Sovran Self Storage, Inc. (NYSE:SSS), a self-storage real estate
investment trust (REIT), reported operating results for the quarter
ended June 30, 2009.
Net income available to common shareholders for the second
quarter of 2009 was $6.3 million or $.28 per diluted share. Net
income available to common shareholders for the same period in 2008
was $10.5 million or $.48 per diluted share. Funds from operations
for the quarter were $.66 per fully diluted common share. One-time
costs of almost $1 million associated with a first quarter covenant
waiver, higher interest expense associated with the Company’s
recent long-term financing, and increased customer move-in
incentives were the primary factors leading to lower earnings for
2009’s second quarter.
Occupancy levels at the Company’s 385 storage facilities at June
30 improved to 82.5%, an increase of 360 basis points since March
31. Kenneth Myszka, the Company’s President and Chief Operating
Officer stated, “In a very challenging environment, we’re pleased
to see our marketing and call center efforts take hold. During the
quarter, we had a net gain of 9,400 customers on a same store
basis, and while we made heavy use of incentives, this got our
summer season off to a solid start.”
In early May, the Company announced it had breached a debt
covenant with its lenders. David Rogers, the Company’s Chief
Financial Officer commented, “During the quarter, we took the
necessary steps to fix this problem and to improve our liquidity
position. We became even more prudent regarding acquisitions and
expansions, reduced the dividend on our common stock, and raised
some equity through our DRIP and Stock Purchase Plans. We’ve gained
sufficient room concerning the covenant restriction and, at June
30, we have in excess of $60 million in cash and permissible
borrowings remaining on our credit line.”
OPERATIONS:
Total Company net operating income for the second quarter
declined 2.3% ($724,000) compared with the same quarter in 2008 to
$31.2 million. Overall average occupancy for the quarter was 80.9%
and average rent per square foot for the portfolio was $10.16.
Revenues at the 359 stores owned and/or managed for the entire
quarter in both years decreased 3.7% over the second quarter of
2008, the result of a 2.8% decrease in effective rental rates and a
130 basis point drop in average occupancy. The Company continues to
make extensive use of move-in incentives; during the quarter over
$3.4 million in “first month free” incentives were granted, almost
65% more than those of last spring. At the quarter end date,
occupancy on a same store basis was 82.6% compared to 83.1% at June
30, 2008.
Same store operating expenses decreased by 3.6% from last year’s
second quarter. A 6.5% increase in property taxes, and modest
growth in marketing costs and internet advertising were offset by
significant declines in virtually all other operating expense
categories.
General and administrative expenses grew $243,000 over the same
period in 2008, primarily due to increased expenses associated with
operating the Joint Venture.
During the quarter, modest revenue growth was shown at the
Company’s Maryland, Louisiana, and Texas stores, while stores in
Florida, Georgia, and New England continued to show considerable
revenue declines.
PROPERTIES:
The Company did not acquire any properties during the quarter
for its own portfolio or for that of the Joint Venture.
As previously announced, the Company has curtailed its program
of expanding and enhancing its existing stores, awaiting
improvements in both the capital markets and the general economy.
Four projects that were started in 2008 have been completed thus
far this year at a cost of $5.4 million. Most improvements will be
postponed indefinitely, except for about $8 million yet to be
applied to projects still underway.
CAPITAL TRANSACTIONS:
The Company’s line of credit and term notes require it to meet
certain financial covenants, including prescribed leverage, fixed
charge coverage, minimum net worth, limitations on additional
indebtedness and limitations on dividend payouts. One such covenant
limits total consolidated liabilities to 55% of gross asset value;
at March 31 this ratio was 55.4%. In May, the Company received a
waiver from its lenders at a cost of almost $1 million, and then
took measures to prevent a recurrence. These included issuance of
equity through its Dividend Reinvestment Program and Direct Stock
Purchase Plan, reducing the quarterly dividend, and reducing
discretionary capital expenditures.
1.3 million shares were issued during the quarter, generating
cash proceeds of $29.4 million. This, combined with the other
measures mentioned above, served to reduce the Company’s
liabilities by $41 million during the quarter, while providing
funding for some $4 million of previously committed expansion
projects and adding $4.2 million to cash and current assets.
At June 30, 2009, the Company has $500 million of unsecured term
note debt and $108 million of mortgage debt outstanding. $26
million of the mortgage debt matures at the end of 2009; the next
significant maturities are in 2012.
During the quarter, one of the two Credit Rating Agencies
covering the Company reduced its rating on the Company’s senior
debt from BBB- to BB+. The other Agency reaffirmed its BBB- rating,
although it did place the Company on Rating Watch “Negative”. One
of the effects of the rating drop was to cause an increase in the
interest rate applied to two of the Company’s unsecured notes. As a
result, the Company’s aggregate interest rate on its unsecured debt
increased from 6.14% to 6.93%. There would be no additional impact
on the cost of this debt should the Company suffer any further
rating downgrades.
A summary of certain debt ratios at June 30, 2009 is as
follows:
- Debt to Enterprise Value
(at $24.60/share)
50.9%
- Debt to Book Cost
43.4%
- Debt to EBITDA ratio
5.7x
- Debt service
coverage
2.5x
YEAR 2009 EARNINGS GUIDANCE:
The Company is anticipating soft consumer demand in many of its
markets and for conditions to remain competitive. It expects to
continue the use of leasing incentives as well as increased
advertising and aggressive marketing to improve occupancy and,
accordingly, estimates a decline in same store revenue of 2 to 4%
from that of 2008. Property operating costs are projected to
decrease by 1 to 2%. Management reiterates its previous forecast of
an expected decline in same store NOI of 2 to 4%.
The Company has curtailed its expansion and enhancement program
and, until market conditions significantly improve, will defer most
of its planned 2009 expenditures of $50 million. It has an
estimated total of $8 million of commitments outstanding on
construction projects remaining to be completed in 2009.
At present, the Company does not expect to actively pursue the
purchase of additional facilities while the capital and real estate
markets remain unstable. It is negotiating the sale of several of
its non-core stores, and may sell several of these facilities in
the third and fourth quarters of 2009, although the impact of these
sales is not included in guidance.
General and administrative expenses are expected to increase by
5 to 7% in 2009.
At June 30, 2009, all 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
1.75%.
At June 30, 2009 the Company had 23,391,184 shares of common
stock outstanding, and 419,952 Operating Partnership Units
outstanding.
As a result of the above assumptions, management expects funds
from operations for the third quarter of 2009 to be approximately
$.65 to $.67 per share, and between $2.70 and $2.74 for the full
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 21E of the 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 Company’s ability to comply
with debt covenants; 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 Second Quarter Earnings
Release Conference Call at 9:00 a.m. Eastern Time on Thursday,
August 6, 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) June 30, December 31,
(dollars in thousands) 2009 2008
Assets
Investment in storage facilities: Land $ 240,525 $ 240,525
Building, equipment and construction in progress
1,160,632 1,148,676
1,401,157 1,389,201 Less: accumulated depreciation
(233,429 ) (216,644
) Investment in storage facilities, net 1,167,728
1,172,557 Cash and cash equivalents 10,089 4,486 Accounts
receivable 2,199 2,971 Receivable from related parties - 14
Receivable from joint ventures 161 336 Investment in joint ventures
19,989 20,111 Prepaid expenses 4,854 4,691 Intangible asset -
in-place customer leases (net of accumulated amortization of $5,395
in 2009 and $5,160 in 2008) 54 289 Other assets
6,526 7,171 Total
Assets
$ 1,211,600 $
1,212,626 Liabilities Line of
credit $ - $ 14,000 Term notes 500,000 500,000 Accounts payable and
accrued liabilities 20,586 23,979 Deferred revenue 5,524 5,659 Fair
value of interest rate swap agreements 19,883 25,490 Accrued
dividends - 14,090 Mortgages payable
108,314
109,261 Total Liabilities 654,307
692,479 Noncontrolling redeemable Operating Partnership
Units at redemption value 10,331 15,118
Equity Common
stock 246 232 Additional paid-in capital 698,176 666,633
Accumulated deficit (118,018 ) (122,581 ) Accumulated other
comprehensive loss (19,349 ) (25,162 ) Treasury stock at cost
(27,175 )
(27,175 ) Total Shareholders' Equity
533,880 491,947 Noncontrolling interest - consolidated joint
venture
13,082
13,082 Total Equity
546,962
505,029 Total Liabilities and
Equity
$ 1,211,600 $
1,212,626 CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited) April 1, 2009
April 1, 2008 to to (dollars in thousands, except share
data) June 30, 2009 June 30, 2008
Revenues Rental income $ 46,709 $ 48,432 Other operating
income 1,785 1,688 Management and acquisition fee income
305 - Total
operating revenues 48,799 50,120
Expenses Property
operations and maintenance 12,440 13,355 Real estate taxes 5,141
4,823 General and administrative 4,338 4,095 Depreciation and
amortization 8,432 8,181 Amortization of in-place customer leases
90 327 Total
operating expenses
30,441
30,781 Income from operations 18,358
19,339 Other income (expense) Interest expense (including
amortization of financing fees of $315 in 2009 and $289 in 2008,
and $923 of waiver fees in 2009) (11,699 ) (8,978 ) Interest income
20 86 Equity in income of joint ventures
63
7 Income from continuing
operations 6,742 10,454 Income from discontinued operations
- 712 Consolidated
net income 6,742 11,166 Less: net income attributable to
noncontrolling interests
(456 )
(625 ) Net income attributable
to common shareholders $ 6,286
$ 10,541 Earnings per
common share attributable to common shareholders - basic
Continuing operations $ 0.28 $ 0.45 Discontinued operations
0.00 0.04 Earnings
per common share - basic
$ 0.28
$ 0.49 Earnings per
common share attributable to common shareholders - diluted
Continuing operations $ 0.28 $ 0.45 Discontinued operations
0.00 0.03 Earnings
per common share - diluted
$ 0.28
$ 0.48 Common shares used
in basic earnings per share calculation 22,613,518 21,727,506
Common shares used in diluted earnings per share calculation
22,616,553 21,760,891
Dividends declared per common
share $ - $
0.6300 CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited) January 1, 2009
January 1, 2008 to to (dollars in thousands, except share
data) June 30, 2009 June 30, 2008
Revenues Rental income $ 94,368 $ 96,490 Other operating
income 3,359 3,250 Management and acquisition fee income
616 - Total
operating revenues 98,343 99,740
Expenses Property
operations and maintenance 25,877 27,150 Real estate taxes 10,285
9,563 General and administrative 8,724 8,220 Depreciation and
amortization 16,828 16,253 Amortization of in-place customer leases
235 856 Total
operating expenses
61,949
62,042 Income from operations 36,394
37,698 Other income (expense) Interest expense (including
amortization of financing fees of $630 in 2009 and $562 in 2008,
and $923 of waiver fees in 2009) (21,678 ) (17,933 ) Interest
income 53 178 Equity in income of joint ventures
94 19 Income
from continuing operations 14,863 19,962 Income from discontinued
operations
- 794
Consolidated net income 14,863 20,756 Less: net income
attributable to noncontrolling interests
(942
) (1,262 ) Net
income attributable to common shareholders $
13,921 $ 19,494
Earnings per common share attributable to common
shareholders - basic Continuing operations $ 0.62 $ 0.86
Discontinued operations
0.00
0.04 Earnings per common share - basic
$ 0.62 $
0.90 Earnings per common share
attributable to common shareholders - diluted Continuing
operations $ 0.62 $ 0.86 Discontinued operations
0.00 0.04 Earnings
per common share - diluted
$ 0.62
$ 0.90 Common shares used
in basic earnings per share calculation 22,291,292 21,687,436
Common shares used in diluted earnings per share calculation
22,294,457 21,712,668
Dividends declared per common
share $ 0.6400 $
1.2600 COMPUTATION OF FUNDS FROM
OPERATIONS (FFO) (1) - (unaudited) April
1, 2009 April 1, 2008 to to (dollars in thousands, except share
data) June 30, 2009 June 30, 2008 Net income
attributable to controlling interests $ 6,286 $ 10,541 Net income
attributable to noncontrolling interests 456 625 Depreciation of
real estate and amortization of intangible assets exclusive of
deferred financing fees 8,522 8,508 Depreciation and amortization
from unconsolidated joint ventures 209 14 Gain on sale of real
estate - (716 ) Funds from operations allocable to noncontrolling
interest in Operating Partnership (275 ) (352 ) Funds from
operations allocable to noncontrolling interest in consolidated
joint ventures
(340 )
(421 ) Funds from operations available to
common shareholders 14,858 18,199 FFO per share - diluted $ 0.66 $
0.84 Common shares - diluted 22,616,553 21,760,891
January 1, 2009 January 1, 2008 to to (dollars in thousands,
except share data) June 30, 2009 June 30, 2008
Net income attributable to controlling interests $ 13,921 $ 19,494
Net income attributable to noncontrolling interests 942 1,262
Depreciation of real estate and amortization of intangible assets
exclusive of deferred financing fees 17,063 17,155 Depreciation and
amortization from unconsolidated joint ventures 416 29 Gain on sale
of real estate (716 ) Funds from operations allocable to
noncontrolling interest in Operating Partnership (584 ) (691 )
Funds from operations allocable to noncontrolling interest in
consolidated joint ventures
(680 )
(884 ) Funds from operations
available to common shareholders 31,078 35,649 FFO per share -
diluted $ 1.39 $ 1.64 Common shares - diluted 22,294,457
21,712,668 (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.
QUARTERLY SAME STORE DATA (2)
April 1, 2009 April 1, 2008 to to
Percentage (dollars in thousands) June 30, 2009 June
30, 2008 Change
Revenues: Rental income $ 46,579 $
48,432 -3.8 % Other operating income
1,695
1,688 0.4 % Total
operating revenues 48,274 50,120 -3.7 %
Expenses:
Property operations and maintenance 12,379 13,355 -7.3 % Real
estate taxes
5,137 4,823
6.5 % Total operating expenses
17,516 18,178 -3.6
% Operating income $ 30,758 $ 31,942 -3.7 %
(2) Includes the 359 stores owned and/or managed by the
Company for the entire periods presented.
Same Store
Revenues by State (2) April 1, 2009 April 1, 2008 to to
Percentage
(dollars in thousands)
June 30, 2009 June 30, 2008 Change Alabama
2,536 2,647 -4.2 % Arizona 1,161 1,228 -5.5 % Connecticut 1,040
1,111 -6.4 % Florida 7,222 7,913 -8.7 % Georgia 2,948 3,298 -10.6 %
Louisiana 1,970 1,917 2.8 % Maine 255 284 -10.2 % Maryland 489 473
3.4 % Massachusetts 1,915 1,963 -2.4 % Michigan 565 570 -0.9 %
Mississippi 1,740 1,806 -3.7 % Missouri 1,038 1,090 -4.8 % New
Hampshire 508 524 -3.1 % New York 4,345 4,458 -2.5 % North Carolina
1,600 1,669 -4.1 % Ohio 1,966 2,037 -3.5 % Pennsylvania 704 715
-1.5 % Rhode Island 428 482 -11.2 % South Carolina 879 916 -4.0 %
Tennessee 488 545 -10.5 % Texas 12,236 12,149 0.7 % Virginia 2,241
2,325 -3.6 %
Total same store
$ 48,274 $ 50,120 -3.7 %
YEAR TO
DATE SAME STORE DATA (3) January 1, 2009 January 1, 2008 to to
Percentage (dollars in thousands) June 30, 2009 June
30, 2008 Change
Revenues: Rental income $ 93,375 $
95,838 -2.6 % Other operating income
3,194
3,245 -1.6 % Total
operating revenues 96,569 99,083 -2.5 %
Expenses:
Property operations and maintenance 25,631 27,001 -5.1 % Real
estate taxes
10,230 9,524
7.4 % Total operating expenses
35,861 36,525 -1.8
% Operating income $ 60,708 $ 62,558 -3.0 %
(3) Includes the 357 stores owned and/or managed by the
Company for the entire periods presented.
OTHER DATA
Same Store (2) All Stores
2009
2008
2009
2008
Weighted average quarterly occupancy 81.0 % 82.3 % 80.9 %
82.3 % Occupancy at June 30 82.6 % 83.1 % 82.5 % 83.1 %
Rent per occupied square foot $10.06 $10.35 $10.16 $10.35
Investment in Storage Facilities:
The following summarizes activity in storage facilities during the
six months ended June 30, 2009: Beginning balance $
1,389,201 Property acquisitions - Improvements and equipment
additions: Expansions 5,369 Roofing, paving, painting, and
equipment: Stabilized stores 3,005 Recently acquired and joint
venture stores 238 Change in construction in progress (Total CIP
$17.4 million) 3,402 Dispositions
(58
) Storage facilities at cost at period end
$ 1,401,157 June 30,
2009 June 30, 2008 Common shares outstanding at June 30
23,391,184 21,890,727 Operating Partnership Units
outstanding at June 30 419,952 422,527
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