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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
Commission File Number: 1-13820
Sovran Self Storage, Inc.
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(Exact name of Registrant as specified in its charter)
Maryland 16-1194043
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5166 Main Street
Williamsville, NY 14221
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(Address of principal executive offices)
(Zip code)
(716) 633-1850
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Exchanges on which Registered
- ------------------- -----------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Exhibit Index is on Page 20
Page 1 of 27
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. [ ]
As of March 24, 1997, 10,708,171 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 $319,161,375 (based on the closing price of the
Common Stock on the New York Stock Exchange on March 24, 1997).
DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Shareholders of the Company
(Part II).
Notice of Annual Meeting of Shareholders and Proxy Statement
for Annual Meeting of Shareholders of the Company to be held on
May 13, 1997 (Part III).
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Part I
Item 1. Business
Sovran Self Storage, Inc., (the "Company") is a self-
administered and self-managed real estate investment trust (a
"REIT") organized as a corporation under Maryland law on April
19, 1995. The Company was formed through the transfer for cash
on June 26, 1995 of 62 self-storage properties previously owned
by limited partnerships of which the Company's predecessor was
the general partner, and the simultaneous acquisition of 12
additional self-storage properties from unrelated third parties,
in connection with the consummation of the Company's initial
public offering (the "Initial Offering") and related transactions
(collectively, the "Formation Transactions"). From the Initial
Offering until December 31, 1996, the Company acquired 37
additional self-storage properties from unrelated third parties.
Twenty-nine of these 37 properties were acquired in 1996 and 8
were acquired in 1995. As of its year end, the Company owns and
operates, a total of 111 self-storage properties (the
"Properties"), consisting of approximately 5.8 million net
rentable square feet. As of December 31, 1996, the Properties
had a weighted average occupancy of 86% and a weighted average
annual rent per occupied square foot of $7.41. Since January 1,
1997, the Company has acquired 17 properties with 931,254 square
feet of storage space for $40.6 million. With the exception of
5 Properties located in Texas, all of the Company's Properties
are located in 14 states in the eastern half of the United
States. The Company believes that it is one of the largest
operators of self-storage properties in the United States based
on facilities owned.
The Company seeks to increase cash flow and enhance
shareholder value through aggressive management of the Properties
and selective acquisition of new self-storage properties.
Aggressive property management entails increasing rents,
increasing occupancy levels, strictly controlling costs,
maximizing collections, strategically expanding and improving its
Properties and, should economic conditions warrant, developing
new properties. The Company believes that there continue to be
significant opportunities for growth through acquisitions, and
constantly seeks to acquire self-storage properties located
primarily in the Eastern United States that are susceptible to
realization of increased economies of scale and enhanced
performance through the application of the Company's management
expertise.
Industry Overview
The Company believes that the self-storage industry is
characterized by a trend toward consolidation, continuing
increase in demand, relatively slow growth in supply and a
targeted market of primarily residential customers.
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The Company believes that the self-storage industry is
characterized by numerous small, local operators. The shortage
of skilled operators, the scarcity of financing available to
small operators for acquisitions and expansions and the potential
for savings through economies of scale are leading to a
consolidation in the self-storage industry. With its experience
and in-house acquisition and management capabilities, the Company
believes it is well positioned to continue to take advantage of
potential growth opportunities resulting from this move to
consolidation of the industry.
The self-storage industry has also experienced relatively
slow growth in supply in recent years, due to such factors, as
well as restrictive zoning and other regulations and the
substantial start up costs associated with the construction and
lease-up of new facilities. Demand for self-storage service has
increased significantly as indicated by an increase in industry-
wide average rents and in industry average occupancy. It is
expected to remain strong due to its relative inelasticity and
various other factors, including, population growth, increased
mobility, expansion of condominium, townhouse and apartment
living, and increasing consumer awareness. Commercial users in
particular are taking advantage of self-storage as a low cost
alternative to warehouses and other commercial storage options.
Commercial customers tend to rent larger areas for longer terms,
are more reliable payers and are less sensitive to price
increases. The Company estimates that commercial users account
for approximately 30-35% of its total occupancy, which is
substantially higher than the reported industry average of 23%.
Property Management
The Company believes that it has developed substantial
expertise in managing self-storage facilities. Key elements of
the Company's management system include:
- Recruiting, training and retaining capable, aggressive
on-site Property Managers;
- Motivating Property Managers and District Managers by
providing an opportunity to earn additional incentive-
based compensation based on property performance;
- Developing and maintaining an integrated marketing plan
for each property which emphasizes commercial tenants;
- Linking all properties to its central customized
management information system;
- Performing regular preventive maintenance to avoid
significant repair obligations.
Each Property is managed by a full-time Property Manager and
one or more Assistant Managers. The Property Manager typically
resides on site in an apartment furnished by the Company, except
where prohibited by local ordinance. A Property Manager is
responsible for nearly all day-to-day operational decisions with
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respect to his or her Property, including rent charges and
maintenance, subject to certain monetary limits. Property
Managers generally have the authority to either increase rental
rates in response to demand or promote specials to raise
occupancies, both of which have a direct impact on their
incentive compensation. Assistant Managers are employed on a
part-time basis to give Property Managers sufficient time to
perform marketing functions. Each Property Manager reports to a
District Manager. The Company currently employs 9 District
Managers, each responsible for approximately 10-15 Properties.
District Managers are encouraged by the Company to become
Certified Property Managers under the standards set by the
Institute of Real Estate Management to improve their management
skills and ability to train their Property Managers to operate
their Properties more effectively. The District Managers report
to the Company's Senior Vice President - Property Management, who
is a Certified Property Manager.
Property Managers attend a thorough orientation program and
undergo continuous training which emphasizes telephone skills,
closing techniques, identification of selected marketing
opportunities, networking with possible referral sources, and
familiarization with the Company's customized management
information system. In addition to frequent contact with
District Managers and other Company personnel, Property Managers
receive periodic newsletters regarding a variety of operational
issues, and from time to time attend "roundtable" seminars with
other Property Managers.
In addition to base salary, the Company's Property Managers
and District Managers may earn incentive compensation based on
increases in gross income and net operating income of their
Properties. The Company annually establishes a target gross
income and net operating income for each Property. A Property
Manager earns a percentage of all gross income in excess of the
target level, and a District Manager earns a percentage of the
combined net operating incomes in excess of the targeted levels
for all Properties reporting to him. This incentive compensation
program is not subject to any caps or increment requirements. It
is not unusual for a Manager to earn in excess of 25% of the base
salary as incentive compensation. The Company believes that the
structure of these programs causes its Managers to exercise
their operational autonomy in a manner to maximize revenues and
operating income through increased rental rates and in the case
of the District Manager, decreased expenses.
The Company annually develops a written marketing plan for
each of its Properties which is highly dependent upon local
conditions. The focus of each marketing plan is, in part,
determined by occupancy rates. If all storage units of a same
size at a Property are at or near 90% occupancy, then the plan
will generally include increases in rental rates. If a Property
has excess capacity, then the marketing plan will target selected
markets such as local military bases, colleges, apartment and
condominium complexes, industrial parks, medical centers, retail
shopping malls and office suites. The Company primarily uses
telephone directories to advertise its services, including a map
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and when possible, listing Properties in the same marketplace in
a single advertisement. The Company also conducts quarterly
surveys of its competitors' practices, which include "shopping"
at competing facilities.
The Company utilizes a central customized management
information system that performs billing, collections and
reservation functions for each Property, and also tracks
information used in developing marketing plans regarding
occupancy levels, tenant demographics and histories, and
expenses. The system generates daily, weekly and monthly
financial reports for each Property that are immediately
transmitted to the Company's headquarters each night via modem.
The system also requires a Property Manager to input an
explanation for all debit and credit transactions, paid-to-date
changes, and all other discretionary activities, which allows the
accounting staff at the Company's headquarters to promptly review
all such transactions within 24 hours. Late charges are
automatically imposed and reported. More sensitive activities
such as rental rate adjustments, unit size changes and adding or
deleting units into a Property's system are only accessible by
District Managers and are password protected. The Company's
customized management information system permits it to add new
Properties to its portfolio with minimal additional overhead
expense.
The tenant data tracked by the customized management
information system has proven to be a valuable marketing
resource. For example, the system automatically tracks
historical tenant address and demographic information and
generates solicitations to be sent to seasonal tenants.
Environmental and Other Regulation
The Company is subject to federal, state, and local
environmental regulations that apply generally to the ownership
of real property and the operation of self-storage facilities.
The Company has 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 is not aware of any environmental condition with
respect to any of the Properties that could have a material
adverse effect on the Company's 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. The Company believes that the Properties are
in material compliance with all such regulations.
Insurance
Each of the Properties is covered by fire, flood and
property insurance, including comprehensive liability, all-risk
property insurance, provided by reputable companies and with
commercially reasonable terms. In addition, the Company
maintains a policy insuring against environmental liabilities
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resulting from tenant storage on terms customary for the
industry, and title insurance insuring fee title to the
Properties in an aggregate amount believed to be adequate.
Federal Income Tax
The Company qualifies as a REIT under the Internal Revenue
Code of 1986 (the "Code"), as amended, and will generally not be
subject to corporate income taxes to the extent it distributes
at least 95% of its taxable income to its shareholders and
complies with certain other requirements. No assurance can be
given that it will at all times so qualify.
Competition
The primary factors upon which competition in the self-
storage industry is based are location, month-to-month rental
rates, suitability of the property's design to prospective
tenants' needs, and the manner in which the property is operated
and marketed. The Company believes it competes successfully on
these bases. The extent of competition depends in significant
part on local market conditions. The Company seeks to locate its
facilities so as not to cause its own 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 the Company's competitors, including Public
Storage Management, Inc., Shurgard Incorporated, U-Haul
International, Storage USA, Inc. and Storage Trust Realty are
larger and have substantially greater financial resources than
the Company. These larger operators may, among other possible
advantages, be capable of greater leverage and the payment of
higher prices for acquisitions.
Investment Policy
While the Company emphasizes equity real estate investments,
it may, in its discretion, invest in mortgage and other real
estate interests related to self-storage properties consistent
with its qualification as a REIT. The Company 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.
Also, while the Company does not have any current intention of
acquiring any interests other than direct equity ownership in
self-storage facilities, subject to the percentage of ownership
limitations and gross income tests necessary for REIT
qualification, the Company 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
Management periodically reviews the assets comprising the
Company's portfolio. The Company has no current intention to
dispose of any of the Properties, although it reserves the right
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to do so. 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 the Company's portfolio,
(iv) potential for, or existence of, environmental or regulatory
issues, (v) alternative uses of capital, and (vi) maintaining
qualification as a REIT.
Distribution Policy
The Company intends to pay regular quarterly distributions
to its shareholders. However, future distributions by the
Company will be at the discretion of the Board of Directors and
will depend on the actual cash available for distribution, the
Company's financial condition and capital requirements, the
annual distribution requirements under the REIT provisions of the
Code and other such factors as the Board of Directors deems
relevant. In order to maintain its qualification as a REIT, the
Company must make annual distributions to shareholders of at
least 95% of its REIT taxable income (which does not include
capital gains). Under certain circumstances, the Company may be
required to make distributions in excess of cash available for
distribution in order to meet this requirement.
The Board of Directors declared a dividend distribution of
one preferred share purchase right for each outstanding common
share to shareholders of record at the close of business on
December 16, 1996. These rights will become exercisable if a
person becomes an "acquiring person" by acquiring 10% or more of
the common shares of Sovran Self Storage, Inc. or if a person
commences a tender offer that would result in that person owning
10% or more of the common shares.
Borrowing Policy
The Board of Directors of the Company currently limits the
amount of debt that may be incurred by the Company to less than
50% of the sum of market value of the issued and outstanding
Common Stock plus the Company's debt (Market Capitalization). At
December 31, 1996, the Company had no Company debt. At March 24,
1997, the Company had $29 million outstanding under its Credit
Facility with Paine Webber Real Estate Securities, Inc. The
Company may from time to time re-evaluate and modify its
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.
The Company obtained an increase in the amount available
under the Credit Facility to $75 million from $45 million. In
connection with the increase, the interest rate was reduced from
30-day LIBOR plus 2.6 % to 30-day LIBOR plus 1.9% and the
maturity date was extended from June 1997 to August 1998. The
Credit Facility is to be used for development, acquisitions and
general corporate purposes. To the extent that the Company
desires to obtain additional capital to pay distributions, to
provide working capital, to pay existing indebtedness or to
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finance acquisitions, expansions or development of new
properties, the Company may utilize public and private equity
offerings, floating or fixed rate debt financing, retention of
cash flow (subject to satisfying the Company's distribution
requirements under the REIT rules) or a combination of these
methods. Additional debt financing may also be obtained through
mortgages on its Properties which may be recourse, non-recourse,
or cross-collateralized and may contain cross-default provisions.
The Company has not established any limit on the number or amount
of mortgages that may be placed on any single Property or on its
portfolio as a whole. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation-Liquidity and
Capital Resources" in the Company's 1996 Annual Report to
Shareholders.
Employees
The Company currently employs a total of 305 employees,
including 109 Property Managers, 9 District Managers and 140
part-time employees. At the Company's headquarters, in addition
to the 3 senior executive officers, the Company employs 23 people
engaged in various support activities such as accounting and
management information systems. None of the Company's employees
is covered by a collective bargaining agreement. The Company
considers its employee relations to be excellent.
Item 2. Properties
Overview
As of December 31, 1996, the Company owned and operated, a
total of 111 self-storage properties (the Properties), consisting
of approximately 5.8 million net rentable square feet. With the
exception of 5 Properties located in Texas, all of the Company's
Properties are located in 14 states, in the eastern half of the
United States. As of December 31, 1996, the Properties had a
weighted average occupancy of 86% and a weighted average annual
rent per occupied square foot of $7.41. The Company believes
that it is one of the largest operators of self-storage
properties in the United States based on facilities owned.
The Company's self-storage facilities offer inexpensive,
easily-accessible, enclosed storage space to residential and
commercial users on a month-to-month basis. Most of the
Company's Properties are fenced-in, have locked gates and are
lighted. All but ten of the Properties are single-story, thereby
providing customers with the convenience of direct vehicle access
to their storage units. All Properties have a Property Manager
on-site during business hours and, in most cases, the Property
Manager resides in an apartment at the facility. Customers have
access to their storage areas during business hours, and some
commercial customers are provided 24-hour access. Individual
storage units are secured by a lock furnished by the customer to
provide the customer with control of access to the unit.
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The table below provides certain information regarding the properties:
Uncle
BoB's 1996
Year Rentable Trade Average Mgr.
Location Built Sq. Ft. Name Occupancy Acres Units Bldgs. Stories Apt. Construction
_________________________________________________________________________________________________________________
Alabama:
Birmingham I, AL 1990 37,075 Y 78% 2.67 297 9 1 Y Masonry/Steel Roof
Birmingham II, AL 1990 52,150 Y 93% 4.68 414 8 1 Y Masonry/Steel Roof
Birmingham III, AL 1970 72,050 Y 89% 4.30 409 6 1 N Masonry/Steel Roof
Montgomery I, AL 1982 75,000 Y 90% 5.00 625 16 1 N Masonry/Steel Roof
Montgomery II, AL 1984 42,100 Y 86% 2.65 300 10 1 N Masonry/Steel Roof
Montgomery III, AL 1988 41,550 N 95% 2.40 392 9 1 Y Steel Bldg./Steel Roof
Connecticut:
Hartford-Metro I, CT 1988 47,650 Y 88% 10.03 339 10 1 N Steel Bldg./Steel Roof
Hartford-Metro II, CT 1992 40,275 Y 89% 6.00 313 7 1 N Steel Bldg./Steel Roof
New Haven, CT 1985 36,000 Y 95% 3.90 340 5 1 N Steel Bldg./Steel Roof
Florida:
Deltona, FL 1984 60,000 Y 91% 5.00 452 5 1 Y Masonry Wall/Shingled Roof
Ft. Lauderdale, FL 1985 103,000 Y 89% 7.59 646 7 1 Y Steel Bldg./Steel Roof
Ft. Myers I, FL 1988 28,068 Y 95% 1.14 272 6 2 Y Steel Bldg./Steel Roof
Ft. Myers II, FL 1991/94 41,728 Y 91% 3.22 602 6 1 Y Masonry/Steel Roof
Ft. Myers III, FL 1986 35,935 N 86% 2.44 261 9 1 Y Masonry/Steel Roof
Ft. Myers IV, FL 1987 63,000 N 88% 4.50 289 4 1 Y Masonry/Steel Roof
Jacksonville I, FL 1985 40,000 Y 90% 2.65 296 14 1 Y Masonry Wall/Tar & Gravel Roof
Jacksonville II, FL 1987 53,225 Y 92% 4.41 465 11 1 Y Masonry/Steel Roof
Jacksonville III, FL 1987 102,200 N 89% 5.90 786 13 1 Y Masonry Wall/Shingled Roof
Jacksonville IV, FL 1985 43,865 N 88% 2.70 527 7 1 Y Steel Bldg./Steel Roof
Jacksonville V, FL 1987/92 55,400 N 95% 2.89 514 13 2 Y Steel Bldg.& Roof, Masonary Wall
Lakeland, FL 1985 45,725 Y 84% 3.50 444 11 1 Y Masonry Wall/Steel Roof
Lakeland II, FL 1988 41,860 Y 89% 4.00 446 9 1 N Masonry Wall/Steel Roof
Melbourne I, FL 1986 61,787 Y 87% 8.30 605 11 1 Y Masonry Wall/Shingled Roof
Melbourne II, FL 1986 55,755 Y 89% 3.44 657 11 1 N Steel Bldg./Steel Roof
Orlando I, FL 1988 53,875 Y 96% 2.75 603 3 2 Y Steel Bldg./Steel Roof
Orlando II, FL 1986 135,000 Y 78% 8.50 1,359 20 1 Y Masonry Wall/Steel Roof
Orlando III, FL 1975 60,000 N 92% 3.20 487 8 2 N Masonry Wall/Steel Roof
Pensacola I, FL 1983 105,127 Y 90% 7.50 976 13 1 Y Steel Bldg./Steel Roof
Pensacola II, FL 1986 57,355 Y 97% 3.40 509 9 1 Y Steel Bldg./Steel Roof
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Pensacola III, FL 1986 63,250 Y 94% 6.10 510 12 1 N Steel Bldg./Steel Roof
Pensacola IV, FL 1990 39,825 Y 94% 2.71 280 9 1 Y Masonry/Steel Roof
Pensacola V, FL 1990 38,850 Y 89% 2.60 324 4 1 Y Masonry/Steel Roof
Port St. Lucie, FL 1985 60,000 Y 70% 4.02 599 12 1 N Steel Bldg./Steel Roof
Tallahassee I, FL 1973 149,600 Y 86% 18.68 730 21 1 Y Masonry Wall/Tar & Gravel Roof
Tallahassee II, FL 1975 43,600 Y 95% 4.01 236 7 1 Y Masonry Wall/Tar & Gravel Roof
Tampa I, FL 1989 60,202 Y 89% 3.30 889 6 1 N Masonry/Steel Roof
Tampa II, FL 1985 55,911 Y 89% 2.90 794 10 1 N Masonry/Steel Roof
Tampa III, FL 1988 45,507 Y 92% 2.20 689 5 1 N Masonry/Steel Roof
Tampa IV, FL 1985 60,675 Y 93% 4.03 633 10 1 Y Masonry/Steel Roof
West Palm, FL 1985 49,000 Y 75% 3.20 412 6 1 N Steel Bldg./Steel Roof
West Palm II, FL 1986 33,120 Y 94% 2.34 395 9 1 Y Masonry/Steel Roof
Georgia:
Atlanta-Metro I, GA 1988 69,075 Y 88% 3.94 539 5 1 Y Steel Bldg./Steel Roof
Atlanta-Metro II, GA 1988 45,100 Y 92% 3.87 375 6 1 Y Steel Bldg./Steel Roof
Atlanta-Metro III, GA 1988 55,475 Y 94% 5.30 483 9 1 Y Steel Bldg./Steel Roof
Atlanta-Metro IV, GA 1989 41,724 Y 95% 3.50 304 7 1 Y Steel Bldg./Steel Roof
Atlanta-Metro V, GA 1988 38,082 Y 88% 4.20 372 3 1 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VI, GA 1986 51,375 Y 89% 3.63 458 7 1 Y Steel Bldg./Steel Roof
Atlanta-Metro VII, GA 1981 43,400 Y 93% 2.53 324 9 2 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VIII, GA 1975 41,400 Y 91% 3.33 452 6 2 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro IX, GA 1988 56,725 Y 86% 4.58 409 6 1 Y Steel Bldg./Steel Roof
Atlanta-Metro X, GA 1988 45,425 Y 97% 6.80 391 9 1 N Steel Bldg./Steel Roof
Augusta I, GA 1988 52,300 Y 79% 3.99 407 13 1 Y Steel Bldg./Steel Roof
Augusta II, GA 1987 45,700 Y 83% 3.48 377 4 1 Y Masonry Wall/Steel Roof
Macon I, GA 1989 40,700 Y 92% 3.20 356 14 1 Y Steel Bldg./Steel Roof
Macon II, GA 1989/94 58,750 Y 92% 14.00 535 11 1 Y Steel Bldg./Steel Roof
Savannah, GA 1981 58,781 Y 84% 5.37 527 11 1 Y Masonry Wall/Steel Roof
Maryland:
Frederick, MD 1984 22,233 Y 78% 1.85 347 2 3 N Masonry Wall/Shingled Roof
Gaithersburg, MD 1988 63,915 Y 84% 2.22 526 2 4 Y Masonry Wall/Tar & Gravel Roof
Landover, MD 1990 53,171 N 94% 3.10 686 8 1 Y Steel Bldg./Steel Roof
Salisbury, MD 1979 34,350 Y 71% 3.03 418 10 1 N Masonry Wall/Tar & Gravel Roof
Massachusetts :
Boston-Metro I, MA 1980 37,575 Y 94% 2.03 403 3 2 N Masonry Wall/Tar & Gravel Roof
Boston-Metro II, MA 1986 36,900 Y 97% 3.60 428 8 2 N Masonry Wall/Tar & Gravel Roof
New Bedford, MA 1982 41,980 Y 81% 3.36 408 7 1 Y Steel Bldg./Steel Roof
Springfield, MA 1986 41,399 N 86% 4.68 337 5 1 N Masonry Wall/Shingled Roof
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Mississippi:
Jackson I, MS 1990 41,900 Y 93% 2.00 344 6 1 Y Masonry/Steel Roof
Jackson II, MS 1990 38,775 Y 75% 2.06 308 9 1 Y Masonry/Steel Roof
New York:
Buffalo I, NY 1981 61,200 Y 93% 5.10 507 10 1 Y Steel Bldg./Steel Roof
Buffalo II, NY 1984 53,525 Y 90% 6.20 430 12 1 Y Steel Bldg./Steel Roof
Middletown, NY 1988 30,000 Y 90% 2.78 281 4 1 N Steel Bldg./Steel Roof
Rochester I, NY 1981 43,000 Y 90% 2.90 407 5 1 Y Steel Bldg./Steel Roof
Rochester II, NY 1980 39,000 Y 92% 3.53 250 9 1 N Masonry Wall/Shingled Roof
Rochester lll, NY 1990 51,826 N 93% 2.71 421 1 1 N Masonry Wall/Shingled Roof
Syracuse, NY 1987 70,200 Y 88% 7.50 767 16 1 N Steel Bldg./Steel Roof
Syracuse II, NY 1983 44,350 N 93% 3.58 364 7 1 Y Steel Bldg./Shingled Roof
North Carolina:
Charlotte, NC 1986 37,051 Y 86% 2.85 337 6 1 Y Steel Bldg./Steel Roof
Charlotte II, NC 1995 48,750 N 78% 5.60 494 7 1 Y Masonry Wall/Steel Roof
Charlotte III, NC 1995 31,200 N 81% 2.91 346 6 1 Y Masonry Wall/Steel Roof
Fayetteville, NC 1980 92,800 Y 70% 6.20 1,160 12 1 Y Steel Bldg./Steel Roof
Greensboro, NC 1986 42,900 Y 85% 3.37 415 5 1 Y Steel Bldg. & Roof/Masonary Wall
Raleigh I, NC 1985 57,750 Y 88% 5.00 569 8 2 Y Steel Bldg./Steel Roof
Raleigh II, NC 1985 33,150 Y 79% 2.50 329 8 1 Y Steel Bldg./Steel Roof
Ohio:
Cincinnati, OH 1988 48,830 N 96% 2.84 496 7 1 Y Masonry Wall/Steel Roof
Cleveland-Metro I, OH 1980 48,250 Y 83% 6.41 359 9 1 Y Steel Bldg./Steel Roof
Cleveland-Metro II, OH 1987 60,500 Y 87% 4.82 453 4 1 Y Steel Bldg./Steel Roof
Dayton, OH 1988 61,875 N 94% 3.55 615 8 1 Y Masonry Wall/Steel Roof
Youngstown, OH 1980 48,825 Y 93% 5.80 380 5 1 Y Steel Bldg./Steel Roof
Pennsylvania:
Allentown, PA 1983 30,000 Y 97% 6.25 277 7 1 Y Masonry Wall/Shingled Roof
Harrisburg I, PA 1983 48,746 Y 89% 4.05 475 9 1 Y Masonry Wall/Steel Roof
Harrisburg II, PA 1985 58,800 Y 95% 9.22 299 10 1 Y Masonry Wall/Steel Roof
Pittsburgh, PA 1990 57,375 N 89% 3.41 551 6 1 Y Steel Bldg./Steel Roof
Pittsburgh II, PA 1983 75,875 N 87% 4.76 732 4 2 Y Masonry Wall/Shingled Roof
Sharon, PA 1975 37,200 Y 71% 2.98 314 5 1 Y Steel Bldg./Steel Roof
Rhode Island:
Providence, RI 1984 37,825 Y 81% 3.67 397 7 1 Y Masonry Wall/Tar & Gravel Roof
- 12 -
South Carolina:
Charleston I, SC 1985 51,445 Y 88% 3.30 421 11 1 Y Steel Bldg.&Roof/Masonary Wall
Charleston II, SC 1985 41,038 Y 97% 2.20 335 10 1 Y Masonry Wall/Steel Roof
Columbia I, SC 1985 47,650 Y 79% 3.30 410 7 1 Y Steel Bldg./Steel Roof
Columbia II, SC 1987 59,000 Y 93% 5.95 464 8 1 N Steel Bldg./Steel Roof
Columbia III, SC 1989 41,200 Y 85% 3.50 354 5 2 Y Steel Bldg./Steel Roof
Columbia IV, SC 1986 56,000 Y 94% 5.60 446 7 1 Y Steel Bldg./Steel Roof
Spartanburg, SC 1989 49,500 Y 85% 3.57 350 6 1 Y Steel Bldg./Steel Roof
Texas:
Arlington I, TX 1987 45,965 N 90% 2.26 411 7 1 Y Masonry Wall/Steel Roof
Arlington II, TX 1986 67,100 N 79% 3.78 330 11 1 Y Masonry Wall/Steel Roof
Ft. Worth, TX 1986 40,825 N 94% 2.37 356 3 1 Y Masonry Wall/Asphalt Roof
San Antonio I, TX 1986 48,280 Y 89% 3.88 486 12 1 Y Masonry Wall/Steel Roof
San Antonio II, TX 1986 40,550 Y 86% 1.87 287 7 1 Y Masonry Wall/Steel Roof
Virginia:
Alexandria, VA 1984 77,310 Y 77% 3.16 1,105 4 2 Y Masonry Wall/Tar & Gravel Roof
Newport News I, VA 1988 52,944 Y 93% 3.24 451 7 1 Y Steel Bldg./Steel Roof
Newport News II, VA 1988/93 63,125 N 97% 4.66 384 8 1 Y Steel Bldg./Steel Roof
Norfolk I, VA 1984 49,950 Y 89% 2.70 357 7 1 Y Steel Bldg./Steel Roof
Norfolk II, VA 1989 45,375 Y 93% 2.10 363 4 1 Y Masonry Wall/Steel Roof
Richmond, VA 1987 52,035 Y 89% 2.67 524 5 1 Y Steel Bldg./Steel Roof
Total for all Properties 5,822,600 465.00 51,889 887
Average for all Properties 88.1%
Weighted Average 85.6%
- 13 -
Currently, 90 of the Properties conduct business under the
user-friendly trade name "Uncle BoB's Self-Storage" and the
remainder are operated under various names acquired with the
Properties. The Company intends to convert all the Properties to
the "Uncle BoB's" trade name.
The Company's self-storage facilities are significantly less
expensive to maintain than most other types of real estate due to
the simple construction techniques and durable construction
materials. Maintenance is the primary responsibility of the
Property Manager, who may elect to engage third party contractors
to perform some types of maintenance. The Company has
historically spent, on average, less than $8,000 per year for
capital improvements on each Property.
Item 3. Legal Proceedings
Robert J. Amsdell, a former business associate of certain
officers and directors of the company, including Robert J. Attea,
Charles E. Lannon, Kenneth F. Myszka and David L. Rogers, filed a
lawsuit against the Company on June 13, 1995 in the United States
District Court for the Northern District of Ohio in connection
with the formation of the Company as a REIT and related
transactions, as well as the Initial Offering. On April 29,
1996, Mr. Amsdell filed a first amended complaint in the lawsuit
alleging breach of fiduciary duty, breach of contract, breach of
general partnership/joint venture arrangement, statutory
violations regarding dissolution of general partnership or joint
venture, breach of duty of good faith and fair dealing, fraud and
deceit, interference with prospective advantage, and violation of
trademark/trade name rights. Mr. Amsdell is seeking money
damages in excess of $25 million, as well as punitive damages and
declaratory and injunctive relief (including the imposition of a
constructive trust on assets of the Company in which Mr. Amsdell
claims to have a continuing interest) and an accounting. The
first amended complaint also added Messrs. Attea, Lannon, Myszka
and Rogers as additional defendants. The parties are currently
involved in discovery. The Company intends to vigorously defend
the lawsuit. Messrs. Attea, Lannon, Myszka and Rogers have
agreed to indemnify the Company for any loss arising from the
lawsuit. The Company believes that the actual amount of
Mr. Amsdell's recovery in this matter, if any, would be within
the ability of these individuals to provide indemnification. The
Company does not believe that the lawsuit will have a material
adverse effect upon the Company.
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.
Other Executive Officers of the Registrant
The names and ages of other executive and other officers of
the Company are set forth below. Their principal occupations for
the past five years have been their employment with the Company
and its predecessors.
- 14 -
Name Age Position
- -----------------------------------------------------------------
Charles J. Fritts 41 Senior Vice President -
Property
Management
John B. Colclough 37 Vice President - Property
Acquisition
Sandra L. Herberger 47 Vice President -
Administration
Joan M. Light 61 Vice President - Corporate
Operations
Stephen S. Palmeri 53 Controller
Diane M. Piegza 37 Vice President - Marketing
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's 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 the Company's Common Stock for each full
quarterly period within the two most recent years:
New York Stock Exchange
Quarter Range
- ------- -----
1995 High Low
- -----------------------------------------------------------------
2nd 23 23
3rd 25.75 22.38
4th 26.75 23.13
1996
- -----------------------------------------------------------------
1st 27.50 25
2nd 27.125 24.625
3rd 27 24.625
4th 31.25 25.625
As of March 24, 1997, there were approximately 388 holders
of record of the Company's Common Stock.
The Company has paid quarterly dividends to its shareholders
since the Initial Offering. On August 29, 1996, the Board of
Directors approved an increase in the quarterly distribution from
$0.505 to $0.520 per Common Share commencing with the
distribution for the quarter ending September 30, 1996.
For Federal tax purposes, distributions to shareholders are
treated as ordinary income, capital gain, return of capital or a
combination thereof. Distributions to shareholders for 1996
represent 100% ordinary income.
- 15 -
History of Dividends Declared on Common Stock
- -----------------------------------------------------------------
- --
2nd Quarter, 1995 - $0.025 per share
3rd Quarter, 1995 - $0.505 per share
4th Quarter, 1995 - $0.505 per share
1st Quarter, 1996 - $0.505 per share
2nd quarter, 1996 - $0.505 per share
3rd quarter, 1996 - $0.52 per share
4th quarter, 1996 - $0.52 per share
Item 6. Selected Financial Data
The information required herein is incorporated by
reference to the Company's 1996 Annual Report to Shareholders on
page 12.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information required herein is incorporated by reference
to the Company's 1996 Annual Report to Shareholders on pages 9 to
12.
Item 8. Financial Statements and Supplementary Data
The information required herein is incorporated by reference
to the Company's 1996 Annual Report to Shareholders on pages 13
to 24.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required herein is incorporated by reference
to "Election of Directors" and "Executive Officers of the
Company" in the Company's Proxy Statement for Annual Meeting of
Shareholders of the Company to be held on May 13, 1997.
Information concerning the Company's other executive officers can
be found in Part I of this Annual Report on Form 10 K.
Item 11. Executive Compensation
The information required herein is incorporated by reference
to "Executive Compensation" and "Compensation of Directors" in
the Company's Proxy Statement for Annual Meeting of Shareholders
of the Company to be held on May 13, 1997.
- 16 -
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required herein is incorporated by reference
to "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement for Annual Meeting of
Shareholders of the Company to be held on May 13, 1997.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by
reference to "Certain Transactions" in the Proxy Statement for
Annual Meeting of Shareholders of the Company to be held on
May 13, 1997.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Documents filed as part of this Annual Report on
Form 10-K:
1. Financial Statements filed as part of this Annual
Report on Form 10-K are included in the 1997 Annual Report to
Shareholders and incorporated herein by reference.
(i) Consolidated Balance Sheet - December 31, 1996 and
1995
(ii) Consolidated Statement of Operations of the
Company and Combined Statements of Operations of
the Predecessors - Year Ended December 31, 1994,
January 1, 1995 to June 25, 1995, June 26, 1995 to
December 31, 1995 and Year Ended December 31,
1996.
(iii) Combined Statements of Owners' Equity of the
Predecessor/Consolidated Statements of the
Shareholders' Equity of the Company - January 1,
1994 to June 25, 1995 and June 26, 1995 to
December 31, 1996
(iv) Consolidated Statements of Cash Flows of the
Company and Combined Statements of Cash Flows of
the Predecessors - Year Ended December 31, 1994,
January 1, 1995 to June 25, 1995, June 26, 1995 to
December 31, 1995 and Year Ended December 31,
1996.
(v) Selected Financial Data - For the Predecessor at
or for Year Ended December 31, 1992, 1993, 1994
and for January 1, 1995 to June 25, 1995 and for
the Company for June 26, 1995 to December 31, 1995
and for the year ended December 31, 1996.
- 17 -
2. The following financial statement Schedules as of and
for the period ended December 31, 1996 is included in this Annual
Report on Form 10-K:
Schedule III Real Estate and Accumulated Depreciation
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(a)* Amended and Restated Articles of Incorporation of the
Registrant.
3.1(b) Articles Supplementary to the 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-K filed December 3, 1996.
3.2* Bylaws of the Registrant.
4.1 Shareholder Rights Plan; incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8-K filed December
3, 1996.
10.1* Form of Agreement of Limited Partnership of Sovran
Acquisition Limited Partnership.
10.2* Form of Non-competition Agreement between the Registrant
and Charles E. Lannon.
10.3* Form of Employment Agreement between the Registrant and
Robert J. Attea.
10.4* Form of Employment Agreement between the Registrant and
Kenneth F. Myszka.
10.5* Form of Employment Agreement between the Registrant and
David L. Rogers.
10.6* Sovran Self Storage, Inc. 1995 Award and Option Plan.
10.7* 1995 Sovran Self Storage, Inc. Directors' Option Plan.
10.8* Sovran Self Storage, Inc. Incentive Compensation Plan
for Executive Officers.
10.9* Restricted Stock Agreement between the Registrant and
David L. Rogers.
- 18 -
10.10* Form of Supplemental Representations, Warranties and
Indemnification Agreement among the Registrant and
Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka
and David L. Rogers.
10.11* Form of Pledge Agreement among the Registrant and Robert
J. Attea, Charles E. Lannon, Kenneth F. Myszka and David
L. Rogers.
10.12* Form of Indemnification Agreement between the Registrant
and certain Officers and Directors of the Registrant.
10.13* Form of Subscription Agreement (including Registration
Rights Statement) among the Registrant and subscribers
for 422,171 Common Shares.
10.14* Form of Registration Rights and Lock-Up Agreement among
the Registrant and Robert J. Attea, Kenneth F. Myszka
and David L. Rogers.
10.15* Form of Facilities Services Agreement between the
Registrant and Williamsville Properties, Inc.
13 1996 Annual Report to Shareholders. (Except for those
portions which are expressly incorporated by reference
to the Annual Report on Form 10-K, this exhibit is
furnished for the information of the Securities and
Exchange Commission and is not deemed to be filed as
part of this Annual Report on Form 10-K.)
21 Subsidiary of the Company.
The Company's only subsidiary is Sovran Holdings, Inc.
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated December 3,
1996 reporting pursuant to items 5 and 7.
____________________
* Incorporated herein by reference to the same numbered
exhibit as filed in the Company's Registration Statement
on Form S-11 (File No. 33-91422) filed June 19, 1995.
- 19 -
SIGNATURES
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.
SOVRAN SELF STORAGE, INC.
March 28, 1997 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 Chairman of the March 28, 1997
Robert J. Attea Board of Directors,
Chief Executive
Officer and Director
/s/ Kenneth F. Myszka President, Chief March 28, 1997
Kenneth F. Myszka Operating Officer
and Director
/s/ David L. Rogers Chief Financial March 28, 1997
David L. Rogers Officer
/s/ John Burns Director March 28, 1997
John Burns
/s/ Michael A. Elia Director March 28, 1997
Michael A. Elia
/s/ Anthony P. Gammie Director March 28, 1997
Anthony P. Gammie
/s/ Charles E. Lannon Director March 28, 1997
Charles E. Lannon
- 20 -
Sovran Self Storage, Inc.
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 1996
Cost
Capitalized
Initial Cost Subsequent to Gross Amount at Which
to Company Acquisition Carried at Close of Period
Building, Building, Building,
Equipment Equipment Equipment
and and Land and Accumulated Date
Description Land Improvements Improvements Land Improvements Total Depreciation Acquired
Birmingham I, AL 307 1,415 11 307 1,426 1,733 55 6/26/95
Birmingham II, AL 730 1,725 31 730 1,756 2,486 68 6/26/95
Birmingham III, AL 424 1,506 24 424 1,530 1,954 36 1/16/96
Montgomery, AL 863 2,041 63 863 2,104 2,967 81 6/26/95
Montgomery II, AL 353 1,299 35 353 1,334 1,687 34 1/23/96
Montgomery III, AL 279 1,014 13 279 1,027 1,306 16 5/21/96
Hartford-Metro I, CT 715 1,695 19 715 1,714 2,429 67 6/26/95
Hartford-Metro II, CT 234 861 6 234 867 1,101 35 6/26/95
New Haven, CT 387 1,402 5 387 1,407 1,794 56 6/26/95
Deltona, FL 483 1,752 53 483 1,805 2,288 70 6/26/95
Ft. Lauderdale, FL 1,503 3,619 42 1,503 3,661 5,164 148 6/26/95
Ft. Myers, FL 205 912 24 206 936 1,142 35 12/28/95
Ft. Myers II, FL 412 1,703 28 413 1,731 2,144 56 12/28/95
Ft. Myers III, FL 229 884 27 229 911 1,140 15 5/29/96
Ft. Myers IV, FL 344 1,254 55 344 1,309 1,653 17 6/28/96
Jacksonville I, FL 152 728 17 152 745 897 31 6/26/95
Jacksonville II, FL 326 1,515 44 326 1,559 1,885 61 6/26/95
Jacksonville III, FL 568 2,028 216 568 2,244 2,812 18 8/23/96
Jacksonville IV, FL 436 1,635 22 436 1,657 2,093 16 8/26/96
Jacksonville V, FL 535 2,033 2 535 2,035 2,570 19 8/30/96
Lakeland I, FL 397 1,424 17 397 1,441 1,838 56 6/26/95
Lakeland II, FL 359 1,287 39 359 1,326 1,685 17 6/26/96
Melbourne I, FL 883 2,104 12 883 2,116 2,999 86 6/26/95
Melbourne II, FL 834 2,066 2 834 2,068 2,902 89 6/26/95
- 21 -
Orlando I, FL 513 1,930 12 513 1,942 2,455 82 6/26/95
Orlando II, FL 1,161 2,755 66 1,162 2,821 3,983 92 9/29/95
Orlando III, FL 314 1,113 60 314 1,173 1,487 5 10/30/96
Pensacola I, FL 632 2,962 28 632 2,990 3,622 117 6/26/95
Pensacola II, FL 244 901 3 244 904 1,148 38 6/26/95
Pensacola III, FL 369 1,358 29 369 1,387 1,756 55 6/26/95
Pensacola IV, FL 244 1,128 14 244 1,142 1,386 44 6/26/95
Pensacola V, FL 226 1,046 19 226 1,065 1,291 41 6/26/95
Pt. St. Lucie, FL 395 1,501 38 395 1,539 1,934 67 6/26/95
Tallahassee I, FL 770 2,734 81 770 2,815 3,585 105 6/26/95
Tallahassee II, FL 204 734 2 204 736 940 29 6/26/95
Tampa I, FL 1,088 2,597 25 1,088 2,622 3,710 104 6/26/95
Tampa II, FL 526 1,958 36 526 1,994 2,520 83 6/26/95
Tampa III, FL 672 2,439 18 672 2,457 3,129 98 6/26/95
Tampa IV, FL 766 1,800 42 766 1,842 2,608 35 3/28/96
West Palm, FL 398 1,035 6 398 1,041 1,439 48 6/26/95
West Palm II, FL 345 1,262 36 345 1,298 1,643 21 5/29/96
Atlanta-Metro I, GA 844 2,021 2 844 2,023 2,867 80 6/26/95
Atlanta-Metro II, GA 302 1,103 4 303 1,107 1,410 44 6/26/95
Atlanta-Metro III, GA 430 1,579 3 430 1,582 2,012 64 6/26/95
Atlanta-Metro IV, GA 423 1,015 8 423 1,023 1,446 41 6/26/95
Atlanta-Metro V, GA 483 1,166 9 483 1,175 1,658 48 6/26/95
Atlanta-Metro VI, GA 308 1,116 29 308 1,145 1,453 45 6/26/95
Atlanta-Metro VII, GA 170 786 4 170 790 960 31 6/26/95
Atlanta-Metro VIII, GA 413 999 5 413 1,004 1,417 41 6/26/95
Atlanta-Metro IX, GA 304 1,118 18 304 1,136 1,440 45 6/26/95
Atlanta-Metro X, GA 256 1,244 0 256 1,244 1,500 51 6/26/95
Augusta I, GA 357 1,296 3 357 1,299 1,656 51 6/26/95
Augusta II, GA 315 1,139 0 315 1,139 1,454 44 6/26/95
Macon I, GA 231 1,081 5 231 1,086 1,317 43 6/26/95
Macon II, GA 431 1,567 16 431 1,583 2,014 45 12/1/95
Savannah, GA 463 1,684 2 463 1,686 2,149 66 6/26/95
Baltimore I, MD 154 555 37 154 592 746 23 6/26/95
Baltimore II, MD 479 1,742 47 479 1,789 2,268 70 6/26/95
Baltimore III, MD 777 2,770 13 777 2,783 3,560 29 7/26/96
Salisbury, MD 164 760 47 164 807 971 31 6/26/95
Boston-Metro I, MA 363 1,679 44 363 1,723 2,086 67 6/26/95
Boston-Metro II, MA 680 1,616 22 680 1,638 2,318 64 6/26/95
New Bedford, MA 367 1,325 27 367 1,352 1,719 52 6/26/95
Springfield, MA 251 917 58 251 975 1,226 13 6/28/96
- 22 -
Jackson I, MS 343 1,580 8 343 1,588 1,931 61 6/26/95
Jackson II, MS 209 964 15 209 979 1,188 38 6/26/95
Buffalo I, NY 423 1,531 25 426 1,556 1,982 61 6/26/95
Buffalo II, NY 315 745 13 315 758 1,073 29 6/26/95
Middletown, NY 224 808 18 224 826 1,050 32 6/26/95
Rochester I, NY 395 1,404 12 395 1,416 1,811 54 6/26/95
Rochester II, NY 230 847 15 234 862 1,096 35 6/26/95
Rochester III, NY 704 2,496 0 704 2,496 3,200 0 12/20/96
Syracuse I, NY 470 1,712 28 472 1,740 2,212 46 12/27/95
Syracuse II, NY 481 1,559 8 481 1,567 2,048 23 6/5/96
Charlotte, NC 308 1,102 10 308 1,112 1,420 43 6/26/95
Charlotte II, NC 487 1,754 11 487 1,765 2,252 11 9/16/96
Charlotte III, NC 315 1,131 6 315 1,137 1,452 7 9/16/96
Fayetteville, NC 853 3,057 15 853 3,072 3,925 118 6/26/95
Greensboro, NC 444 1,613 27 444 1,640 2,084 63 6/26/95
Raleigh I, NC 649 2,329 44 649 2,373 3,022 90 6/26/95
Raleigh II, NC 321 1,150 1 321 1,151 1,472 44 6/26/95
Cincinnati, OH 557 1,988 11 557 1,999 2,556 21 7/23/96
Cleveland-Metro I, OH 179 836 9 179 845 1,024 33 6/26/95
Cleveland-Metro II, OH 701 1,659 0 701 1,659 2,360 64 6/26/95
Dayton, OH 667 2,379 8 667 2,387 3,054 25 7/23/96
Youngstown, OH 239 1,110 8 239 1,118 1,357 43 6/26/95
Allentown, PA 199 921 12 203 933 1,136 37 6/26/95
Harrisburg I, PA 360 1,641 45 360 1,686 2,046 43 12/29/95
Harrisburg II, PA 627 2,224 21 627 2,245 2,872 57 12/29/95
Pittsburgh, PA 545 1,940 9 545 1,949 2,494 25 6/19/96
Pittsburgh II, PA 627 2,257 8 627 2,265 2,892 19 8/28/96
Sharon, PA 194 912 14 194 926 1,120 38 6/26/95
E. Providence, RI 345 1,268 33 345 1,301 1,646 52 6/26/95
Charleston, SC 416 1,516 3 416 1,519 1,935 61 6/26/95
Charleston II, SC 237 858 53 237 911 1,148 20 3/1/96
Columbia I, SC 268 1,248 0 268 1,248 1,516 49 6/26/95
Columbia II, SC 361 1,331 15 374 1,346 1,720 54 6/26/95
Columbia III, SC 189 719 8 189 727 916 31 6/26/95
Columbia IV, SC 488 1,188 4 488 1,192 1,680 48 6/26/95
Spartanburg, SC 331 1,209 10 331 1,219 1,550 49 6/26/95
- 23 -
Arlington I, TX 442 1,767 7 442 1,774 2,216 34 3/29/96
Arlington II, TX 408 1,662 16 408 1,678 2,086 33 3/29/96
Ft. Worth, TX 328 1,324 27 328 1,351 1,679 26 3/29/96
San Antonio I, TX 436 1,759 11 436 1,770 2,206 34 3/29/96
San Antonio II, TX 289 1,161 12 289 1,173 1,462 23 3/29/96
Alexandria, VA 1,375 3,220 10 1,375 3,230 4,605 123 6/26/95
Newport News, VA 316 1,471 3 316 1,474 1,790 58 6/26/95
Newport News II, VA 442 1,592 25 442 1,617 2,059 41 1/5/96
Norfolk I, VA 313 1,462 22 313 1,484 1,797 58 6/26/95
Norfolk II, VA 278 1,004 2 278 1,006 1,284 40 6/26/95
Richmond, VA 443 1,602 44 443 1,646 2,089 57 8/25/95
Corporate Office 0 68 178 0 246 246 72 1/1/95
______ _______ _____ ______ _______ _______ _____
49,561 168,511 2,609 49,591 171,120 220,711 5,457
====== ======= ===== ====== ======= ======= =====
________________________________________________________________________________________________
December 31, 1996 December 31, 1995
____________________ _____________________
Balance at beginning of period 159,461 $ -
Additions during period:
Acquisitions through foreclosure - $ -
Other acquisitions 58,626 158,698
Improvements, etc. 2,640 763
Other (describe) - 61,266 - 159,461
______ _______ ________ ________
Deductions during period:
Cost of real estate sold - -
Equipment disposed 16 16 - -
______ _______ ________ ________
Balance at close of period 220,711 $159,461
======= ========
________________________________________________________________________________________________
- 24 -
EXHIBIT INDEX
_____________
3.1(a)* Amended and Restated Articles of Incorporation of the
Registrant.
3.1(b) Articles Supplementary to the 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-K filed December 3, 1996.
3.2* Bylaws of the Registrant.
4.1 Shareholder Rights Plan; incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8-K filed December
3, 1996.
10.1* Form of Agreement of Limited Partnership of Sovran
Acquisition Limited Partnership.
10.2* Form of Non-competition Agreement between the Registrant
and Charles E. Lannon.
10.3* Form of Employment Agreement between the Registrant and
Robert J. Attea.
10.4* Form of Employment Agreement between the Registrant and
Kenneth F. Myszka.
10.5* Form of Employment Agreement between the Registrant and
David L. Rogers.
10.6* Sovran Self Storage, Inc. 1995 Award and Option Plan.
10.7* 1995 Sovran Self Storage, Inc. Directors' Option Plan.
10.8* Sovran Self Storage, Inc. Incentive Compensation Plan
for Executive Officers.
10.9* Restricted Stock Agreement between the Registrant and
David L. Rogers.
10.10* Form of Supplemental Representations, Warranties and
Indemnification Agreement among the Registrant and
Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka
and David L. Rogers.
10.11* Form of Pledge Agreement among the Registrant and Robert
J. Attea, Charles E. Lannon, Kenneth F. Myszka and David
L. Rogers.
10.12* Form of Indemnification Agreement between the Registrant
and certain Officers and Directors of the Registrant.
10.13* Form of Subscription Agreement (including Registration
Rights Statement) among the Registrant and subscribers
for 422,171 Common Shares.
- 25 -
10.14* Form of Registration Rights and Lock-Up Agreement among
the Registrant and Robert J. Attea, Kenneth F. Myszka
and David L. Rogers.
10.15* Form of Facilities Services Agreement between the
Registrant and Williamsville Properties, Inc.
13 1996 Annual Report to Shareholders. (Except for those
portions which are expressly incorporated by reference
to the Annual Report on Form 10-K, this exhibit is
furnished for the information of the Securities and
Exchange Commission and is not deemed to be filed as
part of this Annual Report on Form 10-K.)
21 Subsidiary of the Company.
The Company's only subsidiary is Sovran Holdings, Inc.
23 Consent of Independent Auditors
27 Financial Data Schedule
____________________
* Incorporated herein by reference to the same numbered
exhibit as filed in the Company's Registration Statement
on Form S-11 (File No. 33-91422) filed June 19, 1995.
- 26 -
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
- 27 -
Letter to Shareholders
Dear Shareholders:
As we report to you on our first full year of operation as a
public company, we focus on growth. Growth is the story of our
company this year. It's a story of discipline, focus, and drive-
of a company that is tapping the growth potential of the self-
storage industry as a whole and of the specific markets that
comprise its niche.
The story is framed by the following growth indicators.
- - Sovran's property portfolio, expanded by 35%
- - Sovran's gross revenues, up 49.5%
- - Sovran's same-store net operating income, up by 6.5%, a
significant rise
- - Sovran's properties' net operating income, up 50%
- - Sovran's occupancy rate up to 88.1%
These are the facts of our activity over the past 12
months. To understand their significance for your investment in
Sovran Self Storage, we offer the following detail and analysis.
Self-storage is a business that meets a fundamental
need, but one that can yield out-of-the-ordinary returns for its
investors.
The business consists of providing clean, covered,
private space for individuals and businesses to use for storing
possessions and inventory. It costs less than one-third as much
to build self-storage units than it does to develop other real
estate instruments like apartments and office buildings.
Conversely, self-storage units typically yield nearly as much
income per square foot as other real estate investments.
Maintenance for self-storage units is minimal. In short, the
fundamentals of the business are simple and straightforward.
Few businesses have perfected the formula for profiting
in self-storage management on a large scale and few small
companies-presently the Mom & Pop's which comprise 80% of the
business in the United States-have managed to leverage their
experience and assets into larger, more substantial operations.
Sovran is the sixth largest self-storage company in the country.
Our REIT peers
have, like us, grown and profited in this evolving industry. We
believe Sovran is well positioned to take advantage of the
favorable fundamentals we've described.
- - We've succeeded in keeping operating costs low and
increasing same-store net operating income.
- 28 -
- - We paid the highest dividend among the top five self-
storage REITs. For this reason, Sovran remains an
attractive stock likely to continue to attract new
capital for future expansion of the business.
- - Among the top five companies, Sovran is outstanding for
the modest premium at which we traded, just 8.83% over
liquidation estimates at year end.
- - Sovran was debt-free at year end and is in a position to
seize strategic growth opportunities wherever and
whenever they present themselves.
The untapped market for self storage is enormous. The industry's
consolidation and professionalization will likely bring even
greater growth opportunities to companies like Sovran in the
years to come.
Given the following key indicators, we would expect such
opportunities to be numerous.
The Market. No more than 10% of the population has ever used
a self-storage facility according to industry experts; the
potential growth of the self-storage market is promising.
The Industry. The top ten self-storage companies operate just
over 10% of the 23,000 facilities in the United States. Growth by
acquisition, therefore, is likely for the top self-storage REITs.
The Environment. Since socio-economic change drives this
business and the pace of change is not likely to diminish, even
during recessions, the self-storage industry should grow more
than other REIT investments. Marriages, divorces, job changes-
any change that prompts a population shift or a personal or
business relocation, will trigger the need for self storage.
As a new public company, we are aware of the pitfalls as well as
the promises of rapid growth. We have, therefore, strictly
adhered to a focused, disciplined strategy geared to achieving
controlled growth with limited risk and long-term gain. It was
our strategy for 12 years as a private company; it was our
strategy in 1995 when we went public; and it remains our strategy
today.
Our strategy for growth can be summed up in the
following precepts.
- - "Pass" on richly-priced premium property portfolios and
seek out well-priced properties in strong markets, both
those which are new to Sovran and those in which we
already have a presence.
- - Cluster properties to achieve economies of scale and
management/marketing efficiencies. Consistently seek
acquisitions in metropolitan areas with populations in
excess of 250,000 where we've already established a
foothold. The idea is to "fill in" these markets where
- 29 -
gaps currently exist to achieve optimum operating
results for a region.
- - Commit our resources to building a presence in new self-
storage markets, wherever they are located, to build a
high-performing cluster of Sovran facilities in these
markets.
- - Emphasize due diligence so that our acquisition process
remains rigorous and sensible. Do not sacrifice process
for product regardless of the appeal of a particular
property.
Innovative Acquisition Financing
There is one final element of our growth strategy-a financing
mechanism called operating partnership units-that has given us
flexibility and leverage in negotiating acquisitions,
particularly this past year. We anticipated the usefulness of
this mechanism prior to going public, transferring all our
properties into a partnership wholly owned by Sovran Self
Storage.
In 1996, Sovran made its first use of operating partnership units
as "currency" in the purchase of properties. The seller receives
the selling price of his property in operating partnership units
which are based on the value of Sovran stock, but taxes can be
deferred. In this way, the seller earns dividends on the total
amount of the purchase proceeds and also benefits from future
capital appreciation of Sovran's stock.
Last year, this method of acquiring properties enabled Sovran to
negotiate purchases at favorable prices with owners who would
otherwise not be inclined to sell because of the tax consequences
of more traditional cash transactions.
The key to successfully managing Sovran's growth is its people-
300 dedicated employees-and an efficient management process that
embraces systems and marketing.
People Make The Difference. Our management expertise is without
equal in the industry. We are, in fact, the only self-storage
operator to be designated as an Accredited Management
Organization by the Institute of Real Estate Management.
Recruiting and Training Sovran "Entrepreneurs". Sovran actively
seeks and recruits capable, aggressive, professional, property
managers, identified through an intensive interview process and
background check. Once selected, new property managers attend an
in-depth orientation program that covers Sovran's property and
information management systems, personal telephone skills,
closing techniques and identification of target marketing
opportunities. These initial training sessions are reinforced by
ongoing marketing-focused educational programs, one-on-one
meetings with district managers, and periodic newsletters
addressing company and industry matters.
- 30 -
Motivating Performance. Our training and incentives instill in
Sovran managers the drive, ambition and initiative of
entrepreneurs who manage Sovran properties as if they were their
own. To maximize net operating margins, our managers make
decisions at the local level. With the ground-level authority
we give them, they can respond to changing market conditions and
seize opportunities as they arise.
Performance that achieves these goals and contributes to the
bottom line is rewarded by an incentive plan under which managers
can earn a percentage of all gross income in excess of targets
established annually for each property. In 1996, 95% of our
managers earned an incentive bonus. Their individual performance
is reflected in the outstanding results your Company achieved for
the year.
Process Increases Efficiency and Scope. As we continue to expand
our portfolio of properties, Sovran's seasoned management team
and our sophisticated information systems and marketing
programs--both tested and perfected in our existing markets--
allow us to look beyond our traditional geographic boundaries for
opportunities compatible with our growth strategy. This
management process also permits the seamless integration of new
properties into the Sovran family regardless of whether they are
already in our established markets or new to Sovran. This was the
case with our successful entry last year into the Texas market.
Management Information System Links Properties. Sovran links
each property to corporate headquarters through a network of in-
store computers and proprietary software. This customized
management information system provides the automated processing
of billings, collection and reservations, freeing on-site
managers to concentrate on building sales and customer
relationships. Newly-acquired properties can be linked to the
information system quickly. By having such a system up and
running, Sovran's unprecedented growth through acquisitions in
1996 did not require the expense of significant additional
headquarters' staff nor overburden Sovran's district managers.
An Integrated Marketing Plan Keeps Focus on Growth. The
management information system not only serves operational needs,
it also provides invaluable marketing data. For example, the
system provides information on types of customers-commercial
or individual-and length of rental period. This data is used in
developing our annual marketing plan for each property. These
plans help identify heavily occupied properties where rental rate
increases may be appropriate, or trigger targeted marketing
initiatives for properties that have excess capacity. While the
past year has been remarkable for the growth Sovran has
experienced, we anticipate even more growth in the year ahead.
New Facilities; New Markets. Sovran's recently acquired $75
million capital facility should accommodate a continued expansion
in 1997.
- 31 -
Operating Margins. While we currently enjoy one of the highest
operating margins in the industry, we would expect to exceed our
current level of 73% in the coming year through continued upward
pressure on rent and aggressive collection practices.
Commercial Tenants. Although we presently have a high percentage
of commercial tenants compared to industry averages, we believe
we can increase that percentage with the special marketing
initiatives currently underway.
Acquisition Over Development. In the immediate future Sovran is
likely to favor acquisitions of existing properties over
development of new facilities. But, we have the expertise and
will capitalize on attractive opportunities to develop properties
from scratch when terms and conditions favor this approach.
And we expect, in the coming year, to expand several of our
existing properties by adding square footage and enhancements.
Our investors should know, however, that the strategy guiding all
our growth activity, now and in future years, will always be
"controlled growth."
We are pleased by the success of our efforts in our first full
public year and we are grateful for the talents and commitment of
our entire Sovran team. Clearly, the future is filled with
challenge. We think it is also filled with promise and
opportunity.
Robert J. Attea
Chairman of the Board and
Chief Executive Officer
Kenneth F. Myszka
President and
Chief Operating Officer
- 32 -
Distribution of Properties as of December 31, 1996
# of Square # of
Properties % Feet % Units %
Alabama 6 5.41% 319,925 5.49% 2,437 4.70%
Connecticut 3 2.70% 123,925 2.13% 992 1.91%
Florida 32 28.83% 1,942,445 33.36% 17,687 34.09%
Georgia 15 13.51% 744,012 12.78% 6,309 12.16%
Maryland 4 3.60% 173,669 2.98% 1,977 3.81%
Massachusetts 4 3.60% 157,854 2.71% 1,576 3.04%
Mississippi 2 1.80% 80,675 1.39% 652 1.26%
New York 8 7.21% 393,101 6.75% 3,427 6.60%
North Carolina 7 6.31% 343,601 5.90% 3,650 7.03%
Ohio 5 4.50% 268,280 4.61% 2,303 4.44%
Pennsylvania 6 5.41% 307,996 5.29% 2,648 5.10%
Rhode Island 1 0.90% 37,825 0.65% 397 0.76%
South Carolina 7 6.31% 345,833 5.94% 2,780 5.36%
Texas 5 4.50% 242,720 4.17% 1,870 3.60%
Virginia 6 5.41% 340,739 5.85% 3,184 6.14%
__________________________________________________________
Total 111 100% 5,822,600 100% 51,889 100%
- 33 -
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.
The following discussion is based on the financial statements of
the Company as of December 31, 1996, December 31, 1995, and for
the period from June 26, 1995 (commencement of operations) to
December 31, 1995 and the combined statements of Sovran Capital,
Inc. and the Sovran Partnerships (the predecessor to the Company)
as of December 31, 1994, and for the period from January 1, 1995
to June 25, 1995.
The combined financial statements of Sovran Capital, Inc. and
Sovran Partnerships combine the balance sheet data and results of
operations of the partnerships that previously owned the
properties and the management operations of Sovran Capital, Inc.,
all of which was contributed to the Company in the formation
transactions. Sovran Capital, Inc. and the Sovran Partnerships
are considered the predecessor entity to the Company, and the
combined financial statements are presented for comparative
purposes. The following discussion compares the activities of
the Company for the year ended December 31, 1996 with the year
ended December 31, 1995 and with the activities of Sovran
Capital, Inc. and the Sovran Partnerships for the year ended
December 31, 1994.
Results of Operations
Year Ended December 31, 1996 compared to Year Ended December 31,
1995
Rental revenues improved from $21,817,000 for the year ended
December 31, 1995 to $32,946,000 for the year ended December 31,
1996, an increase of $11,129,000, or 51%. Of this, $5,056,000
resulted from the acquisition of twenty-nine properties during
1996, $4,934,000 resulted from having the 1995 acquisitions
included for a full year of operations, and $1,139,000 resulted
from increased occupancy levels and rental rates. Interest and
other income remained virtually unchanged at approximately
$650,000.
Property operating and real estate tax expense increased
$2,963,000 or 48% during the period. Of this, $1,501,000 was
incurred by the facilities acquired in 1996, $1,367,000 resulted
from the having the 1995 acquisitions included for a full year of
operations, and $95,000 additional cost was incurred in the
operation of the sixty facilities owned by the Company since
January 1, 1995.
- 34 -
General and administrative expenses decreased $266,000 primarily
as a result of non-recurring legal, accounting and other
professional fees associated with the winding up of partnership
activities and the merger and formation transactions.
Interest expense of $1,924,000 in 1996 resulted exclusively from
borrowings on the Company's line of credit. The Company had
borrowings outstanding of $59,309,000 before paying off the
balance with the proceeds of a common stock offering in October
1996. Interest expense in 1995 was $3,399,000 or $1,475,000
higher than in 1996. This was primarily due to the fact that
until the Initial Offering in June 1995, the Predecessors had
incurred substantial mortgage debt as a means to finance its
acquisitions, and paid approximately $3,268,000 to carry that
debt through June 1995. Upon completion of the Initial
Offering, this mortgage debt was paid in full, and there was only
a line of credit borrowing of $5,000,000 outstanding at the end
of 1995.
Depreciation and amortization expense increased to $4,583,000
from $3,309,000, primarily as a result of the additional
depreciation taken on the $60 million of real estate assets
acquired in 1996.
Earnings before interest, taxes, depreciation and amortization
increased $8,403,000 or 61% in 1996 as a result of the
aforementioned items.
Year Ended December 31, 1995 compared to Year Ended December 31,
1994
Rental revenues improved from $18,091,000 for the year ended
December 31, 1994 to $21,817,000 for the year ended December 31,
1995, an increase of $3,726,000, or 21%. Of this, $2,290,000
resulted from the acquisition of twenty-two properties during
1995, $857,000 resulted from having the properties acquired
during 1994 included for a full year in the operating results,
and an additional $579,000 resulted from increased occupancy
levels and rental rates at sites owned for more than one year.
Interest and other income increased $218,000, primarily as a
result of investing the proceeds of the underwriter's over-
allotment option in the last two quarters of 1995.
Property operating and real estate tax expense increased $802,000
or 15% during the period. Of this, $910,000 was a result of
absorbing additional expenses from operating the newly acquired
properties, which was partially offset by a reduction in costs of
$108,000 in the operation of the Company's sites operated for
more than one year.
General and administrative expenses increased $246,000 primarily
as a result of non-recurring legal, accounting and other
professional fees associated with the winding up of partnership
activities and the merger and formation transactions.
Interest expense decreased $2,469,000, because on June 25, 1995,
all outstanding debt of Sovran Capital, Inc. and the Sovran
- 35 -
Partnerships was paid from the proceeds of the Initial Offering.
$5,000,000 was borrowed pursuant to the Company's line of credit,
and interest expense of $76,000 was incurred as a result of this
indebtedness. On July 25, 1995, the Company used a portion of
the exercised underwriter's over-allotment option to repay this
borrowing. Upon the purchase of additional properties, the
Company again borrowed funds, so that on December 31, 1995, the
Company had outstanding indebtedness of $5,000,000.
Earnings before interest, taxes, depreciation and amortization
increased from $10,867,000 to $13,763,000, an increase of
$2,896,000 or 27%.
Pro Forma Year Ended December 31, 1996 Compared to Pro Forma Year
Ended December 31, 1995
On a pro forma basis, assuming the Initial Offering and
subsequent common stock offering, the purchase of the twelve
Acquisition Properties and the thirty-seven additional acquired
properties all had occurred on January 1, 1995, the following
comparisons can be made. Rental revenue of $36,805,000 in 1996
was increased by 14% over 1995's revenues of $32,258,000,
primarily as a result of aggressive rate increases at the fifty-
one sites acquired in 1996 and 1995, and a 2% increase in overall
occupancy.
Operating expenses and real estate taxes in 1996 were $10,040,000
as compared to $9,232,000 in 1995, an increase of 8.8%. While
cost efficiencies were enjoyed regarding insurance and yellow
page advertising, these savings were offset by the Company's
paying higher wages to attract professional managers, and start-
up costs relating to the acquisition of the forty-nine
properties. Despite the increase in expenses, operating margins
improved from 71.4% to 72.8% in 1996.
General and administrative costs were determined by the Company's
historical costs incurred in the management of 111 properties,
and operating as a publicly owned REIT.
Interest expense in both years was determined by applying the
non-usage fee associated with the Company's $75 million credit
facility. The assumptions in both pro-forma years provided that
common shares were sold in a sufficient amount to fund the
acquisition of all properties used in the calculations without
issuance of debt.
Liquidity and Capital Resources
Capital Resources:
On June 25, 1995 the Company completed its Initial Offering of
common shares and received net proceeds of approximately
$135,000,000. Simultaneously with this transaction, the Company
borrowed $5,000,000 pursuant to a line of credit agreement. The
Company used the net proceeds from the Initial Offering for the
repayment of indebtedness, to purchase the Acquisition
Properties, payment of costs and fees associated with the
- 36 -
formation and payments to acquire interests owned by certain
limited partners in the Sovran Partnerships. In addition, a
portion of the net proceeds was allocated to working capital.
This was further allocated to certain costs associated with the
Initial Offering.
On July 20, 1995, the underwriters exercised their over-allotment
option granted in the Initial Offering, and the Company received
additional net proceeds of approximately $16,000,000. The
$5,000,000 initially borrowed was repaid, and the remaining
$11,000,000 was applied to property purchases in the fourth
quarter of 1995.
In October 1996, the Company issued and sold another 3,162,500
shares of common stock in a follow-on public offering, resulting
in net proceeds of approximately $77 million. These proceeds
were used to repay $60 million outstanding on the line of credit,
and the remaining cash was used to fund the purchase of self
storage facilities in the fourth quarter of 1996 and the first
quarter of 1997.
Establishment of Revolving Credit Facility:
In June 1995, the Company entered into an agreement with a
financial institution to establish a revolving credit facility
for up to $60 million, secured by real estate. At December 31,
1995, the Company had identified and pledged properties
sufficient to provide $45 million of such borrowings; at the
Company's option, and upon pledging additional properties, the
line could have been increased an additional $15 million.
Interest on outstanding balances was payable monthly at 260 basis
points above LIBOR. The commitment fee was $281,250, and the
term of the agreement was for two years.
In August 1996, the terms of the agreement were renegotiated as
follows: the rate was reduced to LIBOR plus 190 basis points,
the amount and collateral pledged was increased to $75 million,
and the agreement was extended through August 1998. An
additional commitment fee of $225,000 was paid.
Acquisition and Development Strategy
Since the Initial Offering, the Company used the balance of the
proceeds from the underwriter's over-allotment option, the
follow-on public offering and borrowings pursuant to the line of
credit to acquire properties from unaffiliated storage operators
in Virginia, Florida, Georgia, New York, Pennsylvania, Texas,
Alabama and Maryland. In 1995, following the Initial Offering,
the Company added 8 facilities and 550,000 square feet of storage
space to its portfolio. In 1996, 29 facilities comprising
1,490,000 square feet were added, resulting in a total of 111
facilities and 5,800,000 square feet of net rentable storage
space owned and operated by the Company.
The Company's external growth strategy is to increase the number
of facilities it owns by acquiring suitable facilities in markets
in which it already has operations, or to expand in new markets
- 37 -
by acquiring several facilities at once in those new markets. In
1995, this strategy was implemented in new markets by acquiring
multiple facilities in Tampa, Florida, Eastern Virginia,
Montgomery, Alabama and Harrisburg, Pennsylvania. The Company
increased its market presence in Atlanta, Georgia, Western New
York, and Pensacola, and Jacksonville, Florida.
In 1996 the Company expanded its presence in Florida, Alabama,
New York and Georgia, and entered new markets in Texas and
Virginia.
In January 1997, the Company made three major acquisitions
totaling $40 million. Nine properties were acquired in Cleveland
and Youngstown, Ohio, five properties were acquired in Northern
Michigan and three were purchased in San Antonio, Texas. This
was consistent with the Company's policy of expanding its
presence in existing markets, (Cleveland and Youngstown), and in
entering new markets when it can do so with "clustered" purchases
of three or more in one market area. (San Antonio - three were
added to the two acquired in March 1995, and five were acquired
simultaneously in Northern Michigan).
The Company will continue to aggressively pursue the acquisition
of quality self storage properties in markets where it already
operates, and in strategic new markets where a substantial
property base can be quickly established.
The Company also intends to expand and enhance certain of its
existing facilities by building additional storage buildings on
presently vacant land and by installing climate control and
enhanced security systems at selected sites.
REIT Qualification and Distribution Requirements:
As a REIT, the Company is not required to pay federal income tax
on income that it distributes to its shareholders, provided that
the amount distributed is equal to at least 95% of taxable
income. These distributions must be made in the year to which
they relate, or in the following year if declared before the
Company files its federal income tax return, and if it is paid
before the first regular dividend of the following year. The
first distribution of 1997 will be applied toward the Company's
1996 distribution requirement.
As a REIT, the Company must derive at least 95% of its total
gross income from income related to real property, interest and
dividends. In 1995, the Company's percentage of revenue from
such sources exceeded 97%, thereby passing the 95% test, and no
special measures are expected to be required to enable the
Company to maintain its REIT designation.
Inflation
The Company does not believe that inflation has had or will have
a direct effect on its operations. Substantially all of the
leases at the facilities allow for monthly rent increases, which
- 38 -
provide the Company with the opportunity to achieve increases in
rental income as each lease matures
Seasonality
The Company's revenues typically have been higher in the third
and forth quarter, primarily because the Company increases its
rental rates on most of its storage units at the beginning of
May, and to a lesser extent, 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, the Company believes that
its tenant 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, the Company does not expect seasonality to affect
materially distributions to shareholders.
- 39 -
SELECTED FINANCIAL DATA
______________________________________________________________________________________________________________
Predecessor (a) Company
______________________________________________________________________________________________________________
For For
Period Period At or for
from from Year
(dollars in thousands, except At or for Year Ended December 31, 1/1/95 to 6/26/95 to Ended
per share data) 1992 1993 1994 6/25/95 12/31/95 12/31/95
______________________________________________________________________________________________________________
Operating Data:
Operating revenues $11,376 $13,660 $18,530 $9,532 $12,942 $33,597
Earnings (Losses) (2,377) (825) 1,836 311 6,744 15,659
_______ _______ _______ ______ _______ _______
Net income per common share - - - - 0.91 1.88
Dividends declared per
common share - - - - 1.04 2.05
_______ _______ _______ ______ _______ _______
Balance Sheet Data:
Total Assets $61,485 $78,918 $82,733 $84,527 $160,437 $235,415
Total Liabilities $52,244 $64,096 $69,014 $71,311 $10,697 $8,131
_______ _______ _______ _______ ________ ________
(a) The Company was not formed until April 19, 1995, and has no historical results of operations.
All historical results of operations are those of Sovran Capital, Inc. and the Sovran Partnerships.
40
SOVRAN SELF STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
__________________
(dollars in thousands, except 1996 1995
share data) ____ ____
_____________________________
Assets
Investment in storage facilities:
Land $49,591 $36,640
Building and equipment 171,120 122,821
_______ _______
220,711 159,461
Less: accumulated depreciation (5,457) (1,497)
_______ _______
Investments in storage facilities, net 215,254 157,964
Cash and cash equivalents 16,687 732
Accounts receivable 482 297
Prepaid expenses and other assets 2,992 1,444
_______ _______
Total Assets $235,415 $160,437
======= =======
Liabilities
Line of credit $ - $5,000
Accounts payable and accrued liabilities 1,197 908
Deferred revenue 1,367 980
Accrued dividends 5,567 3,809
_______ ______
Total Liabilities $8,131 $10,697
Minority interest 3,655 -
Shareholders' Equity
Common stock $.01 par value, 100,000 shares
authorized, 10,706,671 shares issued and
outstanding (7,542,171 at December 31, 1995) 107 75
Preferred stock, 10,000,000 shares authorized,
none issued and out-standing, 250,000 shares
designated as Series A Junior Participating
Preferred Stock, $.01 par value - -
Additional paid-in capital 227,719 150,727
Unearned restricted stock (39) -
Dividends in excess of net income (4,158) (1,062)
_______ _______
Total shareholders' equity $223,629 $149,740
_______ _______
Total Liabilities and Shareholders' Equity $235,415 $160,437
======= =======
See notes to financial statements.
41
SOVRAN SELF STORAGE, INC. (THE COMPANY) AND
SOVRAN CAPITAL, INC. AND SOVRAN PARTNERSHIPS (THE
PREDECESSORS TO THE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENTS OF OPERATIONS OF THE PREDECESSORS
Company Predecessors
____________________________________________________________________________________
Year Ended June 26, 1995 to January 1, 1995 to Year Ended
(dollars in thousands, except per share data) December 31, 1996 December 31, 1995 June 25, 1995 December 31, 1994
_____________________________________________ _________________ _________________ __________________ _________________
Revenues:
Rental income $32,946 $12,557 $9,260 $18,091
Interest and other income 651 385 272 439
_______ _______ ______ _______
Total revenues 33,597 12,942 9,532 18,530
Expenses:
Property operations & maintenance 6,662 2,533 2,061 4,034
Real estate taxes 2,464 861 708 1,327
General and administrative 2,282 974 1,574 2,302
Interest 1,924 131 3,268 5,868
Depreciation and amortization 4,583 1,699 1,610 3,163
_______ _______ ______ _______
Total expenses 17,915 6,198 9,221 16,694
_______ _______ ______ _______
Net income before minority interest 15,682 6,744 311 1,836
Minority interest 23 - - -
_______ _______ ______ _______
Net Income $15,659 $6,744 $311 $1,836
======= ======= ====== =======
Earnings per share $1.88 $0.91
Common shares used in
earnings per-share calculation 8,328,954 7,429,872
Dividends declared per share $2.05 $1.04
_________ _________
See notes to financial statements.
42
SOVRAN CAPITAL, INC. AND SOVRAN PARTNERSHIPS (THE PREDECESSORS TO THE COMPANY)
COMBINED STATEMENTS OF OWNERS' EQUITY
Common Additional Accumulated Dividend
Stock Common Paid-in Owners Treasury in Excess of Total
(dollars in thousands) Shares Stock Capital Equity Stock Net Income Equity
______________________ ______ ______ __________ ____________ _________ ____________ ______
Balance January 1, 1994 400 - - $14,897 $(75) - $14,822
Cash distributions - - - (3,477) - - (3,477)
Capital contributions - - - 538 - 538
Net income - - - 1,836 - - 1,836
___ ______ ______ _______ _____ ______ _______
Balance December 31, 1994 400 - - $13,794 (75) - $13,719
Cash distributions - - - (1,779) - - (1,779)
Cash contributions - - - 965 - - 965
Net income - - - 311 - - 311
___ ______ ______ _______ _____ ______ _______
Balance June 25, 1995 400 $- $- $13,291 $(75) $- $13,216
=== ====== ====== ======= ===== ====== =======
43
SOVRAN SELF STORAGE, INC. (the COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Common Additional Unearned Dividend
Stock Common Paid in Restricted in Excess of Total
(dollars in thousands) Shares Stock Capital Stock Net Income Equity
______________________ ______ ______ __________ __________ ____________ ______
Balance June 26, 1995 - $- $- $- $- $-
Issuance of common stock - offering 5,890,000 59 124,273 - - 124,332
Issuance of common stock -
private placement 422,171 4 10,128 - - 10,132
Issuance of over-allotment shares 750,000 7 16,035 - - 16,042
Issuance of shares to principal
shareholders in exchange for their
interest in Sovran Capital, Inc. 480,000 5 291 - - 296
Net Income - - - - 6,744 6,744
Dividends - - - - (7,806) (7,806)
_________ ____ ________ ____ ________ ________
Balance December 31, 1995 7,542,171 $75 $150,727 $- $(1,062) $149,740
Issuance of common stock 3,162,500 32 76,941 - - 76,973
Issuance of restricted stock 2,000 - 51 (51) - -
Earned portion of restricted stock - - - 12 - 12
Net income - - - - 15,659 15,659
Dividends - - - - (18,755) (18,755)
__________ ____ ________ ____ _______ ________
Balance December 31, 1996 10,706,671 $107 $227,719 $(39) $(4,158) $223,629
========== ==== ======== ==== ======= ========
See notes to financial statements
44
SOVRAN SELF STORAGE, INC. (THE COMPANY) AND SOVRAN CAPITAL, INC. AND SOVRAN PARTNERSHIPS (THE
PREDECESSORS TO THE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSORS
Company Predecessors
____________________________________________________________________________________
Year Ended June 26, 1995 to January 1, 1995 to Year Ended
(dollars in thousands) December 31, 1996 December 31, 1995 June 25, 1995 December 31, 1994
Operating Activities
Net income $15,659 $6,744 $311 $1,836
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,583 1,699 1,610 3,163
Minority interest 23
Restricted stock earned 12
Changes in assets and liabilities:
Accounts receivable (145) (40) (46) 84
Prepaid expenses and other assets (182) 37 (849) (36)
Accounts payable and other liabilities 157 (1,225) 891 339
Deferred revenue 45 (27) 86 42
_______ _________ _______ _______
Net cash provided by operating activities $20,152 $7,188 $2,003 $5,428
_______ _________ _______ _______
Investing Activities
Additions to storage facilities (57,160) (156,780) (3,478) (9,151)
Additions to other assets (1,986) (1,185) - -
Restricted cash - - 138 2,542
_______ _________ _______ _______
Net cash used in investing activities $(59,146) $(157,965) $(3,340) $(6,609)
_______ _________ _______ _______
Financing Activities
Net proceeds from sale of common stock 76,973 150,506 - -
(Prepayments on) proceeds from line of
credit draw down (5,000) 5,000 - -
45
Dividends paid (16,997) (3,997) - -
Minority interest distributions (27) - - -
Proceeds from issuance of mortgages - - 2,821 5,511
Mortgage principal payments - - (1,500) (1,542)
Capital contributions - - 965 538
Cash distributions - - (1,779) (3,477)
_______ _________ _________ ______
Net cash provided by financing activities $54,949 $151,509 $507 $1,030
_______ _________ _________ ______
Net increase (decrease) in cash 15,955 732 (830) (151)
Cash at beginning of period 732 - 1,045 1,196
_______ _________ _________ ______
Cash at end of period $16,687 $732 $215 $1,045
_______ _________ _________ ______
Supplemental cash flow information
Cash paid for interest $1,842 $234 $3,268 $5,869
See notes to financial statements
46
SOVRAN SELF STORAGE, INC. (THE COMPANY) AND SOVRAN CAPITAL, INC.
AND SOVRAN PARTNERSHIPS (THE PREDECESSORS TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSORS
Supplemental cash-flow information for the year ended December 31, 1996
(dollars in thousands)
____________________________________________________________________
Storage facilities acquired through the issuance of
minority interest in the operating partnership $ 3,659
Fair value of net liabilities assumed on the
acquisition of storage facilities 434
____________________________________________________________________
Dividends declared but unpaid were $5,567 at December 31, 1996 and
$3,809 at December 31, 1995.
Supplemental cash-flow information for the period from June 26, 1995
to December 31, 1995
(dollars in thousands)
____________________________________________________________________
Cash paid for partnership interest $ 42,865
Cash paid for acquisition properties 45,121
Cash paid to retire partnership mortgages 67,602
Prepayment penalties and closing costs 860
Cash paid for building improvements 332
___________________________________________________________________
Cash paid for storage facilities per statement of
cash flows $156,780
Fair value of net liabilities assumed of the
partnerships and Sovran Capital, Inc. 2,681
___________________________________________________________________
Investment in storage facilities per financial statements $159,461
___________________________________________________________________
Supplemental cash-flow information for the year ended December 31, 1994 and
the period ended June 25, 1995 (in thousands):
The balance for proceeds from the issuance of mortgages and the cash used
for additions to storage facilities do not include sellers' mortgage
obligations assumed by the Sovran partnerships as part of the acquisitions
of storage facilities, which totaled $3,408 for the year ended December 31,
1994. Mortgage obligations assumed by the Sovran partnerships from
January 1, 1995 to June 25, 1995, totaled $2,100.
Sovran Partnerships entered into a property-swap transaction during 1994,
which resulted in the exchange of the properties and their related
mortgages payable, as well as the elimination of all the accrued and
capitalized costs on the properties exchanged. This transaction was
accounted for as an exchange under APB 29; accordingly the resultant
economic gain was not recognized. This transaction resulted in a non-cash
decrease in the following accounts at December 31, 1994:
Prepaid expenses and other assets $ 400
Accrued property tax $ 253
Investments in storage facilities $ 2,440
Mortgage payable $ 2,587
See notes to financial statements.
47
Notes to Consolidated Financial Statements
Sovran Self Storage, Inc.
December 31, 1996
1. Organization
Sovran Self Storage, Inc. (the "Company"), 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 of 5,890,000 shares (the Offering). The
Offering price per share was $23.00, resulting in net proceeds to
the Company, after underwriting discount and other expenses, of
$124.3 million. On July 25, 1995, the underwriters exercised
their over-allotment option granted in connection with the
Company's initial public offering and purchased 750,000 shares of
the Company's common stock at $23.00 per share, resulting in net
proceeds to the Company of approximately $16 million.
Additionally, the Company received $10.1 million in proceeds from
a private placement of 422,171 shares of its common stock.
Contemporaneously with the closing of the Offering, Sovran Self
Storage, Inc. acquired, in a transaction accounted for as a
purchase, 62 self-storage facilities (the Original Properties)
which had been owned and managed by Sovran Capital, Inc. and the
Sovran Partnerships (Predecessors to the company). Purchase
accounting was applied to the acquisition of the Original
Properties to the extent cash was paid to purchase 100% of the
limited-partnership interests in the Sovran Partnerships, prepay
outstanding mortgages at the time of acquisition and for related
transaction costs. Additionally, the Company acquired on that
date 12 self storage properties (the Acquisition Properties) from
unaffiliated third parties. The Company has since purchased a
total of 37 (29 in 1996 and 8 in 1995) self storage properties
from unaffiliated third parties, increasing the total number of
self storage properties owned at December 31, 1996 to 111
properties, most of which are in the eastern United States.
On October 1, 1996, the Company completed a public offering of
2,750,000 common shares at $26.00 per share. On October 8, 1996,
the over allotment of the public offering of 412,500 common
shares was exercised at $26.00 per share. Net of underwriting
discounts and offering costs, the Company received approximately
$77 million in proceeds from this offering. The net proceeds
have been used to repay indebtedness under the line of credit,
which was incurred in property acquisitions, and to acquire
additional self storage facilities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company was formed on April 19, 1995, and commenced
operations effective with the completion of the Offering on
June 25, 1995. Accordingly, the Company's results of operations
are presented from June 26, 1995, the date following the
completion of the Offering and the establishment of REIT status,
through December 31, 1996.
48
All of the Company's assets are owned by and all its operations
are conducted through, Sovran Acquisition Limited Partnership
(the Partnership). Sovran Holdings, Inc., a wholly-owned
subsidiary of the Company (the Subsidiary), is the sole general
partner; and the Company is a limited partner of the Partnership,
and thereby control the operations of the Operating Partnership
holding a 97.61% ownership interest therein as of December 31,
1996. The remaining ownership interests in the Operating
Partnership (the "Units") are held by certain former owners of
assets acquired by the Partnership subsequent to the Offerings.
The consolidated financial statements of the Company include the
accounts of the Company, the Partnership, and the wholly-owned
Subsidiary. All intercompany transactions and balances have been
eliminated.
The combined statements of operations for the period ended
June 25, 1995 and the year ended December 31, 1994 reflect the
assets, liabilities and results of operations of the Sovran
Capital, Inc. and the Sovran Partnerships (the Predecessors).
Such financial statements have been presented on a combined
basis, because the entities were the subject of the business
combination described in Note 1. All intercompany transactions
and balances have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with maturity of three months or less to be cash
equivalents.
Revenue Recognition
Rental income is recorded when earned. Rental income received
prior to the start of the rental period is included in deferred
revenue.
Interest and Other Income
Other income consists primarily of interest income, sales of
storage-related merchandise (locks and packing supplies) and
commissions from truck rentals.
Investment in Storage Facilities
Storage facilities are recorded at cost. 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 which extend the
useful life of assets are capitalized. Repair and maintenance
costs are expensed as incurred.
Long-Lived Assets
In March 1995, the FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", which requires impairment losses to be recorded
on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The
49
Company adopted Statement 121 in the first quarter of 1996 and
the effect of adoption was not material.
Prepaid Expenses and Other Assets
Included in prepaid expenses and other assets are prepaid
expenses and intangible assets. The intangible assets at
December 31, 1996, consist primarily of loan acquisition costs of
approximately $961, net of accumulated amortization of
approximately $194; organizational costs of approximately $46,
net of accumulated amortization of approximately $17; and
covenants not to compete of $630, net of accumulated amortization
of $145. Loan acquisition costs are amortized over the terms of
the related debt; organization costs are amortized over 5 years;
and the covenants are amortized over the contract periods.
Amortization expense was $620 and $202 for the periods ended
December 31, 1996 and 1995, respectively.
Income Per Share
Net income per share is calculated using the weighted average
number of shares outstanding during the period. In 1996, the
impact of outstanding stock options is not materially dilutive.
Minority Interest
The minority interest reflects the outside ownership interest of
the limited partners of the Partnership. Amounts allocated to
these interest are reflected as an expense in the income
statement and increases the Company's liability. Distributions
to these partners reduce this liability. At December 31, 1996,
minority interest ownership was 139,930 partnership units or
1.29%.
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 95%
of its taxable income to its shareholders and complies with
certain other requirements. Accordingly, no provision has been
made for income taxes in the accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with
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. Investment in Storage Facilities
The following summarizes activity in storage facilities during
the year ended December 31, 1996 and the period from June 26,
1995, to December 31, 1995 (in thousands):
50
(dollars in thousands) 1996 1995
_________________________________________________________________
Cost:
Beginning balance $159,461 $ -
Sovran Capital, Inc. & Sovran Partnership
62 original facilities - 114,008
Acquisition properties - 25,603
Property acquisitions 58,626 19,518
Improvements and equipment additions 2,640 332
Dispositions (16) -
_________________________________________________________________
Ending balance $220,711 $159,461
_________________________________________________________________
Accumulated Depreciation:
Beginning balance $ 1,497 $ -
Additions during the year 3,964 1,497
Dispositions (4) -
_________________________________________________________________
Ending balance $ 5,457 $ 1,497
_________________________________________________________________
4. Line of Credit
The Company maintains a $75 million revolving-credit facility
secured by specific storage facilities with a net carrying value
of $143 million. At December 31, 1996, the Company had
identified and pledged properties sufficient to provide $75
million of such borrowings. Interest on outstanding balances is
payable monthly at 190 basis points above LIBOR. The commitment
fee was $225,000 and there is a facility fee attached to the line
at the following rates: i) .25% if the unused commitment (UC) is
less than $30 million, or ii) .375% if UC is greater than $30
million. At December 31, 1996, the Company was at the .375%
rate.
The loan agreement related to the line of credit provides for
certain restrictive covenants based on net worth and cash flow.
At December 31, 1996, the Company had no balance outstanding ($5
million at December 31, 1995) on the line of credit.
5. Pro Forma Financial Information (Unaudited)
The unaudited pro forma condensed statement of operations for the
year ended December 31, 1995 is presented as if the 1996 Offering
and the purchase of 12 acquisition properties and the subsequent
purchase, in 1995 and 1996, of 37 additional storage facilities
occurred at the beginning of 1995. The unaudited pro forma
condensed statement of operations for the year ended December 31,
1996 is presented as if the 1996 offering and the acquisition, in
1996, of 29 storage facilities occurred at the beginning of 1996.
Such unaudited pro forma information is based upon the historical
combined statements of operations of the Company and the
predecessors. It should be read in conjunction with the
financial statements of the Company and the predecessors and
notes thereto. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been
made. This unaudited pro forma statement does not purport to
51
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 per Year Ended December 31,
share data) 1996 1995
________________________________ ____ ____
Revenues:
Rental income $ 36,805 $ 32,258
Interest and other income 668 672
_____________________________________________________________
Total revenues 37,473 32,930
Expenses:
Property operations & maintenance 7,396 6,840
Real estate taxes 2,644 2,392
General and administrative 2,300 2,300
Interest 281 281
Depreciation and amortization 5,116 5,116
_____________________________________________________________
Total Expenses 17,737 16,929
_____________________________________________________________
Income before minority interest 19,736 16,001
Minority interest (255) (206)
_____________________________________________________________
Net income $ 19,481 $ 15,795
_____________________________________________________________
Earnings per share $ 1.82 $ 1.48
_____________________________________________________________
Common shares used in earnings
per share calculation 10,706,671 10,706,671
_____________________________________________________________
6. Stock Options
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", which is effective for
the Company's 1996 fiscal year. The statement encourages but
does not require financial reporting to reflect compensation
expense for grants of stock, stock options and other equity
instruments to employees based on the fair value of the
underlying stock. The Company intends to continue using the
measurement prescribed by APB Opinion No. 25 which does not
recognize compensation expense because the exercise price of the
stock options equals the market price of the underlying stock on
the date of grant. SFAS 123 requires companies that choose not
to adopt the new fair value accounting rules to disclose proforma
net income and earnings per share under the new method. If the
accounting provisions of the new statement had been adopted as of
the beginning of 1995, the net effect on 1995 and 1996 earnings
would have been immaterial. Depending on the future use of stock
options, the impact of the accounting provisions in future years
may become material and would be disclosed at that time.
52
The Company has established the 1995 Award and Option Plan (the
Plan) for the purpose of attracting and retaining the Company's
executive officers and other employees. The options vest ratably
over four years, and must be exercised within 10 years from the
date of grant. The exercise price for qualified incentive must
be at least equal to the fair market value at the date of grant.
As of December 31, 1996, options for 276,000 shares had been
granted under the Plan. The total options available under the
plan is 400,000.
The Company also established the 1995 Outside Directors' Stock
Option Plan (the Nonemployee Plan) for the purpose of attracting
and retaining the services of experienced and knowledgeable
outside directors. The Nonemployee Plan provides for the annual
granting of options to purchase 2,500 shares of common stock to
each eligible director. Such options vest over a one year period
for initial awards and immediately upon subsequent issuances.
The total shares reserved under the Nonemployee Plan is 50,000.
The exercise price for options granted under the Nonemployee Plan
is equal to fair market value at date of grant. As of December
31, 1996, options for 17,500 shares had been granted under the
Nonemployee Plan.
The Company has also issued 2,000 shares of restricted stock to
employees which vests over a four year period. The fair value of
the restricted stock on the date of grant was $25.38.
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
1996 1995
____________________________________________________
Weighted average Weighted average
Options exercise price Options exercise price
____________________________________________________
Outstanding at
beginning of year 268,000 $23.00 - -
Granted 28,000 25.92 274,000 $23.00
Forfeited (2,500) 23.00 (6,000) 23.00
_______ _______ _______ ______
Outstanding at
end of year 293,500 $23.97 268,000 $23.00
======= ====== ======= ======
Exercisable at end
of year 82,000 $23.48 - -
Exercise prices for options outstanding as of December 31, 1996
ranged from $23.00 to $27.00. The weighted average remaining
contractual life of those options is 8.6 years.
7. Shareholder Rights Plan
In November 1996, the Company adopted a Shareholder Rights Plan
and declared a dividend distribution of one Right for each
outstanding share of common stock. Under certain conditions,
each Right may be exercised to purchase one one-thousandth of a
share of Series A Junior Participating Preferred Stock at a
53
purchase price of $75, subject to adjustment. The Rights will be
exercisable only if a person or group has acquired 10% or more of
the outstanding shares of common stock, or following the
commencement of a tender or exchange offer for 10% or more of
such outstanding shares of common stock. If a person or group
acquires more than 10% of the then outstanding shares of common
stock, each Right will entitle its holder to receive, upon
exercise, common stock having a value equal to two times the
exercise price of the Right. In addition, if the Company is
acquired in a merger or other business combination transaction,
each Right will entitle its holder to purchase that number of the
acquiring Company's common shares having a market value of twice
the Right's exercise price. The Company will be entitled to
redeem the Rights at $.01 per Right at any time prior to the
earlier of the expiration of the Rights in November 2006 or the
time that a person has acquired a 10% position. The Rights do
not have voting or dividend rights, and until they become
exercisable, have no dilutive effect on the Company's earnings.
8. Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock,
of which 250,000 shares have been designated as Series A Junior
Participating Cumulative Preferred Stock with a $.01 par value.
Upon issuance, the Series A Junior Preferred Stock will have
certain voting, dividend and liquidation preferences over common
stock, as described in the Form 8-K filed December 3, 1996.
9. Supplementary Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for
the fiscal quarters since the consummation of the offering on
June 26, 1995:
1996 Quarter Ended
__________________
(dollars in thousands except
per share data) March 31 June 30 September 30 December 31
____________________________ ________ _______ ____________ ___________
Revenues $6,944 $ 7,960 $9,034 $9,659
Net income $3,152 $ 3,610 $3,644 $5,253
Per common share (Note 2):
Net income $ 0.42 $ 0.48 $ 0.48 $ 0.50
______ _______ ______ ______
1995 Quarter Ended
(dollars in thousands except __________________
per share data) June 30* September 30 December 31
____________________________ _______ ____________ ___________
Revenues $ 352 $6,343 $6,247
Net income $ 164 $3,213 $3,367
Per common share (Note 2):
Net income $ 0.02 $ 0.44 $ 0.45
_______ ______ ______
(*) Includes results for the period June 26, 1995 (Formation) to June 30,
1995.
54
10. 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 which individually or in the aggregate
would be material to the Company's overall business, financial
condition, or results of operations.
As of December 31, 1996, the Company had entered into contracts
for the purchase of 17 facilities. These facilities were
acquired in January, 1997 for a total cost of $40.6 million.
55
Report of Independent Auditors
The Board of Directors and Shareholders
Sovran Self Storage, Inc.
We have audited the accompanying consolidated balance sheets of
Sovran Self Storage, Inc. as of December 31, 1996 and 1995 and
the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1996 and
the period from June 26, 1995 to December 31, 1995. We have also
audited the combined statements of operations, owners' equity and
cash flows of Sovran Capital, Inc. and Sovran Partnerships for
the period from January 1, 1995 to June 25, 1995 and for the year
ended December 31, 1994. These financial statements are the
responsibility of the management of Sovran Self Storage, Inc.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Sovran Self Storage, Inc. as of December
31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for the year ended December 31, 1996 and the
period from June 26, 1995 through December 31, 1995, and the
combined results of operations and cash flows of Sovran Capital,
Inc. and Sovran Partnerships from January 1, 1995, to June 25,
1995, and for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
Ernst & Young, LLP
Buffalo, New York
February 6, 1997
56
Corporate Officers and Directors
_________________________________________________________________
Officers Directors
Robert J. Attea (Also Director) Charles E. Lannon
Chairman of the Board and President
Chief Executive Officer Strategic Capital, LLC
Kenneth F. Myszka (also Director) John Burns, CPA
President and President
Chief Operating Officer Sterling Ltd., Co.
David L. Rogers Michael A. Elia
Chief Financial Officer President and
Chief Executive Officer
Sevenson Environmental
Services, Inc.
Anthony Gammie
Retired Chairman of the
Board
Bowater Incorporated
Shareholder Information
_________________________________________________________________
Corporate Headquarters
5166 Main Street
Williamsville, New York 14221
(716) 633-1850
Registrar and Transfer Agent
American Stock Transfer & Trust
Company
40 Wall Street
New York, New York 10005
(718) 921-8200
Annual Meeting
May 13, 1997
1285 Avenue of the Americas
New York, NY
10:00 a.m. (E.D.T.)
Sovran's Web Site
Look for Sovran's web site in
the second quarter of 1997.
Form 10-K Report
A copy of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1996 filed with
the Securities and Exchange Commission,
will be furnished to shareholders
without charge upon written request.
Please contact Joan M. Light,
(716) 633-1850.
57
Investor Relations
For more information or to receive
Sovran's quarterly reports, please
contact Christine M. Aguglia
(716) 633-1850.
Independent Auditors
Ernst & Young, LLP
1400 Key Tower, 50 Fountain Plaza
Buffalo, New York 14202
(716) 843-5000
Stock Information
Exchange: New York Stock Exchange
Listing Symbol: SSS
Average Daily Trading Volume: 30,583 shares
The following table sets forth the high and
low sales price of the Common Stock on the
New York Stock Exchange composite tapes for
the period from June 26, 1996 (Formation),
to December 31, 1996.
Range
Quarter High Low
_______ ____ ___
1996 lst 27.5 25
2nd 27.125 24.625
3rd 27 24.625
4th 31.25 25.625
As of December 31, 1996, there were
approximately 370 holders of record of
the common stock
58
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
59
Consent of Independent Auditors
Board of Directors
Sovran Self Storage, Inc.
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Sovran Self Storage, Inc. of our report
dated February 6, 1997, included in the 1996 Annual Report to
Shareholders of Sovran Self Storage, Inc.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 333-21679) pertaining to the
1995 Award and Option Plan and the 1995 Directors' Stock Option
Plan of Sovran Self Storage, Inc. of our reports dated
February 6, 1997, with respect to the consolidated financial
statements and schedule of Sovran Self Storage, Inc. incorporated
by reference or included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
We also consent to the incorporation by reference in the
Registration Statement (Form S-3 No. 333-08883) of Sovran Self
Storage, Inc. and in the related Prospectus of our reports dated
February 6, 1997, with respect to the consolidated financial
statements and schedule of Sovran Self Storage, Inc. incorporated
by reference or included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
ERNST & YOUNG LLP
Buffalo, New York
March 25, 1997
60