Sovran Self Storage, Inc. (NYSE:SSS), a self-storage real estate
investment trust (REIT), reported operating results for the quarter
ended December 31, 2008.
Net income available to common shareholders for the fourth
quarter of 2008 was $8.4 million or $.38 per diluted share. Net
income available to common shareholders for the same period in 2007
was $10.7 million or $.50 per diluted share. Funds from operations
for the quarter were $.78 per fully diluted common share. Costs
associated with acquisitions that the Company no longer intends to
pursue were written off during the quarter and reserves were
established against potential losses relating to customer accounts
receivable and for settlement of a long standing legal dispute.
These write-downs and reserves had a negative impact of $.02 per
share on the Company�s FFO for the quarter. Higher interest expense
associated with the Company�s recent long-term financing and
increased customer move-in incentives were the other significant
factors resulting in lower earnings for 2008�s fourth quarter
compared to 2007�s.
David Rogers, the Company�s Chief Financial Officer, said
�Although adding significantly to our interest costs, the steps we
took earlier this year to refinance our short term debt have put us
on sound financial footing. We�ve maintained a conservatively
leveraged balance sheet, have no significant debt maturities until
2012, are obligated on less than $15 million of forward capital
commitments, and have sufficient liquidity to enable us to navigate
these difficult capital market and operating environments. We will
continue to focus on improving operating results at our 385 stores,
and protecting shareholder value.�
OPERATIONS:
Total Company net operating income for the fourth quarter
declined 0.5% ($150,000) compared with the same quarter in 2007 to
$32.3 million. Overall average occupancy for the quarter was 81.6%
and average rent per square foot for the portfolio was $10.54.
Revenues at the 353 stores owned and/or managed for the entire
quarter in both years increased 50 basis points over the fourth
quarter of 2007, the result of a slight increase in effective
rental rates. Although average occupancy was only 50 basis points
lower during the fourth quarter of this year compared to last
year�s same store fourth quarter, it was expensive to maintain that
level as the Company continues to make extensive use of move-in
incentives. During the quarter, almost $2 million in �first month
free� incentives were granted; more than double that of last fall.
Further pressuring the top line was a charge of $170,000 against
accounts receivable, which was taken as a result of longer than
usual delinquencies at a number of our stores that have a
significant military customer base.
Same store operating expenses increased 4.7%; property taxes
increased by 21.2% over last year�s fourth quarter while all other
costs grew by only 0.2%. This year�s fourth quarter property taxes
appear high on a comparative basis because the fourth quarter of
2007 had an artificially reduced expense due to an over-accrual
during the first three quarters of that year. For the full year
2008, the Company�s same store property tax expense increase was
6.9%. The modest revenue growth, offset by the property tax
aberration, resulted in a same store net operating income decline
of 1.8% from that of the fourth quarter of 2007.
General and administrative expenses rose $780,000 over the same
period in 2008, primarily due to the aforementioned write-off of
costs associated with abandoned acquisitions, the lawsuit reserves,
and increased expenses associated with operating the Joint
Venture.
During the quarter, strong revenue growth was shown at the
Company�s South Carolina, Missouri, New York, Louisiana, and Texas
stores. Stores in Florida, Georgia, and the Capitol District
markets experienced slower than expected growth during the
quarter.
PROPERTIES:
In 2008, the Company formed a joint venture with an affiliate of
Heitman, LLC (the �JV�) to acquire and manage up to $350 million of
storage properties to be purchased from unaffiliated owners. In
July, the JV purchased 21 properties at a cost of $144 million. Ten
of the stores represent new markets including four in Columbus, OH;
two in Louisville, KY; and four in Denver, CO. The remaining stores
are located in markets where Sovran already has a presence; two
each in Tampa, FL and San Antonio, TX; six in Dallas, TX; and one
in Houston, TX.
During the fourth quarter, the JV acquired four properties for
approximately $27 million. The facilities are located in the
Company�s existing Southeast Florida, Atlanta, GA and Columbus, OH
markets.
The Company also acquired a store in Cincinnati, OH for its own
portfolio at a cost of $4.4 million.
The Company has severely curtailed its program of expanding and
enhancing its existing stores. Seven projects were completed during
the quarter at a cost of $9.1 million, bringing a total of 20
stores that were improved in 2008 at a total cost of $25.6 million.
This was $20 million less than projected; 2009 improvement projects
will, except for those substantially underway, be postponed
indefinitely.
CAPITAL TRANSACTIONS:
As previously reported in June of 2008, the Company refinanced
it�s near term maturities and repaid its line of credit with the
proceeds of a $250 million four year term note. The Company then
entered into a group of interest rate swaps, effectively setting
the interest rate on the note at 5.97% through 2012.
Simultaneously with the term note agreement, the Company entered
into a new, three year Line of Credit agreement, which provides
$125 million of unsecured financing at a rate of LIBOR plus 1.375%.
The facility is expandable, at the Company�s option, to $175
million and can be extended for one additional year. At December
31, 2008, $14 million had been drawn on the Line.
During the quarter, the Company issued 43,125 shares through its
Dividend Reinvestment Program, Direct Stock Purchase Plan and
Employee Option Plan. A total of $1.3 million was received, and was
used to fund capital improvements.
YEAR 2009 EARNINGS GUIDANCE:
The Company is anticipating reduced consumer demand in many of
its markets and for conditions to become increasingly more
competitive. It expects to utilize leasing incentives as well as
increased advertising and aggressive marketing to improve occupancy
and, accordingly, estimates a decline in same store revenue of 1-2%
from that of 2008. Property operating costs are projected to grow
by 3 � 3 �%, resulting in a decline in same store NOI of 2-4%.
The Company has curtailed its expansion and enhancement program
and, until market conditions significantly improve, will defer its
planned 2009 expenditures of $50 million. It has an estimated total
of $9.5 million of commitments outstanding on construction projects
expected to be completed in 2009.
At present, the Company does not have any properties under
contract and does not expect to actively pursue the purchase of
additional facilities while the capital markets remain unstable.
Approximately $5 million of additional capital remains committed by
the Company as its share of the equity for the JV formed in
2008.
General and administrative expenses are not expected to increase
significantly in 2009.
At December 31, 2008, all but $14 million of the Company�s debt
is either fixed rate or covered by rate swap contracts that
essentially fix the rate. Subsequent borrowings that may occur will
be pursuant to the Company�s Line of Credit agreement at a floating
rate of LIBOR plus 1.375%.
Management expects funds from operations for the first quarter
of 2009 to be approximately $.72 to $.74 per share, and between
$3.00 and $3.08 for the year 2009.
FORWARD LOOKING STATEMENTS:
When used within this news release, 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 Act of 1933,
and in Section 21F of Securities Exchange 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 could cause rents and occupancy rates to decline;
the Company�s ability to evaluate, finance and integrate acquired
businesses into the Company�s existing business and operations; the
Company�s ability to form joint ventures and sell existing
properties to those joint ventures; 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 regional concentration of the
Company�s business may subject it to economic downturns in the
states of Florida and Texas; the Company�s ability to effectively
compete in the industries in which it does business; 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 which may change the taxability of
future income.
CONFERENCE CALL:
Sovran Self Storage will hold its Fourth Quarter Earnings
Release Conference Call at 9:00 a.m. Eastern Time on Wednesday,
February 18, 2009. Anyone wishing to listen to the call may access
the webcast via the event page at
www.unclebobs.com/company/investment. The call will be archived for
a period of 90 days after initial airing.
Sovran Self Storage, Inc. is a self-administered and
self-managed equity REIT that is in the business of acquiring and
managing self-storage facilities. The Company operates 385
self-storage facilities in 24 states under the name �Uncle Bob�s
Self Storage��. For more information, please contact David Rogers,
CFO or Diane Piegza, VP Corporate Communications at (716) 633-1850
or visit the Company�s Web site at www.unclebobs.com.
SOVRAN SELF STORAGE, INC. BALANCE SHEET DATA
(unaudited) �
December�31,
�
December�31,
(dollars in thousands) 2008 � 2007
Assets Investment in
storage facilities: Land $ 240,525 $ 236,349 Building, equipment
and construction in progress
1,148,676
1,086,359 1,389,201 1,322,708 Less: accumulated
depreciation
(216,644) (183,679)
Investment in storage facilities, net 1,172,557 1,139,029 Cash and
cash equivalents 4,486 4,010 Accounts receivable 2,971 2,794
Receivable from related parties 14 27 Receivable from joint
ventures 336 - Investment in joint ventures 20,111 - Prepaid
expenses 4,691 4,771
Intangible asset - in-place
customer leases (net of accumulated amortization of $5,160 in 2008
and $3,840 in 2007)
289 833 Other assets 7,171 6,741 Net assets of discontinued
operations
- 6,383 Total Assets
$
1,212,626 $ 1,164,588 �
Liabilities Line
of credit $ 14,000 $ 100,000 Term notes 500,000 356,000 Accounts
payable and accrued liabilities 23,979 23,752 Deferred revenue
5,659 5,602 Fair value of interest rate swap agreements 25,490
1,230 Accrued dividends 14,090 13,656 Mortgages payable
109,261 110,517 Total Liabilities 692,479
610,757 � Minority interest - Operating Partnership 9,265 9,659
Minority interest - consolidated joint ventures 13,082 16,783 �
Shareholders' Equity Common stock 232 228 Additional paid-in
capital 666,633 654,141 Dividends in excess of net income (116,728)
(98,437) Accumulated other comprehensive income (25,162) (1,368)
Treasury stock at cost
(27,175) (27,175)
Total Shareholders' Equity
497,800
527,389 � Total Liabilities and Shareholders' Equity
$ 1,212,626 $ 1,164,588 CONSOLIDATED
STATEMENTS OF OPERATIONS � �
(unaudited) October 1, 2008
October 1, 2007 to to (dollars in thousands, except share data)
December�31,�2008
�
December�31,�2007
�
Revenues Rental income $ 48,928 $ 48,275 Other operating
income 1,603 1,573 Management and acquisition fee income
234 -
Total operating revenues
50,765 49,848 �
Expenses Property operations and maintenance
13,887 13,643 Real estate taxes 4,598 3,774 General and
administrative 4,792 4,012 Depreciation and amortization 8,463
7,951 Amortization of in-place customer leases
208
492 Total operating expenses
31,948
29,872 � Income from operations 18,817 19,976 � Other
income (expense)
Interest expense (including
amortization of financing fees of $325 in 2008 and $247 in
2007)
(10,130) (8,954) Interest income 49 140 Casualty gain - 114
Minority interest - Operating Partnership (160) (202) Minority
interest - consolidated joint ventures (340) (462) Equity in income
of joint ventures
142 23 � Income from
continuing operations 8,378 10,635 Income from discontinued
operations
- 102 �
Net Income
$ 8,378 $ 10,737 �
Per Common Share -
basic Continuing operations $ 0.38 $ 0.50 Discontinued
operations
0.00 0.00 Earnings per common
share - basic
$ 0.38 $ 0.50 �
Earnings
per common share - diluted Continuing operations $ 0.38 $ 0.50
Discontinued operations
0.00 0.00
Earnings per common share - diluted
$ 0.38 $
0.50 �
Common shares used in basic
earnings per share calculation
21,862,359 21,535,833 �
Common shares used in diluted
earnings per share calculation
21,872,257 21,575,908 �
Dividends declared per common share
$ 0.6400 $ 0.6300 CONSOLIDATED
STATEMENTS OF OPERATIONS � �
(unaudited) January 1, 2008
�
January 1, 2007 to to (dollars in thousands, except share data)
December�31,�2008
�
December�31,�2007
�
Revenues Rental income $ 195,220 $ 186,581 Other operating
income 6,648 6,276 Management and acquisition fee income
1,135 - Total operating revenues 203,003
192,857 �
Expenses Property operations and maintenance
55,739 52,317 Real estate taxes 19,004 17,370 General and
administrative 17,279 15,234 Depreciation and amortization 33,101
30,011 Amortization of in-place customer leases
1,320
3,840 Total operating expenses
126,443
118,772 � Income from operations 76,560 74,085 � Other
income (expense)
Interest expense (including
amortization of financing fees of $1,192 in 2008 and $963 in
2007)
(38,097) (33,861) Interest income 322 954 Casualty gain - 114
Minority interest - Operating Partnership (721) (783) Minority
interest - consolidated joint ventures (1,563) (1,848) Equity in
income of joint ventures
104 119 � Income
from continuing operations 36,605 38,780 Income from discontinued
operations (including gain on disposal of $716 in 2008)
794 434 �
Net Income 37,399 39,214
Preferred stock dividends
- (1,256) Net
income available to common shareholders
$ 37,399
$ 37,958 �
Per Common Share - basic Continuing
operations $ 1.68 $ 1.79 Discontinued operations
0.04
0.02 Earnings per common share - basic
$
1.72 $ 1.81 �
Earnings per common share -
diluted Continuing operations $ 1.68 $ 1.79 Discontinued
operations
0.04 0.02 Earnings per common
share - diluted
$ 1.72 $ 1.81 �
Common shares used in basic
earnings per share calculation
21,761,997 20,954,649 �
Common shares used in diluted
earnings per share calculation
21,782,804 21,003,851 �
Dividends declared per common share
$ 2.5400 $ 2.5000 COMPUTATION OF FUNDS
FROM OPERATIONS (FFO) (1) - (unaudited) � � October 1, 2008
October 1, 2007 to to (dollars in thousands, except share data)
December�31,�2008
�
December�31,�2007
� Net income $ 8,378 $ 10,737 Minority interest in income 500 664
Depreciation of real estate and
amortization of intangible assets exclusive of deferred financing
fees
8,671 8,489 Depreciation and amortization from unconsolidated joint
ventures 72 15 Casualty gain - (114)
Funds from operations allocable to
minority interest in Operating Partnership
(325) (356)
Funds from operations allocable to
minority interest in consolidated joint ventures
(340) (462)
Funds from operations available to
common shareholders
16,956 18,973 FFO per share - diluted $ 0.78 $ 0.88 � Common shares
- diluted 21,872,257 21,575,908 � � January 1, 2008 January 1, 2007
to to (dollars in thousands, except share data) December 31, 2008
December 31, 2007 � Net income $ 37,399 $ 39,214 Minority interest
in income 2,284 2,631
Depreciation of real estate and
amortization of intangible assets exclusive of deferred financing
fees
34,466 34,036 Depreciation and amortization from unconsolidated
joint ventures 334 59 Gain on sale of real estate (716) - Casualty
gain - (114) Preferred dividends - (1,256)
Funds from operations allocable to
minority interest in Operating Partnership
(1,366) (1,425)
Funds from operations allocable to
minority interest in consolidated joint ventures
(1,564) (1,848)
Funds from operations available to
common shareholders
70,837 71,297 FFO per share - diluted (a) $ 3.25 $ 3.38 � Common
shares - diluted 21,782,804 21,003,851 Common shares if Series C
Preferred Stock is converted
- 480,127
Total shares used in FFO per share calculation (a) 21,782,804
21,483,978 (1) We believe that Funds from Operations (�FFO�)
provides relevant and meaningful information about our operating
performance that is necessary, along with net earnings and cash
flows, for an understanding of our operating results. 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. � Funds from operations is
defined by the National Association of Real Estate Investment
Trusts, Inc. (�NAREIT�) as net income computed in accordance with
generally accepted accounting principles (�GAAP�), excluding gains
or losses on sales of properties, plus depreciation and
amortization and after adjustments to record unconsolidated
partnerships and joint ventures on the same basis. We believe that
to further understand our performance, FFO should be 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. � (a) The Series C Convertible Preferred Shares were
converted on July 9, 2007 into 920,244 common shares. The prorated
shares through the conversion date have been added to the diluted
shares outstanding to calculate the FFO per share in 2007.
QUARTERLY SAME STORE DATA (2) �
October�1,�2008
�
October�1,�2007
� to to Percentage (dollars in thousands)
December�31,�2008
�
December�31,�2007
Change �
Revenues: Rental income $ 48,202 $ 47,904 0.6%
Other operating income
1,529 1,573
-2.8% Total operating revenues 49,731 49,477 0.5% �
Expenses: Property operations and maintenance 13,632 13,604
0.2% Real estate taxes
4,563 3,766
21.2% Total operating expenses
18,195
17,370 4.7% � Operating income $ 31,536 $
32,107 -1.8% � (2) Includes the 353 stores owned and/or managed by
the Company for the entire periods presented. �
Same Store
Revenues by State (2)
October�1,�2008
October�1,�2007
to to Percentage
(dollars in thousands)
December�31,�2008
�
December�31,�2007
Change � Alabama 2,546 2,584 -1.5% Arizona 1,243 1,242 0.1%
Connecticut 1,092 1,130 -3.4% Florida 7,845 8,299 -5.5% Georgia
3,186 3,304 -3.6% Louisiana 1,919 1,800 6.6% Maine 271 271 0.0%
Maryland 467 505 -7.5% Massachusetts 1,972 1,941 1.6% Michigan 567
542 4.6% Mississippi 1,303 1,275 2.2% Missouri 1,089 1,059 2.8% New
Hampshire 525 517 1.5% New York 4,455 4,237 5.1% North Carolina
1,600 1,629 -1.8% Ohio 2,018 2,049 -1.5% Pennsylvania 719 716 0.4%
Rhode Island 448 487 -8.0% South Carolina 940 907 3.6% Tennessee
501 550 -8.9% Texas 12,819 12,064 6.3% Virginia 2,206 2,369 -6.9% �
� � �
Total same store
$ 49,731 � $ 49,477 0.5% � �
YEAR TO DATE SAME STORE DATA
(3) January 1, 2008 January 1, 2007 to to Percentage (dollars
in thousands) December 31, 2008 � December 31, 2007 Change �
Revenues: Rental income $ 178,225 $ 177,061 0.7% Other
operating income
5,459 5,633
-3.1% Total operating revenues 183,684 182,694 0.5% �
Expenses: Property operations and maintenance 50,191 48,978
2.5% Real estate taxes
17,635 16,491
6.9% Total operating expenses
67,826
65,469 3.6% � Operating income $ 115,858
$ 117,225 -1.2% � (3) Includes the 326 stores owned and/or managed
by the Company for the entire periods presented.
OTHER DATA
�
Same�Store�(2)
� All Stores
2008 �
2007
2008 �
2007 � Weighted average quarterly
occupancy 81.8% 82.3% 81.6% 82.2% � Occupancy at December 31 80.6%
81.5% 80.5% 81.4% � Rent per occupied square foot $10.47 $10.42
$10.54 $10.42 � �
Investment in Storage Facilities:
The following summarizes activity in storage facilities during the
twelve months ended December 31, 2008: � Beginning balance $
1,322,708 Property acquisitions 18,454 Additional investment in
consolidated joint ventures 2,473 Improvements and equipment
additions: Expansions 25,584 Roofing, paving, painting, and
equipment: Stabilized stores 15,230 Recently acquired and joint
venture stores 4,184 Change in construction in progress (Total CIP
$14.0 million) 761 Dispositions
(193) Storage
facilities at cost at period end
$ 1,389,201 � �
December 31, 2008 December 31, 2007 � Common shares outstanding at
December 31 22,016,348 21,676,586 Operating Partnership Units
outstanding at December 31 419,952 422,726
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