million at December 31, 2005, and 2004 respectively.
9. STOCK OPTIONS
The Company established the 2005 Award and Option Plan (the "Plan") which replaced the expiring 1995
Award and Option 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
39
December 31, 2005, options for 126,900 shares were outstanding under the Plan and options for 1,476,000 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. During 2005,
1,756 restricted shares were issued to outside directors. 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 the fair market value at the date of grant. As of December 31, 2005, options for 16,000
common shares and restricted shares of 4,112 were outstanding under the Non-employee Plan and options for
28,388 shares of common stock were available for future issuance.
The Company has also issued 154,064 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 $41.75. During
2005, 12,022 shares of restricted stock were issued to employees with a fair value of $502,000. The Company
charges unearned restricted stock, a component of shareholders' equity, for the market value of shares as they are
issued. The unearned portion is then amortized and charged to expense over the vesting period.
A summary of the Company's stock option activity and related information for the years ended December
31 follows:
2005
2004
2003
Weighted
average
exercise
price
Weighted
average
exercise
price
Options
Options
Weighted
average
exercise
price
Options
Outstanding at beginning
of year:................................
247,415
$ 27.00
443,665
$ 24.71
734,775
$ 23.08
Granted...................................
Exercised................................
Forfeited .................................
38,000
(129,015)
(13,500)
45.26
25.11
36.39
38,000
(225,750)
(8,500)
37.43
24.18
29.12
32,000
(323,110)
-
30.42
23.92
-
Outstanding at end of year .....
142,900
$ 32.68
247,415
$ 27.00
443,665
$ 24.71
Exercisable at end of year ......
72,650
$ 27.26
91,940
$ 25.25
174,415
$ 26.27
At December 31, 2005, there were 48,900 options outstanding at exercise prices ranging from $19.06 to
$29.99 and 94,000 options outstanding at exercise prices ranging from $30.00 to $47.45. The weighted average
remaining contractual life of those options is 7.27 years. As disclosed further in Note 13, warrants to purchase
357,500 common shares of the Company at a price of $32.60 per share were exercised in 2005.
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 $149,000, $125,000, and $119,000
for the years ended December 31, 2005, 2004 and 2003, respectively.
40
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.
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, 2005 and 2004, the Company's share of Locke Sovran I, LLC's income was $171,000 and $141,000,
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 $332,000, $322,000, and $311,000, for the years ended 2005, 2004, and
2003, respectively.
The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2005.
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, 2005 and 2004, the Company's share of Iskalo Office Holdings, LLC's (loss) income
was ($8,000) and $27,000, respectively. The Company paid rent to Iskalo Office Holdings, LLC of $445,000 in
2005 and $426,000 in 2004, and $393,000 in 2003. Future minimum lease payments under the lease are $0.5
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, 2005 is as follows:
(dollars in thousands)
Balance Sheet Data:
Investment in storage facilities, net ..............................................
Investment in office building ........................................................
Other assets ...................................................................................
Total Assets.................................................................................
Locke Sovran I,
LLC
Iskalo Office
Holdings, LLC
$ 38,226
-
1,398
$ 39,624
$ -
6,057
626
$ 6,683
41
Due to the Company .....................................................................
Mortgage payable..........................................................................
Other liabilities..............................................................................
Total Liabilities ...........................................................................
Unaffiliated partners' equity (deficiency) .....................................
Company equity (deficiency)........................................................
Total Liabilities and Partners' Equity (deficiency) .....................
$ 2,780
29,463
704
32,947
3,609
3,068
$ 39,624
$ -
7,522
350
7,872
(688)
(501)
$ 6,683
Income Statement Data:
Total revenues ...............................................................................
Total expenses...............................................................................
Net income (loss) ........................................................................
$ 6,648
6,268
$ 380
$ 1,137
1,154
$ (17)
The Company does not guarantee the debt of Locke Sovran I, LLC or Iskalo Office Holdings, LLC.
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 2004 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. During 2005, the Company issued
920,244 shares of its common stock in connection with a written notice from one of the holders of the Series C
Preferred Stock requesting the conversion of 1,200,000 shares of Series C Preferred Stock into common stock. In
2004, the Company issued 306,748 shares of its common stock in connection the conversion of 400,000 shares of
Series C Preferred Stock into common stock. All converted shares of Series C Preferred Stock were retired leaving
1,200,000 shares outstanding at December 31, 2005.
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 ($30,000,000 aggregate at December 31,
2005) 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
42
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
2005 and 2004 respectively, warrants for 357,500 and 21,666 were exercised leaving none remaining at December
31, 2005. 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.
14. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years ended December 31, 2005 and
2004 (dollars in thousands, except per share data).
Operating revenue ............................................
Income from continuing operations .................
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
2005 Quarter Ended
June 30
Sept. 30
$ 32,149
$ 7,768
$ 7,768
$ 34,007
$ 8,878
$ 8,878
$ 36,003
$ 9,611
$ 9,611
Dec. 31
$ 36,147
$ 8,533
$ 8,533
$ 6,512
$ 7,622
$ 8,628
$ 7,905
$ 0.41
$ 0.40
$ 0.47
$ 0.47
$ 0.52
$ 0.52
$ 0.46
$ 0.46
March 31
$ 28,504
$ 6,822
$ 753
$ 7,575
2004 Quarter Ended
June 30
Sept. 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
(a) The 2004 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, 2005, the Company was in negotiations to acquire eleven stores for approximately $33
million. Five of these stores were purchased in January and February of 2006 for $18.9 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, 2005. 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, 2005.
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, 2005. 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, 2005 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, 2005
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, 2005 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
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. maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Sovran Self Storage, Inc.’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 Sovran Self Storage, Inc. maintained effective internal
control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, Sovran Self Storage, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, 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 Sovran Self Storage, Inc. as of December 31, 2005 and
2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2005 of Sovran Self Storage, Inc. and our report dated February 21,
2006 expressed an unqualified opinion thereon.
Buffalo, New York
February 21, 2006
/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, 2006, 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, 2006.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
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, 2006.
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, 2006.
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, 2006.
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.
(i)
(ii)
(iii)
Consolidated Balance Sheets as of December 31, 2005 and 2004.
Consolidated Statements of Operations for Years Ended December 31, 2005, 2004, and 2003.
Consolidated Statements of Shareholders' Equity for Years Ended December 31, 2005, 2004, and
2003.
Consolidated Statements of Cash Flows for Years Ended December 31, 2005, 2004, and 2003.
Notes to Consolidated Financial Statements.
(iv)
(v)
2.
The following financial statement Schedule as of the period ended December 31, 2005 is included in this
Annual Report on Form 10-K.
Schedule III Real Estate and Accumulated Depreciation.
46
All other Consolidated financial schedules are omitted because they are inapplicable, not required, or the
information is included elsewhere in the consolidated financial statements or the notes thereto.
3.
Exhibits
The exhibits required to be filed as part of this Annual Report on Form 10-K have been included as
follows:
3.1(a)*
Amended and Restated Articles of Incorporation of the Registrant.
3.1(b)* Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant
classifying and designating the series A Junior Participating Cumulative Preferred Stock. (Incorporated
by reference to Exhibit 3.1 to the Registrant's Form 8-A filed December 3, 1996.)
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. 2005 Award and Option Plan, as Amended. (Incorporated by reference to the
Registrant's Proxy Statement filed April 11, 2005.)
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.
47
10.13*
Form of Subscription Agreement (including Registration Rights Statement) among the Registrant and
subscribers for 422,171 Common Shares.
10.14*
Form of Registration Rights and Lock-Up Agreement among the Registrant and Robert J. Attea, Charles
E. Lannon, Kenneth F. Myszka and David L. Rogers.
10.16
****
10.17
****
10.18
****
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.
48
****
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.
*****
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 1, 2005, attaching a press
release announcing earnings for the quarter ended September 30, 2005.
The Company filed a Current Report on Form 8-K dated November 3, 2005, related to the
conversion of 262,350 shares of the Company's Series C Convertible Cumulative Preferred Stock
into 201,188 shares of the Company's common stock.
The Company filed a Current Report on Form 8-K dated November 15, 2005, related to the
conversion of 577,650 shares of the Company's Series C Convertible Cumulative Preferred Stock
into 442,982 shares of the Company's common stock.
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 13, 2006
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)
/s/ John Burns
John Burns
/s/ Michael A. Elia
Michael A. Elia
/s/ Anthony P. Gammie
Anthony P. Gammie
/s/ Charles E. Lannon
Charles E. Lannon
Director
Director
Director
Director
March 13, 2006
March 13, 2006
March 13, 2006
March 13, 2006
March 13, 2006
March 13, 2006
March 13, 2006
50
Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2005
Initial Cost to
Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Encum
Brance
Building,
Equipment
and
Land Improvements
$363
$1,679
Building,
Equipment
and
Improvements
$337
Building,
Equipment
and
Land Improvements Total
$2,016
$363
$2,379
Accum
Deprec
$530
Date of
Construction
1980
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
430
513
194
1,616
1,268
1,516
1,424
1,102
2,734
1,110
1,659
734
1,501
1,752
808
1,531
1,404
760
1,325
3,057
728
1,248
847
1,684
1,613
2,329
1,402
2,021
1,103
745
1,150
1,331
719
1,188
1,579
1,930
912
1,503
3,619
1,917
1,541
1,901
1,696
1,539
4,513
1,495
2,239
1,527
1,902
2,433
1,528
2,927
1,627
1,093
1,675
3,503
1,037
1,546
1,128
3,068
2,048
2,952
2,011
2,604
1,342
1,779
1,489
1,711
1,311
1,527
1,858
2,296
1,227
4,193
2,597
1,886
2,317
2,093
1,847
505
415
518
465
400
5,283
1,082
1,734
2,940
1,731
2,297
2,916
1,752
3,424
2,022
1,257
2,042
4,356
1,189
1,814
1,362
3,884
2,492
3,601
2,398
3,448
1,645
2,094
1,810
2,085
1,500
2,015
2,288
2,809
1,421
425
552
339
558
609
396
737
439
275
495
897
316
461
300
733
594
779
467
659
402
335
401
467
334
441
547
655
332
5,696
1,159
1986
1984
1985
1985
1986
1973
1980
1987
1975
1985
1984
1988
1981
1981
1979
1982
1980
1985
1985
1980
1981
1986
1985
1985
1988
1988
1984
1985
1987
1989
1986
1988
1988
1975
1985
301
273
385
272
437
1,779
385
580
793
401
681
720
1,470
223
333
350
446
309
298
285
1,737
435
623
609
583
240
1,034
339
393
592
339
279
366
315
574
680
345
416
397
308
770
239
701
204
395
483
224
497
395
164
367
853
152
268
234
816
444
649
387
844
303
315
321
374
189
488
430
513
194
1,503
51
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
Description
Boston-Metro I
Boston-Metro II
E. Providence
Charleston l
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 l
Greensboro
Raleigh I
New Haven
Atlanta-Metro I
Atlanta-Metro II
Buffalo II
Raleigh II
Columbia II
Columbia III
Columbia IV
Atlanta-Metro III
Orlando I
Sharon
Ft. Lauderdale
ST
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
GA
FL
PA
FL
Initial Cost to
Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
177
Building,
Equipment
and
Land Improvements Total
1,610
1,212
398
Accum
Deprec
382
Date of
Construction
1985
Description
West Palm l
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 l
Jacksonville II
Pensacola III
Pensacola IV
Pensacola V
Tampa I
Tampa II
Tampa III
Jackson I
Jackson II
Richmond
Orlando II
Birmingham III
Macon II
Harrisburg I
Harrisburg II
Syracuse I
Building,
Equipment
and
Land Improvements
Encum
Brance
398
423
483
308
170
413
154
479
357
231
883
316
632
315
715
304
1,375
244
834
234
256
313
278
307
730
863
326
369
244
226
1,088
526
672
343
209
443
1,161
424
431
360
627
470
1,035
1,015
1,166
1,116
786
999
555
1,742
1,296
1,081
2,104
1,471
2,962
1,139
1,695
1,118
3,220
901
2,066
861
1,244
1,462
1,004
1,415
1,725
2,041
1,515
1,358
1,128
1,046
2,597
1,958
2,439
1,580
964
1,602
2,755
1,506
1,567
1,641
2,224
1,712
(1)
ST
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
MS
VA
FL
AL
GA
PA
PA
NY
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
6/26/1995 5 to 40 years
8/25/1995 5 to 40 years
9/29/1995 5 to 40 years
1/16/1996 5 to 40 years
1989/94
12/1/1995 5 to 40 years
1983
1985
1987
12/29/1995 5 to 40 years
12/29/1995 5 to 40 years
12/27/1995 5 to 40 years
1989
1988
1986
1981
1975
1984
1988
1988
1989
1986
1988
1983
1987
1988
1988
1984
1986
1986
1992
1988
1984
1989
1990
1990
1982
1987
1986
1990
1990
1989
1985
1988
1990
1990
1987
1986
1970
424
483
308
174
413
306
479
357
231
883
316
651
315
715
304
1,376
244
1,591
612
256
313
278
307
730
863
326
369
719
226
1,088
526
672
343
209
443
1,162
424
431
360
648
472
1,338
1,381
1,478
1,120
1,494
1,621
2,696
1,722
1,407
3,517
2,090
3,752
1,579
2,300
1,680
4,185
1,210
2,311
2,142
2,255
2,136
1,227
1,783
2,166
2,554
1,806
2,876
1,278
1,510
3,387
2,532
2,907
1,833
1,476
2,197
3,552
2,040
2,150
2,024
2,798
2,837
324
215
362
338
495
1,218
954
426
326
1,413
619
809
440
605
562
966
309
1,002
1,659
1,011
674
223
368
441
513
291
1,518
625
464
790
574
468
253
512
595
798
534
583
383
595
1,127
52
1,762
1,864
1,786
1,294
1,907
1,927
3,175
2,079
1,638
4,400
2,406
376
404
456
334
447
258
625
466
379
855
560
4,403
1,058
1,894
3,015
1,984
418
559
451
5,561
1,070
1,454
3,902
2,754
2,511
2,449
1,505
2,090
2,896
3,417
2,132
3,245
1,997
1,736
4,475
3,058
3,579
2,176
1,685
2,640
4,714
2,464
2,581
2,384
3,446
3,309
387
716
375
485
547
380
492
610
686
488
612
388
421
919
722
792
524
428
579
934
633
528
545
695
562
Initial Cost to
Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
172
Building,
Equipment
and
Land Improvements Total
1,289
1,083
206
Accum
Deprec
389
Date of
Construction
1988
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
12/28/1995 5 to 40 years
Description
Ft. Myers
Ft. Myers II
Newport News II
Montgomery II
Charleston 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 ll
Cleveland lll
Cleveland lV
Cleveland V
Cleveland Vl
Cleveland Vll
Cleveland Vlll
Cleveland lX
Grand Rapids ll
Holland
San Antonio lll
Universal
San Antonio lV
Houston-Eastex
ST
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
OH
OH
OH
OH
OH
OH
MI
MI
TX
TX
TX
TX
Building,
Equipment
and
Land Improvements
Encum
Brance
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
725
637
495
761
418
606
219
451
474
346
432
634
912
1,703
1,592
1,299
858
1,800
1,767
1,662
1,324
1,759
1,161
1,559
1,014
1,262
884
1,940
1,287
917
1,254
2,770
2,028
1,635
2,257
2,033
1,754
1,131
1,113
2,496
2,142
2,676
2,586
2,918
1,781
2,714
1,921
2,164
790
1,830
1,686
1,236
1,560
2,565
(1)
(1)
355
219
241
372
588
245
498
221
1,013
340
2,070
977
230
279
361
969
2,053
214
196
841
418
846
232
289
249
717
817
309
1,356
963
849
557
779
1,327
383
703
1,126
166
182
1,453
1,066
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
725
641
495
761
418
606
219
451
474
346
432
634
53
2,057
1,811
1,540
1,235
2,388
2,012
2,160
1,545
2,772
1,501
3,439
1,837
1,492
1,163
2,301
2,256
2,924
1,502
2,966
2,869
2,053
3,099
2,262
2,043
1,380
1,830
3,310
2,451
4,032
3,549
3,763
2,338
3,493
3,248
2,547
1,493
2,956
1,852
1,418
3,013
3,631
2,470
2,253
1,893
1,467
3,154
2,454
2,568
1,873
3,208
1,790
4,110
2,270
1,837
1,392
2,846
2,615
3,221
1,812
3,743
3,437
2,489
3,730
2,800
2,530
1,695
2,144
4,017
3,051
4,783
4,274
4,404
2,833
4,254
3,666
3,153
1,712
3,407
2,326
1,764
3,445
4,265
694
467
441
348
551
501
585
393
610
412
590
379
387
276
542
528
524
380
708
673
539
786
628
446
319
424
640
539
783
765
951
521
814
694
583
331
723
420
331
534
702
1991/94
12/28/1995 5 to 40 years
1988/93
1/5/1996 5 to 40 years
1984
1985
1985
1987
1986
1986
1986
1986
1983
1988
1986
1986
1990
1988
1986
1987
1990
1987
1985
1983
1/23/1996 5 to 40 years
3/1/1996 5 to 40 years
3/28/1996 5 to 40 years
3/29/1996 5 to 40 years
3/29/1996 5 to 40 years
3/29/1996 5 to 40 years
3/29/1996 5 to 40 years
3/29/1996 5 to 40 years
6/5/1996 5 to 40 years
5/21/1996 5 to 40 years
5/29/1996 5 to 40 years
5/29/1996 5 to 40 years
6/19/1996 5 to 40 years
6/26/1996 5 to 40 years
6/28/1996 5 to 40 years
6/28/1996 5 to 40 years
7/26/1996 5 to 40 years
8/23/1996 5 to 40 years
8/26/1996 5 to 40 years
8/28/1996 5 to 40 years
1987/92
8/30/1996 5 to 40 years
1995
1995
1975
1990
1988
1986
1978
1979
1979
1977
1970
1982
1983
1978
1981
1985
1995
9/16/1996 5 to 40 years
9/16/1996 5 to 40 years
10/30/1996 5 to 40 years
12/20/1996 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/10/1997 5 to 40 years
1/17/1997 5 to 40 years
1/17/1997 5 to 40 years
1/30/1997 5 to 40 years
1/30/1997 5 to 40 years
1/30/1997 5 to 40 years
1993/95
3/26/1997 5 to 40 years
Initial Cost to
Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
209
Building,
Equipment
and
Land Improvements Total
3,054
2,488
566
Accum
Deprec
548
Date of
Construction
1995
Description
Houston-Nederland
Houston-College
Lynchburg-Lakeside
Lynchburg-Timberlake
Lynchburg-Amherst
Christiansburg
Chesapeake
Danville
Orlando-W 25th St
Delray l-Mini
Savannah ll
Delray ll-Safeway
Cleveland X-Avon
Dallas-Skillman
Dallas-Centennial
Dallas-Samuell
Dallas-Hargrove
Houston-Antoine
Atlanta-Alpharetta
Atlanta-Marietta
Atlanta-Doraville
GreensboroHilltop
GreensboroStgCch
Baton Rouge-Airline
Baton Rouge-Airline2
Harrisburg-Peiffers
Chesapeake-Military
Chesapeake-Volvo
Virginia Beach-Shell
Virginia Beach-Central
Norfolk-Naval Base
Tampa-E.Hillsborough
Harriman
Greensboro-High Point
Lynchburg-Timberlake
Salem
Chattanooga-Lee Hwy
Chattanooga-Hwy 58
Ft. Oglethorpe
Birmingham-Walt
East Greenwich
Durham-Hillsborough
ST
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
VA
VA
VA
VA
VA
FL
NY
NC
VA
MA
TN
TN
GA
AL
RI
NC
Building,
Equipment
and
Land Improvements
Encum
Brance
(1)
(1)
(1)
566
293
335
328
155
245
260
326
289
491
296
921
301
960
965
570
370
515
1,033
769
735
268
89
396
282
635
542
620
540
864
1,243
709
843
397
488
733
384
296
349
544
702
775
2,279
1,357
1,342
1,315
710
1,120
1,043
1,488
1,160
1,756
1,196
3,282
1,214
3,847
3,864
2,285
1,486
2,074
3,753
2,788
3,429
1,097
376
1,831
1,303
2,550
2,210
2,532
2,211
3,994
5,019
3,235
3,394
1,834
1,746
2,941
1,371
1,198
1,250
1,942
2,821
3,103
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
3/26/1997 5 to 40 years
3/26/1997 5 to 40 years
3/31/1997 5 to 40 years
3/31/1997 5 to 40 years
3/31/1997 5 to 40 years
1995
1982
1985
1987
1985/90
3/31/1997 5 to 40 years
1988/95
3/31/1997 5 to 40 years
1988
1984
1969
1988
1980
1989
1975
1977
1975
1975
1984
1994
1996
1995
1995
1997
1982
1985
1984
1996
1995
1991
3/31/1997 5 to 40 years
3/31/1997 5 to 40 years
4/11/1997 5 to 40 years
5/8/1997 5 to 40 years
5/21/1997 5 to 40 years
6/4/1997 5 to 40 years
6/30/1997 5 to 40 years
6/30/1997 5 to 40 years
6/30/1997 5 to 40 years
6/30/1997 5 to 40 years
6/30/1997 5 to 40 years
7/24/1997 5 to 40 years
7/24/1997 5 to 40 years
8/21/1997 5 to 40 years
9/25/1997 5 to 40 years
9/25/1997 5 to 40 years
10/9/1997 5 to 40 years
11/21/1997 5 to 40 years
12/3/1997 5 to 40 years
2/5/1998 5 to 40 years
2/5/1998 5 to 40 years
2/5/1998 5 to 40 years
1993/95
2/5/1998 5 to 40 years
1975
1985
2/5/1998 5 to 40 years
2/4/1998 5 to 40 years
1989/95
2/4/1998 5 to 40 years
1993
2/10/1998 5 to 40 years
1990/96
2/18/1998 5 to 40 years
1979
1987
1985
1989
1984
3/3/1998 5 to 40 years
3/27/1998 5 to 40 years
3/27/1998 5 to 40 years
3/27/1998 5 to 40 years
3/27/1998 5 to 40 years
1984/88
3/26/1998 5 to 40 years
1988/91
4/9/1998 5 to 40 years
240
861
617
247
361
990
57
334
540
210
333
1,095
976
1,059
452
349
326
374
160
157
152
1,271
336
191
165
186
796
172
590
616
606
288
372
314
668
291
816
360
693
791
550
293
335
328
152
245
260
326
290
491
296
921
304
960
943
570
370
515
1,033
771
735
268
89
396
282
637
542
620
540
864
1,243
709
843
397
488
733
384
296
349
544
702
775
54
1,597
2,203
1,932
960
1,481
2,033
1,545
1,493
2,296
1,406
3,615
2,306
4,823
4,945
2,737
1,835
2,400
4,127
2,946
3,586
1,249
1,647
2,167
1,494
2,713
2,396
3,328
2,383
4,584
5,635
3,841
3,682
2,206
2,060
3,609
1,662
2,014
1,610
2,635
3,612
3,653
1,890
2,538
2,260
1,112
1,726
2,293
1,871
1,783
2,787
1,702
4,536
2,610
360
442
439
239
290
337
343
322
550
317
829
393
5,783
1,124
5,888
1,104
3,307
2,205
2,915
5,160
3,717
4,321
1,517
1,736
2,563
1,776
3,350
2,938
3,948
2,923
5,448
679
489
589
947
661
786
276
239
484
348
556
515
631
513
936
6,878
1,126
4,550
4,525
2,603
2,548
4,342
2,046
2,310
1,959
3,179
4,314
4,428
879
779
455
399
762
381
360
327
593
672
704
Encum
Brance
(1)
(1)
Initial Cost to
Company
Building,
Equipment
and
Land Improvements
940
742
522
512
1,487
662
744
419
1,208
944
903
1,503
489
447
659
635
548
840
324
492
484
327
508
216
550
670
390
460
507
447
556
708
314
188
963
651
565
330
339
291
354
453
3,763
2,977
1,864
1,829
5,306
2,654
3,021
1,524
4,854
3,803
3,643
6,059
1,813
1,790
2,680
2,302
1,988
3,373
1,493
1,995
1,951
1,329
1,815
782
1,998
2,407
1,570
1,642
2,058
1,776
1,951
2,860
1,095
652
3,896
2,600
2,596
1,309
1,346
1,026
1,405
1,610
Description
Durham-Cornwallis
Salem-Policy
Warren-Elm
Warren-Youngstown
Waterford-Highland
Indian Harbor Beach
Jackson 3 - I55
Katy-N.Fry
Hollywood-Sheridan
Pompano Beach-Atlantic
Pompano Beach-Sample
Boca Raton-18th St
Vero Beach
Humble
Houston-Old Katy
Webster
Carrollton
Hollywood-N.21st
San Marcos
Austin-McNeil
Austin-FM
Jacksonville-Center
ST
NC
NH
OH
OH
MI
FL
MS
TX
FL
FL
FL
FL
FL
TX
TX
TX
TX
FL
TX
TX
TX
NC
Jacksonville-Gum Branch NC
Jacksonville-N.Marine
Euless
N. Richland Hills
Batavia
Jackson-N.West
Katy-Franz
W.Warwick
Lafayette-Pinhook 1
Lafayette-Pinhook2
Lafayette-Ambassador
Lafayette-Evangeline
Lafayette-Guilbeau
Gilbert-Elliot Rd
Glendale-59th Ave
Mesa-Baseline
Mesa-E.Broadway
Mesa-W.Broadway
Mesa-Greenfield
Phoenix-Camelback
NC
TX
TX
OH
MS
TX
RI
LA
LA
LA
LA
LA
AZ
AZ
AZ
AZ
AZ
AZ
AZ
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
535
Building,
Equipment
and
Land Improvements Total
5,238
4,298
940
Accum
Deprec
812
Date of
Construction
1990/96
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
4/9/1998 5 to 40 years
4/7/1998 5 to 40 years
4/22/1998 5 to 40 years
4/22/1998 5 to 40 years
4/28/1998 5 to 40 years
6/2/1998 5 to 40 years
5/13/1998 5 to 40 years
5/20/1998 5 to 40 years
7/1/1998 5 to 40 years
7/1/1998 5 to 40 years
7/1/1998 5 to 40 years
7/1/1998 5 to 40 years
6/12/1998 5 to 40 years
6/16/1998 5 to 40 years
6/19/1998 5 to 40 years
6/19/1998 5 to 40 years
6/19/1998 5 to 40 years
8/3/1998 5 to 40 years
6/30/1998 5 to 40 years
6/30/1998 5 to 40 years
6/30/1998 5 to 40 years
8/6/1998 5 to 40 years
8/17/1998 5 to 40 years
9/24/1998 5 to 40 years
9/29/1998 5 to 40 years
10/9/1998 5 to 40 years
11/19/1998 5 to 40 years
12/1/1998 5 to 40 years
12/15/1998 5 to 40 years
1980
1986
1986
1978
1985
1995
1994
1988
1985
1988
1991
1997
1986
1996
1997
1997
1987
1994
1994
1996
1995
1989
1985
1996
1996
1988
1984
1993
1986/94
2/2/1999 5 to 40 years
1980
2/17/1999 5 to 40 years
1992/94
2/17/1999 5 to 40 years
1975
1977
1994
1995
1997
1986
1986
1976
1986
1984
2/17/1999 5 to 40 years
2/17/1999 5 to 40 years
2/17/1999 5 to 40 years
5/18/1999 5 to 40 years
5/18/1999 5 to 40 years
5/18/1999 5 to 40 years
5/18/1999 5 to 40 years
5/18/1999 5 to 40 years
5/18/1999 5 to 40 years
5/18/1999 5 to 40 years
179
699
404
996
272
100
840
223
227
323
568
47
588
78
66
262
261
515
221
331
102
199
440
595
816
251
356
120
658
787
197
539
1,386
739
650
390
147
364
240
176
495
742
532
675
1,487
662
744
419
1,208
944
903
1,503
489
447
659
635
548
840
324
510
481
327
508
216
550
670
390
460
507
447
556
708
314
188
963
772
565
326
339
291
354
453
55
3,156
2,553
2,070
6,302
2,926
3,121
2,364
5,077
4,030
3,966
6,627
1,860
2,378
2,758
2,368
2,250
3,634
2,008
2,198
2,285
1,431
2,014
1,222
2,593
3,223
1,821
1,998
2,178
2,434
2,738
3,057
1,634
2,038
4,635
3,129
2,986
1,460
1,710
1,266
1,581
2,105
3,898
3,085
2,745
601
461
383
7,789
1,211
3,588
3,865
2,783
586
626
366
6,285
1,010
4,974
4,869
806
775
8,130
1,284
2,349
2,825
3,417
3,003
2,798
4,474
2,332
2,708
2,766
1,758
2,522
1,438
3,143
3,893
2,211
2,458
2,685
2,881
3,294
3,765
1,948
2,226
5,598
3,901
3,551
1,786
2,049
1,557
1,935
2,558
395
456
514
467
424
725
376
455
437
280
392
291
423
515
371
473
399
412
620
545
400
355
731
500
482
247
267
209
269
330
Initial Cost to
Company
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
563
Building,
Equipment
and
Land Improvements Total
4,911
4,039
872
Accum
Deprec
722
Date of
Construction
1984
Description
Phoenix-Bell
Phoenix-35th Ave
Westbrook
Cocoa
Cedar Hill
Monroe
N.Andover
Seabrook
Plantation
Birmingham-Bessemer
Dracut
Methuen
Columbia 5
Myrtle Beach
Kingsland
Saco
Plymouth
Sandwich
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-E.Main
Montgomery
Texas City
Houston-Hwy 6
Lumberton
The Hamptons l
The Hamptons 2
The Hamptons 3
The Hamptons 4
Duncanville
ST
AZ
AZ
ME
FL
TX
NY
MA
TX
FL
AL
MA
MA
SC
SC
GA
ME
MA
MA
NY
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
NY
NY
NY
NY
TX
Building,
Equipment
and
Land Improvements
Encum
Brance
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
872
849
410
667
335
276
633
633
384
254
1,035
1,024
883
552
470
534
1,004
670
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
3,476
3,401
1,626
2,373
1,521
1,312
2,573
2,617
1,422
1,059
3,737
3,649
3,139
1,970
1,902
1,914
4,584
3,060
1,203
3,434
1,020
1,160
1,816
2,200
2,090
1,216
1,873
2,956
1,595
1,545
3,696
2,468
3,159
3,286
3,286
1,650
3,287
8,866
4,564
2,918
5,744
4,201
552
908
552
198
787
103
265
132
1,099
145
146
199
283
435
74
131
149
215
405
280
132
352
186
396
378
305
70
67
83
250
46
182
29
54
113
105
369
416
213
233
27
849
410
667
335
276
633
633
384
254
1,035
1,024
883
552
470
534
1,004
670
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
56
3,953
2,534
2,925
1,719
2,099
2,676
2,882
1,554
2,158
3,882
3,795
3,338
2,253
2,337
1,988
4,715
3,209
1,418
3,837
1,298
1,290
2,166
2,385
2,484
1,592
2,176
3,024
1,661
1,626
3,946
2,514
3,341
3,315
3,340
1,763
3,392
9,235
4,980
3,131
5,976
4,228
4,802
2,944
3,592
2,054
2,375
3,309
3,515
1,938
2,412
4,917
4,819
4,221
2,805
2,807
2,522
5,719
3,879
1,712
4,692
1,550
1,577
2,617
2,931
3,003
1,893
2,641
3,760
2,056
2,009
4,865
3,126
4,030
4,132
4,157
2,170
4,209
11,442
6,111
3,766
7,228
5,267
621
346
485
324
232
404
436
260
179
415
396
377
268
279
210
478
344
169
404
131
136
214
247
268
158
211
307
173
169
348
227
291
295
300
157
305
697
373
235
453
255
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
5/18/1999 5 to 40 years
5/21/1999 5 to 40 years
8/2/1999 5 to 40 years
9/29/1999 5 to 40 years
11/9/1999 5 to 40 years
2/2/2000 5 to 40 years
2/15/2000 5 to 40 years
3/1/2000 5 to 40 years
5/2/2000 5 to 40 years
11/15/2000 5 to 40 years
12/1/2001 5 to 40 years
12/1/2001 5 to 40 years
12/1/2001 5 to 40 years
12/1/2001 5 to 40 years
12/1/2001 5 to 40 years
12/3/2001 5 to 40 years
12/19/2001 5 to 40 years
12/19/2001 5 to 40 years
2/5/2002 5 to 40 years
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
1996
1988
1982
1985
1998
1989
1996
1994
1998
1986
1984
1985
1984
1989
1988
1996
1984
1987
1976
1983
1986
1981
1974/78
2/13/2002 5 to 40 years
1979/83
2/13/2002 5 to 40 years
1983
1985
1984
1985
1980
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
2/13/2002 5 to 40 years
1998/02
6/19/2002 5 to 40 years
1999
6/19/2002 5 to 40 years
1994/97
6/19/2002 5 to 40 years
1998
1999
1997
1996
6/19/2002 5 to 40 years
6/19/2002 5 to 40 years
6/19/2002 5 to 40 years
6/19/2002 5 to 40 years
1989/95
12/16/2002 5 to 40 years
1998
1997
12/16/2002 5 to 40 years
12/16/2002 5 to 40 years
1994/98
12/16/2002 5 to 40 years
1995/99
8/26/2003 5 to 40 years
Initial Cost to
Company
Building,
Equipment
and
Land Improvements
827
3,776
2,713
11,013
Encum
Brance
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,047
1,479
527
1,131
612
1,612
1,214
1,906
470
537
556
754
484
812
722
0
3,170
4,877
4,550
4,427
1,640
6,986
4,744
5,569
5,857
5,978
2,121
4,609
2,501
6,585
4,949
7,726
1,902
2,183
2,265
3,065
1,977
3,397
2,927
68
Description
Dallas-Harry Hines
Stamford
Houston-Tomball
Houston-Conroe
Houston-Spring
Houston-Bissonnet
Houston-Alvin
Clearwater
Houston-Missouri City
Chattanooga-Hixson
Austin-Round Rock
East Falmouth
Cicero
Bay Shore
Springfield-Congress
Stamford-Hope
Houston-Jones
Montgomery-Richard
Oxford
Austin-290E
San Antonio-Marbach
Austin-South 1st
Pinehurst
Marietta-Austell
Baton Rouge-Florida
Corporate Office
ST
TX
CT
TX
TX
TX
TX
TX
FL
TX
TN
TX
MA
NY
NY
MA
CT
TX
AL
MA
TX
TX
TX
TX
GA
LA
NY
Cost
Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
72
Building,
Equipment
and
Land Improvements Total
4,675
3,848
827
Accum
Deprec
218
Date of
Construction
1998/01
2,713
11,043
13,756
Life on
which
depreciation
in latest
income
statement
Date
is computed
Acquired
10/1/2003 5 to 40 years
3/17/2004 5 to 40 years
5/19/2004 5 to 40 years
5/19/2004 5 to 40 years
5/19/2004 5 to 40 years
5/19/2004 5 to 40 years
5/19/2004 5 to 40 years
6/3/2004 5 to 40 years
6/23/2004 5 to 40 years
1998
2000
2001
2001
2003
2003
2001
1998
1998/02
8/4/2004 5 to 40 years
2000
1998
8/5/2004 5 to 40 years
2/23/2005 5 to 40 years
1988/02
3/16/2005 5 to 40 years
2003
3/15/2005 5 to 40 years
1965/75
4/12/2005 5 to 40 years
2002
4/14/2005 5 to 40 years
1997/99
6/6/2005 5 to 40 years
1997
2002
2003
2003
2003
6/1/2005 5 to 40 years
6/23/2005 5 to 40 years
7/12/2005 5 to 40 years
7/12/2005 5 to 40 years
7/12/2005 5 to 40 years
2002/04
7/12/2005 5 to 40 years
2003
9/15/2005 5 to 40 years
1984/94
11/15/2005 5 to 40 years
30
15
15
161
27
15
14
22
582
264
73
145
21
8
27
7
28
7
7
4
3
3
7
4
498
135
204
199
195
75
289
187
226
217
129
42
101
50
131
75
117
25
28
29
40
26
31
13
3,958
6,087
5,814
5,515
2,043
8,720
5,933
7,516
8,168
7,530
2,793
5,761
3,121
8,224
6,170
9,660
2,379
2,727
2,825
3,822
2,464
4,216
3,653
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,051
1,479
527
1,131
612
1,612
1,215
1,906
470
537
556
754
484
812
722
3,185
4,892
4,711
4,454
1,655
7,000
4,766
6,151
6,117
6,051
2,266
4,630
2,509
6,612
4,955
7,754
1,909
2,190
2,269
3,068
1,980
3,404
2,931
7,768
9,308
1,608
9,376
3,151
2000
5/1/2000 5 to 40 years
$158,355
$602,260
$133,365
$162,900 $731,080
$893,980 $130,550
(1) These properties are encumbered through one mortgage loan with an outstanding balance of $45.3 million at December 31, 2005.
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 ......................
Balance at close of period .....................
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 .....................
December 31, 2005
December 31, 2004
December 31, 2003
$ 811,516
$ 739,836
$ 710,841
$ -
65,001
18,236
(773)
$ -
66,373
18,075
(12,768)
84,448
(12,768)
$811,516
$ -
11,007
21,812
(3,824)
32,819
(3,824)
$739,836
83,237
(773)
$893,980
$ 109,750
$ 92,498
$ 75,344
$ 21,222
$ 19,175
$ 18,079
21,222
19,175
18,079
(422)
(422)
$ 130,550
(1,923)
(1,923)
$ 109,750
(925)
(925)
$ 92,498
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)
2005
2004
2003
2002
2001
Year ended December 31,
$36,117
24,352
(4,123)
56,346
19,439
790
4,123
$24,352
$32,033
25,296
(7,168)
50,161
17,408
720
7,168
$25,296
$29,190
25,534
(8,818)
45,906
15,102
1,614
8,818
$25,534
$27,531
20,805
(5,093)
43,243
$25,123
17,955
(2,955)
40,123
14,664
1,048
5,093
$20,805
13,940
1,060
2,955
$17,955
2.31
1.98
1.80
2.08
2.23
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 February 21, 2006 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, 2005.
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 February 21, 2006 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, 2005.
/s/ Ernst & Young LLP
Buffalo, New York
March 13, 2006
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 13, 2006
/ 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 13, 2006
/ S / David L. Rogers
David L. Rogers
Secretary, Chief Financial Officer
62
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, 2005 (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 13, 2006
/ S / Robert J. Attea
Robert J. Attea
Chairman of the Board
Chief Executive Officer
/ S / David L. Rogers
David L. Rogers
Chief Financial Officer
63
1
satisfi ed customer at a time
10
years listed on the NYSE
20
years as an innovator in self storage
21
states in which we do business
219
moving trucks in the Uncle Bob’s fl eet
285
stores across the United States
17,369,342
square feet of space
150,666
rental spaces
Countless
opportunities for growth
Sovran Self Storage, Inc.
6467 Main Street
Buffalo, New York 14221
www.sovranss.com
Sovran Self Storage, Inc.
Annual Report 2005
“ The discipline, innovation and
ability shown over the past
two decades will continue to
serve us well...”
Dear Fellow Shareholder:
2005 was a wonderful year for Sovran Self Storage. Demand for our product was healthy, revenues were
up, costs were contained and profi ts were strong. We acquired 14 excellent properties in markets we believe
in. We embarked on a signifi cant expansion and enhancement program to create additional value to our
portfolio. Our continued emphasis on marketing initiatives, revenue management and use of technology
was a big factor in 2005’s positive results, and gives us an ongoing competitive edge. We increased our
common stock dividend for the 10th straight year and we celebrated two signifi cant anniversaries – 20
years in the self storage business, and 10 years as a publicly traded entity.
Since 1985, Sovran has been at the vanguard of what was then a young and rather unheralded industry.
During these exciting 20 years:
We established the Uncle Bob’s brand as one of the stalwarts of a fragmented industry, earning the
confi dence of customers, employees, sellers of property and investors.
We utilized technology to a greater extent than anyone in the industry, and the resulting improved controls
and processes have helped us achieve consistent year over year growth in sales and operating profi ts.
We have been consistently innovative – Sovran was a leader in Dri-guard, Flex-a-Space, Corporate Alliance,
internet marketing, Uncle Bob’s trucks, an in-house call center and revenue optimization tools.
We acquired properties with the goal of adding value to our Company – not just size.
We created a corporate culture that is both entrepreneurial and ethical.
We have, in 10 years as a public company, earned a total return on investment of over 360% and have
done so utilizing a fl exible and conservative capital structure.
We’re proud of our accomplishments, and the manner in which we’ve achieved them. As 2006 unfolds,
we see great potential in our industry and we expect to capitalize on acquisition opportunities in new
and existing markets as well as expansions and enhancements within our current portfolio. The discipline,
innovation and ability shown over the past two decades will continue to serve us well as we work to add
value to our Company during these exciting times.
Robert J. Attea
Kenneth F. Myszka
David Rogers
Chairman and CEO
President and COO
CFO