Sovran Self Storage Reports Fourth Quarter Results
BUFFALO, N.Y.--(BUSINESS WIRE)-- Sovran Self Storage, Inc. (NYSE:SSS), a self-storage real estate investment trust (REIT), reported operating results for the quarter ended December 31, 2008.
Net income available to common shareholders for the fourth quarter of 2008 was $8.4 million or $.38 per diluted share. Net income available to common shareholders for the same period in 2007 was $10.7 million or $.50 per diluted share. Funds from operations for the quarter were $.78 per fully diluted common share. Costs associated with acquisitions that the Company no longer intends to pursue were written off during the quarter and reserves were established against potential losses relating to customer accounts receivable and for settlement of a long standing legal dispute. These write-downs and reserves had a negative impact of $.02 per share on the Company's FFO for the quarter. Higher interest expense associated with the Company's recent long-term financing and increased customer move-in incentives were the other significant factors resulting in lower earnings for 2008's fourth quarter compared to 2007's.
David Rogers, the Company's Chief Financial Officer, said "Although adding significantly to our interest costs, the steps we took earlier this year to refinance our short term debt have put us on sound financial footing. We've maintained a conservatively leveraged balance sheet, have no significant debt maturities until 2012, are obligated on less than $15 million of forward capital commitments, and have sufficient liquidity to enable us to navigate these difficult capital market and operating environments. We will continue to focus on improving operating results at our 385 stores, and protecting shareholder value."
Total Company net operating income for the fourth quarter declined 0.5% ($150,000) compared with the same quarter in 2007 to $32.3 million. Overall average occupancy for the quarter was 81.6% and average rent per square foot for the portfolio was $10.54.
Revenues at the 353 stores owned and/or managed for the entire quarter in both years increased 50 basis points over the fourth quarter of 2007, the result of a slight increase in effective rental rates. Although average occupancy was only 50 basis points lower during the fourth quarter of this year compared to last year's same store fourth quarter, it was expensive to maintain that level as the Company continues to make extensive use of move-in incentives. During the quarter, almost $2 million in "first month free" incentives were granted; more than double that of last fall. Further pressuring the top line was a charge of $170,000 against accounts receivable, which was taken as a result of longer than usual delinquencies at a number of our stores that have a significant military customer base.
Same store operating expenses increased 4.7%; property taxes increased by 21.2% over last year's fourth quarter while all other costs grew by only 0.2%. This year's fourth quarter property taxes appear high on a comparative basis because the fourth quarter of 2007 had an artificially reduced expense due to an over-accrual during the first three quarters of that year. For the full year 2008, the Company's same store property tax expense increase was 6.9%. The modest revenue growth, offset by the property tax aberration, resulted in a same store net operating income decline of 1.8% from that of the fourth quarter of 2007.
General and administrative expenses rose $780,000 over the same period in 2008, primarily due to the aforementioned write-off of costs associated with abandoned acquisitions, the lawsuit reserves, and increased expenses associated with operating the Joint Venture.
During the quarter, strong revenue growth was shown at the Company's South Carolina, Missouri, New York, Louisiana, and Texas stores. Stores in Florida, Georgia, and the Capitol District markets experienced slower than expected growth during the quarter.
In 2008, the Company formed a joint venture with an affiliate of Heitman, LLC (the "JV") to acquire and manage up to $350 million of storage properties to be purchased from unaffiliated owners. In July, the JV purchased 21 properties at a cost of $144 million. Ten of the stores represent new markets including four in Columbus, OH; two in Louisville, KY; and four in Denver, CO. The remaining stores are located in markets where Sovran already has a presence; two each in Tampa, FL and San Antonio, TX; six in Dallas, TX; and one in Houston, TX.
During the fourth quarter, the JV acquired four properties for approximately $27 million. The facilities are located in the Company's existing Southeast Florida, Atlanta, GA and Columbus, OH markets.
The Company also acquired a store in Cincinnati, OH for its own portfolio at a cost of $4.4 million.
The Company has severely curtailed its program of expanding and enhancing its existing stores. Seven projects were completed during the quarter at a cost of $9.1 million, bringing a total of 20 stores that were improved in 2008 at a total cost of $25.6 million. This was $20 million less than projected; 2009 improvement projects will, except for those substantially underway, be postponed indefinitely.
As previously reported in June of 2008, the Company refinanced it's near term maturities and repaid its line of credit with the proceeds of a $250 million four year term note. The Company then entered into a group of interest rate swaps, effectively setting the interest rate on the note at 5.97% through 2012.
Simultaneously with the term note agreement, the Company entered into a new, three year Line of Credit agreement, which provides $125 million of unsecured financing at a rate of LIBOR plus 1.375%. The facility is expandable, at the Company's option, to $175 million and can be extended for one additional year. At December 31, 2008, $14 million had been drawn on the Line.
During the quarter, the Company issued 43,125 shares through its Dividend Reinvestment Program, Direct Stock Purchase Plan and Employee Option Plan. A total of $1.3 million was received, and was used to fund capital improvements.
YEAR 2009 EARNINGS GUIDANCE:
The Company is anticipating reduced consumer demand in many of its markets and for conditions to become increasingly more competitive. It expects to utilize leasing incentives as well as increased advertising and aggressive marketing to improve occupancy and, accordingly, estimates a decline in same store revenue of 1-2% from that of 2008. Property operating costs are projected to grow by 3 - 3 1/2%, resulting in a decline in same store NOI of 2-4%.
The Company has curtailed its expansion and enhancement program and, until market conditions significantly improve, will defer its planned 2009 expenditures of $50 million. It has an estimated total of $9.5 million of commitments outstanding on construction projects expected to be completed in 2009.
At present, the Company does not have any properties under contract and does not expect to actively pursue the purchase of additional facilities while the capital markets remain unstable. Approximately $5 million of additional capital remains committed by the Company as its share of the equity for the JV formed in 2008.
General and administrative expenses are not expected to increase significantly in 2009.
At December 31, 2008, all but $14 million of the Company's debt is either fixed rate or covered by rate swap contracts that essentially fix the rate. Subsequent borrowings that may occur will be pursuant to the Company's Line of Credit agreement at a floating rate of LIBOR plus 1.375%.
Management expects funds from operations for the first quarter of 2009 to be approximately $.72 to $.74 per share, and between $3.00 and $3.08 for the year 2009.
FORWARD LOOKING STATEMENTS:
When used within this news release, the words "intends," "believes," "expects," "anticipates," and similar expressions are intended to identify "forward looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, and in Section 21F of Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward looking statements. Such factors include, but are not limited to, the effect of competition from new self storage facilities, which could cause rents and occupancy rates to decline; the Company's ability to evaluate, finance and integrate acquired businesses into the Company's existing business and operations; the Company's ability to form joint ventures and sell existing properties to those joint ventures; the Company's existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company's outstanding floating rate debt; the regional concentration of the Company's business may subject it to economic downturns in the states of Florida and Texas; the Company's ability to effectively compete in the industries in which it does business; the Company's reliance on its call center; the Company's cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes which may change the taxability of future income.
Sovran Self Storage will hold its Fourth Quarter Earnings Release Conference Call at 9:00 a.m. Eastern Time on Wednesday, February 18, 2009. Anyone wishing to listen to the call may access the webcast via the event page at www.unclebobs.com/company/investment. The call will be archived for a period of 90 days after initial airing.
Sovran Self Storage, Inc. is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities. The Company operates 385 self-storage facilities in 24 states under the name "Uncle Bob's Self Storage"(R). For more information, please contact David Rogers, CFO or Diane Piegza, VP Corporate Communications at (716) 633-1850 or visit the Company's Web site at www.unclebobs.com.
SOVRAN SELF STORAGE, INC. BALANCE SHEET DATA (unaudited) December 31, December 31, (dollars in thousands) 2008 2007 Assets Investment in storage facilities: Land $ 240,525 $ 236,349 Building, equipment and construction in progress 1,148,676 1,086,359 1,389,201 1,322,708 Less: accumulated depreciation (216,644) (183,679) Investment in storage facilities, net 1,172,557 1,139,029 Cash and cash equivalents 4,486 4,010 Accounts receivable 2,971 2,794 Receivable from related parties 14 27 Receivable from joint ventures 336 - Investment in joint ventures 20,111 - Prepaid expenses 4,691 4,771 Intangible asset - in-place customer leases (net of accumulated amortization of $5,160 in 2008 and 289 833 $3,840 in 2007) Other assets 7,171 6,741 Net assets of discontinued operations - 6,383 Total Assets $ 1,212,626 $ 1,164,588 Liabilities Line of credit $ 14,000 $ 100,000 Term notes 500,000 356,000 Accounts payable and accrued liabilities 23,979 23,752 Deferred revenue 5,659 5,602 Fair value of interest rate swap agreements 25,490 1,230 Accrued dividends 14,090 13,656 Mortgages payable 109,261 110,517 Total Liabilities 692,479 610,757 Minority interest - Operating Partnership 9,265 9,659 Minority interest - consolidated joint ventures 13,082 16,783 Shareholders' Equity Common stock 232 228 Additional paid-in capital 666,633 654,141 Dividends in excess of net income (116,728) (98,437) Accumulated other comprehensive income (25,162) (1,368) Treasury stock at cost (27,175) (27,175) Total Shareholders' Equity 497,800 527,389 Total Liabilities and Shareholders' Equity $ 1,212,626 $ 1,164,588
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) October 1, 2008 October 1, 2007 to to (dollars in thousands, except share data) December 31, 2008 December 31, 2007 Revenues Rental income $ 48,928 $ 48,275 Other operating income 1,603 1,573 Management and acquisition fee income 234 - Total operating revenues 50,765 49,848 Expenses Property operations and maintenance 13,887 13,643 Real estate taxes 4,598 3,774 General and administrative 4,792 4,012 Depreciation and amortization 8,463 7,951 Amortization of in-place customer leases 208 492 Total operating expenses 31,948 29,872 Income from operations 18,817 19,976 Other income (expense) Interest expense (including amortization of financing fees of $325 in 2008 and $247 (10,130) (8,954) in 2007) Interest income 49 140 Casualty gain - 114 Minority interest - Operating Partnership (160) (202) Minority interest - consolidated joint (340) (462) ventures Equity in income of joint ventures 142 23 Income from continuing operations 8,378 10,635 Income from discontinued operations - 102 Net Income $ 8,378 $ 10,737 Per Common Share - basic Continuing operations $ 0.38 $ 0.50 Discontinued operations 0.00 0.00 Earnings per common share - basic $ 0.38 $ 0.50 Earnings per common share - diluted Continuing operations $ 0.38 $ 0.50 Discontinued operations 0.00 0.00 Earnings per common share - diluted $ 0.38 $ 0.50 Common shares used in basic earnings per 21,862,359 21,535,833 share calculation Common shares used in diluted earnings per 21,872,257 21,575,908 share calculation Dividends declared per common share $ 0.6400 $ 0.6300
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) January 1, 2008 January 1, 2007 to to (dollars in thousands, except share data) December 31, 2008 December 31, 2007 Revenues Rental income $ 195,220 $ 186,581 Other operating income 6,648 6,276 Management and acquisition fee income 1,135 - Total operating revenues 203,003 192,857 Expenses Property operations and maintenance 55,739 52,317 Real estate taxes 19,004 17,370 General and administrative 17,279 15,234 Depreciation and amortization 33,101 30,011 Amortization of in-place customer leases 1,320 3,840 Total operating expenses 126,443 118,772 Income from operations 76,560 74,085 Other income (expense) Interest expense (including amortization of financing fees of $1,192 in 2008 and (38,097) (33,861) $963 in 2007) Interest income 322 954 Casualty gain - 114 Minority interest - Operating Partnership (721) (783) Minority interest - consolidated joint (1,563) (1,848) ventures Equity in income of joint ventures 104 119 Income from continuing operations 36,605 38,780 Income from discontinued operations (including gain on disposal of $716 in 794 434 2008) Net Income 37,399 39,214 Preferred stock dividends - (1,256) Net income available to common $ 37,399 $ 37,958 shareholders Per Common Share - basic Continuing operations $ 1.68 $ 1.79 Discontinued operations 0.04 0.02 Earnings per common share - basic $ 1.72 $ 1.81 Earnings per common share - diluted Continuing operations $ 1.68 $ 1.79 Discontinued operations 0.04 0.02 Earnings per common share - diluted $ 1.72 $ 1.81 Common shares used in basic earnings per 21,761,997 20,954,649 share calculation Common shares used in diluted earnings per 21,782,804 21,003,851 share calculation Dividends declared per common share $ 2.5400 $ 2.5000
COMPUTATION OF FUNDS FROM OPERATIONS (FFO) (1) - (unaudited) October 1, 2008 October 1, 2007 to to (dollars in thousands, except share data) December 31, 2008 December 31, 2007 Net income $ 8,378 $ 10,737 Minority interest in income 500 664 Depreciation of real estate and amortization of intangible assets 8,671 8,489 exclusive of deferred financing fees Depreciation and amortization from 72 15 unconsolidated joint ventures Casualty gain - (114) Funds from operations allocable to (325) (356) minority interest in Operating Partnership Funds from operations allocable to minority interest in consolidated joint (340) (462) ventures Funds from operations available to common 16,956 18,973 shareholders FFO per share - diluted $ 0.78 $ 0.88 Common shares - diluted 21,872,257 21,575,908 January 1, 2008 January 1, 2007 to to (dollars in thousands, except share data) December 31, 2008 December 31, 2007 Net income $ 37,399 $ 39,214 Minority interest in income 2,284 2,631 Depreciation of real estate and amortization of intangible assets 34,466 34,036 exclusive of deferred financing fees Depreciation and amortization from 334 59 unconsolidated joint ventures Gain on sale of real estate (716) - Casualty gain - (114) Preferred dividends - (1,256) Funds from operations allocable to (1,366) (1,425) minority interest in Operating Partnership Funds from operations allocable to minority interest in consolidated joint (1,564) (1,848) ventures Funds from operations available to common 70,837 71,297 shareholders FFO per share - diluted (a) $ 3.25 $ 3.38 Common shares - diluted 21,782,804 21,003,851 Common shares if Series C Preferred Stock - 480,127 is converted Total shares used in FFO per share 21,782,804 21,483,978 calculation (a)
(1) We believe that Funds from Operations ("FFO") provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation. Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions. (a) The Series C Convertible Preferred Shares were converted on July 9, 2007 into 920,244 common shares. The prorated shares through the conversion date have been added to the diluted shares outstanding to calculate the FFO per share in 2007.
QUARTERLY SAME STORE DATA (2) October 1, 2008 October 1, 2007 to to Percentage (dollars in thousands) December 31, 2008 December 31, 2007 Change Revenues: Rental income $ 48,202 $ 47,904 0.6% Other operating income 1,529 1,573 -2.8% Total operating revenues 49,731 49,477 0.5% Expenses: Property operations and 13,632 13,604 0.2% maintenance Real estate taxes 4,563 3,766 21.2% Total operating expenses 18,195 17,370 4.7% Operating income $ 31,536 $ 32,107 -1.8% (2) Includes the 353 stores owned and/or managed by the Company for the entire periods presented. Same Store Revenues by State October 1, 2008 October 1, 2007 (2) to to Percentage (dollars in thousands) December 31, 2008 December 31, 2007 Change Alabama 2,546 2,584 -1.5% Arizona 1,243 1,242 0.1% Connecticut 1,092 1,130 -3.4% Florida 7,845 8,299 -5.5% Georgia 3,186 3,304 -3.6% Louisiana 1,919 1,800 6.6% Maine 271 271 0.0% Maryland 467 505 -7.5% Massachusetts 1,972 1,941 1.6% Michigan 567 542 4.6% Mississippi 1,303 1,275 2.2% Missouri 1,089 1,059 2.8% New Hampshire 525 517 1.5% New York 4,455 4,237 5.1% North Carolina 1,600 1,629 -1.8% Ohio 2,018 2,049 -1.5% Pennsylvania 719 716 0.4% Rhode Island 448 487 -8.0% South Carolina 940 907 3.6% Tennessee 501 550 -8.9% Texas 12,819 12,064 6.3% Virginia 2,206 2,369 -6.9% Total same store $ 49,731 $ 49,477 0.5% YEAR TO DATE SAME STORE DATA January 1, 2008 January 1, 2007 (3) to to Percentage (dollars in thousands) December 31, 2008 December 31, 2007 Change Revenues: Rental income $ 178,225 $ 177,061 0.7% Other operating income 5,459 5,633 -3.1% Total operating revenues 183,684 182,694 0.5% Expenses: Property operations and 50,191 48,978 2.5% maintenance Real estate taxes 17,635 16,491 6.9% Total operating expenses 67,826 65,469 3.6% Operating income $ 115,858 $ 117,225 -1.2% (3) Includes the 326 stores owned and/or managed by the Company for the entire periods presented.
OTHER DATA Same Store (2) All Stores 2008 2007 2008 2007 Weighted average quarterly 81.8% 82.3% 81.6% 82.2% occupancy Occupancy at December 31 80.6% 81.5% 80.5% 81.4% Rent per occupied square $10.47 $10.42 $10.54 $10.42 foot Investment in Storage Facilities: The following summarizes activity in storage facilities during the twelve months ended December 31, 2008: Beginning balance $ 1,322,708 Property acquisitions 18,454 Additional investment in consolidated joint 2,473 ventures Improvements and equipment additions: Expansions 25,584 Roofing, paving, painting, and equipment: Stabilized stores 15,230 Recently acquired and 4,184 joint venture stores Change in construction in progress (Total CIP $14.0 761 million) Dispositions (193) Storage facilities at cost $ 1,389,201 at period end December 31, 2008 December 31, 2007 Common shares outstanding 22,016,348 21,676,586 at December 31 Operating Partnership Units outstanding at 419,952 422,726 December 31
Source: Sovran Self Storage, Inc.
Released February 17, 2009