Sovran Self Storage, Inc. (NYSE:SSS), a self-storage real estate
investment trust (REIT), reported operating results for the quarter
ended September 30, 2009.
Net income available to common shareholders for the third
quarter of 2009 was $7.5 million or $.32 per diluted share. Net
income available to common shareholders for the same period in 2008
was $9.5 million or $.44 per diluted share. Funds from operations
for the quarter were $.68 per fully diluted common share. Higher
interest expense and increased customer move-in incentives were the
primary factors leading to lower earnings for 2009’s third
quarter.
Subsequent to the end of the quarter, the Company sold 4.025
million shares of common stock, realizing net proceeds of $113.8
million from the issuance. On October 5, 2009, the Company applied
the proceeds of the offering to repay $100 million of its bank term
notes maturing in 2012, and terminated interest rate swap
agreements associated with the repaid debt obligation.
Primarily as a result of these actions, Fitch Ratings reinstated
the Company’s credit rating to BBB- (matching the rating issued by
Standard and Poors). David Rogers, the Company’s Chief Financial
Officer said, “The reinstatement of our investment grade rating
will reduce our borrowing costs by over $3 million per year, and
the capacity and flexibility gained by the stock offering affords
plenty of room to take advantage of the opportunities we expect to
see in the next 12 – 18 months.”
OPERATIONS:
Total Company net operating income for the third quarter
declined 3.8% ($1.2 million) compared with the same quarter in 2008
to $31.4 million. Overall average occupancy for the quarter was
82.3% and average rent per square foot for the portfolio was
$10.25. Occupancy at the Company’s 382 storage facilities at
September 30 was 81.6%.
The Company continues to make extensive use of move-in
incentives; during the quarter over $4.5 million in “first month
free” and other incentives were granted, almost $1.6 million more
than those of last summer. As a result, even though street rates
were increased in most markets, revenues at the 356 stores owned
and/or managed for the entire quarter in both years decreased 3.6%
over the third quarter 2008.
Kenneth F. Myszka, the Company’s President and Chief Operating
Officer, commented, “In a very challenging economic environment, we
see positive signs at our Uncle Bob’s stores. Our same store
move-ins have exceeded those of last year for seven of the last
nine months. Our call center and internet inquiries have remained
high, so we know demand is there. Once we absorb the impact of the
up-front leasing incentive, our revenue management systems have
enabled us to optimize rental rates, to the extent that when a
customer does move out, we have an opportunity in many instances to
achieve a step up in the price charged for the vacated unit.”
The Company’s same store operating expenses decreased by 5.3%
from last year’s third quarter as a result of significant savings
in all operating expense categories except property taxes, which
increased by 7.2%, and increased marketing and internet advertising
costs.
General and administrative expenses grew $300,000 over the same
period in 2008, primarily due to increased expenses associated with
operating the Joint Venture.
During the quarter, solid revenue growth was shown at the
Company’s Maryland and Michigan stores, while stores in Florida,
Georgia, and parts of New England continued to show revenue
declines.
PROPERTIES:
The Company did not acquire any properties during the quarter
for its own portfolio or for that of the Joint Venture. The Company
did, however, sell three of its solely owned stores that were
located in non-core markets, thereby improving operating
efficiencies. The stores were located in southeastern Massachusetts
(2) and Fayetteville, NC (1) and sold for a total of $10.9
million.
On October 2, 2009, the Company opened its second store in
Richmond, VA. The newly built 79,000 square foot self storage
facility features both traditional and climate controlled storage
as well as the Company’s signature Dri-guard storage spaces. It
also includes individual door alarms, a large retail area for
moving and storage supplies, and conference room for customer
use.
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.
Five projects that were started in 2008 have been completed thus
far this year at a cost of $6.8 million. Most improvements have
been postponed to 2010, except for about $8 million yet to be
applied to projects this year.
CAPITAL TRANSACTIONS:
At September 30, 2009, the Company had $500 million of unsecured
term note debt and $108 million of mortgage debt outstanding. $26
million of the mortgage debt matures in December of 2009; the
Company expects to repay this with cash on hand. The next
significant maturities are in 2012.
As noted above, the Company completed a 4.025 million share
stock sale on October 5, 2009, the proceeds of which were used to
repay $100 million of bank term debt and to extinguish the related
interest rate swap contracts. Illustrated below is the impact that
the offering and the resulting upgrade to the Company’s credit
rating had on certain key metrics:
September 30
Post Offering
-- Debt to Enterprise Value (at $30.00/share) 45.9% 37.7% -- Debt
to Book Cost 43.7% 36.5% -- Debt to EBITDA ratio 5.7x 4.7x -- Debt
service coverage 2.5x 3.3x -- Effective interest rate on unsecured
debt 6.97% 6.19%
YEAR 2009 EARNINGS GUIDANCE:
The Company is experiencing soft consumer demand in many of its
markets and expects conditions to remain competitive. It
anticipates the continuation 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 or early
2010.
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 (as noted, three were sold during the quarter),
and may sell several more in the fourth quarter of 2009 and/or
early 2010.
General and administrative expenses are expected to increase by
5 to 7% in 2009.
At September 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
1.375%.
At September 30, 2009, the Company had 23,475,580 shares of
common stock outstanding and 419,952 Operating Partnership Units
outstanding.
On October 5, 2009, the Company sold 4.025 million shares and
applied the proceeds to repayment of $100 million of bank term
notes and to unwind interest rate swap contracts associated with
the notes. As a result of these transactions, the Company will
incur one-time charges of $8.4 million to cancel the swap contract,
and $.64 million to expense unamortized financing costs associated
with the note repayment.
On October 16, 2009, Fitch Ratings issued an upgrade to the
Company’s credit rating, which will reduce the interest rate the
Company pays on two of its long term notes.
As a result of the above assumptions, management expects funds
from operations for the fourth quarter of 2009 to be approximately
$.26 to $.28 per share, and between $2.33 and $2.35 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 Third Quarter Earnings Release
Conference Call at 9:00 a.m. Eastern Time on Thursday, November 5,
2009. Anyone wishing to listen to the call may access the webcast
via the event page at http://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 383
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) September 30, December 31,
(dollars in thousands) 2009 2008
Assets Investment in
storage facilities: Land $ 237,813 $ 237,825 Building, equipment
and construction in progress
1,152,598
1,136,938 1,390,411 1,374,763 Less:
accumulated depreciation
(239,152
) (214,213 )
Investment in storage facilities, net 1,151,259 1,160,550 Cash and
cash equivalents 29,281 4,486 Accounts receivable 2,340 2,937
Receivable from related parties - 14 Receivable from joint ventures
133 336 Investment in joint ventures 19,974 20,111 Prepaid expenses
5,033 4,680
Intangible asset - in-place
customer leases (net of accumulated amortization of $5,422 in 2009
and $5,160 in 2008)
27 289 Other assets 6,210 7,171 Net assets of discontinued
operations
- 12,003
Total Assets
$ 1,214,257
$ 1,212,577
Liabilities Line of credit $ - $ 14,000 Term notes 500,000
500,000 Accounts payable and accrued liabilities 25,912 23,979
Deferred revenue 5,185 5,610 Fair value of interest rate swap
agreements 20,632 25,490 Accrued dividends - 14,090 Mortgages
payable
107,842
109,261 Total Liabilities 659,571 692,430
Noncontrolling redeemable Operating Partnership Units at
redemption value 12,779 15,118
Equity Common stock
247 232 Additional paid-in capital 699,783 666,633 Accumulated
deficit (123,551 ) (122,581 ) Accumulated other comprehensive loss
(20,479 ) (25,162 ) Treasury stock at cost
(27,175 ) (27,175
) Total Shareholders' Equity 528,825 491,947
Noncontrolling interest - consolidated joint venture
13,082 13,082 Total
Equity
541,907
505,029 Total Liabilities and Equity
$ 1,214,257 $
1,212,577 CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited) July 1, 2009 July
1, 2008 to to (dollars in thousands, except share data) September
30, 2009 September 30, 2008
Revenues Rental
income $ 47,708 $ 49,355 Other operating income 1,807 1,783
Management and acquisition fee income
313
901 Total operating revenues
49,828 52,039
Expenses Property operations and
maintenance 13,242 14,568 Real estate taxes 5,165 4,816 General and
administrative 4,568 4,267 Depreciation and amortization 8,337
8,306 Amortization of in-place customer leases
27 255 Total
operating expenses
31,339
32,212 Income from operations 18,489
19,827 Other income (expense)
Interest expense (including
amortization of financing fees of $315 in 2009 and $305 in
2008)
(10,873 ) (10,034 ) Interest income 22 94 Gain on sale of land
1,127 - Equity in income of joint ventures
60
(56 ) Income from
continuing operations 8,825 9,831
(Loss) gain from discontinued
operations (including loss on disposal of $1,009 in 2009)
(855 ) 220
Net income 7,970 10,051 Net income attributable to
noncontrolling interests
(474 )
(523 ) Net income attributable
to common shareholders $ 7,496
$ 9,528 Earnings per
common share attributable to common shareholders - basic
Continuing operations $ 0.36 $ 0.43 Discontinued operations
(0.04 ) 0.01
Earnings per common share - basic
$ 0.32
$ 0.44 Earnings
per common share attributable to common shareholders - diluted
Continuing operations $ 0.36 $ 0.43 Discontinued operations
(0.04 ) 0.01
Earnings per common share - diluted
$
0.32 $ 0.44
Common shares used in basic earnings per share calculation
23,335,957 21,810,755 Common shares used in diluted earnings
per share calculation 23,349,479 21,833,622
Dividends
declared per common share $ 0.4500
$ 0.6400 CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
January 1, 2009 January 1, 2008 to to (dollars in thousands,
except share data) September 30, 2009 September 30, 2008
Revenues Rental income $ 141,228 $ 144,991 Other
operating income 5,146 5,008 Management and acquisition fee income
929 901 Total
operating revenues 147,303 150,900
Expenses Property
operations and maintenance 38,879 41,433 Real estate taxes 15,394
14,326 General and administrative 13,292 12,487 Depreciation and
amortization 25,005 24,405 Amortization of in-place customer leases
262 1,111
Total operating expenses
92,832
93,762 Income from operations 54,471
57,138 Other income (expense)
Interest expense (including
amortization of financing fees of $946 in 2009 and $867 in 2008,
and $923 of waiver fees in 2009)
(32,552 ) (27,966 ) Interest income 75 273 Gain on sale of land
1,127 - Equity in income of joint ventures
154
(38 ) Income from
continuing operations 23,275 29,407
(Loss) income from discontinued
operations (including loss on disposal of $1,009 in 2009 and gain
on disposal of $716 in 2008)
(441 ) 1,400
Net income 22,834 30,807 Net income attributable to
noncontrolling interests
(1,416 )
(1,785 ) Net income
attributable to common shareholders $
21,418 $ 29,022
Earnings per common share attributable to common
shareholders - basic Continuing operations $ 0.97 $ 1.27
Discontinued operations
(0.02 )
0.07 Earnings per common share - basic
$ 0.95 $
1.34 Earnings per common share
attributable to common shareholders - diluted Continuing
operations $ 0.97 $ 1.27 Discontinued operations
(0.02 ) 0.07
Earnings per common share - diluted
$
0.95 $ 1.34
Common shares used in basic earnings per share calculation
22,639,513 21,728,542 Common shares used in diluted earnings
per share calculation 22,646,131 21,752,986
Dividends
declared per common share $ 1.0900
$ 1.9000 COMPUTATION OF
FUNDS FROM OPERATIONS (FFO) (1) - (unaudited)
July 1, 2009 July 1, 2008 to to (dollars in thousands, except share
data) September 30, 2009 September 30, 2008 Net
income attributable to controlling interests $ 7,496 $ 9,528 Net
income attributable to noncontrolling interests 474 523
Depreciation of real estate and
amortization of intangible assets exclusive of deferred financing
fees
8,408 8,639 Depreciation and amortization from unconsolidated joint
ventures 205 232 Gain on sale of real estate (118 ) - Funds from
operations allocable to noncontrolling interest in Operating
Partnership (284 ) (350 ) Funds from operations allocable to
noncontrolling interest in consolidated joint ventures
(340 ) (340
) Funds from operations available to common
shareholders 15,841 18,232 FFO per share - diluted $ 0.68 $ 0.84
Common shares - diluted 23,349,479 21,833,622
January 1, 2009 January 1, 2008 to to (dollars in thousands, except
share data) September 30, 2009 September 30, 2008 Net
income attributable to controlling interests $ 21,418 $ 29,022 Net
income attributable to noncontrolling interests 1,416 1,785
Depreciation of real estate and
amortization of intangible assets exclusive of deferred financing
fees
25,471 25,795 Depreciation and amortization from unconsolidated
joint ventures 620 262 Gain on sale of real estate (118 ) (716 )
Funds from operations allocable to noncontrolling interest in
Operating Partnership (868 ) (1,042 ) Funds from operations
allocable to noncontrolling interest in consolidated joint ventures
(1,020 )
(1,224 ) Funds from operations available
to common shareholders 46,919 53,882 FFO per share - diluted $ 2.07
$ 2.48 Common shares - diluted 22,646,131 21,752,986
(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) July 1, 2009
July 1, 2008 to to Percentage (dollars in thousands)
September 30, 2009 September 30, 2008 Change
Revenues: Rental income $ 47,570 $ 49,355 -3.6% Other
operating income
1,715
1,758 -2.4% Total operating revenues
49,285 51,113 -3.6%
Expenses: Property operations and
maintenance 13,172 14,542 -9.4% Real estate taxes
5,161 4,816 7.2%
Total operating expenses
18,333
19,358 -5.3% Operating income $
30,952 $ 31,755 -2.5% (2) Includes the 356 stores owned
and/or managed by the Company for the entire periods presented.
Same Store Revenues by State (2) July 1, 2009
July 1, 2008 to to Percentage
(dollars in thousands)
September 30, 2009 September 30, 2008 Change Alabama
2,649 2,708 -2.2% Arizona 1,212 1,265 -4.2% Connecticut 1,026 1,125
-8.8% Florida 7,342 8,015 -8.4% Georgia 3,056 3,362 -9.1% Louisiana
1,951 1,972 -1.1% Maine 278 296 -6.1% Maryland 533 480 11.0%
Massachusetts 1,710 1,724 -0.8% Michigan 641 627 2.2% Mississippi
1,803 1,892 -4.7% Missouri 1,070 1,125 -4.9% New Hampshire 543 548
-0.9% New York 4,555 4,685 -2.8% North Carolina 1,513 1,568 -3.5%
Ohio 2,004 2,038 -1.7% Pennsylvania 708 746 -5.1% Rhode Island 451
480 -6.0% South Carolina 903 969 -6.8% Tennessee 500 536 -6.7%
Texas 12,550 12,546 0.0% Virginia 2,287 2,406 -4.9%
Total same store $ 49,285 $ 51,113 -3.6%
YEAR TO DATE SAME STORE DATA (3) January 1, 2009
January 1, 2008 to to Percentage (dollars in
thousands) September 30, 2009 September 30, 2008 Change
Revenues: Rental income $ 139,727 $ 143,999 -3.0%
Other operating income
4,881
4,938 -1.2% Total operating revenues
144,608 148,937 -2.9%
Expenses: Property operations
and maintenance 38,489 41,162 -6.5% Real estate taxes
15,311 14,265 7.3%
Total operating expenses
53,800
55,427 -2.9% Operating income $
90,808 $ 93,510 -2.9% (3) Includes the 354 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 82.4 % 83.4 % 82.3 %
83.3 % Occupancy at September 30 81.6 % 83.3 % 81.6 % 83.1 %
Rent per occupied square foot $10.15 $10.47 $10.25 $10.48
Investment in Storage Facilities:
The following summarizes activity in storage facilities during the
nine months ended September 30, 2009: Beginning balance $
1,374,763 Property acquisitions - Improvements and equipment
additions: Expansions 6,752 Roofing, paving, painting, and
equipment: Stabilized stores 4,003 Recently acquired and
consolidated joint venture stores 260 Change in construction in
progress (Total CIP $18.7 million) 4,733 Dispositions
(100 ) Storage facilities at cost at
period end
$ 1,390,411
September 30, 2009 September 30, 2008 Common shares
outstanding at September 30 23,478,580 21,973,223 Operating
Partnership Units outstanding at September 30 419,952 419,952
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