Sovran Self Storage, Inc.
Annual Report 2006
Number of Stores
as of December 31, 2006
266
2003
264
2002
327
2006
285
2005
271
2004
2
4
14
4
5
4
7
4
4
16
26
19
6
18
15
8
52
9
7
12
77
14
Store Details by State
as of December 31, 2006
State
Stores
Square
Feet
Number of
Spaces
Alabama ...........................................
Arizona .............................................
Connecticut ......................................
Florida ..............................................
Georgia ............................................
Louisiana ..........................................
Maine ...............................................
Maryland ..........................................
Massachusetts ..................................
Michigan ...........................................
Mississippi ........................................
Missouri ............................................
New Hampshire ................................
New York ..........................................
North Carolina ..................................
Ohio .................................................
Pennsylvania .....................................
Rhode Island ....................................
South Carolina ..................................
Tennessee ........................................
Texas ...............................................
Virginia .............................................
12
9
5
52
26
14
2
4
14
7
4
7
4
19
15
16
6
4
8
4
77
18
747,153
505,880
303,989
3,266,913
1,552,621
749,210
115,400
173,307
758,424
450,521
200,191
437,118
234,148
1,064,012
796,731
1,024,693
498,885
168,146
426,733
281,424
5,396,943
1,063,000
5,812
4,489
2,863
29,902
12,582
6,568
1,012
2,039
6,874
4,270
1,548
3,798
2,150
10,050
6,955
8,524
2,880
1,562
3,584
2,361
43,473
9,822
Total ..............................................
327
20,215,442
173,118
Dear Fellow Shareholder:
Sovran became a bigger, stronger and better company in 2006.
For the 4th consecutive year, our same store revenues increased by
more than 5% over those of the previous year. This is a tremendous
accomplishment, and has been made possible by our relentless
application of sound and proven management practices. Target
marketing, rigorous rate management and intensive employee training
have been tactics we’ve employed
throughout our 22 years in the
storage business. These,
combined with innovations we’ve
brought to our industry (such as
Uncle Bob’s Trucks and Dri-guard
humidity control systems) have
been the primary drivers of these
c o n t i n u i n g s t r o n g r e s u l t s .
“ The discipline, expertise and intensity
we’ve exhibited over the past two
decades will serve us well as we
continue to grow our Company.”
We invested heavily in properties this year, spending $166 million
to acquire 42 stores. As a result, Uncle Bob’s is now in two new
markets – St. Louis, MO and Columbus, GA, and our presence in
Dallas, Houston, San Antonio, Tampa and Southeast Louisiana has
been significantly increased. Pursuant to the plan we announced
last year, we expanded and improved many of our existing stores,
purchasing 10 parcels of adjacent land, adding 300,000 sq. ft. of
space and enhancing another 126,000 sq. ft. with climate control
and Dri-guard. We also spent $8.6 million to acquire controlling
interests in the two joint ventures we formed in 2000 and 2001.
Our balance sheet was greatly strengthened. We refinanced $150
million of short term debt obligations with a 10-year fixed rate note
and we issued 2.8 million shares of common stock, netting $148
million of equity. At year’s end, our outstanding debt was a
conservative 27% of total market capitalization, and considerable
liquidity was available to acquire new assets and improve existing
properties.
For the 11th straight year, we increased the dividend on our common
shares, which contributed to a 27.9% overall return on your investment
in Sovran Self Storage for 2006.
We remain focused on creating value. The discipline, expertise and
intensity we’ve exhibited over the past two decades will serve us
well as we continue to grow our Company.
Thank you for your continued support.
Robert J. Attea
Chairman and CEO
Kenneth F. Myszka
President and COO
David Rogers
CFO
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, 2006
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
Williamsville, 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, 2006, 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 $868,483,402 (based on the
closing price of the Common Stock on the New York Stock Exchange on June 30, 2006).
As of February 15, 2007, 20,502,580 shares of Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders of the Registrant to be
held on May 21, 2007 (Part III).
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
expand 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
ventures, 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 managed by us as "Properties." We began operations
on June 26, 1995. At February 15, 2007, we owned and managed 328 Properties consisting of approximately 20.3
million net rentable square feet, situated in 22 states. Among our 328 self-storage facilities are 38 properties that we
manage for two joint ventures of which we are a majority owner. We are the fifth largest operator of self-storage
properties in the United States based on facilities owned and managed. Our Properties conduct business under the
user-friendly 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 97.9% economic interest in the Partnership and unaffiliated third parties own
collectively a 2.1% limited partnership interest at December 31, 2006. 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. By utilizing interests in the Partnership as currency in
facility acquisitions, we may partially defer the seller’s income tax liability which in turn may allow us to obtain
more favorable pricing.
We were incorporated on April 19, 1995 under Maryland law. Our principal executive offices are located
at 6467 Main Street, Williamsville, 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
2
occupancy levels, controlling costs, maximizing collections and strategically expanding and improving the
Properties. Should economic conditions warrant, we may develop new properties. We believe that there continue to
be opportunities for growth through acquisitions, and constantly seek to acquire self-storage properties that are
susceptible to realization of increased economies of scale and enhanced performance through application of our
expertise.
Industry Overview
We believe that self-storage facilities offer inexpensive storage space to residential and commercial users.
In addition to fully enclosed and secure storage space, many facilities also offer outside storage for automobiles,
recreational vehicles and boats. Better facilities are usually fenced and well lighted with gates that are either
manually operated or automated and have a full-time manager. 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 43,000 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 Area
Managers 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, that 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, that 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 140,000 customers. As a convenience
to those customers, we sell items such as locks, boxes, tarps, etc. to make their storage experience easier. We also
make available 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 Area Managers. 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 fee 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 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. 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, 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 elect to 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 2006 or 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.
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.
Borrowing Policy
Our Board of Directors currently limits 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. 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.
The Company has a $100 million (expandable to $200 million) unsecured line of credit that matures in
September 2007 (with our option to extend to September 2008) and a $100 million unsecured term note that matures
in September 2009. The line of credit bears interest at LIBOR plus 0.90% and requires a 0.20% facility fee. The
term note bears interest at LIBOR plus 1.20%. In April 2006, the Company entered into a $150 million unsecured
term note maturing in April 2016 bearing interest at 6.38%. 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
5
2013 bearing interest at a variable rate equal to LIBOR plus 1.50%. At December 31, 2006, there was $100 million
available on the revolving line of credit, excluding the amount available on the expansion feature.
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, common or 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 7 to the Consolidated Financial Statements filed herewith.
Employees
We currently employ a total of 961 employees, including 328 property managers, 22 area managers, and
487 assistant managers and part-time employees. At our headquarters, in addition to our three executive officers, we
employ 121 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 100 F Street, NE., 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 codes 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, Williamsville, NY 14221.
Item 1A.
Risk Factors
You should carefully consider the risks described below, together with all of the other information included
in or incorporated by reference into our Form 10-K, as part of your evaluation of the Company. If any of the
following risks actually occur, our business could be harmed. In such case, the trading price of our securities could
decline, and you may lose all or part of your investment.
Our Acquisitions May Not Perform as Anticipated
We have completed many acquisitions of self-storage facilities since our initial public offering of common
stock in June 1995. Our strategy is to continue to grow by acquiring additional self-storage facilities. Acquisitions
entail risks that investments will fail to perform in accordance with our expectations and that our judgments with
respect to the prices paid for acquired self-storage facilities 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.
6
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 in 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 and distributions required by the real estate investment trust provisions
of the Internal Revenue Code of 1986.
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 self-storage facilities 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 at the time that debt is incurred. However, our organizational documents do not contain any
limitation on the amount of indebtedness we might incur. Accordingly, our Board of Directors could alter or
eliminate the current policy limitation on borrowing without a vote of our shareholders. We could become highly
leveraged if this policy were changed. However, our ability to incur debt is limited by covenants in our bank credit
arrangements and in our securities purchase agreement with holders of our Series C preferred stock.
We Are Subject to the Risks Posed by Fluctuating Demand and Significant Competition in the Self-Storage
Industry
Our self-storage facilities 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 self-storage 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 self-storage facilities compete with other self-storage facilities
in their geographic markets. As a result of competition, the self-storage facilities 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
7
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 Regulation
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 self-storage facilities in a manner sufficient to
maintain or increase cash available for distribution. Income from our self-storage facilities 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 civil unrest, acts of God, including natural
disasters, and acts of war;
• Adverse changes in zoning laws; and
• Other factors that are beyond our control.
Illiquidity of Real Estate May Limit its Value. Real estate investments are relatively illiquid. Our ability to
vary our portfolio of self-storage facilities 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 self-storage facilities held for fewer
than four years. We may be unable to dispose of a facility 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 Self Storage Facilities. Some losses,
generally of a catastrophic nature, that we potentially face with respect to our self-storage facilities may be
uninsurable or not insurable at an acceptable cost. 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
8
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 self-storage
facilities, 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 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 stock. Our
Articles of Incorporation limit ownership of our issued and outstanding stock by any single shareholder to 9.8% of
the aggregate value of our outstanding 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 stock or to otherwise effect a change in control of
Sovran.
Our Board of Directors may waive the ownership limits if it is satisfied that ownership by those
shareholders in excess of those limits will not jeopardize our status as a REIT under the Code or in the event it
determines that it is no longer in our best interests to be a REIT. Waivers have been granted to the holders of our
Series C preferred stock, FMR Corporation and Cohen & Steers, Inc. 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.
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 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.
9
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.
In addition, a REIT is limited with respect to the services it can provide for its tenants. We have provided
certain conveniences for our tenants, including property insurance underwritten by a third party insurance company
that pays us commissions. We believe the insurance provided by the insurance company would not constitute a
prohibited service to our tenants. No assurances can be given, however, that the IRS will not challenge our position.
If the IRS successfully challenged our position, our qualification as a REIT could be adversely affected.
If we were to fail to qualify as a REIT in any taxable year, we would not be allowed a deduction for
distributions to shareholders in computing our taxable income and would be subject to federal income tax (including
any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief
under certain Code provisions, we also would be ineligible for qualification as a REIT for the four taxable years
following the year during which our qualification was lost. As a result, distributions to the shareholders would be
reduced for each of the years involved. Although we currently intend to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of
Directors to revoke our REIT election.
Market Interest Rates May Influence the Price of Our Common Stock
One of the factors that may influence the price of our common stock in public trading markets or in private
transactions is the annual yield 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.
As of December 31, 2006, 129 of our 327 self-storage facilities are located in the states of Texas and
Florida. For the year ended December 31, 2006, these facilities accounted for approximately 43.4% 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.
Changes in Taxation of Corporate Dividends May Adversely Affect the Value of Our Common Stock
The maximum marginal rate of tax payable by domestic noncorporate taxpayers on dividends received
from a regular “C” corporation under current law is 15% through 2010, as opposed to higher ordinary income rates.
The reduced tax rate, however, does not apply to distributions paid to domestic noncorporate taxpayers by a REIT
on its stock, except for certain limited amounts. Although the earnings of a REIT that are distributed to its
stockholders generally remain subject to less federal income taxation than earnings of a non-REIT “C” corporation
that are distributed to its stockholders net of corporate-level income tax, legislation that extends the application of
the 15% rate to dividends paid after 2010 by “C” corporations could cause domestic noncorporate investors to view
the stock of regular “C” corporations as more attractive relative to the stock of a REIT, because the dividends from
regular “C” corporations would continue to be taxed at a lower rate while distributions from REITs (other than
distributions designated as capital gain dividends) are generally taxed at the same rate as the individual’s other
ordinary income.
10
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.
11
Item 2.
Properties
At December 31, 2006, we owned and managed a total of 327 Properties situated in twenty-two states. We
manage 38 of the Properties for two joint ventures of which we are a majority owner.
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 22,000 to 188,000 net rentable square
feet, with an average of approximately 62,000 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 name Uncle Bob's Self-Storage ®.
The following table provides certain information regarding the Properties owned and managed as of
December 31, 2006:
Number of
Stores at
December 31,
2006
12
9
5
52
26
14
2
4
14
7
4
7
4
19
15
16
6
4
8
4
77
18
327
Square
Feet
747,153
505,880
303,989
3,266,913
1,552,621
749,210
115,400
173,307
758,424
450,521
200,191
437,118
234,148
1,064,012
796,731
1,024,693
498,885
168,146
426,733
281,424
5,396,943
1,063,000
20,215,442
Number of
Spaces
5,812
4,489
2,863
29,902
12,582
6,568
1,012
2,039
6,874
4,270
1,548
3,798
2,150
10,050
6,955
8,524
2,880
1,562
3,584
2,361
43,473
9,822
173,118
Percentage
of Store
Revenue
2.8%
2.9%
2.5%
20.2%
6.5%
3.6%
0.6%
1.2%
4.5%
1.8%
1.1%
1.2%
0.7%
7.2%
3.6%
4.7%
1.7%
1.1%
2.1%
1.1%
23.2%
5.7%
100.0%
Alabama................................................
Arizona .................................................
Connecticut...........................................
Florida...................................................
Georgia .................................................
Louisiana ..............................................
Maine ....................................................
Maryland...............................................
Massachusetts .......................................
Michigan...............................................
Mississippi ............................................
Missouri ................................................
New Hampshire ....................................
New York .............................................
North Carolina ......................................
Ohio ......................................................
Pennsylvania .........................................
Rhode Island .........................................
South Carolina ......................................
Tennessee..............................................
Texas.....................................................
Virginia.................................................
Total....................................................
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.
12
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of
security holders, through the solicitation of proxies or otherwise.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
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
2005
1st ................................................................................
2nd ...............................................................................
3rd................................................................................
4th................................................................................
Quarter
2006
1st ................................................................................
2nd ...............................................................................
3rd................................................................................
4th................................................................................
High
43.2400
46.9300
49.7000
50.5200
High
55.7100
55.2000
56.3500
60.0000
Low
37.8000
38.5600
44.0900
43.5000
Low
46.3900
45.7100
49.0000
54.6300
As of February 15, 2007, there were approximately 1,481 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 2006 represent 87% ordinary income
and 13% return of capital.
History of Dividends Declared on Common Stock
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
1st Quarter, 2006 .........................................................
2nd Quarter, 2006 ........................................................
3rd Quarter, 2006.........................................................
4th Quarter, 2006.........................................................
$0.6150 per share
$0.6150 per share
$0.6200 per share
$0.6200 per share
13
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31, 2006, with respect to equity
compensation plans under which shares of the Company’s Common Stock may be issued.
Plan Category
Equity compensation plans approved by
shareholders:
2005 Award and Option Plan..............................
1995 Award and Option Plan..............................
1995 Outside Directors' Stock Option Plan ........
Deferred Compensation Plan for Directors (1) ...
Equity compensation plans not approved by
shareholders:....................................................
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (#)
Weighted average
exercise price of
outstanding
options, warrants
and rights ($)
Number of
securities
remaining available
for future issuance
(#)
30,000
61,225
22,000
30,246
N/A
$48.58
$26.78
$43.34
N/A
N/A
1,429,945
0
18,724
14,754
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
CORPORATE PERFORMANCE GRAPH
The following chart and line-graph presentation compares (i) the Company’s shareholder return on an
indexed basis since December 31, 2001 with (ii) the S&P Stock Index and (iii) the National Association of Real
Estate Investment Trusts Equity Index.
300
250
200
150
100
50
0
Dec. 31, 2001
Dec. 31, 2002
Dec. 31, 2003
Dec. 31, 2004
Dec. 31, 2005
Dec. 31, 2006
S&P 500
NAREIT
SSS
CUMULATIVE TOTAL SHAREHOLDER RETURN
SOVRAN SELF STORAGE, INC.
DECEMBER 31, 2001 - DECEMBER 31, 2006
S&P
NAREIT
SSS
Dec. 31,
2001
Dec. 31,
2002
Dec. 31,
2003
Dec. 31,
2004
Dec. 31,
2005
Dec. 31,
2006
100.00
100.00
100.00
77.89
103.82
98.25
100.24
142.37
137.06
111.14
187.33
164.37
116.60
210.10
193.78
135.01
283.76
247.84
The foregoing item assumes $100.00 invested on December 31, 2001, with dividends reinvested.
15
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.......
At or For Year Ended December 31,
2006
2005
2004
2003
2002
$ 166,295
36,610
-
36,610
$ 138,305
34,790
-
34,790
$ 123,286 $ 111,414 $ 100,507
25,526
775
26,301
27,586
837
28,423
30,698
1,306
32,004
1.89
1.90
1.89
2.47
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
Balance Sheet Data
Investment in storage facilities at cost........ $1,143,904
Total assets .................................................
1,053,210
Total debt....................................................
462,027
Total liabilities............................................
495,352
Series B preferred stock..............................
-
Series C preferred stock..............................
26,613
$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
Other Data
Net cash provided by operating activities...
Net cash provided by operating activities
– discontinued operations........................
Net cash used in investing activities ...........
Net cash used in investing activities –
discontinued operations...........................
Net cash provided by (used in)
$64,533
$60,234
$53,914
$ 51,003
$ 44,544
-
(176,567)
-
(79,156)
287
(71,034)
1,124
(31,284)
1,066
(99,065)
-
-
-
(41)
(179)
financing activities ................................
154,853
20,728
(163)
(2,764)
53,814
(1) In 2004 we sold five stores whose operations and gain are classified as discontinued operations for all previous
years presented.
16
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 believe we are the fifth largest operator of self-storage properties in the United States based on facilities
owned and managed. All of our stores are operated under the user-friendly 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 five 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, 248 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 five 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 five years ago, customer access and security are
greatly enhanced as a result of advances in technology, and property appearance and functionality
have 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.
17
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. During 2006 we spent
approximately $12.6 million on revenue enhancing improvements. 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 four 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% six years ago to 7.25% today. In 2004, we
took advantage of these favorable capitalization rates by selling five stores for a gain of $1.1 million. With the
increase in interest rates over the last year we have seen capitalization rates level off at approximately 7.25% and are
forecasting acquisitions of $100 million in 2007.
Operating Trends
In 2006, our industry had another good year as the overall economy remained strong and our industry
continued the momentum from the recovery that commenced in 2003. We experienced same store revenue growth
of approximately 5% in each of the last four 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 4% revenue growth on a same store basis in 2007.
18
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, 2006 and 2005, 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, 2006 COMPARED TO
YEAR ENDED DECEMBER 31, 2005
We recorded rental revenues of $160.9 million for the year ended December 31, 2006, an increase of $27.1
million or 20.2% when compared to 2005 rental revenues of $133.9 million. As of April 1, 2006, the consolidated
income statement includes the results of a previously unconsolidated joint venture (Locke Sovran I, LLC) that has
been consolidated as a result of an additional investment in that entity by us. The rental income related to Locke
Sovran I that was included in our consolidated results for the year ended December 31, 2006, was $5.1 million. Of
the remaining $22.0 million increase in rental income, $6.6 million resulted from a 5.2% increase in rental revenues
at the 255 core properties considered in same store sales (those properties included in the consolidated results of
operations since January 1, 2005 that were at a stable occupancy). The increase in same store rental revenues was
achieved primarily through rate increases on select units averaging 3.8%, and a slight occupancy increase, which we
believe resulted from improved responsiveness to customer demand created by our centralized call center and the
increased demand in areas damaged by the 2005 hurricanes. The remaining $15.4 million increase in rental
revenues resulted from the acquisition of 42 stores during 2006 and from having the 2005 acquisitions included for a
full year of operations. Other income increased $0.9 million due to increased merchandise and insurance sales and
the additional incidental revenue generated by truck rentals.
19
Property operating and real estate tax expense increased $10.9 million, or 22.6%, in 2006 compared to
2005. Of this increase, $6.5 million were expenses incurred by the facilities acquired in 2006 and from having
expenses from the 2005 acquisitions included for a full year of operations. $2.6 million of the increase was due to
increased property insurance, utilities, maintenance expenses, and increased property taxes at the 255 core properties
considered same stores. The consolidation of Locke Sovran I, LLC as of April 1, 2006 resulted in a $1.8 million
increase in property operating and real estate tax expense in 2006. We expect the trend of increasing operating costs
to continue at a moderate to high pace primarily attributable to utilities and property insurance costs.
General and administrative expenses increased $1.2 million or 9.6% from 2005 to 2006. The increase
primarily resulted from the costs associated with operating the properties acquired in 2006 and 2005.
Depreciation and amortization expense increased to $25.3 million in 2006 from $21.2 million in 2005,
primarily as a result of additional depreciation taken on real estate assets acquired in 2006, a full year of
depreciation on 2005 acquisitions, and the consolidation of Locke Sovran I, LLC.
Income from operations increased from $55.9 million in 2005 to $67.6 million in 2006 as a result of the net
effect of the aforementioned items.
Interest expense increased from $20.2 million in 2005 to $29.5 million in 2006 as a result of higher interest
rates, additional borrowings under our line of credit and term notes to purchase 42 stores in 2006, and the
consolidation of Locke Sovran I, LLC as of April 1, 2006.
The decrease in preferred stock dividends from 2005 to 2006 was a result of the conversion of
1,200,000 shares of our Series C Preferred Stock into 920,244 shares of common stock in 2005.
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 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.
20
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.
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 ....................................................
For Year Ended December 31,
2002
2004
2005
2003
2006
$36,610
2,434
$34,790
1,529
$32,004
1,542
$28,423
1,790
$ 26,301
1,990
25,305
21,222
19,175
17,856
16,207
-
-
90
293
290
168
-
(2,512)
484
-
(4,123)
473
(1,137)
(7,168)
460
-
(8,818)
400
-
(4,863)
-
-
(1,415)
-
-
21
Funds from operations allocable to
minority interest in Operating
Partnership ...........................................
Funds from operations allocable to
minority interest in Locke Sovran I
and Locke Sovran II.............................
Funds from operations available to
(1,450)
(1,519)
(1,333)
(1,563)
(1,647)
(1,785)
(1,499)
(1,475)
(1,539)
(1,645)
common shareholders ..........................
$58,770
$50,884
$40,756
$36,902
$ 37,033
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 $64.5 million, $60.2 million and $53.9 million for the years
ended December 31, 2006, 2005, and 2004, respectively. The increase for each year is primarily attributable to
increased net income and increased non-cash charges for depreciation and amortization. These increases were
partially offset by an increase in prepaid expenses mainly relating to property insurance premiums.
Cash used in investing activities was $176.6 million, $79.2 million, and $71.0 million for the years ended
December 31, 2006, 2005, and 2004 respectively. The increase in cash used from 2004 to 2005 was attributable to
increased acquisition activity in 2005. The increase from 2005 to 2006 was due to increased acquisition activity, an
increase in improvements to existing facilities, and additional investment in our consolidated joint ventures.
Cash provided by financing activities was $154.9 million in 2006 compared to $20.7 million in 2005 and
uses of $0.2 million in 2004, respectively. In April 2006, the Company entered into a $150 million unsecured term
note maturing in April 2016 bearing interest at 6.38%. The proceeds from this term note were used to pay down the
outstanding balance on the Company's line of credit, to repay a $25 million term note entered in January 2006 and a
$15 million term note entered in April 2006, and to make an additional investment into Locke Sovran I, LLC and
Locke Sovran II, LLC (consolidated joint ventures). In December 2006, we issued 2.3 million shares of our
common stock and realized net proceeds of $122.4 million. A portion of the proceeds were used to repay the entire
outstanding balance on our line of credit that had been drawn on to finance acquisitions subsequent to April 2006.
The remaining proceeds from the common stock offering will be used to fund 2007 acquisitions.
We have a $100 million (expandable to $200 million) unsecured line of credit that matures in September
2007 and a $100 million unsecured term note that matures in September 2009. We have the right to extend the term
of the credit line until September 2008. The line of credit bears interest at LIBOR plus 0.90% and requires a 0.20%
facility fee. The term note bears interest at LIBOR plus 1.20%. We also maintain 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 1.50%. At December 31, 2006, there was $100 million
available on the revolving line of credit, excluding the amount available on the expansion feature.
The line of credit facility and term notes currently have investment grade ratings from Standard and Poor's
(BBB-) and Fitch (BBB-).
Our line of credit and term notes require us to meet certain financial covenants, including prescribed
leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on
dividend payouts. As of December 31, 2006, we were in compliance with all covenants.
In addition to the unsecured financing mentioned above, our consolidated financial statements also include
$112.0 million of mortgages payable as detailed below:
22
*
7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an
aggregate net book value of $41.6 million, principal and interest paid monthly. The outstanding balance
at December 31, 2006 on this mortgage was $29.5 million.
*
7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an
*
*
*
aggregate net book value of $78.4 million, principal and interest paid monthly. The outstanding balance
at December 31, 2006 on this mortgage was $44.6 million.
7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value
of $6.0 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%.
The outstanding balance at December 31, 2006 on this mortgage was $3.8 million.
6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value
of $2.1 million, principal and interest paid monthly. The outstanding balance at December 31, 2006 on
this mortgage was $1.0 million.
6.35% mortgage note due March 2014, secured by 1 self-storage facility with an aggregate net book value of
$1.9 million, principal and interest paid monthly. The outstanding balance at December 31, 2006 on this
mortgage was $1.1 million.
*
5.55% mortgage notes due November 2009, secured by 8 self-storage facilities with an aggregate net book
value of $36.2 million, interest only paid monthly. Estimated market rate at time of acquisition 6.44%.
The outstanding balance at December 31, 2006 on this mortgage was $25.5 million.
*
7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value
of $14.9 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%.
The outstanding balance at December 31, 2006 on this mortgage was $6.5 million.
The 7.80% and 7.19% mortgages were incurred in 2001 and 2002 respectively as part of the financing of
the consolidated joint ventures. The Company assumed the 7.25%, 6.76%, 6.35%, 5.55% and 7.5% mortgage notes
in connection with the acquisitions of storage facilities in 2005 and 2006.
In July 1999, we issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. We
redeemed all outstanding shares of our Series B Preferred Stock on August 2, 2004 at a total cost of $30 million plus
accrued but unpaid dividends on those shares. In accordance with Emerging Issues Task Force ("EITF") Topic D-
42, "The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock", we recorded a reduction of $1.4 million from 2004 net income to arrive at net income available to common
shareholders relating to the difference between the Series B Preferred Stock carrying value and the redemption
amount.
On July 3, 2002, we entered into an agreement providing for the issuance of 2,800,000 shares of 8.375%
Series C Convertible Cumulative Preferred Stock and warrants to purchase 379,166 shares of common stock at
$32.60 per share in a privately negotiated transaction. 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, 2006.
During 2006 and 2005, 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, 2006, 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 2006, we issued 501,089 shares via our Dividend Reinvestment and Stock Purchase Plan and
Employee Stock Option Plan. We realized $24.9 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
remaining proceeds from the December 2006 common stock issuance, draws on the revolving line of credit,
23
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
2007
2008-2009
2010-2011
2012 and thereafter
Payments due by period
Line of credit............
Term notes ...............
Mortgages payable ...
Interest payments .....
Land lease ................
Building lease...........
Total .........................
-
$350.0 million
$112.0 million
$179.4 million
$1.2 million
$1.5 million
$644.1 million
-
-
$1.6 million
$30.5 million
$0.1 million
$0.5 million
$32.7 million
-
$100.0 million
$29.1 million
$52.7 million
$0.1 million
$1.0 million
$182.9 million
-
-
$40.2 million
$43.2 million
$0.1 million
-
$83.5 million
-
$250.0 million
$41.1 million
$53.0 million
$0.9 million
-
$345.0 million
ACQUISITION OF PROPERTIES
During 2006, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the
$150 million 10 year term note, and proceeds from our Dividend Reinvestment and Stock Purchase Plan to acquire
42 Properties in Alabama, Georgia, Florida, Louisiana, Missouri, New Hampshire, New York, Tennessee, and Texas
comprising 2.6 million square feet from unaffiliated storage operators. 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. At December 31, 2006, we owned and
operated 327 self-storage facilities in 22 states. Of these facilities, 38 are managed by us for two consolidated joint
ventures of which we are a majority owner.
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 into new markets by acquiring several facilities at
once in those new markets.
At December 31, 2006, we were in negotiations to acquire ten stores for approximately $31 million. One
of these stores was purchased in January 2007 for $5.6 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. During 2006 we spent approximately $12.6 million on
revenue enhancing improvements. 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. For 2006 we
spent approximately $17 million on such improvements and we expect to spend approximately $18 million in 2007.
24
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 or 2006.
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 2007.
OFF-BALANCE SHEET ARRANGEMENTS
Our off-balance sheet arrangement includes an ownership interest in Iskalo Office Holdings, LLC, which
owns the building that houses our headquarters and other tenants.
The Company has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2006. 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, 2006 and 2005, the Company's share of Iskalo Office Holdings, LLC's income (loss) was
$80,000 and ($8,000), respectively. The Company paid rent to Iskalo Office Holdings, LLC of $583,000, $445,000
and $426,000 in 2006, 2005, and 2004, respectively. Future minimum lease payments under the lease are $0.6
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.
In April 2006, the Company made an additional investment of $2.8 million in a former off-balance sheet
arrangement known as Locke Sovran I, LLC that increased the Company's ownership to over 70%. As a result of
this transaction the Company has consolidated the results of operations of Locke Sovran I, LLC in its financial
statements since April 1, 2006, the date that it acquired its controlling interest. 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 for those years. The Company manages the storage facilities
for Locke Sovran I, LLC and received fees of $332,000, and $322,000 for the years ended 2005, and 2004. Locke
Sovran I, LLC, owns 11 self-storage facilities throughout the United States.
A summary of the unconsolidated joint venture's financial statements as of and for the year ended
December 31, 2006 is as follows:
(dollars in thousands)
Balance Sheet Data:
Investment in office building........................................................
Other assets...................................................................................
Total Assets ................................................................................
Mortgage payable .........................................................................
Other liabilities .............................................................................
Total Liabilities ..........................................................................
Unaffiliated partners' deficiency...................................................
Company deficiency .....................................................................
Total Liabilities and Partners' Deficiency...................................
Iskalo Office
Holdings, LLC
$ 5,842
808
$ 6,650
======
$ 7,410
253
7,663
(592)
(421)
$ 6,650
======
25
Income Statement Data:
Total revenues ..............................................................................
Total expenses ..............................................................................
Net income..................................................................................
$ 1,351
1,189
$ 162
======
We do not expect to have material future cash outlays relating to this joint venture and we do not guarantee
the debt of Iskalo Office Holdings, LLC. A summary of our cash flows arising from the off-balance sheet
arrangements with Iskalo Office Holdings, LLC for the three years ended December 31, 2006, and with Locke
Sovran I, LLC for the two years ended December 31, 2005 and for the three months ended March 31, 2006 (the date
it has been included in our consolidated results of operations) are as follows:
(dollars in thousands)
Year ended December 31,
2005
2006
2004
Statement of Operations
Other income (management fees income) ..............................
General and administrative expenses (corporate office rent)..
Equity in income of joint ventures..........................................
$85
583
172
$332
445
202
Investing activities
Reimbursement of advances to (advances to) joint ventures ..
17
(187)
Financing activities
Distributions from unconsolidated joint ventures ...................
123
490
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS
$322
426
207
958
602
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 2007 may be
applied toward our 2006 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 2006, our percentage of revenue from such sources exceeded 98%, 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.
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, 2006, we have three outstanding interest rate swap agreements as
summarized below:
Notional Amount
Effective Date
Expiration Date
Fixed
Rate Paid
Floating Rate
Received
$50 Million .......................
$20 Million .......................
$50 Million .......................
11/14/05
9/4/05
10/10/06
9/1/09
9/4/13
9/1/09
5.590%
5.935%
5.680%
1 month LIBOR
6 month LIBOR
1 month LIBOR
26
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 $120 million of our debt
through the interest rate swap termination dates.
Through September 2009, all of our $350 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 $350 million at December
31, 2006, a 1% increase in interest rates would have no effect on our interest expense annually.
The table below summarizes our debt obligations and interest rate derivatives at December 31, 2006. 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.
(dollars in thousands)
2007
2008
2009
2010
2011
Thereafter
Total
Fair
Value
Expected Maturity Date Including Discount
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%.........................
Term note - fixed rate 6.38%.........................
-
-
-
-
-
-
-
-
$100,000
-
-
-
-
-
-
-
-
-
-
-
-
$100,000
$100,000
$ 20,000
$ 20,000
$ 20,000
$ 80,000
$ 80,000
$ 78,334
$ 150,000
$ 150,000
$147,688
Mortgage note - fixed rate 7.80% ..................
$ 342
$ 363
$ 400
$ 433
$27,948
-
$ 29,486
$ 30,858
Mortgage note - fixed rate 7.19% ..................
$ 937
$ 998
$ 1,083
$ 1,164
$ 1,252
$ 39,189
$ 44,623
$ 45,874
Mortgage note - fixed rate 7.25% ..................
$ 126
$ 133
$ 141
$ 149
$ 3,220
-
$ 3,769
$ 3,620
Mortgage note - fixed rate 6.76% ..................
$ 20
$ 22
$ 23
$ 25
$ 27
$ 926
$ 1,043
$ 1,062
Mortgage note - fixed rate 6.35% ..................
$ 23
$ 24
$ 26
$ 28
$ 30
$ 1,013
$ 1,144
$ 1,141
Mortgage notes - fixed rate 5.55% ................
-
-
$ 25,496
-
-
Mortgage notes - fixed rate 7.50% ................
$ 183
$ 194
$ 208
$ 222
$ 5,659
Interest rate derivatives – asset ......................
-
-
-
-
-
-
-
-
$ 25,496
$ 26,138
$ 6,466
$ 6,471
-
$ 2,128
INFLATION
We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of
the leases at the facilities are on a month-to-month basis which provides us with the opportunity to increase rental
rates as each lease matures.
SEASONALITY
Our revenues typically have been higher in the third and fourth quarters, primarily because we increase
rental rates on most of our storage units at the beginning of May and because self-storage facilities tend to
experience greater occupancy during the late spring, summer and early fall months due to the greater incidence of
residential moves during these periods. However, we believe that our 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.
27
RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the FASB issued FASB Statement No. 123(R), 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 under Statement 123(R). The Company adopted Statement 123(R) on January 1, 2006 and uses the
modified-prospective method. Under the modified-prospective method, the Company will recognize compensation
cost in the financial statements issued subsequent to January 1, 2006 for all share based payments granted, modified,
or settled after the date of adoption as well as for any awards that were granted prior to the adoption date for which
the requisite service period has not been completed as of the adoption date.
Prior to the adoption of FAS 123(R) non-vested shares issued to employees and non-employee directors
were recorded as unearned compensation (a component of stockholders' equity), at an amount equivalent to the fair
market value of the shares on the date of grant. Upon the adoption of FAS 123(R) on January 1, 2006, the non-
vested stock balance of approximately $1.8 million was reclassified as additional-paid-in-capital. Under the
provisions of FAS 123(R), compensation expense and a corresponding increase to additional paid-in capital are
recorded for non-vested share grants on a straight-line basis as the restriction periods lapse. As a result of the
adoption of FAS 123(R), the Company recorded compensation expense of $119,000 related to stock options. The
adoption of FAS 123(R) did not have a significant impact on the determination of compensation expense related to
non-vested stock grants.
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 was effective December 31, 2005 for the Company. The application of Interpretation 47 did not have a material
impact on the Company's financial position or results of operations.
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 such as 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 was effective as of
the beginning of the first fiscal reporting period beginning after December 15, 2005. The implementation of this
standard did not have a material effect on our consolidated financial position or results of operations.
In July 2006, the Financial Accounting Standards Board issued Financial Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, which applies to all tax positions related to income taxes subject to SFAS 109,
Accounting for Income Taxes. FIN 48 requires a new evaluation process for all tax positions taken. If the probability
for sustaining said tax position is greater than 50%, then the tax position is warranted and recognition should be at
the highest amount which would be expected to be realized upon ultimate settlement. Interpretation 48 requires
expanded disclosure at each annual reporting period unless a significant change occurs in an interim period.
Differences between the amounts recognized in the statements of financial position prior to the adoption of
Interpretation 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning
28
balance of retained earnings.
The Company has completed its initial evaluation of the impact of the January 1, 2007, adoption of
Interpretation 48 and determined that such adoption is not expected to have a material impact on the Company's
financial position or results from operations.
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, 2006 and 2005, and the related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Sovran Self Storage, Inc. at December 31, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2006 the Company adopted Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payment”.
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, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2007 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
March 1, 2007
29
SOVRAN SELF STORAGE, INC. CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
Assets
Investment in storage facilities:
Land..............................................................................................................
Building, equipment, and construction in progress ......................................
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 ...........................................................................................
Accrued dividends .........................................................................................
Mortgages payable.........................................................................................
Total Liabilities ...........................................................................................
December 31,
2005
2006
$ 208,644
935,260
1,143,904
(155,843)
988,061
47,730
2,166
37
-
-
5,336
2,274
7,606
$ 1,053,210
$ -
350,000
15,358
5,292
12,675
112,027
495,352
$ 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
Minority interest – Operating Partnership .....................................................
Minority interest – consolidated joint venture ...............................................
10,164
16,783
11,132
14,122
Shareholders' Equity
8.375% Series C Convertible Cumulative Preferred Stock, $.01 par value,
1,200,000 shares issued and outstanding at December 31, 2006 and
December 31, 2005, $30,000 liquidation value..........................................
Common stock $.01 par value, 100,000,000 shares authorized, 20,443,529
shares outstanding (17,563,046 at December 31, 2005) ............................
Additional paid-in capital ..............................................................................
Non-vested stock ...........................................................................................
Dividends in excess of net income ................................................................
Accumulated other comprehensive income ...................................................
Treasury stock at cost, 1,171,886 shares .......................................................
Total Shareholders' Equity...........................................................................
Total Liabilities and Shareholders' Equity...................................................
See notes to financial statements.
26,613
26,613
216
612,738
-
(83,609)
2,128
(27,175)
530,911
$ 1,053,210
187
466,839
(1,838)
(71,995)
1,454
(27,175)
394,085
$ 784,376
30
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
2006
2005
2004
Year Ended December 31,
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 .....................................................
$ 160,924
5,371
166,295
$ 133,856
4,449
138,305
$ 119,605
3,681
123,286
44,034
15,260
14,095
25,347
98,736
35,954
12,407
12,863
21,222
82,446
32,166
11,014
11,071
19,175
73,426
Income from operations.........................................................
67,559
55,859
49,860
Other income (expenses)
Interest expense ......................................................................
Interest income .......................................................................
Minority interest – Operating Partnership ..............................
Minority interest – consolidated joint ventures ......................
Equity in income of joint ventures..........................................
Income from continuing operations........................................
Income from discontinued operations (including gain on
(29,494)
807
(905)
(1,529)
172
(20,229)
487
(1,039)
(490)
202
(18,128)
301
(1,043)
(499)
207
36,610
34,790
30,698
disposal in 2004 of $1,083).................................................
-
-
1,306
Net Income ............................................................................
Redemption amount in excess of carrying value of Series
B Preferred Stock ............................................................
Preferred stock dividends .......................................................
Net income available to common shareholders ......................
36,610
34,790
32,004
-
(2,512)
$ 34,098
-
(4,123)
$ 30,667
(1,415)
(7,168)
$ 23,421
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...................................
$ 1.90
$ -
$ 1.90
$ 1.89
$ -
$ 1.89
$ 1.86
$ -
$ 1.86
$ 1.84
$ -
$ 1.84
$ 1.45
$ 0.09
$ 1.54
$ 1.44
$ 0.09
$ 1.53
Dividends declared per common share ...............................
$ 2.47
$ 2.44
$ 2.42
See notes to financial statements.
31
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
Balance January 1, 2004 ......................................................
Net proceeds from issuance of stock through Dividend
Reinvestment and Stock Purchase Plan...........................
Exercise of stock options .....................................................
Issuance of non-vested stock................................................
Earned portion of non-vested 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 non-vested stock................................................
Earned portion of non-vested 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 ................................................
Net proceeds from the issuance of common stock ..............
Net proceeds from issuance of stock through Dividend
Reinvestment and Stock Purchase Plan...........................
Exercise of stock options .....................................................
Reclass of unearned non-vested stock to additional paid
in capital...........................................................................
Issuance of non-vested stock................................................
Earned portion of non-vested stock .....................................
Stock option expense............................................................
Deferred compensation outside directors.............................
Carrying value less than redemption value on redeemed
partnership units...............................................................
Net income ...........................................................................
Change in fair value of derivatives ......................................
Total comprehensive income ...............................................
Dividends..............................................................................
Balance December 31, 2006 ................................................
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
-
-
-
-
-
-
-
-
(28,585)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
-
-
-
-
-
(400,000)
-
-
-
-
-
-
-
-
2,400,000
-
-
-
-
-
(1,200,000)
-
-
-
-
1,200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
1,200,000
-
-
-
-
-
(8,871)
(5,031)
-
-
-
-
-
-
-
53,227
-
-
-
-
-
(26,614)
-
-
-
-
26,613
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 26,613
-
-
-
-
-
-
-
-
(1,200,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Non-
vested
Stock
Dividends in
Excess of
Net Income
Accumulated
Other
Comprehensive
Income (loss)
Treasury
Stock
Total
Equity
14,259,863
$154
$356,875
$ (1,722)
$(48,069)
$(7,580)
$(27,175)
$368,197
1,163,651
225,750
12,058
-
-
310,905
-
-
-
-
-
-
-
-
15,972,227
283,379
129,015
13,778
-
-
1,164,647
-
-
-
-
17,563,046
2,300,000
501,089
37,675
-
41,719
-
-
-
-
-
-
-
-
20,443,529
12
2
-
-
-
3
-
-
-
-
-
-
-
-
171
3
1
-
-
-
12
-
-
-
-
187
23
5
-
-
1
-
-
-
-
-
-
-
-
$ 216
43,482
5,500
463
-
129
8,868
2,958
(268)
-
-
-
-
-
-
418,007
11,929
3,238
582
-
125
32,958
-
-
-
-
466,839
122,388
24,862
1,142
(1,838)
(1)
876
119
181
(1,830)
-
-
-
-
$ 612,738
-
-
(463)
411
-
-
-
-
-
-
-
-
-
-
(1,774)
-
-
(582)
518
-
-
-
-
-
-
(1,838)
-
-
-
1,838
-
-
-
-
-
-
-
-
-
$ -
-
-
-
-
-
-
-
-
-
(1,415)
32,004
-
-
(44,271)
(61,751)
-
-
-
-
-
-
34,790
-
-
(45,034)
(71,995)
-
-
-
-
-
-
-
-
-
36,610
-
-
(48,224)
$ (83,609)
-
-
-
-
-
-
-
-
-
-
-
4,326
-
-
(3,254)
-
-
-
-
-
-
-
4,708
-
-
1,454
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
-
674
-
-
$ 2,128
-
-
-
-
-
$ (27,175)
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
122,411
24,867
1,142
-
-
876
119
181
(1,830)
36,610
674
37,284
(48,224)
$530,911
33
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:
Depreciation and amortization ........................................................................................
Equity in income of joint ventures..................................................................................
Minority interest..............................................................................................................
Non-vested stock earned .................................................................................................
Stock option expense.......................................................................................................
Changes in assets and liabilities:
Accounts receivable .......................................................................................................
Prepaid expenses ............................................................................................................
Accounts payable and other liabilities ...........................................................................
Deferred revenue ............................................................................................................
Net cash provided by operating activities – continuing operations................................
Year Ended December 31,
2004
2005
2006
$ 36,610
$ 34,790
$ 30,698
26,340
(172)
2,434
876
119
(407)
(2,029)
1,011
(249)
64,533
22,012
(202)
1,529
518
-
(74)
183
1,445
33
60,234
19,895
(207)
1,542
411
-
103
(124)
1,644
(48)
53,914
Net cash provided by operating activities – discontinued operations ............................
-
-
287
Investing Activities
Acquisition of storage facilities .....................................................................................
Improvements, equipment additions, and construction in progress ..............................
Additional investment in consolidated joint ventures net of cash acquired ..................
Net proceeds from the sale of storage facilities.............................................................
Reimbursement of advances to (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...............................................................................................
Financing costs...............................................................................................................
Dividends paid - common stock.....................................................................................
Dividends paid - preferred stock....................................................................................
Distributions from unconsolidated joint venture ...........................................................
Minority interest distributions........................................................................................
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 .......................................................................................
Cash at beginning of period ............................................................................................
Cash at end of period ......................................................................................................
(130,251)
(37,021)
(8,181)
-
17
(1,169)
38
(176,567)
148,601
94,000
(184,000)
150,000
(632)
(43,837)
(2,513)
123
(2,815)
(2,788)
-
-
(1,286)
154,853
42,819
4,911
$ 47,730
(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
(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)
(16,996)
20,101
$ 3,105
Supplemental cash flow information
Cash paid for interest ......................................................................................................
$ 26,647
$ 19,097
$ 17,403
Fair value of net liabilities assumed on the acquisition of storage facilities..................
65,650
4,320
744
Dividends declared but unpaid at December 31, 2006, 2005 and 2004 were $12,675, $10,801, and $9,663, respectively.
See notes to financial statements.
34
SOVRAN SELF STORAGE, INC. - DECEMBER 31, 2006
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, 2006, we owned and operated 327 self-storage properties
in 22 states under the name Uncle Bob's Self Storage ®. Among our 327 self-storage properties are 38 properties
that we manage for two consolidated joint ventures of which we are a majority owner.
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; the
Company is a limited partner of the Operating Partnership, and through its ownership of the Subsidiary and its
limited partnership interest controls the operations of the Operating Partnership, holding a 97.9% ownership interest
therein as of December 31, 2006. 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", and FASB Staff Position SOP 78-9-1, "Interaction of AICPA SOP 78-9 and
EITF Issue 04-5", to determine whether the rights held by other investors constitute "kick-out rights" or "substantive
participating rights" as defined therein. For pre-existing joint venture agreements that have not been modified,
effective January 1, 2006 we were required to adopt the provisions of 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." Under this consensus we presume that general
partners in a limited partnership control that limited partnership (or similar entity like a limited liability company)
regardless of the extent of the general partners' ownership interest in the limited partnership. We also consider
whether 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. For partially-owned subsidiaries or
joint ventures held in corporate form, 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 I, LLC and Locke Sovran II, LLC, which are majority
owned joint ventures. All intercompany transactions and balances have been eliminated. Investments in joint
ventures that we do not control but for which we have significant influence over are reported using the equity
method.
In April 2006, the Company made additional investments of $8,475,000 in Locke Sovran I, LLC and Locke
Sovran II, LLC that increased the Company's ownership from approximately 45% to over 70% in each of these joint
ventures. As a result of this transaction, from the date that its controlling interest was acquired, the Company has
consolidated the accounts of Locke Sovran I, LLC in its financial statements. The accounts of Locke Sovran
II, LLC were already being included in the Company's financial statements as it has been a majority controlled joint
35
venture since 2001. A summary of the Locke Sovran I, LLC balance sheet as of April 1, 2006 was as follows:
(dollars in thousands)
Investment in storage facilities, net ..............................................
Other assets...................................................................................
Total Assets ................................................................................
Due to the Company .....................................................................
Mortgage payable .........................................................................
Other liabilities .............................................................................
Total Liabilities ..........................................................................
Unaffiliated partners' equity .........................................................
Company equity............................................................................
Total Liabilities and Partners' Equity .........................................
Locke Sovran I,
LLC
$ 38,000
1,240
$ 39,240
$ 2,763
29,379
579
32,721
3,521
2,998
$ 39,240
Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents. The cash balance includes $3.1 million and $2.0 million,
respectively, held in escrow for encumbered properties at December 31, 2006 and 2005.
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, 2006, 2005, and 2004 were $1.0 million, $0.6 million, and $0.5 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. No intangible
asset has been recorded for the value of tenant relationships because the Company does not have any concentrations
of significant tenants, the majority of leases are month-to-month, and the average tenant turnover is fairly frequent.
Depreciation is computed using the straight-line method over estimated useful lives of forty years for buildings and
improvements, and five to twenty years for furniture, fixtures and equipment. Expenditures for significant
renovations or improvements that extend the useful life of assets are capitalized. Repair and maintenance costs are
expensed as incurred.
Whenever events or changes in circumstances indicate that the basis of the Company's property may not be
recoverable, the Company's policy is to assess any impairment of value. Impairment is evaluated based upon
comparing the sum of the expected undiscounted future cash 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, 2006 and 2005, 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, a note receivable, and property
deposits. The loan acquisition costs were $5.9 million and $4.7 million at December 31, 2006, and 2005,
respectively. Accumulated amortization on the loan acquisition costs was approximately $2.9 million and $1.9
million at December 31, 2006, and 2005, respectively. Loan acquisition costs are amortized over the terms of the
related debt. Amortization expense was $1.0 million, $0.8 million and $0.7 million for the periods ended December
31, 2006, 2005 and 2004, 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. Property deposits were $1.7 million and $0.6 million at December 31, 2006 and 2005, respectively.
36
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 I, LLC and 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, 2006, Operating
Partnership minority interest ownership was 429,035 Units, or 2.1%. At December 31, 2005, Operating Partnership
minority interest ownership was 479,277 Units, or 2.7%. The redemption value of the Units at December 31, 2006
and 2005 was $24.6 million and $22.5 million, respectively. The Operating Partnership is obligated to redeem each
Unit at the request of the holder thereof for cash equal to the fair market value of a share of the Company's common
stock, at the time of such redemption, provided that the Company at its option may elect to acquire any such Unit
presented for redemption for one common share or cash.
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 $37.3 million, $39.5 million and $36.3 million for the years ended December 31, 2006,
2005, and 2004, 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 was effective December 15, 2005 for the Company. The application of
Interpretation 47 did not have a material impact on the Company's financial position or results of operations.
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 such as 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 was effective as of
the beginning of the first fiscal reporting period beginning after December 15, 2005. The implementation of this
standard did not have a material effect on our consolidated financial position or results of operations.
37
In July 2006, the Financial Accounting Standards Board issued Financial Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, which applies to all tax positions related to income taxes subject to SFAS 109,
Accounting for Income Taxes. FIN 48 requires a new evaluation process for all tax positions taken. If the probability
for sustaining said tax position is greater than 50%, then the tax position is warranted and recognition should be at
the highest amount which would be expected to be realized upon ultimate settlement. Interpretation 48 requires
expanded disclosure at each annual reporting period unless a significant change occurs in an interim period.
Differences between the amounts recognized in the statements of financial position prior to the adoption of
Interpretation 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning
balance of retained earnings.
The Company has completed its initial evaluation of the impact of the January 1, 2007, adoption of
Interpretation 48 and determined that such adoption is not expected to have a material impact on the Company's
financial position or results from operations.
Stock-Based Compensation: On December 16, 2004, the FASB issued FASB Statement No. 123(R), 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 under Statement 123(R). The Company adopted Statement 123(R) on
January 1, 2006 and uses the modified-prospective method. Under the modified-prospective method, the Company
will recognize compensation cost in the financial statements issued subsequent to January 1, 2006 for all share based
payments granted, modified, or settled after the date of adoption as well as for any awards that were granted prior to
the adoption date for which the requisite service period has not been completed as of the adoption date. The
Company's shared-based payment arrangements are described below.
Prior to the adoption of FAS 123(R) non-vested shares issued to employees and non-employee directors
were recorded as unearned compensation (a component of stockholders' equity), at an amount equivalent to the fair
market value of the shares on the date of grant. Upon the adoption of FAS 123(R) on January 1, 2006, the non-
vested stock balance of approximately $1.8 million was reclassified as additional-paid-in-capital. Under the
provisions of FAS 123(R), compensation expense and a corresponding increase to additional paid-in capital are
recorded for non-vested share grants on a straight-line basis as the restriction periods lapse.
For the year ended December 31, 2006, the Company recorded compensation expense (included in general
and administrative expense) of $119,000 related to stock options under Statement 123(R) and $876,000 related to
amortization of non-vested stock grants. The Company uses the Black-Scholes Merton option pricing model to
estimate the fair value of stock options granted subsequent to the adoption of FAS 123(R). For stock option awards
that were granted prior to the adoption date of FAS 123(R) for which the requisite service period had not been
provided as of the adoption date and for the 14,000 stock options issued to outside directors and employees in 2006,
the fair value of each option was estimated on the date of grant using the Black-Scholes Merton option pricing
model with the following weighted assumptions:
Expected life (years).....................................
Risk free interest rate....................................
Expected volatility........................................
Expected dividend yield ...............................
Fair value ......................................................
Weighted Average
6.87
4.23%
20.61%
6.72%
$3.70
Range
5.00 - 7.00
4.00 - 5.03%
19.40% - 21.00%
4.55% - 8.00%
$1.93 - $8.47
To determine expected volatility, the Company uses historical volatility based on daily closing prices of its
Common Stock over periods that correlate with the expected terms of the options granted. The risk-free rate is based
on the United States Treasury yield curve at the time of grant for the expected life of the options granted. Expected
dividends are based on the Company's history and expectation of dividend payouts. The expected life of stock
options is based on the midpoint between the vesting date and the end of the contractual term.
38
As permitted by Statement 123, through the fourth quarter of 2005 and previous years, the Company
accounted for share-based payments to employees using APB 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
was equal to or greater than the fair market value of the stock at that date. 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:
(dollars in thousands, except per share data)
Pro Forma
2004
2005
Net income available to common shareholders as reported.....................
Add: Total stock-based compensation expense recorded ........................
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards..............................
Pro forma net income available to common shareholders .......................
$ 30,667
518
$ 23,421
411
(657)
$ 30,528
(566)
$ 23,266
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
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 2005 and 2004 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)
Numerator:
Net income available to common shareholders ........
Denominator:
Denominator for basic earnings per share -
weighted average shares..........................................
Effect of Dilutive Securities:
Stock options and warrants and non-vested stock ......
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed
conversion ...............................................................
Basic Earnings per Common Share ............................
Diluted Earnings per Common Share .........................
Year Ended December 31,
2006
2005
2004
$ 34,098
$ 30,667
$ 23,421
17,951
70
18,021
$ 1.90
$ 1.89
39
16,506
127
16,633
$ 1.86
$ 1.84
15,161
134
15,295
$ 1.54
$ 1.53
Potential common shares from the Series C Convertible Cumulative Preferred Stock (see Note 13) were
excluded from the 2006, 2005, and 2004 diluted earnings per share calculation because their inclusion would have
had an antidilutive effect on earnings per share.
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the years ended December 31, 2006 and
December 31, 2005.
(Dollars in thousands)
Cost:
Beginning balance ................................................................
Acquisition of storage facilities ............................................
Consolidation of Locke Sovran I, LLC as of April 1, 2006..
Additional investment in consolidated joint ventures...........
Improvements and equipment additions ...............................
Construction in progress .......................................................
Dispositions ..........................................................................
Ending balance .......................................................................
2006
2005
$893,980
166,310
38,000
8,647
30,480
6,586
(99)
$1,143,904
$811,516
65,001
-
-
18,236
-
(773)
$893,980
Accumulated Depreciation:
Beginning balance ................................................................
Additions during the year .....................................................
Dispositions ..........................................................................
Ending balance .......................................................................
$ 130,550
25,347
(54)
$155,843
$ 109,750
21,222
(422)
$130,550
During 2006 the Company acquired 42 storage facilities for $166.3 million. Substantially all of the
purchase price of these facilities was allocated to land ($32.3 million), building ($132.2 million) and equipment
($1.8 million) and the operating results of the acquired facilities have been included in the Company's operations
since the respective acquisition dates. The purchase price for 2006 acquisitions was preliminarily allocated to
tangible assets only. The Company expects to finalize its purchase price allocation during the first quarter of 2007.
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. There were no property sales in 2005 or 2006.
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)
Year Ended December 31,
2005
2006
2004
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 .............................
$ -
-
-
-
-
$ -
$ -
-
-
-
-
$ -
$ 544
(193)
(38)
(90)
1,083
$ 1,306
40
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma Condensed Statement of Operations is presented as if (i) the additional
investment in Locke Sovran I, LLC and Locke Sovran II, LLC, (ii) the 42 storage facilities purchased during 2006,
(iii) the 14 storage facilities purchased in 2005, and (iv) the related indebtedness incurred and assumed on these
transactions had all occurred at January 1, 2005. Such unaudited pro forma information is based upon the historical
statements of operations of the Company. It should be read in conjunction with the financial statements of the
Company and notes thereto included elsewhere herein. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made. This unaudited pro forma statement does not purport to represent
what the actual results of operations of the Company would have been assuming such transactions had been
completed as set forth above nor does it purport to represent the results of operations for future periods.
(dollars in thousands, except share data)
Year Ended December 31,
2005
2006
Pro forma total operating revenues............................................
$177,123
$165,952
Pro forma net income ................................................................
$ 32,293
$ 24,957
Pro forma earnings per common share – diluted .......................
$ 1.79
$ 1.46
7. UNSECURED LINE OF CREDIT AND TERM NOTES
The Company has a $100 million (expandable to $200 million) unsecured line of credit that matures in
September 2007 and a $100 million unsecured term note that matures in September 2009. The line of credit bears
interest at LIBOR plus 0.90% and requires a 0.20% facility fee. The term note bears interest at LIBOR plus 1.20%.
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
1.50%. The interest rate at December 31, 2006 on the Company's available line of credit was approximately 6.2%
(5.40% at December 31, 2005). At December 31, 2006, there was $100 million available on the revolving line of
credit, excluding the amount available on the expansion feature.
In April 2006, the Company entered into a $150 million unsecured term note maturing in April 2016
bearing interest at 6.38%. The proceeds from this term note were used to pay down the outstanding balance on the
Company's line of credit, to repay a $25 million term note entered in January 2006 and a $15 million term note
entered in April 2006, and to make an additional investment into Locke Sovran I, LLC (see Note 11) and Locke
Sovran II, LLC (see Note 2).
8. MORTGAGES PAYABLE
Mortgages payable at December 31, 2006 and December 31, 2005 consist of the following:
(dollars in thousands)
7.80% mortgage note due December 2011, secured by 11 self-storage
facilities (Locke Sovran I) with an aggregate net book value of $41.6
million, principal and interest paid monthly ....................................................
7.19% mortgage note due March 2012, secured by 27 self-storage facilities
(Locke Sovran II) with an aggregate net book value of $78.4 million,
principal and interest paid monthly..................................................................
7.25% mortgage note due December 2011, secured by 1 self-storage facility
with an aggregate net book value of $6.0 million, principal and interest
paid monthly. Estimated market rate at time of acquisition 5.40%.................
December 31,
2006
December 31,
2005
$ 29,486
$ -
44,623
45,255
3,769
3,889
41
6.76% mortgage note due September 2013, secured by 1 self-storage facility
with an aggregate net book value of $2.1 million, principal and interest
paid monthly ....................................................................................................
6.35% mortgage note due March 2014, secured by 1 self-storage facility
with an aggregate net book value of $1.9 million, principal and interest
paid monthly ....................................................................................................
5.55% mortgage notes due November 2009, secured by 8 self-storage
facilities with an aggregate net book value of $36.2 million, interest only
paid monthly. Estimated market rate at time of acquisition 6.44%.................
7.50% mortgage notes due August 2011, secured by 3 self-storage facilities
with an aggregate net book value of $14.9 million, principal and interest
paid monthly. Estimated market rate at time of acquisition 6.42%.................
Total mortgages payable......................................................................................
1,043
1,144
25,496
-
-
-
6,466
$ 112,027
-
$ 49,144
The Company assumed the 7.25%, 6.76%, 6.35%, 5.55% and 7.5% mortgage notes in connection with the
acquisitions of storage facilities in 2005 and 2006. The 7.25%, 5.55%, and 7.5% mortgages were recorded at their
estimated fair value based upon the estimated market rates at the time of the acquisitions ranging from 5.40% to
6.44%. These three mortgages are carried at a discount of approximately $0.1 million below the actual principal
balance of the mortgages payable. The discount will be amortized over the remaining term of the mortgages based
on the effective interest method.
The table below summarizes the Company's debt obligations and interest rate derivatives at December 31,
2006. 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.
(dollars in thousands)
2007
2008
2009
2010
2011
Thereafter
Total
Fair
Value
Expected Maturity Date Including Discount
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%.........................
Term note - fixed rate 6.38%.........................
-
-
-
-
-
-
-
-
$100,000
-
-
-
-
-
-
-
-
-
-
-
-
$100,000
$100,000
$ 20,000
$ 20,000
$ 20,000
$ 80,000
$ 80,000
$ 78,334
$ 150,000
$ 150,000
$147,688
Mortgage note - fixed rate 7.80% ..................
$ 342
$ 363
$ 400
$ 433
$27,948
-
$ 29,486
$ 30,858
Mortgage note - fixed rate 7.19% ..................
$ 937
$ 998
$ 1,083
$ 1,164
$ 1,252
$ 39,189
$ 44,623
$ 45,874
Mortgage note - fixed rate 7.25% ..................
$ 126
$ 133
$ 141
$ 149
$ 3,220
-
$ 3,769
$ 3,620
Mortgage note - fixed rate 6.76% ..................
$ 20
$ 22
$ 23
$ 25
$ 27
$ 926
$ 1,043
$ 1,062
Mortgage note - fixed rate 6.35% ..................
$ 23
$ 24
$ 26
$ 28
$ 30
$ 1,013
$ 1,144
$ 1,141
Mortgage notes - fixed rate 5.55% ................
-
-
$ 25,496
-
-
Mortgage notes - fixed rate 7.50% ................
$ 183
$ 194
$ 208
$ 222
$ 5,659
Interest rate derivatives – asset ......................
-
-
-
-
-
-
-
-
$ 25,496
$ 26,138
$ 6,466
$ 6,471
-
$ 2,128
42
9. 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 2006
and 2005.
The Company has entered into three interest rate swap agreements as detailed below to effectively convert
a total of $120 million of variable-rate debt to fixed-rate debt.
Notional Amount
Effective Date
Expiration Date
Fixed
Rate Paid
Floating Rate
Received
$50 Million ...........................
$20 Million ...........................
$50 Million ...........................
11/14/05
9/4/05
10/10/06
9/1/09
9/4/13
9/1/09
5.590%
5.935%
5.680%
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 2006, 2005, and 2004, the net reclassification from AOCL to interest expense was ($0.5)
million, $2.2 million and $4.7 million, respectively, based on (receipts) payments received or made under the swap
agreements. Based on current interest rates, the Company estimates that receipts under the interest rate swaps will
be approximately $0.9 million in 2007. Receipts 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 $2.3 million and a liability of $1.4 million at December 31, 2006, and 2005 respectively. In conjunction
with the Company entering a $150 million term note in April 2006, the Company terminated the $30 million
notional swap that was to expire in September of 2008. The Company received $255,000 for terminating this
interest rate swap.
10. STOCK OPTIONS AND NON-VESTED STOCK
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
December 31, 2006, options for 91,225 shares were outstanding under the Plans and options for 1,429,945 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 non-vested shares annually equal to 80% of the annual fees paid to them. During the
43
restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the
non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends.
During 2006, 1,664 non-vested shares were issued to outside directors. Such non-vested 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, 2006,
options for 22,000 common shares and non-vested shares of 5,776 were outstanding under the Non-employee Plan
and options for 18,724 shares of common stock were available for future issuance.
A summary of the Company's stock option activity and related information for the years ended December
31 follows:
2006
2005
2004
Weighted
average
exercise
price
Options
Weighted
average
exercise
price
Options
Weighted
average
exercise
price
Options
Outstanding at beginning
of year: ................................
142,900
$ 32.68
247,415
$ 27.00
443,665
$ 24.71
Granted ...................................
Exercised ................................
Forfeited .................................
14,000
(37,675)
(6,000)
51.78
30.33
33.05
38,000
(129,015)
(13,500)
45.26
25.11
36.39
38,000
(225,750)
(8,500)
37.43
24.18
29.12
Outstanding at end of year......
113,225
$ 35.77
142,900
$ 32.68
247,415
$ 27.00
Exercisable at end of year.......
74,225
$ 31.14
72,650
$ 27.26
91,940
$ 25.25
A summary of the Company's stock options outstanding at December 31, 2006 follows:
Outstanding
Exercisable
Exercise Price Range
$19.06 – 29.99 ........................................
$30.00 – 39.99 ........................................
$40.00 – 48.11 ........................................
Total........................................................
Options
38,625
25,600
49,000
113,225
Weighted
average
exercise
price
$ 21.66
$ 34.55
$ 47.53
$ 35.77
Options
37,125
15,100
22,000
74,225
Weighted
average
exercise
price
$ 21.43
$ 32.22
$ 46.77
$ 31.14
Intrinsic value of outstanding stock options at December 31, 2006 ........................................
Intrinsic value of exercisable stock options at December 31, 2006.........................................
Intrinsic value of stock options exercised in 2006...................................................................
$ 2,435,000
$ 1,940,000
$ 824,536
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying
awards and the quoted price of the Company's common stock at December 31, 2006, or the price on the date of
exercise for those exercised during the year. As of December 31, 2006, there was approximately $0.2 million of
total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under
our stock award plans. That cost is expected to be recognized over a weighted-average period of approximately two
years. The weighted average remaining contractual life of all options is 6.8 years, and for exercisable options is 5.9
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.
Non-vested Stock
The Company has also issued 194,119 shares of non-vested stock to employees which vest over two to nine
44
year periods. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise
encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to
vote and receive dividends. At December 31, 2006, the fair market value of the non-vested stock on the date of
grant ranged from $20.38 to $55.21. During 2006, 40,055 shares of non-vested stock were issued to employees with
a fair value of $2.2 million. The Company charges additional paid-in capital for the market value of shares as they
are issued. The unearned portion is then amortized and charged to expense over the vesting period. The Company
uses the average of the high and low price of its common stock on the date the award is granted as the fair value for
non-vested stock awards.
A summary of the status of unvested shares of stock issued to employees and directors as of and during the
years ended December 31 follows:
2006
2005
2004
Non-
vested
Shares
Weighted
average
grant date
fair value
Non-
vested
Shares
Weighted
average
grant date
fair value
Non-
vested
Shares
Weighted
average
grant date
fair value
Unvested at beginning
of year: ................................
71,411
$ 30.39
71,904
$ 27.83
74,094
$ 25.40
Granted ...................................
Vested.....................................
Forfeited .................................
41,719
(16,677)
-
53.86
32.29
-
13,778
(14,271)
-
42.24
28.94
-
12,058
(14,248)
-
38.40
24.11
-
Unvested at end of year ..........
96,453
$ 40.21
71,411
$ 30.39
71,904
$ 27.83
Compensation expense of $0.9 million, $0.5 million and $0.4 million was recognized for the vested portion
of non-vested stock grants in 2006, 2005 and 2004, respectively. The fair value of non-vested stock that vested
during 2006, 2005 and 2004 was $0.3 million, $0.4 million and $0.5 million, respectively. The total compensation
cost related to non-vested stock was $3.2 million at December 31, 2006, and the remaining weighted-average period
over which this expense will be recognized was 4.6 years.
11. 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 $166,000, $149,000, and $125,000
for the years ended December 31, 2006, 2005 and 2004, respectively.
12. INVESTMENT IN JOINT VENTURES
The Company has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2006. 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, 2006 and 2005, the Company's share of Iskalo Office Holdings, LLC's income (loss) was
$80,000 and ($8,000), respectively. The Company paid rent to Iskalo Office Holdings, LLC of $583,000, $445,000,
and $426,000 in 2006, 2005, and 2004 respectively. Future minimum lease payments under the lease are $0.6
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, 2006 is as follows:
45
(dollars in thousands)
Balance Sheet Data:
Investment in office building........................................................
Other assets...................................................................................
Total Assets ................................................................................
Mortgage payable .........................................................................
Other liabilities .............................................................................
Total Liabilities ..........................................................................
Unaffiliated partners' deficiency...................................................
Company deficiency .....................................................................
Total Liabilities and Partners' Deficiency...................................
Income Statement Data:
Total revenues ..............................................................................
Total expenses ..............................................................................
Net income..................................................................................
Iskalo Office
Holdings, LLC
$ 5,842
808
$ 6,650
======
$ 7,410
253
7,663
(592)
(421)
$ 6,650
======
$ 1,351
1,189
$ 162
======
The Company does not guarantee the debt of Iskalo Office Holdings, LLC.
Through March 31, 2006, investment in joint ventures also included an ownership interest in Locke Sovran
I, LLC, which owns 11 self-storage facilities throughout the United States. 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 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.
In April 2006, the Company made an additional investment of $2.8 million in Locke Sovran I, LLC that
increased the Company's ownership to over 70%. As a result of this transaction the Company has consolidated the
results of operations of Locke Sovran I, LLC in its financial statements since April 1, 2006, the date that it acquired
its controlling interest. 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 for
those years. The Company manages the storage facilities for Locke Sovran I, LLC and received fees of $332,000,
and $322,000 for the years ended 2005, and 2004.
13. PREFERRED STOCK
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
46
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 preferred shares outstanding at December 31, 2006.
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, 2006) plus accrued and unpaid dividends. Dividends on the Series C Preferred are cumulative from
the date of original issue and are payable quarterly in arrears on the last day of each March, June, September, and
December at a rate of $2.09375 per annum per share.
Holders of the Series C Preferred generally have no voting rights. However, if the Company does not pay
dividends on the Series C Preferred shares for six or more quarterly periods (whether or not consecutive), the
holders of the shares, voting as a class with the holders of any other class or series of stock with similar voting
rights, will be entitled to vote for the election of two additional directors to serve on the Board of Directors until the
Series C Preferred dividends are paid.
In addition, the Company issued warrants to the Series C Preferred investors to purchase 379,166 common
shares of the Company at a price of $32.60 per share that expire November 30, 2007. Using the Black-Scholes
method, the warrants had a fair value at the issue date of $1.97 per common share covered by the warrants. During
2005 and 2004 respectively, warrants for 357,500 and 21,666 were exercised leaving none remaining at December
31, 2006. 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, 2006 and
2005 (dollars in thousands, except per share data).
March 31
June 30
Sept. 30
Dec. 31
2006 Quarter Ended
Operating revenue........................................
Net Income ..................................................
Net income available to common
shareholders...............................................
Net Income Per Common Share
Basic ..........................................................
Diluted .......................................................
$ 36,657
$ 8,595
$ 40,296
$ 9,386
$ 44,784
$ 9,465
$ 44,558
$ 9,165
$ 7,967
$ 8,758
$ 8,837
$ 8,537
$ 0.45
$ 0.45
$ 0.50
$ 0.50
$ 0.49
$ 0.49
$ 0.46
$ 0.45
March 31
June 30
Sept. 30
Dec. 31
2005 Quarter Ended
Operating revenue........................................
Net Income ..................................................
Net income available to common
shareholders...............................................
Net Income Per Common Share
Basic ..........................................................
Diluted .......................................................
$ 32,149
$ 7,768
$ 34,007
$ 8,878
$ 36,003
$ 9,611
$ 36,147
$ 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
47
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, 2006, the Company was in negotiations to acquire ten stores for approximately $31
million. One of these stores was purchased in January of 2007 for $5.6 million.
48
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, 2006. 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, 2006.
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, 2006. 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, 2006 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, 2006
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, 2006 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
49
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
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, 2006, 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, 2006, 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, 2006, 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, 2006 and
2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2006 of Sovran Self Storage, Inc. and our report dated March 1, 2007
expressed an unqualified opinion thereon.
Buffalo, New York
March 1, 2007
/s/ Ernst & Young LLP
50
Item 10.
Directors, Executive Officers and Corporate Governance
Part III
The information contained in the Proxy Statement for the Annual Meeting of Shareholders of the Company
to be held on May 21, 2007, 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 21, 2007.
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 21, 2007.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required herein is incorporated by reference to "Certain Relationships and Related
Transactions” and “Election of Directors—Independence of Directors” in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 21, 2007.
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 21, 2007.
Item 15.
Exhibits, Financial Statement Schedules
(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, 2006 and 2005.
Consolidated Statements of Operations for Years Ended December 31, 2006, 2005, and 2004.
Consolidated Statements of Shareholders' Equity for Years Ended December 31, 2006, 2005, and
2004.
Consolidated Statements of Cash Flows for Years Ended December 31, 2006, 2005, and 2004.
Notes to Consolidated Financial Statements.
(iv)
(v)
2.
The following financial statement Schedule as of the period ended December 31, 2006 is included in this
Annual Report on Form 10-K.
Schedule III Real Estate and Accumulated Depreciation.
51
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
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1+
10.2+
10.3+
10.4+
Amended and Restated Articles of Incorporation of the Registrant. (incorporated by reference to Exhibit
3.1 (a) to the Registrant’s Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995).
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.)
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 4.1 to Registrant's Current Report on Form 8-K filed July 12, 2002).
Bylaws, as amended, of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant’s Current
Report on Form 8-K filed April 7, 2004).
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant’s Registration
Statement on Form S-11 (File No. 33-91422) filed June 19, 1995).
Form of Series C Convertible Cumulative Preferred Stock Certificate (incorporated by reference to
Exhibit 4.2 to Registrant's Current Report on Form 8-K filed July 12, 2002).
Shareholder Rights Plan. (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A filed
December 3, 1996.)
Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to Registrant’s Current Report
on Form 8-K filed July 12, 2002).
Amendment No. 1 to Shareholders Rights Agreement (incorporated by reference to Exhibit 4.5 to
Registrant’s Current Report on Form 8-K filed July 12, 2002).
Amendment to Shareholders Rights Agreement (incorporated by reference to Exhibit 4.4 to Registrant’s
Current Report on Form 8-K filed May 4, 2006).
Amendment to Shareholders Rights Agreement (incorporated by reference to Exhibit 4.5 to Registrant’s
Current Report on Form 8-K filed September 1, 2006).
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 Registrant’s Proxy Statement filed April 8, 2004)
Employment Agreement between the Registrant and Robert J. Attea (incorporated by reference to
Exhibit 10.19 as filed in the Company’s Annual Report on Form 10-K/A, filed June 27, 2002).
Employment Agreement between the Registrant and Kenneth F. Myszka (incorporated by reference to
Exhibit 10.20 as filed in the Company’s Annual Report on Form 10-K/A, filed June 27, 2002).
10.5+
Employment Agreement between the Registrant and David L. Rogers (incorporated by reference to
52
Exhibit 10.21 as filed in the Company’s Annual Report on Form 10-K/A, filed June 27, 2002).
10.6*+
Standard form of Employment Agreement to which Andrew J. Gregoire, Edward F. Killeen, and Paul T.
Powell employees are parties
10.7+
10.8+
10.9+
Form of restricted stock grant pursuant to Sovran Self Storage, Inc. 2005 Award and Option Plan
(incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q/A filed
November 24, 2006).
Form of stock option grant pursuant to Sovran Self Storage, Inc. 2005 Award and Option Plan
(incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q/A filed
November 24, 2006).
Form of restricted stock grant pursuant to Sovran Self Storage, Inc. 1995 Award and Option Plan
(incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q/A filed
November 24, 2006).
10.10+
Form of stock option grant pursuant to Sovran Self Storage, Inc. 1995 Award and Option Plan
(incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q/A filed
November 24, 2006).
10.11+
Deferred Compensation Plan for Directors (incorporated by reference to Schedule 14A Proxy Statement
filed April 8, 2004).
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Amended Indemnification Agreements with members of the Board of Directors and Executive Officers
(incorporated by reference to Exhibit 10.35 and 10.36 to Registrant’s Current Report on Form 8-K filed
July 20, 2006).
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 (incorporated by reference to Exhibit 10.1 as filed in the Company’s Current
Report on Form 8-K, filed July 12, 2002).
Amendments to Agreement of Limited Partnership of Sovran Acquisition Limited Partnership
(incorporated by reference to Exhibit 10.2 filed in the Company’s Current Report on Form 8-K, filed
July 12, 2002).
Promissory Note between Locke Sovran II, LLC and PNC Bank, National Association (incorporated by
reference to Exhibit 10.22 to Registrant’s Form 10-K filed March 27, 2003).
Second Amended and Restated Revolving Credit and Term Loan Agreement among Registrant, the
Partnership, Fleet National Bank and other lenders named therein (incorporated by reference to Exhibit
10.25 filed in the Company’s Current Report on Form 8-K, filed December 21, 2004).
Note Purchase Agreement among Registrant, the Partnership and the purchaser named therein
(incorporated by reference to Exhibit 10.24 filed in the Company’s Quarterly Report on Form 10-Q, filed
November 12, 2003).
Amendment to Note Purchase Agreement dated September 3, 2003 (incorporated by reference to Exhibit
10.26 of Registrant’s Current Report on Form 8-K filed May 20, 2005).
Cornerstone Acquisition Agreement and Amendments to Certain Loan Agreements (incorporated by
reference to Exhibits 10.30, 10.31, 10.32, 10.33 and 10.34 of Registrant’s Current Report on Form 8-K
filed June 26, 2006).
10.20
$150 million, 6.38% Senior Guaranteed Notes, Series C due April 26, 2016, and Amendments to Second
53
Amendment Restated Revolving Credit and Term Loan Agreement dated December 16, 2004 and
Amendment to Note Purchase Agreement dated September 4, 2003 (incorporated by reference to
Exhibits 10.27, 10.28, and 10.29 of the Registrant’s Current Report on Form 8-K filed May 1, 2006).
10.21*
Promissory Note between Locke Sovran I, LLC and GMAC Commercial Mortgage Corporation.
12.1*
Statement Re: Computation of Earnings to Fixed Charges.
21*
23*
Subsidiary of the Company.
Consent of Independent Registered Public Accounting Firm.
24.1*
Powers of Attorney (included on signature pages).
31.1*
31.2*
32*
*
+
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.
Filed herewith.
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this
Form 10-K.
54
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 1, 2007
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 1, 2007
March 1, 2007
March 1, 2007
March 1, 2007
March 1, 2007
March 1, 2007
March 1, 2007
55
Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2006
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
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Encum
brance
ST
Land
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
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
$363
$1,679
$356
$363
$2,035
$2,398
$586
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
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
1,935
1,641
1,951
1,707
1,552
4,523
2,305
2,328
1,593
1,917
3,540
1,544
3,041
1,759
1,123
1,688
3,555
1,047
1,655
1,157
3,085
2,060
3,037
2,046
2,642
1,406
1,820
1,574
1,779
1,448
1,546
1,900
2,332
2,615
1,986
2,367
2,104
2,299
568
463
584
515
453
5,293
1,220
2,544
3,029
1,791
2,312
4,023
1,768
3,538
2,154
1,287
2,055
4,408
1,734
1,923
1,391
3,901
2,504
3,686
2,433
3,486
1,709
2,135
1,895
2,153
1,637
2,034
2,502
2,845
480
619
391
627
707
438
827
491
313
540
993
349
511
338
829
654
859
525
741
447
394
443
526
386
485
611
727
319
373
435
283
889
1,789
1,195
669
853
416
1,788
736
1,584
355
363
363
498
854
407
314
1,754
447
708
644
621
304
1,075
424
461
729
358
493
402
680
345
416
397
747
770
239
701
198
395
483
224
497
395
164
367
853
687
268
234
816
444
649
387
844
303
315
321
374
189
488
602
513
56
1980
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
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
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Description
Encum
brance
ST
Sharon
Ft. Lauderdale
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
PA
FL
FL
GA
GA
GA
GA
GA
MD
MD
GA
GA
FL
VA
FL
GA
CT
GA
VA
FL
FL
CT
GA
VA
VA
AL
AL
AL
FL
FL
FL
FL
FL
FL
FL
MS
MS
VA
FL
Land
194
1,503
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
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
912
3,619
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
321
577
225
346
256
443
444
571
1,287
1,074
654
355
1,494
684
865
504
704
2,318
993
361
1,023
1,665
1,627
742
274
451
477
535
373
1,553
638
518
813
622
481
717
529
601
810
Land
194
1,503
398
424
483
308
174
413
306
479
357
231
883
316
651
315
715
619
1,376
244
1,591
612
256
313
278
384
730
863
326
369
719
226
1,088
526
672
796
209
443
1,162
57
1,233
4,196
1,260
1,360
1,422
1,559
1,226
1,570
1,690
2,816
1,950
1,436
3,598
2,155
3,808
1,643
2,399
3,121
4,212
1,262
2,332
2,148
2,871
2,204
1,278
1,789
2,202
2,576
1,888
2,911
1,291
1,564
3,410
2,580
2,920
1,844
1,493
2,203
3,564
1,427
371
5,699
1,295
1,658
1,784
1,905
1,867
1,400
1,983
1,996
3,295
2,307
1,667
4,481
2,471
426
422
447
505
375
498
309
706
531
426
953
624
4,459
1,167
1,958
3,114
3,740
466
635
536
5,588
1,187
1,506
3,923
2,760
3,127
2,517
1,556
2,173
2,932
3,439
2,214
3,280
2,010
1,790
437
787
437
571
617
417
549
681
768
547
701
422
463
4,498
1,028
3,106
3,592
2,640
1,702
2,646
800
873
575
474
639
4,726
1,044
1975
1985
1985
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
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
6/26/1995 5 to 40 years
8/25/1995 5 to 40 years
9/29/1995 5 to 40 years
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
Encum
brance
ST
Land
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Birmingham III
Macon II
Harrisburg I
AL
GA
PA
Harrisburg II
PA
(1)
Syracuse I
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
Cincinnati
Dayton
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
NY
FL
FL
VA
AL
SC
FL
TX
TX
TX
TX
TX
NY
AL
FL
FL
PA
FL
MA
FL
OH
(2)
OH
(2)
MD
FL
FL
PA
FL
NC
NC
FL
NY
OH
OH
OH
OH
(1)
424
431
360
627
470
205
412
442
353
237
766
442
408
328
436
289
481
279
345
229
545
359
251
344
557
667
777
568
436
627
535
487
315
314
704
600
751
725
637
1,506
1,567
1,641
2,224
1,712
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
1,988
2,379
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
2,112
2,180
2,143
2,974
2,855
1,144
2,095
1,826
1,560
1,369
2,398
2,014
2,189
1,574
2,850
1,517
3,475
1,849
1,509
1,169
2,321
2,274
2,944
1,507
2,388
2,521
3,010
2,907
2,062
3,186
2,276
2,063
1,404
1,930
3,542
2,470
4,141
3,660
4,348
2,536
2,611
2,503
3,666
3,327
1,350
2,508
2,268
1,913
1,601
3,164
2,456
2,597
1,902
3,286
1,806
4,146
2,282
1,854
1,398
2,866
2,633
3,241
1,817
3,040
3,167
3,787
3,475
2,498
3,817
2,814
2,550
1,719
2,244
4,249
3,163
4,892
4,385
696
592
602
774
650
434
763
520
494
394
623
560
649
445
689
451
691
428
438
310
610
603
607
428
56
66
797
769
601
880
701
501
359
495
733
614
906
867
5,049
1,106
1970
1/16/1996 5 to 40 years
1989/94
12/1/1995 5 to 40 years
1983
12/29/1995 5 to 40 years
1985
12/29/1995 5 to 40 years
1987
12/27/1995 5 to 40 years
1988
12/28/1995 5 to 40 years
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
1988
1988
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
7/23/1996 5 to 40 years
7/23/1996 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
9/16/1996 5 to 40 years
9/16/1996 5 to 40 years
1975
10/30/1996 5 to 40 years
1990
12/20/1996 5 to 40 years
1988
1986
1978
1979
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
606
613
502
815
1,145
233
393
234
261
506
598
247
527
250
1,091
356
2,106
989
247
285
381
987
2,073
219
495
121
240
879
427
933
246
309
273
817
1,049
421
1,465
1,074
1,494
424
431
360
692
472
206
413
442
353
232
766
442
408
328
436
289
671
433
345
229
545
359
297
310
652
646
777
568
436
631
538
487
315
314
707
693
751
725
701
58
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
Encum
brance
ST
Land
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Cleveland Vl
Cleveland Vll
Cleveland Vlll
Cleveland lX
OH
OH
OH
OH
Grand Rapids l
MI
(2)
Grand Rapids ll
MI
Kalamazoo
Lansing
Holland
MI
(2)
MI
(2)
MI
San Antonio lll
TX
(1)
Universal
San Antonio lV
Houston-Eastex
Houston-Nederland
Houston-College
TX
TX
TX
TX
TX
Lynchburg-Lakeside
VA
Lynchburg-Timberlake VA
Lynchburg-Amherst
Christiansburg
Chesapeake
Danville
Orlando-W 25th St
Delray l-Mini
Savannah ll
Delray ll-Safeway
Cleveland X-Avon
Dallas-Skillman
Dallas-Centennial
VA
VA
VA
VA
FL
FL
GA
FL
OH
TX
TX
Dallas-Samuell
TX
(1)
Dallas-Hargrove
Houston-Antoine
Atlanta-Alpharetta
TX
TX
GA
Atlanta-Marietta
GA
(1)
Atlanta-Doraville
GreensboroHilltop
GreensboroStgCch
GA
NC
NC
Baton Rouge-Airline
LA
(1)
Baton Rouge-Airline2
LA
Harrisburg-Peiffers
PA
495
761
418
606
455
219
516
327
451
474
346
432
634
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
1,781
2,714
1,921
2,164
1,631
790
1,845
1,332
1,830
1,686
1,236
1,560
2,565
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
2,453
3,617
3,296
2,682
2,185
1,574
2,424
2,432
3,086
2,008
1,437
3,122
3,656
2,498
1,609
2,351
2,006
980
1,515
2,075
1,639
1,520
2,298
1,440
3,626
2,377
4,870
4,973
2,924
1,857
2,501
4,134
3,146
3,657
1,297
1,652
2,321
1,494
2,930
2,948
4,378
3,714
3,288
2,776
1,793
3,081
2,945
3,537
2,512
1,783
3,554
4,290
3,064
1,902
2,686
2,334
1,132
1,760
2,335
1,965
2,136
2,789
1,736
4,547
2,681
597
920
794
657
56
376
62
58
808
475
378
625
807
617
408
500
502
266
332
404
391
365
623
365
938
463
5,830
1,251
5,916
1,233
3,535
2,227
3,016
761
541
653
5,167
1,066
3,971
4,392
1,565
1,741
2,742
1,776
3,567
757
888
312
288
549
389
633
1979
1977
1970
1982
1976
1983
1978
1987
1978
1981
1985
1995
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
1/17/1997 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
1995
1995
1982
1985
1987
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
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
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
1985
11/21/1997 5 to 40 years
1984
12/3/1997 5 to 40 years
672
903
1,375
518
690
784
720
1,286
1,256
352
201
1,562
1,091
219
252
1,009
691
267
395
1,032
151
687
542
244
344
1,166
1,023
1,087
680
371
427
381
414
228
200
1,276
515
191
382
495
761
418
606
591
219
657
513
451
504
346
432
634
566
293
335
328
152
245
260
326
616
491
296
921
304
960
943
611
370
515
1,033
825
735
268
89
421
282
637
59
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
Encum
brance
ST
Land
Chesapeake-Military
Chesapeake-Volvo
VA
VA
Virginia Beach-Shell
VA
Virginia Beach-Central VA
542
620
540
864
Norfolk-Naval Base
VA
1,243
Tampa-E.Hillsborough
FL
Northbridge
MA
(2)
Harriman
NY
Greensboro-High Point NC
Lynchburg-Timberlake VA
Titusville
Salem
FL
(2)
MA
Chattanooga-Lee Hwy
TN
Chattanooga-Hwy 58
TN
Ft. Oglethorpe
Birmingham-Walt
East Greenwich
GA
AL
RI
Durham-Hillsborough
NC
Durham-Cornwallis
Salem-Policy
Warren-Elm
NC
NH
OH
(1)
Warren-Youngstown
OH
Waterford-Highland
Indian Harbor Beach
Jackson 3 - I55
Katy-N.Fry
MI
FL
MS
TX
Hollywood-Sheridan
FL
Pompano Beach-Atlantic FL
Pompano Beach-Sample FL
Boca Raton-18th St
Vero Beach
Humble
FL
FL
TX
Houston-Old Katy
TX
(1)
Webster
Carrollton
Hollywood-N.21st
San Marcos
Austin-McNeil
Austin-FM
TX
TX
FL
TX
TX
TX
709
441
843
397
488
492
733
384
296
349
544
702
775
940
742
522
512
1,487
662
744
419
1,208
944
903
1,503
489
447
659
635
548
840
324
492
484
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
2,210
2,532
2,211
3,994
5,019
3,235
1,788
3,394
1,834
1,746
1,990
2,941
1,371
1,198
1,250
1,942
2,821
3,103
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
196
818
186
652
632
693
743
344
388
398
543
707
482
995
431
733
842
562
549
403
977
1,497
1,059
279
103
854
254
234
335
635
81
916
306
108
267
274
586
227
382
Building,
Equipment
and
Improvements
2,406
3,350
2,397
4,646
5,651
3,928
2,315
3,738
2,222
2,144
2,373
3,648
1,853
2,075
1,681
2,675
3,663
3,665
4,312
3,380
2,794
3,163
6,365
2,933
3,124
2,378
5,108
4,037
3,978
6,694
1,894
2,413
2,947
2,410
2,255
3,647
2,079
2,204
2,336
Land
542
620
540
864
1,243
709
657
843
397
488
652
733
384
414
349
544
702
775
940
742
569
675
1,487
662
744
419
1,208
944
903
1,503
489
740
698
635
548
840
324
510
481
60
Life on
which
depreciation
in latest
income
statement
is computed
Accum.
Deprec.
Date of
Construction
Date
Acquired
584
727
583
1996
1995
1991
2/5/1998 5 to 40 years
2/5/1998 5 to 40 years
2/5/1998 5 to 40 years
Total
2,948
3,970
2,937
5,510
1,067
1993/95
2/5/1998 5 to 40 years
6,894
1,288
4,637
2,972
4,581
2,619
2,632
3,025
4,381
2,237
2,489
2,030
3,219
4,365
4,440
5,252
4,122
3,363
3,838
987
51
889
517
465
53
874
430
423
387
670
783
810
939
687
537
464
7,852
1,395
3,595
3,868
2,797
676
710
434
6,316
1,141
4,981
4,881
920
884
8,197
1,476
2,383
3,153
3,645
3,045
2,803
4,487
2,403
2,714
2,817
451
529
586
531
484
832
444
528
504
1975
1985
1988
2/5/1998 5 to 40 years
2/4/1998 5 to 40 years
2/9/1998 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
1986/90
2/25/1998 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
1990/96
4/9/1998 5 to 40 years
1980
1986
1986
1978
1985
1995
1994
1988
1985
1988
1991
1997
1986
1996
1997
1997
1987
1994
1994
1996
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
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
Encum
brance
ST
Land
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Land
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Jacksonville-Center
Jacksonville-Gum
Branch
NC
NC
Jacksonville-N.Marine
NC
Euless
N. Richland Hills
Batavia
Jackson-N.West
Katy-Franz
W.Warwick
Lafayette-Pinhook 1
Lafayette-Pinhook2
TX
TX
OH
MS
TX
RI
LA
LA
Lafayette-Ambassador
LA
Lafayette-Evangeline
LA
Lafayette-Guilbeau
Gilbert-Elliot Rd
Glendale-59th Ave
Mesa-Baseline
Mesa-E.Broadway
Mesa-W.Broadway
Mesa-Greenfield
Phoenix-Camelback
Phoenix-Bell
Phoenix-35th Ave
Westbrook
Cocoa
Cedar Hill
Monroe
N.Andover
Seabrook
Plantation
LA
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
ME
FL
TX
NY
MA
TX
FL
Birmingham-Bessemer AL
327
508
216
550
670
390
460
507
447
556
708
314
188
963
651
565
330
339
291
354
453
872
849
410
667
335
276
633
633
384
254
Brewster
NY
(2)
1,716
Austin-Lamar
Houston-E.Main
TX
(2)
TX
(2)
Ft.Myers-Abrams
FL
(2)
Dracut
Methuen
Columbia 5
Myrtle Beach
MA
(1)
MA
(1)
SC
(1)
SC
(1)
837
733
787
1,035
1,024
883
552
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
3,476
3,401
1,626
2,373
1,521
1,312
2,573
2,617
1,422
1,059
6,920
2,977
3,392
3,249
3,737
3,649
3,139
1,970
1,928
2,981
1,235
2,611
3,228
1,827
2,018
2,211
2,449
2,746
3,062
1,674
2,046
4,643
3,131
3,043
1,485
1,746
1,543
1,603
2,112
4,123
4,017
3,197
2,967
1,752
2,392
2,696
2,893
1,564
2,157
7,046
3,054
3,546
3,271
4,166
4,067
3,580
2,539
2,255
3,489
1,451
3,161
3,898
2,217
2,478
2,718
2,896
3,302
3,770
1,988
2,234
5,606
3,903
3,608
1,811
2,085
1,834
1,957
2,565
4,995
4,866
3,607
3,634
2,087
2,668
3,329
3,526
1,948
2,411
8,922
3,968
4,342
4,125
5,270
5,158
4,522
3,128
332
475
330
493
601
427
526
458
476
702
631
457
423
853
584
569
293
318
254
323
405
834
734
429
565
380
297
474
517
312
234
155
76
82
79
527
505
482
345
1995
8/6/1998 5 to 40 years
1989
1985
1996
1996
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
1988
11/19/1998 5 to 40 years
1984
12/1/1998 5 to 40 years
1993
12/15/1998 5 to 40 years
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
1984
1996
1988
1982
1985
1998
1989
1996
1994
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
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
1998
11/15/2000 5 to 40 years
1991/97
12/27/2000 5 to 40 years
1996/99
2/22/2001 5 to 40 years
1993/97
3/2/2001 5 to 40 years
1997
1986
1984
1985
1984
3/13/2001 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
599
1,166
453
613
821
257
376
153
673
795
202
579
1,394
747
652
447
172
400
517
198
502
647
616
1,571
594
231
1,080
123
276
142
1,098
286
154
217
89
498
485
500
606
327
508
216
550
670
390
460
507
447
556
708
314
188
963
772
565
326
339
291
354
453
872
849
410
667
335
276
633
633
384
254
1,876
914
796
854
1,104
1,091
942
589
61
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Description
Kingsland
Saco
Plymouth
Sandwich
Syracuse
Encum
brance
ST
Land
GA
(1)
ME
(1)
470
534
MA
1,004
MA
(1)
NY
(1)
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
3,776
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
827
2,713
11,013
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,047
3,170
4,877
4,550
4,427
1,640
6,986
4,744
5,569
5,857
Houston-Westward
TX
(1)
Houston-Boone
Houston-Cook
TX
(1)
TX
(1)
Houston-Harwin
TX
(1)
Houston-Hempstead
TX
(1)
Houston-Kuykendahl
TX
(1)
Houston-Hwy 249
TX
(1)
Mesquite-Hwy 80
TX
(1)
Mesquite-Franklin
TX
(1)
Dallas-Plantation
TX
(1)
San Antonio-Hunt
TX
(1)
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
Dallas-Harry Hines
Stamford
Houston-Tomball
Houston-Conroe
Houston-Spring
Houston-Bissonnet
Houston-Alvin
Clearwater
TX
TX
TX
TX
TX
TX
TX
NY
NY
NY
NY
TX
TX
CT
TX
TX
TX
TX
TX
FL
Houston-Missouri City
TX
Chattanooga-Hixson
Austin-Round Rock
TN
TX
624
230
141
392
330
750
455
253
557
738
614
877
490
638
247
319
270
75
228
52
96
120
141
386
416
213
235
29
189
51
1,723
32
193
34
25
14
434
642
586
Land
501
570
1,004
714
313
912
268
306
480
583
553
320
496
784
421
408
919
612
689
817
817
407
817
2,207
1,131
635
1,252
1,039
827
2,495
2,108
4,725
3,408
1,514
4,125
1,457
1,392
2,342
2,900
2,668
2,072
2,330
3,544
1,815
1,837
3,966
2,543
3,387
3,338
3,382
1,770
3,428
9,252
4,980
3,131
5,978
4,230
3,965
2,996
2,678
5,729
4,122
1,827
5,037
1,725
1,698
2,822
3,483
3,221
2,392
2,826
4,328
2,236
2,245
4,885
3,155
4,076
4,155
4,199
2,177
4,245
11,459
6,111
3,766
7,230
5,269
4,792
2,713
11,064
13,777
4,893
4,909
4,743
4,461
1,665
7,000
4,779
6,211
6,439
5,666
6,104
5,846
5,522
2,053
8,720
6,345
7,576
8,490
773
1,195
1,103
1,061
388
1,720
1,566
1,365
2,051
62
356
266
600
438
218
523
177
182
285
324
346
218
278
398
225
223
450
295
378
381
389
205
395
938
500
315
606
364
316
784
250
334
327
318
123
472
312
397
381
1989
1988
12/1/2001 5 to 40 years
12/3/2001 5 to 40 years
1996
12/19/2001 5 to 40 years
1984
12/19/2001 5 to 40 years
1987
1976
1983
1986
1981
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
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
12/16/2002 5 to 40 years
1997
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
1998/01
10/1/2003 5 to 40 years
1998
2000
2001
2001
2003
2003
2001
1998
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
1998/02
8/4/2004 5 to 40 years
2000
8/5/2004 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
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Description
Encum
brance
ST
East Falmouth
Cicero
Bay Shore
MA
NY
NY
Springfield-Congress
MA
Stamford-Hope
CT
Land
1,479
527
1,131
612
1,612
Houston-Jones
TX 3,769
1,214
Montgomery-Richard
AL
1,906
Oxford
Austin-290E
MA
TX
SanAntonio-Marbach
TX
Austin-South 1st
Pinehurst
Marietta-Austell
Baton Rouge-Florida
Cypress
Texas City
TX
TX
GA
LA
TX
TX
San Marcos-Hwy 35S
TX
Baytown
Webster
Houston-Jones Rd 2
TX
NY
TX
Cameron-Scott
LA 1,043
Lafayette-Westgate
Broussard
LA
LA
Congress-Lafayette
LA 1,144
470
537
556
754
484
811
719
721
867
628
596
937
707
411
463
601
542
832
617
Manchester
Nashua
Largo 2
NH
NH
FL
2,436
1,270
Pinellas Park
FL
Tarpon Springs
FL
2,262
929
696
New Orleans
LA 4,126
1,220
St Louis-Meramec
MO 4,761
1,113
St Louis-Charles Rock MO
St Louis-Shackelford
MO 2,393
St Louis-W.Washington MO 3,808
St Louis-Howdershell MO
St Louis-Lemay Ferry MO
St Louis-Manchester
MO 3,596
766
828
734
899
890
697
Arlington-Little Rd
TX 2,146
1,256
Dallas-Goldmark
TX
605
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
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
2,994
3,499
2,532
2,411
3,779
2,933
1,665
1,887
2,481
1,354
3,346
2,478
5,094
3,750
2,818
4,956
4,490
3,092
3,348
2,980
3,640
3,616
2,817
5,074
2,473
86
278
26
17
44
35
29
48
71
38
34
55
416
53
998
43
394
53
30
17
31
18
33
52
21
89
45
28
13
41
38
24
20
73
80
24
38
24
24
Land
1,479
527
1,131
612
1,612
1,215
1,906
470
537
556
754
484
811
719
721
867
982
596
937
707
411
463
601
542
832
617
1,270
929
696
1,220
1,113
766
828
734
899
890
697
1,256
605
63
6,064
2,399
4,635
2,518
6,629
4,983
7,755
1,950
2,254
2,303
3,099
2,032
3,813
2,980
3,992
3,542
2,572
2,464
3,809
2,950
1,696
1,905
2,514
1,406
3,367
2,567
5,139
3,778
2,831
4,997
4,528
3,116
3,368
3,053
3,720
3,640
2,855
5,098
2,497
7,543
2,926
5,766
3,130
8,241
6,198
9,661
2,420
2,791
2,859
3,853
2,516
4,624
3,699
4,713
4,409
3,554
3,060
4,746
3,657
2,107
2,368
3,115
1,948
4,199
3,184
6,409
4,707
3,527
6,217
5,641
3,882
4,196
3,787
4,619
4,530
3,552
6,354
3,102
286
107
223
117
306
205
318
77
88
90
121
80
132
91
89
92
67
64
90
67
33
37
51
29
57
33
65
48
36
65
58
40
43
40
47
47
37
65
32
1998
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
2003
2003
2001
2002
1/13/2006 5 to 40 years
1/10/2006 5 to 40 years
1/10/2006 5 to 40 years
1/10/2006 5 to 40 years
2002/06
2/1/2006 5 to 40 years
2000
1997
3/9/2006 5 to 40 years
4/13/2006 5 to 40 years
2001/04
4/13/2006 5 to 40 years
2002
4/13/2006 5 to 40 years
1997/99
4/13/2006 5 to 40 years
2000
1989
1998
2000
1999
2000
1999
1999
1999
4/26/2006 5 to 40 years
6/29/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
1980/01
6/22/2006 5 to 40 years
2000
1999
2000
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
1998/03
6/22/2006 5 to 40 years
2004
6/22/2006 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
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
Description
Encum
brance
ST
Dallas-Manana
Dallas-Manderville
TX
TX
Ft. Worth-Granbury
TX 1,925
Ft. Worth-Grapevine
TX 2,114
San Antonio-Blanco
TX
San Antonio-Broadway TX
Land
607
1,073
549
644
963
773
San Antonio-Huebner
TX 2,395
1,175
Chattanooga-Lee Hwy II TN
Lafayette-Evangeline
LA
619
699
Montgomery-E.S.Blvd
AL
1,158
Auburn-Pepperell Pkwy AL
Auburn-Gatewood Dr
AL
Columbus-Williams Rd GA
Columbus-Miller Rd
GA
Columbus-Armour Rd
GA
Columbus-Amber Dr
GA
Concord
NH
Construction in progress
Corporate Office
NY
590
694
736
975
0
439
813
0
0
2,472
4,369
2,227
2,609
3,923
3,134
4,723
2,512
2,847
4,691
2,401
2,806
3,015
3,941
3,751
1,785
3,264
0
68
Land
607
1,073
549
644
963
773
1,175
619
699
1,158
590
694
736
975
0
439
820
0
23
38
34
21
24
27
24
18
24
33
6
6
42
22
29
4
10
6,586
10,399
1,608
2,495
4,407
2,261
2,630
3,947
3,161
4,747
2,530
2,871
4,724
2,407
2,812
3,057
3,963
3,780
1,789
3,267
6,586
8,859
3,102
5,480
2,810
3,274
4,910
3,934
5,922
3,149
3,570
5,882
2,997
3,506
3,793
4,938
3,780
2,228
4,087
6,586
32
57
29
34
52
41
60
27
31
30
15
17
19
24
24
11
13
0
10,467
4,411
2004
2003
1998
1999
2004
2000
1998
2002
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
8/7/2006 5 to 40 years
1995/99
8/1/2006 5 to 40 years
1996/97
9/28/2006 5 to 40 years
1998
9/28/2006 5 to 40 years
2002/03
9/28/2006 5 to 40 years
2002/04/06
9/28/2006 5 to 40 years
1995
9/28/2006 5 to 40 years
2004/05
9/28/2006 5 to 40 years
1998
9/28/2006 5 to 40 years
2000
10/31/2006 5 to 40 years
2006
2000
5/1/2000 5 to 40 years
$ 198,211
$ 765,728
$ 179,965
$ 208,644
$ 935,260
$ 1,143,904 $ 155,843
(1) These properties are encumbered through one mortgage loan with an outstanding balance of $44.6 million at December 31, 2006.
(2) These properties are encumbered through one mortgage loan with an outstanding balance of $29.5 million at December 31, 2006.
64
Cost:
Balance at beginning of period .............
Additions during period:
Acquisitions through foreclosure ......
Other acquisitions..............................
Improvements, etc. ............................
$ -
212,957
37,066
December 31, 2006
December 31, 2005
December 31, 2004
$ 893,980
$ 811,516
$ 739,836
$ -
65,001
18,236
250,023
$ -
66,373
18,075
(12,768)
84,448
(12,768)
$811,516
83,237
(773)
$893,980
Deductions during period:
Cost of real estate sold ......................
Balance at close of period .....................
(99)
(99)
$1,143,904
(773)
Accumulated Depreciation:
Balance at beginning of period..............
Additions during period:
Depreciation expense ........................ $ 25,347
$ 130,550
$ 109,750
$ 92,498
$ 21,222
$ 19,175
25,347
21,222
19,175
Deductions during period:
Accumulated depreciation of
real estate sold ....................................
Balance at close of period .....................
(54)
(54)
$ 155,843
(422)
(422)
$ 130,550
(1,923)
(1,923)
$ 109,750
65
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)
2006
Year ended December 31,
2005
2004
2003
2002
$38,872
32,006
(2,512)
68,366
28,501
993
2,512
$32,006
$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
14,664
1,048
5,093
$20,805
2.14
2.31
1.98
1.80
2.08
66
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We consent to the incorporation by reference in the following Registration Statements and related Prospectuses:
(1) Registration Statement (Form S-8 No. 333-21679) of Sovran Self Storage, Inc.
(2) 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,
(3) Registration Statement (Form S-8 No. 333-42270) pertaining to the Deferred Compensation Plan for
Directors of Sovran Self Storage, Inc.,
(4) Registration Statement (Form S-3 No. 333-64735) of Sovran Self Storage, Inc.,
(5) Registration Statement (Form S-8 No. 333-73806) pertaining to the 1995 Award and Option Plan,
(6) Registration Statement (Form S-3 No. 333-97715) of Sovran Self Storage, Inc.,
(7) Registration Statement (Form S-8 No. 333-107464) pertaining to the 1995 Outside Directors' Stock Option
Plan,
(8) Registration Statement (Form S-8 No. 333-138937) pertaining to the 2005 Award and Option Plan,
(9) Registration Statement (Form S-3 No. 333-51169) of Sovran Self Storage, Inc. and Sovran Acquisition
Limited Partnership,
(10) Registration Statement (Form S-3 No. 333-118223) of Sovran Self Storage, Inc. and Sovran Acquisition
Limited Partnership and,
(11) Registration Statement (Form S-3 No. 333-138970) of Sovran Self Storage, Inc.;
of our reports dated March 1, 2007, 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, 2006.
/s/ Ernst & Young LLP
Buffalo, New York
March 1, 2007
67
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 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 1, 2007
/ S / Robert J. Attea
Robert J. Attea
Chairman of the Board and Chief Executive Officer
68
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 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 1, 2007
/ S / David L. Rogers
David L. Rogers
Secretary, Chief Financial Officer
69
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 report on Form 10-K of the Company for the annual period ended December 31, 2006
(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 1, 2007
/ S / Robert J. Attea
Robert J. Attea
Chairman of the Board
Chief Executive Officer
/ S / David L. Rogers
David L. Rogers
Chief Financial Officer
70
Sovran Self Storage, Inc.
Company Information
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
Officers & Directors
Robert J. Attea
Director
Chairman of the Board and
Chief Executive Officer
Kenneth F. Myszka
Director
President and
Chief Operating Officer
David Rogers
Chief Financial Officer
John E. Burns, CPA
Director
President
Altus Capital, L.L.C.
Michael A. Elia
Director
President and
Chief Executive Officer
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 21, 2007
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
1500 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 2006: 80,755
The Chief Executive Officer has previously
filed with the New York Stock Exchange
(NYSE) the annual CEO certification for 2006
as required by section 303A.12(a) of the
NYSE listed company manual.
As of December 31, 2006, there were
approximately 1,500 shareholders of record
of the common stock, and 1 shareholder of
record of the Series C preferred stock.
Photography
Doug Benz
Sovran Self Storage, Inc.
Annual Report 2006
Corporate Headquarters
6467 Main Street
Buffalo, New York 14221
(716) 633-1850
www.sovranss.com