Sovran Self Storage, Inc. (NYSE:SSS),
(www.unclebobs.com/company) a self storage real estate investment
trust (REIT), reported operating results for the quarter ended June
30, 2011.
Net income available to common shareholders for the second
quarter of 2011 was $9.7 million or $0.35 per fully diluted share.
For the same period in 2010, net income available to common
shareholders was $15.8 million, or $0.57 (including income from
discontinued operations and a gain on sale of properties of $7.7
million or $.28 per share) per fully diluted common share.
Funds from operations (FFO) for the quarter were $0.67 per fully
diluted common share compared to $0.61 for the same period last
year.
Higher rental rates and the reduced use of move-in incentives
contributed to the increase in earnings and FFO for the second
quarter of 2011.
The Company acquired one store at the end of June and three more
subsequent to the end of the quarter for total consideration of
$21.2 million.
Kenneth F. Myszka, the Company’s President and COO said, “As the
busy season is well under way, we’re encouraged by the strong
showing in all of our markets and the healthy rebound of our
pricing power. Occupancy is holding steady while we substantially
reduce the use of move-in concessions.”
OPERATIONS:
Total revenues increased 7.2% over last year’s second quarter,
while operating costs increased 1.4%, resulting in an NOI(3)
increase of 10.6%. Overall occupancy averaged 80% for the period
and rental rates improved to an average of $10.56 per sq. ft.
Revenues for the 344 stores wholly owned by the Company for the
entire quarter of each year increased 5.2% from those of the second
quarter of 2010, the result of a 4.0% increase in rental rates and
strong growth in other revenues, primarily insurance
commissions.
Same store operating expenses decreased 0.4% for the second
quarter of 2011 compared to the prior year period, the result of a
property tax decrease of 3.3%, offset somewhat by modest increases
in property payroll expenses and maintenance costs.
Consequently, same store net operating income increased 8.5%
this period over the second quarter of 2010.
General and administrative expenses grew by about $1.1 million
over the same period in 2011, primarily due to increased training,
internet advertising and personnel costs.
During the second quarter of 2011, all 24 states included in the
Company’s same store pool achieved sales greater than the same
period in 2010. The stores with the strongest revenue growth
include those in New England, New York, Tennessee, and South
Carolina. With regard to these results, Myszka commented, “We are
especially pleased by the solid results shown in the Florida and
Texas stores, with NOI increases of 8.3% and 7.7%
respectively.”
PROPERTIES:
The Company acquired one store in West Deptford, NJ (just
outside Philadelphia, PA) during the quarter via a consolidated
joint venture at a cost of $4.2 million. In July, it acquired two
additional stores in Newark, New Jersey; and one in St. Louis, MO.
The total purchase price for the three properties acquired in July
was $17 million and was financed via borrowings on the Company’s
line of credit.
In May 2011, the Company made an additional investment of $17.0
million in Locke Sovran II, LLC and now owns 100% of that
entity.
As previously announced, the Company entered into a joint
venture agreement to acquire 19 properties in New Jersey and
eastern Pennsylvania. Subsequent to the end of the quarter, the
venture paid $164 million for the properties, of which
approximately $89 million was financed via mortgage notes, $64
million was contributed by the JV Partner, and $11 million was
contributed by the Company. All of the properties will be
re-branded “Uncle Bob’s Self Storage®” and will be managed by the
Company.
The Company is in negotiations and/or contract to directly
acquire approximately $129 million of property in Georgia, Texas
and Virginia. Since all of the acquisitions are subject to
remaining due diligence and other contingencies, no assurance can
be given that any or all of the transactions will be
consummated.
The Company also added three properties to its management
platform, which now has a total of 47 properties under management
through joint venture and third party contracts.
The Company continues its program of expanding and enhancing its
properties, expecting construction of over 500,000 square feet of
additional and/or improved space at existing stores in
2011/2012.
CAPITAL TRANSACTIONS:
At June 30, 2011, the Company had $400 million of unsecured term
note debt, $77.8 million of mortgage debt outstanding and $35
million drawn on its line of credit. The Company is currently in
negotiations to refinance its 2011 and 2012 obligations and renew
its revolving credit facility.
Illustrated below are key financial ratios at June 30, 2011:
- Debt to Enterprise Value (at
$40.50/share) 31.1%
- Debt to Book Cost of Storage Facilities
35.7%
- Debt to EBITDA Ratio 4.9x
- Debt Service Coverage 3.4x
At June 30, 2011, the Company had approximately $7.7 million of
cash on hand, and $90 million available on its line of credit.
YEAR 2011 EARNINGS GUIDANCE:
Management is encouraged by improving pricing power and
resiliency in most markets. Nonetheless, the Company anticipates
the continuation of leasing incentives supplemented by aggressive
and increased advertising. An increase in same store revenue of 3%
to 4% is projected from that of 2010. Property operating costs are
projected to increase by 2% to 3%, including an expected 4% annual
increase in property taxes. Accordingly, the Company continues to
anticipate an increase of 2% to 4% in same store net operating
income for 2011.
The Company intends to spend up to $30 million on its
aforementioned expansion and enhancement program. It has also
budgeted $12 million to provide for recurring capitalized
expenditures including roofing, painting, paving, and office
renovations.
Future purchases of properties made in 2011 are not expected to
significantly impact 2011’s guidance inasmuch as the Company
expects to invest in both low occupancy “turn-around” opportunities
as well as stabilized properties. The majority of the anticipated
acquisitions are not expected to close until later in the year.
General and administrative expenses are expected to increase due
to income taxes on its taxable REIT subsidiaries and the Company’s
plans to continue expanding its internet marketing presence and
personnel required for expected acquisitions.
At June 30, 2011, all but $35 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%. As previously mentioned, the Company is
in negotiations to refinance its 2011 and 2012 obligations and
renew its revolving credit facility, but the potential effect of
these refinancing arrangements has not been factored into
guidance.
At June 30, 2011, the Company had 27.7 million shares of common
stock outstanding and 0.34 million Operating Partnership Units
outstanding.
As a result of the above assumptions, exclusive of the potential
impact of debt refinancing and/or acquisition costs pertaining to
acquisition of additional properties, management expects funds from
operations for the full year 2011 to be approximately $2.64 to
$2.68 per share, and between $0.69 and $0.71 for the third quarter
of 2011.
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 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 future ratings on the
Company’s debt instruments; 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 4, 2011. To access the conference call, dial 877.407.8033
(domestic), or 201.689.8033 (international). Management will accept
questions from registered financial analysts after prepared
remarks; all others are encouraged to listen to the call via
webcast by accessing “events and conference calls” under the
investor relations tab at www.unclebobs.com/company/.
The webcast will be archived for a period of 90 days; a
telephone replay will also be available for 72 hours by calling
877.660.6853 and entering pass codes 286/375595.
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 402 self
storage facilities in 25 states under the name “Uncle Bob’s Self
Storage”®. For more information, visit www.unclebobs.com, like us
on Facebook, or follow us on Twitter.
SOVRAN SELF STORAGE, INC. BALANCE SHEET DATA
(unaudited) June 30,
December 31, (dollars in thousands) 2011 2010
Assets Investment in storage facilities: Land $ 242,121 $
240,651 Building, equipment and construction in progress
1,192,001 1,179,305
1,434,122 1,419,956 Less: accumulated depreciation
(288,529 ) (271,797
) Investment in storage facilities, net 1,145,593
1,148,159 Cash and cash equivalents 7,691 5,766 Accounts receivable
2,148 2,377 Receivable from joint venture 315 253 Investment in
joint venture 19,558 19,730 Prepaid expenses 5,385 4,408 Other
assets
3,505 4,848
Total Assets
$ 1,184,195
$ 1,185,541
Liabilities Line of credit $ 35,000 $ 10,000 Term notes
400,000 400,000 Accounts payable and accrued liabilities 20,461
23,991 Deferred revenue 5,162 4,925 Fair value of interest rate
swap agreements 7,780 10,528 Mortgages payable
77,753 78,954 Total
Liabilities 546,156 528,398 Noncontrolling redeemable
Operating Partnership Units at redemption value 13,900 12,480
Equity Common stock 289 288 Additional paid-in
capital 815,199 816,986 Accumulated deficit (156,675 ) (148,264 )
Accumulated other comprehensive loss (7,499 ) (10,254 ) Treasury
stock at cost
(27,175 )
(27,175 ) Total Shareholders' Equity
624,139 631,581 Noncontrolling interest - consolidated joint
venture
- 13,082
Total Equity
624,139
644,663 Total Liabilities and Equity
$ 1,184,195 $
1,185,541 CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited) April
1, 2011 April 1, 2010 to to (dollars in thousands,
except share data) June 30, 2011 June 30, 2010
Revenues Rental income $ 48,014 $ 45,061 Other operating
income 2,307 1,937 Management and acquisition fee income
388 311 Total
operating revenues 50,709 47,309
Expenses Property
operations and maintenance 12,890 12,543 Real estate taxes 5,044
5,140 General and administrative 6,028 4,967 Depreciation and
amortization 8,516 8,202 Amortization of in-place customer leases
141 - Total
operating expenses
32,619
30,852 Income from operations 18,090
16,457 Other income (expense) Interest expense
(A)
(8,082 ) (7,929 ) Interest income 8 21 Equity in income of joint
ventures
64 69
Income from continuing operations 10,080 8,618 Income
from discontinued operations (including gain on disposal of $7,524
in 2010)
- 7,686
Net income 10,080 16,304 Net income attributable to
noncontrolling interests
(343 )
(543 ) Net income attributable
to common shareholders $ 9,737
$ 15,761 Earnings per
common share attributable to common shareholders - basic
Continuing operations $ 0.35 $ 0.29 Discontinued operations
- 0.28 Earnings per
common share - basic
$ 0.35
$ 0.57 Earnings per
common share attributable to common shareholders - diluted
Continuing operations $ 0.35 $ 0.29 Discontinued operations
- 0.28 Earnings per
common share - diluted
$ 0.35
$ 0.57 Common shares used
in basic earnings per share calculation 27,559,992 27,463,500
Common shares used in diluted earnings per share calculation
27,611,237 27,508,097
Dividends declared per common
share $ 0.4500 $
0.4500 (A) Interest
expense for the three months ending June 30 consists of the
following Interest expense $ 7,746 $ 7,671 Amortization of deferred
financing fees
336
258 Total interest expense
$
8,082 $ 7,929
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) January 1, 2011
January 1, 2010 to to (dollars in thousands, except share data)
June 30, 2011 June 30, 2010
Revenues
Rental income $ 95,140 $ 90,410 Other operating income 4,399 3,560
Management and acquisition fee income
705
623 Total operating revenues
100,244 94,593
Expenses Property operations and
maintenance 26,402 25,477 Real estate taxes 10,088 10,350 General
and administrative 11,842 10,107 Depreciation and amortization
17,000 16,402 Amortization of in-place customer leases
282 - Total
operating expenses
65,614
62,336 Income from operations 34,630
32,257 Other income (expense) Interest expense
(A)
(15,979 ) (15,808 ) Interest income 26 41 Equity in income of joint
ventures
104 139
Income from continuing operations 18,781 16,629
Income from discontinued operations (including gain on disposal of
$6,944 in 2010)
-
7,562 Net income 18,781 24,191 Net income
attributable to noncontrolling interests
(784
) (1,003 ) Net
income attributable to common shareholders $
17,997 $ 23,188
Earnings per common share attributable to common
shareholders - basic Continuing operations $ 0.65 $ 0.57
Discontinued operations
-
0.27 Earnings per common share - basic
$ 0.65 $
0.84 Earnings per common share
attributable to common shareholders - diluted Continuing
operations $ 0.65 $ 0.57 Discontinued operations
- 0.27 Earnings per
common share - diluted
$ 0.65
$ 0.84 Common shares used
in basic earnings per share calculation 27,548,635 27,454,301
Common shares used in diluted earnings per share calculation
27,594,336 27,493,623
Dividends declared per common
share $ 0.9000 $
0.9000 (A) Interest
expense for the six months ending June 30 consists of the following
Interest expense $ 15,386 $ 15,293 Amortization of deferred
financing fees
593
515 Total interest expense
$
15,979 $ 15,808
COMPUTATION OF FUNDS FROM OPERATIONS (FFO)
(1) - (unaudited) April 1, 2011
April 1, 2010 to to (dollars in thousands, except share
data) June 30, 2011 June 30, 2010 Net income
attributable to common shareholders $ 9,737 $ 15,761 Net income
attributable to noncontrolling interests 343 543 Depreciation of
real estate and amortization of intangible assets exclusive of
deferred financing fees 8,657 8,202 Depreciation of real estate
included in discontinued operations - 54 Depreciation and
amortization from unconsolidated joint ventures 199 196 Loss on
sale of real estate - (7,524 ) Funds from operations allocable to
noncontrolling interest in Operating Partnership (222 ) (215 )
Funds from operations allocable to noncontrolling interest in
consolidated joint ventures
(227 )
(340 ) Funds from operations
available to common shareholders 18,487 16,677 FFO per share -
diluted $ 0.67 $ 0.61 Common shares - diluted 27,611,237
27,508,097
COMPUTATION OF FUNDS FROM OPERATIONS
(FFO) (1) - (unaudited) January 1, 2011 January 1, 2010
to to (dollars in thousands, except share data) June 30, 2011
June 30, 2010 Net income attributable to
common shareholders $ 17,997 $ 23,188 Net income attributable to
noncontrolling interests 784 1,003 Depreciation of real estate and
amortization of intangible assets exclusive of deferred financing
fees 17,282 16,402 Depreciation of real estate included in
discontinued operations - 217 Depreciation and amortization from
unconsolidated joint ventures 397 391 Gain on sale of real estate -
(6,944 ) Funds from operations allocable to noncontrolling interest
in Operating Partnership (428 ) (463 ) Funds from operations
allocable to noncontrolling interest in consolidated joint ventures
(567 ) (680
) Funds from operations available to common
shareholders 35,465 33,114 FFO per share - diluted $ 1.29 $ 1.20
Common shares - diluted 27,594,336 27,493,623
(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, 2011
April 1, 2010 to to Percentage (dollars in thousands) June
30, 2011 June 30, 2010 Change
Revenues: Rental
income $ 47,125 $ 45,018 4.7 % Other operating income
2,150 1,826 17.7
% Total operating revenues 49,275 46,844 5.2 %
Expenses: Property operations and maintenance 12,572 12,470
0.8 % Real estate taxes
4,955
5,126 -3.3 % Total operating
expenses
17,527 17,596
-0.4 %
Net operating income (3)
$ 31,748 $ 29,248 8.5 % (2) Includes the 344 stores owned
and/or managed by the Company for the entire periods presented that
are consolidated in our financial statements. Does not include
unconsolidated joint venture stores managed by the Company.
(3) Net operating income or "NOI" is a
non-GAAP (generally accepted accounting principles) financial
measure that we define as total continuing revenues less continuing
property operating expenses. NOI also can be calculated by adding
back to net income: interest expense, amounts attributable to
noncontrolling interests, depreciation and amortization expense,
general and administrative expense, and deducting from net income:
income from discontinued operations, interest income, and equity in
income of joint ventures. We believe that NOI is a
meaningful measure of operating performance, because we utilize NOI
in making decisions with respect to capital allocations, in
determining current property values, and comparing period-to-period
and market-to-market property operating results. NOI
should be considered in addition to, but not as a substitute for,
other measures of financial performance reported in accordance with
GAAP, such as total revenues, operating income and net income.
* See exhibit A for supplemental same store data.
YEAR TO DATE SAME STORE DATA (2) January 1, 2011 January 1,
2011 to to Percentage (dollars in thousands) June 30, 2011
June 30, 2011 Change
Revenues: Rental income $ 93,407
$ 90,339 3.4 % Other operating income
4,110
3,363 22.2 % Total
operating revenues 97,517 93,702 4.1 %
Expenses:
Property operations and maintenance 25,785 25,330 1.8 % Real estate
taxes
9,909 10,322
-4.0 % Total operating expenses
35,694 35,652 0.1
%
Net operating income (3)
$ 61,823 $ 58,050 6.5 %
OTHER DATA
Same Store (2)
All Stores (4)
Open
2011
2010
2011
2010
Weighted average quarterly occupancy 80.5 % 80.7 % 80.0 %
80.5 % Occupancy at June 30 81.0 % 82.0 % 80.5 % 81.8 %
Rent per occupied square foot $ 10.57 $ 10.16 $ 10.56 $
10.16
(4) Does not include 25 unconsolidated
joint venture stores managed by the Company
Investment in
Storage Facilities:
The following summarizes activity in storage facilities during the
six months ended June 30, 2011: Beginning balance $
1,419,956 Property acquisitions 4,045 Improvements and equipment
additions: Expansions 6,773 Roofing, paving, and equipment:
Stabilized stores 6,466 Recently acquired stores 117 Change in
construction in progress (Total CIP $5.1 million) (2,918 )
Dispositions
(317 ) Storage
facilities at cost at period end
$
1,434,122
June 30,
2011
June 30,
2010
Common shares outstanding 27,699,279 27,591,109 Operating
Partnership Units outstanding 339,025 342,936
Exhibit
A Sovran Self Storage, Inc. Same Store
Performance Summary Three Months Ended June 30, 2011
(unaudited)
Square
Avg QtrlyRent
perOccupied
Avg Quarterly Occupancyfor the
Three Months EndedJune 30,
Revenuefor the Three Months
EndedJune 30,
Expensesfor the Three
MonthsEnded June 30,
NOIfor the Three
MonthsEnded June 30,
State Stores
Feet
Square Foot
2011 2010 2011
2010 % Change 2011
2010 % Change 2011
2010 % Change
Alabama 22 1,588 $ 8.19 77.4 % 75.0 % $
2,742 $ 2,630 4.26 % $ 969 $ 967 0.21 % $ 1,773 $ 1,663 6.61 %
Arizona 9 531 10.54 82.6 % 82.9 % 1,226 1,164 5.33 % 416 415 0.24 %
810 749 8.14 % Connecticut 5 301 17.30 81.2 % 73.3 % 1,085 989 9.71
% 354 381 -7.09 % 731 608 20.23 % Florida 53 3,442 10.64 76.3 %
78.1 % 7,327 7,001 4.66 % 2,847 2,863 -0.56 % 4,480 4,138 8.26 %
Georgia 22 1,422 9.57 78.1 % 79.2 % 2,797 2,747 1.82 % 978 1,022
-4.31 % 1,819 1,725 5.45 % Louisiana 14 865 10.64 82.3 % 83.0 %
1,950 1,926 1.25 % 602 594 1.35 % 1,348 1,332 1.20 % Maine 2 113
11.95 80.6 % 79.9 % 284 252 12.70 % 95 86 10.47 % 189 166 13.86 %
Maryland 4 172 14.58 86.8 % 86.4 % 558 531 5.08 % 190 194 -2.06 %
368 337 9.20 % Massachusetts 12 664 12.88 82.0 % 81.2 % 1,841 1,701
8.23 % 645 641 0.62 % 1,196 1,060 12.83 % Michigan 4 238 9.10 92.7
% 84.9 % 526 462 13.85 % 201 192 4.69 % 325 270 20.37 % Mississippi
12 926 9.50 80.9 % 83.5 % 1,882 1,792 5.02 % 566 565 0.18 % 1,316
1,227 7.25 % Missouri 7 432 11.59 84.8 % 86.5 % 1,094 1,050 4.19 %
394 409 -3.67 % 700 641 9.20 % New Hampshire 4 260 11.15 82.7 %
86.1 % 607 551 10.16 % 196 200 -2.00 % 411 351 17.09 % New York 28
1,609 13.56 86.3 % 83.2 % 4,857 4,448 9.20 % 1,548 1,511 2.45 %
3,309 2,937 12.67 % North Carolina 11 539 9.58 79.6 % 79.7 % 1,049
1,032 1.65 % 391 398 -1.76 % 658 634 3.79 % Ohio 17 1,132 9.00 85.0
% 85.8 % 2,251 2,112 6.58 % 794 785 1.15 % 1,457 1,327 9.80 %
Pennsylvania 4 219 10.07 86.8 % 80.9 % 449 423 6.15 % 149 148 0.68
% 300 275 9.09 % Rhode Island 4 168 12.32 81.6 % 79.9 % 466 441
5.67 % 182 186 -2.15 % 284 255 11.37 % South Carolina 8 443 9.85
81.9 % 79.6 % 939 877 7.07 % 358 382 -6.28 % 581 495 17.37 %
Tennessee 4 291 8.83 90.4 % 85.2 % 602 519 15.99 % 251 243 3.29 %
351 276 27.17 % Texas 81 5,917 10.33 79.9 % 80.8 % 12,495 11,990
4.21 % 4,673 4,727 -1.14 % 7,822 7,263 7.70 % Virginia 17 1,031
10.95 77.0 % 80.6 % 2,248 2,206 1.90 % 728 687 5.97 % 1,520 1,519
0.07 %
Portfolio Total 344
22,303 $ 10.57 80.5 %
80.7 % $ 49,275 $ 46,844 5.19 %
$ 17,527 $ 17,596 -0.39 % $ 31,748
$ 29,248 8.55 %
Dollars in
thousands except for average quarterly rent per occupied square
foot. Square feet in thousands. 344 wholly owned same
stores.
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