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UNITED STATES 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, 2010
Commission File Number: 1-13820
SOVRAN SELF STORAGE, INC.
(Exact name of Registrant as specified in its charter)
     
Maryland   16-1194043
     
(State of incorporation or organization)   (I.R.S. Employer Identification No.)
6467 Main Street
Williamsville, 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
  Exchanges on which Registered
 
   
Common Stock, $.01 Par Value
  New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ     No o
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o       No þ
     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 þ       No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ       No o
     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. þ
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
 
      (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o       No þ
     As of June 30, 2010, 27,591,109 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 $927,634,682 (based on the closing price of the Common Stock on the New York Stock Exchange on June 30, 2010).
     As of February 15, 2011, 27,660,329 shares of Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the registrant’s Proxy Statement for the 2011 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2010.
 
 

 


 

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SIGNATURES
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 EX-12.1
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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Part I
          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 Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self-storage facilities, which 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 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 comply with debt covenants; any future ratings on the Company’s debt instruments; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes that may change the taxability of future income.
Item 1. Business
          Sovran Self Storage, Inc. together with its direct and indirect subsidiaries and the consolidated joint ventures, to the extent appropriate in the applicable context, (the “Company,” “We,” “Our,” or ”Sovran”) is a self-administered and self-managed real estate investment trust (“REIT”) that acquires, owns and manages self-storage properties. We refer to the self-storage properties in which we have an ownership interest and are managed by us as “Properties.” We began operations on June 26, 1995. We were formed to continue the business of our predecessor company, which had engaged in the self-storage business since 1985. At February 15, 2011, we held ownership interests in and managed 377 Properties consisting of approximately 24.7 million net rentable square feet, situated in 24 states. Among our 377 Properties are 27 Properties that we manage for a consolidated joint venture of which we are a majority owner and 25 Properties that we manage for a joint venture of which we are a 20% owner. We believe we are the fifth largest operator of self-storage properties in the United States based on facilities owned and managed. Our Properties conduct business under the user-friendly name Uncle Bob’s Self-Storage ®.
          We own an indirect interest in each of the Properties through a limited partnership (the “Partnership”). In total, we own a 98.8% economic interest in the Partnership and unaffiliated third parties own collectively a 1.2% limited partnership interest at December 31, 2010. We believe that this structure, commonly known as an umbrella partnership real estate investment trust (“UPREIT”), facilitates our ability to acquire properties by using units of the Partnership as currency. By utilizing interests in the Partnership as currency in facility acquisitions, we may partially defer the seller’s income tax liability which in turn may allow us to obtain more favorable pricing.
          We were incorporated on April 19, 1995 under Maryland law. Our principal executive offices are located at 6467 Main Street, Williamsville, New York 14221, our telephone number is (716) 633-1850 and our web site is www.sovranss.com.
          We seek to enhance shareholder value through internal growth and acquisition of additional storage properties. Internal growth is achieved through aggressive property management: increasing rents, increasing occupancy levels, controlling costs, maximizing collections, and strategically expanding and improving the Properties. Should economic conditions warrant, we may develop new properties. We believe that there continue to be opportunities for growth through acquisitions, and constantly seek to acquire self-storage properties that are susceptible to realization of increased economies of scale and enhanced performance through application of our expertise.

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Industry Overview
          We believe that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed and secure storage space, many facilities also offer outside storage for automobiles, recreational vehicles and boats. Better facilities, such as those managed by the Company, are usually fenced and well lighted with gates that are either manually operated or automated and have a full-time manager. Our customers rent space on a month-to-month basis and 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, and the customer has sole control of access to the unit.
          According to the 2011 Self-Storage Almanac, of the approximately 49,400 facilities in the United States, less than 11% 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 capital available to small operators for acquisitions and expansions, and the potential for savings through economies of scale are factors that are leading to consolidation in the industry. We believe that, as a result of this trend, significant growth opportunities exist for operators with proven management systems and sufficient capital resources.
Property Management
           We have over 25 years experience managing self storage facilities and the combined experience of our key personnel has made us one of the leaders in the industry. All of our stores operate under the user-friendly name of Uncle Bob’s Self Storage®, and we employ the following strategies with respect to our property management:
Our People:
          We recognize the importance of quality people to the success of an organization. Our store personnel are held to high standards for customer service, store appearance, financial performance, and overall operations. They are supported with state of the art training tools including an online learning management system and an extensive network of certified training personnel. Every store team also has frequent, and sometimes daily, interaction with an Area Manager, a Regional Vice President, an Accounting Representative, and other support personnel.
Training & Development:
          Our employees benefit from a wide array of training and development opportunities. New store employees undergo a comprehensive, proprietary training program designed to drive sales and operational results while ensuring the delivery of quality customer service. Each new hire is assigned a Certified Training Manager as a mentor during their initial training period. To supplement their initial training, employees enjoy continuing edification, coaching, and performance feedback throughout their tenure.
          All learning and development activities are facilitated through our online Learning and Performance Management System internally named eBOB. eBOB delivers and tracks hundreds of on-demand computer based training and compliance courses; it also administers tests, surveys, and the employee appraisal process. Sovran’s training and development program encompasses the tools and support we deem essential to the success of our employees and business.
Marketing and Advertising:
          We believe the avenues for attracting and capturing new customers have changed dramatically over the years. As such, we have implemented the following strategies to market our properties and increase profitability:
    We employ a Customer Care Center (call center) that services over 30,000 rental inquiries per month. Our highly skilled Sale Representatives answer incoming sales calls for all of our stores, 361 days a year. The team undertakes continuous training in effective storage sales techniques, which we believe results in higher conversions of inquiries to rentals.

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    The once predominant advertising vehicle — yellow pages — has lost favor to a wide range of other opportunities. Our aggressive internet marketing and websites provide customers with real-time pricing, online reservations, online payments, and support for mobile devices. Our advertising strategy employs a mix of online media to ensure the Uncle Bob’s name is found wherever customers search for storage.
    Dri-guard humidity-controlled spaces are a premium storage feature intended to protect metal, electronics, furniture, fabrics and paper from moisture. We became the first self-storage operator to utilize this humidity protection technology and we believe it helps to differentiate us from other operators.
    We also have a fleet of rental trucks that serve as an added incentive to choose our storage facilities. The truck rental charge is waived for new move-in customers and we believe it provides a valuable service and added incentive to choose us. Further, the prominent display of our logo turns each truck into a moving billboard.
Ancillary Income:
           We know that our 160,000 customers require more than just a storage space. With that in mind, we offer a wide range of other products and services that fulfill their needs while providing us ancillary income. Whereas our Uncle Bob’s trucks are available with no rental charge for new move-in customers, they are available for rent to non-customers and existing customers. We also rent moving dollies and blankets, and we carry a wide assortment of moving and packing supplies including boxes, tape, locks, and other essential items. For those customers who do not carry storage insurance, we make available renters insurance through a third party carrier, on which we earn a commission. We also earn incidental income from billboards and cell towers.
Information Systems:
           Our customized computer system performs billing, collections, and reservation functions for each store. It also tracks information used in developing marketing plans based on occupancy levels and customer demographics and histories. The system generates daily, weekly and monthly financial reports for each Property that are transmitted to our 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 our 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 Area Managers. Our customized management information system permits us to add new facilities to our portfolio with minimal additional overhead expense.
Revenue Management:
           Our proprietary revenue management system is constantly evolving as our forecasting capabilities improve and we further adapt to changes in consumer behavior. We have the ability to change pricing instantaneously for any one unit type, at any single location, based on occupancy, competition, and forecasted changes in demand. By analyzing current customer rent tenures, we are able to implement rental rate increases at optimal times to increase revenues. Further, the system provides reports and alerts that enhance management oversight of field staff decisions. Our revenue management system is overseen by a team of Revenue Management Analysts and we believe serves to achieve higher yields and control discounting.
Property Maintenance:
           We take great pride in the appearance and structural integrity of our Properties. All of our Properties go through a thorough annual inspection performed by qualified Project Managers. Those inspections provide the basis for short and long term planned projects which are all performed under a standardized set of specifications. Routine maintenance such as landscaping, pest control, etc. is contracted through local providers who have a clear understanding of our standards. Further, we continually look to green alternatives and implement energy saving alternatives as new technology becomes available. As with many other aspects of our Company, our size has allowed us to enjoy relatively low maintenance costs because we have the benefit of economies of scale in purchasing, travel, and overhead absorption.

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Environmental and Other Regulations
          We are subject to federal, state, and local environmental regulations that apply generally to the ownership of real property. We have not received notice from any governmental authority or private party of any material environmental noncompliance, claim, or liability in connection with any of the Properties, and are not aware of any environmental condition with respect to any of the Properties that could have a material adverse effect on our 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. We believe that the Properties are in substantial compliance with all such regulations.
Insurance
          Each of the Properties is covered by fire and property insurance (including comprehensive liability), and all-risk property insurance policies, which are provided by reputable companies and on commercially reasonable terms. In addition, we maintain 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 amount that we believe to be adequate.
Federal Income Tax
          We operate, and intend 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 we will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our 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 customers’ needs, and the manner in which the property is operated and marketed. We believe we compete successfully on these bases. The extent of competition depends significantly on local market conditions. We seek to locate facilities so as not to cause our 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 our competitors, including Public Storage and U-Haul, are larger and have substantially greater financial resources than we do. 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 we emphasize equity real estate investments, we may, at our discretion, invest in mortgage and other real estate interests related to self-storage properties in a manner consistent with our qualification as a REIT. We 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, we may look to acquire self-storage properties via a joint-venture partnership or similar entity. We may or may not elect to have a significant investment in such a venture, but would use such an opportunity to expand our portfolio of branded and managed properties.
          Subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification, we 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
          Any disposition decision of our Properties is 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 our portfolio, (iv) potential for, or existence of, environmental or regulatory issues, (v) alternative uses of capital, and (vi) maintaining qualification as a REIT.
          During 2010 we sold ten non-strategic storage facilities located in Georgia, Michigan, North Carolina and Virginia for net cash proceeds of $23.7 million resulting in a gain of $6.9 million. During 2009 we sold five non-strategic storage facilities located in Massachusetts, North Carolina and Pennsylvania for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. During 2008 we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million.
Distribution Policy
          We intend to pay regular quarterly distributions to our shareholders. However, future distributions by us will be at the discretion of the Board of Directors and will depend on the actual cash available for distribution, our financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. In order to maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income (which does not include capital gains). Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet this requirement.
          On May 6, 2009, recognizing the need to maintain maximum financial flexibility in light of the current state of the capital markets, our Board of Directors reduced the quarterly common stock dividend from $0.64 per share to $0.45 per share, for an annual dividend rate of $1.80 per share.
Borrowing Policy
          Our Board of Directors currently limits the amount of debt that may be incurred by us to less than 50% of the sum of the market value of our issued and outstanding Common and Preferred Stock plus our debt. We, however, may from time to time re-evaluate and modify our 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.
          On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, we entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay the Company’s previous line of credit that was to

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mature in September 2008, the Company’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. In October 2009, the Company repaid $100 million of the term note entered into in June 2008. The 2008 agreements also provide for a $125 million revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. At our option the revolving line of credit can be extended for one year until June 2012 for a fee of 0.25%. At December 31, 2010, there was $115 million available on the unsecured line of credit.
          We also maintain an $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.
          To the extent that we desire 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, we may utilize amounts available under the line of credit, common or preferred stock offerings, floating or fixed rate debt financing, retention of cash flow (subject to satisfying our distribution requirements under the REIT rules) or a combination of these methods. Additional debt financing may also be obtained through mortgages on our Properties, which may be recourse, non-recourse, or cross-collateralized and may contain cross-default provisions. We have not established any limit on the number or amount of mortgages that may be placed on any single Property or on our portfolio as a whole, although certain of our existing term loans contain limits on overall mortgage indebtedness. 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 7 to the Consolidated Financial Statements filed herewith.
Employees
          We currently employ a total of 1,027 employees, including 377 property managers, 24 area managers, and 484 assistant managers and part-time employees. At our headquarters, in addition to our three senior executive officers, we employ 139 people engaged in various support activities, including accounting, human resources, customer care, and management information systems. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be excellent.
Available Information
          We file 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 we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, 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. We file 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. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our web site at http://www.sovranss.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, our codes of ethics and Charters of our Governance, Audit Committee, and Compensation Committee are available free of charge on our website at http://www.sovranss.com.
          Also, copies of our annual report and Charters of our Governance, Audit Committee, and Compensation Committee will be made available, free of charge, upon written request to Sovran Self Storage, Inc., Attn: Investor Relations, 6467 Main Street, Williamsville, NY 14221.

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Item 1A. Risk Factors
          You should carefully consider the risks described below, together with all of the other information included in or incorporated by reference into our Form 10-K, as part of your evaluation of the Company. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our securities could decline, and you may lose all or part of your investment.
Our Acquisitions May Not Perform as Anticipated
          We have completed many acquisitions of self-storage facilities since our initial public offering of common stock in June 1995. Our strategy is to continue to grow by acquiring additional self-storage facilities. Acquisitions entail risks that investments will fail to perform in accordance with our expectations and that our judgments with respect to the prices paid for acquired self-storage facilities and the costs of any improvements required to bring an acquired property up to standards established for the market position intended for that property will prove inaccurate. Acquisitions also involve general investment risks associated with any new real estate investment.
We May Incur Problems with Our Real Estate Financing
          Unsecured Credit Facility and Term Notes. We have a line of credit and term note agreements with a syndicate of financial institutions and other lenders. This unsecured credit facility and the term notes are recourse to us and the required payments are not reduced if the economic performance of any of the properties declines. The unsecured credit facility limits our ability to make distributions to our shareholders, except in limited circumstances.
          Rising Interest Rates. Indebtedness that we incur under the unsecured credit facility and bank term notes bear interest at a variable rate. Accordingly, increases in interest rates could increase our interest expense, which would reduce our cash available for distribution and our ability to pay expected distributions to our shareholders. We manage our exposure to rising interest rates using interest rate swaps and other available mechanisms. If the amount of our indebtedness bearing interest at a variable rate increases, our unsecured credit facility may require us to enter into additional interest rate swaps.
          Refinancing May Not Be Available. It may be necessary for us to refinance our unsecured credit facility through additional debt financing or equity offerings. If we were unable to refinance this indebtedness on acceptable terms, we might be forced to dispose of some of our self-storage facilities upon disadvantageous terms, which might result in losses to us and might adversely affect the cash available for distribution. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancings, our interest expense would increase, which would adversely affect our cash available for distribution and our ability to pay expected distributions to shareholders.
          Covenants and Risk of Default. Our unsecured credit facility and term notes require us to operate within certain covenants, including financial covenants with respect to leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and dividend limitations. If we violate any of these covenants or otherwise default under our unsecured credit facility or term notes, then our lenders could declare all indebtedness under these facilities to be immediately due and payable which would have a material adverse effect on our business and could require us to sell self-storage facilities under distress conditions and seek replacement financing on substantially more expensive terms.
          Reduction in or Loss of Credit Rating. Certain of our debt instruments require us to maintain an investment grade rating from at least one and in some cases two debt ratings agencies. Should we fail to attain an investment grade rating from the agencies, the interest rate on our line of credit and our $150 million bank term note would increase by 0.375%, and the rate on our $150 million term note due 2016 would increase by 1.750%.

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Our Debt Levels May Increase
          Our Board of Directors currently has a policy of limiting the amount of our debt at the time of incurrence to less than 50% of the sum of the market value of our issued and outstanding common stock and preferred stock plus the amount of our debt at the time that debt is incurred. However, our organizational documents do not contain any limitation on the amount of indebtedness we might incur. Accordingly, our Board of Directors could alter or eliminate the current policy limitation on borrowing without a vote of our shareholders. We could become highly leveraged if this policy were changed. However, our ability to incur debt is limited by covenants in our bank credit arrangements.
We Are Subject to the Risks Posed by Fluctuating Demand and Significant Competition in the Self-Storage Industry
          Our self-storage facilities are subject to all operating risks common to the self-storage industry. These risks include but are not limited to the following:
    Decreases in demand for rental spaces in a particular locale;
 
    Changes in supply of similar or competing self-storage facilities in an area;
 
    Changes in market rental rates; and
 
    Inability to collect rents from customers.
          Our current strategy is to acquire interests only in self-storage facilities. Consequently, we are subject to risks inherent in investments in a single industry. Our self-storage facilities compete with other self-storage facilities in their geographic markets. As a result of competition, the self-storage facilities could experience a decrease in occupancy levels and rental rates, which would decrease our cash available for distribution. We compete in operations and for acquisition opportunities with companies that have substantial financial resources. Competition may reduce the number of suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell. The self-storage industry has at times experienced overbuilding in response to perceived increases in demand. A recurrence of overbuilding might cause us to experience a decrease in occupancy levels, limit our ability to increase rents, and compel us to offer discounted rents.
Our Real Estate Investments Are Illiquid and Are Subject to Uninsurable Risks and Government Regulation
          General Risks. Our investments are subject to varying degrees of risk generally related to the ownership of real property. The underlying value of our real estate investments and our income and ability to make distributions to our shareholders are dependent upon our ability to operate the self-storage facilities in a manner sufficient to maintain or increase cash available for distribution. Income from our self-storage facilities may be adversely affected by the following factors:
    Changes in national economic conditions;
 
    Changes in general or local economic conditions and neighborhood characteristics;
 
    Competition from other self-storage facilities;
 
    Changes in interest rates and in the availability, cost and terms of financing;
 
    The impact of present or future environmental legislation and compliance with environmental laws;
 
    The ongoing need for capital improvements, particularly in older facilities;

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    Changes in real estate tax rates and other operating expenses;
 
    Adverse changes in governmental rules and fiscal policies;
 
    Uninsured losses resulting from casualties associated with civil unrest, acts of God, including natural disasters, and acts of war;
 
    Adverse changes in zoning laws; and
 
    Other factors that are beyond our control.
          Illiquidity of Real Estate May Limit its Value. Real estate investments are relatively illiquid. Our ability to vary our portfolio of self-storage facilities in response to changes in economic and other conditions is limited. In addition, provisions of the Code may limit our ability to profit on the sale of self-storage facilities held for fewer than two years. We may be unable to dispose of a facility when we find disposition advantageous or necessary and the sale price of any disposition may not equal or exceed the amount of our investment.
          Uninsured and Underinsured Losses Could Reduce the Value of our Self Storage Facilities. Some losses, generally of a catastrophic nature, that we potentially face with respect to our self-storage facilities may be uninsurable or not insurable at an acceptable cost. Our management uses its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to acquiring appropriate insurance on our investments at a reasonable cost and on suitable terms. These decisions may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds received by us might not be adequate to restore our economic position with respect to a particular property.
          Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under, or in that property. Those laws often impose liability even if the owner or operator did not cause or know of the presence of hazardous or toxic substances and even if the storage of those substances was in violation of a customer’s lease. In addition, the presence of hazardous or toxic substances, or the failure of the owner to address their presence on the property, may adversely affect the owner’s ability to borrow using that real property as collateral. In connection with the ownership of the self-storage facilities, we may be potentially liable for any of those costs.
          Americans with Disabilities Act. The Americans with Disabilities Act of 1990, or ADA, generally requires that buildings be made accessible to persons with disabilities. A determination that we are not in compliance with the ADA could result in imposition of fines or an award of damages to private litigants. If we were required to make modifications to comply with the ADA, our results of operations and ability to make expected distributions to our shareholders could be adversely affected.
There Are Limitations on the Ability to Change Control of Sovran
          Limitation on Ownership and Transfer of Shares. To maintain our qualification as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code. To limit the possibility that we will fail to qualify as a REIT under this test, our Amended and Restated Articles of Incorporation include ownership limits and transfer restrictions on shares of our stock. Our Articles of Incorporation limit ownership of our issued and outstanding stock by any single shareholder to 9.8% of the aggregate value of our outstanding stock, except that the ownership by some of our shareholders is limited to 15%.

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     These ownership limits may:
    Have the effect of precluding an acquisition of control of Sovran by a third party without consent of our Board of Directors even if the change in control would be in the interest of shareholders; and
 
    Limit the opportunity for shareholders to receive a premium for shares of our common stock they hold that might otherwise exist if an investor were attempting to assemble a block of common stock in excess of 9.8% or 15%, as the case may be, of the outstanding shares of our stock or to otherwise effect a change in control of Sovran.
          Our Board of Directors may waive the ownership limits if it is satisfied that ownership by those shareholders in excess of those limits will not jeopardize our status as a REIT under the Code or in the event it determines that it is no longer in our best interests to be a REIT. Waivers have been granted to the former holders of our Series C preferred stock, FMR Corporation and Cohen & Steers, Inc. A transfer of our common stock and/or preferred stock to a person who, as a result of the transfer, violates the ownership limits may not be effective under some circumstances.
          Other Limitations. Other limitations could have the effect of discouraging a takeover or other transaction in which holders of some, or a majority, of our outstanding common stock might receive a premium for their shares of our common stock that exceeds the then prevailing market price or that those holders might believe to be otherwise in their best interest. The issuance of additional shares of preferred stock could have the effect of delaying or preventing a change in control of Sovran even if a change in control were in the shareholders’ interest. In addition, the Maryland General Corporation Law, or MGCL, imposes restrictions and requires specific procedures with respect to the acquisition of stated levels of share ownership and business combinations, including combinations with interested shareholders. These provisions of the MGCL could have the effect of delaying or preventing a change in control of Sovran even if a change in control were in the shareholders’ interest. Waivers and exemptions have been granted to the initial purchasers of our former Series C preferred stock in connection with these provisions of the MGCL. In addition, under the Partnership’s agreement of limited partnership, in general, we may not merge, consolidate or engage in any combination with another person or sell all or substantially all of our assets unless that transaction includes the merger or sale of all or substantially all of the assets of the Partnership, which requires the approval of the holders of 75% of the limited partnership interests thereof. If we were to own less than 75% of the limited partnership interests in the Partnership, this provision of the limited partnership agreement could have the effect of delaying or preventing us from engaging in some change of control transactions.
Our Failure to Qualify as a REIT Would Have Adverse Consequences
          We intend to operate in a manner that will permit us to qualify as a REIT under the Code. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Continued qualification as a REIT depends upon our continuing ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our shareholders.
          In addition, a REIT is limited with respect to the services it can provide for its tenants. In the past, we have provided certain conveniences for our tenants, including property insurance underwritten by a third party insurance company that pays us commissions. We believe the insurance provided by the insurance company would not constitute a prohibited service to our tenants. No assurances can be given, however, that the IRS will not challenge our position. If the IRS successfully challenged our position, our qualification as a REIT could be adversely affected.
          If we were to fail to qualify as a REIT in any taxable year, we would not be allowed a deduction for distributions to shareholders in computing our taxable income and would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief

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under certain Code provisions, we also would be ineligible for qualification as a REIT for the four taxable years following the year during which our qualification was lost. As a result, distributions to the shareholders would be reduced for each of the years involved. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.
We May Pay Some Taxes, Reducing Cash Available for Shareholders
          Even if we qualify as a REIT for federal income tax purposes, we are required to pay some federal, foreign, state and local taxes on our income and property. Certain of our corporate subsidiaries have elected to be treated as “taxable REIT subsidiaries” of the Company for federal income tax purposes. A taxable REIT subsidiary is taxable as a regular corporation and is limited in its ability to deduct interest payments made to us in excess of a certain amount. In addition, if we receive or accrue certain amounts and the underlying economic arrangements among our taxable REIT subsidiaries and us are not comparable to similar arrangements among unrelated parties, we will be subject to a 100% penalty tax on those payments in excess of amounts deemed reasonable between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that the Company or any taxable REIT subsidiary is required to pay federal, foreign, state or local taxes, we will have less cash available for distribution to shareholders.
We May Change the Dividend Policy for Our Common Stock in the Future
          In 2010, our board of directors authorized and we declared quarterly common stock dividends of $0.45 per share in January, April, July and October, the equivalent of an annual rate of $1.80 per share. In addition, our board of directors authorized and we declared a quarterly common stock dividend to $0.45 per share in January 2011. We can provide no assurance that our board will not reduce or eliminate entirely dividend distributions on our common stock in the future.
          A recent Internal Revenue Service revenue procedure allows us to satisfy the REIT income distribution requirements with respect to our 2011 taxable year by distributing up to 90% of our 2011 dividends on our common stock in shares of our common stock in lieu of paying dividends entirely in cash, so long as we follow a process allowing our shareholders to elect cash or stock subject to a cap that we impose on the maximum amount of cash that will be paid. Although we may utilize this procedure in the future, we currently have no intent to do so. In the event that we pay a portion of a dividend in shares of our common stock, taxable U.S. shareholders would be required to pay tax on the entire amount of the dividend, including the portion paid in shares of common stock, in which case such shareholders might have to pay the tax using cash from other sources. If a U.S. shareholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividend, including in respect to all of or a portion of such dividend that is payable in stock. In addition, if a significant number of our shareholders sell shares of our common stock in order to pay taxes owed on dividends, such sales could put downward pressure on the market price of our common stock.
          Our board of directors will continue to evaluate our distribution policy on a quarterly basis as they monitor the capital markets and the impact of the economy on our operations. The decisions to authorize and pay dividends on our common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. Any change in our dividend policy could have a material adverse effect on the market price of our common stock.

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Market Interest Rates May Influence the Price of Our Common Stock
          One of the factors that may influence the price of our common stock in public trading markets or in private transactions is the annual yield on our common stock as compared to yields on other financial instruments. An increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect the price of our common stock.
Regional Concentration of Our Business May Subject Us to Economic Downturns in the States of Texas and Florida
          As of December 31, 2010, 146 of our 377 self-storage facilities are located in the states of Texas and Florida. For the year ended December 31, 2010, these facilities accounted for approximately 41.9% of store revenues. This concentration of business in Texas and Florida exposes us to potential losses resulting from a downturn in the economies of those states. If economic conditions in those states continue to deteriorate, we will experience a reduction in existing and new business, which may have an adverse effect on our business, financial condition and results of operations.
Changes in Taxation of Corporate Dividends May Adversely Affect the Value of Our Common Stock
          The maximum marginal rate of tax payable by domestic noncorporate taxpayers on dividends received from a regular “C” corporation under current federal law is 15% through 2012, as opposed to higher ordinary income rates. The reduced tax rate, however, does not apply to distributions paid to domestic noncorporate taxpayers by a REIT on its stock, except for certain limited amounts. The earnings of a REIT that are distributed to its stockholders generally remain subject to less federal income taxation than earnings of a non-REIT “C” corporation that are distributed to its stockholders net of corporate-level income tax. However, the lower rate of taxation to dividends paid through 2012 by regular “C” corporations could cause domestic noncorporate investors to view the stock of regular “C” corporations as more attractive relative to the stock of a REIT, because the dividends from regular “C” corporations continue to be taxed at a lower rate while distributions from REITs (other than distributions designated as capital gain dividends) are generally taxed at the same rate as other ordinary income for domestic noncorporate taxpayers. The maximum rate for domestic noncorporate taxpayers will increase in 2013 unless current tax laws are changed.
Item 1B. Unresolved Staff Comments
          None.

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Item 2. Properties
          At December 31, 2010, we held ownership interests in and managed a total of 377 Properties situated in twenty-four states. Among the 377 self-storage facilities are 27 Properties that we manage for a consolidated joint venture of which we are a majority owner and 25 Properties that we manage for a joint venture of which we are a 20% owner.
          Our self-storage facilities offer inexpensive, easily accessible, enclosed storage space to residential and commercial users on a month-to-month basis. Most of our Properties are fenced with computerized gates and are well lighted. A majority of the Properties are single-story, thereby providing customers with the convenience of direct vehicle access to their storage spaces. Our stores range in size from 23,000 to 181,000 net rentable square feet, with an average of approximately 65,000 net rentable square feet. The Properties generally are constructed of masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. 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 spaces are secured by a lock furnished by the customer to provide the customer with control of access to the space.
          All of the Properties conduct business under the user-friendly name Uncle Bob’s Self-Storage ®.
          The following table provides certain information regarding the Properties in which we have an ownership interest and manage as of December 31, 2010:
                                 
    Number of                        
    Stores at                     Percentage
    December 31,     Square     Number of     of Store
    2010     Feet     Spaces     Revenue
Alabama
    22       1,587,609       11,903       5.1 %
Arizona
    9       530,144       4,704       2.3 %
Colorado
    4       276,752       2,370       1.4 %
Connecticut
    5       300,819       2,866       1.9 %
Florida
    56       3,678,922       33,872       15.0 %
Georgia
    23       1,503,659       12,258       5.6 %
Kentucky
    2       144,914       1,322       0.6 %
Louisiana
    14       836,149       7,305       3.7 %
Maine
    2       113,876       1,008       0.5 %
Maryland
    4       172,061       2,037       1.0 %
Massachusetts
    12       664,329       6,070       3.3 %
Michigan
    4       238,593       2,160       0.9 %
Mississippi
    12       924,184       7,017       3.5 %
Missouri
    7       432,088       3,791       2.0 %
New Hampshire
    4       259,655       2,331       1.1 %
New York
    28       1,598,507       14,610       8.8 %
North Carolina
    18       1,034,432       9,574       2.0 %
Ohio
    23       1,553,605       12,859       5.6 %
Pennsylvania
    4       208,402       1,630       0.8 %
Rhode Island
    4       168,371       1,565       0.9 %
South Carolina
    8       443,158       3,779       1.7 %
Tennessee
    4       291,244       2,447       1.1 %
Texas
    90       6,631,659       54,609       26.9 %
Virginia
    18       1,081,090       10,105       4.3 %
 
                       
Total
    377       24,674,222       212,192       100.0 %
 
                       

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          At December 31, 2010, the Properties had an average occupancy of 80.1% and an annualized rent per occupied square foot of $10.51.
Item 3. Legal Proceedings
          In the normal course of business, we are subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, we do not believe that any matters currently pending against the Company will have a material adverse impact on our financial condition, results of operations or cash flows.
Item 4. (removed and reserved)

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Part II
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
          Our 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 our Common Stock for each full quarterly period within the two most recent fiscal years.
                 
Quarter 2009   High   Low
1st
  $ 36.12     $ 16.40  
2nd
    26.95       19.28  
3rd
    33.33       22.69  
4th
    38.06       28.88  
                 
Quarter 2010   High   Low
1st
  $ 36.83     $ 31.12  
2nd
    40.79       32.29  
3rd
    40.01       32.35  
4th
    41.47       35.00  
          As of February 15, 2011, there were approximately 1,230 holders of record of our Common Stock.
          We have paid quarterly dividends to our shareholders since our 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 2010 represent 72.5% ordinary income, 14.5% capital gain, and 13% return of capital. In addition, in 2010 51.7% of the capital gain was unrecaptured Section 1250 gain.
History of Dividends Declared on Common Stock
         
December 2008
  $0.640 per share
 
       
March 2009
  $0.640 per share
July 2009
  $0.450 per share
October 2009
  $0.450 per share
 
       
January 2010
  $0.450 per share
April 2010
  $0.450 per share
July 2010
  $0.450 per share
October 2010
  $0.450 per share

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EQUITY COMPENSATION PLAN INFORMATION
          The following table sets forth certain information as of December 31, 2010, with respect to equity compensation plans under which shares of the Company’s Common Stock may be issued.
                         
    Number of        
    securities to be        
    issued upon   Weighted average   Number of
    exercise of   exercise price of   securities
    outstanding   outstanding   remaining available
    options, warrants   options, warrants   for future issuance
Plan Category   and rights (#)   and rights ($)   (#)
Equity compensation plans approved by shareholders:
                       
2005 Award and Option Plan
    319,163     $ 42.90       914,922  
1995 Award and Option Plan
    27,150     $ 30.52       0  
2009 Outside Directors’ Stock Option and Award Plan
    15,500     $ 29.60       126,800  
1995 Outside Directors’ Stock Option Plan
    25,505     $ 46.23       0  
Deferred Compensation Plan for Directors (1)
    37,279       N/A       19,782  
Equity compensation plans not approved by shareholders:
    N/A       N/A       N/A  
 
(1)   Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their Directors’ fees that are otherwise payable in cash. Directors’ fees that are deferred under the Plan will be credited to each Directors’ account under the Plan in the form of Units. The number of Units credited is determined by dividing the amount of Directors’ fees deferred by the closing price of the Company’s Common Stock on the New York Stock Exchange on the day immediately preceding the day upon which Directors’ fees otherwise would be paid by the Company. A Director is credited with additional Units for dividends on the shares of Common Stock represented by Units in such Directors’ Account. A Director may elect to receive the shares in a lump sum on a date specified by the Director or in quarterly or annual installments over a specified period and commencing on a specified date.

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CORPORATE PERFORMANCE GRAPH
          The following chart and line-graph presentation compares (i) the Company’s shareholder return on an indexed basis since December 31, 2005 with (ii) the S&P Stock Index and (iii) the National Association of Real Estate Investment Trusts Equity Index.
(PERFORMANCE GRAPH)
CUMULATIVE TOTAL SHAREHOLDER RETURN
SOVRAN SELF STORAGE, INC.
DECEMBER 31, 2005 — DECEMBER 31, 2010
                                                                 
 
        Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,  
        2005     2006     2007     2008     2009     2010  
 
S&P
      100.00         115.79         122.16         76.96         97.33         111.99    
 
NAREIT
      100.00         135.06         113.87         70.91         90.76         116.12    
 
SSS
      100.00         127.89         93.92         89.75         96.77         104.84    
 
The foregoing item assumes $100.00 invested on December 31, 2005, with dividends reinvested.

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Item 6. Selected Financial Data
          The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K:
                                         
    At or For Year Ended December 31,
(dollars in thousands, except per                    
  share data)   2010   2009   2008   2007   2006
Operating Data
                                       
Operating revenues
  $ 192,072     $ 191,040     $ 196,286     $ 186,251     $ 159,118  
Income from continuing operations
    34,979       20,581       35,994       38,416       35,732  
Income from discontinued operations (1)
    7,562       1,073       3,689       3,429       3,312  
Net income
    42,541       21,654       39,683       41,845       39,044  
Net income attributable to common shareholders
    40,642       19,916       37,399       37,958       34,098  
Income from continuing operations per common share attributable to common shareholders— diluted
    1.20       0.79       1.55       1.65       1.71  
Net income per common share attributable to common shareholders — basic
    1.48       0.84       1.72       1.81       1.90  
Net income per common share attributable to common shareholders — diluted
    1.48       0.84       1.72       1.81       1.89  
Dividends declared per common share (2)
    1.80       1.54       2.54       2.50       2.47  
 
                                       
Balance Sheet Data
                                       
Investment in storage facilities at cost
  $ 1,419,956     $ 1,364,454     $ 1,343,669     $ 1,278,528     $ 1,093,940  
Total assets
    1,185,541       1,185,098       1,212,439       1,164,390       1,052,950  
Total debt
    488,954       481,219       623,261       566,517       462,027  
Total liabilities
    528,398       520,039       692,292       610,559       495,092  
Series C preferred stock
                            26,613  
 
                                       
Other Data
                                       
Net cash provided by operating activities
  $ 73,671     $ 59,123     $ 77,132     $ 85,175     $ 64,656  
Net cash used in investing activities
    (32,605 )     (4,448 )     (82,711 )     (190,267 )     (176,567 )
Net cash (used in) provided by financing activities
    (46,010 )     (48,471 )     6,055       61,372       154,730  
 
(1)   In 2010 we sold ten stores, in 2009 we sold five stores, and in 2008 we sold one store whose results of operations and (loss) gain on disposal are classified as discontinued operations for all previous years presented.
 
(2)   In 2009 we declared dividends in March, July, and October (see Item 5). On January 4, 2010 we declared a dividend of $0.45 per common share, and therefore it is not included in the 2009 column. In addition to the January 4, 2010 dividend declared we also declared regular quarterly dividends of $0.45 in April, July and October of 2010.

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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.
Disclosure Regarding Forward-Looking Statements
          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 Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements 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 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 comply with debt covenants; any future ratings on the Company’s debt instruments; the regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes that may change the taxability of future income.
Business and Overview
          We believe we are the fifth largest operator of self-storage properties in the United States based on facilities owned and managed. All of our stores are operated under the user-friendly name “Uncle Bob’s Self-Storage”®.
Operating Strategy
Our operating strategy is designed to generate growth and enhance value by:
  A.   Increasing operating performance and cash flow through aggressive management of our stores:
  -   We seek to differentiate our self-storage facilities from our competition through innovative marketing and value-added product offerings including:
  -   Our Customer Care Center, which for the last 10 years has answered sales inquiries and made reservations for all of our Properties on a centralized basis,
 
  -   The Uncle Bob’s truck move-in program, under which, at present, 257 of our stores offer a free Uncle Bob’s truck to assist our customers moving into their spaces,
 
  -   Our dehumidification system, known as Dri-guard, which provides our customers with a better environment to store their goods and improves yields on our Properties, and
 
  -   Internet marketing and sales.
  -   Our “Name your Price” concession differentiates us from the “free month” offer now prevalent in our industry, and allows us to engage the customer in a unique manner. We are able to customize this offer based on occupancies and demand.
 
  -   Our customized property management systems enable us to track trends, set optimal pricing levels, enjoy considerable economies of scale in vendor and supply pricing, and control collections and accounts receivable.

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  -   In addition, our managers are better qualified and receive a significantly higher level of training than they did in the past, customer access and security are greatly enhanced as a result of advances in technology, and property appearance and functionality have been improved.
  B.   Acquiring additional stores:
  -   Our objective is to acquire new stores one or two at a time in markets we currently operate in. By so doing, we can add to our existing base, which should improve market penetration in those areas, and contribute to the benefits achieved from economies of scale.
  -   We may also enter new markets if we can do so by acquiring a group of stores in those markets. We feel that our marketing efforts and control systems can enhance even those portfolios that have been managed efficiently by independent operators, and that attractive returns can be generated by such acquisitions.
  C.   Expanding our management business:
  -   We see our management business as a source of future acquisitions. We may develop additional joint ventures in which we are minority owners and managers of the self-storage facilities acquired by these joint ventures. The joint venture agreements will give us first right of refusal to purchase the managed properties in the event they are offered for sale.
  D.   Expanding and enhancing our existing stores:
  -   Over the past five years, we have undertaken a program of expanding and enhancing our Properties. In 2007, we expended approximately $25 million to add some 444,000 square feet of premium space (i.e., air-conditioned and/or humidity controlled) to our Properties; in 2008, we spent approximately $26 million to add 403,000 square feet and to convert 95,000 square feet to premium storage; in 2009, we completed construction of a new 78,000 square foot facility in Richmond Virginia, added 175,000 square feet to other existing Properties, and converted 64,000 square feet to premium storage for a total cost of approximately $18 million; and in 2010, we added 162,000 square feet to existing Properties, and converted 6,500 square feet to premium storage for a total cost of approximately $9 million.
Supply and Demand / Operating Trends
             We believe the supply and demand model in the self-storage industry is micro market specific in that a majority of our business comes from within a five mile radius of our stores. The recent economic conditions and the credit market environment have resulted in a decrease in new supply on a national basis in the last three years. With the recent loosening of the debt and equity markets, we have seen capitalization rates on quality acquisitions (expected annual return on investment) decrease from approximately 8% to 7.25%.
             Since 2007, our industry has experienced some softness in demand. This was due to the economic slowdown that began in late 2007, and in part to regional issues, such as the reduction of hurricane driven demand in Florida and the Gulf Coast states, and to an overall slowdown in the housing sector. We believe the housing slowdown has impacted our industry in two ways: 1.) a reduction in lease-up activity resulting from fewer residential real estate transactions (both buyers and sellers of residences use our product in times of transition) and 2.) a contraction of housing construction activity which has reduced the number of people working in the construction trades (trades people are a measurable part of our usual customer base.) Although same-store customer move-ins were lower in 2010 as compared to 2009, move-outs were also lower by a higher amount, leaving a slight net increase in customers for 2010.
             In 2010, we returned to positive same store revenue growth after experiencing a 3.1% decline in same store

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revenue in 2009. From 2003 through 2008 we had experienced positive same store sales growth. We expect conditions in most of our markets to continue the slow recovery that we saw in 2010 and are forecasting 2% to 4% revenue growth on a same store basis in 2011.
          We were able to reduce many expenses at the store operating level in 2009 and 2010 to mitigate the effect of the revenue challenges. Expenses related to operating a self-storage facility had increased substantially over the previous five years as a result of expanded hours, increased health care costs, property insurance costs, and the costs of amenities (such as Uncle Bob’s trucks). While we do not expect further expense decreases in 2011, we do believe expense increases will be at a manageable level of between 2% and 4%.
Critical Accounting Policies and Estimates
          The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in our financial statements and the accompanying notes. On an on-going basis, we evaluate our estimates and judgments, including those related to carrying values of storage facilities, bad debts, and contingencies and litigation. We base these estimates on experience and on various other assumptions that we believe 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.
          Carrying value of storage facilities: We believe our judgment regarding the impairment of the carrying value of our storage facilities is a critical accounting policy. Our policy is to assess any impairment of value whenever events or circumstances indicate that the carrying value of a storage facility may not be recoverable. Such events or circumstances would include negative operating cash flow, significant declining revenue per storage facility, or an expectation that, more likely than not, a property will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. 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 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 our operating results and financial position. Estimates of undiscounted cash flows could change based upon changes in market conditions, expected occupancy rates, etc. At December 31, 2010 and 2009, no assets had been determined to be impaired under this policy.
          Estimated useful lives of long-lived assets: We believe that the estimated lives used for our depreciable, long-lived assets is a critical accounting policy. We periodically evaluate the estimated useful lives of our long-lived assets to determine if any changes are warranted based upon various factors, including changes in the planned usage of the assets, customer demand, etc. Changes in estimated useful lives of these assets could have a material adverse impact on our financial condition or results of operations. We have not made significant changes to the estimated useful lives of our long-lived assets in the past and we don’t have any current expectation of making significant changes in 2011.
          Consolidation and investment in joint ventures: We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the entity. Investments in joint ventures that we do not control but for which we have significant influence over are reported using the equity method. Under the equity method, our investment in joint ventures are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on our ownership interest in the earnings of each of the unconsolidated real estate ventures.
          Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of occupancy. Rental income received prior to the start of the rental period is included in deferred revenue.

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          Qualification as a REIT: We operate, and intend to continue to operate, as a REIT under the Code, but no assurance can be given that we will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. If we fail to qualify as a REIT, any requirement to pay federal income taxes could have a material adverse impact on our financial conditions and results of operations.
Recent Accounting Pronouncements
          In June 2009, the FASB issued revised accounting guidance under ASC Topic 810, “Consolidation” by issuing SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). The revised guidance amends previous guidance (as previously required under FASB Interpretation No. 46(R), "Variable Interest Entities”) for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under the revised guidance, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The revised guidance also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. The revised guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. The revised guidance is effective for the first annual reporting period that begins after November 15, 2009, with early adoption prohibited. The adoption of this revised guidance did not have a material effect on the Company’s consolidated financial statements.
          In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06 to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update became effective for the Company January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures in Note 9, the adoption of this update did not have a material effect on the Company’s consolidated financial statements.
YEAR ENDED DECEMBER 31, 2010 COMPARED TO YEAR ENDED DECEMBER 31, 2009
          We recorded rental revenues of $182.9 million for the year ended December 31, 2010, a decrease of $0.2 million or 0.1% when compared to 2009 rental revenues of $183.1 million. Of the decrease in rental revenue, $0.4 million resulted from a 0.2% decrease in rental revenues at the 344 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2009). The decrease in same store rental revenues was a result of a small decrease in average rental income per square foot as a result of our continued use of move-in incentives to attract customers. Average occupancy in 2010 was essentially flat to 2009. The decrease in same store rental income was offset by a $0.2 million increase in rental revenues resulting from the continued lease-up of our Richmond Virginia property constructed in 2009 and the few days of revenues from the acquisition of seven properties completed in late December 2010. Other income, which includes merchandise sales,

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insurance commissions, truck rentals, management fees and acquisition fees, increased in 2010 primarily as a result of $1.0 million increase in commissions earned from our customer insurance program.
          Property operating expenses increased $1.1 million or 2.2%, in 2010 compared to 2009. The increase resulted mostly from higher health insurance costs and repairs and maintenance expense, as other property expenses were kept at or below 2009 levels. Property tax expense decreased $0.3 million as a result of assessment reductions and municipalities holding property tax rates steady. We expect same-store operating costs to increase moderately in 2011 with increases primarily attributable to employee costs, utilities, and property taxes.
          General and administrative expenses increased $3.2 million or 17.2% from 2009 to 2010. The key drivers of the increase were a $1.3 million increase in salaries and performance incentives, $0.8 million in property acquisition expenses in 2010 versus no acquisitions in 2009, $0.5 million increase in health insurance costs, $0.4 million increase in internet advertising, and a $0.2 increase in tax expense related to our taxable REIT subsidiary.
          Depreciation and amortization expense increased to $32.9 million in 2010 from $32.7 million in 2009, primarily as a result of a full year of depreciation on the Virginia property constructed in 2009, and the depreciation on the expansions completed at existing stores.
          Interest expense decreased from $50.1 million in 2009 to $31.7 million in 2010 as a result of the following factors:
    Our credit rating remained investment grade during all of 2010. In May 2009, Fitch Ratings downgraded our rating on our unsecured floating rate notes which triggered a temporary 1.75% increase in the interest rate on our $150 million term notes and a 0.375% increase in the interest rate on our $250 million term notes. The increase was effective from May to October of 2009, at which time our credit rating was upgraded back to investment grade rating after our common stock offering in October 2009;
    At March 31, 2009, the Company had violated the leverage ratio covenant contained in the line of credit and term note agreements. In May 2009, the Company obtained a waiver of the violation as of March 31, 2009. The fees paid to obtain the waiver were approximately $0.9 million and are included in 2009 interest expense. No such violations occurred in 2010;
    On October 5, 2009, the Company used proceeds from the issuance of common stock to terminate the interest rate swap agreements with notional amounts of $75 million and $25 million (see Note 8 of our financial statements). The total cost to terminate the swaps was $8.4 million and is included as additional interest expense in 2009. No such termination occurred in 2010, and;
    In October 2009, we wrote-off to interest expense $0.6 million of unamortized financing fees related to the $100 million term note that was repaid with the proceeds of the common stock offering. No financing fees were written-off in 2010.
          The casualty loss recorded in 2009 relates to insurance proceeds received that were less than the carrying value of a building damaged by a fire at one of our facilities.
          During 2009, we sold a parcel of land to the State of Georgia Department of Transportation for their use as part of a road widening project for net cash proceeds of $1.1 million resulting in a gain on sale of $1.1 million.
          As described in Note 5 to the financial statements, during 2010 the Company sold ten non-strategic storage facilities for net cash proceeds of $23.7 million resulting in a gain of $6.9 million. During 2009 the Company sold five non-strategic storage facilities for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. During 2008 the Company sold one non-strategic storage facility for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The 2010, 2009, and 2008 operations of these facilities and the loss/gain associated with the disposal are reported in income from discontinued operations for all periods presented.

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YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008
          We recorded rental revenues of $183.1 million for the year ended December 31, 2009, a decrease of $5.6 million or 3.0% when compared to 2008 rental revenues of $188.7 million. Of the decrease in rental revenue, $6.3 million resulted from a 3.3% decrease in rental revenues at the 342 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2008). The decrease in same store rental revenues was a result of a 2.1% decrease in average rental income per square foot as a result of increased move-in incentives used in 2009 to attract customers. We also experienced a decrease in square foot occupancy of 115 basis points, which we believe resulted from general economic conditions, in particular the housing sector. These decreases were partially offset by a $0.6 million increase in rental revenues resulting from having the three stores acquired in 2008 included for a full year of operations. Other income, which includes merchandise sales, insurance commissions, truck rentals, management fees and acquisition fees, increased in 2009 primarily as a result of $0.3 million increase in commissions earned from our customer insurance program.
          Property operating expenses decreased $2.9 million or 5.4%, in 2009 compared to 2008. Much of the decrease resulted from numerous expense control initiatives and from a reduction in yellow page advertising at the 342 core properties considered same stores. Property tax expense increased $0.9 million as a result of a 4.0% increase in property taxes at the 342 core properties and from having the 2008 acquisitions included for a full year of operations.
          General and administrative expenses increased $1.4 million or 7.9% from 2008 to 2009. The increase primarily resulted from the write-off of construction in progress projects that were terminated and an increase in internet advertising.
          Depreciation and amortization expense decreased to $32.7 million in 2009 from $33.3 million in 2008, primarily as a result of a $1.0 million decrease in amortization of in-place customers leases relating to previous year acquisitions, offset partially by a full year of depreciation on those acquisitions.
          Interest expense increased from $38.1 million in 2008 to $50.1 million in 2009 as a result of the 2009 credit ratings downgrade, covenant violation, termination of interest rate swaps, and the write-off of unamortized financing fees noted in the comparison of 2010 versus 2009.
FUNDS FROM OPERATIONS
          We believe that Funds from Operations (“FFO”) provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation.
          FFO 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.

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Reconciliation of Net Income to Funds From Operations
                                         
    For Year Ended December 31,  
(dollars in thousands)   2010     2009     2008     2007     2006  
Net income attributable to common shareholders
  $ 40,642     $ 19,916     $ 37,399     $ 37,958     $ 34,098  
Net income attributable to noncontrolling interests
    1,899       1,738       2,284       2,631       2,434  
Depreciation of real estate and amortization of intangible assets exclusive of deferred financing fees
    32,939       32,736       33,252       32,779       24,119  
Depreciation of real estate included in discontinued operations
    217       1,083       1,215       1,257       1,186  
Depreciation and amortization from unconsolidated joint ventures
    788       820       333       59       168  
Casualty gain
                      (114 )      
(Gain) loss on sale of real estate
    (6,944 )     509       (716 )            
Funds from operations allocable to noncontrolling interest in Operating Partnership
    (885 )     (984 )     (1,366 )     (1,425 )     (1,450 )
Funds from operations allocable to noncontrolling interest in consolidated joint ventures
    (1,360 )     (1,360 )     (1,564 )     (1,848 )     (1,785 )
 
                             
Funds from operations available to common shareholders
  $ 67,296     $ 54,458     $ 70,837     $ 71,297     $ 58,770  
 
                             
LIQUIDITY AND CAPITAL RESOURCES
          Our line of credit and term notes require us to meet certain financial covenants measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness, and limitations on dividend payouts. At December 31, 2010, the Company was in compliance with all debt covenants. The most sensitive covenant is the leverage ratio covenant contained in our line of credit and term note agreements. This covenant limits our total consolidated liabilities to 55% of our gross asset value. At December 31, 2010, our leverage ratio as defined in the agreements was approximately 42.4%. The agreements define total consolidated liabilities to include the liabilities of the Company plus our share of liabilities of unconsolidated joint ventures. The agreements also define a prescribed formula for determining gross asset value which incorporates the use of a 9.25% capitalization rate applied to annualized earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the agreements. In 2009, the Company had violated the leverage ratio covenant contained in the line of credit and term note agreements and obtained a waiver of the violation. The fees paid to obtain the waiver were approximately $0.9 million and are included in interest expense in 2009. In the event that the Company violates debt covenants in the future, the amounts due under the agreements could be callable by the lenders.
          On October 5, 2009, the Company completed the public offering of 4,025,000 shares of its common stock at $29.75 per share. Net proceeds to the Company after deducting underwriting discounts and commissions and estimated offering expenses were approximately $114.0 million. The Company used the net proceeds from the offering to repay $100 million of the Company’s unsecured term note due June 2012 and to terminate two interest rate swaps relating to the debt repaid at a cost of $8.4 million. The Company used the remaining proceeds along with operating cash flows to payoff a maturing mortgage in December 2009 of $26.1 million.
          We believe that the steps the Company has taken, including but not limited to the equity raised from our 2009 common stock offering of approximately $114.0 million, the pay down of $100 million of our term notes in

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2009, and the reduction in the quarterly dividend as discussed in our distribution policy on page 7, will be adequate to avoid future covenant violations under the current terms of our line of credit and term note agreements.
          Our ability to retain cash flow is limited because we operate as a REIT. In order to maintain our REIT status, a substantial portion of our operating cash flow must be used to pay dividends to our shareholders. We believe that our internally generated net cash provided by operating activities and the availability on our line of credit will be sufficient to fund ongoing operations, capital improvements, dividends and debt service requirements through June 2011, at which time our revolving line of credit matures. At our option the revolving line of credit can be extended for one year until June 2012 for a fee of 0.25%. Future draws on our line of credit may be limited due to covenant restrictions.
          Cash flows from operating activities were $73.7 million, $59.1 million and $77.1 million for the years ended December 31, 2010, 2009, and 2008, respectively. The increase in operating cash flows from 2009 to 2010 was primarily due to an increase in net income as a result of reduced interest expense. The decrease in operating cash flows from 2008 to 2009 was primarily due to a decrease in net income. The decrease in net income was primarily a result of lower rental income and increased interest expense.
          Cash used in investing activities was $32.6 million, $4.4 million, and $82.7 million for the years ended December 31, 2010, 2009, and 2008 respectively. The increase in cash used from 2009 to 2010 was due to the purchase of seven storage facilities in 2010 for $34.7 million. No facilities were purchased in 2009. In addition, the proceeds from the sale of the ten stores in 2010 of $23.7 million exceeded the proceeds from the five stores sold in 2009 of $16.3 million. The decrease in cash used from 2008 to 2009 was due to (i) reduced acquisition and capital improvement activity in 2009, (ii) an increase in proceeds from the sale of storage facilities in 2009, and (iii) a reduction in the funding of our share of the joint venture entered into in 2008.
          Cash used in financing activities was $46.0 million in 2010, compared to $48.5 million in 2009 and cash provided by financing activities of $6.1 million in 2008. In 2010, our financing activities were generally limited to a net $10.0 million draw on our line of credit as well as our recurring dividends, distributions, and mortgage principal payments. In 2009, we used our operating cash flow and the proceeds from our common stock offering to paydown $14.0 million of our line of credit, $100 million of term notes, and a $26.1 million mortgage. In 2008, the excess proceeds from refinancing our term notes with a new $250.0 million term note primarily resulted in the net cash provided by financing activities.
          In 2008, we entered into agreements relating to unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, the Company entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625% (based on the Company’s December 31, 2010 credit rating). The proceeds from this term note were used to repay the Company’s previous line of credit that was to mature in September 2008, the Company’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. We repaid $100 million of this term note with the proceeds of our common stock offering in October 2009. The agreements also provide for a $125 million revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375% (based on the Company’s credit rating at December 31, 2010), and requires a 0.25% facility fee. The interest rate at December 31, 2010 on the Company’s available line of credit was approximately 1.64% (1.61% at December 31, 2009). At December 31, 2010, there was $115 million available on the unsecured line of credit. We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at December 31, 2010, the remaining $115 million available on our line of credit could be drawn without violating our debt covenants.
          We also maintain a $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38% (based on our December 31, 2010 credit ratings).

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          Our line of credit facility and term notes have an investment grade rating from Standard and Poor’s and Fitch Ratings (BBB-). In May 2009, due to our debt covenant violation and operating trends, Fitch Ratings downgraded the Company’s rating on its revolving credit facility and term notes to non-investment grade (BB+). As a result of our common stock offering in October 2009 and the use of proceeds to repay $100 million of term notes, Fitch Ratings upgraded our rating on our line of credit and term notes again to investment grade (BBB-).
          In addition to the unsecured financing mentioned above, our consolidated financial statements also include $79.0 million of mortgages payable as detailed below:
*   7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an aggregate net book value of $42.0 million, principal and interest paid monthly. The outstanding balance at December 31, 2010 on this mortgage was $27.8 million.
 
*   7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an aggregate net book value of $80.1 million, principal and interest paid monthly. The outstanding balance at December 31, 2010 on this mortgage was $40.3 million.
 
*   7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value of $5.5 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%. The outstanding balance at December 31, 2010 on this mortgage was $3.2 million.
 
*   6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value of $1.9 million, principal and interest paid monthly. The outstanding balance at December 31, 2010 on this mortgage was $1.0 million.
 
*   6.35% mortgage note due March 2014, secured by 1 self-storage facility with an aggregate net book value of $3.7 million, principal and interest paid monthly. The outstanding balance at December 31, 2010 on this mortgage was $1.0 million.
 
*   7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value of $13.7 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%. The outstanding balance at December 31, 2010 on this mortgage was $5.7 million.
          The 7.80% and 7.19% mortgages were incurred in 2001 and 2002 respectively as part of the financing of the consolidated joint ventures. The Company assumed the 7.25%, 6.76%, 6.35%, and 7.50% mortgage notes in connection with the acquisitions of storage facilities in 2005 and 2006.
          Our Dividend Reinvestment and Stock Purchase Plan was suspended in November 2009, and therefore we did not issue any shares under this plan in 2010. During 2009, we issued approximately 1.4 million shares via our Dividend Reinvestment and Stock Purchase Plan and the Employee Stock Option Plan. We received $32.6 million from the sale of such shares. We may reinstate our Dividend Reinvestment and Stock Purchase Plan in 2011.
          During 2010 and 2009, we did not acquire any shares of our common stock via the Share Repurchase Program authorized by the Board of Directors. From the inception of the Share Repurchase Program through December 31, 2010, we have reacquired a total of 1,171,886 shares pursuant to this program. From time to time, subject to market price and certain loan covenants, we may reacquire additional shares.
          Future acquisitions, our expansion and enhancement program, and share repurchases are expected to be funded with draws on our line of credit, issuance of common and preferred stock, the issuance of unsecured term notes, sale of properties, and private placement solicitation of joint venture equity. Should the capital market revert back to 2009 conditions, we may have to curtail acquisitions, our expansion and enhancement program, and share repurchases as we approach June 2011, when our line of credit matures. At our option, the revolving line of credit can be extended for one year until June 2012 for a fee of 0.25%.

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CONTRACTUAL OBLIGATIONS
          The following table summarizes our future contractual obligations:
                                         
Contractual   Payments due by period
obligations   Total   2011   2012-2013   2014-2015   2016 and thereafter
Line of credit
  $ 10.0 million   $ 10.0 million            
Term notes
  $ 400.0 million       $ 250.0 million       $ 150.0 million
Mortgages payable
  $ 79.0 million   $ 38.1 million   $ 40.0 million   $ 0.9 million    
Interest payments
  $ 75.5 million   $ 23.4 million   $ 30.5 million   $ 19.2 million   $ 2.4 million
Interest rate swap payments
  $ 10.5 million   $ 7.0 million   $ 3.5 million        
Land lease
  $ 1.0 million   $ 0.1 million   $ 0.1 million   $ 0.1 million   $ 0.7 million
Building leases
  $ 2.9 million   $ 0.6 million   $ 1.4 million   $ 0.9 million    
 
                   
Total
  $ 578.9 million   $ 79.2 million   $ 325.5 million   $ 21.1 million   $ 153.1 million
          Interest payments include actual interest on fixed rate debt and estimated interest for floating-rate debt based on December 31, 2010 rates. Interest rate swap payments include net settlements of swap liabilities based on forecasted variable rates.
ACQUISITION OF PROPERTIES
          During 2010, we used the proceeds from the sale of the ten Properties and borrowings pursuant to our line of credit to acquire seven Properties in North Carolina comprising 0.5 million square feet from unaffiliated storage operators. We acquired no properties in 2009. During 2008, we used operating cash flow, borrowings pursuant to our line of credit, borrowings under the bank term note, and proceeds from our Dividend Reinvestment and Stock Purchase Plan to acquire three Properties in Mississippi and Ohio comprising 0.2 million square feet from unaffiliated storage operators.
FUTURE ACQUISITION AND DEVELOPMENT PLANS
          Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations, or to expand into new markets by acquiring several facilities at once in those new markets. We are actively pursuing acquisitions in 2011 but as of December 31, 2010 we had no properties under contract to purchase.
          In 2010, we added 162,000 square feet to existing Properties, and converted 6,500 square feet to premium storage for a total cost of approximately $9 million. In 2009 spent approximately $18 million to add 175,000 square feet to existing Properties, and to convert 64,000 square feet to premium storage. We also completed construction of a new 78,000 square foot facility in Richmond, Virginia. Although we do not expect to construct any new facilities in 2011, we do plan to expend up to $32 million to expand and enhance existing facilities.
DISPOSITION OF PROPERTIES
          During 2010 we sold ten non-strategic storage facilities located in Georgia, Michigan, North Carolina and Virginia for net cash proceeds of $23.7 million resulting in a gain of $6.9 million. During 2009, we sold five non-strategic storage facilities in Massachusetts, North Carolina, and Pennsylvania for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. During 2008, we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million.

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          We may seek to sell additional Properties to third parties or joint venture programs in 2011.
OFF-BALANCE SHEET ARRANGEMENTS
          We have a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a joint venture that was formed in May 2008 to acquire self-storage properties that are managed by us. The carrying value of our investment at December 31, 2010 was $19.7 million. Twenty five properties were acquired by Sovran HHF as of December 31, 2008 for approximately $171.5 million. We contributed $18.6 million to the joint venture as our share of capital required to fund the acquisitions.
          As manager of Sovran HHF, we earn a management and call center fee of 7% of gross revenues which totaled $1.3 million, $1.2 million and $0.5 million for 2010, 2009 and 2008, respectively. We also received an acquisition fee of 0.5% or $0.7 million of purchase price for securing purchases for the joint venture in 2008. Our share of Sovran HHF’s income for 2010, 2009 and 2008 was $0.3 million, $0.2 million and $0.1 million, respectively. At December 31, 2010, Sovran HHF owed us $0.3 million for payments made by us on behalf of the joint venture.
          We also have a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company’s headquarters and other tenants. Our investment includes a capital contribution of $49. The carrying value of our investment is a liability of $0.6 million at December 31, 2010 and $0.5 million at December 31, 2009 and 2008, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. For the years ended December 31, 2010, 2009 and 2008, our share of Iskalo Office Holdings, LLC’s (loss) income was ($79,000), $7,000, and ($6,000), respectively. We paid rent to Iskalo Office Holdings, LLC of $644,000, $608,000, and $600,000 in 2010, 2009, and 2008, respectively. Future minimum lease payments under the lease are $0.6 million per year through 2015.
          A summary of the unconsolidated joint venture’s financial statements as of and for the year ended December 31, 2010 is as follows:
                 
    Sovran HHF        
    Storage     Iskalo Office  
(dollars in thousands)   Holdings LLC     Holdings, LLC  
Balance Sheet Data:
               
Investment in storage facilities, net
  $ 165,540     $  
Investment in office building
          5,260  
Other assets
    3,808       554  
 
           
Total Assets
  $ 169,348     $ 5,814  
 
           
 
               
Due to the Company
  $ 252     $  
Mortgages payable
    76,952       6,898  
Other liabilities
    2,175       331  
 
           
Total Liabilities
    79,379       7,229  
 
               
Unaffiliated partners’ equity (deficiency)
    71,975       (798 )
Company equity (deficiency)
    17,994       (617 )
 
           
Total Liabilities and Partners’ Equity (deficiency)
  $ 169,348     $ 5,814  
 
           
 
               
Income Statement Data:
               
Total revenues
  $ 17,938     $ 978  
Depreciation
    3,622       210  
Other expenses
    12,918       930  
 
           
Net income (loss)
  $ 1,398     $ (162 )
 
           

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          We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of properties by Sovran HHF. We do not guarantee the debt of Sovran HHF or Iskalo Office Holdings, LLC. A summary of our cash flows arising from the off-balance sheet arrangements with Sovran HHF and Iskalo Office Holdings, LLC for the three years ended December 31, 2010 are as follows:
                         
    Year ended December 31,
(dollars in thousands)   2010   2009   2008
Statement of Operations
Other operating income (management fees and acquisition fee income)
  $ 1,260     $ 1,243     $ 1,135  
General and administrative expenses (corporate office rent)
    644       608       600  
Equity in income of joint ventures
    241       235       104  
Distributions from unconsolidated joint ventures
    494       686       345  
 
                       
Investing activities
                       
Investment in joint ventures
          (331 )     (20,287 )
(Advances to) reimbursement of advances to joint ventures
    (80 )     163       (336 )
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS
          As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that the amount distributed is equal to at least 90% of our taxable income. These distributions must be made in the year to which they relate, or in the following year if declared before we file our federal income tax return, and if it is paid before the first regular dividend of the following year. The first distribution of 2011 may be applied toward our 2010 distribution requirement.
          As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends. In 2010, our percentage of revenue from such sources was approximately 97%, thereby passing the 95% test, and no special measures are expected to be required to enable us to maintain our REIT designation. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.
INTEREST RATE RISK
          We have entered into interest rate swap agreements in order to mitigate the effects of fluctuations in interest rates on our variable rate debt. At December 31, 2010, we have three outstanding interest rate swap agreements as summarized below:
                                 
                    Fixed   Floating Rate
Notional Amount   Effective Date   Expiration Date   Rate Paid   Received
$20 Million
    9/4/05       9/4/13       4.4350 %   6 month LIBOR
$50 Million
    7/1/08       6/25/12       4.2825 %   1 month LIBOR
$100 Million
    7/1/08       6/22/12       4.2965 %   1 month LIBOR
          Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we negotiate with the lenders; however, the LIBOR base rates have been contractually fixed on $170 million of our debt through the interest rate swap termination dates.
          Through June 2012, $400 million of our $410 million of unsecured debt is on a fixed rate basis after taking into account the interest rate swaps noted above. Based on our outstanding unsecured debt of $410 million at December 31, 2010, a 100 basis point increase in interest rates would have a $0.1 million effect on our interest expense.

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          The table below summarizes our debt obligations and interest rate derivatives at December 31, 2010. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.
                                                                 
    Expected Maturity Date Including Discount   Fair
(dollars in thousands)   2011   2012   2013   2014   2015   Thereafter   Total   Value
Line of credit — variable rate LIBOR + 1.375 (1.64% at December 31, 2010)
  $ 10,000                                   $ 10,000     $ 10,000  
 
                                                               
Notes Payable:
                                                               
Term note — variable rate LIBOR+1.625% (1.89% at December 31, 2010)
        $ 150,000                             $ 150,000     $ 150,000  
Term note — variable rate LIBOR+1.50% (2.00% at December 31, 2010)
              $ 20,000                       $ 20,000     $ 20,000  
Term note — fixed rate 6.26%
              $ 80,000                       $ 80,000     $ 79,914  
Term note — fixed rate 6.38%
                                $ 150,000     $ 150,000     $ 145,152  
 
                                                               
Mortgage note — fixed rate 7.80%
  $ 27,817                                   $ 27,817     $ 28,561  
Mortgage note — fixed rate 7.19%
  $ 1,301     $ 38,963                             $ 40,264     $ 41,612  
Mortgage note — fixed rate 7.25%
  $ 3,220                                   $ 3,220     $ 3,255  
Mortgage note — fixed rate 6.76%
  $ 27     $ 29     $ 896                       $ 952     $ 993  
Mortgage note — fixed rate 6.35%
  $ 30     $ 31     $ 34     $ 949                 $ 1,044     $ 1,084  
Mortgage notes — fixed rate 7.50%
  $ 5,657                                   $ 5,657     $ 5,746  
 
                                                               
Interest rate derivatives — liability
                                            $ 10,528  
INFLATION
          We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at the facilities are on a month-to-month basis which provides us with the opportunity to increase rental rates as each lease matures.
SEASONALITY
          Our revenues typically have been higher in the third and fourth quarters, primarily 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, we believe that our customer 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, we do not expect seasonality to affect materially distributions to shareholders.
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.

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Item 8.   Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Sovran Self Storage, Inc.
          We have audited the accompanying consolidated balance sheets of Sovran Self Storage, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010. 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 Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
          We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sovran Self Storage, Inc. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
          As discussed in Note 2 to the consolidated financial statements, the Company retrospectively adjusted the consolidated financial statements as a result of the Company’s adoption of Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (codified in FASB ASC Topic 810 “Consolidation”) on January 1, 2009.
          We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sovran Self Storage, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion thereon.
         
     
  /s/ Ernst & Young LLP    
 
  Buffalo, New York 
February 25, 2011 
 
   
 

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SOVRAN SELF STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
                 
    December 31,  
(dollars in thousands, except share data)   2010     2009  
Assets
               
Investment in storage facilities:
               
Land
  $ 240,651     $ 234,522  
Building, equipment, and construction in progress
    1,179,305       1,129,932  
 
           
 
    1,419,956       1,364,454  
Less: accumulated depreciation
    (271,797 )     (238,971 )
 
           
Investment in storage facilities, net
    1,148,159       1,125,483  
Cash and cash equivalents
    5,766       10,710  
Accounts receivable
    2,377       2,346  
Receivable from unconsolidated joint venture
    253       173  
Investment in unconsolidated joint venture
    19,730       19,944  
Prepaid expenses
    4,408       4,203  
Other assets
    4,848       5,313  
Net assets of discontinued operations
          16,926  
 
           
Total Assets
  $ 1,185,541     $ 1,185,098  
 
           
 
               
Liabilities
               
Line of credit
  $ 10,000     $  
Term notes
    400,000       400,000  
Accounts payable and accrued liabilities
    23,991       22,316  
Deferred revenue
    4,925       4,980  
Fair value of interest rate swap agreements
    10,528       11,524  
Mortgages payable
    78,954       81,219  
 
           
Total Liabilities
    528,398       520,039  
 
               
Noncontrolling redeemable Operating Partnership Units at redemption value
    12,480       15,005  
 
               
Shareholders’ Equity
               
Common stock $.01 par value, 100,000,000 shares authorized, 27,650,829 shares outstanding (27,547,027 at December 31, 2009)
    288       287  
Additional paid-in capital
    816,986       814,988  
Dividends in excess of net income
    (148,264 )     (139,863 )
Accumulated other comprehensive income
    (10,254 )     (11,265 )
Treasury stock at cost, 1,171,886 shares
    (27,175 )     (27,175 )
 
           
Total Shareholders’ Equity
    631,581       636,972  
Noncontrolling interest- consolidated joint venture
    13,082       13,082  
 
           
Total Equity
    644,663       650,054  
 
           
Total Liabilities and Shareholders’ Equity
  $ 1,185,541     $ 1,185,098  
 
           
See notes to consolidated financial statements.

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SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                         
    Year Ended December 31,  
(dollars in thousands, except per share data)   2010     2009     2008  
Revenues
                       
Rental income
  $ 182,865     $ 183,074     $ 188,717  
Other operating income
    9,207       7,966       7,569  
 
                 
Total operating revenues
    192,072       191,040       196,286  
 
                       
Expenses
                       
Property operations and maintenance
    51,845       50,726       53,605  
Real estate taxes
    19,065       19,355       18,485  
General and administrative
    21,857       18,649       17,279  
Depreciation and amortization
    32,939       32,736       33,252  
 
                 
Total operating expenses
    125,706       121,466       122,621  
 
                 
 
                       
Income from operations
    66,366       69,574       73,665  
 
                       
Other income (expenses)
                       
Interest expense
    (31,711 )     (50,050 )     (38,097 )
Interest income
    84       85       322  
Casualty loss
          (390 )      
Gain on sale of land
          1,127        
Equity in income of joint ventures
    240       235       104  
 
                 
 
                       
Income from continuing operations
    34,979       20,581       35,994  
Income from discontinued operations (including a gain on disposal of $6,944 in 2010, loss on disposal of $1,636 in 2009 and gain on disposal of $716 in 2008)
    7,562       1,073       3,689  
 
                 
Net income
    42,541       21,654       39,683  
Net income attributable to noncontrolling interest
    (1,899 )     (1,738 )     (2,284 )
 
                 
Net income attributable to common shareholders
  $ 40,642     $ 19,916     $ 37,399  
 
                 
 
                       
Earnings per common share attributable to common shareholders — basic
                       
Continuing operations
  $ 1.20     $ 0.79     $ 1.55  
Discontinued operations
    0.28       0.05       0.17  
 
                 
Earnings per share — basic
  $ 1.48     $ 0.84     $ 1.72  
 
                 
 
                       
Earnings per common share attributable to common shareholders — diluted
                       
Continuing operations
  $ 1.20     $ 0.79     $ 1.55  
Discontinued operations
    0.28       0.05       0.17  
 
                 
Earnings per share — diluted
  $ 1.48     $ 0.84     $ 1.72  
 
                 
 
                       
Dividends declared per common share
  $ 1.80     $ 1.54     $ 2.54  
See notes to consolidated financial statements.

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SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
                                                         
                            Dividends     Accumulated              
    Common             Additional     in     Other              
    Stock     Common     Paid-in     Excess of     Comprehensive     Treasury     Total  
(dollars in thousands, except share data)   Shares     Stock     Capital     Net Income     Income (loss)     Stock     Equity  
Balance January 1, 2008
    21,676,586     $ 228     $ 654,141     $ (105,729 )   $ (1,368 )   $ (27,175 )   $ 520,097  
Net proceeds from issuance of stock through Dividend Reinvestment and Stock Purchase Plan
    285,308       3       10,654                         10,657  
Exercise of stock options
    2,600             72                         72  
Issuance of non-vested stock
    45,713       1                               1  
Earned portion of non-vested stock
                1,444                         1,444  
Stock option expense
                279                         279  
Deferred compensation outside directors
    6,141             112                         112  
Carrying value less than redemption value on redeemed partnership units
                (69 )                       (69 )
Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units
                      1,439                   1,439  
Net income attributable to common shareholders
                      37,399                   37,399  
Change in fair value of derivatives
                            (23,794 )           (23,794 )
 
                                                     
Total comprehensive income
                                        13,605  
Dividends
                      (55,690 )                 (55,690 )
 
                                         
Balance December 31, 2008
    22,016,348       232       666,633       (122,581 )     (25,162 )     (27,175 )     491,947  
 
                                                       
Net proceeds from the issuance of common stock
    4,025,000       40       113,931                         113,971  
Net proceeds from issuance of stock through Dividend Reinvestment and Stock Purchase Plan
    1,430,521       14       32,548                         32,562  
Exercise of stock options
    3,770             62                         62  
Issuance of non-vested stock
    59,590       1                               1  
Earned portion of non-vested stock
                1,379                         1,379  
Stock option expense
                321                         321  
Deferred compensation outside directors
    11,798             114                         114  
Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units
                      (156 )                 (156 )
Net income attributable to common shareholders
                      19,916                   19,916  
Change in fair value of derivatives
                            13,897             13,897  
 
                                                     
Total comprehensive income
                                        33,813  
Dividends
                      (37,042 )                 (37,042 )
 
                                         
Balance December 31, 2009
    27,547,027       287       814,988       (139,863 )     (11,265 )     (27,175 )     636,972  
 
                                                       
Exercise of stock options
    25,650             603                         603  
Issuance of non-vested stock
    78,152       1       616                         617  
Earned portion of non-vested stock
                1,307                         1,307  
Stock option expense
                354                         354  
Deferred compensation outside directors
                239                         239  
Carrying value less than redemption value on redeemed partnership units
                (1,121 )                       (1,121 )
Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units
                      620                   620  
Net income attributable to common shareholders
                      40,642                   40,642  
Change in fair value of derivatives
                            1,011             1,011  
 
                                                     
Total comprehensive income
                                        41,653  
Dividends
                      (49,663 )                 (49,663 )
 
                                         
Balance December 31, 2010
    27,650,829     $ 288     $ 816,986     $ (148,264 )   $ (10,254 )   $ (27,175 )   $ 631,581  
 
                                         
See notes to consolidated financial statements

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SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Year Ended December 31,  
(dollars in thousands)   2010     2009     2008  
Operating Activities
                       
Net income
  $ 42,541     $ 21,654     $ 39,683  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    34,186       35,656       35,659  
(Gain) loss on sale of storage facilities
    (6,944 )     1,636       (716 )
Gain on sale of land
          (1,127 )      
Casualty loss
          390        
Equity in income of joint ventures
    (240 )     (235 )     (104 )
Distributions from unconsolidated joint venture
    494       686       345  
Non-vested stock earned
    1,307       1,379       1,444  
Stock option expense
    354       321       279  
Changes in assets and liabilities:
                       
Accounts receivable
    (21 )     509       (171 )
Prepaid expenses
    (72 )     413       118  
Accounts payable and other liabilities
    2,257       (1,677 )     619  
Deferred revenue
    (191 )     (462 )     (24 )
 
                 
Net cash provided by operating activities
    73,671       59,143       77,132  
 
                       
Investing Activities
                       
Acquisition of storage facilities
    (34,717 )           (18,547 )
Improvements, equipment additions, and construction in progress
    (21,516 )     (22,261 )     (45,709 )
Net proceeds from the sale of storage facility
    23,708       16,309       7,002  
Net proceeds from the sale of land
          1,140        
Casualty insurance proceeds received
          518        
Investment in unconsolidated joint venture
          (331 )     (20,287 )
Additional investment in consolidated joint ventures net of cash acquired
                (6,106 )
(Advances) reimbursement of advances to joint ventures
    (80 )     163       (336 )
Reimbursement of property deposits
                1,259  
Receipts from related parties
          14       13  
 
                 
Net cash used in investing activities
    (32,605 )     (4,448 )     (82,711 )
 
                       
Financing Activities
                       
Net proceeds from sale of common stock
    842       146,710       10,842  
Proceeds from line of credit
    32,000       30,000       14,000  
Repayment of line of credit and term note
    (22,000 )     (144,000 )     (206,000 )
Proceeds from term notes
                250,000  
Financing costs
                (3,085 )
Dividends paid — common stock
    (49,663 )     (51,133 )     (55,256 )
Distributions to noncontrolling interest holders
    (2,030 )     (2,006 )     (2,633 )
Redemption of operating partnership units
    (2,894 )           (114 )
Mortgage principal and capital lease payments
    (2,265 )     (28,042 )     (1,699 )
 
                 
Net cash (used in) provided by financing activities
    (46,010 )     (48,471 )     6,055  
 
                 
Net (decrease) increase in cash
    (4,944 )     6,224       476  
Cash at beginning of period
    10,710       4,486       4,010  
 
                 
Cash at end of period
  $ 5,766     $ 10,710     $ 4,486  
 
                 
 
                       
Supplemental cash flow information
                       
Cash paid for interest, net of interest capitalized
  $ 30,698     $ 49,154     $ 37,970  
 
                       
Fair value of net liabilities assumed on the acquisition of storage facilities
    3             107  
Dividends declared but unpaid at December 31, 2010 and 2009 were $0 and at December 31, 2008 were $14,090.
See notes to consolidated financial statements.

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SOVRAN SELF STORAGE, INC. — DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
          Sovran Self Storage, Inc. (the “Company,” “We,” “Our,” or “Sovran”), 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. At December 31, 2010, we had an ownership interest in and managed 377 self-storage properties in 24 states under the name Uncle Bob’s Self Storage ®. Among our 377 self-storage properties are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and 25 properties that we manage for an unconsolidated joint venture of which we are a 20% owner. Approximately 42% of the Company’s revenue is derived from stores in the states of Texas and Florida.
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 of the Operating Partnership; the Company is a limited partner of the Operating Partnership, and through its ownership of the Subsidiary and its limited partnership interest controls the operations of the Operating Partnership, holding a 98.8% ownership interest therein as of December 31, 2010. 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.
          We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the entity. Our consolidated financial statements include the accounts of the Company, the Operating Partnership, Uncle Bob’s Management, LLC (the Company’s taxable REIT subsidiary), Locke Sovran I, LLC, and Locke Sovran II, LLC, which is a majority owned joint venture. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but for which we have significant influence over are reported using the equity method.
          In June 2008, the Company made an additional investment of $6.1 million in Locke Sovran I, LLC that increased the Company’s ownership from approximately 70% to 100%.
          In December 2007, the FASB issued additional accounting guidance now codified in ASC Topic 810, “Consolidation” through the issuance of FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”) which was adopted by the Company on January 1, 2009. The additional guidance requires that the portion of equity in a subsidiary attributable to the owners of the subsidiary other than the parent or the parent’s affiliates be labeled “noncontrolling interests” and presented in the consolidated balance sheet as a component of equity. The additional guidance does not significantly change the Company’s past accounting practices with respect to the attribution of net income between controlling and noncontrolling interests, however, the provisions of the additional guidance require that earnings attributable to noncontrolling interests be reported as part of consolidated earnings and not as a separate component of income or expense. In addition, the additional guidance requires the disclosure of the attribution of consolidated earnings to the controlling and noncontrolling interests on the face of the statement of operations.
          In accordance with the guidance provided in ASC Topic 810, “Consolidation” we present noncontrolling interests in Locke Sovran II, LLC as a separate component of equity, called “Noncontrolling interests — consolidated joint venture” in the consolidated balance sheets. The following table sets forth the activity in the noncontrolling interest — consolidated joint venture:

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(Dollars in thousands)   2010     2009  
Beginning balance noncontrolling interests — consolidated joint venture
  $ 13,082     $ 13,082  
Net income attributable to noncontrolling interests — consolidated joint venture
    1,360       1,360  
Distributions
    (1,360 )     (1,360 )
 
           
Ending balance noncontrolling interests — consolidated joint venture
  $ 13,082     $ 13,082  
 
           
          Included in the consolidated balance sheets are noncontrolling redeemable operating partnership units. These interests are presented in the “mezzanine” section of the consolidated balance sheet because they don’t meet the functional definition of a liability or equity under current accounting literature. These represent the outside ownership interests of the limited partners in the Operating Partnership. At December 31, 2010 and 2009, there were 339,025 and 419,952 noncontrolling redeemable operating partnership Units outstanding, respectively. The Operating Partnership is obligated to redeem each of these limited partnership Units in the Operating Partnership at the request of the holder thereof for cash equal to the fair market value of a share of the Company’s common stock, at the time of such redemption, provided that the Company at its option may elect to acquire any such Unit presented for redemption for one common share or cash. The Company accounts for these noncontrolling redeemable Operating Partnership Units under the provisions of EITF D-98, “Classification and Measurement of Redeemable Securities” which are included in FASB ASC Topic 480-10-S99. The application of the FASB ASC Topic 480-10-S99 accounting model requires the noncontrolling interest to follow normal noncontrolling interest accounting and then be marked to redemption value at the end of each reporting period if higher (but never adjusted below that normal noncontrolling interest accounting amount). The offset to the adjustment to the carrying amount of the noncontrolling redeemable Operating Partnership Units is reflected in dividends in excess of net income. Accordingly, in the accompanying consolidated balance sheet, noncontrolling redeemable Operating Partnership Units are reflected at redemption value at December 31, 2010 and 2009, equal to the number of Units outstanding multiplied by the fair market value of the Company’s common stock at that date. Redemption value exceeded the value determined under the Company’s historical basis of accounting at those dates.
                 
(Dollars in thousands)   2010     2009  
Beginning balance noncontrolling redeemable Operating Partnership Units
  $ 15,005     $ 15,118  
Redemption of Operating Partnership Units
    (2,894 )      
Redemption value in excess of carrying value
    1,121        
Net income attributable to noncontrolling interests — consolidated joint venture
    539       378  
Distributions
    (671 )     (647 )
Adjustment to redemption value
    (620 )     156  
 
           
Ending balance noncontrolling redeemable Operating Partnership Units
  $ 12,480     $ 15,005  
 
           
          Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The cash balance includes $2.4 million and $2.3 million, respectively, held in escrow for encumbered properties at December 31, 2010 and 2009.
          Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of occupancy. Rental income received prior to the start of the rental period is included in deferred revenue. Equity in earnings of real estate joint ventures that we have significant influence over is recognized based on our ownership interest in the earnings of these entities.
          Cost of operations, general and administrative expense, interest expense and advertising costs are expensed as incurred. For the years ended December 31, 2010, 2009, and 2008, advertising costs were $2.3 million, $1.9 million, and $1.4 million, respectively. The Company accrues property taxes based on estimates and historical trends. If these estimates are incorrect, the timing and amount of expense recognition would be affected.
          Other Operating Income: Consists primarily of sales of storage-related merchandise (locks and packing supplies), insurance commissions, incidental truck rentals, and management fees from unconsolidated joint ventures.

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          Investment in Storage Facilities: Storage facilities are recorded at cost. The purchase price of acquired facilities is allocated to land, building, equipment, and in-place customer leases based on the fair value of each component. The fair values of land are determined based upon comparable market sales information. The fair values of buildings are determined based upon estimates of current replacement costs adjusted for required deferred maintenance on the properties. Acquisition-related transaction costs incurred after December 31, 2008 have been expensed as incurred. For the year ended December 31, 2010, $0.8 million of acquisition related costs are included in general and administrative expenses. No acquisitions were completed in 2009 and therefore there were no acquisition related costs expensed during 2009.
          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. Interest and other costs incurred during the construction period of major expansions are capitalized. Capitalized interest during the years ended December 31, 2010, 2009, and 2008 was $0.1, $0.2 million and $0.4 million, respectively. 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. 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, 2010 and 2009, 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 net loan acquisition costs, a note receivable, property deposits, and the value placed on in-place customer leases at the time of acquisition. The loan acquisition costs were $5.9 million at December 31, 2010, and 2009. Accumulated amortization on the loan acquisition costs was approximately $4.4 million and $3.4 million at December 31, 2010, and 2009, respectively. Loan acquisition costs are amortized over the terms of the related debt. 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. There were no property deposits at December 31, 2010 or 2009.
          The Company allocates a portion of the purchase price of acquisitions to in-place customer leases. The fair value of in-place customer leases is determined using an income approach. Estimates of future income are derived from customers in existence at the date of acquisition based primarily on historical income derived from the leases with those customers and the Company’s experience with customer turnover. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). At December 31, 2010, the gross carrying amount of in-place customer leases was $6.0 million and the accumulated amortization was $5.4 million
          Amortization expense, including amortization of in-place customer leases, was $1.0 million, $2.1 million and $2.5 million for the periods ended December 31, 2010, 2009 and 2008, respectively.
          Accounts Payable and Accrued Liabilities: Accounts payable and accrued liabilities consists primarily of trade payables, accrued interest, and property tax accruals. The Company accrues property tax expense based on estimates and historical trends. Actual expense could differ from these estimates.
          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.
          The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries. In general, the

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Company’s taxable REIT subsidiaries may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.
          For the years ended December 31, 2010, 2009 and 2008, the Company recorded federal and state income tax expense of $1.1 million, $0.9 million and $0.7 million, respectively. At December 31, 2010 and 2009, there were no material unrecognized tax benefits. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 2010 and 2009, the Company had no interest or penalties related to uncertain tax provisions. On an aggregate basis, the Company’s reported amounts of net assets exceeds the tax basis by approximately $70 million and $73 million at December 31, 2010 and 2009, respectively.
          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 $41.7 million, $33.8 million and $13.6 million for the years ended December 31, 2010, 2009, and 2008, respectively.
          Derivative Financial Instruments: The Company accounts for derivatives in accordance with ASC Topic 815 “Derivatives and Hedging", which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives using an income approach. 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 of certain interest rate risks.
          Recent Accounting Pronouncements: In June 2009, the FASB issued revised accounting guidance under ASC Topic 810, “Consolidation” by issuing SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). The revised guidance amends previous guidance (as previously required under FASB Interpretation No. 46(R), “Variable Interest Entities”) for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under the revised guidance, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The revised guidance also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. The revised guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. The revised guidance is effective for the first annual reporting period that begins after November 15, 2009, with early adoption prohibited. The adoption of this revised guidance did not have a material effect on the Company’s consolidated financial statements.
          In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06 to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update became effective for the Company January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales,

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issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures in Note 9, the adoption of this update did not have a material effect on the Company’s consolidated financial statements.
          Stock-Based Compensation: The Company accounts for stock-based compensation under the provisions of ASC Topic 718, “Compensation — Stock Compensation” (formerly, FASB Statement 123R). The Company recognizes compensation cost in its financial statements for all share based payments granted, modified, or settled during the period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the related vesting period.
          The Company recorded compensation expense (included in general and administrative expense) of $354,000, $321,000 and $279,000 related to stock options and $1.3 million, $1.4 million and $1.4 million related to amortization of non-vested stock grants for the years ended December 31, 2010, 2009 and 2008, respectively. The Company uses the Black-Scholes Merton option pricing model to estimate the fair value of stock options granted subsequent to the adoption of ASC Topic 718. The application of this pricing model involves assumptions that are judgmental and sensitive in the determination of compensation expense. The weighted average for key assumptions used in determining the fair value of options granted during 2010 follows:
         
    Weighted Average   Range
Expected life (years)
  4.50     4.50
Risk free interest rate
  2.34%   2.04 - 2.59%
Expected volatility
  41.45%     41.30% - 41.60%
Expected dividend yield
  5.09%    5.04% - 5.13%
Fair value
  $8.34           $8.29 - $8.46
          The weighted-average fair value of options granted during the years ended December 31, 2009 and 2008, were $2.73 and $4.79, respectively.
          To determine expected volatility, the Company uses historical volatility based on daily closing prices of its Common Stock over periods that correlate with the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the expected life of the options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts. The expected life of stock options is based on the midpoint between the vesting date and the end of the contractual term.
          Use of Estimates: The preparation of financial statements in conformity with U.S. 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 ASC Topic 260, “Earnings Per Share.” Effective January 1, 2009, FASB ASC Topic 260 was updated for the issuance of FASB Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities", or FSP EITF 03-6-1, with transition guidance included in FASB ASC Topic 260-10-65-2. Under FSP EITF 03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. The Company has calculated its basic and diluted earnings per share using the two-class method. The following table sets forth the computation of basic and diluted earnings per common share utilizing the two-class method.

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(Amounts in thousands,   Year Ended December 31,  
except per share data)   2010     2009     2008  
Numerator:
                       
Net income from continuing operations attributable to common shareholders
  $ 33,080     $ 18,843     $ 33,710  
 
                       
Denominator:
                       
Denominator for basic earnings per share — weighted average shares
    27,472       23,787       21,762  
Effect of Dilutive Securities:
                       
Stock options and warrants and non-vested stock
    42       10       21  
 
                 
 
                       
Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversion
    27,514       23,797       21,783  
 
                       
Basic Earnings per Common Share from continuing operations attributable to common shareholders
  $ 1.20     $ 0.79     $ 1.55  
Basic Earnings per Common Share attributable to common shareholders
  $ 1.48     $ 0.84     $ 1.72  
 
                       
Diluted Earnings per Common Share from continuing operations attributable to common shareholders
  $ 1.20     $ 0.79     $ 1.55  
Diluted Earnings per Common Share attributable to common shareholders
  $ 1.48     $ 0.84     $ 1.72  
          Not included in the effect of dilutive securities above are 320,318 stock options and 159,763 unvested restricted shares for the year ended December 31, 2010; 333,072 stock options and 125,871 unvested restricted shares for the year ended December 31, 2009; and 262,247 stock options and 124,161 unvested restricted shares for the year ended December 31, 2008, because their effect would be antidilutive.
4. INVESTMENT IN STORAGE FACILITIES
          The following summarizes activity in storage facilities during the years ended December 31, 2010 and December 31, 2009.
                 
(Dollars in thousands)   2010     2009  
Cost:
               
Beginning balance
  $ 1,364,454     $ 1,343,669  
Acquisition of storage facilities
    34,155        
Improvements and equipment additions
    23,311       26,073  
Decrease in construction in progress
    (1,788 )     (4,121 )
Dispositions
    (176 )     (1,167 )
 
           
Ending balance
  $ 1,419,956     $ 1,364,454  
 
           
 
               
Accumulated Depreciation:
               
Beginning balance
  $ 238,971     $ 206,739  
Additions during the year
    32,939       32,451  
Dispositions
    (113 )     (219 )
 
           
Ending balance
  $ 271,797     $ 238,971  
 
           

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          The Company allocates purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. Land and building values are determined at replacement cost. Intangible assets, which represent the value of existing customer leases, are recorded at their estimated fair values. During 2010, the Company acquired seven storage facilities for $34.7 million. Substantially all of the purchase price for these facilities was allocated to land ($5.4 million), building ($28.2 million), equipment ($0.5 million) and in-place customer leases ($0.6 million) and the operating results of the acquired facilities have been included in the Company’s operations since the respective acquisition dates. The Company did not acquire any storage facilities in 2009.
5. DISCONTINUED OPERATIONS
          During 2010, the Company sold ten non-strategic storage facilities in Georgia, Michigan, North Carolina and Virginia for net proceeds of approximately $23.7 million resulting in a gain of $6.9 million. During 2009, the Company sold five non-strategic storage facilities in Massachusetts, North Carolina, and Pennsylvania for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. In April 2008, the Company sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The operations of these facilities and the loss or gain on sale are reported as discontinued operations. The amounts in the 2009 and 2008 financial statements related to the operations and the net assets of this property have been reclassified and are presented as discontinued operations and net assets from discontinued operations, respectively. Cash flows of discontinued operations have not been segregated from the cash flows of continuing operations on the accompanying consolidated statement of cash flows for the years ended December 31, 2010, 2009 and 2008. The following is a summary of the amounts reported as discontinued operations:
                         
    Year Ended December 31,  
(dollars in thousands)   2010     2009     2008  
Total revenue
  $ 1,404     $ 6,158     $ 6,950  
Property operations and maintenance expense.
    (487 )     (1,872 )     (2,211 )
Real estate tax expense
    (82 )     (494 )     (552 )
Depreciation and amortization expense
    (217 )     (1,083 )     (1,214 )
Net realized gain (loss) on sale of property
    6,944       (1,636 )     716  
 
                 
Total income from discontinued operations
  $ 7,562     $ 1,073     $ 3,689  
 
                 
6. UNSECURED LINE OF CREDIT AND TERM NOTES
          On June 25, 2008, the Company entered into agreements relating to unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, the Company entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625% (based on the Company’s December 31, 2010 credit rating). In October 2009, the Company repaid $100 million of this term note. The agreements also provide for a $125 million revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375% (based on the Company’s credit rating at December 31, 2010), and requires a 0.25% facility fee. The interest rate at December 31, 2010 on the Company’s available line of credit was approximately 1.64% (1.61% at December 31, 2009). At December 31, 2010, there was $115 million available on the unsecured line of credit. The maturity date of the revolving line of credit can be extended to June 2012 at the Company’s election for a fee of 25 basis points.
          The Company also maintains an $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38% (based on the Company’s credit rating at December 31, 2010).

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          The line of credit and term notes require the Company to meet certain financial covenants, measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. At December 31, 2010, the Company was in compliance with its debt covenants.
          We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at December 31, 2010 the entire $115 million available on the line of credit could be drawn without violating our debt covenants.
7. MORTGAGES PAYABLE AND OTHER DEBT DISCLOSURES
          Mortgages payable at December 31, 2010 and December 31, 2009 consist of the following:
                 
    December 31,     December 31,  
(dollars in thousands)   2010     2009  
7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an aggregate net book value of $42.0 million, principal and interest paid monthly
  $ 27,817     $ 28,447  
7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an aggregate net book value of $80.1 million, principal and interest paid monthly
    40,264       41,475  
7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value of $5.5 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%
    3,220       3,369  
6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value of $1.9 million, principal and interest paid monthly
    952       977  
6.35% mortgage note due March 2014, secured by 1 self-storage facility with an aggregate net book value of $3.7 million, principal and interest paid monthly
    1,044       1,072  
7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value of $13.7 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%
    5,657       5,879  
 
           
Total mortgages payable
  $ 78,954     $ 81,219  
 
           
          The Company assumed the 7.25%, 6.76%, 6.35%, and 7.50% mortgage notes in connection with the acquisitions of storage facilities in 2005 and 2006. The 7.25% and 7.50% mortgages were recorded at their estimated fair value based upon the estimated market rates at the time of the acquisitions ranging from 5.40% to 6.42%. The carrying value of these two mortgages approximates the actual principal balance of the mortgages payable. An immaterial premium exists at December 31, 2010, which will be amortized over the remaining term of the mortgages based on the effective interest method.
          The table below summarizes the Company’s debt obligations and interest rate derivatives at December 31, 2010. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate term note and mortgage note were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.

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    Expected Maturity Date Including Discount    
                                                            Fair
(dollars in thousands)   2011   2012   2013   2014   2015   Thereafter   Total   Value
Line of credit — variable rate LIBOR + 1.375 (1.64% at December 31, 2010)
  $ 10,000                                   $ 10,000     $ 10,000  
 
                                                               
Notes Payable:
                                                               
Term note — variable rate LIBOR+1.625% (1.89% at December 31, 2010)
        $ 150,000                             $ 150,000     $ 150,000  
Term note — variable rate LIBOR+1.50% (2.00% at December 31, 2010)
              $ 20,000                       $ 20,000     $ 20,000  
Term note — fixed rate 6.26%
              $ 80,000                       $ 80,000     $ 79,914  
Term note — fixed rate 6.38%
                                $ 150,000     $ 150,000     $ 145,152  
 
                                                               
Mortgage note — fixed rate 7.80%
  $ 27,817                                   $ 27,817     $ 28,561  
Mortgage note — fixed rate 7.19%
  $ 1,301     $ 38,963                             $ 40,264     $ 41,612  
Mortgage note — fixed rate 7.25%
  $ 3,220                                   $ 3,220     $ 3,255  
Mortgage note — fixed rate 6.76%
  $ 27     $ 29     $ 896                       $ 952     $ 993  
Mortgage note — fixed rate 6.35%
  $ 30     $ 31     $ 34     $ 949                 $ 1,044     $ 1,084  
Mortgage notes — fixed rate 7.50%
  $ 5,657                                   $ 5,657     $ 5,746  
 
                                                               
Interest rate derivatives — liability
                                            $ 10,528  
8. DERIVATIVE FINANCIAL INSTRUMENTS
          Interest rate swaps are used to adjust the proportion of total debt that is subject to variable 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 exchanged. 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 fair 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 2010, 2009, and 2008.
          The Company has three interest rate swap agreements in effect at December 31, 2010 as detailed below to effectively convert a total of $170 million of variable-rate debt to fixed-rate debt.

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                    Fixed   Floating Rate
Notional Amount   Effective Date   Expiration Date   Rate Paid   Received
$20 Million
    9/4/05       9/4/13       4.4350 %   6 month LIBOR
$50 Million
    7/1/08       6/25/12       4.2825 %   1 month LIBOR
$100 Million
    7/1/08       6/22/12       4.2965 %   1 month LIBOR
          The interest rate swap agreements are the only derivative instruments, as defined by FASB ASC Topic 815, held by the Company. During 2010, 2009, and 2008, the net reclassification from AOCI to interest expense was $6.9 million, $9.7 million and $2.6 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 $7.0 million in 2011. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements, including accrued interest, was a liability of $10.5 million and $11.5 million at December 31, 2010, and 2009 respectively.
                         
    Jan. 1, 2010     Jan. 1, 2009     Jan. 1, 2008  
    to     to     to  
(dollars in thousands)   Dec. 31, 2010     Dec. 31, 2009     Dec. 31, 2008  
Adjustments to interest expense:
                       
Realized loss reclassified from accumulated other comprehensive loss to interest expense
  $ (6,900 )   $ (9,687 )   $ (2,601 )
 
                       
Adjustments to other comprehensive income (loss):
                       
Realized loss reclassified to interest expense
    6,900       9,687       2,601  
Unrealized (loss) gain from changes in the fair value of the effective portion of the interest rate swaps
    (5,889 )     4,210       (26,395 )
 
                 
Gain (loss) included in other comprehensive income (loss)
  $ 1,011     $ 13,897     $ (23,794 )
 
                 
          In October 2009, the Company prepaid $100 million in variable rate term notes. In October 2009, the Company also terminated two interest rate swap agreements that were designated as hedges of forecasted interest payments on variable rate debt. Realized losses recognized in interest expense in 2009 include $8.4 million in costs to terminate the interest rate swaps. The cost approximated the fair market values of the swaps at the date of termination. No interest rate swap termination occurred in 2010.
9. FAIR VALUE MEASUREMENTS
          The Company applies the provisions of ASC Topic 820 “Fair Value Measurements and Disclosures” in determining the fair value of its financial and nonfinancial assets and liabilities. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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          The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2010 (in thousands):
                                 
    Asset            
    (Liability)   Level 1   Level 2   Level 3
Interest rate swaps
    (10,528 )           (10,528 )      
          Interest rate swaps are over the counter securities with no quoted readily available Level 1 inputs, and therefore are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using the income approach.
          During 2010 assets measured at fair value on a non-recurring basis included the assets acquired in connection with the acquisition of seven storage facilities discussed in Note 4. To determine the fair value of land the Company used prices per acre derived from observed transactions involving comparable land in similar locations, which is considered a level 2 input. To determine the fair value of buildings and equipment, the Company used current replacement cost based on internal data derived from recent construction projects or equipment purchases, which are considered level 3 inputs. To determine the fair value of in-place customer leases, the Company used an income approach based on estimates of future income derived from customers in existence at the date of acquisition using historical income derived from the leases with those customers, which are level 3 inputs.
10. STOCK OPTIONS AND NON-VESTED STOCK
          The Company established the 2005 Award and Option Plan (the “Plan”) which replaced the expired 1995 Award and Option 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 eight 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 of the common shares at the date of grant. As of December 31, 2010, options for 346,313 shares were outstanding under the Plans and options for 914,922 shares of common stock were available for future issuance.
          The Company also established the 2009 Outside Directors’ Stock Option and Award Plan (the Non-employee Plan) which replaced the 1995 Outside Directors’ Stock Option Plan for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors. The Non-employee Plan provides for the initial granting of options to purchase 3,500 shares of common stock and for the annual granting of options to purchase 2,000 shares of common stock to each eligible director. Such options vest over a one-year period for initial awards and immediately upon subsequent grants. In addition, each outside director receives non-vested shares annually equal to 80% of the annual fees paid to them. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends. During 2010, 2,244 non-vested shares were issued to outside directors. Such non-vested shares vest over a one-year period. The total shares reserved under the Non-employee Plan is 150,000. The exercise price for options granted under the Non-employee Plan is equal to the fair market value at the date of grant. As of December 31, 2010, options for 41,005 common shares and non-vested shares of 14,405 were outstanding under the Non-employee Plans and options for 126,800 shares of common stock were available for future issuance.

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          A summary of the Company’s stock option activity and related information for the years ended December 31 follows:
                                                 
    2010     2009     2008  
            Weighted             Weighted             Weighted  
            average             average             average  
            exercise             exercise             exercise  
    Options     price     Options     price     Options     price  
Outstanding at beginning of year:
    397,468     $ 40.78       360,688     $ 43.06       168,125     $ 42.54  
 
                                               
Granted
    20,000       35.49       51,500       23.99       201,163       43.12  
Exercised
    (25,650 )     23.18       (4,225 )     21.46       (2,600 )     27.78  
Forfeited
    (4,500 )     36.86       (10,495 )     44.53       (6,000 )     36.86  
 
                                   
 
                                               
Outstanding at end of year
    387,318     $ 41.72       397,468     $ 40.78       360,688     $ 43.06  
 
                                               
Exercisable at end of year
    197,447     $ 42.89       159,701     $ 40.71       118,025     $ 38.84  
          A summary of the Company’s stock options outstanding at December 31, 2010 follows:
                                 
    Outstanding     Exercisable  
            Weighted             Weighted  
            average             average  
            exercise             exercise  
Exercise Price Range   Options     price     Options     price  
$20.375 — 29.99
    50,000     $ 22.71       23,000     $ 22.71  
$30.00 — 39.99
    49,650     $ 35.02       30,150     $ 34.99  
$40.00 — 57.79
    287,668     $ 46.18       144,297     $ 47.76  
 
                       
Total
    387,318     $ 41.72       197,447     $ 42.89  
 
Intrinsic value of outstanding stock options at December 31, 2010
  $ 809,520  
Intrinsic value of exercisable stock options at December 31, 2010
  $ 394,785  
          The intrinsic value of stock options exercised during the years ended December 31, 2010, 2009, and 2008, were $382,576, $50,188, and $37,691 respectively.
          The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock at December 31, 2010, or the price on the date of exercise for those exercised during the year. As of December 31, 2010, there was approximately $0.8 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock award plans. That cost is expected to be recognized over a weighted-average period of approximately 3.7 years. The weighted average remaining contractual life of all options is 6.8 years, and for exercisable options is 6.0 years.
Non-vested Stock
          The Company has also issued 426,884 shares of non-vested stock to employees which vest over one to nine year periods. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends. For issuances of non-vested stock during the year ended December 31, 2010, the fair market value of the non-vested stock on the date of grant ranged from $31.54 to $39.50. During 2010, 78,152 shares

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of non-vested stock were issued to employees and directors with an aggregate fair value of $2.9 million. The Company charges additional paid-in capital for the market value of shares as they are issued. The unearned portion is then amortized and charged to expense over the vesting period. The Company uses the average of the high and low price of its common stock on the date the award is granted as the fair value for non-vested stock awards.
          A summary of the status of unvested shares of stock issued to employees and directors as of and during the years ended December 31 follows:
                                                 
    2010     2009     2008  
            Weighted             Weighted             Weighted  
    Non-     average     Non-     average     Non-     average  
    vested     grant date     vested     grant date     vested     grant date  
    Shares     fair value     Shares     fair value     Shares     fair value  
Unvested at beginning of year:
    154,593     $ 39.79       130,807     $ 44.79       115,896     $ 45.54  
 
                                               
Granted
    78,152       37.03       59,590       29.70       45,713       41.50  
Vested
    (39,969 )     36.55       (35,349 )     41.25       (30,802 )     42.71  
Forfeited
                (455 )     43.95              
 
                                   
 
                                               
Unvested at end of year
    192,776     $ 39.34       154,593     $ 39.79       130,807     $ 44.79  
          Compensation expense of $1.3 million, $1.4 million and $1.4 million was recognized for the vested portion of non-vested stock grants in 2010, 2009 and 2008, respectively. The fair value of non-vested stock that vested during 2010, 2009 and 2008 was $1.5 million, $1.5 million and $1.3 million, respectively. The total unrecognized compensation cost related to non-vested stock was $6.2 million at December 31, 2010, and the remaining weighted-average period over which this expense will be recognized was 5.8 years.
11. RETIREMENT PLAN
          Employees of the Company qualifying under certain age and service requirements are eligible to be a participant in a 401(k) Plan. The Company contributes to the Plan at the rate of 10% of the first 4% of gross wages that the employee contributes. Total expense to the Company was approximately $70,000, $114,000, and $284,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
12. INVESTMENT IN JOINT VENTURES
          The Company has a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a joint venture that was formed in May 2008 to acquire self-storage properties that will be managed by the Company. The carrying value of the Company’s investment at December 31, 2010 was $19.7 million. Twenty five properties were acquired by Sovran HHF as of December 31, 2008 for approximately $171.5 million. In 2008, the Company contributed $18.6 million to the joint venture as its share of capital required to fund the acquisitions. As of December 31, 2010, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs. This difference is not amortized, it is included in the carrying value of the investment, which is assessed for impairment on a periodic basis.
          As manager of Sovran HHF, the Company earns a management and call center fee of 7% of gross revenues which totaled $1.3 million, $1.2 million, and $0.5 million for 2010, 2009 and 2008, respectively. The Company also received an acquisition fee of 0.5% or $0.7 million of purchase price for securing purchases for the joint venture in 2008. The Company’s share of Sovran HHF’s income for 2010, 2009 and 2008 was $0.3 million, $0.2 million

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and $0.1 million, respectively. At December 31, 2010, Sovran HHF owed the Company $0.3 million for payments made by the Company on behalf of the joint venture.
          The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company’s headquarters and other tenants. The Company’s investment includes a capital contribution of $49. The carrying value of the Company’s investment is a liability of $0.6 million at December 31, 2010 and $0.5 million at December 31, 2009 and 2008, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. For the years ended December 31, 2010, 2009 and 2008, the Company’s share of Iskalo Office Holdings, LLC’s (loss) income was ($79,000), $7,000, and ($6,000), respectively. The Company paid rent to Iskalo Office Holdings, LLC of $644,000, $608,000 and $600,000 in 2010, 2009, and 2008, respectively. Future minimum lease payments under the lease are $0.6 million per year through 2015.
          A summary of the unconsolidated joint venture’s financial statements as of and for the year ended December 31, 2010 is as follows:
                 
    Sovran HHF        
    Storage     Iskalo Office  
(dollars in thousands)   Holdings LLC     Holdings, LLC  
Balance Sheet Data:
               
Investment in storage facilities, net
  $ 165,540     $  
Investment in office building
          5,260  
Other assets
    3,808       554  
 
           
Total Assets
  $ 169,348     $ 5,814  
 
           
 
Due to the Company
  $ 252     $  
Mortgages payable
    76,952       6,898  
Other liabilities
    2,175       331  
 
           
Total Liabilities
    79,379       7,229  
 
Unaffiliated partners’ equity (deficiency)
    71,975       (798 )
Company equity (deficiency)
    17,994       (617 )
 
           
Total Liabilities and Partners’ Equity (deficiency)
  $ 169,348     $ 5,814  
 
           
 
               
Income Statement Data:
               
Total revenues
  $ 17,938     $ 978  
Depreciation
    3,622       210  
Other expenses
    12,918       930  
 
           
Net income (loss)
  $ 1,398     $ (162 )
 
           
          The Company does not guarantee the debt of Sovran HHF or Iskalo Office Holdings, LLC.
13. SHAREHOLDERS’ EQUITY
          On October 5, 2009, the Company completed the public offering of 4,025,000 shares of its common stock at $29.75 per share. Net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $114.0 million.
          During 2009, the Company issued 1,430,521 shares via its Dividend Reinvestment and Stock Purchase Plan. The Company received $32.6 million from the sale of such shares. During 2008 and 2007, the Company issued 285,308 and 252,816 shares, respectively, via this plan and received net proceeds of approximately $10.7

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million and $12.8 million, respectively. Our Dividend Reinvestment and Stock Purchase Plan was suspended in November 2009.
14. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
          The following is a summary of quarterly results of operations for the years ended December 31, 2010 and 2009 (dollars in thousands, except per share data).
                                 
    2010 Quarter Ended
    March 31   June 30   Sept. 30   Dec. 31
Operating revenue
  $ 47,284     $ 47,309     $ 48,623     $ 48,856  
Income from continuing operations (a)
  $ 8,012     $ 8,618     $ 9,374     $ 8,975  
Income (loss) from discontinued operations (a)
  $ (124 )   $ 7,686     $     $  
Net Income
  $ 7,888     $ 16,304     $ 9,374     $ 8,975  
Net income attributable to common shareholders
  $ 7,427     $ 15,761     $ 8,923     $ 8,531  
Net Income Per Share Attributable to Common Shareholders
                               
Basic
  $ 0.27     $ 0.57     $ 0.32     $ 0.31  
Diluted
  $ 0.27     $ 0.57     $ 0.32     $ 0.31  
 
    2009 Quarter Ended
    March 31   June 30   Sept. 30   Dec. 31 (b)
Operating revenue
  $ 47,882     $ 47,126     $ 48,513     $ 47,519  
Income (loss) from continuing operations (a)
  $ 7,442     $ 5,977     $ 8,198     $ (1,036 )
(Loss) income from discontinued operations (a)
  $ 678     $ 765     $ (228 )   $ (142 )
Net Income(Loss)
  $ 8,120     $ 6,742     $ 7,970     $ (1,178 )
Net income (loss) attributable to common shareholders
  $ 7,635     $ 6,286     $ 7,496     $ (1,501 )
Net Income (Loss) Per Share Attributable to Common Shareholders
                               
Basic
  $ 0.35     $ 0.28     $ 0.32     $ (0.06 )
Diluted
  $ 0.35     $ 0.28     $ 0.32     $ (0.06 )
 
(a)   Data as presented in this table differ from the amounts as presented in the Company’s quarterly reports due to the impact of discontinued operations accounting with respect to the ten properties sold in 2010 and the five properties sold in 2009 as described in Note 5.
 
(b)   As discussed in Note 8, in the fourth quarter of 2009 the Company recorded $8.4 million in interest expense related to the termination of two interest rate swap agreements.
15. 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.

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16. SUBSEQUENT EVENTS
          On January 3, 2011, the Company declared a quarterly dividend of $0.45 per common share. The dividend was paid on January 26, 2011 to shareholders of record on January 13, 2011. The total dividend paid amounted to $12.4 million.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
     None.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
     Our management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at December 31, 2010. There have not been changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter ended December 31, 2010.
Management’s Report on Internal Control Over Financial Reporting
     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2010. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
     Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010 based upon criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (''COSO’’). Based on our assessment, management determined that our internal control over financial reporting was effective as of December 31, 2010 based on the criteria in Internal Control-Integrated Framework issued by COSO.
     The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 9A herein.
     
/S/ Robert J. Attea
  /S/ David L. Rogers
Chief Executive Officer
  Chief Financial Officer

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Sovran Self Storage, Inc.
     We have audited Sovran Self Storage, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sovran Self Storage, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     In our opinion, Sovran Self Storage, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.
     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sovran Self Storage, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010 of Sovran Self Storage, Inc. and our report dated February 25, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
February 25, 2011

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Item 9B. Other Information
     None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
     The information contained in our Proxy Statement for the 2011 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2010 (“2011 Proxy Statement”) , with respect to directors, executive officers, audit committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance, is incorporated herein by reference in response to this item
     The Company has adopted a code of ethics that applies to all of its directors, officers, and employees. The Company has made the Code of Ethics available on its website at http://www.sovranss.com.
Item 11. Executive Compensation
     The information required is incorporated by reference to “Executive Compensation” and “Director Compensation” in the in the 2011 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
     The information required herein is incorporated by reference to “Stock Ownership By Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners” in the 2011 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
     The information required herein is incorporated by reference to “Certain Transactions” and “Election of Directors—Director Independence” in the 2011 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
     The information required herein is incorporated by reference to “Appointment of Independent Auditor” in the 2011 Proxy Statement and is incorporated herein by reference.
Part IV
Item 15. Exhibits, Financial Statement Schedules
  (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, 2010 and 2009.
 
  (ii)   Consolidated Statements of Operations for Years Ended December 31, 2010, 2009, and 2008.
 
  (iii)   Consolidated Statements of Shareholders’ Equity and Comprehensive Income for Years Ended December 31, 2010, 2009, and 2008.
 
  (iv)   Consolidated Statements of Cash Flows for Years Ended December 31, 2010, 2009, and 2008.
 
  (v)   Notes to Consolidated Financial Statements.

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2.   The following financial statement Schedule as of the period ended December 31, 2010 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
  Amended and Restated Articles of Incorporation of the Registrant. (incorporated by reference to Exhibit 3.1 (a) to the Registrant’s Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995).
 
   
3.2
  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 Registrant’s Form 8-A filed December 3, 1996.)
 
   
3.3
  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 4.1 to Registrant’s Current Report on Form 8-K filed July 12, 2002).
 
   
3.4
  Bylaws, as amended, of the Registrant (incorporated by reference to Exhibit 3.4 to Registrant’s Annual Report on Form 10-K filed February 25, 2010).
 
   
4.1
  Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995).
 
   
10.1+
  Sovran Self Storage, Inc. 2005 Award and Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Registrant’s Annual Report on Form 10-K filed February 25, 2010).
 
   
10.2+
  Sovran Self Storage, Inc. 1995 Outside Directors’ Stock Option Plan, as amended (incorporated by reference to Exhibit 10.2 to Registrant’s Annual Report on Form 10-K filed February 25, 2010).
 
   
10.3+
  Employment Agreement between the Registrant and Robert J. Attea (incorporated by reference to Exhibit 10.3 to Registrant’s Annual Report on Form 10-K filed February 27, 2009).
 
   
10.4+
  Employment Agreement between the Registrant and Kenneth F. Myszka (incorporated by reference to Exhibit 10.4 to Registrant’s Annual Report on Form 10-K filed February 27, 2009).
 
   
10.5+
  Employment Agreement between the Registrant and David L. Rogers (incorporated by reference to Exhibit 10.5 to Registrant’s Annual Report on Form 10-K filed February 27, 2009).
 
   
10.6+
  Form of restricted stock grant pursuant to Sovran Self Storage, Inc. 2005 Award and Option Plan (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).
 
   
10.7+
  Form of stock option grant pursuant to Sovran Self Storage, Inc. 2005 Award and Option Plan (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).

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10.8+
  Form of restricted stock grant pursuant to Sovran Self Storage, Inc. 1995 Award and Option Plan (incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).
 
   
10.9+
  Form of stock option grant pursuant to Sovran Self Storage, Inc. 1995 Award and Option Plan (incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).
 
   
10.10+
  Deferred Compensation Plan for Directors (incorporated by reference to Schedule 14A Proxy Statement filed April 10, 2008).
 
   
10.11
  Amended Indemnification Agreements with members of the Board of Directors and Executive Officers (incorporated by reference to Exhibit 10.35 and 10.36 to Registrant’s Current Report on Form 8-K filed July 20, 2006).
 
   
10.12
  Agreement of Limited Partnership of Sovran Acquisition Limited Partnership (incorporated by reference to Exhibit 3.1 on Form 10 filed April 22, 1998).
 
   
10.13
  Amendments to the Agreement of Limited Partnership of Sovran Acquisition Limited Partnership dated July 30, 1999 and July 3, 2002 (incorporated by reference to Exhibit 10.13 to Registrant’s Annual Report on Form 10-K filed February 27, 2009).
 
   
10.14
  Promissory Note between Locke Sovran II, LLC and PNC Bank, National Association (incorporated by reference to Exhibit 10.14 to Registrant’s Annual Report on Form 10-K filed February 25, 2010).
 
   
10.15
  Third Amended and Restated Revolving Credit and Term Loan Agreement among Registrant, the Partnership, Manufacturers and Traders Trust Company and other lenders named therein (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed June 27, 2008).
 
   
10.16
  Cornerstone Acquisition Agreement and Amendments to Certain Loan Agreements (incorporated by reference to Exhibits 10.30, 10.31, 10.32, 10.33 and 10.34 to Registrant’s Current Report on Form 8-K filed June 26, 2006).
 
   
10.17
  $150 million, 6.38% Senior Guaranteed Notes, Series C due April 26, 2016, and Amendments to Second Amendment Restated Revolving Credit and Term Loan Agreement dated December 16, 2004 and Amendment to Note Purchase Agreement dated September 4, 2003 (incorporated by reference to Exhibits 10.27, 10.28, and 10.29 to Registrant’s Current Report on Form 8-K filed May 1, 2006).
 
   
10.18
  Promissory Note between Locke Sovran I, LLC and GMAC Commercial Mortgage Corporation (incorporated by reference to Exhibit 10.21 to Registrant’s Annual Report on Form 10-K, filed March 1, 2007).
 
   
10.19
  Indemnification Agreement dated September 25, 2009 between Registrant, Sovran Acquisition Limited Partnership and James R. Boldt, a director of the Company (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed September 25, 2009).
 
   
10.20+
  Sovran Self Storage, Inc. 2009 Outside Directors Stock Option and Award Plan (incorporated by reference to Registrant’s Proxy Statement filed April 9, 2009).
 
   
10.21+
  Outside Director Fee Schedule (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed November 5, 2010).

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12.1*
  Statement Re: Computation of Earnings to Fixed Charges.
 
   
21.1*
  Subsidiaries of the Company.
 
   
23.1*
  Consent of Independent Registered Public Accounting Firm.
 
   
24.1*
  Powers of Attorney (included on signature pages).
 
   
31.1*
  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
   
31.2*
  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
 
   
32.1*
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
101#
  The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, formatted in XBRL, as follows:
  (i)   Consolidated Balance Sheets at December 31, 2010 and 2009;
 
  (ii)   Consolidated Statements of Operations for years ended December 31, 2010, 2009, and 2008;
 
  (iii)   Consolidated Statements of Shareholders’ Equity and Comprehensive Income for Years Ended December 31, 2010, 2009, and 2008;
 
  (iv)   Consolidated Statements of Cash Flows for Years Ended December 31, 2010, 2009, and 2008; and
 
  (v)   Notes to Consolidated Financial Statements, tagged as blocks of text.
 
*   Filed herewith.
 
+   Management contract or compensatory plan or arrangement.
 
#   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  SOVRAN SELF STORAGE, INC.
 
 
February 25, 2011  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)
  February 25, 2011
 
       
/s/ Kenneth F. Myszka
 
Kenneth F. Myszka
  President, Chief Operating Officer and Director   February 25, 2011
 
       
/s/ David L. Rogers
 
David L. Rogers
  Chief Financial Officer (Principal Financial and Accounting Officer)   February 25, 2011
 
       
/s/ John Burns
 
John Burns
  Director   February 25, 2011 
 
       
/s/ James R. Boldt
 
James R. Boldt
  Director   February 25, 2011 
 
       
/s/ Anthony P. Gammie
 
Anthony P. Gammie
  Director   February 25, 2011 
 
       
/s/ Charles E. Lannon
 
Charles E. Lannon
  Director   February 25, 2011 

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Schedule
Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2010
                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
Boston-Metro I
  MA           $ 363     $ 1,679     $ 592     $ 363     $ 2,271     $ 2,634     $ 851       1980       6/26/1995       5 to 40 years  
Boston-Metro II
  MA             680       1,616       426       680       2,042       2,722       825       1986       6/26/1995       5 to 40 years  
E. Providence
  RI             345       1,268       711       344       1,980       2,324       693       1984       6/26/1995       5 to 40 years  
Charleston l
  SC             416       1,516       2,111       416       3,627       4,043       990       1985       6/26/1995       5 to 40 years  
Lakeland I
  FL             397       1,424       1,550       397       2,974       3,371       782       1985       6/26/1995       5 to 40 years  
Charlotte
  NC             308       1,102       1,135       747       1,798       2,545       673       1986       6/26/1995       5 to 40 years  
Tallahassee I
  FL             770       2,734       2,051       771       4,784       5,555       1,728       1973       6/26/1995       5 to 40 years  
Youngstown
  OH             239       1,110       1,368       239       2,478       2,717       785       1980       6/26/1995       5 to 40 years  
Cleveland-Metro II
  OH             701       1,659       845       701       2,504       3,205       915       1987       6/26/1995       5 to 40 years  
Tallahassee II
  FL             204       734       968       198       1,708       1,906       617       1975       6/26/1995       5 to 40 years  
Pt. St. Lucie
  FL             395       1,501       887       779       2,004       2,783       871       1985       6/26/1995       5 to 40 years  
Deltona
  FL             483       1,752       2,085       483       3,837       4,320       1,136       1984       6/26/1995       5 to 40 years  
Middletown
  NY             224       808       900       224       1,708       1,932       620       1988       6/26/1995       5 to 40 years  
Buffalo I
  NY             423       1,531       1,705       497       3,162       3,659       1,216       1981       6/26/1995       5 to 40 years  
Rochester I
  NY             395       1,404       501       395       1,905       2,300       742       1981       6/26/1995       5 to 40 years  
Salisbury
  MD             164       760       471       164       1,231       1,395       507       1979       6/26/1995       5 to 40 years  
Jacksonville I
  FL             152       728       1,048       687       1,241       1,928       492       1985       6/26/1995       5 to 40 years  
Columbia I
  SC             268       1,248       520       268       1,768       2,036       715       1985       6/26/1995       5 to 40 years  
Rochester II
  NY             230       847       454       234       1,297       1,531       508       1980       6/26/1995       5 to 40 years  
Savannah l
  GA             463       1,684       4,486       1,445       5,188       6,633       1,353       1981       6/26/1995       5 to 40 years  
Greensboro
  NC             444       1,613       2,931       444       4,544       4,988       951       1986       6/26/1995       5 to 40 years  
Raleigh I
  NC             649       2,329       877       649       3,206       3,855       1,223       1985       6/26/1995       5 to 40 years  
New Haven
  CT             387       1,402       1,045       387       2,447       2,834       806       1985       6/26/1995       5 to 40 years  
Atlanta-Metro I
  GA             844       2,021       764       844       2,785       3,629       1,065       1988       6/26/1995       5 to 40 years  
Atlanta-Metro II
  GA             302       1,103       416       303       1,518       1,821       629       1988       6/26/1995       5 to 40 years  
Buffalo II
  NY             315       745       1,687       517       2,230       2,747       670       1984       6/26/1995       5 to 40 years  
Raleigh II
  NC             321       1,150       705       321       1,855       2,176       674       1985       6/26/1995       5 to 40 years  
Columbia II
  SC             361       1,331       680       374       1,998       2,372       789       1987       6/26/1995       5 to 40 years  
Columbia III
  SC             189       719       1,089       189       1,808       1,997       621       1989       6/26/1995       5 to 40 years  
Columbia IV
  SC             488       1,188       518       488       1,706       2,194       707       1986       6/26/1995       5 to 40 years  
Atlanta-Metro III
  GA             430       1,579       1,952       602       3,359       3,961       948       1988       6/26/1995       5 to 40 years  
Orlando I
  FL             513       1,930       599       513       2,529       3,042       1,010       1988       6/26/1995       5 to 40 years  
Sharon
  PA             194       912       463       194       1,375       1,569       532       1975       6/26/1995       5 to 40 years  
Ft. Lauderdale
  FL             1,503       3,619       913       1,503       4,532       6,035       1,494       1985       6/26/1995       5 to 40 years  
West Palm l
  FL             398       1,035       313       398       1,348       1,746       605       1985       6/26/1995       5 to 40 years  
Atlanta-Metro IV
  GA             423       1,015       409       424       1,423       1,847       607       1989       6/26/1995       5 to 40 years  
Atlanta-Metro V
  GA             483       1,166       1,007       483       2,173       2,656       688       1988       6/26/1995       5 to 40 years  
Atlanta-Metro VI
  GA             308       1,116       566       308       1,682       1,990       732       1986       6/26/1995       5 to 40 years  
Atlanta-Metro VII
  GA             170       786       623       174       1,405       1,579       560       1981       6/26/1995       5 to 40 years  
Atlanta-Metro VIII
  GA             413       999       657       413       1,656       2,069       734       1975       6/26/1995       5 to 40 years  
Baltimore I
  MD             154       555       1,387       306       1,790       2,096       516       1984       6/26/1995       5 to 40 years  
Baltimore II
  MD             479       1,742       2,829       479       4,571       5,050       1,122       1988       6/26/1995       5 to 40 years  
Melbourne I
  FL             883       2,104       1,650       883       3,754       4,637       1,357       1986       6/26/1995       5 to 40 years  

62


Table of Contents

                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
Newport News
  VA             316       1,471       847       316       2,318       2,634       895       1988       6/26/1995       5 to 40 years  
Pensacola I
  FL             632       2,962       1,189       651       4,132       4,783       1,696       1983       6/26/1995       5 to 40 years  
Hartford-Metro I
  CT             715       1,695       1,203       715       2,898       3,613       967       1988       6/26/1995       5 to 40 years  
Atlanta-Metro IX
  GA             304       1,118       2,597       619       3,400       4,019       928       1988       6/26/1995       5 to 40 years  
Alexandria
  VA             1,375       3,220       2,380       1,376       5,599       6,975       1,801       1984       6/26/1995       5 to 40 years  
Pensacola II
  FL             244       901       449       244       1,350       1,594       629       1986       6/26/1995       5 to 40 years  
Melbourne II
  FL             834       2,066       1,142       1,591       2,451       4,042       1,070       1986       6/26/1995       5 to 40 years  
Hartford-Metro II
  CT             234       861       1,975       612       2,458       3,070       709       1992       6/26/1995       5 to 40 years  
Atlanta-Metro X
  GA             256       1,244       1,830       256       3,074       3,330       936       1988       6/26/1995       5 to 40 years  
Norfolk I
  VA             313       1,462       954       313       2,416       2,729       911       1984       6/26/1995       5 to 40 years  
Norfolk II
  VA             278       1,004       403       278       1,407       1,685       585       1989       6/26/1995       5 to 40 years  
Birmingham I
  AL             307       1,415       1,597       385       2,934       3,319       874       1990       6/26/1995       5 to 40 years  
Birmingham II
  AL             730       1,725       708       730       2,433       3,163       975       1990       6/26/1995       5 to 40 years  
Montgomery l
  AL             863       2,041       641       863       2,682       3,545       1,102       1982       6/26/1995       5 to 40 years  
Jacksonville II
  FL             326       1,515       488       326       2,003       2,329       814       1987       6/26/1995       5 to 40 years  
Pensacola III
  FL             369       1,358       2,784       369       4,142       4,511       1,144       1986       6/26/1995       5 to 40 years  
Pensacola IV
  FL             244       1,128       2,677       720       3,329       4,049       637       1990       6/26/1995       5 to 40 years  
Pensacola V
  FL             226       1,046       557       226       1,603       1,829       665       1990       6/26/1995       5 to 40 years  
Tampa I
  FL             1,088       2,597       1,021       1,088       3,618       4,706       1,466       1989       6/26/1995       5 to 40 years  
Tampa II
  FL             526       1,958       845       526       2,803       3,329       1,113       1985       6/26/1995       5 to 40 years  
Tampa III
  FL             672       2,439       661       672       3,100       3,772       1,198       1988       6/26/1995       5 to 40 years  
Jackson I
  MS             343       1,580       2,270       796       3,397       4,193       909       1990       6/26/1995       5 to 40 years  
Jackson II
  MS             209       964       650       209       1,614       1,823       686       1990       6/26/1995       5 to 40 years  
Richmond
  VA             443       1,602       844       443       2,446       2,889       928       1987       8/25/1995       5 to 40 years  
Orlando II
  FL             1,161       2,755       1,051       1,162       3,805       4,967       1,486       1986       9/29/1995       5 to 40 years  
Birmingham III
  AL             424       1,506       787       424       2,293       2,717       974       1970       1/16/1996       5 to 40 years  
Harrisburg I
  PA             360       1,641       625       360       2,266       2,626       895       1983       12/29/1995       5 to 40 years  
Harrisburg II
  PA     (1 )     627       2,224       1,023       692       3,182       3,874       1,109       1985       12/29/1995       5 to 40 years  
Syracuse I
  NY             470       1,712       1,322       472       3,032       3,504       1,013       1987       12/27/1995       5 to 40 years  
Ft. Myers
  FL             205       912       315       206       1,226       1,432       616       1988       12/28/1995       5 to 40 years  
Ft. Myers II
  FL             412       1,703       544       413       2,246       2,659       1,010       1991/94       12/28/1995       5 to 40 years  
Newport News II
  VA             442       1,592       1,269       442       2,861       3,303       820       1988/93       1/5/1996       5 to 40 years  
Montgomery II
  AL             353       1,299       692       353       1,991       2,344       687       1984       1/23/1996       5 to 40 years  
Charleston II
  SC             237       858       682       232       1,545       1,777       575       1985       3/1/1996       5 to 40 years  
Tampa IV
  FL             766       1,800       661       766       2,461       3,227       913       1985       3/28/1996       5 to 40 years  
Arlington I
  TX             442       1,767       335       442       2,102       2,544       789       1987       3/29/1996       5 to 40 years  
Arlington II
  TX             408       1,662       1,095       408       2,757       3,165       960       1986       3/29/1996       5 to 40 years  
Ft. Worth
  TX             328       1,324       341       328       1,665       1,993       646       1986       3/29/1996       5 to 40 years  
San Antonio I
  TX             436       1,759       1,129       436       2,888       3,324       1,020       1986       3/29/1996       5 to 40 years  
San Antonio II
  TX             289       1,161       549       289       1,710       1,999       627       1986       3/29/1996       5 to 40 years  
Syracuse II
  NY             481       1,559       2,395       671       3,764       4,435       1,125       1983       6/5/1996       5 to 40 years  
Montgomery III
  AL             279       1,014       1,023       433       1,883       2,316       623       1988       5/21/1996       5 to 40 years  
West Palm II
  FL             345       1,262       367       345       1,629       1,974       620       1986       5/29/1996       5 to 40 years  
Ft. Myers III
  FL             229       884       492       383       1,222       1,605       446       1986       5/29/1996       5 to 40 years  
Lakeland II
  FL             359       1,287       1,143       359       2,430       2,789       882       1988       6/26/1996       5 to 40 years  
Springfield
  MA             251       917       2,287       297       3,158       3,455       983       1986       6/28/1996       5 to 40 years  
Ft. Myers IV
  FL             344       1,254       308       310       1,596       1,906       611       1987       6/28/1996       5 to 40 years  
Cincinnati
  OH             557       1,988       801       688       2,658       3,346       383       1988       7/23/1996       5 to 40 years  
Dayton
  OH             667       2,379       448       683       2,811       3,494       435       1988       7/23/1996       5 to 40 years  

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Table of Contents

                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
Baltimore III
  MD             777       2,770       468       777       3,238       4,015       1,183       1990       7/26/1996       5 to 40 years  
Jacksonville III
  FL             568       2,028       1,048       568       3,076       3,644       1,135       1987       8/23/1996       5 to 40 years  
Jacksonville IV
  FL             436       1,635       532       436       2,167       2,603       851       1985       8/26/1996       5 to 40 years  
Jacksonville V
  FL             535       2,033       388       538       2,418       2,956       975       1987/92       8/30/1996       5 to 40 years  
Charlotte II
  NC             487       1,754       439       487       2,193       2,680       735       1995       9/16/1996       5 to 40 years  
Charlotte III
  NC             315       1,131       358       315       1,489       1,804       531       1995       9/16/1996       5 to 40 years  
Orlando III
  FL             314       1,113       1,019       314       2,132       2,446       761       1975       10/30/1996       5 to 40 years  
Rochester III
  NY             704       2,496       2,393       707       4,886       5,593       1,166       1990       12/20/1996       5 to 40 years  
Youngstown ll
  OH             600       2,142       2,109       693       4,158       4,851       1,057       1988       1/10/1997       5 to 40 years  
Cleveland lll
  OH             751       2,676       1,870       751       4,546       5,297       1,429       1986       1/10/1997       5 to 40 years  
Cleveland lV
  OH             725       2,586       1,427       725       4,013       4,738       1,320       1978       1/10/1997       5 to 40 years  
Cleveland V
  OH     (1 )     637       2,918       1,864       701       4,718       5,419       1,715       1979       1/10/1997       5 to 40 years  
Cleveland Vl
  OH             495       1,781       920       495       2,701       3,196       956       1979       1/10/1997       5 to 40 years  
Cleveland Vll
  OH             761       2,714       1,371       761       4,085       4,846       1,393       1977       1/10/1997       5 to 40 years  
Cleveland Vlll
  OH             418       1,921       1,697       418       3,618       4,036       1,216       1970       1/10/1997       5 to 40 years  
Cleveland lX
  OH             606       2,164       1,409       606       3,573       4,179       1,015       1982       1/10/1997       5 to 40 years  
Grand Rapids l
  MI             455       1,631       1,039       624       2,501       3,125       376       1976       1/17/1997       5 to 40 years  
Grand Rapids ll
  MI             219       790       938       219       1,728       1,947       592       1983       1/17/1997       5 to 40 years  
Kalamazoo
  MI             516       1,845       1,811       694       3,478       4,172       480       1978       1/17/1997       5 to 40 years  
Lansing
  MI             327       1,332       1,686       542       2,803       3,345       377       1987       1/17/1997       5 to 40 years  
San Antonio lll
  TX     (1 )     474       1,686       464       504       2,120       2,624       705       1981       1/30/1997       5 to 40 years  
Universal
  TX             346       1,236       482       346       1,718       2,064       573       1985       1/30/1997       5 to 40 years  
San Antonio lV
  TX             432       1,560       1,722       432       3,282       3,714       1,033       1995       1/30/1997       5 to 40 years  
Houston-Eastex
  TX             634       2,565       1,308       634       3,873       4,507       1,249       1993/95       3/26/1997       5 to 40 years  
Houston-Nederland
  TX             566       2,279       394       566       2,673       3,239       911       1995       3/26/1997       5 to 40 years  
Houston-College
  TX             293       1,357       582       293       1,939       2,232       625       1995       3/26/1997       5 to 40 years  
Lynchburg-Lakeside
  VA             335       1,342       1,306       335       2,648       2,983       828       1982       3/31/1997       5 to 40 years  
Lynchburg-Timberlake
  VA             328       1,315       999       328       2,314       2,642       804       1985       3/31/1997       5 to 40 years  
Lynchburg-Amherst
  VA             155       710       348       152       1,061       1,213       411       1987       3/31/1997       5 to 40 years  
Christiansburg
  VA             245       1,120       583       245       1,703       1,948       529       1985/90       3/31/1997       5 to 40 years  
Chesapeake
  VA             260       1,043       3,386       260       4,429       4,689       702       1988/95       3/31/1997       5 to 40 years  
Orlando-W 25th St
  FL             289       1,160       802       616       1,635       2,251       554       1984       3/31/1997       5 to 40 years  
Delray l-Mini
  FL             491       1,756       701       491       2,457       2,948       906       1969       4/11/1997       5 to 40 years  
Savannah ll
  GA             296       1,196       445       296       1,641       1,937       578       1988       5/8/1997       5 to 40 years  
Delray ll-Safeway
  FL             921       3,282       550       921       3,832       4,753       1,378       1980       5/21/1997       5 to 40 years  
Cleveland X-Avon
  OH             301       1,214       2,170       304       3,381       3,685       843       1989       6/4/1997       5 to 40 years  
Dallas-Skillman
  TX             960       3,847       1,600       960       5,447       6,407       1,802       1975       6/30/1997       5 to 40 years  
Dallas-Centennial
  TX             965       3,864       1,361       943       5,247       6,190       1,779       1977       6/30/1997       5 to 40 years  
Dallas-Samuell
  TX     (1 )     570       2,285       827       611       3,071       3,682       1,068       1975       6/30/1997       5 to 40 years  
Dallas-Hargrove
  TX             370       1,486       590       370       2,076       2,446       777       1975       6/30/1997       5 to 40 years  
Houston-Antoine
  TX             515       2,074       583       515       2,657       3,172       947       1984       6/30/1997       5 to 40 years  
Atlanta-Alpharetta
  GA             1,033       3,753       520       1,033       4,273       5,306       1,542       1994       7/24/1997       5 to 40 years  
Atlanta-Marietta
  GA     (1 )     769       2,788       490       825       3,222       4,047       1,119       1996       7/24/1997       5 to 40 years  
Atlanta-Doraville
  GA             735       3,429       346       735       3,775       4,510       1,341       1995       8/21/1997       5 to 40 years  
GreensboroHilltop
  NC             268       1,097       439       268       1,536       1,804       509       1995       9/25/1997       5 to 40 years  
GreensboroStgCch
  NC             89       376       1,588       89       1,964       2,053       527       1997       9/25/1997       5 to 40 years  
Baton Rouge-Airline
  LA     (1 )     396       1,831       976       421       2,782       3,203       882       1982       10/9/1997       5 to 40 years  
Baton Rouge-Airline2
  LA             282       1,303       372       282       1,675       1,957       605       1985       11/21/1997       5 to 40 years  

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Table of Contents

                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
Harrisburg-Peiffers
  PA             635       2,550       548       637       3,096       3,733       1,047       1984       12/3/1997       5 to 40 years  
Chesapeake-Military
  VA             542       2,210       343       542       2,553       3,095       859       1996       2/5/1998       5 to 40 years  
Chesapeake-Volvo
  VA             620       2,532       939       620       3,471       4,091       1,112       1995       2/5/1998       5 to 40 years  
Virginia Beach-Shell
  VA             540       2,211       286       540       2,497       3,037       870       1991       2/5/1998       5 to 40 years  
Virginia Beach-Central
  VA             864       3,994       786       864       4,780       5,644       1,596       1993/95       2/5/1998       5 to 40 years  
Norfolk-Naval Base
  VA             1,243       5,019       768       1,243       5,787       7,030       1,914       1975       2/5/1998       5 to 40 years  
Tampa-E.Hillsborough
  FL             709       3,235       769       709       4,004       4,713       1,449       1985       2/4/1998       5 to 40 years  
Northbridge
  MA             441       1,788       1,020       694       2,555       3,249       334       1988       2/9/1998       5 to 40 years  
Harriman
  NY             843       3,394       497       843       3,891       4,734       1,341       1989/95       2/4/1998       5 to 40 years  
Greensboro-High Point
  NC             397       1,834       618       397       2,452       2,849       808       1993       2/10/1998       5 to 40 years  
Lynchburg-Timberlake
  VA             488       1,746       525       488       2,271       2,759       755       1990/96       2/18/1998       5 to 40 years  
Titusville
  FL             492       1,990       990       688       2,784       3,472       382       1986/90       2/25/1998       5 to 40 years  
Salem
  MA             733       2,941       1,271       733       4,212       4,945       1,392       1979       3/3/1998       5 to 40 years  
Chattanooga-Lee Hwy
  TN             384       1,371       535       384       1,906       2,290       676       1987       3/27/1998       5 to 40 years  
Chattanooga-Hwy 58
  TN             296       1,198       2,129       414       3,209       3,623       743       1985       3/27/1998       5 to 40 years  
Ft. Oglethorpe
  GA             349       1,250       591       349       1,841       2,190       629       1989       3/27/1998       5 to 40 years  
Birmingham-Walt
  AL             544       1,942       1,036       544       2,978       3,522       1,011       1984       3/27/1998       5 to 40 years  
East Greenwich
  RI             702       2,821       1,274       702       4,095       4,797       1,274       1984/88       3/26/1998       5 to 40 years  
Durham-Hillsborough
  NC             775       3,103       751       775       3,854       4,629       1,251       1988/91       4/9/1998       5 to 40 years  
Durham-Cornwallis
  NC             940       3,763       779       940       4,542       5,482       1,472       1990/96       4/9/1998       5 to 40 years  
Salem-Policy
  NH             742       2,977       469       742       3,446       4,188       1,096       1980       4/7/1998       5 to 40 years  
Warren-Elm
  OH     (1 )     522       1,864       1,253       569       3,070       3,639       913       1986       4/22/1998       5 to 40 years  
Warren-Youngstown
  OH             512       1,829       1,841       633       3,549       4,182       894       1986       4/22/1998       5 to 40 years  
Indian Harbor Beach
  FL             662       2,654       1,816       662       4,470       5,132       761       1985       6/2/1998       5 to 40 years  
Jackson 3 - I55
  MS             744       3,021       144       744       3,165       3,909       1,047       1995       5/13/1998       5 to 40 years  
Katy-N.Fry
  TX             419       1,524       3,288       419       4,812       5,231       831       1994       5/20/1998       5 to 40 years  
Hollywood-Sheridan
  FL             1,208       4,854       490       1,208       5,344       6,552       1,698       1988       7/1/1998       5 to 40 years  
Pompano Beach-Atlantic
  FL             944       3,803       499       944       4,302       5,246       1,389       1985       7/1/1998       5 to 40 years  
Pompano Beach-Sample
  FL             903       3,643       367       903       4,010       4,913       1,298       1988       7/1/1998       5 to 40 years  
Boca Raton-18th St
  FL             1,503       6,059       963       1,503       7,022       8,525       2,238       1991       7/1/1998       5 to 40 years  
Vero Beach
  FL             489       1,813       122       489       1,935       2,424       694       1997       6/12/1998       5 to 40 years  
Humble
  TX             447       1,790       2,249       740       3,746       4,486       926       1986       6/16/1998       5 to 40 years  
Houston-Old Katy
  TX     (1 )     659       2,680       381       698       3,022       3,720       887       1996       6/19/1998       5 to 40 years  
Webster
  TX             635       2,302       141       635       2,443       3,078       792       1997       6/19/1998       5 to 40 years  
Carrollton
  TX             548       1,988       320       548       2,308       2,856       727       1997       6/19/1998       5 to 40 years  
Hollywood-N.21st
  FL             840       3,373       438       840       3,811       4,651       1,254       1987       8/3/1998       5 to 40 years  
San Marcos
  TX             324       1,493       2,023       324       3,516       3,840       774       1994       6/30/1998       5 to 40 years  
Austin-McNeil
  TX             492       1,995       2,434       510       4,411       4,921       811       1994       6/30/1998       5 to 40 years  
Austin-FM
  TX             484       1,951       477       481       2,431       2,912       780       1996       6/30/1998       5 to 40 years  
Euless
  TX             550       1,998       684       550       2,682       3,232       783       1996       9/29/1998       5 to 40 years  
N. Richland Hills
  TX             670       2,407       1,440       670       3,847       4,517       1,011       1996       10/9/1998       5 to 40 years  
Batavia
  OH             390       1,570       963       390       2,533       2,923       696       1988       11/19/1998       5 to 40 years  
Jackson-N.West
  MS             460       1,642       517       460       2,159       2,619       773       1984       12/1/1998       5 to 40 years  
Katy-Franz
  TX             507       2,058       1,613       507       3,671       4,178       848       1993       12/15/1998       5 to 40 years  
W.Warwick
  RI             447       1,776       845       447       2,621       3,068       804       1986/94       2/2/1999       5 to 40 years  

65


Table of Contents

                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
Lafayette-Pinhook 1
  LA             556       1,951       985       556       2,936       3,492       1,070       1980       2/17/1999       5 to 40 years  
Lafayette-Pinhook2
  LA             708       2,860       288       708       3,148       3,856       983       1992/94       2/17/1999       5 to 40 years  
Lafayette-Ambassador
  LA             314       1,095       669       314       1,764       2,078       693       1975       2/17/1999       5 to 40 years  
Lafayette-Evangeline
  LA             188       652       1,523       188       2,175       2,363       700       1977       2/17/1999       5 to 40 years  
Lafayette-Guilbeau
  LA             963       3,896       796       963       4,692       5,655       1,349       1994       2/17/1999       5 to 40 years  
Gilbert-Elliot Rd
  AZ             651       2,600       1,123       772       3,602       4,374       961       1995       5/18/1999       5 to 40 years  
Glendale-59th Ave
  AZ             565       2,596       560       565       3,156       3,721       949       1997       5/18/1999       5 to 40 years  
Mesa-Baseline
  AZ             330       1,309       2,446       733       3,352       4,085       579       1986       5/18/1999       5 to 40 years  
Mesa-E.Broadway
  AZ             339       1,346       614       339       1,960       2,299       553       1986       5/18/1999       5 to 40 years  
Mesa-W.Broadway
  AZ             291       1,026       933       291       1,959       2,250       480       1976       5/18/1999       5 to 40 years  
Mesa-Greenfield
  AZ             354       1,405       355       354       1,760       2,114       581       1986       5/18/1999       5 to 40 years  
Phoenix-Camelback
  AZ             453       1,610       894       453       2,504       2,957       755       1984       5/18/1999       5 to 40 years  
Phoenix-Bell
  AZ             872       3,476       996       872       4,472       5,344       1,326       1984       5/18/1999       5 to 40 years  
Phoenix-35th Ave
  AZ             849       3,401       708       849       4,109       4,958       1,218       1996       5/21/1999       5 to 40 years  
Westbrook
  ME             410       1,626       1,790       410       3,416       3,826       835       1988       8/2/1999       5 to 40 years  
Cocoa
  FL             667       2,373       814       667       3,187       3,854       952       1982       9/29/1999       5 to 40 years  
Cedar Hill
  TX             335       1,521       403       335       1,924       2,259       593       1985       11/9/1999       5 to 40 years  
Monroe
  NY             276       1,312       1,177       276       2,489       2,765       592       1998       2/2/2000       5 to 40 years  
N.Andover
  MA             633       2,573       841       633       3,414       4,047       862       1989       2/15/2000       5 to 40 years  
Seabrook
  TX             633       2,617       349       633       2,966       3,599       856       1996       3/1/2000       5 to 40 years  
Plantation
  FL             384       1,422       501       384       1,923       2,307       525       1994       5/2/2000       5 to 40 years  
Birmingham-Bessemer
  AL             254       1,059       1,238       254       2,297       2,551       476       1998       11/15/2000       5 to 40 years  
Brewster
  NY             1,716       6,920       960       1,981       7,615       9,596       1,020       1991/97       12/27/2000       5 to 40 years  
Austin-Lamar
  TX             837       2,977       521       966       3,369       4,335       511       1996/99       2/22/2001       5 to 40 years  
Houston-E.Main
  TX             733       3,392       627       841       3,911       4,752       552       1993/97       3/2/2001       5 to 40 years  
Ft.Myers-Abrams
  FL             787       3,249       418       902       3,552       4,454       543       1997       3/13/2001       5 to 40 years  
Dracut
  MA     (1 )     1,035       3,737       629       1,104       4,297       5,401       1,011       1986       12/1/2001       5 to 40 years  
Methuen
  MA     (1 )     1,024       3,649       605       1,091       4,187       5,278       976       1984       12/1/2001       5 to 40 years  
Columbia 5
  SC     (1 )     883       3,139       1,220       942       4,300       5,242       927       1985       12/1/2001       5 to 40 years  
Myrtle Beach
  SC     (1 )     552       1,970       937       589       2,870       3,459       662       1984       12/1/2001       5 to 40 years  
Kingsland
  GA     (1 )     470       1,902       2,972       666       4,678       5,344       764       1989       12/1/2001       5 to 40 years  
Saco
  ME     (1 )     534       1,914       280       570       2,158       2,728       516       1988       12/3/2001       5 to 40 years  
Plymouth
  MA             1,004       4,584       2,305       1,004       6,889       7,893       1,220       1996       12/19/2001       5 to 40 years  
Sandwich
  MA     (1 )     670       3,060       422       714       3,438       4,152       805       1984       12/19/2001       5 to 40 years  
Syracuse
  NY     (1 )     294       1,203       415       327       1,585       1,912       405       1987       2/5/2002       5 to 40 years  
Houston-Westward
  TX     (1 )     853       3,434       876       912       4,251       5,163       995       1976       2/13/2002       5 to 40 years  
Houston-Boone
  TX     (1 )     250       1,020       507       268       1,509       1,777       364       1983       2/13/2002       5 to 40 years  
Houston-Cook
  TX     (1 )     285       1,160       338       306       1,477       1,783       368       1986       2/13/2002       5 to 40 years  
Houston-Harwin
  TX     (1 )     449       1,816       699       480       2,484       2,964       572       1981       2/13/2002       5 to 40 years  
Houston-Hempstead
  TX     (1 )     545       2,200       980       583       3,142       3,725       728       1974/78       2/13/2002       5 to 40 years  
Houston-Kuykendahl
  TX     (1 )     517       2,090       1,310       553       3,364       3,917       699       1979/83       2/13/2002       5 to 40 years  
Houston-Hwy 249
  TX     (1 )     299       1,216       1,074       320       2,269       2,589       494       1983       2/13/2002       5 to 40 years  
Mesquite-Hwy 80
  TX     (1 )     463       1,873       703       496       2,543       3,039       551       1985       2/13/2002       5 to 40 years  
Mesquite-Franklin
  TX     (1 )     734       2,956       694       784       3,600       4,384       794       1984       2/13/2002       5 to 40 years  
Dallas-Plantation
  TX     (1 )     394       1,595       315       421       1,883       2,304       452       1985       2/13/2002       5 to 40 years  
San Antonio-Hunt
  TX     (1 )     381       1,545       976       408       2,494       2,902       514       1980       2/13/2002       5 to 40 years  
Humble-5250 FM
  TX             919       3,696       401       919       4,097       5,016       875       1998/02       6/19/2002       5 to 40 years  
Pasadena
  TX             612       2,468       267       612       2,735       3,347       590       1999       6/19/2002       5 to 40 years  

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Table of Contents

                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
League City-E.Main
  TX             689       3,159       269       689       3,428       4,117       752       1994/97       6/19/2002       5 to 40 years  
Montgomery
  TX             817       3,286       2,088       1,119       5,072       6,191       871       1998       6/19/2002       5 to 40 years  
Texas City
  TX             817       3,286       147       817       3,433       4,250       767       1999       6/19/2002       5 to 40 years  
Houston-Hwy 6
  TX             407       1,650       189       407       1,839       2,246       411       1997       6/19/2002       5 to 40 years  
Lumberton
  TX             817       3,287       267       817       3,554       4,371       769       1996       6/19/2002       5 to 40 years  
The Hamptons l
  NY             2,207       8,866       647       2,207       9,513       11,720       1,978       1989/95       12/16/2002       5 to 40 years  
The Hamptons 2
  NY             1,131       4,564       494       1,131       5,058       6,189       1,022       1998       12/16/2002       5 to 40 years  
The Hamptons 3
  NY             635       2,918       359       635       3,277       3,912       652       1997       12/16/2002       5 to 40 years  
The Hamptons 4
  NY             1,251       5,744       365       1,252       6,108       7,360       1,237       1994/98       12/16/2002       5 to 40 years  
Duncanville
  TX             1,039       4,201       49       1,039       4,250       5,289       803       1995/99       8/26/2003       5 to 40 years  
Dallas-Harry Hines
  TX             827       3,776       305       827       4,081       4,908       750       1998/01       10/1/2003       5 to 40 years  
Stamford
  CT             2,713       11,013       331       2,713       11,344       14,057       2,055       1998       3/17/2004       5 to 40 years  
Houston-Tomball
  TX             773       3,170       1,776       773       4,946       5,719       781       2000       5/19/2004       5 to 40 years  
Houston-Conroe
  TX             1,195       4,877       124       1,195       5,001       6,196       868       2001       5/19/2004       5 to 40 years  
Houston-Spring
  TX             1,103       4,550       266       1,103       4,816       5,919       849       2001       5/19/2004       5 to 40 years  
Houston-Bissonnet
  TX             1,061       4,427       2,689       1,061       7,116       8,177       1,015       2003       5/19/2004       5 to 40 years  
Houston-Alvin
  TX             388       1,640       856       388       2,496       2,884       366       2003       5/19/2004       5 to 40 years  
Clearwater
  FL             1,720       6,986       97       1,720       7,083       8,803       1,205       2001       6/3/2004       5 to 40 years  
Houston-Missouri City
  TX             1,167       4,744       3,466       1,566       7,811       9,377       950       1998       6/23/2004       5 to 40 years  
Chattanooga-Hixson
  TN             1,365       5,569       1,185       1,365       6,754       8,119       1,137       1998/02       8/4/2004       5 to 40 years  
Austin-Round Rock
  TX             2,047       5,857       679       2,051       6,532       8,583       1,076       2000       8/5/2004       5 to 40 years  
Cicero
  NY             527       2,121       691       527       2,812       3,339       445       1988/02       3/16/2005       5 to 40 years  
Bay Shore
  NY             1,131       4,609       63       1,131       4,672       5,803       717       2003       3/15/2005       5 to 40 years  
Springfield-Congress
  MA             612       2,501       144       612       2,645       3,257       414       1965/75       4/12/2005       5 to 40 years  
Stamford-Hope
  CT             1,612       6,585       210       1,612       6,795       8,407       1,044       2002       4/14/2005       5 to 40 years  
Houston-Jones
  TX     3,220       1,214       4,949       89       1,215       5,037       6,252       736       1997/99       6/6/2005       5 to 40 years  
Montgomery-Richard
  AL             1,906       7,726       164       1,906       7,890       9,796       1,165       1997       6/1/2005       5 to 40 years  
Oxford
  MA             470       1,902       1,613       470       3,515       3,985       387       2002       6/23/2005       5 to 40 years  
Austin-290E
  TX             537       2,183       182       537       2,365       2,902       363       2003       7/12/2005       5 to 40 years  
SanAntonio-Marbach
  TX             556       2,265       221       556       2,486       3,042       359       2003       7/12/2005       5 to 40 years  
Austin-South 1st
  TX             754       3,065       177       754       3,242       3,996       483       2003       7/12/2005       5 to 40 years  
Pinehurst
  TX             484       1,977       1,367       484       3,344       3,828       395       2002/04       7/12/2005       5 to 40 years  
Marietta-Austell
  GA             811       3,397       455       811       3,852       4,663       555       2003       9/15/2005       5 to 40 years  
Baton Rouge-Florida
  LA             719       2,927       976       719       3,903       4,622       397       1984/94       11/15/2005       5 to 40 years  
Cypress
  TX             721       2,994       1,109       721       4,103       4,824       523       2003       1/13/2006       5 to 40 years  
Texas City
  TX             867       3,499       125       867       3,624       4,491       475       2003       1/10/2006       5 to 40 years  
San Marcos-Hwy 35S
  TX             628       2,532       464       982       2,642       3,624       344       2001       1/10/2006       5 to 40 years  
Baytown
  TX             596       2,411       93       596       2,504       3,100       334       2002       1/10/2006       5 to 40 years  
Webster
  NY             937       3,779       129       937       3,908       4,845       494       2002/06       2/1/2006       5 to 40 years  
Houston-Jones Rd 2
  TX             707       2,933       2,034       707       4,967       5,674       580       2000       3/9/2006       5 to 40 years  
Cameron-Scott
  LA     952       411       1,621       167       411       1,788       2,199       264       1997       4/13/2006       5 to 40 years  
Lafayette-Westgate
  LA             463       1,831       91       463       1,922       2,385       246       2001/04       4/13/2006       5 to 40 years  
Broussard
  LA             601       2,406       1,251       601       3,657       4,258       413       2002       4/13/2006       5 to 40 years  
Congress-Lafayette
  LA     1,044       542       1,319       2,123       542       3,442       3,984       320       1997/99       4/13/2006       5 to 40 years  
Manchester
  NH             832       3,268       105       832       3,373       4,205       412       2000       4/26/2006       5 to 40 years  
Nashua
  NH             617       2,422       507       617       2,929       3,546       337       1989       6/29/2006       5 to 40 years  
Largo 2
  FL             1,270       5,037       173       1,270       5,210       6,480       632       1998       6/22/2006       5 to 40 years  

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Table of Contents

                                                                                                 
                                    Cost Capitalized                                                   Life on
                                    Subsequent to   Gross Amount at Which                           which
                    Initial Cost to Company   Acquisition   Carried at Close of Period                           depreciation
                            Building,   Building,           Building,                                   in latest
                            Equipment   Equipment           Equipment                                   income
            Encum           and   and           and           Accum.   Date of   Date   statement
Description   ST   brance   Land   Improvements   Improvements   Land   Improvements   Total   Deprec.   Construction   Acquired   is computed
 
Pinellas Park
  FL             929       3,676       136       929       3,812       4,741       446       2000       6/22/2006       5 to 40 years  
Tarpon Springs
  FL             696       2,739       120       696       2,859       3,555       342       1999       6/22/2006       5 to 40 years  
New Orleans
  LA             1,220       4,805       98       1,220       4,903       6,123       579       2000       6/22/2006       5 to 40 years  
St Louis-Meramec
  MO             1,113       4,359       232       1,113       4,591       5,704       537       1999       6/22/2006       5 to 40 years  
St Louis-Charles Rock
  MO             766       3,040       120       766       3,160       3,926       366       1999       6/22/2006       5 to 40 years  
St Louis-Shackelford
  MO             828       3,290       170       828       3,460       4,288       410       1999       6/22/2006       5 to 40 years  
St Louis-W.Washington
  MO             734       2,867       568       734       3,435       4,169       433       1980/01       6/22/2006       5 to 40 years  
St Louis-Howdershell
  MO             899       3,596       198       899       3,794       4,693       452       2000       6/22/2006       5 to 40 years  
St Louis-Lemay Ferry
  MO             890       3,552       274       890       3,826       4,716       440       1999       6/22/2006       5 to 40 years  
St Louis-Manchester
  MO             697       2,711       105       697       2,816       3,513       333       2000       6/22/2006       5 to 40 years  
Arlington-Little Rd
  TX     1,877       1,256       4,946       199       1,256       5,145       6,401       599       1998/03       6/22/2006       5 to 40 years  
Dallas-Goldmark
  TX             605       2,434       87       605       2,521       3,126       294       2004       6/22/2006       5 to 40 years  
Dallas-Manana
  TX             607       2,428       145       607       2,573       3,180       300       2004       6/22/2006       5 to 40 years  
Dallas-Manderville
  TX             1,073       4,276       62       1,073       4,338       5,411       512       2003       6/22/2006       5 to 40 years  
Ft. Worth-Granbury
  TX     1,685       549       2,180       105       549       2,285       2,834       272       1998       6/22/2006       5 to 40 years  
Ft. Worth-Grapevine
  TX             644       2,542       65       644       2,607       3,251       308       1999       6/22/2006       5 to 40 years  
San Antonio-Blanco
  TX             963       3,836       92       963       3,928       4,891       462       2004       6/22/2006       5 to 40 years  
San Antonio-Broadway
  TX             773       3,060       136       773       3,196       3,969       380       2000       6/22/2006       5 to 40 years  
San Antonio-Huebner
  TX     2,095       1,175       4,624       122       1,175       4,746