Dear Fellow Shareholder:
In our letter to you last year, we expressed our concerns about a general slowdown in the economy, a
decrease in the availability of equity and debt funding, and a slump in the nation’s housing markets.
While anticipating these issues, we certainly did not foresee the magnitude with which they impacted
the nation’s (and world’s) well being.
Fortunately, as 2008 began, our Company was well positioned to defend against the effects of both
the credit crunch and the recession. Because we have always been conservative in our use of leverage,
in June we were able to consolidate all of our short term and near term debt maturities into an attractive
$250 million long term note and an accompanying $125 million credit line. Now, virtually all of our
loans are at fixed interest rates, we have no significant debt repayments until 2012, and our balance
sheet is among the strongest in the industry. Further, we have sufficient liquidity and capital resources
ready to deploy when we see conditions right for growth.
In July, we expanded our portfolio and the Uncle Bob’s brand through the auspices of a joint venture
we formed with an affiliate of Heitman, LLC, an international leader in real estate investment management.
The venture acquired 25 properties, allowing us to enter the Denver, Columbus and Louisville markets
while growing our presence in Tampa, Miami, Houston, Dallas, San Antonio and Atlanta. We are very
pleased with the arrangement, and look forward to a long and mutually beneficial relationship with
Heitman.
On the operating front, we are in an increasingly competitive battle to win customers. Compared to
most in the industry though, we have the advantage. As a result of our size and scale, we can more
effectively market our spaces by utilizing internet advertising and our centralized call center. Our
enhanced revenue management system and our website with its ‘real time’ rates and availability schedule
enable us to better serve prospective and existing customers – another advantage most of our peers
can’t match. We have been able to further our use of technology to efficiently manage (and reduce)
costs associated with vendor services, payroll, utilities and other property costs.
We plan to grow our Company’s value by focusing on management fundamentals – marketing, pricing,
cost containment and property upkeep. In 2009, our primary focus will be on shoring up occupancy
and maintaining our solid balance sheet while patiently remaining on the ready for opportunities that
are expected to arise from the current calamities in the real estate sector.
We believe that self-storage is a strong and resilient real estate class, and that it serves the needs of all
demographics in all geographic areas in all types of economic conditions. In our 25 years in the business,
we have helped hundreds of thousands of customers with their storage needs, and while we learn every
day, we feel confident that we have the people, the properties and the resources to not only survive
difficult times, but to grow stronger as a result of them.
We appreciate 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, 2008
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, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [
X ]
As of June 30, 2008, 21,890,727 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 $882,013,334 (based on the closing price of the Common Stock on the
New York Stock Exchange on June 30, 2008).
As of February 15, 2009, 22,040,654 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, 2009
(Part III).
1
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9a. Controls and Procedures
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
EX-10.3 – see SEC filing
EX-10.4 – see SEC filing
EX-10.5– see SEC filing
EX-10.13– see SEC filing
EX-12.1
EX-23 .1– see SEC filing
EX-31.1– see SEC filing
EX-31.2– see SEC filing
EX-32.1– see SEC filing
2
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 21E 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 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 in which we have an ownership interest and are managed by us as
"Properties." We began operations on June 26, 1995. We were formed to continue the business of our predecessor
company, which had engaged in the self-storage business since 1985. At February 15, 2009, we held ownership
interests in and managed 385 Properties consisting of approximately 25.0 million net rentable square feet, situated in
24 states. Among our 385 self-storage facilities are 27 properties that we manage for a consolidated joint venture of
which we are a majority owner and 25 properties that we manage for a joint venture of which we are a 20% owner.
We believe 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 own an indirect interest in each of the Properties through a limited partnership (the "Partnership"). In
total, we own a 98.1% economic interest in the Partnership and unaffiliated third parties own collectively a 1.9%
limited partnership interest at December 31, 2008. 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
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. Our customers rent space on a month-to-month basis
3
and 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 the 2009 Self-Storage Almanac, of the approximately 47,500 facilities in the United States,
less than 11% 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 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 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, that provides 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, and which also serve as moving billboards to help advertise our storage
facilities.
Ancillary Income:
Our stores are essentially retail operations and we have in excess of 160,000 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.
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
4
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. 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
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
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.
5
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 our Properties. Any disposition decision will be based on a variety of factors,
including, but not limited to, the (i) potential to continue to increase cash flow and value, (ii) sale price, (iii) strategic
fit with the rest of our portfolio, (iv) potential for, or existence of, environmental or regulatory issues, (v) alternative
uses of capital, and (vi) maintaining qualification as a REIT.
During 2008 we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0
million resulting in a gain of $0.7 million. No storage facilities were sold in 2007 or 2006.
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.
On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received
funds under those arrangements. As part of the agreements, we entered into a $250 million unsecured term note
maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay
the Company’s previous line of credit that was to mature in September 2008, the Company’s term note that was to
mature in September 2009, the term note maturing in July 2008, and to provide for working capital. The new
agreements also provide for a $125 million (expandable to $150 million) revolving line of credit maturing June 2011
bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. At December 31,
2008, there was $111 million available on the unsecured line of credit.
We also maintain an $80 million term note maturing September 2013 bearing interest at a fixed rate of
6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus
1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.
6
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 expanded 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, although certain of our existing term loans contain limits on overall mortgage
indebtedness. 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 1,069 employees, including 385 property managers, 23 area managers, and
531 assistant managers and part-time employees. At our headquarters, in addition to our three senior executive
officers, we employ 127 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.
7
We May Incur Problems with Our Real Estate Financing
Unsecured Credit Facility. We have a line of credit with a syndicate of financial institutions. 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 and bank term note
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.
Recent turmoil in the credit markets could affect our ability to obtain debt financing on reasonable terms
and have other adverse effects on us. The United States credit markets have recently experienced significant
dislocations and liquidity disruptions which have caused the spreads on available debt financings to widen
considerably. These circumstances have materially impacted liquidity in the debt markets, making financing terms
for borrowers less attractive. A prolonged downturn in the credit markets could cause us to seek alternative sources
of potentially less attractive financing, and may require us to adjust our business plan accordingly. Continued
uncertainty in the credit markets may negatively impact our ability to make acquisitions.
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.
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 similar or competing self-storage facilities in an area;
• Changes in market rental rates; and
•
Inability to collect rents from customers.
8
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
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 financing;
• 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
9
factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or
destroyed. Under those circumstances, the insurance proceeds received by us might not be adequate to restore our
economic position with respect to a particular property.
Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs
of removal or remediation of hazardous or toxic substances on, under or in that property. Those laws often impose
liability even if the owner or operator did not cause or know of the presence of hazardous or toxic substances and
even if the storage of those substances was in violation of a tenant’s lease. In addition, the presence of hazardous or
toxic substances, or the failure of the owner to address their presence on the property, may adversely affect the
owner’s ability to borrow using that real property as collateral. In connection with the ownership of the 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 former 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 former Series C preferred stock in connection with
10
these provisions of the MGCL. In addition, under the 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 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 Partnership, this provision of the limited partnership agreement
could have the effect of delaying or preventing us from engaging in some change of control transactions.
Our Failure to Qualify as a REIT Would Have Adverse Consequences
We intend to operate in a manner that will permit us to qualify as a REIT under the Code. Qualification as a
REIT involves the application of highly technical and complex Code provisions for which there are only limited
judicial and administrative interpretations. Continued qualification as a REIT depends upon our continuing ability to
meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our
assets, the sources of our income and the amount of our distributions to our shareholders.
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, 2008, 147 of our 385 self-storage facilities are located in the states of Texas and
Florida. For the year ended December 31, 2008, these facilities accounted for approximately 40.9% of store
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 continue to deteriorate, we will
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
11
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.
Item 1B.
Unresolved Staff Comments
None.
12
Item 2.
Properties
At December 31, 2008, we held ownership interests in and managed a total of 385 Properties situated in
twenty-four states. Among the 385 self-storage facilities are 27 properties that we manage for a consolidated joint
venture of which we are a majority owner and 25 properties that we manage for a joint venture of which we are a
20% 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 21,000 to 187,000 net rentable square
feet, with an average of approximately 65,000 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 in which we have an ownership
interest and manage as of December 31, 2008:
Alabama................................................
Arizona .................................................
Connecticut...........................................
Colorado ...............................................
Florida...................................................
Georgia .................................................
Kentucky...............................................
Louisiana ..............................................
Maine ....................................................
Maryland...............................................
Massachusetts .......................................
Michigan...............................................
Mississippi ............................................
Missouri ................................................
New Hampshire ....................................
New York .............................................
North Carolina ......................................
Ohio ......................................................
Pennsylvania .........................................
Rhode Island .........................................
South Carolina ......................................
Tennessee..............................................
Texas.....................................................
Virginia.................................................
Total....................................................
Number of
Stores at
December 31,
2008
22
9
5
4
57
27
2
14
2
4
14
6
12
7
4
28
15
23
6
4
8
4
90
18
385
Square
Feet
1,602,986
506,034
304,859
276,827
3,652,019
1,717,646
145,708
867,593
114,145
173,181
790,282
348,843
925,621
436,069
260,503
1,598,164
796,123
1,576,639
365,520
167,901
445,528
295,122
6,571,320
1,065,013
25,003,646
Number of
Spaces
11,885
4,474
2,866
2,376
33,327
13,937
1,322
7,744
1,004
2,040
7,178
3,010
7,079
3,786
2,330
14,501
6,959
12,900
2,919
1,567
3,770
2,430
53,847
9,896
213,147
Percentage
of Store
Revenue
5.1%
2.4%
2.1%
0.5%
15.6%
6.3%
0.3%
3.7%
0.5%
0.9%
3.8%
1.2%
3.5%
2.1%
1.0%
8.6%
3.2%
4.4%
1.4%
0.9%
1.8%
1.0%
25.3%
4.4%
100.0%
13
At December 31, 2008, the Properties had an average occupancy of 80.5% and an annualized rent per
occupied square foot of $10.54.
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 matters currently pending against the Company will
have a material adverse impact on our financial condition, results of operations or cash flows.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of
security holders, through the solicitation of proxies or otherwise.
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 2007
1st ..............................................................................
2nd .............................................................................
3rd..............................................................................
4th..............................................................................
Quarter 2008
1st ..............................................................................
2nd .............................................................................
3rd..............................................................................
4th..............................................................................
High
$63.93
56.56
50.25
50.43
High
$44.62
46.50
46.15
44.16
Low
$54.98
47.18
40.40
39.75
Low
$33.56
41.37
35.77
19.18
As of February 15, 2009, there were approximately 1,316 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 2008 represent 76.5% ordinary income,
1.5% section 1250 capital gain, and 22% return of capital.
History of Dividends Declared on Common Stock
1st Quarter, 2007 .......................................................
2nd Quarter, 2007 ......................................................
3rd Quarter, 2007.......................................................
4th Quarter, 2007.......................................................
$0.620 per share
$0.620 per share
$0.630 per share
$0.630 per share
1st Quarter, 2008 .......................................................
2nd Quarter, 2008 ......................................................
3rd Quarter, 2008.......................................................
4th Quarter, 2008.......................................................
$0.630 per share
$0.630 per share
$0.640 per share
$0.640 per share
14
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31, 2008, with respect to equity
compensation plans under which shares of the Company’s Common Stock may be issued.
Plan Category
Equity compensation plans approved by
shareholders:
2005 Award and Option Plan..............................
1995 Award and Option Plan..............................
1995 Outside Directors' Stock Option Plan ........
Deferred Compensation Plan for Directors (1) ...
Equity compensation plans not approved by
shareholders:....................................................
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (#)
Weighted average
exercise price of
outstanding
options, warrants
and rights ($)
Number of
securities
remaining available
for future issuance
(#)
274,163
50,525
36,000
33,512
N/A
$45.72
$26.74
$45.74
N/A
N/A
1,096,464
0
0
35,347
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.
15
CORPORATE PERFORMANCE GRAPH
The following chart and line-graph presentation compares (i) the Company’s shareholder return on an
indexed basis since December 31, 2003 with (ii) the S&P Stock Index and (iii) the National Association of Real
Estate Investment Trusts Equity Index.
250
200
150
100
50
0
Dec. 31, 2003
Dec. 31, 2004
Dec. 31, 2005
Dec. 31, 2006
Dec. 31, 2007
Dec. 31, 2008
S&P 500
NAREIT
SSS
CUMULATIVE TOTAL SHAREHOLDER RETURN
SOVRAN SELF STORAGE, INC.
DECEMBER 31, 2003 - DECEMBER 31, 2008
S&P
NAREIT
SSS
Dec. 31,
2003
Dec. 31,
2004
Dec. 31,
2005
Dec. 31,
2006
Dec. 31,
2007
Dec. 31,
2008
100.00
100.00
100.00
110.87
131.58
119.93
116.32
147.59
141.39
134.69
199.33
180.83
142.09
168.05
132.79
89.52
104.65
126.89
The foregoing item assumes $100.00 invested on December 31, 2003, with dividends reinvested.
16
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 operations (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,
2008
2007
2006
2005
2004
$ 203,003
36,605
794
37,399
$ 192,857
38,780
434
39,214
$ 165,369 $ 137,373 $ 122,381
30,232
1,772
32,004
34,318
472
34,790
36,163
447
36,610
1.68
1.72
1.72
2.54
1.79
1.81
1.81
2.50
1.87
1.90
1.89
2.47
1.81
1.86
1.84
2.44
1.41
1.54
1.53
2.42
Balance Sheet Data
Investment in storage facilities at cost........ $1,389,201
1,212,626
Total assets .................................................
623,261
Total debt....................................................
692,479
Total liabilities............................................
-
Series C preferred stock..............................
$1,322,708
1,164,588
566,517
610,757
-
$1,136,052
1,053,159
462,027
495,301
26,613
$886,191
784,319
339,144
364,980
26,613
$804,106
719,514
289,075
315,049
53,227
Other Data
Net cash provided by operating activities...
Net cash used in investing activities ...........
Net cash provided by (used in)
$77,132
(82,711)
$85,175
(190,267)
$64,656
(176,567)
$60,724
(79,156)
$54,803
(71,034)
financing activities ................................
6,055
61,372
154,730
20,238
(765)
(1) In 2008 we sold one store and in 2004 we sold five stores whose operations and gain are classified as
discontinued operations for all previous years presented.
17
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 21E 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 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:
-
-
-
Revenues continue to improve as a result of drivers implemented by us, including:
-
Our Customer Care Center, which answers sales inquiries and makes reservations for all of
our properties on a centralized basis,
The Uncle Bob’s truck move-in program, under which, at present, 259 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.
18
B. Acquiring additional stores:
-
-
-
In conjunction with the joint venture agreement entered in late May 2008, potential acquisition
opportunities over the first nine months of the agreement will be offered to the joint venture. The
Company’s acquisitions over this period will therefore be limited to facilities that do not fit the joint
venture’s investment objectives, but do meet ours.
Our objective is to acquire new stores one or two at a time in markets we currently operate in. 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 may also 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 our management business:
-
We see our management business as a source of future acquisitions. We may develop additional
joint ventures in which we are minority owners and managers of the self-storage facilities acquired
by these joint ventures. The joint venture agreements will give us first right of refusal to purchase
the managed properties in the event they are offered for sale.
D.
Expanding and enhancing our existing stores:
-
Over the past four years, we have undertaken an announced program of expanding and enhancing
our properties. Primarily, we have worked to add premium storage (i.e., air-conditioned and/or
humidity controlled) space to our portfolio. In 2007, we expended approximately $25 million to add
some 444,000 square feet of such space to our properties; in 2008, we spent approximately $26
million to add 403,000 square feet and to convert 95,000 square feet to premium storage. The
program entailed construction of new buildings, acquisition of parcels of land contiguous to stores
deemed suitable for expansion, and demolition of certain structures to make room for more optimally
configured spaces. In 2009, we expect to curtail our expansion program with new expenditures of
approximately $15 million on projects that began in 2008.
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. The current turmoil in the credit markets
has resulted in a decrease in new supply on a national basis. With the decrease of debt and equity capital brought
about by the credit market tightening in the past year, we have seen capitalization rates on acquisitions (expected
annual return on investment) increase to approximately 7.5% and expect continued increases in 2009. From 2003
to 2007 the historically low interest rates available to developers resulted in increased supply on a national basis.
We experienced some of this excess supply in certain markets in Texas and Florida from 2003 to 2007, but because
of the demand model, we did not see a widespread effect on our stores in those years. In 2008, the Florida market
was negatively effected by the current economic downturn and we expect many markets will be effected in 2009 as
consumers continue to pull back spending.
Operating Trends
In 2008 and 2007, our industry experienced some softness in demand. This was due to the economic
slowdown that began in late 2007, and in part to regional issues, such as the reduction of hurricane driven demand in
Florida and the Gulf Coast states, and to an overall slowdown in the housing sector. We believe the housing
slowdown has impacted our industry in two ways: 1.) a reduction in lease-up activity resulting from fewer
residential real estate transactions (both buyers and sellers of residences use our product in times of transition) and
2.) a contraction of housing construction activity which has reduced the number of people working in the
19
construction trades (trades people are a measurable part of our usual tenant base.)
While we enjoyed same store revenue growth of approximately 3% to 5% in each of the prior five years,
we were only able to achieve 0.5% same store revenue growth in 2008, primarily because of the aforementioned
issues. We expect conditions in most of our markets to remain challenging and are forecasting -1% to -2% revenue
growth on a same store basis in 2009.
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). While we do not foresee further expansion of our cost base, we do expect the trend of
increasing expenses to continue at a pace commensurate with CPI growth. Because almost all of our costs are fixed,
should revenue growth fall significantly, operating margins will be reduced.
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, 2008 and 2007, 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, 2008 COMPARED TO
YEAR ENDED DECEMBER 31, 2007
We recorded rental revenues of $195.2 million for the year ended December 31, 2008, an increase of $8.6
million or 4.6% when compared to 2007 rental revenues of $186.6 million. Of the increase in rental revenue, $1.2
million resulted from a 0.7% increase in rental revenues at the 326 core properties considered in same store sales
(those properties included in the consolidated results of operations since January 1, 2007). The increase in same
store rental revenues was achieved primarily through rate increases on select units averaging 1.9%, offset by a
decrease in square foot occupancy of 150 basis points, which we believe resulted from general economic conditions,
20
in particular the housing sector. The remaining $7.4 million increase in rental revenues resulted from the acquisition
of three stores during 2008 and from having the 31 stores acquired in 2007 included for a full year of operations.
Other income, which includes merchandise sales, insurance commissions, truck rentals, management fees and
acquisition fees, increased in 2008 primarily as a result of $1.1 million of management and acquisition fees
generated from our unconsolidated joint venture, Sovran HHF Storage Holdings LLC.
Property operating and real estate tax expense increased $5.1 million, or 7.3%, in 2008 compared to 2007.
Of this increase, $2.7 million were expenses incurred by the facilities acquired in 2008 and from having expenses
from the 2007 acquisitions included for a full year of operations. $2.4 million of the increase was due to increased
payroll, property taxes, utilities, and maintenance expenses at the 326 core properties considered same stores. We
expect same-store operating costs to increase only moderately in 2009 with increases primarily attributable to
utilities and property taxes.
General and administrative expenses increased $2.0 million or 13.4% from 2007 to 2008. The increase
primarily resulted from the costs associated with operating the properties acquired in 2008 and 2007, and from
managing the 25 properties acquired by our joint venture in 2008.
Depreciation and amortization expense increased to $34.4 million in 2008 from $33.9 million in 2007,
primarily as a result of additional depreciation taken on real estate assets acquired in 2008, and a full year of
depreciation on 2007 acquisitions, offset by a decrease in amortization of in-place customers leases relating to these
acquisitions.
Interest expense increased from $33.9 million in 2007 to $38.1 million in 2008 as a result of additional
borrowings under our line of credit and term notes to purchase three stores in 2008, as well as an increase in interest
rates as a result of our debt refinancing in June 2008.
As described in Note 5 to the financial statements, in 2008, the Company sold one non-strategic storage
facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The 2007
operations of this facility are reported as discontinued operations.
The decrease in preferred stock dividends from 2007 to 2008 was a result of the conversion of
all remaining 1,200,000 shares of our Series C Preferred Stock into 920,244 shares of common stock in July 2007.
YEAR ENDED DECEMBER 31, 2007 COMPARED TO
YEAR ENDED DECEMBER 31, 2006
We recorded rental revenues of $186.6 million for the year ended December 31, 2007, an increase of $26.6
million or 16.6% when compared to 2006 rental revenues of $160.0 million. Of the increase in rental revenue, $4.8
million resulted from a 3.2% increase in rental revenues at the 284 core properties considered in same store sales
(those properties included in the consolidated results of operations since January 1, 2006). The increase in same
store rental revenues was achieved primarily through rate increases on select units averaging 4.4%, offset by a
decrease in square foot occupancy of 175 basis points, which we believe resulted from general economic conditions,
in particular the housing sector, and the return to normalcy in Florida after the hurricanes. 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 results for the year ended December 31, 2007 was $1.7 million
higher than that included in 2006 as a result of the consolidation in April 2006. The remaining $20.1 million
increase in rental revenues resulted from the acquisition of 31 stores during 2007 and from having the 42 stores
acquired in 2006 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.
Property operating and real estate tax expense increased $10.7 million, or 18.1%, in 2007 compared to
2006. Of this increase, $8.2 million were expenses incurred by the facilities acquired in 2007 and from having
expenses from the 2006 acquisitions included for a full year of operations. $1.9 million of the increase was due to
increased property insurance, utilities, maintenance expenses, and increased property taxes at the 284 core properties
21
considered same stores. The property operating and real estate tax expense related to Locke Sovran I that was
included in our results for the year ended December 31, 2007, was $0.6 million higher than that included in 2006 as
a result of the consolidation in April 2006.
General and administrative expenses increased $1.1 million or 8.1% from 2006 to 2007. The increase
primarily resulted from the costs associated with operating the properties acquired in 2007 and 2006.
Depreciation and amortization expense increased to $33.9 million in 2007 from $25.2 million in 2006,
primarily as a result of additional depreciation taken on real estate assets acquired in 2007, a full year of
depreciation on 2006 acquisitions, and the amortization of in-place customers leases relating to these acquisitions.
Interest expense increased from $29.5 million in 2006 to $33.9 million in 2007 as a result of higher interest
rates, additional borrowings under our line of credit and term notes to purchase 31 stores in 2007, and the
consolidation of Locke Sovran I, LLC as of April 1, 2006.
The casualty gain recorded in 2007 relates to insurance proceeds received in excess of the carrying value of
a building damaged by a fire at one of our facilities.
The decrease in preferred stock dividends from 2006 to 2007 was a result of the conversion of
all remaining 1,200,000 shares of our Series C Preferred Stock into 920,244 shares of common stock in July 2007.
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.
22
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
For Year Ended December 31,
2004
2006
2007
2005
2008
$37,399
2,284
$39,214
2,631
$36,610
2,434
$34,790
1,529
$32,004
1,542
34,421
33,851
25,121
21,040
19,002
discontinued operations........................
46
185
184
182
263
Depreciation and amortization from
unconsolidated joint ventures...............
Casualty gain ...........................................
Gain on sale of real estate........................
Preferred stock dividends ........................
Redemption amount in excess of
carrying value of Series B Preferred
Stock ....................................................
Funds from operations allocable to
minority interest in Operating
Partnership ...........................................
Funds from operations allocable to
minority interest in Locke Sovran I
and Locke Sovran II.............................
Funds from operations available to
333
-
(716)
-
59
(114)
-
(1,256)
168
-
-
(2,512)
484
-
-
(4,123)
473
-
(1,137)
(7,168)
-
-
-
-
(1,415)
(1,366)
(1,425)
(1,450)
(1,519)
(1,333)
(1,564)
(1,848)
(1,785)
(1,499)
(1,475)
common shareholders ..........................
$70,837
$71,297
$58,770
$50,884
$40,756
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 and our availability on our line of
credit will continue to be sufficient to fund ongoing operations, capital improvements, dividends and debt service
requirements through June 2011, at which time our revolving line of credit matures.
Cash flows from operating activities were $77.1 million, $85.2 million and $64.7 million for the years
ended December 31, 2008, 2007, and 2006, respectively. The decrease in operating cash flows from 2007 to 2008
was primarily due to a decrease in net income and accounts payable remaining consistent from year to year. The
increase in operating cash from 2006 to 2007 was primarily attributable to increased net income, increased non-cash
charges for depreciation and amortization, an increase in accounts payable related to property taxes, and a decrease
in prepaid insurance.
Cash used in investing activities was $82.7 million, $190.3 million, and $176.6 million for the years ended
December 31, 2008, 2007, and 2006 respectively. The decrease in cash used from 2007 to 2008 was attributable to
reduced acquisition activity in 2008 as many of the properties acquired were acquired through a joint venture of
which we are a 20% owner. The increase from 2006 to 2007 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 $6.0 million in 2008 compared to $61.4 million in 2007 and
$154.7 million in 2006, respectively. Our reduced acquisition activity in 2008 was the driver behind the decrease in
cash provided from financing activities from 2007 to 2008. The decrease in cash provided from financing activities
from 2006 to 2007 was a result of the proceeds received from our common stock offering in December of 2006
noted below.
On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received
23
funds under those arrangements. As part of the agreements, we entered into a $250 million unsecured term note
maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay
the Company’s previous line of credit that was to mature in September 2008, the Company’s term note that was to
mature in September 2009, the term note maturing in July 2008, and to provide for working capital. The new
agreements also provide for a $125 million (expandable to $150 million) revolving line of credit maturing June 2011
bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. The revolving line
of credit maturity can be extended at our option until June 2012. At December 31, 2008, there was $111 million
available on the unsecured line of credit.
We also maintain a $80 million term note maturing September 2013 bearing interest at a fixed rate of
6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus
1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.
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
2006 common stock offering were used along with 2007 borrowings under our line of credit to fund 2007
acquisitions.
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, 2008, we were in compliance with all covenants.
In addition to the unsecured financing mentioned above, our consolidated financial statements also include
$109.3 million of mortgages payable as detailed below:
*
7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an
aggregate net book value of $43.8 million, principal and interest paid monthly. The outstanding balance
at December 31, 2008 on this mortgage was $29.0 million.
*
7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an
*
*
*
aggregate net book value of $81.2 million, principal and interest paid monthly. The outstanding balance
at December 31, 2008 on this mortgage was $42.6 million.
7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value
of $5.8 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%.
The outstanding balance at December 31, 2008 on this mortgage was $3.5 million.
6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value
of $2.0 million, principal and interest paid monthly. The outstanding balance at December 31, 2008 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
$3.8 million, principal and interest paid monthly. The outstanding balance at December 31, 2008 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 $34.9 million, interest only paid monthly. Estimated market rate at time of acquisition 6.44%.
The outstanding balance at December 31, 2008 on this mortgage was $25.9 million.
*
7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value
of $14.3 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%.
The outstanding balance at December 31, 2008 on this mortgage was $6.1 million.
24
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 7.50% mortgage
notes in connection with the acquisitions of storage facilities in 2005 and 2006.
On July 7, 2007, we issued 920,244 shares of our common stock to the holder of our 8.375% Series C
Preferred Stock upon the holder's election to convert the remaining 1,200,000 shares of Series C Preferred Stock
into common stock. As a result of the 2007 conversion, $26.6 million recorded in shareholders' equity as 8.375%
Series C Convertible Cumulative Preferred Stock was reclassified to additional paid-in capital in July 2007.
During 2008, we issued approximately 285,000 shares via our Dividend Reinvestment and Stock Purchase
Plan and Employee Stock Option Plan. We received $10.7 million from the sale of such shares. We expect to issue
shares when our share price and capital needs warrant such issuance.
During 2008 and 2007, 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, 2008, 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.
Future acquisitions, our expansion and enhancement program, and share repurchases are expected to be
funded with draws on our line of credit, sale of properties and private placement solicitation of joint venture equity.
Current capital market conditions may prevent us from accessing other traditional sources of capital including the
issuance of common and preferred stock and the issuance of unsecured term notes. Should these capital market
conditions persist, we may have to curtail acquisitions, our expansion and enhancement program, and share
repurchases as we approach June 2011, when our line of credit matures.
CONTRACTUAL OBLIGATIONS
The following table summarizes our future contractual obligations:
Contractual
obligations
Total
2009
2010-2011
2012-2013
2014 and thereafter
Payments due by period
Line of credit............
Term notes ...............
Mortgages payable ...
Interest payments .....
Land lease ................
Building leases .........
Total .........................
$14.0 million
$500.0 million
$109.3 million
$136.2 million
$1.1 million
$3.9 million
$764.5 million
-
-
$28.0 million
$28.8 million
$0.1 million
$0.6 million
$57.5 million
$14.0 million
-
$40.3 million
$53.3 million
$0.1 million
$0.3 million
$108.0 million
-
$350.0 million
$40.0 million
$32.6 million
$0.1 million
$0.1 million
$422.8 million
-
$150.0 million
$1.0 million
$21.5 million
$0.8 million
$2.9 million
$176.2 million
Interest payments includes actual interest on fixed rate debt and estimated interest for floating-rate debt
based on December 31, 2008 rates.
ACQUISITION OF PROPERTIES
During 2008, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the
bank term note, and proceeds from our Dividend Reinvestment and Stock Purchase Plan to acquire three Properties
in Mississippi and Ohio comprising 0.2 million square feet from unaffiliated storage operators. During 2007, we
used operating cash flow, borrowings pursuant to the line of credit, borrowings under the bank term note, proceeds
from our Dividend Reinvestment and Stock Purchase Plan, and proceeds from the December 2006 common stock
offering to acquire 31 Properties in Alabama, Florida, Mississippi, New York, and Texas comprising 2.3 million
square feet from unaffiliated storage operators. 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,
25
New Hampshire, New York, Tennessee, and Texas comprising 2.6 million square feet from unaffiliated storage
operators.
FUTURE ACQUISITION AND DEVELOPMENT PLANS
Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities
in markets in which we already have operations, or to expand in new markets by acquiring several facilities at once
in those new markets. In conjunction with the joint venture agreement entered in May 2008 (see Note 13 to the
financial statements), potential acquisition opportunities over the first nine months of the agreement will be offered
to the joint venture. The Company’s acquisitions over this period will therefore be limited to facilities that do not fit
the joint venture’s investment objectives, but do meet ours. In 2008, the Company’s joint venture (Sovran HHF
Storage Holdings LLC) acquired 25 properties for approximately $171.5 million. The Company’s equity
contribution to the joint venture for these purchases was approximately $18.6 million, which was financed through
draws on our line of credit.
In 2008 we continued our program of expanding and enhancing our existing properties. During 2008 we
spent approximately $25.6 million on such revenue enhancing improvements. In 2009 we expect to curtail our
expansion of current properties with total new expenditures less than $15 million on projects started in 2008.
Funding of the expansions are 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.
DISPOSITION OF PROPERTIES
During 2008, we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0
million resulting in a gain of $0.7 million. In 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 through 2007.
We may seek to sell additional Properties to joint venture programs or third parties in 2009.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a
joint venture that was formed in May 2008 to acquire self-storage properties that will be managed by the Company.
The carrying value of the Company’s investment at December 31, 2008 was $20.1 million. Twenty five properties
were acquired by Sovran HHF as of December 31, 2008 for approximately $171.5 million. The Company
contributed $18.6 million to the joint venture as its share of capital required to fund the acquisitions.
As manager of Sovran HHF, the Company earns a management and call center fee of 7% of gross revenues
which totaled $0.5 million for 2008. The Company also received an acquisition fee of 0.5% of purchase price for
securing purchases for the joint venture. During 2008, the Company recorded $0.6 million in acquisition fees. The
Company’s share of Sovran HHF’s income for 2008 was $0.1 million. At December 31, 2008, Sovran HHF owed
the Company $0.3 million for payments made by the Company on behalf of the joint venture for normal operating
expenses of the joint venture.
The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building
that houses the Company's headquarters and other tenants. The Company's investment includes a capital
contribution of $49. The carrying value of the Company's investment is a liability of $0.5 million at December 31,
2008 and $0.4 million at December 31, 2007, and is included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets. For the years ended December 31, 2008, 2007 and 2006, the Company's
share of Iskalo Office Holdings, LLC's (loss) income was ($6,000), $80,000, and $80,000, respectively. The
Company paid rent to Iskalo Office Holdings, LLC of $600,000, $561,000 and $583,000 in 2008, 2007, and 2006,
respectively. Future minimum lease payments under the lease are $0.6 million per year through 2010.
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
26
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. In June 2008, the Company made an
additional investment of $6.1 million in Locke Sovran I, LLC that increased the Company's ownership from
approximately 70% to 100%. 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, 2008 is as follows:
(dollars in thousands)
Balance Sheet Data:
Investment in storage facilities, net
Investment in office building
Other assets
Total Assets
Due to the Company
Mortgages payable
Other liabilities
Total Liabilities
Unaffiliated partners' equity (deficiency)
Company equity (deficiency)
Total Liabilities and Partners' Equity (deficiency)
Income Statement Data:
Total revenues
Total expenses
Net income (loss)
Sovran HHF
Storage
Holdings LLC
Iskalo Office
Holdings, LLC
$ 170,176
-
3,912
$ 174,088
=======
$ 336
79,937
1,942
82,215
73,499
18,374
$ 174,088
=======
$ -
5,507
568
$ 6,075
=======
$ -
7,169
168
7,337
(718)
(544)
$ 6,075
======
$ 6,652
6,301
$ 351
=======
$ 1,127
1,139
$ (12)
======
We do not expect to have material future cash outlays relating to these joint ventures outside our share of
capital for future acquisitions of properties by Sovran HHF. We do not guarantee the debt of Sovran HHF or Iskalo
Office Holdings, LLC. A summary of our cash flows arising from the off-balance sheet arrangements with Sovran
HHF and Iskalo Office Holdings, LLC for the three years ended December 31, 2008, and with Locke Sovran I, LLC
for the three months ended March 31, 2006 (the date prior to which it began to be included in our consolidated
results of operations) are as follows:
(dollars in thousands)
Year ended December 31,
2008
2007
2006
Statement of Operations
Other income (management fees and acquisition fee income) ....
General and administrative expenses (corporate office rent).......
Equity in income of joint ventures...............................................
Distributions from unconsolidated joint ventures ........................
Investing activities
Investment in joint ventures.........................................................
(Advances to) reimbursement of advances to joint ventures .......
$ 1,135
600
104
345
(20,287)
(336)
$ -
561
119
98
-
-
$85
583
172
123
-
17
27
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS
As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders,
provided that the amount distributed is equal to at least 90% of our taxable income. These distributions must be
made in the year to which they relate, or in the following year if declared before we file our federal income tax
return, and if it is paid before the first regular dividend of the following year. The first distribution of 2008 may be
applied toward our 2007 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 2008, our percentage of revenue from such sources was approximately 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 variable rate debt. At December 31, 2008, we have seven outstanding interest rate swap agreements as
summarized below:
Notional Amount
Effective Date
Expiration Date
$50 Million ...........................
$20 Million ...........................
$50 Million ...........................
$50 Million ...........................
$100 Million .........................
$75 Million ...........................
$25 Million ...........................
11/14/05
9/4/05
10/10/06
7/1/08
7/1/08
9/1/09
9/1/09
9/1/09
9/4/13
9/1/09
6/25/12
6/22/12
6/22/12
6/22/12
Fixed
Rate Paid
Floating Rate
Received
4.3900%
4.4350%
4.4800%
4.2825%
4.2965%
4.7100%
4.2875%
1 month LIBOR
6 month LIBOR
1 month LIBOR
1 month LIBOR
1 month LIBOR
1 month LIBOR
1 month LIBOR
Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we
negotiate with the lenders; however, the LIBOR base rates have been contractually fixed on $270 million of our debt
through the interest rate swap termination dates.
Through June 2012, $500 million of our $514 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 $514 million at
December 31, 2008, a 100 basis point increase in interest rates would increase our interest expense $0.1 million
annually.
The table below summarizes our debt obligations and interest rate derivatives at December 31, 2008. 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.
28
(dollars in thousands)
2009
2010
2011
2012
2013
Thereafter
Total
Fair
Value
Expected Maturity Date Including Discount
Line of credit - variable rate LIBOR + 1.375....
-
-
$14,000
-
-
-
$14,000
$14,000
Notes Payable:
Term note - variable rate LIBOR+1.625%........
Term note - variable rate LIBOR+1.50%..........
Term note - fixed rate 6.26%.............................
Term note - fixed rate 6.38%.............................
-
-
-
-
-
-
-
-
-
-
-
-
Mortgage note - fixed rate 7.80% ......................
$ 587
$ 630
$ 27,816
-
-
-
-
$250,000
-
$ 20,000
$ 80,000
-
-
-
$250,000
$250,000
$ 20,000
$ 20,000
$ 80,000
$ 78,865
-
$ 150,000
$150,000
$147,899
Mortgage note - fixed rate 7.19% ......................
$ 1,128
$ 1,211
$ 1,301
$ 38,963
Mortgage note - fixed rate 7.25% ......................
$ 141
$ 149
$ 3,220
-
Mortgage note - fixed rate 6.76% ......................
$ 23
$ 25
$ 27
$ 29
$ 896
-
-
-
-
-
-
-
$ 29,033
$ 30,031
$ 42,603
$ 44,205
$ 3,510
$ 3,478
$ 1,000
$ 1,018
Mortgage note - fixed rate 6.35% ......................
$ 26
$ 28
$ 30
$ 31
$ 34
$ 949
$ 1,098
$ 1,100
Mortgage notes - fixed rate 5.55% ....................
$ 25,930
-
-
Mortgage notes - fixed rate 7.50% ....................
$ 208
$ 222
$ 5,657
Interest rate derivatives – liability .....................
-
-
-
-
-
-
-
-
-
-
-
-
$ 25,930
$ 26,422
$ 6,087
$ 6,188
-
$ 25,490
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, FASB Statement 157, “Fair Value Measurements” (“SFAS 157”) was issued. SFAS
157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to
assets and liabilities. SFAS 157, which does not require any new fair value measurements, clarifies the application
of other accounting pronouncements that require or permit fair value measurements. The effective date for the
Company is January 1, 2008 for all financial instruments – see Note 10 to our Consolidated Financial Statements.
However, the FASB has delayed the effective date of Statement 157 for all nonfinancial assets and nonfinancial
liabilities until fiscal years beginning after November 15, 2008. The Company is evaluating the impact of adopting
SFAS 157 on its consolidated financial statements for nonfinancial assets and nonfinancial liabilities.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities to voluntarily choose, at specified election dates, to
measure many financial assets and liabilities at fair value. The effective date for the Company is January 1, 2008.
The adoption of SFAS 159 did not impact the Company’s consolidated financial statements.
29
In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements” (SFAS No. 160), which amends Accounting Research Bulletin No. 51, “Consolidated Financial
Statements”, to improve the relevance, comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. SFAS No. 160 establishes accounting and reporting
standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled
and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity.
This statement also requires the amount of consolidated net income attributable to the parent and to the non-
controlling interest to be clearly identified and presented on the face of the consolidated statement of income. This
Statement applies prospectively to all entities that prepare consolidated financial statements and applies
prospectively for fiscal years, and interim periods within those fiscal years, beginning January 1, 2009 for the
Company. The Company is evaluating the impact of SFAS 160 on its consolidated financial statements.
In December 2007, the FASB Statement 141R, “Business Combinations” (“SFAS 141R”) was issued.
SFAS 141R replaces SFAS 141. SFAS 141R requires the acquirer of a business to recognize and measure the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at fair value.
SFAS 141R also requires transactions costs related to the business combination to be expensed as incurred. SFAS
141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008. The effective date for the Company will
be January 1, 2009. We have not yet determined the impact of SFAS 141R related to future acquisitions, if any, on
our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands quarterly
disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No.
161 is effective for the Company as of January 1, 2009. The Company is currently assessing the impact of SFAS No.
161 on our consolidated financial statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The information required is incorporated by reference to the information appearing under the caption
"Interest Rate Risk" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" above.
30
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, 2008 and 2007, and the related consolidated statements of operations, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2008. 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, 2008 and 2007, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Sovran Self Storage, Inc.’s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 25, 2009 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
February 25, 2009
31
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 unconsolidated joint venture ..............................................
Investment in unconsolidated joint venture ...................................................
Prepaid expenses ...........................................................................................
Other assets....................................................................................................
Net assets of discontinued operations............................................................
Total Assets .................................................................................................
Liabilities
Line of credit .................................................................................................
Term notes .....................................................................................................
Accounts payable and accrued liabilities.......................................................
Deferred revenue ...........................................................................................
Fair value of interest rate swap agreements...................................................
Accrued dividends .........................................................................................
Mortgages payable.........................................................................................
Total Liabilities ...........................................................................................
December 31,
2007
2008
$ 240,525
1,148,676
1,389,201
(216,644)
1,172,557
4,486
2,971
14
336
20,111
4,691
7,460
-
$ 1,212,626
$ 14,000
500,000
23,979
5,659
25,490
14,090
109,261
692,479
$ 236,349
1,086,359
1,322,708
(183,679)
1,139,029
4,010
2,794
27
-
-
4,771
7,574
6,383
$ 1,164,588
$ 100,000
356,000
23,752
5,602
1,230
13,656
110,517
610,757
Minority interest – Operating Partnership .....................................................
Minority interest – consolidated joint venture ...............................................
9,265
13,082
9,659
16,783
Shareholders' Equity
Common stock $.01 par value, 100,000,000 shares authorized, 22,016,348
shares outstanding (21,676,586 at December 31, 2007) ............................
Additional paid-in capital ..............................................................................
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.
232
666,633
(116,728)
(25,162)
(27,175)
497,800
$ 1,212,626
228
654,141
(98,437)
(1,368)
(27,175)
527,389
$ 1,164,588
32
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
2008
2007
2006
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 .....................................................
$ 195,220
7,783
203,003
$ 186,581
6,276
192,857
$ 160,011
5,358
165,369
55,739
19,004
17,279
34,421
126,443
52,317
17,370
15,234
33,851
118,772
43,833
15,166
14,095
25,163
98,257
Income from operations.........................................................
76,560
74,085
67,112
Other income (expenses)
Interest expense ......................................................................
Interest income .......................................................................
Casualty gain ..........................................................................
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
disposal of $716 in 2008) .....................................................
Net income.............................................................................
Preferred stock dividends .......................................................
Net income available to common shareholders ......................
Earnings per common share - basic
Continuing operations.............................................................
Discontinued operations .........................................................
Earning per share - basic.......................................................
Earnings per common share - diluted
Continuing operations.............................................................
Discontinued operations .........................................................
Earning per share - diluted....................................................
(38,097)
322
-
(721)
(1,563)
104
(33,861)
954
114
(783)
(1,848)
119
(29,494)
807
-
(905)
(1,529)
172
36,605
38,780
36,163
794
37,399
-
$ 37,399
434
39,214
(1,256)
$ 37,958
447
36,610
(2,512)
$ 34,098
$ 1.68
0.04
$ 1.72
$ 1.68
0.04
$ 1.72
$ 1.79
0.02
$ 1.81
$ 1.79
0.02
$ 1.81
$ 1.87
0.03
$ 1.90
$ 1.86
0.03
$ 1.89
Dividends declared per common share ...............................
$ 2.54
$ 2.50
$ 2.47
See notes to financial statements.
33
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
Balance January 1, 2006 ......................................................
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 ................................................
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 .....................................
Stock option expense............................................................
Deferred compensation outside directors.............................
Conversion of Series C Preferred Stock to common stock
and exercise of related stock warrants.............................
Conversion of operating partnership units to common
stock..................................................................................
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, 2007 ................................................
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 .....................................
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, 2008 ................................................
See notes to financial statements
8.375% Series
C Preferred
Stock
Shares
8.375% Series C
Preferred
Stock
Common
Stock
Shares
Common
Stock
1,200,000
-
$ 26,613
-
17,563,046
2,300,000
$ 187
23
-
-
-
-
-
-
-
-
-
-
-
-
1,200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,613
-
-
-
-
-
-
(1,200,000)
(26,613)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
501,089
37,675
-
41,719
-
-
-
-
-
-
-
-
20,443,529
252,816
13,100
43,989
-
-
-
920,244
2,908
-
-
-
-
-
21,676,586
285,308
2,600
45,713
-
-
6,141
-
-
-
-
-
22,016,348
5
-
-
1
-
-
-
-
-
-
-
-
216
3
-
-
-
-
-
9
-
-
-
-
-
-
228
3
-
1
-
-
-
-
-
-
-
-
$ 232
34
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Paid-in
Capital
Non-
vested
Stock
Dividends in
Excess of
Net Income
Accumulated
Other
Comprehensive
Income (loss)
Treasury
Stock
$ 466,839
122,388
$ (1,838)
-
$ (71,995)
-
$ 1,454
-
$(27,175)
-
24,862
1,142
(1,838)
(1)
876
119
181
(1,830)
-
-
-
-
612,738
12,756
425
-
1,224
183
161
26,604
167
(117)
-
-
-
-
654,141
10,654
72
-
1,444
279
112
(69)
-
-
-
-
$ 666,633
-
-
1,838
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
-
-
-
-
-
-
-
-
36,610
-
-
(48,224)
(83,609)
-
-
-
-
-
-
-
-
-
39,214
-
-
(54,042)
(98,437)
-
-
-
-
-
-
-
37,399
-
-
(55,690)
$ (116,728)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
674
-
-
2,128
-
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,496)
-
-
(1,368)
-
-
-
-
-
(27,175)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(23,794)
-
-
$ (25,162)
-
-
-
-
-
$ (27,175)
Total
Equity
$ 394,085
122,411
24,867
1,142
-
-
876
119
181
(1,830)
36,610
674
37,284
(48,224)
530,911
12,759
425
-
1,224
183
161
-
167
(117)
39,214
(3,496)
35,718
(54,042)
527,389
10,657
72
1
1,444
279
112
(69)
37,399
(23,794)
13,605
(55,690)
$497,800
35
SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Operating Activities
Net income .....................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ........................................................................................
Gain on sale .....................................................................................................................
Casualty gain ...................................................................................................................
Equity in income of joint ventures..................................................................................
Distributions from unconsolidated joint venture ............................................................
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.......................................................................
Investing Activities
Acquisition of storage facilities .....................................................................................
Improvements, equipment additions, and construction in progress ..............................
Net proceeds from the sale of storage facility ...............................................................
Casualty insurance proceeds received ...........................................................................
Investment in unconsolidated joint venture ...................................................................
Additional investment in consolidated joint ventures net of cash acquired ..................
(Advances to) reimbursement of advances to joint ventures.........................................
Reimbursement of (payment of) property deposits .......................................................
Receipts from related parties..........................................................................................
Net cash used in investing activities ...............................................................................
Financing Activities
Net proceeds from sale of common stock......................................................................
Proceeds from line of credit ...........................................................................................
Repayment of line of credit and term note ....................................................................
Proceeds from term notes...............................................................................................
Financing costs...............................................................................................................
Dividends paid - common stock.....................................................................................
Dividends paid - preferred stock....................................................................................
Minority interest distributions........................................................................................
Redemption of operating partnership units....................................................................
Mortgage principal and capital lease payments.............................................................
Net cash provided by financing activities.......................................................................
Net increase (decrease) in cash .......................................................................................
Cash at beginning of period ............................................................................................
Cash at end of period ......................................................................................................
Year Ended December 31,
2006
2007
2008
$ 37,399
$ 39,214
$ 36,610
35,659
(716)
-
(104)
345
2,284
1,444
279
(171)
118
619
(24)
77,132
(18,547)
(45,709)
7,002
-
(20,287)
(6,106)
(336)
1,259
13
(82,711)
10,842
14,000
(206,000)
250,000
(3,085)
(55,256)
-
(2,633)
(114)
(1,699)
6,055
476
4,010
$ 4,486
34,999
-
(114)
(119)
98
2,631
1,224
183
(599)
822
7,082
(246)
85,175
(138,059)
(52,441)
-
1,692
-
-
-
(1,469)
10
(190,267)
13,345
112,000
(12,000)
6,000
(316)
(51,805)
(1,256)
(2,912)
(174)
(1,510)
61,372
(43,720)
47,730
$ 4,010
26,340
-
-
(172)
123
2,434
876
119
(407)
(2,029)
1,011
(249)
64,656
(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)
(2,815)
(2,788)
(1,286)
154,730
42,819
4,911
$ 47,730
Supplemental cash flow information
Cash paid for interest, net of interest capitalized............................................................
$ 37,970
$ 32,313
$ 26,647
Fair value of net liabilities assumed on the acquisition of storage facilities..................
107
1,580
65,650
Dividends declared but unpaid at December 31, 2008, 2007 and 2006 were $14,090, $13,656, and $12,675, respectively.
See notes to financial statements.
36
SOVRAN SELF STORAGE, INC. - DECEMBER 31, 2008
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, 2008, we had an ownership interest in and managed 385
self-storage properties in 24 states under the name Uncle Bob's Self Storage ®. Among our 385 self-storage
properties are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and
25 properties that we manage for an unconsolidated joint venture of which we are a 20% owner. Over 40% of the
Company’s revenue is derived from stores in the states of Texas and Florida.
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 98.1% ownership interest
therein as of December 31, 2008. 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. Our consolidated financial statements include the accounts of the
Company, the Operating Partnership, Locke Sovran I, LLC, and Locke Sovran II, LLC, which is a majority owned
joint venture. 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
venture since 2001. In June 2008, the Company made an additional investment of $6.1 million in Locke Sovran
I, LLC that increased the Company's ownership from approximately 70% to 100%.
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 $3.8 million and $3.2 million,
respectively, held in escrow for encumbered properties at December 31, 2008 and 2007.
Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month
leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional
period, which is generally during the first month of occupancy. Rental income received prior to the start of the
rental period is included in deferred revenue. Equity in earnings of real estate joint ventures that we have significant
influence over is recognized based on our ownership interest in the earnings of these entities.
Cost of operations, general and administrative expense, interest expense and advertising costs are expensed
as incurred. For the years ended December 31, 2008, 2007, and 2006, advertising costs were $1.4 million, $1.4
million, and $1.0 million, respectively. The Company accrues property taxes based on estimates and historical
trends. If these estimates are incorrect, the timing and amount of expense recognition would be affected.
Other Income: Consists primarily of sales of storage-related merchandise (locks and packing supplies),
insurance commissions, incidental truck rentals, and management fees from unconsolidated joint ventures.
37
Investment in Storage Facilities: Storage facilities are recorded at cost. The purchase price of acquired
facilities is allocated to land, building, equipment, and in-place customer leases based on the fair value of each
component. Depreciation is computed using the straight-line method over estimated useful lives of forty years for
buildings and improvements, and five to twenty years for furniture, fixtures and equipment. Expenditures for
significant renovations or improvements that extend the useful life of assets are capitalized. Interest and other costs
incurred during the construction period of major expansions are capitalized. Capitalized interest during the years
ended December 31, 2008 and 2007 was $0.4 million. No interest was capitalized during 2006. 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, 2008 and 2007, 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, property deposits,
and the value placed on in-place customer leases at the time of acquisition. The loan acquisition costs were $6.8
million and $6.2 million at December 31, 2008, and 2007, respectively. Accumulated amortization on the loan
acquisition costs was approximately $2.5 million and $3.8 million at December 31, 2008, and 2007, respectively.
Loan acquisition costs are amortized over the terms of the related debt. 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 $0.1 million and $1.5 million at
December 31, 2008 and 2007, respectively.
The Company allocates a portion of the purchase price of acquisitions to in-place customer leases. The
value of in-place customer leases is based on the Company's experience with customer turnover. The Company
amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). At
December 31, 2008, the gross carrying amount of in-place customer leases was $5.4 million and the accumulated
amortization was $5.2 million
Amortization expense, including amortization of in-place customer leases, was $1.3 million, $4.8 million
and $1.0 million for the periods ended December 31, 2008, 2007 and 2006, respectively.
Accounts Payable and Accrued Liabilities: Accounts payable and accrued liabilities consists primarily of
trade payables, accrued interest, and property tax accruals. The Company accrues property tax expense based on
estimates and historical trends. Actual expense could differ from these estimates.
Minority Interest: The minority interest reflects the outside ownership interest of the limited partners of the
Operating Partnership and the joint venture partner's interest in Locke Sovran II, LLC. Amounts allocated to these
interests are reflected as an expense in the income statement and increase the minority interest in the balance sheet.
Distributions to these partners reduce this balance. At December 31, 2008, Operating Partnership minority interest
ownership was 419,952 Units, or 1.9% (at December 31, 2007 422,727 Units, or 1.9%). The redemption value of
the Units at December 31, 2008 and 2007 was $15.1 million and $17.0 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. On an aggregate basis, the Company's reported
amounts of net assets exceeds the tax basis by approximately $74 million and $72 million at December 31, 2008 and
2007, respectively.
38
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 $13.6 million, $35.7 million and $37.3 million for the years ended December 31, 2008,
2007, and 2006, respectively.
Derivative Financial Instruments: 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 February 2007, the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities to voluntarily
choose, at specified election dates, to measure many financial assets and liabilities at fair value. The effective date
for the Company is January 1, 2008. The adoption of SFAS 159 did not impact the Company’s consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS No. 160”), which amends Accounting Research Bulletin No. 51, “Consolidated Financial
Statements”, to improve the relevance, comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. SFAS No. 160 establishes accounting and reporting
standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled
and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity.
This statement also requires the amount of consolidated net income attributable to the parent and to the non-
controlling interest to be clearly identified and presented on the face of the consolidated statement of income. The
effective date for the Company will be January 1, 2009. The Company has not yet determined the impact of SFAS
160 on our consolidated financial statements
In December 2007, the FASB Statement 141R, “Business Combinations” (“SFAS 141R”) was issued.
SFAS 141R replaces SFAS 141. SFAS 141R requires the acquirer of a business to recognize and measure the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at fair value.
SFAS 141R also requires transaction costs related to the business combination to be expensed as incurred. SFAS
141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008. The effective date for the Company will
be January 1, 2009. The Company has not yet determined the impact of SFAS 141R related to future acquisitions, if
any, on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands quarterly
disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. The
effective date for the Company will be January 1, 2009. The Company is currently assessing the impact of SFAS
No. 161 on our consolidated financial statements.
Stock-Based Compensation: Effective January 1, 2006, the Company adopted Statement 123(R) and uses
the modified-prospective method. Under the modified-prospective method, the Company recognizes 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 recorded compensation expense (included in general and administrative expense) of
$279,000, $183,000 and $119,000 related to stock options under Statement 123(R) and $1.4 million, $1.2 million
and $876,000 related to amortization of non-vested stock grants for the years ended December 31, 2008, 2007 and
2006, respectively. 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). The application of this pricing model involves
assumptions that are judgmental and sensitive in the determination of compensation expense. The weighted average
39
for key assumptions used in determining the fair value of options granted during 2008 follows:
Expected life (years).....................................
Risk free interest rate....................................
Expected volatility........................................
Expected dividend yield ...............................
Fair value ......................................................
Weighted Average
6.53
3.78%
22.61%
6.1%
$4.79
Range
4.50 - 7.00
2.65 – 3.94%
22.40% - 24.30%
6.00% - 7.00%
$3.21 - $5.10
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.
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.
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 from continuing operations 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 from
continuing operations .............................................
Basic Earnings per Common Share ............................
Diluted Earnings per Common Share from
continuing operations .............................................
Diluted Earnings per Common Share .........................
Year Ended December 31,
2008
2007
2006
$ 36,605
$ 37,524
$ 33,651
21,762
21
20,955
49
17,951
70
21,783
21,004
18,021
$ 1.68
$ 1.72
$ 1.68
$ 1.72
$ 1.79
$ 1.81
$ 1.79
$ 1.81
$ 1.87
$ 1.90
$ 1.86
$ 1.89
40
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the years ended December 31, 2008 and
December 31, 2007.
(Dollars in thousands)
Cost:
Beginning balance ................................................................
Acquisition of storage facilities ............................................
Additional investment in consolidated joint ventures...........
Improvements and equipment additions ...............................
Increase in construction in progress......................................
Dispositions ..........................................................................
Ending balance .......................................................................
2008
2007
$1,322,708
18,454
2,473
44,998
761
(193)
$1,389,201
$1,136,052
136,653
-
45,806
6,621
(2,424)
$1,322,708
Accumulated Depreciation:
Beginning balance ................................................................
Additions during the year .....................................................
Dispositions ..........................................................................
Ending balance .......................................................................
$ 183,679
33,100
(135)
$ 216,644
$ 154,449
30,011
(781)
$ 183,679
The Company allocates purchase price to the tangible and intangible assets and liabilities acquired based on
their estimated fair values. The value of land and buildings are determined at replacement cost. Intangible assets,
which represent the value of existing customer leases, are recorded at their estimated fair values. During 2008, the
Company acquired three storage facilities for $18.9 million. Substantially all of the purchase price of these facilities
was allocated to land ($3.7 million), building ($14.7 million), equipment ($0.1 million) and in-place customer leases
($0.4 million) and the operating results of the acquired facilities have been included in the Company's operations
since the respective acquisition dates. During 2007, the Company acquired 31 storage facilities for $141.3 million.
Substantially all of the purchase price of these facilities was allocated to land ($27.7 million), building ($110.0
million), equipment ($1.5 million) and in-place customer leases ($2.1 million) and the operating results of the
acquired facilities have been included in the Company's operations since the respective acquisition dates.
5. DISCONTINUED OPERATIONS
In April 2008, the Company sold one non-strategic storage facility located in Michigan for net cash
proceeds of $7.0 million resulting in a gain of $0.7 million. The operations of this facility and the gain on sale are
reported as discontinued operations. The amounts in the 2007 and 2006 financial statements related to the
operations and the net assets of this property have been reclassified and are presented as discontinued operations and
net assets from discontinued operations, respectively. Cash flows of discontinued operations have not been
segregated from the cash flows of continuing operations on the accompanying consolidated statement of cash flows
for the years ended December 31, 2008, 2007 and 2006. The following is a summary of the amounts reported as
discontinued operations:
(dollars in thousands)
Year Ended December 31,
2006
2008
2007
Total revenue
Property operations and maintenance expense ................
Real estate tax expense ....................................................
Depreciation and amortization expense...........................
Net realized gain on sale of property ...............................
Total income from discontinued operations ......................
$ 233
(76)
(33)
(46)
716
$ 794
$ 912
(196)
(97)
(185)
-
$ 434
$ 927
(202)
(94)
(184)
-
$ 447
41
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma Condensed Statement of Operations is presented as if (i) the 31 storage
facilities purchased during 2007, (ii) the 42 storage facilities purchased during 2006, (iii) the additional investment
in Locke Sovran I, LLC and Locke Sovran II, LLC in April 2006, and (iv) the related indebtedness incurred and
assumed on these transactions had all occurred at January 1, 2006. 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. In management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. This unaudited pro forma information 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,
2006
2007
Pro forma total operating revenues............................................
$199,569
$191,505
Pro forma net income ................................................................
$ 41,749
$ 33,985
Pro forma earnings per common share – diluted .......................
$ 1.92
$ 1.54
7. UNSECURED LINE OF CREDIT AND TERM NOTES
On June 25, 2008, the Company entered into agreements relating to new unsecured credit arrangements,
and received funds under those arrangements. As part of the agreements, the Company entered into a $250 million
unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term
note were used to repay the Company’s previous line of credit that was to mature in September 2008, the
Company’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for
working capital. The new agreements also provide for a $125 million (expandable to $150 million) revolving line of
credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25%
facility fee. The interest rate at December 31, 2008 on the Company's available line of credit was approximately
1.8% (5.5% at December 31, 2007). At December 31, 2008, there was $111 million available on the unsecured line
of credit.
The Company also maintains an $80 million term note maturing September 2013 bearing interest at a fixed
rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR
plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.
8. MORTGAGES PAYABLE AND OTHER DEBT DISCLOSURES
Mortgages payable at December 31, 2008 and December 31, 2007 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 $43.8
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 $81.2 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 $5.8 million, principal and interest
paid monthly. Estimated market rate at time of acquisition 5.40%.................
6.76% mortgage note due September 2013, secured by 1 self-storage facility
with an aggregate net book value of $2.0 million, principal and interest
paid monthly ....................................................................................................
December 31,
2008
December 31,
2007
$ 29,033
$ 29,084
42,603
43,645
3,510
3,643
1,000
1,022
42
6.35% mortgage note due March 2014, secured by 1 self-storage facility
with an aggregate net book value of $3.8 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 $34.9 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 $14.3 million, principal and interest
paid monthly. Estimated market rate at time of acquisition 6.42%.................
Total mortgages payable......................................................................................
1,098
1,122
25,930
25,719
6,087
$ 109,261
6,282
$ 110,517
The Company assumed the 7.25%, 6.76%, 6.35%, 5.55% and 7.50% mortgage notes in connection with the
acquisitions of storage facilities in 2005 and 2006. The 7.25%, 5.55%, and 7.50% 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%. The carrying value of these three mortgages approximates the actual principal balance of the mortgages
payable. An immaterial premium exists at December 31, 2008, which 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,
2008. 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)
2009
2010
2011
2012
2013
Thereafter
Total
Fair
Value
Expected Maturity Date Including Discount
-
-
$14,000
-
-
-
$14,000
$14,000
Line of credit - variable rate LIBOR + 1.375
(1.84% at December 31, 2008) .....................
Notes Payable:
Term note - variable rate LIBOR+1.625%
(2.09% at December 31, 2008) .....................
Term note - variable rate LIBOR+1.50%
(4.62% at December 31, 2008) .....................
Term note - fixed rate 6.26%.............................
Term note - fixed rate 6.38%.............................
-
-
-
-
-
-
-
-
-
$250,000
-
-
$250,000
$250,000
-
-
-
$ 20,000
$ 80,000
-
-
$ 20,000
$ 20,000
$ 80,000
$ 78,865
-
$ 150,000
$150,000
$147,899
-
-
-
-
Mortgage note - fixed rate 7.80% ......................
$ 587
$ 630
$ 27,816
Mortgage note - fixed rate 7.19% ......................
$ 1,128
$ 1,211
$ 1,301
$ 38,963
Mortgage note - fixed rate 7.25% ......................
$ 141
$ 149
$ 3,220
-
Mortgage note - fixed rate 6.76% ......................
$ 23
$ 25
$ 27
$ 29
$ 896
-
-
-
-
-
-
-
$ 29,033
$ 30,031
$ 42,603
$ 44,205
$ 3,510
$ 3,478
$ 1,000
$ 1,018
Mortgage note - fixed rate 6.35% ......................
$ 26
$ 28
$ 30
$ 31
$ 34
$ 949
$ 1,098
$ 1,100
Mortgage notes - fixed rate 5.55% ....................
$ 25,930
-
-
Mortgage notes - fixed rate 7.50% ....................
$ 208
$ 222
$ 5,657
Interest rate derivatives – liability .....................
-
-
-
-
-
-
-
-
-
-
-
-
$ 25,930
$ 26,422
$ 6,087
$ 6,188
-
$ 25,490
43
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
2008, 2007, and 2006.
The Company has entered into seven interest rate swap agreements as detailed below to effectively convert
a total of $270 million of variable-rate debt to fixed-rate debt.
Notional Amount
Effective Date
Expiration Date
$50 Million ...........................
$20 Million ...........................
$50 Million ...........................
$50 Million ...........................
$100 Million .........................
$75 Million ...........................
$25 Million ...........................
11/14/05
9/4/05
10/10/06
7/1/08
7/1/08
9/1/09
9/1/09
9/1/09
9/4/13
9/1/09
6/25/12
6/22/12
6/22/12
6/22/12
Fixed
Rate Paid
Floating Rate
Received
4.3900%
4.4350%
4.4800%
4.2825%
4.2965%
4.7100%
4.2875%
1 month LIBOR
6 month LIBOR
1 month LIBOR
1 month LIBOR
1 month LIBOR
1 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 2008, 2007, and 2006, the net reclassification from AOCI to interest expense was $2.6
million, ($1.1) million and ($0.5) million, respectively, based on payments (receipts) made or received under the
swap agreements. Based on current interest rates, the Company estimates that payments under the interest rate
swaps will be approximately $10.6 million in 2009. 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 a liability of $25.5 million and $1.2 million at December 31, 2008, and 2007 respectively.
10. FAIR VALUE MEASUREMENTS
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157. This
statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure
requirements. This statement applies under other accounting pronouncements that require or permit fair value
measurements. The statement indicates, among other things, that a fair value measurement assumes that the
transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value
based upon an exit price model.
Relative to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1, 157-2, and 157-3. FSP 157-1
amends SFAS 157 to exclude SFAS No. 13, “Accounting for Leases,” (SFAS 13) and its related interpretive
accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of the
application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and
44
nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring
basis. FSP 157-3 addresses considerations in determining the fair value of a financial asset when the market for that
asset is not active.
We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-
recurring nonfinancial assets and nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial
liabilities for which we have not applied the provisions of SFAS 157 include those measured at fair value in a
business combination.
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair
value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets
and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are
unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial
asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant
to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as
of December 31, 2008 (in thousands):
Interest rate swaps ..................
(25,490)
Asset
(Liability)
Level 1
-
Level 2
(25,490)
Level 3
-
Interest rate swaps are over the counter securities with no quoted readily available Level 1 inputs, and
therefore are measured at fair value using inputs that are directly observable in active markets and are classified
within Level 2 of the valuation hierarchy, using the income approach.
11. STOCK OPTIONS AND NON-VESTED STOCK
The Company established the 2005 Award and Option Plan (the "Plan") which replaced the expired 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
eight 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, 2008, options for 324,688 shares were outstanding under the Plans and options for 1,096,464 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
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 2008, 1,820 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, 2008,
options for 36,000 common shares and non-vested shares of 9,160 were outstanding under the Non-employee Plan
and options for no shares of common stock were available for future issuance.
45
A summary of the Company's stock option activity and related information for the years ended December
31 follows:
2008
2007
2006
Weighted
average
exercise
price
Options
Weighted
average
exercise
price
Options
Weighted
average
exercise
price
Options
Outstanding at beginning
of year: ................................
168,125
$ 42.54
113,225
$ 35.77
142,900
$ 32.68
Granted ...................................
Exercised ................................
Forfeited .................................
201,163
(2,600)
(6,000)
43.12
27.78
36.86
74,000
(13,100)
(6,000)
52.49
32.44
59.62
14,000
(37,675)
(6,000)
51.78
30.33
33.05
Outstanding at end of year......
360,688
$ 43.06
168,125
$ 42.54
113,225
$ 35.77
Exercisable at end of year.......
118,025
$ 38.84
82,625
$ 34.45
74,225
$ 31.14
A summary of the Company's stock options outstanding at December 31, 2008 follows:
Outstanding
Exercisable
Exercise Price Range
$20.375 – 29.99 ......................................
$30.00 – 39.99 ........................................
$40.00 – 57.79 ........................................
Total........................................................
Options
31,475
33,050
296,163
360,688
Weighted
average
exercise
price
$ 21.58
$ 35.35
$ 46.21
$ 43.06
Options
31,475
19,550
67,000
118,025
Intrinsic value of outstanding stock options at December 31, 2008 ........................................
Intrinsic value of exercisable stock options at December 31, 2008.........................................
Intrinsic value of stock options exercised in 2008...................................................................
Weighted
average
exercise
price
$ 21.58
$ 34.11
$ 48.33
$ 38.84
$ 506,184
$ 506,184
$ 37,691
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, 2008, or the price on the date of
exercise for those exercised during the year. As of December 31, 2008, there was approximately $1.1 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 5.2
years. The weighted average remaining contractual life of all options is 8.0 years, and for exercisable options is 5.7
years.
Non-vested Stock
The Company has also issued 289,587 shares of non-vested stock to employees which vest over two to nine
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. For the year ended December 31, 2008, the fair market value of the non-vested stock on
the date of grant ranged from $20.38 to $59.81. During 2008, 43,893 shares of non-vested stock were issued to
employees with an aggregate fair value of $1.8 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.
46
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:
2008
2007
2006
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: ................................
115,896
$ 45.54
96,453
$ 40.21
71,411
$ 30.39
Granted ...................................
Vested.....................................
Forfeited .................................
45,713
(30,802)
-
41.50
42.71
-
43,989
(24,546)
-
53.79
39.39
-
41,719
(16,677)
-
53.86
32.29
-
Unvested at end of year ..........
130,807
$ 44.79
115,896
$ 45.54
96,453
$ 40.21
Compensation expense of $1.4 million, $1.2 million and $0.9 million was recognized for the vested portion
of non-vested stock grants in 2008, 2007 and 2006, respectively. The fair value of non-vested stock that vested
during 2008, 2007 and 2006 was $1.3 million, $1.0 million and $0.5 million, respectively. The total unrecognized
compensation cost related to non-vested stock was $4.8 million at December 31, 2008, and the remaining weighted-
average period over which this expense will be recognized was 6 years.
12. 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 $284,000, $256,000, and $166,000
for the years ended December 31, 2008, 2007 and 2006, respectively.
13. INVESTMENT IN JOINT VENTURES
The Company has a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a
joint venture that was formed in May 2008 to acquire self-storage properties that will be managed by the Company.
The carrying value of the Company’s investment at December 31, 2008 was $20.1 million. Twenty five properties
were acquired by Sovran HHF as of December 31, 2008 for approximately $171.5 million. The Company
contributed $18.6 million to the joint venture as its share of capital required to fund the acquisitions. As of
December 31, 2008, the carrying value of the Company's investment in Sovran HHF exceeds its share of the
underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of
certain acquisition related costs. This difference is not amortized, it is included in the carrying value of the
investment, which is assessed for impairment on a periodic basis.
As manager of Sovran HHF, the Company earns a management and call center fee of 7% of gross revenues
which totaled $0.5 million for 2008. The Company also received an acquisition fee of 0.5% of purchase price for
securing purchases for the joint venture. During 2008, the Company recorded $0.7 million in acquisition fees. The
Company’s share of Sovran HHF’s income for 2008 was $0.1 million. At December 31, 2008, Sovran HHF owed
the Company $0.3 million for payments made by the Company on behalf of the joint venture.
The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building
that houses the Company's headquarters and other tenants. The Company's investment includes a capital
contribution of $49. The carrying value of the Company's investment is a liability of $0.5 million at December 31,
2008 and $0.4 million at December 31, 2007, and is included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets. For the years ended December 31, 2008, 2007 and 2006, the Company's
share of Iskalo Office Holdings, LLC's (loss) income was ($6,000), $80,000, and $80,000, respectively. The
47
Company paid rent to Iskalo Office Holdings, LLC of $600,000, $561,000 and $583,000 in 2008, 2007, and 2006,
respectively. Future minimum lease payments under the lease are $0.6 million per year through 2010.
A summary of the unconsolidated joint ventures' financial statements as of and for the year ended
December 31, 2008 is as follows:
(dollars in thousands)
Balance Sheet Data:
Investment in storage facilities, net
Investment in office building
Other assets
Total Assets
Due to the Company
Mortgages payable
Other liabilities
Total Liabilities
Unaffiliated partners' equity (deficiency)
Company equity (deficiency)
Total Liabilities and Partners' Equity (deficiency)
Income Statement Data:
Total revenues
Total expenses
Net income (loss)
Sovran HHF
Storage
Holdings LLC
Iskalo Office
Holdings, LLC
$ 170,176
-
3,912
$ 174,088
=======
$ 336
79,937
1,942
82,215
73,499
18,374
$ 174,088
=======
$ -
5,507
568
$ 6,075
=======
$ -
7,169
168
7,337
(718)
(544)
$ 6,075
======
$ 6,652
6,301
$ 351
=======
$ 1,127
1,139
$ (12)
======
The Company does not guarantee the debt of Sovran HHF or Iskalo Office Holdings, LLC.
14. PREFERRED STOCK
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. In 2004, the Company
issued 306,748 shares of its common stock in connection with the conversion of 400,000 shares of Series C
Preferred Stock into common stock. During 2005, the Company issued 920,244 shares of its common stock in
connection with a written notice from one of the holders of the Series C Preferred Stock requesting the conversion of
1,200,000 shares of Series C Preferred Stock into common stock. On July 7, 2007, we issued 920,244 shares of our
common stock to the holder of our Series C Preferred Stock upon the holder's election to convert the remaining
1,200,000 shares of Series C Preferred Stock into common stock. As a result of the conversion, $26.6 million
recorded in shareholders' equity as 8.375% Series C Convertible Cumulative Preferred Stock was reclassified to
additional paid-in capital in 2007.
48
15. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the years ended December 31, 2008 and
2007 (dollars in thousands, except per share data).
March 31
June 30
Sept. 30
Dec. 31
2008 Quarter Ended
Operating revenue........................................
Income from continuing operations (a) .......
Income from discontinued operations (a) ....
Net Income ..................................................
Net income available to common
shareholders...............................................
Net Income Per Common Share
Basic ..........................................................
Diluted .......................................................
$ 49,619
$ 8,871
$ 82
$ 8,953
$ 50,120
$ 9,829
$ 712
$ 10,541
$ 52,497
$ 9,528
$ -
$ 9,528
$ 50,767
$ 8,377
$ -
$ 8,377
$ 8,953
$ 10,541
$ 9,528
$ 8,377
$ 0.41
$ 0.41
$ 0.49
$ 0.48
$ 0.44
$ 0.44
$ 0.38
$ 0.38
March 31
June 30
Sept. 30
Dec. 31
2007 Quarter Ended
Operating revenue (a) ..................................
Income from continuing operations (a) .......
Income from discontinued operations (a) ....
Net Income ..................................................
Net income available to common
shareholders...............................................
Net Income Per Common Share
Basic ..........................................................
Diluted .......................................................
$ 44,371
$ 9,437
$ 100
$ 9,537
$ 47,872
$ 7,950
$ 114
$ 8,064
$ 50,765
$ 10,757
$ 118
$ 10,875
$ 49,849
$ 10,636
$ 102
$ 10,738
$ 8,909
$ 7,436
$ 10,875
$ 10,738
$ 0.44
$ 0.44
$ 0.36
$ 0.36
$ 0.51
$ 0.51
$ 0.50
$ 0.50
Data as presented in this table differ from the amounts as presented in the Company’s quarterly reports due
(a)
to the impact of discontinued operations accounting with respect to the one property sold in 2008 as described in
Note 5.
16. 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.
49
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, 2008. 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, 2008.
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, 2008. 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, 2008 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, 2008
based on the criteria in Internal Control-Integrated Framework issued by COSO.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has
been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report
which is included in Item 9A herein.
/S/ Robert J. Attea
Chief Executive Officer
/S/ David L. Rogers
Chief Financial Officer
50
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Sovran Self Storage, Inc.
We have audited Sovran Self Storage, Inc.’s internal control over financial reporting as of December 31,
2008, 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 included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, 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, Sovran Self Storage, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, 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, 2008 and
2007, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2008 of Sovran Self Storage, Inc. and our report dated February 25,
2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
February 25, 2009
51
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, 2009, 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 "Director
Compensation" in the Company's Proxy Statement for the Annual Meeting of Shareholders of the Company to be
held on May 21, 2009.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required herein is incorporated by reference to "Stock Ownership By Directors and
Executive Officers" and "Security Ownership of Certain Beneficial Owners" in the Proxy Statement for the Annual
Meeting of Shareholders of the Company to be held on May 21, 2009.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required herein is incorporated by reference to "Certain Transactions” and “Election of
Directors—Director Independence” in the Company's Proxy Statement for the Annual Meeting of Shareholders to
be held on May 21, 2009.
Item 14.
Principal Accountant Fees and Services
The information required herein is incorporated by reference to "Appointment of Independent Auditor" in
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 21, 2009.
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, 2008 and 2007.
Consolidated Statements of Operations for Years Ended December 31, 2008, 2007, and 2006.
Consolidated Statements of Shareholders' Equity for Years Ended December 31, 2008, 2007, and
2006.
Consolidated Statements of Cash Flows for Years Ended December 31, 2008, 2007, and 2006.
Notes to Consolidated Financial Statements.
(iv)
(v)
2.
The following financial statement Schedule as of the period ended December 31, 2008 is included in this
Annual Report on Form 10-K.
Schedule III Real Estate and Accumulated Depreciation.
52
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
10.1+
10.2+
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).
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).
10.3*+
Employment Agreement between the Registrant and Robert J. Attea.
10.4*+
Employment Agreement between the Registrant and Kenneth F. Myszka.
10.5*+
Employment Agreement between the Registrant and David L. Rogers.
10.6+
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).
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).
10.10+
Deferred Compensation Plan for Directors (incorporated by reference to Schedule 14A Proxy Statement
filed April 10, 2008).
53
10.11
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).
10.12
Agreement of Limited Partnership of Sovran Acquisition Limited Partnership (incorporated by reference
to Exhibit 3.1 on Form 10 filed April 22, 1998).
10.13*
Amendments to the Agreement of Limited Partnership of Sovran Acquisition Limited Partnership dated
July 30, 1999 and July 3, 2002.
10.14
10.15
10.16
10.17
10.18
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).
Third Amended and Restated Revolving Credit and Term Loan Agreement among Registrant, the
Partnership, Manufacturers and Traders Trust Company and other lenders named therein (incorporated
by reference to Exhibit 10.1 filed in the Company’s Current Report on Form 8-K, filed June 27, 2008).
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).
$150 million, 6.38% Senior Guaranteed Notes, Series C due April 26, 2016, and Amendments to Second
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).
Promissory Note between Locke Sovran I, LLC and GMAC Commercial Mortgage Corporation
(incorporated by reference to Exhibit 10.21 as filed in the Company’s Annual Report on Form 10-K,
filed March 1, 2007).
12.1*
Statement Re: Computation of Earnings to Fixed Charges.
21.1*
Subsidiaries of the Company (incorporated by reference to Exhibit 21 as filed in the Company’s Annual
Report on Form 10-K, filed March 1, 2007).
23.1*
Consent of Independent Registered Public Accounting Firm.
24.1*
Powers of Attorney (included on signature pages).
31.1*
31.2*
32.1*
*
+
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.
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
February 27, 2009
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
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
55
Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2008
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
$528
$363
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
361
650
2,029
1,436
1,076
1,869
1,298
768
903
854
2,037
796
1,651
485
451
447
749
961
447
442
3,791
514
844
912
659
349
1,638
654
594
1,079
508
1,884
446
680
345
416
397
747
770
239
701
198
779
483
224
497
395
164
367
853
687
268
234
816
444
649
387
844
303
517
321
374
189
488
602
513
2,207
1,977
1,918
3,545
2,860
1,739
4,603
2,408
2,427
1,643
1,971
3,789
1,604
3,108
1,889
1,211
1,772
3,806
1,154
1,695
1,285
5,122
2,127
3,173
2,314
2,680
1,451
2,181
1,804
1,912
1,798
1,696
3,291
2,376
$2,570
$706
2,657
2,263
3,961
3,257
2,486
699
573
768
626
563
5,373
1,476
2,647
3,128
1,841
2,750
4,272
1,828
628
764
508
758
922
526
3,605
1,015
2,284
1,375
2,139
613
408
635
4,659
1,194
1,841
1,963
1,519
416
613
421
5,938
1,072
2,571
770
3,822
1,029
2,701
3,524
1,754
2,698
2,125
2,286
1,987
2,184
3,893
2,889
657
904
541
530
548
655
506
590
753
864
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
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
56
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
440
770
265
364
926
497
529
615
1,362
2,783
824
467
1,570
736
1,091
768
1,038
2,443
1,975
464
1,124
1,881
1,753
795
347
1,550
560
624
415
2,724
714
531
951
742
577
2,204
590
720
964
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
1,352
4,389
1,300
1,378
2,092
1,613
1,311
1,614
1,765
4,525
2,120
1,548
3,674
2,207
4,034
1,907
2,733
3,246
5,194
1,365
2,433
2,364
2,997
2,257
1,351
2,888
2,285
2,665
1,930
4,082
1,367
1,577
3,548
2,700
3,016
3,331
1,554
2,322
3,718
1,546
5,892
1,698
1,802
2,575
1,921
1,485
2,027
2,071
5,004
2,477
1,779
450
1,229
515
515
556
620
463
612
413
870
667
524
4,557
1,151
2,523
756
4,685
1,422
2,222
3,448
3,865
590
798
732
6,570
1,445
1,609
4,024
2,976
3,253
2,570
1,629
3,272
3,015
3,528
2,256
4,451
2,086
1,803
535
924
568
755
755
497
701
820
931
679
908
504
564
4,636
1,249
3,226
952
3,688
1,034
4,127
1,763
2,765
725
581
777
4,880
1,272
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
57
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
AL
GA
PA
PA
(1)
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
671
723
596
947
1,291
305
440
1,161
269
624
645
282
1,031
327
1,115
536
2,364
989
325
299
1,326
1,048
2,263
267
757
433
432
929
509
1,395
300
409
337
919
1,208
2,040
1,772
1,350
1,602
424
431
360
692
472
206
413
442
353
232
766
442
408
328
436
289
671
433
345
229
545
359
297
310
688
683
777
568
436
631
538
487
315
314
707
693
751
725
701
2,177
2,290
2,237
3,106
3,001
1,216
2,142
2,753
1,568
1,487
2,445
2,049
2,693
1,651
2,874
1,697
3,733
1,849
1,587
1,183
3,266
2,335
3,134
1,555
2,614
2,796
3,202
2,957
2,144
3,648
2,330
2,163
1,468
2,032
3,701
4,089
4,448
3,936
4,456
2,601
2,721
2,597
3,798
3,473
1,422
2,555
3,195
1,921
1,719
3,211
2,491
3,101
1,979
3,310
1,986
4,404
2,282
1,932
1,412
3,811
2,694
3,431
1,865
3,302
3,479
3,979
3,525
2,580
833
720
745
932
829
530
889
649
588
482
772
675
800
549
852
535
904
526
535
379
795
747
787
522
216
246
985
963
725
4,279
1,116
2,868
2,650
1,783
2,346
4,408
4,782
842
613
441
633
927
819
5,199
1,166
4,661
1,089
5,157
1,412
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
Description
Birmingham III
Macon II
Harrisburg I
Harrisburg II
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
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
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
875
1,272
1,573
1,347
948
833
1,726
1,527
1,888
417
297
1,650
1,255
343
563
1,271
962
323
581
1,180
223
737
630
347
466
2,079
1,127
1,241
786
515
562
429
458
306
377
1,528
908
311
533
495
761
418
606
624
219
694
542
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
2,656
3,986
3,494
3,511
2,410
1,623
3,393
2,644
3,718
2,073
1,533
3,210
3,820
2,622
1,920
2,613
2,277
1,036
1,701
2,223
1,711
1,570
2,386
1,543
3,748
3,290
4,974
5,127
3,030
2,001
2,636
4,182
3,190
3,735
1,474
1,904
2,714
1,614
3,081
Life on
which
depreciation
in latest
income
statement
is computed
Accum.
Deprec.
Date of
Construction
Date
Acquired
Total
3,151
4,747
773
1,152
3,912
1,002
4,117
3,034
1,842
4,087
3,186
819
211
480
259
210
4,169
1,022
2,577
1,879
3,642
585
472
825
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
4,454
1,027
1993/95
3/26/1997 5 to 40 years
3,188
2,213
2,948
2,605
1,188
1,946
2,483
2,037
2,186
2,877
1,839
762
518
657
648
335
427
550
502
458
762
471
4,669
1,155
3,594
640
5,934
1,512
6,070
1,498
3,641
2,371
3,151
912
649
797
5,215
1,307
4,015
938
4,470
1,116
1,742
1,993
3,135
1,896
3,718
405
399
710
496
833
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
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
Indian Harbor Beach
FL
Jackson 3 - I55
Katy-N.Fry
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
Jacksonville-Center
TX
TX
FL
TX
TX
TX
NC
709
441
843
397
488
492
733
384
296
349
544
702
775
940
742
522
512
662
744
419
1,208
944
903
1,503
489
447
659
635
548
840
324
492
484
327
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
2,654
3,021
1,524
4,854
3,803
3,643
6,059
1,813
1,790
2,680
2,302
1,988
3,373
1,493
1,995
1,951
1,329
322
880
229
730
729
740
960
469
551
487
934
1,014
534
2,077
583
807
1,069
672
712
464
1,175
1,817
-619
128
3,268
352
315
329
705
110
2,199
372
129
283
350
629
317
442
672
Building,
Equipment
and
Improvements
2,532
3,412
2,440
4,724
5,748
3,975
2,495
3,863
2,385
2,233
2,728
3,955
1,905
3,157
1,833
2,749
3,890
3,775
4,475
3,441
2,992
3,483
2,035
3,149
4,792
5,206
4,118
3,972
6,764
1,923
3,696
3,013
2,431
2,271
3,723
2,122
2,294
2,396
2,001
Land
542
620
540
864
1,243
709
694
843
397
488
688
733
384
414
349
544
702
775
940
742
569
675
662
744
419
1,208
944
903
1,503
489
740
698
635
548
840
324
510
481
327
Life on
which
depreciation
in latest
income
statement
is computed
Accum.
Deprec.
Date of
Construction
Date
Acquired
717
916
723
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
3,074
4,032
2,980
5,588
1,331
1993/95
2/5/1998 5 to 40 years
6,991
1,604
4,684
1,215
3,189
191
1975
1985
1988
2/5/1998 5 to 40 years
2/4/1998 5 to 40 years
2/9/1998 5 to 40 years
4,706
1,111
1989/95
2/4/1998 5 to 40 years
2,782
2,721
3,416
654
606
203
4,688
1,120
2,289
3,571
2,182
3,293
549
569
517
835
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
4,592
1,023
1984/88
3/26/1998 5 to 40 years
4,550
1,028
1988/91
4/9/1998 5 to 40 years
5,415
1,203
1990/96
4/9/1998 5 to 40 years
4,183
3,561
4,158
2,697
3,893
5,211
891
717
667
612
879
572
6,414
1,411
5,062
1,139
4,875
1,051
8,267
1,850
2,412
4,436
3,711
3,066
2,819
573
721
734
660
606
4,563
1,034
2,446
2,804
2,877
2,328
585
665
646
442
1980
1986
1986
1985
1995
1994
1988
1985
1988
1991
1997
1986
1996
1997
1997
1987
1994
1994
1996
1995
4/7/1998 5 to 40 years
4/22/1998 5 to 40 years
4/22/1998 5 to 40 years
6/2/1998 5 to 40 years
5/13/1998 5 to 40 years
5/20/1998 5 to 40 years
7/1/1998 5 to 40 years
7/1/1998 5 to 40 years
7/1/1998 5 to 40 years
7/1/1998 5 to 40 years
6/12/1998 5 to 40 years
6/16/1998 5 to 40 years
6/19/1998 5 to 40 years
6/19/1998 5 to 40 years
6/19/1998 5 to 40 years
8/3/1998 5 to 40 years
6/30/1998 5 to 40 years
6/30/1998 5 to 40 years
6/30/1998 5 to 40 years
8/6/1998 5 to 40 years
60
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
Description
Jacksonville-Gum
Branch
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
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
Kingsland
MA
(1)
MA
(1)
SC
(1)
SC
(1)
GA
(1)
837
733
787
1,035
1,024
883
552
470
508
216
550
670
390
460
507
447
556
708
314
188
963
651
565
330
339
291
354
453
872
849
410
667
335
276
633
633
384
254
1,815
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
1,902
1,272
601
654
1,362
867
462
1,595
793
926
267
627
1,414
767
1,097
539
719
583
583
334
783
828
657
1,753
746
346
1,153
753
315
367
1,151
903
486
568
365
590
560
1,204
841
2,875
508
216
550
670
390
460
507
447
556
708
314
188
963
772
565
733
339
291
354
453
872
849
410
667
335
276
633
633
384
254
1,981
966
841
902
1,104
1,091
942
589
666
3,087
1,383
2,652
3,769
2,437
2,104
3,653
2,569
2,877
3,127
1,722
2,066
4,663
3,576
3,135
1,625
1,929
1,609
1,739
2,393
4,304
4,058
3,379
3,119
1,867
2,465
3,326
2,932
1,789
2,210
7,558
3,334
3,852
3,499
4,258
4,142
4,284
2,774
4,581
3,595
1,599
3,202
4,439
2,827
2,564
4,160
3,016
3,433
3,835
2,036
2,254
663
411
635
801
553
642
634
632
877
807
572
558
5,626
1,099
4,348
3,700
2,358
2,268
1,900
2,093
2,846
767
755
397
433
359
445
570
5,176
1,069
4,907
3,789
3,786
2,202
2,741
3,959
3,565
2,173
2,464
9,539
4,300
4,693
4,401
5,362
5,233
5,226
3,363
5,247
972
623
750
478
439
649
683
411
350
577
285
308
306
762
736
703
503
521
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
1989
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
12/1/2001 5 to 40 years
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
Land
570
1,004
714
327
912
268
306
480
583
553
320
496
784
421
411
919
612
689
817
407
817
2,207
1,131
635
1,252
1,039
827
2,156
6,845
3,416
1,542
4,226
1,486
1,454
2,378
3,097
3,233
2,248
2,460
3,584
1,851
2,181
4,037
2,699
3,426
5,024
3,409
1,828
3,465
9,481
5,043
3,240
6,083
4,242
4,073
2,726
7,849
4,130
1,869
5,138
1,754
1,760
2,858
3,680
3,786
2,568
2,956
4,368
2,272
2,592
4,956
3,311
4,115
6,143
4,226
2,235
4,282
388
868
625
312
772
273
275
433
523
509
357
414
594
335
355
658
439
563
602
576
305
578
1988
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
11,688
1,450
1989/95
12/16/2002 5 to 40 years
6,174
3,875
7,335
5,281
4,900
758
480
919
584
531
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
2,040
1,119
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
Land
534
1,004
670
294
853
250
285
449
545
517
299
463
734
394
381
919
612
689
817
817
407
817
2,207
1,131
635
1,251
1,039
827
Description
Saco
Plymouth
Sandwich
Syracuse
Encum
brance
ST
ME
(1)
MA
MA
(1)
NY
(1)
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
East Falmouth
TN
TX
MA
278
2,261
400
372
851
484
315
593
935
1,179
1,053
620
678
283
666
341
231
267
123
178
178
615
479
322
340
41
297
298
1,771
106
249
2,646
849
74
456
761
665
153
2,713
11,013
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,047
1,479
3,170
4,877
4,550
4,427
1,640
6,986
4,744
5,569
5,857
5,978
2,713
11,311
14,024
1,408
773
1,195
1,103
1,061
388
1,720
1,566
1,365
2,051
1,479
4,941
4,983
4,799
7,073
2,489
7,060
4,801
6,330
6,518
6,131
5,714
6,178
5,902
8,134
2,877
8,780
6,367
7,695
8,569
7,610
512
598
585
631
227
837
563
757
727
602
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
1998
8/5/2004 5 to 40 years
2/23/2005 5 to 40 years
62
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
Cicero
Bay Shore
NY
NY
Springfield-Congress
MA
Stamford-Hope
CT
Land
527
1,131
612
1,612
Houston-Jones
TX 3,510
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 1,000
Lafayette-Westgate
Broussard
LA
LA
Congress-Lafayette
LA 1,098
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
2,478
1,270
Pinellas Park
FL
Tarpon Springs
FL
2,301
929
696
New Orleans
LA 4,196
1,220
St Louis-Meramec
MO 4,841
1,113
St Louis-Charles Rock MO
St Louis-Shackelford
MO 2,433
St Louis-W.Washington MO 3,873
St Louis-Howdershell MO
St Louis-Lemay Ferry MO
St Louis-Manchester
MO 3,658
766
828
734
899
890
697
Arlington-Little Rd
TX 2,020
1,256
Dallas-Goldmark
Dallas-Manana
TX
TX
605
607
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
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
1,621
1,831
2,406
1,319
3,268
2,422
5,037
3,676
2,739
4,805
4,359
3,040
3,290
2,867
3,596
3,552
2,711
4,946
2,434
2,428
499
57
93
192
77
106
1,577
160
202
149
1,357
428
1,935
1,087
94
449
78
111
2,018
131
73
1,231
2,084
57
373
157
104
96
75
176
79
124
533
174
167
92
145
47
107
Land
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
607
2,620
4,666
2,594
6,777
5,025
7,832
3,479
2,343
2,467
3,214
3,334
3,825
4,862
4,081
3,593
2,627
2,489
3,890
4,951
1,752
1,904
3,637
3,403
3,325
2,795
5,194
3,780
2,835
4,880
4,535
3,119
3,414
3,400
3,770
3,719
2,803
5,091
2,481
2,535
3,147
5,797
3,206
8,389
6,240
9,738
3,949
2,880
3,023
3,968
3,818
4,636
5,581
4,802
4,460
3,609
3,085
4,827
5,658
2,163
2,367
4,238
3,945
4,157
3,412
6,464
4,709
3,531
6,100
5,648
3,885
4,242
4,134
4,669
4,609
3,500
6,347
3,086
3,142
270
469
260
666
470
737
191
218
220
293
211
343
280
305
280
205
199
290
315
147
140
216
134
231
175
343
245
184
320
293
200
222
223
248
239
183
329
162
165
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
2004
6/22/2006 5 to 40 years
6/22/2006 5 to 40 years
63
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
Dallas-Manderville
TX
Ft. Worth-Granbury
TX 1,813
Ft. Worth-Grapevine
TX 2,150
San Antonio-Blanco
TX
San Antonio-Broadway TX
Land
1,073
549
644
963
773
San Antonio-Huebner
TX 2,254
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
Buffalo-Lagner
Buffalo-Transit
Buffalo-Lake
Buffalo-Union
NH
NY
NY
NY
NY
Buffalo-Niagara Falls
NY
Buffalo-Youngs
Buffalo-Sheridan
Buffalo-Transit
Rochester-Phillips
Greenville
Port Arthur
Beaumont
Huntsville
Huntsville
Gulfport
Huntsville
Mobile
Gulfport
Huntsville
Foley
Pensacola
Auburn
Gulfport
NY
NY
NY
NY
MS
TX
TX
AL
AL
MS
AL
AL
MS
AL
AL
FL
AL
MS
590
694
736
975
0
439
813
532
437
638
348
323
315
961
375
1,003
1,100
929
1,537
1,607
1,016
1,423
1,206
1,216
1,345
1,164
1,346
1,029
686
1,811
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
4,276
2,180
2,542
3,836
3,060
4,624
2,471
2,784
4,639
2,361
2,758
2,905
3,854
3,680
1,745
3,213
2,119
1,794
2,531
1,344
1,331
2,185
3,827
1,498
4,002
4,386
3,647
6,018
6,338
4,013
5,624
4,775
4,819
5,325
4,624
5,474
4,180
2,732
7,152
54
84
49
50
99
98
52
1,862
234
122
67
118
85
64
58
1,912
210
67
241
89
48
84
85
217
58
96
119
195
110
101
18
49
106
22
47
71
86
74
23
Land
1,073
549
644
963
773
1,175
619
699
1,158
590
694
736
975
0
439
813
532
437
638
348
323
316
961
375
1,003
1,100
930
1,537
1,607
1,017
1,423
1,206
1,216
1,345
1,164
1,347
1,029
686
1,811
4,330
2,264
2,591
3,886
3,159
4,722
2,523
4,646
4,873
2,483
2,825
3,023
3,939
3,744
1,803
5,125
2,329
1,861
2,772
1,433
1,379
2,268
3,912
1,715
4,060
4,482
3,765
6,213
6,448
4,113
5,642
4,824
4,925
5,347
4,671
5,544
4,266
2,806
7,175
5,403
2,813
3,235
4,849
3,932
5,897
3,142
5,345
6,031
3,073
3,519
3,759
4,914
3,744
2,242
5,938
2,861
2,298
3,410
1,781
1,702
2,584
4,873
2,090
5,063
5,582
4,695
7,750
8,055
5,130
7,065
6,030
6,141
6,692
5,835
6,891
5,295
3,492
8,986
284
149
169
255
208
300
161
186
296
146
163
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
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
180
2002/04/06
9/28/2006 5 to 40 years
229
224
106
203
102
89
136
67
66
84
177
86
183
239
178
294
262
168
228
196
200
217
190
230
182
117
289
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
1993/07
3/30/2007 5 to 40 years
1998
1997
1998
1998
3/30/2007 5 to 40 years
3/30/2007 5 to 40 years
3/30/2007 5 to 40 years
3/30/2007 5 to 40 years
1999/00
3/30/2007 5 to 40 years
1999
3/30/2007 5 to 40 years
1990/95
3/30/2007 5 to 40 years
1999
1994
3/30/2007 5 to 40 years
1/11/2007 5 to 40 years
2002/04
3/8/2007 5 to 40 years
2003/06
3/8/2007 5 to 40 years
1989/06
6/1/2007 5 to 40 years
1993/07
6/1/2007 5 to 40 years
1998/05
6/1/2007 5 to 40 years
1998/06
6/1/2007 5 to 40 years
2000/07
6/1/2007 5 to 40 years
2002/04
6/1/2007 5 to 40 years
2002/06
6/1/2007 5 to 40 years
2003/06
6/1/2007 5 to 40 years
2003/06
6/1/2007 5 to 40 years
2003
6/1/2007 5 to 40 years
2004/06
6/1/2007 5 to 40 years
64
Initial Cost to Company
Cost Capitalized
Subsequent to
Acquisition
Gross Amount at Which
Carried at Close of Period
Description
Pensacola
Montgomery
Montgomery
San Antonio
Beaumont
Hattiesburg
Biloxi
Foley
Ridgeland
Jackson-5111
Cincinnati-Robertson
Construction in progress
Encum
brance
ST
FL
AL
AL
TX
TX
MS
MS
AL
MS
MS
OH
Corporate Office
NY
Land
732
1,075
885
676
742
444
384
437
1,479
1,337
852
0
0
Building,
Equipment
and
Improvements
Building,
Equipment
and
Improvements
3,015
4,333
3,586
2,685
3,024
1,799
1,548
1,757
5,965
5,377
3,409
0
68
28
23
13
124
51
55
39
33
51
48
35
13,967
11,075
Land
732
1,076
885
676
742
444
384
437
1,479
1,337
852
Building,
Equipment
and
Improvements
Total
Accum.
Deprec.
Date of
Construction
Date
Acquired
Life on
which
depreciation
in latest
income
statement
is computed
3,043
4,355
3,599
2,809
3,075
1,854
1,587
1,790
6,016
5,425
3,444
3,775
5,431
4,484
3,485
3,817
2,298
1,971
2,227
7,495
6,762
4,296
132
180
150
116
96
49
42
46
141
127
0
0
2006
2006
2006
6/1/2007 5 to 40 years
6/1/2007 5 to 40 years
6/1/2007 5 to 40 years
2003/06
5/21/2007 5 to 40 years
2002/05
11/14/2007 5 to 40 years
1998
12/19/2007 5 to 40 years
2000
12/19/2007 5 to 40 years
2000
12/19/2007 5 to 40 years
1997/00
1/17/2008 5 to 40 years
2003
1/17/2008 5 to 40 years
2003/04
12/31/2008 5 to 40 years
2006
2000
5/1/2000 5 to 40 years
0
13,967
13,967
1,616
9,527
11,143
7,105
$ 228,114
$ 884,104
$ 276,983
$ 240,525 $1,148,676
$1,389,201 $216,644
(1) These properties are encumbered through one mortgage loan with an outstanding balance of $42.6 million at December 31, 2008.
(2) These properties are encumbered through one mortgage loan with an outstanding balance of $29.0 million at December 31, 2008.
65
December 31, 2008
December 31, 2007
December 31, 2006
Cost:
Balance at beginning of period .............
Additions during period:
Acquisitions through foreclosure ......
Other acquisitions..............................
Improvements, etc. ............................
$ -
18,454
48,232
$1,322,708
$1,136,052
$ 886,191
$ -
136,653
52,427
$ -
212,957
37,003
66,686
189,080
249,960
Deductions during period:
Cost of real estate sold ......................
Balance at close of period .....................
(193)
(193)
$1,389,201
(2,424)
(2,424)
$1,322,708
(99)
(99)
$1,136,052
Accumulated Depreciation:
Balance at beginning of period..............
Additions during period:
Depreciation expense ........................ $ 33,100
$ 183,679
$ 154,449
$ 129,340
$ 30,011
$ 25,163
33,100
30,011
25,163
Deductions during period:
Accumulated depreciation of
real estate sold ....................................
Balance at close of period .....................
(135)
(135)
$ 216,644
(781)
(781)
$ 183,679
(54)
(54)
$ 154,449
66
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)
2008
Year ended December 31,
2007
2006
2005
2004
$38,785
38,097
-
76,882
36,905
1,192
-
$38,097
$41,292
35,117
(1,256)
75,153
32,898
963
1,256
$35,117
$38,425
32,006
(2,512)
67,919
28,501
993
2,512
$32,006
$35,645
24,352
(4,123)
55,874
19,439
790
4,123
$24,352
$31,567
25,296
(7,168)
49,695
17,408
720
7,168
$25,296
2.02
2.14
2.12
2.29
1.96
67
68 Corporate Headquarters
6467 Main Street
Williamsville, 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 Inc.
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 Advisory, 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, 2009
Sovran Self Storage, Inc. Home Office
6467 Main Street
Williamsville, New York 14221
11:00 a.m. (e.d.t.)
Investor Relations
Diane M. Piegza
(716) 633-1850
www.sovranss.com
Independent Auditors
Ernst & Young LLP
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 2008: 202,414
The Chief Executive Officer has previously filed
with the New York Stock Exchange (NYSE) the
annual CEO certification for 2008 as required by
section 303A.12(a) of the NYSE listed company
manual.
As of December 31, 2008, there were
approximately 1,316 shareholders of record of the
common stock.
Uncle Bob’s Self Storage Locations
at December 31, 2008
Sovran Self Storage, Inc. (360)
Sovran HHF JV (25)
Sovran Self Storage, Inc.
6467 Main Street
Williamsville, NY 14221
www.unclebobs.com