<PAGE>

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

For the fiscal year ended December 31, 2002

Commission File Number: 1-13820

Sovran Self Storage, Inc.
(Exact name of Registrant as specified in its charter)

                Maryland                  
(State or other jurisdiction of
incorporation or organization)

         16-1194043          
(I.R.S. Employer
Identification No.)

 

               6467 Main Street
               Buffalo, NY 14221
(Address of principal executive offices)
                     (Zip code)

                 (716) 633-1850

 


(Registrant's telephone number including area code)


Securities registered pursuant to Section 12(b) of the Act:

Title of Securities
Common Stock, $.01 Par Value

9.85% Series B Cumulative
Redeemable Preferred Stock,
$.01 Par Value

Exchanges on which Registered
New York Stock Exchange

New York Stock Exchange


   Securities registered pursuant to section 12(g) of the Act:
                               None

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          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. [X]

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the exchange Act).

Yes  [ X ]     No  [   ]

          As of June 30, 2002, 12,844,934 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 $417,992,897 (based on the closing price of the Common Stock on the New York Stock Exchange on June 30, 2002).

          As of March 14, 2003, 12,838,013 shares of Common Stock, $.01 par value per share, were outstanding.

Exhibit Index is on Pages 51-53

 

DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the Proxy Statement for Annual Meeting of Shareholders of the Company to be held on May 15, 2003 (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 ("REIT") that acquires, owns and manages self-storage properties. (The self-storage properties owned and/or managed by the Company are hereinafter referred to collectively as the "Properties" and individually as a "Property"). The Company began operations on June 26, 1995. At March 15, 2003, the Company owned and/or managed 264 Properties consisting of approximately 15.3 million net rentable square feet, situated in 21 states. Eleven of the Properties are managed under an agreement with an unconsolidated joint venture that is 45% owned by the Company. As of December 31, 2002, the Properties have a weighted average occupancy rate of 84% and a weighted average annual rent per occupied square foot of $8.61. The Company is the 5th largest operator of self-storage properties in the United States based on facilities owned and/or managed.

          The Company seeks to increase cash flow and enhance shareholder value through aggressive management of the Properties and selective acquisitions of new self-storage properties. Aggressive property management entails increasing rents, increasing occupancy levels, strictly controlling costs, maximizing collections, strategically expanding and improving the Properties and, should economic conditions warrant, developing new properties. The Company believes that there continues to be opportunities for growth through acquisitions, and constantly seeks to acquire self-storage properties that are susceptible to realization of increased economies of scale and enhanced performance through application of the Company's management expertise.

          The Company was formed to continue the business of its predecessor company, which had engaged in the self-storage business since 1985. The Company owns an indirect interest in each of the Properties through a limited partnership (the "Partnership") of which the Company holds in total a 95.90% economic interest and unaffiliated third parties own collectively a 4.10% limited partnership interest at December 31, 2002. The Company believes that this structure, commonly known as an umbrella partnership real estate investment trust ("UPREIT"), facilitates the Company's ability to acquire properties by using units of the Partnership as currency.

          The Company was incorporated on April 19, 1995 under Maryland law. The Company's principal executive offices are located at 6467 Main Street, Buffalo, New York 14221, and its telephone number is (716) 633-1850.

Industry Overview

          The Company believes that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed and secure storage space, some operators, including the Company, also offer outside storage for automobiles, recreational vehicles and boats. The storage sites are usually fenced and well lighted with gates that are either manually operated or automated. All facilities have a full-time manager/leasing agent. Customers have access to their storage area during business hours and in certain circumstances are provided with 24-hour access. Individual storage units are secured by the customer's lock, which may be purchased from the Company, and the customer has control of access to the unit.

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          The Company believes that the self-storage industry is characterized by a trend toward consolidation and a relatively slow growth in supply. The rate of demand growth, while still positive, slowed in 2002, primarily as a result of slower overall economic conditions. This, combined with rate reductions and discounts offered by much of the competition, has resulted in minimal revenue growth. Spring and summer of 2002 showed negligible improvement in revenue compared to the same periods at the same stores in 2001, while the fourth quarter showed a 3% increase.

          The Company has made a significant investment in technology in the past year, primarily in its call center. This investment has enabled the Company to centralize its sales and marketing efforts and to spot leasing trends and opportunities in a more efficient and responsive manner. The Company expects to gain market share and improve the yield realized on its rental spaces as a result of this call center management system.

          According to published data, of the approximately 35,000 facilities in the United States, less than 13% are managed by the ten largest operators. The remainder of the industry is characterized by numerous small, local operators. The shortage of skilled operators, the scarcity of equity capital available to small operators for acquisitions and expansions and the potential for savings through economies of scale are factors that are leading to a consolidation in the industry. The Company believes that, as a result of this trend, significant growth opportunities exist for operators with proven management systems and sufficient capital resources.

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 the following:

-

Recruiting, training and retaining capable, aggressive on-site property managers;

-

Motivating property managers by providing incentive-based compensation;

-

Developing and maintaining an integrated marketing plan for each Property; and

-

Performing regular preventative maintenance to avoid significant repair obligations.

          Property managers attend a thorough orientation program and undergo continuous training that emphasizes 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 Regional Team Leaders 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.

          The Company annually develops a written marketing plan for each of its Properties that is highly dependent upon local conditions. The focus of each marketing plan is, in part, determined by occupancy rates. If all storage units of the same size at a Property are at or near 90% occupancy, then the plan will generally

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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 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" competing facilities.

          The Company's customized computer system performs billing, collections and reservation functions for each Property, and also tracks information used in developing marketing plans based on occupancy levels, and tenant demographics and histories. The system generates daily, weekly and monthly financial reports for each Property that are transmitted to the Company's principal office each night. The system also requires a property manager to input a descriptive 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 principal office to promptly review all such transactions. Late charges are automatically imposed. More sensitive activities, such as rental rate changes and unit size or number changes, are completed only by Regional Team Leaders. The Company's customized management information system permits it to add new facilities to its portfolio with minimal additional overhead expense.

Marketing Initiatives

          Responding to the increased customer demand for services, the Company has initiated several programs expected to increase occupancy and profitability. These programs include:

-

A Customer Care Center (call center) that services new and existing customers' inquiries and facilitates the capture of sales leads that were previously lost;

-

Internet marketing, providing information about all of the Company's stores via numerous portals and e-mail;

-

Dri-guard, providing humidity-controlled spaces. Through an exclusive agreement, the Company became the first self-storage operator to utilize this humidity protection technology. These environmental control systems are a premium storage feature intended to protect metal, electronics, furniture, fabrics and paper from moisture;

-

Uncle Bob's Trucks, provide customers with convenient, affordable access to vehicles to help move their goods, while serving as moving billboards to help advertise our storage facilities; and

-

Flex-a-Space, an innovative construction design that allows the Company to easily reconfigure walls by using a track and roller mechanism, enabling customized storage space to fit the individual needs of the customer.

Environmental and Other Regulations

          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

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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 substantial compliance with all such regulations.

Insurance

          Each of the Properties is covered by fire, property insurance, including comprehensive liability, all-risk property insurance policies, which are provided by reputable companies and on commercially reasonable terms. In addition, the Company maintains a policy insuring against environmental liabilities resulting from tenant storage on terms customary for the industry, and title insurance insuring fee title to the Company-owned Properties in an aggregate amount believed to be adequate.

Federal Income Tax

          The Company has operated, and intends to continue to operate, in such a manner as to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the Code), but no assurance can be given that it will at all times so qualify. To the extent that the Company continues to qualify as a REIT, it will not be taxed, with certain limited exceptions, on the taxable income that is distributed to its shareholders. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - REIT Qualification and Distribution Requirements."

Competition

          The primary factors upon which competition in the self-storage industry is based are location, 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 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, and Storage USA, Inc., 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.

 

 

 

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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 in a manner 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. Should investment opportunities become available, the Company may look to acquire self-storage properties via a joint-venture partnership or similar entity. The Company may or may not have a significant investment in such a venture, but would use such an opportunity to expand its portfolio of branded and managed properties.

          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. 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.

          As part of an asset management program, the Company has begun to "spin-off" non-core, slow-growth properties, into joint ventures. In cases where the Company has a less than 50% controlling interest in a joint venture, the Properties of that joint venture are removed from the Company's balance sheet and an investment in the joint venture is recorded. The Company records only its percentage share of the operating results of unconsolidated joint ventures. These ventures may allow the Company to (i) increase incremental revenues through management fees, (ii) provide strong returns on its equity in the joint venture, and (iii) increase liquidity to allow redeployment of equity to repay debt, acquire stock, or buy higher growth properties. In 2000, the Company sold seven facilities for approximately $20 million to an unconsolidated joint venture in which the Company retained a 45% interest. In cases where the Company is deemed to have a greater than 50% controlling interest, the joint venture is consolidated with the Company's financial statements and a minority interest is recorded on the balance sheet and statement of operations for the portion of the joint venture not owned by the Company.

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

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distributions to shareholders of at least 90% 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 and Preferred Stock plus the Company's debt (Market Capitalization). The Company, however, 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.

In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year note bears interest at 7.19%. The Company also repaid a $30 million 1 year term note that matured in 2002.

          To the extent that the Company desires to obtain additional capital to pay distributions, to provide working capital, to pay existing indebtedness or to finance acquisitions, expansions or development of new properties, the Company may utilize preferred stock 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. For additional information regarding borrowings, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and Note 5 to the Consolidated Financial Statements filed herewith.

Employees

          The Company currently employs a total of 727 employees, including 264 Property Managers, 16 Regional Team Leaders, and 355 assistant managers and part-time employees. At the Company's headquarters, in addition to its 3 executive officers, the Company employs 89 people engaged in various support activities, such as accounting, customer care, 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.

 

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Available Information

          The Company files with the U.S. Securities and Exchange Commission quarterly and annual reports on Forms 10-Q and 10-K, respectively, current reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The public may read and copy any materials that the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. The Company files this information with the SEC electronically, and the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company also maintains a web site at http://www.sovranss.com.

Item 2.

Properties

          At December 31, 2002, the Company owned and/or managed a total of 264 Properties situated in twenty-one states in the Eastern and Midwestern United States, Arizona and Texas. Eleven of the Properties are managed under an agreement with an unconsolidated joint venture that is 45% owned by the Company.

          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 with computerized gates and are well lighted. All but thirty-five 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. 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.

          All but a few 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 of the Properties to the "Uncle Bob's" trade name.

 

 

 

 

 

 

 

 

 

 

 

 

 

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                    The table below provides certain information regarding the Properties included in the Company's consolidated financial statements:




Location



Year
Built




Sq. Ft.

Uncle
Bob's
Trade
Name

State
Occupancy
at
12/31/02




Acres




Units




Bldgs.




Floors



Mgr.
Apt.




Construction

  Alabama

     

83%

           

Birmingham I

1990

  36,775

Y

 

  2.7

   288

   9

    1

Y

Masonry/Steel Roof

Birmingham II

1990

  52,225

Y

 

  4.7

   391

   8

    1

Y

Masonry/Steel Roof

Montgomery I

1982

  74,004

Y

 

  5.0

   613

  16

    1

Y

Masonry/Steel Roof

Birmingham III

1970

  72,290

Y

 

  4.3

   402

   6

    1

N

Masonry/Steel Roof

Montgomery II

1984

  42,146

Y

 

  2.7

   294

  10

    1

N

Masonry/Steel Roof

Montgomery III

1988

  41,610

Y

 

  2.4

   380

   9

    1

Y

Steel Bldg./Steel Roof

Birmingham-Walt

1984

  64,580

Y

 

  3.3

   293

   6

    1

Y

Masonry Wall/Metal Roof

Birmingham-Bessemer

1998

  44,070

Y

 

  5.6

   345

   8

    1

N

Metal Wall/Metal Roof

  Arizona

     

80%

           

Gilbert-Elliot Rd.

1995

  66,855

Y

 

  3.3

   680

   8

    1

Y

Masonry Wall/Metal Roof

Glendale-59th Ave.

1997

  67,126

Y

 

  4.6

   633

   7

    1

Y

Masonry Wall/Metal Roof

Mesa-Baseline

1986

  39,100

Y

 

  1.8

   390

  11

    1

Y

Masonry Wall/Metal Roof

Mesa-E. Broadway

1986

  38,825

Y

 

  1.8

   369

   5

    1

Y

Masonry Wall/Metal Roof

Mesa-W. Broadway

1976

  36,625

Y

 

  1.9

   385

   5

    1

Y

Masonry Wall/Metal Roof

Mesa-Greenfield

1986

  48,359

Y

 

  2.1

   431

   8

    1

N

Masonry Wall/Metal Roof

Phoenix-Camelback

1984

  43,605

Y

 

  2.0

   532

   7

    1

Y

Masonry Wall/Metal Roof

Phoenix-Bell

1984

  96,580

Y

 

  4.6

   917

   7

    1

Y

Metal Wall/Metal Roof

Phoenix-35th Ave.

1996

  70,985

Y

 

  4.3

   695

   8

    1

Y

Masonry Wall/Metal Roof

  Connecticut

     

78%

           

New Haven

1985

  47,680

Y

 

  3.9

   392

   5

    1

N

Masonry Wall/Steel Roof

Hartford-Metro I

1988

  56,570

Y

 

10.0

   354

  10

    1

N

Steel Bldg./Steel Roof

Hartford-Metro II

1992

  39,190

Y

 

  6.0

   323

   7

    1

N

Steel Bldg./Steel Roof

  Florida

     

86%

           

Lakeland 1

1985

  47,955

Y

 

  3.5

   434

  11

    1

Y

Masonry Wall/Steel Roof

Tallahassee I

1973

143,405

Y

 

18.7

   677

  21

    1

Y

Masonry Wall/Tar & Gravel Roof

Tallahassee II

1975

  51,380

Y

 

  4.0

   273

   7

    1

Y

Masonry Wall/Tar & Gravel Roof

Port St. Lucie

1985

  55,742

Y

 

  4.0

   535

  12

    1

N

Steel Bldg./Steel Roof

Deltona

1984

  63,602

Y

 

  5.0

   449

   5

    1

Y

Masonry Wall/Shingle Roof

Jacksonville I

1985

  39,912

Y

 

  2.7

   290

  14

    1

Y

Masonry Wall/Tar & Gravel Roof

Orlando I

1988

  50,520

Y

 

  2.8

   593

   3

    2

Y

Steel Bldg./Steel Roof

Ft. Lauderdale

1985

101,235

Y

 

  7.6

   638

   7

    1

Y

Steel Bldg./Steel Roof

West Palm 1

1985

  51,585

Y

 

  3.2

   404

   6

    1

N

Steel Bldg./Steel Roof

Melbourne I

1986

  83,578

Y

 

  8.3

   745

  11

    1

Y

Masonry Wall/Shingled Roof

Pensacola I

1983

119,030

Y

 

  7.5

   862

13

    1

Y

Steel Bldg./Steel Roof

Pensacola II

1986

  58,204

Y

 

  3.4

   505

9

    1

Y

Steel Bldg./Steel Roof

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Melbourne II

1986

  56,031

Y

 

  3.4

   610

11

    1

N

Steel Bldg./Steel Roof

Jacksonville II

1987

  53,855

Y

 

  4.4

   471

11

    1

Y

Masonry/Steel Roof

Pensacola III

1986

  84,490

Y

 

  6.1

   602

12

    1

N

Steel Bldg./Steel Roof

Pensacola IV

1990

  38,850

Y

 

  2.7

   274

9

    1

Y

Masonry/Steel Roof

Pensacola V

1990

  39,125

Y

 

  2.6

   317

4

    1

Y

Masonry/Steel Roof

Tampa I

1989

  62,857

Y

 

  3.3

   865

6

    1

N

Masonry/Steel Roof

Tampa II

1985

  60,672

Y

 

  2.9

   675

10

    1

N

Masonry/Steel Roof

Tampa III

1988

  48,400

Y

 

  2.2

   636

14

    1

N

Masonry/Steel Roof

Orlando II

1986

134,869

Y

 

  8.5

1,319

  20

    1

Y

Masonry Wall/Steel Roof

Ft. Myers I

1988

  27,704

Y

 

  1.1

   259

   6

    2

Y

Steel Bldg./Steel Roof

Ft. Myers II

1991/94

  23,053

Y

 

  1.9

   299

   2

    1

Y

Masonry/Steel Roof

Tampa IV

1985

  57,915

Y

 

  4.0

   524

  10

    1

N

Masonry/Steel Roof

West Palm II

1986

  30,937

Y

 

  2.3

   364

   9

    1

Y

Masonry/Steel Roof

Ft. Myers III

1986

  36,052

Y

 

  2.4

   257

   9

    1

Y

Masonry/Steel Roof

Lakeland II

1988

  59,990

Y

 

  4.0

   580

   9

    1

N

Masonry Wall/Steel Roof

Ft. Myers IV

1987

  59,560

Y

 

  4.5

   262

   4

    1

Y

Masonry/Steel Roof

Jacksonville III

1987

102,430

Y

 

  5.9

   739

  13

    1

Y

Masonry Wall/Shingle Roof

Jacksonville IV

1985

  38,205

Y

 

  2.7

   352

   7

    1

Y

Steel Bldg./Steel Roof

Jacksonville V

1987/92

  53,975

Y

 

  2.9

   493

  13

    2

Y

Steel Bldg./Masonry Wall/Steel Roof

Orlando III

1975

  52,388

Y

 

  3.2

   496

   8

    2

N

Masonry Wall/Steel Roof

Orlando IV-W 25th St.

1984

  38,374

Y

 

  2.8

   347

   6

    1

Y

Steel Bldg/Steel Roof

Delray I-Mini

1969

  49,529

Y

 

  3.5

   437

   3

    1

Y

Masonry Wall/Concrete Roof

Delray II-Safeway

1980

  69,760

Y

 

  4.3

   705

  17

    1

Y

Masonry Wall/Concrete Roof

Tampa-E. Hillborough

1985

  84,220

Y

 

  5.3

   691

  16

    1

Y

Masonry Wall/Metal Roof

Ft. Myers-Mall

1991/94

  20,881

Y

 

  1.3

   230

   4

    1

Y

Masonry/Steel Roof

Indian Harbor-Beach

1985

  66,208

Y

 

  4.0

   713

  15

    1

N

Masonry Wall/Metal Roof

Hollywood-Sheridan

1988

130,663

Y

 

  7.0

1,172

  21

    1

Y

Masonry Wall/Concrete Roof

Pompano Beach-Atlantic

1985

  77,062

Y

 

  4.0

   923

  17

    1

N

Masonry Wall/Concrete Roof

Pompano Beach-Sample

1988

  64,167

Y

  3.6

   798

  14

    1

N

Masonry Wall/Metal Roof

Boca Raton-18th St.

1991

  87,782

Y

 

  6.2

990

   8

    1

N

Masonry Wall/Metal Roof

Vero Beach

1997

  34,450

Y

 

  1.9

   321

   2

    1

N

Masonry Wall/Metal Roof

Hollywood-N. 21st

1987

  58,977

Y

 

  3.1

   710

  11

    1

Y

Masonry Wall/Metal Roof

Cocoa

1982

  75,205

Y

 

  2.5

   688

  12

    1

Y

Masonry Wall/Metal Roof

Plantation

1982

  42,311

Y

 

  2.9

   503

   4

1&2

Y

Masonry Wall/Metal Roof

  Georgia

     

85%

           

Savannah

1981

  72,580

Y

 

  5.4

   600

  11

    1

Y

Masonry Wall/Steel Roof

Atlanta-Metro I

1988

  69,860

Y

 

  3.9

   536

   5

    1

Y

Steel Bldg./Steel Roof

Atlanta-Metro II

1988

  45,300

Y

 

  3.9

   373

   6

    1

Y

Steel Bldg./Steel Roof

Atlanta-Metro III

1988

  56,945

Y

 

  5.3

   408

   9

    1

Y

Steel Bldg./Steel Roof

Atlanta-Metro IV

1989

  42,220

Y

 

  3.5

   308

   7

    1

Y

Steel Bldg./Steel Roof

Atlanta-Metro V

1988

  44,195

Y

 

  4.2

   284

   3

    1

Y

Masonry Wall/Tar & Gravel Roof

Atlanta-Metro VI

1986

  50,775

Y

 

  3.6

   443

   7

    1

Y

Steel Bldg./Steel Roof

- 11 -

<PAGE>

Atlanta-Metro VII

1981

  38,870

Y

 

  2.5

   326

   9

    2

Y

Masonry Wall/Tar & Gravel Roof

Atlanta-Metro VIII

1975

  46,914

Y

 

  3.3

   432

   6

    2

Y

Masonry Wall/Tar & Gravel Roof

Augusta I

1988

  52,000

Y

 

  4.0

   398

  13

    1

Y

Steel Bldg./Steel Roof

Macon I

1989

  40,850

Y

 

  3.2

   347

  14

    1

Y

Steel Bldg./Steel Roof

Augusta II

1987

  46,325

Y

 

  3.5

   361

   4

    1

N

Masonry Wall/Steel Roof

Atlanta-Metro IX

1988

  56,106

Y

 

  4.6

   409

   6

    1

Y

Steel Bldg./Steel Roof

Atlanta-Metro X

1988

  48,635

Y

 

  6.8

   445

   9

    1

N

Steel Bldg./Steel Roof

Macon II

1989/94

  67,550

Y

 

14.0

   570

  11

    1

Y

Steel Bldg./Steel Roof

Savannah II

1988

  49,365

Y

 

  2.6

   458

   8

    1

Y

Masonry Wall/Steel Roof

Atlanta-Alpharetta

1994

  81,040

Y

 

  5.8

   560

   8

1&2

Y

Steel Bldg./Steel Roof

Atlanta-Marietta-Roswell

1996

  60,375

Y

 

  6.0

   448

   8

1&2

Y

Steel Bldg./Steel Roof

Atlanta-Doraville

1995

  68,415

Y

 

  4.9

   621

   8

1&2

Y

Steel & Masonry Bldg./Steel Roof

Ft. Oglethorpe

1989

  45,100

Y

 

  3.3

   443

   6

    1

Y

Masonry Wall/Metal Roof

Kingsland

1989

  66,829

Y

 

  4.1

   562

   12

    1

N

Masonry Wall/Metal Roof

  Louisiana

     

83%

           

Baton Rouge-Airline

1982

  71,720

Y

 

  2.5

   433

  12

    1

N

Masonry Wall/Metal Roof

Baton Rouge-Airline 2

1985

  44,895

Y

 

  2.8

   437

   9

    1

N

Masonry Wall/Steel Roof

Lafayette-Pinhook 1

1980

  56,625

Y

 

  3.2

   487

   7

    1

N

Masonry Wall/Metal Roof

Lafayette-Pinhook 2

1992/94

  47,025

Y

 

  2.4

   432

   2

    1

Y

Metal Wall/Metal Roof

Lafayette-Ambassador

1975

  33,860

Y

 

  2.0

   417

   3

    1

N

Masonry Wall/Shingle Roof

Lafayette-Evangeline

1977

  34,630

Y

 

  3.1

   347

   3

    1

Y

Masonry Wall/Metal Roof

Lafayette-Guilbeau

1994

  63,685

Y

 

  3.4

   598

   1

    1

N

Metal Wall/Metal Roof

  Maine

     

88%

           

Westbrook

1988

  45,940

Y

 

  5.9

   475

   7

    1

Y

Metal Wall/Metal Roof

Saco

1988

  53,750

Y

 

  4.2

   416

 12

    1

N

Masonry Wall/Metal Roof

  Maryland

     

90%

           

Salisbury

1979

  33,585

Y

 

  3.0

   416

  10

    1

N

Masonry Wall/Tar & Gravel Roof

Baltimore I-Frederick

1984

  21,233

Y

 

  1.9

   347

   2

    3

N

Masonry Wall/Shingled Roof

Baltimore II-Gaithersburg

1988

  60,645

Y

 

  2.2

   535

   2

    4

Y

Masonry Wall/Tar & Gravel Roof

Baltimore III-Landover

1990

  51,357

Y

 

  3.1

   666

   8

    1

Y

Steel Bldg./Steel Roof

  Massachusetts

     

81%

           

New Bedford

1982

  42,338

Y

 

  3.4

   376

   7

    1

N

Steel Bldg./Steel Roof

Springfield

1986

  53,614

Y

 

  4.7

   403

   5

    1

N

Masonry Wall/Shingle Roof

Salem

1979

  53,445

Y

 

  2.0

   500

   2

    2

Y

Steel Wall/Metal Roof

Boston-Metro I

1980

  37,805

Y

 

  2.0

   405

   3

    2

Y

Masonry Wall/Tar & Gravel Roof

Boston-Metro II

1986

  38,710

Y

 

  3.6

   456

   8

    2

N

Masonry Wall/Tar & Gravel Roof

N. Andover

1989

  44,585

Y

 

  3.0

   534

   1

    3

N

Masonry & Metal Wall/Metal Roof

Dracut

1986

  45,926

Y

 

  5.0

   403

 11

    1

N

Masonry Wall/Metal Roof

Methuen

1984

  50,640

Y

 

  3.4

   383

   6

    1

N

Masonry Wall/Metal Roof

Plymouth

1996

  92,063

N

 

  7.7

   750

 14

    1

N

Metal Wall/Metal Roof

Sandwich

1984

  48,000

N

 

  4.9

   362

   8

    1

N

Metal Wall/Metal Roof

- 12 -

<PAGE>

  Michigan

     

77%

           

Grand Rapids II

1983

  43,500

Y

 

  8.0

   388

   6

    1

N

Masonry & Steel Walls

Holland

1978

  53,100

Y

 

13.6

   434

  18

    1

Y

Masonry Wall/Steel Roof

Holland-Paw Paw

1978

  58,680

Y

 

  5.3

   364

   8

    1

Y

Masonry Wall/Steel Roof

Waterford-Highland

1978

136,611

Y

 

16.6

1,664

  16

    1

Y

Masonry Wall/Metal Roof

  Mississippi

     

90%

           

Jackson I

1990

  42,100

Y

 

  2.0

   351

   6

    1

Y

Masonry/Steel Roof

Jackson II

1990

  38,761

Y

 

  2.1

   306

   9

    1

Y

Masonry/Steel Roof

Jackson III-155

1995

  61,848

Y

 

  1.3

   420

   2

    1

N

Metal Wall/Metal Roof

Jackson-N. West

1984

  57,557

Y

 

  5.2

   480

  13

    1

Y

Masonry Wall/Metal Roof

 New Hampshire

     

87%

           

Salem-Policy

1980

  62,025

Y

 

  8.7

   545

   9

    1

Y

Masonry Wall/Metal Roof

  New York

     

84%

           

Middletown

1988

  33,865

Y

 

  2.8

   337

   4

    1

N

Steel Bldg./Steel Roof

Buffalo I

1981

  75,970

Y

 

  5.1

   524

  10

    1

Y

Steel Bldg./Steel Roof

Rochester I

1981

  41,834

Y

 

  2.9

   406

   5

    1

Y

Steel Bldg./Steel Roof

Rochester II

1980

  29,510

Y

 

  3.5

   242

   9

    1

N

Masonry Wall/Shingle Roof

Buffalo II

1984

  54,165

Y

 

  6.2

   417

  12

    1

Y

Steel Bldg./Steel Roof

Syracuse 1

1987

  77,385

Y

 

  7.5

   666

  16

    1

N

Steel Bldg./Steel Roof

Syracuse II

1983

  67,824

Y

 

  3.6

   544

  10

    1

Y

Steel Bldg./Shingled Roof

Rochester III

1990

  66,784

Y

 

  2.7

   495

   1

    1

N

Masonry Wall/Shingle Roof

Harriman

1989/95

  74,340

Y

 

  6.1

   638

  10

    1

Y

Metal Wall/Metal Roof

Monroe

1998

  36,240

Y

 

13.3

   318

   4

    1

N

Metal Wall/Metal Roof

Syracuse

1987

  35,090

Y

 

  2.2

   289

  12

    1

N

Metal Wall/Metal Roof

The Hamptons

1989/95

  64,885

N

 

  3.2

   775

   5

    2

N

Metal Wall/Metal Roof

The Hamptons

1998

  32,970

N

 

  1.1

   311

   1

    4

N

Metal Wall/Metal Roof

The Hamptons

1997

  35,210

N

 

  1.9

   428

   2

    2

N

Metal Wall/Metal Roof

The Hamptons

1994/98

  65,000

N

 

  3.7

   720

   4

    2

N

Metal Wall/Metal Roof

  North Carolina

     

74%

           

Charlotte

1986

  37,815

Y

 

  2.9

   333

   6

    1

Y

Steel Bldg./Steel Roof

Fayetteville

1980

  87,294

Y

 

  6.2

   908

  12

    1

Y

Steel Bldg./Steel Roof

Greensboro

1986

  45,180

Y

 

  3.4

   404

   5

    1

Y

Steel Bldg./Mas. Wall/Steel Roof

Raleigh I

1985

  58,410

Y

 

  5.0

   540

   8

    2

Y

Steel Bldg./Steel Roof

Raleigh II

1985

  33,125

Y

 

  2.5

   318

   8

    1

Y

Steel Bldg./Steel Roof

Charlotte II

1995

  48,971

Y

 

  5.6

   402

   7

    1

Y

Masonry Wall/Steel Roof

Charlotte III

1995

  30,920

Y

 

  2.9

   319

   6

    1

Y

Masonry Wall/Steel Roof

Greensboro-Hilltop

1995

  32,153

Y

 

  1.0

   295

   7

    1

N

Metal Wall/Metal Roof

Greensboro-StageCoach

1997

  35,825

Y

 

  2.5

   232

   2

    1

N

Metal Wall/Metal Roof

Greensboro-High Point

1993

  57,717

Y

 

  2.5

   494

   9

    1

N

Steel Wall/Metal Roof

Durham-Hillborough

1988/91

  67,981

Y

 

  5.0

   600

   5

    1

Y

Metal Wall/Metal Roof

Durham-Cornwallis

1990/96

  78,645

Y

 

  4.7

   662

   9

    1

Y

Masonry Wall/Metal Roof

Jacksonville-Center

1995

  51,100

Y

 

  5.0

   396

  11

    1

Y

Metal Wall/Metal Roof

- 13 -

<PAGE>

Jacksonville-Gum Branch

1989

  62,916

Y

 

  5.0

   477

  14

    1

Y

Metal Wall/Metal Roof

Jacksonville-N. Marine

1985

  47,810

Y

 

  8.4

   392

   6

    1

Y

Masonry Wall/Shingle Roof

  Ohio

     

88%

           

Youngstown

1980

  54,830

Y

 

  5.8

   362

   5

    1

Y

Steel Bldg./Steel Roof

Cleveland-Metro I

1980

  49,200

Y

 

  6.4

   358

   9

    1

N

Steel Bldg./Steel Roof

Cleveland-Metro II

1987

  60,500

Y

 

  4.8

   440

   4

    1

Y

Steel Bldg./Steel Roof

Youngstown

1988

  55,900

Y

 

  3.9

   499

   7

    1

Y

Masonry Wall/Steel Roof

Akron

1990

  38,320

Y

 

  3.4

   296

  12

    1

N

Masonry Wall/Steel Roof

Cleveland III

1986

  68,175

Y

 

  3.4

   586

  12

    1

N

Masonry Wall/Steel Roof

Cleveland IV

1978

  65,000

Y

 

  3.5

   561

   5

    1

Y

Masonry Wall/Steel Roof

Cleveland V

1979

  74,882

Y

 

  3.1

   637

   9

1&2

Y

Masonry Wall/Steel Roof

Cleveland VI

1979

  47,170

Y

 

  2.6

   377

   8

    1

Y

Masonry Wall/Steel Roof

Cleveland VII

1977

  70,270

Y

 

  4.3

   595

  13

    1

Y

Masonry Wall/Steel Roof

Cleveland VIII

1970

  47,725

Y

 

  5.7

   452

   6

    1

N

Masonry Wall/Steel Roof

Cleveland IX

1982

  54,910

Y

 

  4.4

   298

   5

    1

N

Masonry Wall/Steel Roof

Cleveland 10-Avon

1989

  46,942

Y

 

  5.8

   371

   6

    1

N

Metal Wall/Metal Roof

Warren-Elm

1986

  60,200

Y

 

  7.3

   483

   8

    1

Y

Masonry Wall/Metal Roof

Warren-Youngstown

1986

  58,987

Y

 

  5.0

   525

  11

    1

N

Masonry Wall/Metal Roof

Batavia

1988

  61,818

Y

 

  5.5

   547

   9

    1

N

Metal Wall/Steel Roof

  Pennsylvania

     

92%

           

Allentown

1983

  40,800

Y

 

  6.3

   341

   7

    1

Y

Masonry Wall/Shingle Roof

Sharon

1975

  38,270

Y

 

  3.0

   304

   5

    1

Y

Steel Bldg./Steel Roof

Harrisburg I

1983

  49,120

Y

 

  4.1

   444

   9

    1

Y

Masonry Wall/Steel Roof

Harrisburg II

1985

  59,450

Y

 

  9.2

   292

  10

    1

Y

Masonry Wall/Steel Roof

Pittsburgh

1990

  57,365

Y

 

  3.4

   504

   6

    1

Y

Steel Bldg./Steel Roof

Pittsburgh II

1983

102,780

Y

 

  4.8

   743

   4

    2

Y

Masonry Wall/Shingled Roof

Harrisburg-Peiffers

1984

  63,740

Y

 

  4.1

   604

   9

    1

Y

Masonry Wall/Metal Roof

  Rhode Island

     

87%

           

East Greenwich

1984

  45,620

Y

 

  2.9

   412

   9

    1

Y

Metal Wall/Metal Roof

Frenchtown

1988

  24,860

Y

 

  2.0

   238

   4

    1

N

Metal Wall/Metal Roof

W. Warwick

1986/94

  52,426

Y

 

  2.3

   485

   4

    1

N

Metal Wall/Steel Roof

Providence

1984

  38,610

Y

 

  3.7

   386

   7

    1

Y

Masonry Wall/Tar & Gravel Roof

  South Carolina

     

82%

           

Charleston I

1985

  49,654

Y

 

  3.3

   396

  11

    1

Y

Steel Bldg./Mas. Wall/Steel Roof

Columbia I

1985

  47,710

Y

 

  3.3

   390

   7

    1

Y

Steel Bldg./Steel Roof

Columbia II

1987

  58,690

Y

 

  6.0

   447

   8

    1

N

Steel Bldg./Steel Roof

Columbia III

1989

  41,190

Y

 

  3.5

   330

   5

    2

Y

Steel Bldg./Steel Roof

Columbia IV

1986

  57,450

Y

 

  5.6

   444

   7

    1

Y

Steel Bldg./Steel Roof

Spartanburg

1989

  40,450

Y

 

  3.6

   341

   6

    1

Y

Steel Bldg./Steel Roof

Charlestown II

1985

  40,318

Y

 

  2.2

   330

  10

    1

Y

Masonry Wall/Steel Roof

Columbia

1985

  73,490

Y

 

  5.0

   775

  17

    1

Y

Masonry Wall/Steel Roof

Myrtle Beach

1984

  61,350

Y

 

  4.8

   584

  12

    1

N

Masonry Wall/Steel Roof

- 14 -

<PAGE>

  Tennessee

     

82%

           

Chattanooga-Lee Hwy

1987

  37,877

Y

 

  3.3

   391

   6

    1

N

Masonry Wall/Metal Roof

Chattanooga-Hwy 58

1985

  35,460

Y

 

  2.4

   295

   4

    1

Y

Masonry Wall/Metal Roof

Hendersonville

1986/97

  93,955

Y

 

  5.7

   651

  16

    1

Y

Masonry Wall/Metal Roof

  Texas

     

83%

           

Arlington I

1987

  45,815

Y

 

  2.3

   382

   7

    1

Y

Masonry Wall/Steel Roof

Arlington II

1986

  67,220

Y

 

  3.8

   280

  11

    1

Y

Masonry Wall/Steel Roof

Ft. Worth

1986

  40,850

Y

 

  2.4

   333

   3

    1

Y

Masonry Wall/Asphalt Roof

San Antonio I

1986

  49,675

Y

 

  3.9

   484

  12

    1

Y

Masonry Wall/Steel Roof

San Antonio II

1986

  39,870

Y

 

  1.9

   283

   7

    1

Y

Masonry Wall/Steel Roof

San Antonio III

1981

  48,782

Y

 

  2.6

   485

   5

    1

Y

Masonry Wall/Steel Roof

Universal

1985

  35,160

Y

 

  2.4

   376

   8

    1

Y

Masonry Wall/Steel Roof

San Antonio IV

1995

  54,620

Y

 

  5.4

   528

  11

    1

Y

Steel Bldg./Steel Roof

Houston-Eastex

1993/95

  83,900

Y

 

  6.4

   663

   5

    1

Y

Metal Wall/Steel Roof

Houston-Nederland

1995

  61,911

Y

 

  6.3

   531

   1

    1

Y

Metal Wall/Steel Roof

Houston-College

1995

  35,650

Y

 

  1.8

   316

   1

    1

Y

Metal Wall/Steel Roof

Dallas-Skillman

1975

121,026

Y

 

  5.9

1,080

   8

1&2

Y

Masonry Wall/Steel Roof

Dallas-Centennial

1977

102,989

Y

 

  6.7

992

   8

1&2

Y

Masonry Wall/Steel Roof

Dallas-Samuell

1975

  79,046

Y

 

  3.8

   784

   6

1&2

Y

Masonry Wall/Steel Roof

Dallas-Hargrove

1975

  71,934

Y

 

  3.1

   734

   5

1&2

Y

Masonry Wall/Steel Roof

Houston-Antoine

1984

  75,720

Y

 

  4.1

   657

   9

    1

Y

Metal Wall/Metal Roof

Katy

1994

  43,995

Y

 

  8.6

   437

  10

    1

Y

Metal Wall/Metal Roof

Humble

1986

  63,669

Y

 

  2.3

   586

   6

    1

Y

Masonry Wall/Metal Roof

Houston-Old Katy

1996

  52,860

Y

 

  3.0

   490

  19

    1

Y

Masonry Wall/Shingle Roof

Webster-Hwy 3

1997

  55,350

Y

 

  3.3

   536

   6

    1

Y

Masonry Wall/Metal Roof

Carrollton

1997

  51,740

Y

 

  3.2

   497

   5

    1

Y

Masonry Wall/Metal Roof

San Marcos

1994

  61,690

Y

 

  5.0

   432

  18

    1

N

Metal Wall/Metal Roof

Austin-McNeil

1994

  72,485

Y

 

  7.0

   548

  19

    1

Y

Metal Wall/Metal Roof

Austin-FM

1996

  59,910

Y

 

  4.9

   388

   9

    1

Y

Metal Wall/Metal Roof

Euless

1996

  93,480

Y

 

  7.5

   517

   9

    1

Y

Metal Wall/Metal Roof

N. Richland Hills

1996

  76,535

Y

 

  7.4

   554

  11

    1

Y

Metal Wall/Metal Roof

Katy-Franz

1993

  67,145

Y

 

  7.2

   530

  10

    1

Y

Metal Wall/Metal Roof

Cedar Hill

1985

  52,735

Y

 

  3.0

   410

  16

    1

Y

Metal Wall/Metal Roof

Seabrook

1996

  61,245

Y

 

  4.3

   539

   5

    1

Y

Metal Wall/Metal Roof

Houston-Westward

1996

125,854  

Y

 

  6.1

1,161

11

1&2

Y

Masonry Wall/Tar-Gravel Roof

Houston-Boone

1996

  45,435

Y

 

  2.3

   441

   4

    1

Y

Masonry Wall/Metal Roof

Houston-Cook

1996

  60,455

Y

 

  3.0

   490

   7

    1

Y

Masonry Wall/Metal Roof

Houston-Harwin

1996

  77,454

Y

 

  2.8

   652

   3

1&2

Y

Masonry Wall/Tar-Gravel Roof

Houston-Hempstead

1996

  99,231

Y

 

  3.5

   902

   10

1&2

Y

Masonry Wall/Metal Roof

Houston-Kuykendahl

1996

102,600

Y

 

  4.8

   789

   12

    1

Y

Masonry Wall/Metal Roof

Houston-Hwy 249

1996

  54,516

Y

 

  2.9

   536

   4

    1

Y

Masonry Wall/Metal Roof

Mesquite-Hwy 80

1996

  63,590

Y

 

  6.1

   643

   6

1&2

Y

Masonry Wall/Tar-Gravel Roof

- 15 -

<PAGE>

Mesquite-Franklin

1996

  83,705

Y

 

  3.2

   753

   13

    1

Y

Masonry Wall/Metal Roof

Dallas-Plantation

1996

  61,865

Y

 

  2.4

   507

   10

1&2

Y

Masonry Wall/Metal Roof

San Antonio-Hunt

1996

  63,695

Y

 

  4.1

   580

   15

    1

Y

Masonry Wall/Metal Roof

Humble

1996

116,120

Y

 

  5.9

   805

   4

    1

N

Metal Wall/Metal Roof

Pasadena

1996

  55,675

N

 

  3.2

   503

   1

    1

N

Metal & MasonryWall/Metal Roof

League City

1996

  72,520

Y

 

  4.4

   573

   6

1&2

N

Metal & MasonryWall/Metal Roof

Montgomery

1996

  44,400

Y

 

  2.5

   391

   1

    1

N

Metal Wall/Metal Roof

Texas City

1996

  55,700

Y

 

  3.4

   466

   3

    1

N

Metal & Masonry Wall/Metal Roof

Houston-Hwy 6

1996

  47,475

Y

 

  2.6

   432

   1

    1

N

Metal Wall/Metal Roof

Lumberton

1996

  45,290

Y

 

  4.1

   391

   5

    1

N

Metal Wall/Metal Roof

  Virginia

     

85%

           

Newport News I

1988

  58,305

Y

 

  3.2

   476

   7

    1

Y

Steel Bldg./Steel Roof

Alexandria

1984

  76,470

Y

 

  3.2

1,144

   4

    2

Y

Masonry Wall/Tar & Gravel Roof

Norfolk I

1984

  50,430

Y

 

  2.7

   379

   7

    1

Y

Steel Bldg./Steel Roof

Norfolk II

1989

  45,275

Y

 

  2.1

   351

   4

    1

Y

Masonry Wall/Steel Roof

Richmond

1987

  51,985

Y

 

  2.7

   525

   5

    1

Y

Masonry Wall/Steel Roof

Newport News II

1988/93

  63,625

Y

 

  4.7

   413

   8

    1

Y

Steel Bldg./Steel Roof

Lynchburg-Lakeside

1982

  47,628

Y

 

  5.3

   433

  10

    1

N

Masonry Wall/Steel Roof

Lynchburg-Timberlake

1985

  43,830

Y

 

  2.3

   353

   4

    1

N

Masonry Wall/Steel Roof

Lynchburg-Amherst

1987

  23,618

Y

 

  1.5

   208

   3

    1

N

Masonry Wall/Metal Roof

Christiansburg

1985/90

  37,438

Y

 

  3.2

   344

   6

    1

Y

Masonry Wall/Metal Roof

Chesapeake

1988/95

  43,075

Y

 

12.0

   390

   7

    1

Y

Metal Wall/Steel Roof

Danville

1988

  49,792

Y

 

  3.2

   408

   8

    1

N

Steel Wall/Metal Roof

Chesapeake-Military

1996

  58,505

Y

 

  3.0

   526

   3

    1

N

Masonry Wall/Metal Roof

Chesapeake-Volvo

1995

  63,250

Y

 

  4.0

   533

   4

    1

N

Masonry Wall/Metal Roof

Virginia Beach-Shell

1991

  52,626

Y

 

  2.5

   553

   5

    1

N

Masonry Wall/Metal Roof

Virginia Beach-Central

1993/95

  96,031

Y

 

  5.0

   881

   6

    1

N

Masonry Wall/Metal Roof

Norfolk-Naval Base

1975

 126,918

Y

 

  5.2

1,250

  11

    1

N

Masonry Wall/Metal Roof

Lynchburg-Timberlake

1990/96

  50,145

Y

 

  5.2

   473

   7

    1

N

Masonry Wall/Metal Roof

               Total for all Properties                          14,630,733                        84%             1,078       127,419   2,023

 

 

 

 

 

 

 

- 16 -

<PAGE>

Item 3.

Legal Proceedings

In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, the Company does not believe that any of these matters will have a material adverse impact on the financial condition, results of operations or cash flows of 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.

 

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 fiscal years.

Quarter

2001

High

Low

1st

24.5000

19.5600

2nd

27.8000

22.3000

3rd

27.7500

24.6500

4th

31.6000

26.5000

Quarter

2002

High

Low

1st

32.0700

28.8000

2nd

34.1700

29.8800

3rd

34.2000

27.9500

4th

30.4900

26.3800

 

          As of March 15, 2003, there were approximately 1,122 holders of record of the Company's Common Stock.

          The Company has paid quarterly dividends to its shareholders since its inception. Reflected in the table below are the dividends paid in the last two years.

          For federal income tax purposes distributions to shareholders are treated as ordinary income, capital gain, return of capital or a combination thereof. Distributions to shareholders for 2002 represent 75% ordinary income and 25% return of capital.

 

 

- 17 -

<PAGE>

History of Dividends Declared on Common Stock

   

1st Quarter, 2001

$0.580 per share

2nd Quarter, 2001

$0.580 per share

3rd Quarter, 2001

$0.590 per share

4th Quarter, 2001

$0.590 per share


1st Quarter, 2002


$0.590 per share

2nd Quarter, 2002

$0.590 per share

3rd Quarter, 2002

$0.600 per share

4th Quarter, 2002

$0.600 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 18 -

<PAGE>

Item 6.

Selected Financial Data

 

                   At or For Year Ended December 31,                   

(dollars in thousands,
except per share data)


2002
   


2001
   


2000
   


1999
   


1998
   

           

Operating Data

         

Operating revenues

$ 102,141 

$  91,012 

$  90,152 

$  84,078 

$  69,173 

Net income

26,301 

24,189 

25,707 

25,585 

23,540 

Net income per common share - basic

1.66 

1.74 

1.89 

1.96 

1.91 

Net income per common share - diluted

1.64 

1.72 

1.89 

1.96 

1.91 

Dividends declared per common share

2.38 

2.34 

2.30 

2.26 

2.20 

         

 

Balance Sheet Data

Investment in storage facilities at cost


$710,841 


$611,289 


$562,721 


$556,473 


$502,502 

Total assets

652,337 

567,838 

547,139 

529,719 

490,124 

Total debt

252,452 

241,190 

231,223 

203,253 

190,059 

Total liabilities

278,755 

255,999 

246,309 

218,281 

203,439 

Series B preferred stock

28,585 

28,585 

28,585 

28,585 

-     

Series C preferred stock

67,129 

-    

-    

-    

-     

           

Other Data

         

Net cash provided by operating activities

$  45,610 

$  40,922 

$  39,428 

$  41,001 

$  35,151  

Net cash used in investing activities

(99,244)

(17,751)

(25,274)

(51,335)

(154,367)

Net cash provided by (used in)
  financing activities


53,814 


(22,709)


(13,765)


8,382 


119,633 

Funds from operations available to

  common shareholders (1)

  
37,033 


35,148 


33,663 


35,299 


33,078 

(1) The Company believes that Funds from Operations ("FFO") provides relevant and meaningful information about its operating performance that is necessary, along with net earnings and cash flows, for an understanding of its operating results.  Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis.  We believe that to further understand our performance, FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.

Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions. See the reconciliation of net income to FFO in Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

 

- 19 -

<PAGE>

Item 7.

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.

          When used in this discussion and elsewhere in this document, the words "intends," "believes," "expects", "anticipates," and similar expressions are intended to identify "forward-looking statements" within the meaning of that term in Section 27A of the Securities Exchange Act of 1933 and in Section 21F of Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self-storage facilities, which would cause rents and occupancy rates to decline; the Company's ability to evaluate, finance and integrate acquired businesses into the Company's existing business and operations; the Company's ability to form joint ventures and sell existing properties to those joint ventures and others; the Company's ability to effectively compete in the industry in which it does business; the Company's existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company's outstanding floating rate debt; the Company's ability to successfully implement its truck leasing program and Dri-Guard product roll-out; the Company's reliance on its call center; the Company's cash flow may be insufficient to meet required payments of principal and interest; and tax law changes which may change the taxability of future income.

Significant Accounting Policies and Estimates

          The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. On an on-going basis, the Company evaluates its estimates and judgments, including those related to carrying values of storage facilities, bad debts, and contingencies and litigation. The Company bases its estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          The Company believes its judgment regarding the impairment of the carrying value of its storage facilities is a significant accounting policy. The Company's policy is to assess any impairment of value whenever events or circumstances indicate that the carrying value of the storage facility may not be recoverable. Such events or circumstances would include negative operating cash flow or significant declining revenue per storage facility. Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the storage facility, on a property by property basis. If the sum of the undiscounted cash

- 20 -

<PAGE>

flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset. If cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable, impairment charges may be required at that time and could materially affect the Company's operating results and financial position. At December 31, 2002 and 2001, no assets had been determined to be impaired under this policy, and, accordingly, this policy had no impact on the Company's financial position or results of operations.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO
YEAR ENDED DECEMBER 31, 2001

          The Company recorded rental revenues of $100.0 million for the year ended December 31, 2002, an increase of $10.9 million or 12.2% when compared to 2001 rental revenues of $89.1 million. Of this increase, $1.2 million resulted from a 1.3% increase in revenues at the 222 core properties considered in same store sales. The remaining $9.7 million increase in rental revenues resulted from the acquisition of 23 stores during 2002 and from having the 2001 acquisitions included for a full year of operations. Other income increased $0.2 million due to increased insurance sales and the additional revenue generated by truck rentals.

          Property operating and real estate tax expense increased $5.1 million or 17.7% in 2002 compared to 2001. Of this, $3.5 million was incurred by the facilities acquired in 2002 and from having the 2001 acquisitions included for a full year of operations. The remaining $1.6 million increase was due to increased insurance, personnel, truck expense, and increased property taxes at the 222 core properties considered same stores.

          General and administrative expenses increased $0.6 million or 7.0%. The increase includes additional costs of approximately $2.3 million, which primarily resulted from increased cost in the Company's call center and the increased costs associated with operating the properties acquired in 2002. The 2001 general and administrative expenses included a $1.7 million expense in connection with the lawsuit settlement - see Note 15 of the financial statements. There was no such charge in 2002.

          Depreciation and amortization expense increased to $17.4 million from $15.0 million, primarily as a result of additional depreciation taken on real estate assets acquired in 2002 and a full year of depreciation on 2001 acquisitions.

          Income from operations increased from $39.5 million in 2001 to $42.6 million in 2002 as a result of the aforementioned items.

          Interest expense increased from $13.9 million to $14.7 million as a result of higher rates associated with the mortgage debt incurred on the consolidated joint venture properties and the effect of interest rate swap agreements entered into during 2001.

 

 

 

 

 

- 21 -

<PAGE>

YEAR ENDED DECEMBER 31, 2001 COMPARED TO
YEAR ENDED DECEMBER 31, 2000

          The Company recorded rental revenues of $89.1 million for the year ended December 31, 2001, an increase of $0.9 million or 1% when compared to 2000 rental revenues of $88.2 million. Of this, $3.3 million resulted from a 4% increase in revenues at the 217 core properties considered in same store sales. $0.5 million resulted from the acquisition of eight stores during 2001 and from having the 2000 acquisitions included for a full year of operations. These increases were offset by a $2.9 million decrease from the sale of seven stores to a joint venture in 2000.

          Property operating and real estate tax expense increased $1.5 million or 5% in 2001 compared to 2000. Of this increase, $1.4 million resulted from increased expenses at the 217 core properties considered as same stores. $0.7 million was incurred by the facilities acquired in 2001 and from having the 2000 acquisitions included for a full year of operations. These increases were offset by a reduction of $0.6 million from the sale of seven stores to a joint venture in 2000.

          General and administrative expenses increased $2.2 million or 38.7% in 2001 compared to 2000. The increase was primarily a result of a $1.7 million expense in connection with a lawsuit settlement - see Note 15 of the financial statements.

          Depreciation and amortization expense increased to $15.0 million from $14.3 million, primarily as a result of the additional depreciation taken on the real estate assets acquired in 2001 and a full year of depreciation on 2000 acquisitions.

          Income from operations decreased 8.3% from $43.0 million in 2000 to $39.5 million in 2001 as a result of the aforementioned items.

          In 2001, interest expense decreased to $13.9 million from $17.5 million as a result of significant decreases in interest rates.

          The Company recorded a $0.1 million loss in 2001 from its ownership interest in two real estate joint ventures.

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS

 

                      For Year Ended December 31,                      

(dollars in thousands)


2002
   


2001
   


2000
   


1999
   


1998
   

           

Net income

$ 26,301 

$  24,189 

$  25,707 

$  25,585 

$  23,540 

Minority interest in income

1,990 

1,617 

1,812 

1,762 

1,258 

Depreciation of real estate and amortization of intangible assets exclusive of deferred financing fees



16,497 



14,122 



13,446 



12,359 



10,110 

Gain on sale of real estate

(2,161)

(652)

Share of office building joint venture loss


42 


305 


- - 


- - 


- - 

Depreciation and amortization from unconsolidated joint ventures


358 


328 


202 


- - 


- - 

- 22 -

<PAGE>

Preferred stock dividends

(4,863)

(2,955)

(2,955)

(1,239)

Funds from operations allocable to minority interest in Operating Partnership



(1,647)



(2,333)



(2,388)



(2,516)



(1,830)

Funds from operations allocable to minority interest in Locke Sovran II


(1,645
)


(125
)


-
 


-
 


-
 

Funds from operations available to common shareholders


$ 37,033
 


$ 35,148 


$ 33,663 


$ 35,299 


$ 33,078 

          The Company believes that Funds from Operations ("FFO") provides relevant and meaningful information about its operating performance that is necessary, along with net earnings and cash flows, for an understanding of its operating results.  Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis.  We believe that to further understand our performance, FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.

          Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.

CAPITAL RESOURCES, UNSECURED LINE OF CREDIT AND TERM NOTE

          The Company's unsecured credit facility provides availability up to $150 million, of which $128 million was drawn on December 31, 2002. The facility matures in November 2003 and bears interest at LIBOR plus 1.375%.

          In addition to the credit facility, the Company has a $75 million unsecured term note bearing interest at LIBOR plus 1.75%. The $75 million note has a maturity date of November 2003, but can be extended through November 2005 at the Company's option.

          The credit facility and term notes currently have investment grade ratings from Standard and Poor's (BBB-), Moody's (Baa3), and Fitch (BBB-).

          In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year note bears interest at 7.19%.

          Principal maturities of the mortgage for the next five years are as follows: 2003, $0.7 million; 2004, $0.7 million; 2005, $0.8 million; 2006, $0.9 million; and 2007, $0.9 million.

- 23 -

<PAGE>

          During 2002, the Company entered into lease agreements, qualifying as capital leases, for trucks to be used at its storage facilities. Principal maturities for capital lease obligations are as follows: 2003, $0.5 million; 2004, $0.5 million; 2005, $0.6 million; and 2006, $0.3 million.

          In July 1999, the Company issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. The Series B Preferred Stock is currently rated by Standard and Poor's (BB+), Moody's (Ba2) and Fitch (BB+).

          On July 3, 2002, the Company entered into an agreement providing for the issuance of 2,800,000 shares of 8.375% Series C Convertible Cumulative Preferred Stock and warrants to purchase 379,166 shares of common stock at $32.60 per share in a privately negotiated transaction. The Company immediately issued 1,600,000 shares of the Series C Preferred and issued the remaining 1,200,000 shares on November 27, 2002. The offering price was $25.00 per share and the net proceeds of $67.9 million were used to reduce indebtedness that was incurred in the June acquisition of seven self-storage properties and to repay a portion of the line of credit.

          In 2002, the Company acquired 186,617 shares of its common stock via the Share Repurchase Program authorized by the Board of Directors. Through December 31, 2002, the Company has reacquired 1,026,070 shares pursuant to this program. From time to time, subject to market price and certain loan covenants, the Company expects to continue reacquiring shares.

          The Company believes that its internally generated cash flows and borrowing capacity under the credit facility will be sufficient to fund ongoing operations, capital improvements, dividends, and share repurchases for the year 2003. The Company expects to replace its maturing unsecured credit facility with a new unsecured credit facility and medium to long-term unsecured term notes. Future growth is expected to be funded through issuance of secured or unsecured term notes, issuance of common or preferred stock, sale of Properties, private placement solicitation of joint venture equity and other sources of capital. The Company's outstanding unsecured debt as of December 31, 2002, assuming available extensions, matures as follows: 2003, $128 million; and 2005, $75 million.

ACQUISITION OF PROPERTIES

          During 2002, the Company and the consolidated joint venture used borrowings pursuant to the line of credit and a mortgage to acquire 23 Properties in Texas and New York comprising 1.5 million square feet from unaffiliated storage operators. In 2001, three facilities totaling 200,000 square feet were acquired. At December 31, 2002, the Company owned and/or operated 264 self-storage facilities in 21 states. Of these facilities, 11 are managed by the Company for Locke Sovran I, LLC, an unconsolidated joint venture.

FUTURE ACQUISITION AND DEVELOPMENT PLANS

          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 by acquiring several facilities at once in those new markets.

 

- 24 -

<PAGE>

          At December 31, 2002, the Company had no contracts to acquire additional properties.

          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.

DISPOSITION OF PROPERTIES

          During 2001, the Company sold eight Properties for approximately $24.5 million to Locke Sovran II, LLC. Because Locke Sovran II, LLC is a consolidated joint venture, no gain was recognized on the sale.

          In 2000, the Company sold seven Properties for approximately $20 million, recognizing a gain of $2.1 million. The gain recognized represents the proportion of the total gain not related to the Company's ongoing ownership interest. The Properties were sold to an unconsolidated joint venture in which the Company retained a 45% interest and whose properties the Company will manage for an ongoing fee. The Company invested $5 million of the proceeds to fund its 45% interest in the venture and received a short-term promissory note of approximately $15 million. The note was repaid in 2001 and the Company used the proceeds to pay down its outstanding line of credit, freeing up working capital for acquisitions and expansions done in 2001.

          The Company may seek to sell additional Properties to similar joint venture programs or third parties in 2003.

INVESTMENT IN JOINT VENTURES

          Investment in joint ventures includes an ownership interest in Locke Sovran I, LLC, which operates 11 self storage facilities throughout the United States, and an ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company's headquarters and other tenants.

          In December 2000, the Company contributed seven self-storage properties to Locke Sovran I, LLC with a fair market value of $19.8 million, in exchange for a $15 million one year note receivable bearing interest at LIBOR plus 1.75% that was repaid in 2001, and a 45% interest in Locke Sovran I, LLC. For the year ended December 31, 2002, the Company's share of Locke Sovran I, LLC's loss was $12,500, which is recorded as equity in losses of joint ventures on the consolidated statements of income.

          The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2002. The majority of the $1.6 million investment relates to interest bearing loans made by the Company to the joint venture. For the year ended December 31, 2002, the Company's share of Iskalo Office Holdings, LLC's loss was $42,000. The Company paid rent to Iskalo Office Holdings, LLC of $225,000 in 2002 and 2001.

 

 

- 25 -

<PAGE>

          A summary of the unconsolidated joint ventures' financial statements as of and for the year ended December 31, 2002 is as follows:

(dollars in thousands)

Locke Sovran I,
        LLC        

Iskalo Office 
Holdings, LLC

Balance Sheet Data:

   

Investment in storage facilities, net

$ 40,099     

$           -     

Investment in office building

-     

6,903     

Other assets

     1,952     

         471     

  Total Assets

$ 42,051     

$    7,374     


Due to the Company


$   2,023     


$    1,574     

Demand note payable

-      

900     

Mortgage payable

30,269     

5,800     

Other liabilities

        706     

         137     

  Total Liabilities

32,998     

8,411     


Unaffiliated partners' equity (deficiency)


4,913     


(529)     

Company equity (deficiency)

      4,140     

        (508)     

  Total Liabilities and Partners' Equity (Deficiency)

$  42,051     

$    7,374     


Income Statement Data:

   

Total revenues

$    5,807     

$       815     

Total expenses

      5,835     

         901     

  Net loss

$       (28)     

$        (86)    

          The Company does not guarantee the debt of Locke Sovran I, LLC; it does guarantee the $900,000 demand note payable of Iskalo Office Holdings, LLC.

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 90% of its 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 2003 may be applied toward the Company's 2002 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 2002, 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.

INTEREST RATE RISK

          At December 31, 2002, the Company has three outstanding interest rate swap agreements. The first, entered into in March 2001, effectively fixes the LIBOR base rate at 5.36% through November 2005 on $50 million notional amount. The second, entered in September 2001, effectively fixes the LIBOR base rate at 4.485% through October 2006 on another $50 million

notional amount. The third, also entered in September 2001, effectively fixes the LIBOR base

- 26 -

<PAGE>

rate at 4.805% through September 2008 on $30 million notional amount. The Company has an unsecured credit facility in place through November 2003 enabling the Company to borrow funds at rates of LIBOR plus 1.375% and 1.75%. Accordingly, as a result of the above described interest rate swap agreements, the Company has fixed its interest rate through November 2003 on $50 million at 6.735%, on another $50 million at 5.86%, and on $30 million at 6.555%. Upon renewal or replacement of the credit facility, the Company's total interest may change dependent on the terms it negotiates with its lenders; however, the LIBOR base rates have been contractually fixed on $130 million of the Company's debt through the interest rate swap termination dates.

          Because all but $130 million of the Company's outstanding unsecured debt of $203 million is on a floating rate basis, changes in short term interest rates could have a significant impact on the Company's earnings and funds from operations. Should the Company enter into further rate swap agreements, earnings could be negatively affected, as short-term rates are presently significantly below the five and seven year cost of funds.

          Based upon the Company's indebtedness at December 31, 2002, and taking the interest rate swap agreements into account, a 1% increase in interest rates would result in an increase to interest expense of approximately $0.7 million.

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 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 fourth quarters, primarily because the Company increases its rental rates on most of its storage units at the beginning of May and 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.

RECENT ACCOUNTING PRONOUNCEMENT

          In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," but retains its fundamental provisions for recognition and measurement of the impairment of long-lived assets to be held and used and those to be disposed of by sale. SFAS 144 also extends the reporting of a discontinued operation to a component of an entity. The Company adopted this standard in 2002. The

- 27 -

<PAGE>

adoption of this standard had no material effect on the Company's results of operations and financial condition in 2002.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

          The information required is incorporated by reference to the information appearing under the caption "Interest Rate Risk" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 28 -

<PAGE>

Item 8.

Financial Statements and Supplementary Data

SOVRAN SELF STORAGE, INC. CONSOLIDATED BALANCE SHEETS

 

December 31,

(dollars in thousands, except share data)

    2002    

    2001    

Assets

   

Investment in storage facilities:

   

 Land

$ 132,853 

$ 117,069 

 Building and equipment

   577,988 

   494,220 

 

710,841 

611,289 

 Less: accumulated depreciation

   (75,344)

   (59,091)

Investment in storage facilities, net

635,497 

552,198 

Cash and cash equivalents

2,063 

1,883 

Accounts receivable

1,785 

1,064 

Receivable from related parties

98 

122 

Receivable from joint ventures

2,023 

679 

Investment in joint ventures

3,386 

3,659 

Prepaid expenses

2,719 

2,505 

Fair value of interest rate swap agreements

-  

373 

Other assets

     4,766 

     5,355 

  Total Assets

$ 652,337 

$ 567,838 


Liabilities

   

Line of credit

$128,000 

$134,000 

Term note

75,000 

105,000 

Accounts payable and accrued liabilities

5,024 

4,359 

Deferred revenue

3,468 

3,157 

Fair value of interest rate swap agreements

10,020 

-  

Accrued dividends

7,791 

7,293 

Capital lease obligations

1,933 

-  

Mortgage payable

     47,519 

     2,190 

  Total Liabilities

278,755 

255,999 

Minority interest - Operating Partnership

14,277 

17,590 

Minority interest - consolidated joint venture

16,531 

17,085 

     

Shareholders' Equity

   

Series A Junior Participating Cumulative
  Preferred Stock, $.01 par value, 250,000 shares
  authorized and no shares issued and outstanding



- -   



- -   

9.85% Series B Cumulative Preferred Stock, $.01
  par value, 1,700,000 shares authorized 1,200,000   shares issued and outstanding, $30,000
  liquidation value




28,585 




28,585 

8.375% Series C Convertible Cumulative Preferred Stock, $.01 par value, 2,800,000 shares issued
and outstanding, $70,000 liquidation value



67,129 



- -  

Common stock $.01 par value, 100,000,000 shares
  authorized, 12,984,339 shares outstanding
  (12,354,961 at December 31, 2001)



140 



132 

Additional paid-in capital

317,423 

293,835 

Unearned restricted stock

(2,134)

(1,978)

Dividends in excess of net income

(35,124)

(25,746)

Accumulated other comprehensive income

(10,020)

373 

Treasury stock at cost, 1,026,070 shares (839,453
  shares at December 31, 2001)


(23,225)


(18,037)

- 29 -

<PAGE>

  Total Shareholders' Equity

342,774 

277,164 

     

  Total Liabilities and Shareholders' Equity

$652,337 

$567,838 

See notes to financial statements.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 30 -

<PAGE>

SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Year Ended December 31,

(dollars in thousands, except per share data)

    2002    

    2001    

    2000    

       

Revenues

     

 Rental income

$ 99,987 

$ 89,116 

$ 88,208 

 Other operating income

     2,154 

     1,896 

    1,944 

  Total operating revenues

102,141 

91,012 

90,152 

       

Expenses

     

 Property operations and maintenance

24,284 

20,517 

19,329 

 Real estate taxes

9,265 

7,981 

7,718 

 General and administrative

8,586 

8,026 

5,786 

 Depreciation and amortization

   17,392 

   15,035 

14,273 

  Total operating expenses

   59,527 

   51,559 

47,106 

       

 Income from operations

42,614 

39,453 

43,046 

       

Other income (expenses)

     

Interest expense

(14,664)

(13,940)

(17,708)

Interest income

356 

395 

197 

Minority interest - Operating Partnership

(1,180)

  (1,542)

  (1,812)

Minority interest - consolidated joint venture

(810)

  (75)

     -    

Equity in losses of joint ventures

         (15)

       (102)

     (177)

       

Income before gain on sale of real estate

26,301 

24,189 

23,546 

Gain on sale of real estate

     -    

         -    

    2,161 

Net Income

 26,301 

 24,189 

 25,707 

Preferred stock dividends

   (5,093)

    (2,955)

   (2,955)

Net income available to common shareholders

$ 21,208 

$ 21,234 

$ 22,752 

       

Per Common Share:

     

Earnings per common share - basic

$  1.66 

$  1.74 

$  1.89 

Earnings per common share - diluted

$  1.64 

$  1.72 

$  1.89 

       

Dividends declared per common share

$  2.38 

$  2.34 

$  2.30 

See notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

- 31 -

<PAGE>

SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

 

9.85% Series B
Preferred    
Stock       
Shares      


9.85% Series B
Preferred     
Stock        

8.375% Series C
Preferred      
Stock        
Shares       


8.375% Series C
Preferred      
Stock        


Common  
Stock     
Shares    



Common
Stock   


Additional
Paid-in   
Capital   


Unearned 
Restricted
Stock    


Dividends in
Excess of  
Net Income 

Accumulated  
Other        
Comprehensive
Income      



Treasury 
Stock   



Total      
Equity    

Balance January 1, 2000

1,200,000 

$ 28,585 

-    

$          -    

12,299,163 

$ 127 

$ 281,284 

$ (339)

$ (13,357)

$ -    

$ (8,444)

$ 287,856 

                         

Net proceeds from issuance of
  stock through Dividend
  Reinvestment and Stock
  Purchase Plan




- -    




- -    




- -    




- -    




108,949 







2,063 




- -   




- -    




- -    




- -    




2,064 

Issuance of restricted stock

-    

-    

-    

-    

17,075 

-    

348 

(348)

-    

-    

-    

-    

Earned portion of restricted stock

-    

-    

-    

-    

-    

-    

-    

137 

-    

-    

-    

137 

Deferred compensation outside
  directors


- -    


- -    


- -    


- -    


- -    


- -    


50 


- -    


- -    


- -    


- -    


50 

Purchase of treasury shares

-    

-    

-    

-    

(396,500)

-    

-    

-    

-    

-    

(7,784)

(7,784)

Net income

-    

-    

-    

-    

-    

-    

-    

-    

25,707 

-    

-    

25,707 

Dividends

               -    

            -    

               -    

            -    

              -    

          -    

            -    

          -    

    (30,632)

            -    

            -    

  (30,632)

Balance December 31, 2000

1,200,000 

  28,585 

-    

-    

12,028,687 

   128 

 283,745 

  (550)

 (18,282)

    -  

 (16,228)

277,398 


Net proceeds from issuance of
  stock through Dividend
  Reinvestment and Stock
  Purchase Plan





- -    





- -    





- -    





- -    





221,303 









5,207 





- -   





- -    





- -    





- -    





5,209 

Exercise of stock options

-    

-    

-    

-    

52,500 

 1 

1,095 

-    

-    

-    

-    

1,096 

Issuance of restricted stock

-    

-    

-    

-    

78,365 

1,851 

(1,852)

-    

-    

-    

-    

Earned portion of restricted stock

-    

-    

-    

-    

-    

-    

-    

424 

-    

-    

-    

424 

Deferred compensation outside
  directors


- -    


- -    


- -    


- -    


- -    


- -    


69 


- -    


- -    


- -    


- -    


69 

Purchase of treasury shares

-    

-    

-    

-    

(66,753)

-    

-    

-    

-    

-    

(1,809)

(1,809)

Shares issued from conversion of
  partnership units


- -    


- -    


- -    


- -    


40,859


- -    


1,091 


- -    


- -    


- -    


- -    


1,091 

Carrying value in excess of
  redemption value on redeemed
  partnership units



- -    



- -    



- -    



- -    



- -    



- -    



777 



- -    



- -    



- -    



- -    



777 

Net income

-    

-    

-    

-    

-    

-    

-    

-    

24,189 

-    

-    

24,189 

Increase in fair value of
  derivatives


- -    


- -    


- -    


- -    


- -    


- -    


- -    


- -    


- -    


373 


- -    


373 

- 32 -

<PAGE>

Total comprehensive income

-    

-    

-    

-    

-    

-    

-    

-    

-    

-    

-    

24,562 

Dividends

               -    

            -    

               -    

            -    

              -    

          -    

            -    

          -    

    (31,653)

            -    

            -    

  (31,653)

Balance December 31, 2001

1,200,000 

  28,585 

-    

-    

12,354,961 

   132 

 293,835 

  (1,978)

 (25,746)

373 

 (18,037)

277,164 


Net proceeds from issuance of
  stock through Dividend
  Reinvestment and Stock
  Purchase Plan





- -    





- -    





- -    





- -    





549,720 









16,440 





- -   





- -    





- -    





- -    





16,446 

Issuance of 8.375% Series C
  Convertible Preferred Stock


- -    


- -    


2,800,000 


67,129 


- -    


- -    


977 


- -    


(230)


- -    


- -    


67,876 

Exercise of stock options

-    

-    

-    

-    

247,775 

 2 

5,646 

-    

-    

-    

-    

5,648 

Issuance of restricted stock

-    

-    

-    

-    

18,500 

-    

586 

(586)

-    

-    

-    

-    

Earned portion of restricted stock

-    

-    

-    

-    

-    

-    

-    

430 

-    

-    

-    

430 

Deferred compensation outside
  directors


- -    


- -    


- -    


- -    


- -    


- -    


89 


- -    


- -    


- -    


- -    


89 

Purchase of treasury shares

-    

-    

-    

-    

(186,617)

-    

-    

-    

-    

-    

(5,188)

(5,188)

Carrying value less than
  redemption value on redeemed
  partnership units



- -    



- -    



- -    



- -    



- -    



- -    



(150)



- -    



- -    



- -    



- -    



(150)

Net income

-    

-    

-    

-    

-    

-    

-    

-    

26,301 

-    

-    

26,301 

Decrease in fair value of
  derivatives


- -    


- -    


- -    


- -    


- -    


- -    


- -    


- -    


- -    


 (10,393)


- -    


(10,393)

Total comprehensive income

-    

-    

-    

-    

-    

-    

-    

-    

-    

-    

-    

15,908 

Dividends

               -    

            -    

               -    

            -    

              -    

          -    

            -    

          -    

    (35,449)

            -    

            -    

  (35,449)

Balance December 31, 2002

1,200,000 

$  28,585 

2,800,000 

$  67,129 

12,984,339 

$   140 

$ 317,423 

$  (2,134)

$ (35,124)

$(10,020

(23,225)

$342,774 

See notes to financial statements.

 

 

 

 

 

 

 

 

- 33 -

<PAGE>

SOVRAN SELF STORAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

         Year Ended December 31,         

(dollars in thousands)

   2002   

   2001   

   2000   

       

Operating Activities

     

Net income

$ 26,301 

$ 24,189 

$ 25,707 

Adjustments to reconcile net income to net cash
  provided by operating activities:

     

Write-off of deferred financing costs

-    

-    

211 

Depreciation and amortization

17,392 

15,035 

14,273 

Gain on sale of real estate

-    

-    

(2,161)

Equity in losses of joint ventures

15 

102 

177 

Minority interest

1,990 

1,617 

1,812 

Restricted stock earned

430 

424 

137 

Changes in assets and liabilities:

     

 Accounts receivable

(587)

91 

20 

 Fees receivable from joint ventures

-    

711 

(711)

 Prepaid expenses

13 

(472)

(70)

 Accounts payable and other liabilities

220 

(626)

203 

 Deferred revenue

    (164)

    (149)

    (170)

Net cash provided by operating activities

45,610 

40,922 

39,428 

       

Investing Activities

     

 Additions to storage facilities

(97,150)

(31,483)

(23,390)

 (Advances) reimbursement of advances to joint
   ventures


(2,118)


14,654 


(514)

 Receipts from (advances to) related parties

24 

1,885 

(1,370)

 Other assets

        -    

      (2,807)

        -    

Net cash used in investing activities

(99,244)

(17,751)

(25,274)

       

Financing Activities

     

 Net proceeds from sale of common stock

22,034 

6,374 

2,064 

 Net proceeds from sale of preferred stock and
   common stock warrants


67,876 


- -    


- -    

 (Paydown of) proceeds from line of credit

(6,000)

10,000 

1,000 

 (Paydown of) proceeds from term note

(30,000)

-    

30,000 

 Proceeds from mortgage financing

48,000 

-    

-    

 Financing costs

(460)

(398)

(3,388)

 Dividends paid - common stock

(30,089)

(28,382)

(27,710)

 Dividends paid - preferred stock

(4,863)

(2,955)

(2,955)

 Distributions from unconsolidated joint venture

1,032 

-    

-    

 Minority interest distributions

(2,694)

(1,728)

(1,962)

 Purchase of treasury stock

(5,188)

(1,809)

(7,784)

 Redemption of operating partnership units

(3,163)

(3,778)

-    

 Mortgage principal payments

     (2,671)

          (33)

     (3,030)

       

Net cash provided by (used in) financing activities

    53,814 

   (22,709)

   (13,765)

- 34 -

<PAGE>

Net increase in cash

180 

462 

389 

Cash at beginning of period

      1,883 

      1,421 

      1,032 

Cash at end of period

$   2,063 

$   1,883 

$   1,421 

 

 

 

        Year Ended December 31,        

(dollars in thousands)

   2002   

   2001   

   2000   

Supplemental cash flow information

     

Cash paid for interest

$ 14,465 

$ 14,416 

$ 16,948 

       

Capital lease obligations incurred

 2,183 

-    

-    

Storage facilities acquired through issuance of
  an ownership interest in the consolidated joint venture


- -    


17,000 


- -    

Note receivable from sale of storage facilities to
  joint venture


- -    


- -    


15,000 

Investment in joint venture received as part of sale
  of storage facilities


- -    


- -    


2,834 

Storage facilities acquired through assumption
  of mortgage


- -    


- -    


- -    

Fair value of net liabilities assumed on the acquisition
  of storage facilities


559 


165 


83 

Dividends declared but unpaid at December 31, 2002, 2001 and 2000 were $7,791, $7,293, and $6,977, respectively.

See notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 35 -

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sovran Self Storage, Inc. - December 31, 2002

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. At December 31, 2002, the Company owned and/or managed 264 self-storage properties under the "Uncle Bob's Self Storage"® trade name in 21 states.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation: All of the Company's assets are owned by, and all its operations are conducted through, Sovran Acquisition Limited Partnership (the "Operating 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 Operating Partnership, and thereby controls the operations of the Operating Partnership, holding a 95.90% ownership interest therein as of December 31, 2002. The remaining ownership interests in the Operating Partnership (the "Units") are held by certain former owners of assets acquired by the Operating Partnership subsequent to its formation.

          The consolidated financial statements of the Company include the accounts of the Company, the Operating Partnership, and Locke Sovran II, LLC, which is a majority controlled joint venture. All intercompany transactions and balances have been eliminated. Investments in joint ventures which are not majority owned are reported using the equity method.

          Cash and Cash Equivalents: The Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents.

          Revenue and Expense Recognition: Rental income is recorded when earned. Rental income received prior to the start of the rental period is included in deferred revenue. Advertising costs are expensed as incurred and for the years ended December 31, 2002, 2001, and 2000 were $0.6 million, $0.4 million, and $1.4 million, respectively.

          Other Income: Consists primarily of sales of storage-related merchandise (locks and packing supplies), management fees, 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 that extend the useful life of assets are capitalized. Repair and maintenance costs are expensed as incurred.

          Whenever events or changes in circumstances indicate that the basis of the Company's property may not be recoverable, the Company's policy is to assess any impairment of value.

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<PAGE>

Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the property, on a property by property basis. If the sum of the undiscounted cash flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. At December 31, 2002 and 2001, no assets had been determined to be impaired under this policy and, accordingly, this policy had no impact on the Company's financial position or results of operations.

          Other Assets: Included in other assets are intangible assets of $2.0 million and a note receivable of $2.8 million. The intangible assets at December 31, 2002, consist primarily of loan acquisition costs of approximately $4.0 million, net of accumulated amortization of approximately $2.0 million. Loan acquisition costs are amortized over the terms of the related debt. Amortization expense was $1.0 million, $1.1 million and $0.9 million for the periods ended December 31, 2002, 2001 and 2000, respectively. The note receivable of $2.8 million represents a note from certain investors of Locke Sovran II, LLC. The note bears interest at LIBOR plus 2.4% and matures upon the dissolution of Locke Sovran II, LLC.

          Stock-Based Compensation: In accordance with the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation," the Company has elected to continue applying the provisions of Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for its stock-based compensation plans. Accordingly, the Company does not recognize compensation expense for stock options when the stock option price at the grant date is equal to or greater than the fair market value of the stock at that date. The following illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 (in thousands, except for earnings per share information):

 

                   Pro Forma                   

(dollars in thousands, except per share data)

2002   

2001   

2000   

 
Net income available to common shareholders
   as reported



$ 21,208 



$ 21,234 



$ 22,752 


Deduct: Total stock-based employee compensation
   Expense determined under fair value method for
   all awards




       (202)




       (188)




     (110
)

Pro forma net income available to common shareholders

$ 21,006 

$ 21,046 

$ 22, 642 


Earnings per common share

     

   Basic - as reported

$ 1.66   

$ 1.74   

$ 1.89   

   Basic - pro forma

$ 1.65   

$ 1.72   

$ 1.88   

   Diluted - as reported

$ 1.64   

$ 1.72   

$ 1.89   

   Diluted - pro forma

$ 1.62   

$ 1.71   

$ 1.88   

           Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No. 123. The fair value for the stock options was estimated at the

- 37 -

<PAGE>

date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 4.0% for 2002, 5.0% for 2001, and 6.5% for 2000; dividend yield of 8.0% for 2002, 10.7% for 2001, and 11% for 2000; volatility factor of the expected market price of the Company's common stock of .21 for 2002, and .23 for 2001 and .21 for 2000. The average fair value of options granted was $1.98 in 2002, $.93 in 2001, and $.90 in 2000.

           The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period.

           Minority Interest: The minority interest reflects the outside ownership interest of the limited partners of the Operating Partnership and the joint venture partner's interest in Locke Sovran II, LLC. Amounts allocated to these interests are reflected as an expense in the income statement and increase the minority interest in the balance sheet. Distributions to these partners reduce this balance. At December 31, 2002, Operating Partnership minority interest ownership was 554,865 Units, or 4.1%.

           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 90% of its taxable income to its shareholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes in the accompanying financial statements.

           Comprehensive Income: Comprehensive income consists of net income and the change in value of derivatives used for hedging purposes and is reported in the consolidated statements of shareholders' equity. Comprehensive income was $15.9 million and $24.6 million and $25.7 million for the years ended December 31, 2002, 2001, and 2000, respectively.

           Derivative Financial Instruments: On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by reference to quoted market prices. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company's use of derivative instruments is limited to cash flow hedges, as defined in SFAS No. 133, of certain interest rate risks.

           Recent Accounting Pronouncement: In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets which supersedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be

- 38 -

<PAGE>

Disposed of. Although retaining many of the provisions of SFAS No. 121, SFAS No. 144 establishes a uniform accounting model for long-lived assets to be disposed of. SFAS 144 also extends the reporting of a discontinued operation to a component of an entity. The Company's adoption of this statement in the first quarter of 2002 did not have an impact on the Company's financial results.

           In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. It rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item. The Company adopted this standard in 2002 resulting in reclassification of its 2000 loss on extinguishment of debt of $211,000 from an extraordinary item to interest expense.

           In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires the recognition of expense when the liability is incurred and not as a result of an entity's commitment to an exit plan. The statement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 in the first quarter of 2003 is not expected to have a significant impact on the Company's financial results.

           In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148, which is effective for years ending after December 15, 2002, provides alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires prominent disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company's adoption of SFAS No. 148 in 2002 enhanced stock-based employee compensation disclosures and had no effect on the method of accounting followed by the Company, as the Company continues to apply the provisions of APB 25.

           Reclassification: Certain amounts from the 2001 and 2000 financial statements have been reclassified to conform with the current year presentation.

           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.  EARNINGS PER SHARE

           The Company reports earnings per share data in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." In computing earnings per share, the Company excludes preferred stock dividends from net income to arrive at net income available to common shareholders. The following table sets forth the computation of basic and diluted earnings per common share.

 

- 39 -

<PAGE>


(Amounts in thousands,
except per share data)

Year Ended  
December 31,
2002       

Year Ended  
December 31,
2001       

Year Ended  
December 31,
2000       

________________________________________________________________________________


Numerator:
  Net income available to common shareholders



$ 21,208 



$ 21,234 



$ 22,752 

________________________________________________________________________________


Denominator
  Denominator for basic earnings per share -
  weighted average shares




12,766 




12,215 




12,067 


Effect of Dilutive Securities:
  Stock options



179 



101 



________________________________________________________________________________

  Denominator for diluted earnings per share -
    adjusted weighted - average shares and     assumed conversion



12,945 



12,316 



12,068 

________________________________________________________________________________


Basic Earnings per Common Share


$  1.66 


$  1.74 


$  1.89 

________________________________________________________________________________


Diluted Earnings per Common Share


$  1.64 


$  1.72 


$  1.89 

________________________________________________________________________________

Potential common shares from the Series C Convertible Cumulative Preferred Stock and related warrants, see Note 12, were excluded from the 2002 diluted earnings per share calculation because their inclusion would have had an antidilutive effect on earnings per share.

4.  INVESTMENT IN STORAGE FACILITIES

          The following summarizes activity in storage facilities during the years ended December 31, 2002 and December 31, 2001.

 

(Dollars in thousands)

2002    

2001    

____________________________________________________________________

Cost:

   

  Beginning balance

$611,289 

$562,721 

  Property acquisitions

81,819 

30,269 

  Improvements and equipment additions

17,934 

18,527 

  Dispositions

(201)

(228)

____________________________________________________________________


Ending balance


$710,841 


$611,289 

____________________________________________________________________

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<PAGE>


Accumulated Depreciation:

   

  Beginning balance

$ 59,091 

$ 45,253 

  Additions during the year

16,344 

13,918 

  Dispositions

(91)

(80)

____________________________________________________________________


Ending balance


$ 75,344 


$ 59,091 

____________________________________________________________________

 

5.  UNSECURED LINE OF CREDIT AND TERM NOTE

          The Company has a $150 million revolving line of credit due November 2003 at LIBOR plus 1.375% and a $75 million term loan due November 2003 (extendable, at the Company's option, to November 2005) at LIBOR plus 1.75%. The weighted average interest rate at December 31, 2002 on the Company's credit facility before the effect of interest rate swaps was approximately 3.0% (3.5% at December 31, 2001). At December 31, 2002, there was $22 million available on the line of credit.

          The net carrying amount of the Company's debt instruments approximates fair value.

 

6.  MORTGAGE PAYABLE AND CAPITAL LEASE OBLIGATIONS

          In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year mortgage bears interest at the fixed rate of 7.19%. The outstanding balance on the mortgage is $47.5 million at December 31, 2002. Principal maturities of the mortgage for the next five years are as follows: 2003, $0.7 million; 2004, $0.7 million; 2005, $0.8 million; 2006, $0.9 million; and 2007, $0.9 million.

          During 2002, the Company entered into lease agreements, qualifying as capital leases, for trucks to be used at its storage facilities. The outstanding balance on these capital lease obligations is $1.9 million at December 31, 2002. Principal maturities for capital lease obligations are as follows: 2003, $0.5 million; 2004, $0.5 million; 2005, $0.6 million; and 2006, $0.3 million.

 

7.  DERIVATIVE FINANCIAL INSTRUMENTS

          Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. The notional amounts are not changed. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its

- 41 -

<PAGE>

net present value. The Company enters interest rate swaps with a number of major financial institutions to minimize counterparty credit risk.

          The interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders' equity as Accumulated Other Comprehensive Income ("AOCI"). These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was immaterial in 2002 and 2001.

          The Company has entered into three interest rate swap agreements, one in March 2001 for $50 million and two in September 2001 for $50 million and $30 million, to effectively convert a total of $130 million of variable-rate debt to fixed-rate debt. One of the $50 million interest rate swap agreements matures in November 2005, the other matures in October 2006, and the $30 million swap agreement matures in September 2008.

          The 2001 interest rate swap agreements are the only derivative instruments, as defined by SFAS No. 133, held by the Company; as such, there was no impact upon adoption of SFAS No. 133 at January 1, 2001. During 2002 and 2001, the net reclassification from AOCI to interest expense was $4.0 million and $1.1 million, respectively, based on payments made under the swap agreements. Based on current interest rates, the Company estimates that payments under the interest rate swaps will be approximately $4.5 million in 2003. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements at December 31, 2002 was a $10 million liability.

 

8.  STOCK OPTIONS

          The Company established the 1995 Award and Option Plan (the "Plan") for the purpose of attracting and retaining the Company's executive officers and other key employees. 1,500,000 shares were authorized for issuance under the Plan. The options vest ratably over four and five years, and must be exercised within ten years from the date of grant. The exercise price for qualified incentive stock options must be at least equal to the fair market value at the date of grant. As of December 31, 2002, options for 647,275 shares were outstanding under the Plan and 383,360 shares of common stock were available for future issuance.

          The Company also established the 1995 Outside Directors' Stock Option Plan (the Non-employee Plan) for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors. The Non-employee Plan provides for the annual granting of options to purchase 3,000 shares of common stock to each eligible director. Such options vest over a one-year period for initial awards and immediately upon subsequent grants. The total shares reserved under the Non-employee Plan is 100,000. The exercise price for options granted under the Non-employee Plan is equal to fair market value at date of grant. As of December 31, 2002, options for 87,500 shares were outstanding under the Non-employee Plan.

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<PAGE>

          The Company has also issued 132,340 shares of restricted stock to employees which vest over four and five year periods. The fair market value of the restricted stock on the date of grant ranged from $20.38 to $31.65. The Company charges unearned restricted stock, a component of shareholders' equity, for the market value of shares as they are issued. The unearned portion is then amortized and charged to expense over the vesting period.

          A summary of the Company's stock option activity and related information for the years ended December 31 follows:

 

 

2002

2001

2000

________________________________________________________________________________

 




Options 

Weighted
average 
exercise 
price    




Options 

Weighted
average 
exercise 
price    




Options 

Weighted
average 
exercise 
price    

________________________________________________________________________________

Outstanding at beginning of year:


902,550 


$   23.14 


639,050 


$   23.67 


433,050 


$   25.32 

             

Granted

80,000 

30.92 

329,500 

21.71 

212,000 

19.19 

Exercised

(247,775)

22.80 

(52,500)

20.77 

-    

-    

Forfeited

-    

-    

(13,500)

20.75 

(6,000)

19.06 

________________________________________________________________________________

Outstanding at end of
year


734,775 


$    23.08 


902,550 


$    23.14 


639,050 


$    23.67 

________________________________________________________________________________

Exercisable at end of
year


317,030 


$    25.39 


417,370 


$    24.55 


328,743 


$    24.24 

________________________________________________________________________________

          Exercise prices for options outstanding as of December 31, 2002 ranged from $19.07 to $31.68. The weighted average remaining contractual life of those options is 6.57 years. As disclosed further in Note 12, warrants to purchase 379,166 common shares of the Company at a price of $32.60 per share are outstanding at December 31, 2002.

 

9.  RETIREMENT PLAN

          Employees of the Company qualifying under certain age and service requirements are eligible to be a participant in a 401(k) Plan, which became effective September 1, 1997. The Company contributes to the Plan at the rate of 50% of the first 4% of gross wages that the employee contributes. Total expense to the Company was approximately $92,000, $63,000, and $60,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

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<PAGE>

10.  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 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 the Company's common stock. If a person or group acquires more than 10% of the then outstanding shares of the Company's 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.

 

11.  INVESTMENT IN JOINT VENTURES

          Investment in joint ventures includes an ownership interest in Locke Sovran I, LLC, which operates 11 self-storage facilities throughout the United States, and an ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company's headquarters and other tenants.

          In December 2000, the Company contributed seven self-storage properties to Locke Sovran I, LLC with a fair market value of $19.8 million, in exchange for a $15 million 1 year note receivable bearing interest at LIBOR plus 1.75% that was repaid in 2001, and a 45% interest in Locke Sovran I, LLC. This transaction resulted in a gain on the disposal of the properties of approximately $4.3 million; $1.9 million of this gain was deferred as a result of the Company's continuing ownership interest in Locke Sovran I, LLC, as such the initial investment, including cash funding, was recorded at $3.1 million. The deferred gain is being amortized over the life of the properties, consistent with the depreciation expense recorded by Locke Sovran I, LLC. For the year ended December 31, 2002, the Company's share of Locke Sovran I, LLC's loss was $12,500 and the amortization of the deferred gain was $40,000, both of which are recorded as equity in losses of joint ventures on the consolidated statements of income.

          The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC at December 31, 2002. The majority of the $1.6 million investment relates to interest bearing loans made by the Company to the joint venture. For the year ended December 31, 2002, the Company's share of Iskalo Office Holdings, LLC's loss was $42,000. The Company paid rent to Iskalo Office Holdings, LLC of $255,000 in 2002 and 2001.

          A summary of the unconsolidated joint ventures' financial statements as of and for the year ended December 31, 2002 is as follows:

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<PAGE>

(dollars in thousands)

   Locke Sovran I,
         LLC         

Iskalo Office  
Holdings, LLC 

Balance Sheet Data:

   

Investment in storage facilities, net

$40,099         

$           -          

Investment in office building

-          

6,903          

Other assets

     1,952          

         471          

  Total Assets

$ 42,051          

$    7,374          

Due to the Company

$ 2,023          

$    1,574          

Demand note payable

-          

900          

Mortgage payable

30,269          

5,800          

Other liabilities

      706          

         137          

  Total Liabilities

32,998          

8,411          

Unaffiliated partners' equity (deficiency)

4,913          

(529)          

Company equity (deficiency)

    4,140          

      (508)          

  Total Liabilities and Partners' Equity (Deficiency)

$ 42,051          

$   7,374          


Income Statement Data:

   

Total revenues

$   5,807          

$      815          

Total expenses

     5,835          

        901          

  Net loss

$      (28)          

$      (86)          

         The Company does not guarantee the debt of Locke Sovran I, LLC; it does guarantee the $900,000 demand note payable of Iskalo Office Holdings, LLC.

 

12.  PREFERRED STOCK

Series A

         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 pursuant to the Shareholder Rights Plan (see note 10), 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.

Series B

         On July 30, 1999, the Company issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. The offering price was $25 per share resulting in net proceeds of $28.6 million after expenses. The Series B Preferred Stock is not redeemable until on or after July 30, 2004, at which time the Company may redeem the shares at $25.00 per share ($30,000,000 aggregate), plus any accrued and unpaid dividends. The shares may be redeemed only with the proceeds of certain sales of equity securities. Dividends on the Series B Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September, and December at a rate of $2.4625 per annum per share.

         Holders of the Series B Preferred Stock generally have no voting rights. However, if the Company does not pay dividends on the Series B shares for six or more quarterly periods

- 45 -

<PAGE>

(whether or not consecutive), the holders of the shares, voting as a class with the holders of any other class or series of stock with similar voting rights, will be entitled to vote for the election of two additional directors to serve on the Board of Directors until all Series B dividends that have accrued are paid.

Series C

         On July 3, 2002, the Company entered into an agreement providing for the issuance of 2,800,000 shares of 8.375% Series C Convertible Cumulative Preferred Stock ("Series C Preferred") in a privately negotiated transaction. The Company immediately issued 1,600,000 shares of the Series C Preferred and issued the remaining 1,200,000 shares on November 27, 2002. The offering price was $25.00 per share resulting in net proceeds for the Series C Preferred and related common stock warrants of $67.9 million.

         The Series C Preferred has a fixed annual dividend rate equal to the greater of 8.375% or the actual dividend paid on the number of the Company's common shares into which the Series C Preferred is convertible. The Series C Preferred is convertible at a ratio of .76687 common shares for each Series C Preferred share and can be redeemed at the Company's option on or after November 30, 2007 at $25.00 per share ($70,000,000 aggregate) plus accrued and unpaid dividends. Dividends on the Series C Preferred are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September, and December at a rate of $2.09375 per annum per share.

         Holders of the Series C Preferred generally have no voting rights. However, if the Company does not pay dividends on the Series C Preferred shares for six or more quarterly periods (whether or not consecutive), the holders of the shares, voting as a class with the holders of any other class or series of stock with similar voting rights, will be entitled to vote for the election of two additional directors to serve on the Board of Directors until the Series C Preferred dividends are paid.

         In addition, the Company issued warrants to the Series C Preferred investors to purchase 379,166 common shares of the Company at a price of $32.60 per share that expire November 30, 2007. Using the Black-Scholes method, the warrants had a fair value at the issue date of $1.97 per common share covered by the warrants. Also, an entity related to one of the investors received a placement certificate that entitles it to receive cash from the Company in the amount of 650,000 multiplied by the excess of the fair market value of the Company's common stock over $32.60 on the date the certificate is exercised. This arrangement expires on November 30, 2007. Based upon the Company's common stock price at December 31, 2002, no amount is currently payable under this arrangement.

         The Company recorded a deemed dividend of $0.2 million in 2002 in connection with the issuance of the Series C Preferred. The deemed dividend represents the calculated value of the beneficial conversion feature that existed on July 3, 2002, the date of issuance of the Series C Preferred. The beneficial conversion feature is calculated as the excess of, on the date of issuance of the Series C Preferred, the fair value of the common stock into which the Series C Preferred is convertible, over the issuance amount allocated to the Series C Preferred.

 

 

- 46 -

<PAGE>

13.  SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)

          The following is a summary of quarterly results of operations for the years ended December 31, 2002 and 2001 (dollars in thousands, except per share data).

 

2002 Quarter Ended

 

March 31  

June 30  

Sept. 30  

Dec. 31  

 

__________________________________________

Operating revenue

$ 24,167 

$ 25,177 

$ 26,249 

$ 26,548 

Net Income

$   6,109 

$   6,645 

$   6,837 

$   6,710 

Net income available to common
  shareholders


$   5,370 


$   5,906 


$   5,049 


$   4,883 

Net Income Per Common Share
  (Note 3):

       

  Basic

$     0.43 

$     0.47 

$     0.39 

$     0.37 

  Diluted

$     0.42 

$     0.46 

$     0.38 

$     0.37 

 

 

2001 Quarter Ended

 

March 31  

June 30  

Sept. 30  

Dec. 31  

 

__________________________________________

Operating revenue

$ 22,125 

$ 22,626 

$ 23,435 

$ 22,826 

Net Income

$   5,361 

$   6,436 

$   7,272 

$   5,120 

Net income available to common
  shareholders


$   4,622 


$   5,697 


$   6,533 


$   4,382 

Net Income Per Common Share
  (Note 3):

       

  Basic

$     0.38 

$     0.47 

$     0.53 

$     0.36 

  Diluted

$     0.38 

$     0.46 

$     0.53 

$     0.35 

         Quarterly operating revenue amounts disclosed above differ from previously reported amounts due to a reclassification of interest income from operating revenue. The Company's net income in the fourth quarter of 2001 was impacted by a $1.7 million expense in connection with a lawsuit settlement described in Note 15.

 

 

 

 

 

 

 

 

 

 

 

 

 

- 47 -

<PAGE>

14.  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 that individually or in the aggregate would be material to the Company's overall business, financial condition, or results of operations.

 

15.  LEGAL PROCEEDINGS

         A former business associate (the "Plaintiff") of certain officers and directors of the Company, including Robert J. Attea, Kenneth F. Myszka, David L. Rogers and Charles E. Lannon (the "Founding Shareholders"), commenced a lawsuit against the Company on June 13, 1995 in the United States District Court for the Northern District of Ohio. The Plaintiff subsequently amended the complaint in the lawsuit alleging breach of fiduciary duty, breach of contract, breach of general partnership/joint venture arrangement, breach of duty of good faith, fraud and deceit, and other causes of action including declaratory judgment as to the Plaintiff's continuing interest in the Company. The Plaintiff sought money damages in excess of $15 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 the Plaintiff claimed to have a continuing interest) and an accounting. The amended complaint also added the Founding Shareholders as additional defendants. In April 2000, following trial, the jury rendered a verdict adverse to the Company with respect to the Plaintiff's claims for breach of contract and breach of general partnership/joint venture arrangement and found total compensatory damages in the amount of $6,462,068. The Company filed a post-trial motion for judgment as a matter of law and a motion for a new trial. Although the motion for judgment as a matter of law was denied, the motion for a new trial was granted and a new trial was scheduled. Prior to the commencement of the new trial, the parties agreed to settle the lawsuit and the Company paid $2,359,174 to the Plaintiff in settlement of all claims. In addition, legal fees and related expenses totaling $1,686,000 were paid by the Company in connection with the lawsuit, and $781,000 was paid in connection with its own counterclaim against the Plaintiff. Pursuant to their agreement with the Company to pay certain costs and losses arising from the lawsuit, the Founding Shareholders made payment to the Company in April 2001 of $1,785,000 and in November 2001 by the redemption of 46,528 shares of the Company's common stock owned by them having a

market value of approximately $1,360,000. The cost to the Company, after indemnification by the Founding Shareholders, was $1.7 million.

 

 

 

 

 

 

 

 

 

 

 

- 48 -

<PAGE>

 

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, 2002 and 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the management of Sovran Self Storage, Inc. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 

 

 

Ernst & Young LLP
Buffalo, New York
January 28, 2003

 

 

 

 

 

 

 

 

 

- 49 -

<PAGE>

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 is incorporated by reference to "Election of Directors", including "Executive Officers of the Company" and "Section 16(a) Beneficial Ownership Reporting Compliance," in the Company's Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 15, 2003.

Item 11.

Executive Compensation

          The information required is incorporated by reference to "Executive Compensation" and "Compensation of Directors" in the Company's Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 15, 2003.

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 the Annual Meeting of Shareholders of the Company to be held on May 15, 2003.

Item 13.

Certain Relationships and Related Transactions

          The information required herein is incorporated by reference to "Certain Transactions" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 2003.

Item 14.

Controls and Procedures

         The Company's chief executive officer and chief financial officer have evaluated the Company's disclosure controls and procedures as of December 31, 2002. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective for the purpose of ensuring that material information required to be in this annual report is made known to them by others on a timely basis. There have not been changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation.

 

 

 

 

 

- 50 -

<PAGE>

Part IV

Item 15.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

Documents filed as part of this Annual Report on Form 10-K:

 

1.

The following consolidated financial statements of Sovran Self Storage, Inc. are included in Item 8.

 

(i)

Consolidated Balance Sheets as of December 31, 2002 and 2001.

 

(ii)

Consolidated Statements of Operations for Years Ended December 31, 2002, 2001, and 2000.

 

(iii)

Consolidated Statements of Shareholders' Equity for Years Ended December 31, 2002, 2001, and 2000.

 

(iv)

Consolidated Statements of Cash Flows for Years Ended December 31, 2002, 2001, and 2000.

 

(v)

Notes to Consolidated Financial Statements.


2.


The following financial statement Schedule as of the period ended December 31, 2002 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 Amended and Restated 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-A filed December 3, 1996.)

   

3.1(c)**

Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant classifying and designating the 9.85% Series B Cumulative Redeemable Preferred Stock.


3.1(d)*


Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant classifying and designating the 8.375% Series C Convertible Cumulative Preferred Stock. (Incorporated by reference to Exhibit 1.6 to Registrant's Form 8-A filed July 29, 1999.)

 

- 51 -

<PAGE>


3.2**


Bylaws of the Registrant.

   

4.1*

Shareholder Rights Plan. (Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A filed December 3, 1996.)


4.2**


Amendment No. 1 to Shareholders Rights Plan.


4.3**


Form of Investment Warrant Certificate.


4.4**


Placement Certificate.


10.1


Agreement of Limited Partnership of Sovran Acquisition Limited Partnership, as amended. (Incorporated by reference to Exhibit 3.1 of the General Form of Registration of Securities of the Partnership on Form 10.)

   

10.2*

Form of Non-competition Agreement between the Registrant and Charles E. Lannon.

   

10.3*

Form of Non-competition Agreement between the Registrant and Robert J. Attea.

   

10.4*

Form of Non-competition Agreement between the Registrant and Kenneth F. Myszka.

   

10.5*

Form of Non-competition Agreement between the Registrant and David L. Rogers

   

10.6

Sovran Self Storage, Inc. 1995 Award and Option Plan, as Amended. (Incorporated by reference to the same numbered exhibit to the Registrant's Form 10-K filed March 28, 2002.)

   

10.7

Sovran Self Storage, Inc. 1995 Outside Directors' Stock Option Plan, as Amended. (Incorporated by reference to the same numbered exhibit to the Registrant's Form 10-K filed March 28, 2002.)

   

10.8*

Sovran Self Storage Incentive Compensation Plan for Executive Officer.

   

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.

- 52 -

<PAGE>

10.14*

Form of Registration Rights and Lock-Up Agreement among the Registrant and Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka and David L. Rogers.

   

10.15*

Form of Facilities Services Agreement between the Registrant and Williamsville Properties, Inc.

   

10.16

Revolving Credit and Term Loan Agreement among Registrant, the Partnership, Fleet National Bank and other lenders named therein. (Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the year 2000.)

   

10.17

Sovran Self Storage, Inc. Deferred Compensation Plan for Directors. (Incorporated by reference to Appendix A to Registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders.)


10.18


First Amendment to Revolving Credit and Term Loan Agreement among Registrant, the Partnership, Fleet National Bank and other lenders named therein. (Incorporated by reference to the same numbered exhibit to Registrant's Form 10-K filed March 28, 2002.)


10.19**


Securities Purchase Agreement among Registrant, Sovran Acquisition Limited Partnership, The Prudential Insurance Company of America, Teachers Insurance and Annuity Association of America and other institutional investors.


10.20**


Amendments to Agreement of Limited Partnership of Sovran Acquisition Limited Partnership.


10.21**


Registration Rights Agreement.


10.22


Promissory Note between Locke Sovran II, LLC and PNC Bank, National Association.


12.1


Statement Re: Computation of Earnings to Fixed Charges

   

21

Subsidiary of the Company. The Company's only subsidiary is Sovran Holdings, Inc.

   

23

Consent of Independent Auditors.


99.1


Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

   

*

Incorporated by reference to the same numbered exhibits as filed in the Company's Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995.


**


Incorporated by reference to the same numbered exhibits as filed in the Company's Current Report on Form 8-K, filed July 12, 2002.



(b)


Reports on Form 8-K:

None.

- 53 -

<PAGE>

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.




March 27, 2003

SOVRAN SELF STORAGE, INC.


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               
   Robert J. Attea


Chairman of the Board of Directors
Chief Executive Officer and Director
(Principal Executive Officer)


March 27, 2003


  /s/ Kenneth F. Myszka       
   Kenneth F. Myszka


President, Chief Operating
Officer and Director


March 27, 2003


  /s/ David L. Rogers           
   David L. Rogers


Chief Financial Officer (Principal
Financial and Accounting Officer)


March 27, 2003


  /s/ John Burns                   
   John Burns


Director


March 27, 2003


  /s/ Michael A. Elia           
   Michael A. Elia


Director


March 27, 2003


  /s/ Anthony P. Gammie   
   Anthony P. Gammie


Director


March 27, 2003


  /s/ Charles E. Lannon       
   Charles E. Lannon


Director


March 27, 2003

 

 

 

- 54 -

<PAGE>

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Robert J. Attea, certify that:

1.

I have reviewed this annual report on Form 10-K of Sovran Self Storage, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

 

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:          March 27, 2003

 

   / S / Robert J. Attea                          
Robert J. Attea
Chairman of the Board and Chief Executive Officer

- 55 -

<PAGE>

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, David L. Rogers, certify that:

1.

I have reviewed this annual report on Form 10-K of Sovran Self Storage, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

 

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:          March 27, 2003

 

   / S / David L. Rogers                         
David L. Rogers
Secretary, Chief Financial Officer

- 56 -

<PAGE>

Sovran Self Storage, Inc.

Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2002

 



Initial
                      Cost to Company               

Cost
Capitalized
Subsequent to
Acquisition



Gross Amount at Which
               Carried at Close of Period              

   
                     



Description



ST


Encum
brance



Land  

Building,    
Equipment and
Improvements 

Building,    
Equipment and
Improvements 



Land  

Building,    
Equipment and
Improvements 



Total  


Accumulated
Depreciation



Acquired

                     

Boston-Metro I

MA

 

$    363

$  1,679       

$   303          

$   363

$  1,982       

$  2,345

$   365       

6/26/95

Boston-Metro II

MA

 

680

1,616       

208          

680

1,824       

2,504

338       

6/26/95

E. Providence

RI

 

345

1,268       

186          

345

1,454       

1,799

278       

6/26/95

Charleston I

SC

 

416

1,516       

237          

416

1,753       

2,169

361       

6/26/95

Lakeland I

FL

 

397

1,424       

176          

397

1,600       

1,997

314       

6/26/95

Charlotte

NC

 

308

1,102       

329          

308

1,431       

1,739

243       

6/26/95

Tallahassee I

FL

 

770

2,734       

1,444          

770

4,178       

4,948

681       

6/26/95

Youngstown

OH

 

239

1,110       

288          

239

1,398       

1,637

299       

6/26/95

Cleveland-Metro I

OH

 

179

836       

399          

179

1,235       

1,414

220       

6/26/95

Cleveland-Metro II

OH

 

701

1,659       

384          

701

2,043       

2,744

377       

6/26/95

Tallahassee II

FL

 

205

734       

583          

205

1,317       

1,522

203       

6/26/95

Pt. St. Lucie

FL

 

395

1,501       

259          

395

1,760       

2,155

374       

6/26/95

Deltona

FL

 

483

1,752       

364          

483

2,116       

2,599

402       

6/26/95

Middletown

NY

 

224

808       

703          

224

1,511       

1,735

256       

6/26/95

Buffalo I

NY

 

423

1,531       

1,104          

498

2,560       

3,058

466       

6/26/95

Rochester I

NY

 

395

1,404       

164          

395

1,568       

1,963

291       

6/26/95

Salisbury

MD

 

164

760       

238          

164

998       

1,162

180       

6/26/95

New Bedford

MA

 

367

1,325       

292          

367

1,617       

1,984

338       

6/26/95

Fayetteville

NC

 

853

3,057       

246          

853

3,303       

4,156

618       

6/26/95

Allentown

PA

 

199

921       

855          

204

1,771       

1,975

268       

6/26/95

Jacksonville I

FL

 

152

728       

240          

152

968       

1,120

222       

6/26/95

Columbia I

SC

 

268

1,248       

223          

268

1,471       

1,739

293       

6/26/95

Rochester II

NY

 

230

847       

237          

235

1,079       

1,314

202       

6/26/95

Savannah I

GA

 

463

1,684       

1,287          

463

2,971       

3,434

436       

6/26/95

Greensboro

NC

 

444

1,613       

363          

444

1,976       

2,420

383       

6/26/95

Raleigh I

NC

 

649

2,329       

345          

649

2,674       

3,323

510       

6/26/95

- 57 -

<PAGE>

New Haven

CT

 

387

1,402       

367          

387

1,769       

2,156

314       

6/26/95

Atlanta-Metro I

GA

 

844

2,021       

346          

844

2,367       

3,211

447       

6/26/95

Atlanta-Metro II

GA

 

302

1,103       

169          

303

1,271       

1,574

282       

6/26/95

Buffalo II

NY

 

315

745       

541          

315

1,286       

1,601

197       

6/26/95

Raleigh II

NC

 

321

1,150       

254          

321

1,404       

1,725

278       

6/26/95

Columbia II

SC

 

361

1,331       

187          

375

1,504       

1,879

320       

6/26/95

Columbia III

SC

 

189

719       

224          

189

943       

1,132

210       

6/26/95

Columbia IV

SC

 

488

1,188       

226          

488

1,414       

1,902

309       

6/26/95

Atlanta-Metro III

GA

 

430

1,579       

196          

430

1,775       

2,205

383       

6/26/95

Orlando I

FL

 

513

1,930       

273          

513

2,203       

2,716

448       

6/26/95

Spartanburg

SC

 

331

1,209       

152          

331

1,361       

1,692

284       

6/26/95

Sharon

PA

 

194

912       

247          

194

1,159       

1,353

231       

6/26/95

Ft. Lauderdale

FL

 

1,503

3,619       

336          

1,503

3,955       

5,458

778       

6/26/95

West Palm I

FL

 

398

1,035       

138          

398

1,173       

1,571

260       

6/26/95

Atlanta-Metro IV

GA

 

423

1,015       

235          

425

1,248       

1,673

256       

6/26/95

Atlanta-Metro V

GA

 

483

1,166       

172          

483

1,338       

1,821

276       

6/26/95

Atlanta-Metro VI

GA

 

308

1,116       

323          

308

1,439       

1,747

316       

6/26/95

Atlanta-Metro VII

GA

 

170

786       

248          

175

1,029       

1,204

221       

6/26/95

Atlanta-Metro VIII

GA

 

413

999       

429          

413

1,428       

1,841

303       

6/26/95

Baltimore I

MD

 

154

555       

209          

154

764       

918

153       

6/26/95

Baltimore II

MD

 

479

1,742       

579          

479

2,321       

2,800

412       

6/26/95

Augusta I

GA

 

357

1,296       

351          

357

1,647       

2,004

290       

6/26/95

Macon I

GA

 

231

1,081       

195          

231

1,276       

1,507

251       

6/26/95

Melbourne I

FL

 

883

2,104       

1,346          

883

3,450       

4,333

573       

6/26/95

Newport News

VA

 

316

1,471       

527          

316

1,998       

2,314

383       

6/26/95

Pensacola I

FL

 

632

2,962       

732          

651

3,675       

4,326

704       

6/26/95

Augusta II

GA

 

315

1,139       

392          

315

1,531       

1,846

279       

6/26/95

Hartford-Metro I

CT

 

715

1,695       

412          

715

2,107       

2,822

375       

6/26/95

Atlanta-Metro IX

GA

 

304

1,118       

456          

304

1,574       

1,878

294       

6/26/95

Alexandria

VA

 

1,375

3,220       

583          

1,375

3,803       

5,178

694       

6/26/95

Pensacola II

FL

 

244

901       

230          

244

1,131       

1,375

273       

6/26/95

Melbourne II

FL

 

834

2,066       

156          

834

2,222       

3,056

510       

6/26/95

Hartford-Metro II

CT

 

234

861       

179          

239

1,035       

1,274

198       

6/26/95

Atlanta-Metro X

GA

 

256

1,244       

190          

256

1,434       

1,690

303       

6/26/95

Norfolk I

VA

 

313

1,462       

538          

313

2,000       

2,313

347       

6/26/95

Norfolk II

VA

 

278

1,004       

207          

278

1,211       

1,489

277       

6/26/95

Birmingham I

AL

 

307

1,415       

260          

307

1,675       

1,982

316       

6/26/95

Birmingham II

AL

 

730

1,725       

366          

730

2,091       

2,821

394       

6/26/95

Montgomery I

AL

 

863

2,041       

327          

863

2,368       

3,231

448       

6/26/95

Jacksonville II

FL

 

326

1,515       

283          

326

1,798       

2,124

334       

6/26/95

Pensacola II

FL

 

369

1,358       

956          

369

2,314       

2,683

392       

6/26/95

Pensacola IV

FL

 

244

1,128       

135          

244

1,263       

1,507

285       

6/26/95

- 58 -

<PAGE>

Pensacola V

FL

 

226

1,046       

437          

226

1,483       

1,709

300       

6/26/95

Tampa I

FL

 

1,088

2,597       

627          

1,088

3,224       

4,312

613       

6/26/95

Tampa II

FL

 

526

1,958       

320          

526

2,278       

2,804

512       

6/26/95

Tampa III

FL

 

672

2,439       

314          

672

2,753       

3,425

557       

6/26/95

Jackson I

MS

 

343

1,580       

189          

343

1,769       

2,112

375       

6/26/95

Jackson II

MS

 

209

964       

398          

209

1,362       

1,571

281       

6/26/95

Richmond

VA

 

443

1,602       

513          

443

2,115       

2,558

399       

8/25/95

Orlando II

FL

 

1,161

2,755       

667          

1,162

3,421       

4,583

622       

9/29/95

Birmingham III

AL

 

424

1,506       

429          

424

1,935       

2,359

426       

1/16/96

Macon II

GA

 

431

1,567       

499          

431

2,066       

2,497

331       

12/1/95

Harrisburg I

PA

 

360

1,641       

311          

360

1,952       

2,312

376       

12/29/95

Harrisburg II

PA

(1)

627

2,224       

541          

648

2,744       

3,392

474       

12/29/95

Syracuse I

NY

 

470

1,712       

567          

472

2,277       

2,749

347       

12/27/95

Ft. Myers

FL

 

205

912       

137          

205

1,049       

1,254

263       

12/28/95

Ft. Myers II

FL

 

412

1,703       

303          

413

2,005       

2,418

488       

12/28/95

Newport News II

VA

 

442

1,592       

126          

442

1,718       

2,160

311       

1/5/96

Montgomery II

AL

 

353

1,299       

192          

353

1,491       

1,844

285       

1/23/96

Charlestown II

SC

 

237

858       

322          

232

1,185       

1,417

210       

3/1/96

Tampa IV

FL

 

766

1,800       

485          

766

2,285       

3,051

347       

3/28/96

Arlington I

TX

 

442

1,767       

202          

442

1,969       

2,411

328       

3/29/96

Arlington II

TX

 

408

1,662       

357          

408

2,019       

2,427

406       

3/29/96

Ft. Worth

TX

 

328

1,324       

131          

328

1,455       

1,783

251       

3/29/96

San Antonio I

TX

 

436

1,759       

394          

436

2,153       

2,589

390       

3/29/96

San Antonio II

TX

 

289

1,161       

330          

289

1,491       

1,780

277       

3/29/96

Syracuse II

NY

 

481

1,559       

1,099          

671

2,468       

3,139

340       

6/5/96

Montgomery III

AL

 

279

1,014       

181          

279

1,195       

1,474

238       

5/21/96

West Palm II

FL

 

345

1,262       

141          

345

1,403       

1,748

249       

5/29/96

Ft. Myers III

FL

 

229

884       

91          

229

975       

1,204

178       

5/29/96

Pittsburgh

PA

 

545

1,940       

193          

545

2,133       

2,678

351       

6/19/96

Lakeland II

FL

 

359

1,287       

854          

359

2,141       

2,500

314       

6/26/96

Springfield

MA

 

251

917       

1,211          

297

2,082       

2,379

295       

6/28/96

Ft. Myers IV

FL

 

344

1,254       

189          

344

1,443       

1,787

246       

6/28/96

Baltimore III

MD

 

777

2,770       

110          

777

2,880       

3,657

472       

7/26/96

Jacksonville III

FL

 

568

2,028       

687          

568

2,715       

3,283

422       

8/23/96

Jacksonville IV

FL

 

436

1,635       

386          

436

2,021       

2,457

354       

8/26/96

Pittsburgh II

PA

 

627

2,257       

731          

631

2,984       

3,615

490       

8/28/96

Jacksonville V

FL

 

535

2,033       

161          

538

2,191       

2,729

416       

8/30/96

Charlotte II

NC

 

487

1,754       

92          

487

1,846       

2,333

295       

9/16/96

Charlotte III

NC

 

315

1,131       

228          

315

1,359       

1,674

205       

9/16/96

Orlando III

FL

 

314

1,113       

495          

314

1,608       

1,922

246       

10/30/96

Rochester III

NY

 

704

2,496       

221          

707

2,714       

3,421

397       

12/20/96

Youngstown II

OH

 

600

2,142       

152          

600

2,294       

2,894

345       

1/10/97

- 59 -

<PAGE>

Akron

OH

 

413

1,478       

116          

413

1,594       

2,007

237       

1/10/97

Cleveland III

OH

 

751

2,676       

504          

751

3,180       

3,931

471       

1/10/97

Cleveland IV

OH

 

725

2,586       

782          

725

3,368       

4,093

493       

1/10/97

Cleveland V

OH

(1)

637

2,918       

660          

641

3,574       

4,215

557       

1/10/97

Cleveland VI

OH

 

495

1,781       

385          

495

2,166       

2,661

332       

1/10/97

Cleveland VII

OH

 

761

2,714       

541          

761

3,255       

4,016

527       

1/10/97

Cleveland VIII

OH

 

418

1,921       

689          

418

2,610       

3,028

427       

1/10/97

Cleveland IX

OH

 

606

2,164       

246          

606

2,410       

3,016

368       

1/10/97

Grand Rapids II

MI

 

219

790       

607          

219

1,397       

1,616

208       

1/17/97

Holland

MI

 

451

1,830       

938          

451

2,768       

3,219

449       

1/17/97

San Antonio III

TX

(1)

474

1,686       

149          

474

1,835       

2,309

275       

1/30/97

Universal

TX

 

346

1,236       

134          

346

1,370       

1,716

207       

1/30/97

San Antonio IV

TX

 

432

1,560       

881          

432

2,441       

2,873

297       

1/30/97

Houston-Eastex

TX

 

634

2,565       

833          

634

3,398       

4,032

407       

3/26/97

Houston-Nederland

TX

 

566

2,279       

150          

566

2,429       

2,995

351       

3/26/97

Houston-College

TX

 

293

1,357       

185          

293

1,542       

1,835

225       

3/26/97

Lynchburg-Lakeside

VA

 

335

1,342       

409          

335

1,751       

2,086

273       

3/31/97

Lynchburg-Timberlake

VA

 

328

1,315       

570          

328

1,885       

2,213

279       

3/31/97

Lynchburg-Amherst

VA

 

155

710       

181          

152

894       

1,046

159       

3/31/97

Christiansburg

VA

 

245

1,120       

135          

245

1,255       

1,500

183       

3/31/97

Chesapeake

VA

 

260

1,043       

449          

260

1,492       

1,752

188       

3/31/97

Danville

VA

 

326

1,488       

42          

326

1,530       

1,856

223       

3/31/97

Orlando-W 25th St.

FL

 

289

1,160       

316          

290

1,475       

1,765

199       

3/31/97

Delray I-Mini

FL

 

491

1,756       

494          

491

2,250       

2,741

333       

4/11/97

Savannah II

GA

 

296

1,196       

133          

296

1,329       

1,625

203       

5/8/97

Delray II-Safeway

FL

 

921

3,282       

287          

921

3,569       

4,490

505       

5/21/97

Cleveland X-Avon

OH

 

301

1,214       

234          

304

1,445       

1,749

213       

6/4/97

Dallas-Skillman

TX

 

960

3,847       

823          

960

4,670       

5,630

748       

6/30/97

Dallas-Centennial

TX

 

965

3,864       

894          

943

4,780       

5,723

730       

6/30/97

Dallas-Samuell

TX

(1)

570

2,285       

416          

570

2,701       

3,271

447       

6/30/97

Dallas-Hargrove

TX

 

370

1,486       

260          

370

1,746       

2,116

337       

6/30/97

Houston-Antione

TX

 

515

2,074       

295          

515

2,369       

2,884

399       

6/30/97

Atlanta-Alpharetta

GA

 

1,033

3,753       

158          

1,033

3,911       

4,944

613       

7/24/97

Atlanta-Marietta

GA

(1)

769

2,788       

79          

771

2,865       

3,636

408       

7/24/97

Atlanta-Doraville

GA

 

735

3,429       

85          

735

3,514       

4,249

496       

8/21/97

Greensboro-Hilltop

NC

 

268

1,097       

138          

268

1,235       

1,503

172       

9/25/97

GreensboroStgCch

NC

 

89

376       

921          

89

1,297       

1,386

115       

9/25/97

Baton Rouge-Airline

LA

(1)

396

1,831       

271          

396

2,102       

2,498

308       

10/9/97

Baton Rouge-Airline2

LA

 

282

1,303       

125          

282

1,428       

1,710

232       

11/21/97

Harrisburg-Peiffers

PA

 

635

2,550       

114          

637

2,662       

3,299

343       

12/3/97

Chesapeake-Military

VA

 

542

2,210       

155          

542

2,365       

2,907

306       

2/5/98

Chesapeake-Volvo

VA

 

620

2,532       

554          

620

3,086       

3,706

354       

2/5/98

- 60 -

<PAGE>

Virginia Beach Shell

VA

 

540

2,211       

131          

540

2,342       

2,882

307       

2/5/98

Virginia Beach Central

VA

 

864

3,994       

487          

864

4,481       

5,345

553       

2/5/98

Norfolk-Naval Base

VA

 

1,243

5,019       

203          

1,243

5,222       

6,465

654       

2/5/98

Tampa-E. Hillsborough

FL

 

709

3,235       

582          

709

3,817       

4,526

580       

2/4/98

Harriman

NY

 

843

3,394       

238          

843

3,632       

4,475

451       

2/4/98

Greenboro-High Point

NC

 

397

1,834       

345          

397

2,179       

2,576

271       

2/10/98

Lynchburg-Timberlake

VA

 

488

1,746       

256          

488

2,002       

2,490

235       

2/18/98

Salem

MA

 

733

2,941       

607          

733

3,548       

4,281

437       

3/3/98

Chattanooga-Lee Hwy.

TN

 

384

1,371       

219          

384

1,590       

1,974

234       

3/27/98

Chattanooga-Hwy. 58

TN

 

296

1,198       

514          

296

1,712       

2,008

193       

3/27/98

Ft. Oglethorpe

GA

 

349

1,250       

154          

349

1,404       

1,753

172       

3/27/98

Birmingham-Walt

AL

 

544

1,942       

420          

544

2,362       

2,906

356       

3/27/98

East Greenwich

RI

 

702

2,821       

495          

702

3,316       

4,018

369       

3/26/98

Durham-Hillborough

NC

 

775

3,103       

423          

775

3,526       

4,301

408       

4/9/98

Durham-Cornwallis

NC

 

940

3,763       

339          

940

4,102       

5,042

476       

4/9/98

Hendersonville

TN

 

1,050

4,203       

167          

1,050

4,370       

5,420

514       

4/9/98

Salem-Policy

NH

 

742

2,977       

58          

742

3,035       

3,777

360       

4/7/98

Warrem-Elm

OH

(1)

522

1,864       

142          

522

2,006       

2,528

269       

4/22/98

Warren-Youngstown

OH

 

512

1,829       

105          

512

1,934       

2,446

223       

4/22/98

Waterford-Highland

MI

 

1,487

5,306       

586          

1,487

5,892       

7,379

685       

4/28/98

Indian Harbor

FL

 

662

2,654       

177          

662

2,831       

3,493

334       

6/2/98

Jackson 3 - I55

MS

 

744

3,021       

56          

744

3,077       

3,821

378       

5/13/98

Katy-N. Fry

TX

 

419

1,524       

60          

419

1,584       

2,003

194       

5/20/98

Hollywood-Sheridan

FL

 

1,208

4,854       

150          

1,208

5,004       

6,212

589       

7/1/98

Pompano Beach - Atlantic

FL

 

944

3,803       

158          

944

3,961       

4,905

462       

7/1/98

Pompano Beach - Sample

FL

 

903

3,643       

290          

903

3,933       

4,836

450       

7/1/98

Boca Raton-18th St.

FL

 

1,503

6,059       

434          

1,503

6,493       

7,996

735       

7/1/98

Vero Beach

FL

 

489

1,813       

38          

489

1,851       

2,340

237       

6/12/98

Humble

TX

 

447

1,790       

516          

447

2,306       

2,753

243       

6/16/98

Houston-Old Katy

TX

(1)

659

2,680       

46          

659

2,726       

3,385

314       

6/19/98

Webster

TX

 

635

2,302       

35          

635

2,337       

2,972

278       

6/19/98

Carrollton

TX

 

548

1,988       

44          

548

2,032       

2,580

245       

6/19/98

Hollywood-N. 21st.

FL

 

840

3,373       

218          

840

3,591       

4,431

408       

8/3/98

San Marcos

TX

 

324

1,493       

302          

324

1,795       

2,119

201       

6/30/98

Austin-McNeil

TX

 

492

1,995       

115          

510

2,092       

2,602

247       

6/30/98

Austin-FM

TX

 

484

1,951       

105          

481

2,059       

2,540

244       

6/30/98

Jacksonville-Center

NC

 

327

1,329       

61          

327

1,390       

1,717

162       

8/6/98

Jacksonville-Gum Branch

NC

 

508

1,815       

153          

508

1,968       

2,476

224       

8/17/98

Jacksonville-N. Marine

NC

 

216

782       

314          

216

1,096       

1,312

160       

9/24/98

Euless

TX

 

550

1,998       

109          

550

2,107       

2,657

233       

9/29/98

N. Richland Hills

TX

 

670

2,407       

33          

670

2,440       

3,110

268       

10/9/98

Batavia

OH

 

390

1,570       

136          

390

1,706       

2,096

194       

11/19/98

- 61 -

<PAGE>

Jackson-N. West

MS

 

460

1,642       

306          

460

1,948       

2,408

283       

12/1/98

Katy-Franz

TX

 

507

2,058       

78          

507

2,136       

2,643

224       

12/15/98

W. Warwick

RI

 

447

1,776       

639          

447

2,415       

2,862

217       

2/2/99

Lafayette-Pinhook 1

LA

 

556

1,951       

736          

556

2,687       

3,243

346       

2/17/99

Lafayette-Pinhook 2

LA

 

708

2,860       

129          

708

2,989       

3,697

299       

2/17/99

Lafayette-Ambassador

LA

 

314

1,095       

440          

314

1,535       

1,849

219       

2/17/99

Lafayette-Evangeline

LA

 

188

652       

564          

188

1,216       

1,404

166       

2/17/99

Lafayette-Guilbeau

LA

 

963

3,896       

106          

963

4,002       

4,965

399       

2/17/99

Gilbert-Elliott Rd.

AZ

 

651

2,600       

601          

772

3,080       

3,852

258       

5/18/99

Glendale-59th Ave.

AZ

 

565

2,596       

114          

565

2,710       

3,275

253       

5/18/99

Mesa-Baseline

AZ

 

330

1,309       

79          

330

1,388       

1,718

131       

5/18/99

Mesa-E. Broadway

AZ

 

339

1,346       

117          

339

1,463       

1,802

136       

5/18/99

Mesa-W. Broadway

AZ

 

291

1,026       

106          

291

1,132       

1,423

107       

5/18/99

Mesa-Greenfield

AZ

 

354

1,405       

103          

354

1,508       

1,862

140       

5/18/99

Phoenix-Camelback

AZ

 

453

1,610       

140          

453

1,750       

2,203

163       

5/18/99

Phoenix-Bell

AZ

 

872

3,476       

262          

872

3,738       

4,610

385       

5/18/99

Phoenix-35th Ave.

AZ

 

849

3,401       

163          

849

3,564       

4,413

326       

5/21/99

Westbrook

ME

 

410

1,626       

315          

410

1,941       

2,351

172       

8/2/99

Cocoa

FL

 

667

2,373       

433          

667

2,806       

3,473

245       

9/29/99

Cedar Hill

TX

 

335

1,521       

123          

335

1,644       

1,979

148       

11/9/99

Monroe

NY

 

276

1,312       

31          

276

1,343       

1,619

105       

2/2/00

N. Andover

MA

 

633

2,573       

72          

633

2,645       

3,278

195       

2/15/00

Seabrook

TX

 

633

2,617       

82          

633

2,699       

3,332

206       

3/1/00

Plantation

FL

 

384

1,422       

78          

384

1,500       

1,884

108       

5/2/00

Birmingham-Bessemer

AL

 

254

1,059       

74          

254

1,133       

1,387

65       

11/15/00

Dracut

MA

(1)

1,035

3,737       

25          

1,035

3,762       

4,797

105       

12/1/01

Methuen

MA

(1)

1,024

3,649       

38          

1,024

3,687       

4,711

101       

12/1/01

Columbia

SC

(1)

883

3,139       

99          

883

3,238       

4,121

91       

12/1/01

Myrtle Beach

SC

(1)

552

1,970       

126          

552

2,096       

2,648

59       

12/1/01

Kingsland

GA

(1)

470

1,902       

335          

470

2,237       

2,707

64       

12/1/01

Saco

ME

(1)

534

1,914       

13          

534

1,927       

2,461

54       

12/3/01

Plymouth

MA

 

1,004

4,584       

39          

1,004

4,623       

5,627

117       

12/19/01

Sandwich

MA

(1)

670

3,060       

66          

670

3,126       

3,796

80       

12/19/01

Syracuse

NY

(1)

294

1,203       

166          

294

1,369       

1,663

32       

2/5/02

Houston-Westward

TX

(1)

853

3,434       

227          

855

3,659       

4,514

82       

2/13/02

Houston-Boone

TX

(1)

250

1,020       

22          

251

1,041       

1,292

26       

2/13/02

Houston-Cook

TX

(1)

285

1,160       

41          

286

1,200       

1,486

30       

2/13/02

Houston-Harwin

TX

(1)

449

1,816       

32          

451

1,846       

2,297

44       

2/13/02

Houston-Hempstead

TX

(1)

545

2,200       

38          

546

2,237       

2,783

53       

2/13/02

Houston-Kuykendahl

TX

(1)

517

2,090       

35          

519

2,123       

2,642

51       

2/13/02

Houston-Hwy 249

TX

(1)

299

1,216       

233          

301

1,447       

1,748

31       

2/13/02

Mesquite-Hwy 80

TX

(1)

463

1,873       

22          

465

1,893       

2,358

45       

2/13/02

- 62 -

<PAGE>

Mesquite-Franklin

TX

(1)

734

2,956       

36          

736

2,990       

3,726

70       

2/13/02

Dallas-Plantation

TX

(1)

394

1,595       

41          

395

1,635       

2,030

40       

2/13/02

San Antonio-Hunt

TX

(1)

381

1,545       

32          

383

1,575       

1,958

38       

2/13/02

Humble-5250 FM

TX

 

919

3,696       

8          

919

3,704       

4,623

47       

6/19/02

Pasadena

TX

 

612

2,468       

9          

612

2,477       

3,089

32       

6/19/02

League City

TX

 

689

3,159       

3          

689

3,162       

3,851

40       

6/19/02

Montgomery

TX

 

817

3,286       

14          

817

3,300       

4,117

42       

6/19/02

Texas City

TX

 

817

3,286       

10          

817

3,296       

4,113

42       

6/19/02

Houston-Hwy 6

TX

 

407

1,650       

10          

407

1,660       

2,067

21       

6/19/02

Lumberton

TX

 

817

3,287       

38          

817

3,325       

4,142

42       

6/19/02

The Hamptons

NY

 

2,207

8,866       

1          

2,207

8,867       

11,074

0       

12/16/02

The Hamptons

NY

 

1,131

4,564       

1          

1,131

4,565       

5,696

0       

12/16/02

The Hamptons

NY

 

635

2,918       

1          

635

2,919       

3,554

0       

12/16/02

The Hamptons

NY

 

1,251

5,744       

3          

1,252

5,746       

6,998

0       

12/16/02

Corporate Office

NY

 

           0

            68       

       4,459          

              0

       4,527       

       4,527

 887       

1/1/95

     

$132,314

$497,912

$  80,615          

$132,853

$577,988

$710,841

$  75,344       

 

(1) These properties are encumbered through one mortgage loan with an outstanding balance of $47.5 million at December 31, 2002.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 63 -

<PAGE>

 

December 31, 2002

December 31, 2001

December 31, 2000

Cost:

           

Balance at beginning of period

 

$ 611,289 

 

$ 562,721 

 

$ 556,473 

  Additions during period:
    Acquisitions through foreclosure
       Other acquisitions
       Improvements, etc.


$      -       
81,819 
   17,934 

 


$      -       
30,269 
   18,527 

 


$       -    
11,239 
       12,228 

 
   

99,753 

 

48,796 

 

23,467 

Deductions during period:
  Cost of real estate sold


      (201
)


       (201
)


      (228
)


   (228
)


  (17,219
)


 (17,219
)

             

Balance at close of period

 

$710,841 

 

$611,289 

 

$562,721 

             

Accumulated Depreciation:

           

Balance at beginning of period

 

$   59,091 

 

$   45,253 

 

$   33,453 

  Additions during period:
    Depreciation expense


$  16,344
 


16,344 


$  13,918
 


13,918 


$  13,352
 


13,352 

             

Deductions during period:

           

  Accumulated depreciation of real
  estate sold


         (91
)


          (91
)


     (80
)


          (80
)


      (1,552
)


     (1,552
)

Balance at close of period

 

$   75,344 

 

$   59,091 

 

$   45,253 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 64 -

<PAGE>

Sovran Self Storage, Inc.

Exhibit (10.22) - Promissory Note Between Locke Sovran II, LLC

and PNC Bank, National Association

Loan No. 94-0928992

 

PROmissory NOTE

 

$48,000,000.00

New York
February 12, 2002

          FOR VALUE RECEIVED, LOCKE SOVRAN II L.L.C., a New York limited liability company ("Borrower"), having its principal place of business at 6467 Main Street, Buffalo, New York 14221, promises to pay to the order of PNC Bank, National Association ("Lender"), at the following address: 210 West 10th Street, 6th Floor, Kansas City, Missouri 64105, or such other place as the holder hereof may from time to time designate in writing, the principal sum of FORTY EIGHT MILLION AND NO/100 DOLLARS ($48,000,000.00) in lawful money of the United States of America, with interest thereon to be computed from the date of disbursement under this Promissory Note (this "Note") at the Applicable Interest Rate (hereinafter defined), and to be paid in installments as follows:

               A.   A payment, on the date of disbursement, representing interest from the date of disbursement through the last day of the calendar month in which such disbursement is made;

               B.   A constant payment of $345,093.99 (the "Monthly Debt Service Payment Amount") (based upon an amortization schedule assuming a 360 day year consisting of 12 months of 30 days each) on the first day of April, 2002 and on the first day of each calendar month thereafter up to and including the first day of February, 2012; and

               C.   The balance of said principal sum, all unpaid interest thereon and all other amounts owed pursuant to this Note, the Security Instrument (hereinafter defined), the Other Security Documents (hereinafter defined), or otherwise in connection with the loan evidenced by this Note (the "Loan") shall be due and payable on the first day of March, 2012 (the "Maturity Date").

All payments to be made by Borrower to Lender shall be deemed received by Lender only upon Lender's actual receipt of same.

          1.   Applicable Interest Rate. Interest accruing on the principal sum of this Note shall be calculated based upon a per annum interest rate divided by 360 days resulting in a per diem interest amount that will accrue for each calendar day in a year of 365 days (366 days in a leap year). The

- 65 -

<PAGE>

term "Applicable Interest Rate" as used in this Note shall mean, from the date of this Note through and including the Maturity Date, a rate of Seven and 19/100th percent (7.19%) per annum (the "Initial Interest Rate").

          2.   Application. All payments on this Note shall be applied at any time and from time to time in the following order: (i) the payment or reimbursement of any expenses (including but not limited to late charges), costs or obligations (other than the principal hereof and interest hereon) for which Borrower shall be obligated or Lender entitled pursuant to the provisions hereof or of the Security Instruments or the Other Security Documents, (ii) the payment of accrued but unpaid interest thereon, (iii) the payment of unpaid escrow amounts required herein, in the Security Instruments or in the Other Security Documents, and (iv) the payment of all or any portion of the principal balance then outstanding hereunder, in either the direct or inverse order of maturity, at Lender's option.

          3.  Late Charge. If any part of the Debt (hereinafter defined) is not actually received by Lender by close of business on the fifth (5th) day after the date on which it was due, Borrower shall pay to Lender an amount (the "Late Charge") equal to the lesser of five percent (5%) of such unpaid portion of the missed payment or the maximum amount permitted by applicable law, to defray the expenses incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. All such Late Charges shall be automatically due and payable without notice or demand and shall be secured by the Security Instruments and the Other Security Documents.

          4.   Security; Defined Terms; Incorporation by Reference. This Note is secured by the Security Instrument and the Other Security Documents. The term "Security Instrument" as used in this Note shall mean each of the eleven (11) Mortgages, Security Agreements, Assignments of Leases and Rents and Fixture Filings, and the one (1) Deed of Trust, Security Agreement Assignment of Leases and Rents and Fixture Filing, and the two (2) Deeds to Secure Debt, Security Agreements and Assignments of Leases and Rents executed and delivered by Borrower contemporaneously with this Note and which secure the Debt (sometimes referred to individually as an "Individual Security Instrument" and sometimes referred to collectively as the "Security Instruments"). The term "Other Security Documents" means all documents other than this Note or the Security Instruments now or hereafter executed and/or delivered by Borrower and/or others and to or in favor of Lender, which wholly or partially secure, evidence or guarantee payment of the Debt, provide for any indemnity in favor of or payment to Lender related to the Debt, this Note or the Mortgaged Property (as defined in Paragraph 21(d) below), provide for any escrow/holdback arrangements or for any actions to be completed by Borrower subsequent to the date hereof, or are otherwise related to the loan evidenced by this Note, including, without limitation, the Lockbox Agreement (as defined in Paragraph 21(a)(i) below). All amounts due and payable under this Note, together with all sums due under the Security Instruments and the Other Security Documents, including any applicable Prepayment Consideration (hereinafter defined) and all applicable attorney fees and costs, are collectively referred to herein as the "Debt." Where appropriate, the singular number shall include the plural, the plural shall include the singular, and the words "Lender" and "Borrower" shall include their respective successors, assigns, heirs, personal representatives, executors and administrators.

- 66 -

<PAGE>

          5.   Prepayment/Defeasance.

          (a)   When Permitted. Prior to December 1, 2011 (the "Early Payment Date"), Borrower shall not have the right to prepay all or any portion of the Debt at any time during the term of this Note (except for any prepayment permitted under the Security Instruments in the event of a casualty or condemnation). No Prepayment Consideration (hereinafter defined) will be due from any prepayment of this Note (in whole but not in part) on or after the Early Payment Date. In the event of a prepayment on or after such date, Borrower shall pay, together with the amount of such prepayment, an amount equal to (i) all accrued and unpaid interest, and (ii) any other sums due under this Note, the Security Instruments or any Other Security Document. Additionally, any such prepayment not actually received by Lender before 5:00 p.m., central time, on the 5th day of any calendar month must also include the interest which would have accrued on the amount of such prepayment during the entire calendar month in which the prepayment is made.

          (b)   Notice. Borrower may give written notice to Lender specifying the date, which date must be on or after the Early Payment Date, on which a full prepayment of the Debt is to be made (the date of any prepayment hereunder, whether pursuant to such notice or not, and whether voluntary or involuntary, being herein called the "Prepayment Date"). The Prepayment Date so designated must fall within the first ten (10) calendar days of a month during the term of this Note. Lender shall receive this notice not more than sixty (60) days and not less than thirty (30) days prior to the Prepayment Date. If any such notice of prepayment is given, the entire Debt, including any applicable Prepayment Consideration (as defined below), shall be due and payable on the Prepayment Date.

          (c)   Prepayment After Event of Default. If following the occurrence of any Event of Default, Borrower shall tender payment of an amount sufficient to satisfy the Debt at any time prior to or after a sale of the Mortgaged Property, either through foreclosure or the exercise of the other remedies available to Lender under the Security Instruments or the Other Security Documents, such tender by Borrower shall be deemed to be a voluntary prepayment under this Note in the amount tendered and in such case Borrower shall also pay to Lender, with respect to the amount tendered, the applicable Prepayment Consideration set forth in this Note, which Prepayment Consideration shall be immediately due and payable. Lender shall not be obligated to accept any such prepayment of this Note unless it is accompanied by an amount (the "Prepayment Consideration") equal to the greater of: (x) one percent (1%) of the outstanding principal balance of this Note at the time of prepayment; or (y) the Yield Maintenance Amount (hereinafter defined).

          Lender shall not be obligated to accept any such tender unless it is accompanied by all Prepayment Consideration due in connection therewith. Borrower acknowledges that the Prepayment Consideration is a bargained for consideration and not a penalty, and Borrower recognizes that Lender would incur substantial additional costs and expenses in the event of a prepayment of the Debt and that the Prepayment Consideration compensates Lender for such costs and expenses (including without limitation, the loss of lender's investment opportunity during the period from the date such tender is accepted until the Maturity Date). Borrower agrees that Lender shall not, as a condition to receiving the Prepayment Consideration, be obligated to actually reinvest

- 67 -

<PAGE>

the amount prepaid in any treasury obligation or in any other manner whatsoever. Except as otherwise set forth in the Security Instruments, no Prepayment Consideration will be due for involuntary prepayments resulting from any Casualty (as defined in each Security Instrument) or Condemnation (as defined in each Security Instrument).

          Yield Maintenance Amount. The "Yield Maintenance Amount" shall mean the present value, as of the Prepayment Date, of the remaining scheduled payments of principal and interest from the Prepayment Date through the Maturity Date (including any balloon payment) determined by discounting such payments at the Discount Rate (hereinafter defined), less the amount of principal being prepaid. The term "Discount Rate" shall mean the rate which, when compounded monthly, is equivalent to the Treasury Rate (hereinafter defined) when compounded semi-annually. The term "Treasury Rate" shall mean the yield calculated by the linear interpolation of the yields, as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Government Securities/Treasury Constant Maturities for the week ending prior to the Prepayment Date, of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the Maturity Date. (In the event Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate.) Lender shall notify Borrower of the amount and the basis of determination of the required Prepayment Consideration.

          (d)   Defeasance. Any provision hereof to the contrary notwithstanding, at any time during the Defeasance Period (as defined below), Borrower may obtain a release of the Mortgaged Property from the lien of the Security Instruments only upon the satisfaction of the following conditions:

             (i)   not less than thirty (30) days prior written notice shall be given to Lender specifying a date (the "Defeasance Date") on which the Defeasance Collateral (as defined below) is to be delivered, such date being the first day of the month;

             (ii)   all accrued and unpaid interest and all other sums due under this Note, the Security Instruments and the Other Security Documents up to the Defeasance Date, including, without limitation, all reasonable costs and expenses incurred by Lender or its agents in connection with such defeasance, including, without limitation, any legal fees and expenses incurred in connection with obtaining and reviewing the Defeasance Collateral, the preparation of the Defeasance Security Agreement (as defined below) and related documentation, accountant fees, and investment advisor fees, all of which shall be paid in full on or prior to the Defeasance Date;

             (iii)   no Event of Default, and no event or condition that, with the giving of notice or passage of time or both, would constitute an Event of Default, shall exist either at the time Borrower gives notice of the Defeasance Date to Lender or on the Defeasance Date;

             (iv)   Borrower shall deliver to Lender on or before the Defeasance Date direct, non-callable obligations of the United States of America in such form and amount that provide for the payments prior, but as close as possible, to all successive regularly scheduled monthly payment dates, including the Maturity Date, with such payments being equal to or greater than the amount of the corresponding monthly payment required to be paid under this Note (hereafter, "Scheduled

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Defeasance Payments") for the balance of the term hereof and the amount required to be paid on the Maturity Date (such obligations are collectively and singularly referred to herein as "Defeasance Collateral") each of which shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance wholly satisfactory to Lender (including, without limitation, such instrument as may be required by the depository institution holding such securities or the issuer thereof, as the case may be, to effectuate book-entry transfers and pledges through the book-entry facilities of such institution) in order to perfect a first priority security interest in such Defeasance Collateral in favor of Lender. The Defeasance Collateral may be purchased by Lender on Borrower's behalf, in which case Borrower shall deposit with Lender at least three days before the Defeasance Date a sum sufficient, in Lender's sole and absolute discretion, to purchase the Defeasance Collateral. Any sums in excess of the amount necessary to purchase the Defeasance Collateral shall be remitted to Borrower upon release of the Mortgaged Property.

             (v)   Borrower shall deliver the following to Lender, at Borrower's cost, on or prior to the Defeasance Date:

                  (A)   a pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion, creating a first priority security interest in favor of Lender in the Defeasance Collateral (the "Defeasance Security Agreement");

                  (B)   a certificate of Borrower certifying that all of the requirements hereunder for a defeasance have been satisfied;

                  (C)   an opinion of counsel for Borrower in form and substance and delivered by counsel satisfactory to Lender in its sole discretion stating, among other things, (x) that Lender has a perfected first priority security interest in the Defeasance Collateral, (y) that the Defeasance Security Agreement is enforceable against Borrower in accordance with its terms and (z) that the defeasance will not cause the entity which holds this Note to fail to qualify as a "real estate mortgage investment conduit" (a "REMIC"), within the meaning of Section 860D of the Internal Revenue Code of 1986, as amended from time to time or any successor statute (the "Code");

                  (D)   an opinion of an independent certified public accountant acceptable to Lender representing and warranting to Lender that the Defeasance Collateral will generate monthly amounts equal to or greater than the Scheduled Defeasance Payments including the amount required to be paid on the Maturity Date of this Note, and such other approvals required by Lender;

                  (E)   evidence in writing from each of the Rating Agencies (as defined below) to the effect that such release will not result in a qualification, downgrade or withdrawal of any rating in effect immediately prior to the Defeasance Date for any securities or "Pass-Through Certificates" issued pursuant to the terms of a trust and servicing agreement in the event that this Note or any interest therein is included in a REMIC or other securitization vehicle;

                  (F)   such other certificates, opinions, documents or instruments as Lender may reasonably require; and

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                  (G)   upon approval by Lender of the schedule of Defeasance Collateral to be delivered to Lender, Borrower shall (i) pay Lender a nonrefundable fee, in an amount reasonably determined by Lender, as compensation for the review, analysis and processing of the defeasance request; and (ii) if required by Lender, deposit with Lender an amount estimated by Lender to be sufficient to fund all other fees, costs and expenses related to the defeasance, including Lender's reasonable attorneys' fees and expenses and rating agency fees, if any and expenses together with all expenses and costs associated with the release of the lien on the Mortgaged Property. Borrower shall be responsible for all fees, costs and expenses associated with the defeasance which, if not covered by the above deposit, shall be paid to Lender no later than the Defeasance Date.

          Upon compliance with the foregoing requirements relating to the delivery of the Defeasance Collateral, the Mortgaged Property shall be released from the lien of the Security Instruments and the Defeasance Collateral shall constitute collateral which shall secure this Note and the Debt.

          The "Defeasance Period" shall mean the period of time: (1) commencing on the date which is the later to occur of: (A) two years after the "start-up day", within the meaning of Section 860(G)(a)(9) of the Code, of the REMIC that holds this Note; and (B) three (3) years after the date of the first regularly scheduled monthly payment due hereunder, and (2) ending on the Early Payment Date. The "Rating Agencies" shall mean, collectively, Standard & Poor's Ratings Service, a division of The McGraw Hill Companies, Inc., Fitch IBCA, Inc., Moody's Investors Service, Inc. or Duff and Phelps Credit Rating Co., and their respective successors and assigns, to the extent each of the foregoing performed credit rating services for the REMIC or other securitization vehicle which owns this Note.

          (e)   Successor Borrower. In connection with a defeasance under this Section, Borrower shall establish or designate a successor entity (the "Successor Borrower") which shall be a single purpose entity approved by Lender in its sole discretion. Borrower shall transfer and assign all obligations, rights and duties under and to this Note together with the Defeasance Collateral to such Successor Borrower. Such Successor Borrower shall assume the obligations under this Note and the Security Instrument and Borrower shall be relieved of its obligations under such documents except for any such representations that specifically survive the defeasance. Borrower shall pay $1,000 to any such Successor Borrower as consideration for assuming the obligations under this Note and the Security Instrument. Borrower shall pay all costs and expenses incurred by Lender, including Lender's attorneys' fees and expenses, incurred in connection with establishment of the Successor Borrower.

          (f)   Defeasance Collateral Account. All cash from interest and principal payments paid on the Defeasance Collateral shall be paid over to Lender for each Scheduled Defeasance Payment and applied first to accrued and unpaid interest and then to principal. Any cash from interest and principal paid on the Defeasance Collateral not needed to pay accrued and unpaid interest or principal shall be retained in a designated account established by Borrower or Successor Borrower as the case may be, (the "Defeasance Collateral Account") which shall constitute additional collateral for the loan evidenced hereby. The Defeasance Collateral Account shall contain only cash from interest and principal paid on the Defeasance Collateral. Borrower or Successor Borrower, as applicable, shall be the owner of the Defeasance Collateral Account and shall report all income

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accrued thereon for federal, state and local income tax purposes and shall pay all costs and expenses associated with opening and maintaining the account and may pay all costs and expenses associated with maintaining the Successor Borrower from such account. Lender shall have no responsibility to fund any Scheduled Defeasance Payments and shall not be liable in any way by reason of any insufficiency in the Defeasance Collateral Account. Upon an assumption by Successor Borrower acceptable to Lender, Borrower shall be relieved of its obligations under this Note and the Defeasance Security Agreement and, to the extent such documents relate to the Mortgaged Property, the Other Security Documents.

          (g)   Release of Security Instruments Following Defeasance. Upon compliance with the requirements hereunder for a defeasance, the Mortgaged Property shall be released from the lien of each of the Security Instruments and the Other Security Documents, and the Defeasance Collateral shall constitute collateral securing this Note. Lender will, at Borrower's expense, execute and deliver any agreements reasonably requested by Borrower to release the lien of the Security Instruments from the Mortgaged Property.

          (h)   Purchase of Defeasance Collateral. In the event of purchase by Lender of the Defeasance Collateral, such purchase may, in Lender's sole and absolute discretion be through an affiliate of Lender or a third party entity. Borrower shall be responsible for the payment of any brokerage or other transaction fees in connection with such purchase.

          6.   Default. An "Event of Default" shall occur if:

          (a)   Borrower fails to make the full and punctual payment of any amount payable hereunder or under any of the Security Instruments or Other Security Documents on a monthly basis, which failure is not cured on or before the fifth (5th) day after the date of written notice from Lender to Borrower of such failure;

          (b)   Borrower fails to pay the entire outstanding principal balance hereunder, together with all accrued and unpaid interest, on the date when due, whether on the Maturity Date, upon acceleration or prepayment or otherwise; or

          (c)   an Event of Default (as defined in any of the Security Instruments or any of the Other Security Documents) has occurred under any of the Security Instruments and/or Other Security Documents.

          7.   Acceleration. The whole of the Debt, including without limitation, the principal sum of this Note, all accrued interest and all other sums due under this Note, the Security Instruments and the Other Security Documents, together with any applicable Prepayment Consideration, shall become immediately due and payable at the option of Lender, without notice, at any time following the occurrence of an Event of Default.

          8.   Default Interest. Upon the occurrence of an Event of Default (including without limitation, the failure of Borrower to pay the Debt in full on the Maturity Date), Lender shall be entitled to

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receive and Borrower shall pay interest on the entire unpaid principal balance at the rate (the "Default Rate") equal to the greater of: (a) four percent (4%) above the Applicable Interest Rate; or (b) four percent (4%) above the Prime Rate (hereinafter defined) in effect at the time of the occurrence of the Event of Default; provided, however, that notwithstanding the foregoing, in no event shall the Default Rate exceed the Maximum Rate (hereinafter defined). The term "Prime Rate" shall mean the prime rate reported in the Money Rates section of The Wall Street Journal for the date (the "Default Rate Calculation Date") upon which the Event of Default occurred, or if no publication occurs upon such date, then the date of publication immediately preceding the date of the Event of Default. In the event that The Wall Street Journal should cease or temporarily interrupt publication, the term "Prime Rate" shall mean the daily average prime rate published upon the Default Rate Calculation Date in another business newspaper, or business section of a newspaper, of national standing chosen by Lender. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available and verifiable to Borrower but is beyond Lender's control. The Default Rate shall be computed from the occurrence of the Event of Default until the actual payment in full of the Debt. This charge shall be added to the Debt, and shall be deemed secured by the Security Instruments. This clause, however, shall not be construed as an agreement or privilege to extend the Maturity Date, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default.

          9.   Attorney Fees. In the event that Lender employs attorney(s) to collect the Debt, to enforce the provisions of this Note or to protect or foreclose the security herefor, Borrower agrees to pay Lender's attorney fees and disbursements, whether or not suit be brought. Such fees shall be immediately due and payable.

          10.   Limit of Validity. This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest or other charges on the Debt at a rate which may subject Lender to civil or criminal liability as a result of such rate exceeding the maximum interest rate which Borrower is permitted to pay by applicable law (the "Maximum Rate"). If by the terms of this Note, Borrower is at any time required or obligated to pay interest or other charges on the Debt at a rate in excess of the Maximum Rate, the rate of interest due under this Note shall be deemed to be immediately reduced to the Maximum Rate and any previous payments in excess of the Maximum Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder.

          11.   No Oral Amendments. This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

          12.   Exculpation. Subject to the provisions of this Section, Borrower's liability under this Note, the Security Instruments or the Other Security Documents shall only extend to the Mortgaged Property and other collateral given to secure the Debt, and Lender shall not enforce such liability against any other asset, property or funds of Borrower or any person or entity constituting Borrower;

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provided, however, the foregoing shall not: (a) impair the right of lender to bring suit and obtain personal, recourse judgment against any person or entity (including Borrower or any person or entity constituting Borrower) relating to any losses sustained by Lender in connection with any fraud, intentional misrepresentation, waste, or misappropriation of tenant security deposits or rents collected more than one (1) month in advance by Borrower; (b) impair the right of Lender to name, and obtain a judgment against any person or entity (including Borrower or any person or entity constituting Borrower) to the extent required by law to either obtain a judgment of specific performance with respect to any of the provisions of this Note, the Security Instruments or any of the Other Security Documents, or to foreclose the Security Instruments and obtain title to the Mortgaged Property and other collateral given to secure the Debt; (c) affect the validity or enforceability of, or impair the right of Lender to bring suit and obtain personal, recourse judgment against any person or entity (including Borrower or any person or entity constituting Borrower) to enforce any guaranty, indemnity or release of liability made by such person or entity (whether made in this Note, the Security Instruments, any of the Other Security Documents or in any other separate agreement); (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of any Assignment of Leases and Rents executed in connection herewith; or (f) affect the validity or enforceability of, or impair the right of Lender to bring suit and obtain personal, recourse judgment against any person or entity (including Borrower or any person or entity constituting Borrower) relating to any losses sustained by Lender in connection with any of the provisions of this Note, the Security Instruments or any of the Other Security Documents requiring that: (i) any person or entity maintain any insurance over any of the Mortgaged Property, or (ii) any insurance proceeds or condemnation awards be paid to Lender; or (g) impair the right of Lender to bring suit and obtain personal, recourse judgment against any person or entity (including Borrower or any person or entity constituting Borrower) for the full amount of the Debt if the Mortgaged Property or any part thereof shall become an asset in: (i) a voluntary bankruptcy or insolvency proceeding, or (ii) an involuntary bankruptcy or insolvency proceeding: (A) which is commenced by any person or entity controlling, controlled by or under common control with borrower (the "Borrowing Group") or (B) in which any member of the Borrowing Group objects to a motion by Lender for relief from any stay or injunction from the foreclosure of the Security Instruments or any other remedial action permitted under this Note, the Security Instruments or any of the Other Security Documents. Items (a) through (g) above are collectively the "Non-Recourse Exceptions". Borrower's liability under the Non-Recourse Exceptions, excepting item (g), shall be limited to the amount of any losses or damages sustained by Lender in connection with such Non-Recourse Exceptions. Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Security Instruments or to require that all of the Mortgaged Property and other collateral given to secure the Debt shall continue to secure all of the Debt.

          13.   Assignment. This Note may be freely transferred and assigned by Lender, its successors, endorsees and assigns. Borrower's right to transfer its rights and obligations with respect to the Debt, and to be released from liability under this Note, shall be governed by the Security Instruments.

 

 

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          14.   Applicable Law, Jurisdiction. This Note shall be governed and construed in accordance with the laws of the state in which the real property encumbered by the Security Instrument is located. Borrower hereby submits to personal jurisdiction in the state courts located in said state and the federal courts of the United States of America located in said state for the enforcement of Borrower's obligations hereunder and waives any and all personal rights under the law of any other state to object to jurisdiction within such state for the purposes of any action, suit, proceeding or litigation to enforce such obligations of Borrower.

          15.   Joint and Several Liability. If Borrower consists of more than one person or entity, the obligations and liabilities of each such person or entity shall be joint and several.

          16.   Waiver of Presentment, Etc. Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest, notice of protest, and notice of intent to accelerate the maturity hereof (and of such acceleration), except to the extent that specific notices are required by this Note, the Security Instruments or the Other Security Documents.

          17.   No Waiver. Any failure by Lender to insist upon strict performance by Borrower of any of the provisions of this Note, the Security Instruments or the Other Security Documents shall not be deemed to be a waiver of any of the terms or provisions of this Note, the Security Instruments or the Other Security Documents, and Lender shall have the right thereafter to insist upon strict performance by Borrower of any and all of the terms and provisions of this Note, the Security Instruments or the Other Security Documents.

          18.   Notices. Except as otherwise specified herein, any notice, consent, request or other communication required or permitted to be given hereunder shall be in writing, addressed to the other party as set forth below (or to such other address or person as either party or person entitled to notice may by notice to the other party specify), and shall be: (a) personally delivered; (b) delivered by Federal Express or other comparable overnight delivery service; or (c) transmitted by United States certified mail, return receipt requested with postage prepaid; to:

 

Lender:

PNC Bank, National Association
210 West 10th Street, 6th Floor
Kansas City, Missouri 64105

 


Borrower:


Locke Sovran II L.L.C.
6467 Main Street
Buffalo, New York 14221

Unless otherwise specified, all notices and other communications shall be deemed to have been duly given on the first to occur of actual receipt of the same or: (i) the date of delivery if personally delivered; (ii) one (1) business day after depositing the same with the delivery service if by overnight delivery service; and (iii) three (3) days following posting if transmitted by mail. Borrower must prominently display Lender's Loan Number on all notices or communications to Lender.

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          19.   Severability. If any term, covenant or condition of this Note is held to be invalid, illegal or unenforceable in any respect, this Note shall be construed without such provision.

          20.   Time of the Essence. Time shall be of the essence in the performance of all obligations of Borrower hereunder.

          21.   Additional Terms and Provisions. Certain additional and supplemental terms and provisions of this Note are set forth in this paragraph. The terms and provisions of this paragraph control and supersede any conflicting terms and provisions contained in this Note.

               (a)   Anything herein to the contrary notwithstanding, if Lender determines, in its sole discretion, at any time during the calendar month immediately preceding the Maturity Date that the Loan will not be paid as required on the Maturity Date, Lender shall have the option to forbear from exercising its rights under this Note, the Security Instruments and the Other Security Documents to foreclose upon the Mortgaged Property (an "Optional Lender Forbearance"). In such event, Lender shall notify Borrower of such decision and the following shall occur:

 

     (i)   On the first day of the month immediately following the Maturity Date and on the first day of each calendar month thereafter, Borrower shall pay to Lender an amount (each a "Property Cash Flow Payment Amount") equal to the greater of (a) the Monthly Debt Service Payment Amount and (b) Gross Income (as defined in the Security Agreement and Lockbox Agreement (the "Lockbox Agreement") executed contemporaneously herewith) received by it in connection with the Mortgaged Property.



     (ii)   Each Property Cash Flow Payment Amount paid after the Maturity Date shall be applied in accordance with the Lockbox Agreement. Interest accrued at the Adjusted Interest Rate and not paid shall be deferred and added to the indebtedness evidenced by this Note.



     (iii)   Lender's decision to forbear from exercising its rights under this Note, the Security Instruments and the Other Security Documents shall be revocable at any time by Lender without notice to Borrower. Upon any such revocation, Lender shall be entitled to pursue any and all remedies available to it under this Note, the Security Instruments, the Other Security Documents, at law or in equity.



     (iv)   Anything herein to the contrary notwithstanding, Borrower shall have the right to pay the Loan in full on the Maturity Date.

               (b)   Paragraph 1 is amended to add the following at the end of said paragraph: "In the case of an Optional Lender Forbearance as provided herein, the term "Applicable Interest Rate" shall mean the Adjusted Interest Rate from and after the Maturity Date through and including the date this Note is paid in full. The term "Adjusted Interest Rate" shall mean the greater of (x) the Initial

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Interest Rate plus four percent (4.0%); or (y) the Yield Rate on the then-current on-the-run 10-year U.S. Treasury Obligation (the "Specified U.S. Treasury Security") plus four percent (4.0%). The term "Yield Rate" shall mean the yield rate for the Specified U.S. Treasury Security as such yield rate is reported in the Wall Street Journal on the fifth (5th) business day preceding the Maturity Date. In the event that no such yield rate is published for the Specified U.S. Treasury Security, then the nearest equivalent U.S. Treasury Security shall be selected at Lender's sole discretion, and the yield rate therefor shall be the "Yield Rate". If the publication of such yield rates in the Wall Street Journal is discontinued, Lender shall determine such yield rates from another source selected by Lender."

               (c)   Paragraph 2 is amended to insert the following at the beginning of the first sentence: "Except as set forth in the Lockbox Agreement (as defined in Paragraph 21(a)(i) below)."

               (d)   For purposes hereof the term "Mortgaged Property" shall mean the "Mortgaged Property" (as defined in the Security Instruments taken collectively), and the term "Individual Property" shall mean each "Mortgaged Property" (as defined in each "Individual Security Instrument"). With respect to Borrower and the Mortgaged Property, nothing contained herein or in any of the Security Instruments or the other Security Documents shall be construed as requiring Lender to resort to any Individual Property for the satisfaction of any of the Debt in preference or priority to any other Individual Property, and Lender may seek satisfaction out of all of the Mortgaged Property or any part thereof, in its absolute discretion in respect of the Debt. In addition, Lender shall have the right from time to time to partially foreclose the Security Instrument in any manner and for any amounts secured by the Security Instruments then due and payable as determined by Lender in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal and interest, Lender may foreclose one or more of the Security Instruments to recover such delinquent payments, or (ii) in the event Lender elects to accelerate less than the entire outstanding principal balance of the Loan, Lender may foreclose one or more of the Security Instruments to recover so much of the principal balance of the Loan as Lender may accelerate and such other sums secured by one or more of the Security Instruments as Lender may elect. Notwithstanding one or more partial foreclosures, the Mortgaged Property shall remain subject to the Security Instruments to secure payment of sums secured by the Security Instruments and not previously recovered.

               (e)   Borrower acknowledges that Lender has made the Loan to Borrower upon the security of its collective interest in the Mortgaged Property and in reliance upon the aggregate of each Individual Property constituting the Mortgaged Property taken together being of greater value as collateral security than the sum of each Individual Property constituting the Mortgaged Property taken separately. Borrower agrees that: (i) an Event of Default under any of the Security Instruments shall constitute an Event of Default under this Note and under each of the other Individual Security Instruments; (ii) an Event of Default under this Note or the Other Security Documents shall constitute an Event of Default under each Security Instrument; (iii) each Individual Security Instrument shall constitute security for the Note as if a single blanket lien were placed on all

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of the Mortgaged Property as security for the Note; and (iv) such cross-defaulting shall in no event be deemed to constitute a fraudulent conveyance.

               (f)   Anything herein to the contrary notwithstanding, Borrower shall not have the right to obtain the release of any Individual Property from the lien of any Security Instrument or the Other Security Documents pursuant to Paragraph 5(d) unless Borrower simultaneously obtains the release of all of the Mortgaged Property.

               (g)   The first sentence of Paragraph 14 is amended to read as follows: "This Note shall be governed and constructed in accordance with the internal laws of the State of New York without regard to principles of conflicts of laws."

               (h)   The following sentence is added as the fourth sentence of Paragraph 8: "The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate charged by banks including, without limitation, Lender."

          BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THE LOAN EVIDENCED BY THIS NOTE OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE SECURITY INSTRUMENTS OR ANY OF THE OTHER SECURITY DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF BORROWER OR LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER'S MAKING OF THE LOAN SECURED BY THE SECURITY INSTRUMENTS AND THE OTHER SECURITY DOCUMENTS.

           IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note as a sealed instrument to be effective the day and year first above written.

 

 

"BORROWER"

LOCKE SOVRAN II L.L.C., a New York limited
liability company, by its Manager

By: LOCKE SOVRAN II MANAGER, INC., a
Delaware corporation



By:________________________________________
     Michael J. Rogers, Vice President

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ACKNOWLEDGMENT (IN NEW YORK STATE)

 

THE STATE OF NEW YORK

:

 

:

COUNTY OF ERIE

:

          On the 12th day of February, in the year 2002, before me, the undersigned, a Notary Public in and for said State, personally appeared MICHAEL J. ROGERS personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity as Vice President of Locke Sovran II Manager, Inc., a Delaware corporation, the Manager of Locke Sovran II L.L.C., a New York limited liability company, on behalf of said corporation and limited liability company, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

 

 

______________________________________
(Signature and Office of Individual
Taking Acknowledgment)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Pay to the order of ____________________________________________, without recourse.

 

 

PNC BANK, NATIONAL ASSOCIATION



By:___________________________________
            Jeannette Butler, Vice President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Sovran Self Storage, Inc.
Exhibit (12.1) - Statement Re: Computation of Earnings to
Combined Fixed Charges and Preferred Stock Dividends

Amounts in thousands

 

                       Year ended December 31,                       

 

2002  

2001  

2000  

1999  

1998  

Earnings:

         

  Net income available to common shareholders

$21,208

$21,234

$22,752

$24,346

$23,540

  Fixed charges

  20,805

  17,955

  21,279

  15,944

    9,925

Earnings (1)

42,013

39,189

44,031

40,290

33,465

           

Fixed charges:

         

  Interest expense

14,664

13,940

17,497

13,927

9,601

  Preferred stock dividends

5,093

2,955

2,955

1,239

-    

  Amortization of financing fees

    1,048

    1,060

       827

       778

      324

Fixed charges (2)

$20,805

$17,955

$21,279

$15,944

$ 9,925

           

Ratio of earnings to combined fixed charges and preferred stock dividends
  (1)/(2)



2.02



2.18



2.07



2.53



3.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 99.1

 

Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

               In connection with the Annual Report of Sovran Self Storage, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002, as filed with the Securities and Exchange Commission (the "Report"), each of the undersigned does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

   

2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:          March 27, 2003

 

   / S / Robert J. Attea                          
Robert J. Attea
Chairman of the Board
Chief Executive Officer

 



   / S / David L. Rogers                       
 
David L. Rogers
Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

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<PAGE>

Exhibit 23

 

Consent of Independent Auditors

 

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-21679) and the Registration Statement (Form S-8 No. 333-42272) pertaining to the 1995 Award and Option Plan and to the 1995 Outside Directors' Stock Option Plan, the Registration Statement (Form S-8 No. 333-42270) pertaining to the Deferred Compensation Plan for Directors of Sovran Self Storage, Inc., the Registration Statement (Form S-3 No. 333-64735) pertaining to the Dividend Reinvestment and Stock Purchase Plan of Sovran Self Storage, Inc., the Registration Statement (Form S-8 No. 333-73806) pertaining to the 1995 Award and Option Plan, and the Registration Statement (Form S-3 No. 333-97715) pertaining to the Series C Convertible Cumulative Preferred Stock; Common Stock underlying the Series C Convertible Cumulative Preferred Stock; Common Stock Warrants and Common Stock underlying the Common Stock Warrants of our report dated January 28, 2003 with respect to the consolidated financial statements and schedule of Sovran Self Storage, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2002.

We also consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-51169) of Sovran Self Storage, Inc. and Sovran Acquisition Limited Partnership and in the related Prospectus of our report dated January 28, 2003 with respect to the consolidated financial statements and schedule of Sovran Self Storage, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2002.

 

ERNST & YOUNG LLP

 

 

 

Buffalo, New York
March 27, 2003

 

 

 

 

 

 

 

 

 

 

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