Sovran Self Storage Reports Fourth Quarter 2010 Results; Announces Acquisition of 7 Stores
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 and year ended December 31, 2010.
Net income available to common shareholders for the fourth quarter of 2010 was $8.5 million or $0.31 per fully diluted share. For the same period in 2009, there was a net loss to common shareholders of $1.5 million, or $0.06 per fully diluted common share. Funds from operations (FFO) for the quarter were $0.62 per fully diluted common share compared to $0.28 for the same period last year. Had the Company not recorded charges of $0.8 million related to a late December acquisition, FFO would have been $0.65 per fully diluted common share for the fourth quarter of 2010.
Stronger operating results in the fourth quarter of 2010 including lower than expected real estate taxes and a debt extinguishment charge in the fourth quarter of 2009 resulted in the increase to earnings and FFO.
During the quarter, the Company also acquired seven new stores: four in Charlotte and three in Raleigh, NC. The combined purchase price was $34.7 million, and the acquisitions added to the Company's already significant presence in both cities.
"We're seeing positive trends on many fronts - revenues are strengthening, costs are contained, investment opportunities are available, and we're well positioned to grow from here," said Robert J. Attea, Chairman and Chief Executive Officer.
OPERATIONS:
Revenues for the 344 stores wholly owned by the Company for the entire quarter of each year increased 2.6% from those of the fourth quarter of 2009, the result of a 90 basis point increase in rental rates and strong growth in other revenues.
"We achieved solid gains in rental rates this quarter, and we saw revenues increase in 23 of 24 states," said Kenneth F. Myszka, the Company's President and COO. "We're encouraged by improving demand in our markets."
Same store operating expenses decreased 1.9% for the fourth quarter of 2010 compared to the prior year period, the result of a net property tax decrease of 12.1% offset by increases in health care, workers compensation, and property maintenance costs. The property tax expense was achieved by reductions won at several locations as a result of successful challenges to assessed values, and also due to conservatively estimated accruals during the first three quarters at the Company's Florida, Texas, and Gulf Coast properties.
Consequently, same store net operating income increased 5.2% this period over the fourth quarter of 2009 as a result of increased revenues, controlled costs, and a significant decrease in property taxes.
General and administrative expenses grew by about $1.4 million over the same period in 2009. More than half of this increase was attributable to $0.8 million of acquisition costs expensed in conjunction with the purchase of the Carolina stores. The balance was primarily due to increased income taxes associated with operations of the Company's taxable REIT subsidiary, incentive compensation, and marketing and internet advertising costs.
During the fourth quarter of 2010, all states save one achieved same store sales equal to or greater than the same period in 2009. For the first time since the hurricanes of 2005 and 2006, the Florida stores reported revenues greater than the prior year's quarter, a sign that recovery may be on the horizon. The stores with the strongest revenue growth include most of New England, Louisiana, New York, and Tennessee.
PROPERTIES:
In late December 2010, the Company acquired seven stores for a combined purchase price of $34.7 million. The stores range in age from one to four years old, have a combined 0.5 million square feet and an overall occupancy rate of just over 55% at December 31, 2010. The acquisition was funded from cash generated by the sale of properties reported earlier in the year, and a $10 million draw on the Company's line of credit.
"We're excited to add these high quality assets to our portfolio," commented Attea. "It was an opportune time to acquire, and we expect our marketing and pricing initiatives to rapidly improve the performance of these stores."
The Company continues with its program of expanding and enhancing its properties. In 2010, projects providing approximately 168,500 square feet of additional and/or improved space at existing stores were added at a cost of $9.4 million. The Company is currently evaluating up to $32 million of such improvements in 2011.
CAPITAL TRANSACTIONS:
At December 31, 2010, the Company had $400 million of unsecured term note debt, $79.0 million of mortgage debt outstanding and $10 million drawn on its line of credit. The Company has no significant debt maturities until mid-2012.
Illustrated below are key financial ratios at December 31, 2010:
-- Debt to Enterprise Value (at $38.00/share) 31.5 % -- Debt to Book Cost of Storage Facilities 34.4 % -- Debt to EBITDA Ratio 4.8 x -- Debt Service Coverage 3.2 x
At December 31, 2010, the Company had approximately $5.8 million of cash on hand, and up to $115 million available on its line of credit.
YEAR 2011 EARNINGS GUIDANCE:
Management is encouraged by improving demand in most markets. Nonetheless, the Company anticipates the continuation of leasing incentives supplemented by aggressive and increased advertising. An increase in same store revenue of 2% to 3% is projected from that of 2010. Property operating costs are projected to increase by 2% to 3%, including an expected 4% annual increase in property taxes. Accordingly, the Company is anticipating an increase of 2% to 3% in same store net operating income for 2011.
The Company has identified some 27 properties at which it plans to add or improve approximately 0.7 million square feet of storage space during 2011 at an estimated cost of $32 million. The Company also has budgeted $11 million to provide for recurring capitalized expenditures including roofing, painting, paving, and office renovations.
The Company is selectively evaluating potential acquisitions, but at present has no properties under contract. Purchases made in 2011 are not expected to impact 2011's guidance inasmuch as the Company expects to invest in both low occupancy "turn-around" opportunities as well as stabilized properties.
General and administrative expenses are expected to increase due to income taxes on its taxable REIT subsidiaries and the Company's plans to continue expanding its internet marketing presence.
At December 31, 2010, all but $10 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%.
At December 31, 2010, the Company had 27.7 million shares of common stock outstanding and 0.34 million Operating Partnership Units outstanding.
As a result of the above assumptions, management expects funds from operations for the full year 2011 to be approximately $2.59 to $2.62 per share, and between $0.60 and $0.62 for the first quarter of 2011.
FORWARD LOOKING STATEMENTS:
When used within this news release, the words "intends," "believes," "expects," "anticipates," and similar expressions are intended to identify "forward looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward looking statements. Such factors include, but are not limited to, the effect of competition from new self storage facilities, which could cause rents and occupancy rates to decline; the Company's ability to evaluate, finance and integrate acquired businesses into the Company's existing business and operations; the Company's existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company's outstanding floating rate debt; the Company's ability to comply with debt covenants; the future ratings on the Company's debt instruments; the regional concentration of the Company's business may subject it to economic downturns in the states of Florida and Texas; the Company's ability to effectively compete in the industries in which it does business; the Company's reliance on its call center; the Company's cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes which may change the taxability of future income.
CONFERENCE CALL:
Sovran Self Storage will hold its Fourth Quarter Earnings Release Conference Call at 10:00 a.m. Eastern Time on Thursday, February 24, 2011. To access the conference call, dial 877.407.8033 (domestic), or 201.689.8033 (international), at least five minutes prior to the scheduled start of the call. Management will accept questions from registered financial analysts after prepared remarks; all others are encouraged to listen to the call via webcast by accessing "events and conference calls" under the investor relations tab at www.unclebobs.com/company/.
The webcast will be archived for a period of 90 days; a telephone replay will also be available for 72 hours by calling 877.660.6853 and entering pass codes 286/364666.
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 377 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.
SOVRAN SELF STORAGE, INC. BALANCE SHEET DATA (unaudited) December 31, December 31, (dollars in thousands) 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 joint venture 253 173 Investment in 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 12,480 15,005 Units at redemption value Equity Common stock 288 287 Additional paid-in capital 816,986 814,988 Accumulated deficit (148,264 ) (139,863 ) Accumulated other comprehensive loss (10,254 ) (11,265 ) Treasury stock at cost (27,175 ) (27,175 ) Total Shareholders' Equity 631,581 636,972 Noncontrolling interest - consolidated joint 13,082 13,082 venture Total Equity 644,663 650,054 Total Liabilities and Equity $ 1,185,541 $ 1,185,098
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) October 1, 2010 October 1, 2009 to to (dollars in thousands, except share data) December 31, 2010 December 31, 2009 Revenues Rental income $ 46,259 $ 45,495 Other operating income 2,278 1,708 Management and acquisition fee income 319 315 Total operating revenues 48,856 47,518 Expenses Property operations and maintenance 13,171 12,971 Real estate taxes 3,775 4,285 General and administrative 6,767 5,358 Depreciation and amortization 8,323 8,116 Amortization of in-place customer leases - 27 Total operating expenses 32,036 30,757 Income from operations 16,820 16,761 Other income (expense) Interest expense (A) (7,949 ) (17,499 ) Casualty loss - (390 ) Interest income 19 10 Equity in income of joint ventures 86 81 Income from continuing operations 8,976 (1,037 ) Loss from discontinued operations (including loss on disposal of $627 in - (143 ) 2009) Net income 8,976 (1,180 ) Net income attributable to noncontrolling (445 ) (322 ) interests Net income attributable to common $ 8,531 $ (1,502 ) shareholders Earnings per common share attributable to common shareholders - basic Continuing operations $ 0.31 $ (0.05 ) Discontinued operations - (0.01 ) Earnings per common share - basic $ 0.31 $ (0.06 ) Earnings per common share attributable to common shareholders - diluted Continuing operations $ 0.31 $ (0.05 ) Discontinued operations - (0.01 ) Earnings per common share - diluted $ 0.31 $ (0.06 ) Common shares used in basic earnings per share calculation 27,494,452 27,227,922 Common shares used in diluted earnings per share calculation 27,543,257 27,248,818 Dividends declared per common share $ 0.4500 $ 0.4500 (A) Interest expense for the three months ending December 31 consists of the following Interest expense $ 7,691 $ 8,224 Amortization of financing fees 258 258 Write-off of unamortized financing fees related to $100 million term note repaid in 2009 - 634 Interest rate swap termination payments - 8,383 Total interest expense $ 7,949 $ 17,499
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) January 1, 2010 January 1, 2009 to to (dollars in thousands, except share data) December 31, 2010 December 31, 2009 Revenues Rental income $ 182,865 $ 183,074 Other operating income 7,947 6,723 Management and acquisition fee income 1,260 1,243 Total operating revenues 192,072 191,040 Expenses Property operations and maintenance 51,845 50,726 Real estate taxes 19,065 19,355 General and administrative 21,857 18,649 Depreciation and amortization 32,939 32,448 Amortization of in-place customer leases - 288 Total operating expenses 125,706 121,466 Income from operations 66,366 69,574 Other income (expense) Interest expense (B) (31,711 ) (50,050 ) Interest income 84 85 Casualty loss - (390 ) Gain on the sale of land - 1,127 Equity in income of joint ventures 240 235 Income from continuing operations 34,979 20,581 Income from discontinued operations (including a gain on disposal of $6,944 in 2010 and loss on disposal of $1,636 in 2009) 7,562 1,073 Net income 42,541 21,654 Net income attributable to noncontrolling (1,899 ) (1,738 ) interests Net income attributable to common $ 40,642 $ 19,916 shareholders Earnings per common share attributable to common shareholders - basic Continuing operations $ 1.20 $ 0.79 Discontinued operations 0.28 0.05 Earnings per common share - basic $ 1.48 $ 0.84 Earnings per common share attributable to common shareholders - diluted Continuing operations $ 1.20 $ 0.79 Discontinued operations 0.28 0.05 Earnings per common share - diluted $ 1.48 $ 0.84 Common shares used in basic earnings per share calculation 27,472,117 23,786,616 Common shares used in diluted earnings per share calculation 27,513,945 23,796,803 Dividends declared per common share (C) $ 1.8000 $ 1.5400 (B) Interest expense for the year ended December 31 consists of the following: Interest expense $ 30,681 $ 38,907 Amendment and waiver fees - 923 Amortization of financing fees 1,030 1,203 Write-off of unamortized financing fees related to $100 million term note repaid in 2009 - 634 Interest rate swap termination payments - 8,383 Total interest expense $ 31,711 $ 50,050
(C) The dividends declared in 2009 include the three dividends declared during the year and does not include the dividend declared on January 4, 2010 of $0.45 per common share.
COMPUTATION OF FUNDS FROM OPERATIONS (FFO) (1) - (unaudited) October 1, 2010 October 1, 2009 to to (dollars in thousands, except share data) December 31, 2010 December 31, 2009 Net income attributable to common $ 8,531 $ (1,502 ) shareholders Net income attributable to noncontrolling 445 322 interests Depreciation of real estate and amortization of intangible assets exclusive of deferred financing 8,323 8,143 fees Depreciation of real estate included in - 206 discontinued operations Depreciation and amortization from 199 199 unconsolidated joint ventures Loss on sale of real estate - 627 Funds from operations allocable to noncontrolling interest in Operating Partnership (208 ) (116 ) Funds from operations allocable to noncontrolling interest in consolidated joint ventures (340 ) (340 ) Funds from operations available to common shareholders 16,950 7,539 FFO per share - diluted $ 0.62 $ 0.28 Common shares - diluted 27,543,257 27,248,818 January 1, 2010 January 1, 2009 to to (dollars in thousands, except share data) December 31, 2010 December 31, 2009 Net income attributable to common $ 40,642 $ 19,916 shareholders Net income attributable to noncontrolling 1,899 1,738 interests Depreciation of real estate and amortization of intangible assets exclusive of deferred financing 32,939 32,736 fees Depreciation of real estate included in 217 1,083 discontinued operations Depreciation and amortization from 788 820 unconsolidated joint ventures (Gain) loss on sale of real estate (6,944 ) 509 Funds from operations allocable to noncontrolling interest in Operating Partnership (885 ) (984 ) Funds from operations allocable to noncontrolling interest in consolidated joint ventures (1,360 ) (1,360 ) Funds from operations available to common shareholders 67,296 54,458 FFO per share - diluted $ 2.45 $ 2.36 Common shares - diluted 27,513,945 23,796,803
(1) We believe that Funds from Operations ("FFO") provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation. Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.
QUARTERLY SAME October 1, 2010 October 1, 2009 STORE DATA (2) * to to Percentage (dollars in December 31, 2010 December 31, 2009 Change thousands) Revenues: Rental income $ 46,162 $ 45,489 1.5 % Other operating 2,167 1,625 33.4 % income Total operating 48,329 47,114 2.6 % revenues Expenses: Property operations and 13,079 12,896 1.4 % maintenance Real estate taxes 3,761 4,277 -12.1 % Total operating 16,840 17,173 -1.9 % expenses Operating income $ 31,489 $ 29,941 5.2 % (2) Includes the 344 stores owned and/or managed by the Company for the entire periods presented that are consolidated in our financial statements. Does not include unconsolidated joint venture stores managed by the Company. * See exhibit A for supplemental same store data. YEAR TO DATE SAME January 1, 2010 January 1, 2009 STORE DATA (2) to to Percentage (dollars in December 31, 2010 December 31, 2009 Change thousands) Revenues: Rental income $ 182,635 $ 183,069 -0.2 % Other operating 7,519 6,395 17.6 % income Total operating 190,154 189,464 0.4 % revenues Expenses: Property operations and 51,532 50,561 1.9 % maintenance Real estate taxes 19,009 19,345 -1.7 % Total operating 70,541 69,906 0.9 % expenses Operating income $ 119,613 $ 119,558 0.0 % OTHER DATA Same Store (2) All Stores (3) 2010 2009 2010 2009 Weighted average quarterly 81.0% 81.0% 80.9% 80.9% occupancy Occupancy at 80.2% 80.0% 80.0% 79.9% December 31 Rent per occupied $10.33 $10.24 $10.33 $10.18 square foot (3) Does not include 25 unconsolidated joint venture stores managed by the Company Investment in Storage Facilities: The following summarizes activity in storage facilities during the twelve months ended December 31, 2010: Beginning balance $ 1,364,454 Property 34,155 acquisitions Improvements and equipment additions: Expansions 9,389 Roofing, paving, painting, and equipment: Stabilized stores 12,924 Recently acquired and consolidated 998 joint venture stores Change in construction in (1,788 ) progress (Total CIP $8.1 million) Dispositions (176 ) Storage facilities at cost at period $ 1,419,956 end December 31, 2010 December 31, 2009 Common shares 27,650,829 27,547,027 outstanding Operating Partnership Units 339,025 419,952 outstanding
Exhibit A Sovran Self Storage, Inc. Same Store Performance Summary Three Months Ended December 31, 2010 (unaudited) Avg Avg Quarterly Qtrly Occupancy Revenue Expenses NOI Square Rent per for the for the Three Months for the Three Months for the Three Months Occupied Three Months Ended December 31, Ended December 31, Ended December 31, Ended December 31, State Stores Feet Square 2010 2009 2010 2009 % 2010 2009 % 2010 2009 % Foot Change Change Change Alabama 22 1,588 $ 8.01 76.4% 75.1% $ 2,617 $ 2,580 1.43% $ 855 $ 901 -5.11% $ 1,762 $ 1,679 4.94% Arizona 9 530 10.05 86.4% 86.5% 1,211 1,185 2.19% 428 450 -4.89% 783 735 6.53% Connecticut 5 301 17.00 79.8% 72.5% 1,041 1,001 4.00% 394 356 10.67% 647 645 0.31% Florida 53 3,452 10.30 79.3% 79.0% 7,273 7,213 0.83% 2,498 2,626 -4.87% 4,775 4,587 4.10% Georgia 22 1,421 9.54 78.7% 81.2% 2,791 2,714 2.84% 924 985 -6.19% 1,867 1,729 7.98% Louisiana 14 836 11.20 82.1% 80.1% 1,979 1,829 8.20% 576 525 9.71% 1,403 1,304 7.59% Maine 2 114 11.80 77.5% 75.4% 271 258 5.04% 101 108 -6.48% 170 150 13.33% Maryland 4 172 14.29 86.7% 86.2% 545 517 5.42% 178 202 -11.88% 367 315 16.51% Massachusetts 12 664 12.41 81.1% 81.6% 1,740 1,677 3.76% 676 703 -3.84% 1,064 974 9.24% Michigan 4 239 8.53 88.7% 83.1% 472 438 7.76% 210 228 -7.89% 262 210 24.76% Mississippi 12 924 9.05 82.2% 84.4% 1,805 1,798 0.39% 582 529 10.02% 1,223 1,269 -3.62% Missouri 7 432 11.13 86.5% 85.7% 1,064 1,043 2.01% 415 293 41.64% 649 750 -13.47% New Hampshire 4 260 10.76 82.0% 79.3% 569 547 4.02% 208 208 0.00% 361 339 6.49% New York 28 1,599 13.12 83.7% 83.7% 4,859 4,479 8.48% 1,629 1,494 9.04% 3,230 2,985 8.21% North 11 539 9.29 79.8% 80.0% 1,005 1,033 -2.71% 412 396 4.04% 593 637 -6.91% Carolina Ohio 17 1,132 8.79 84.8% 84.6% 2,186 2,124 2.92% 819 923 -11.27% 1,367 1,201 13.82% Pennsylvania 4 208 9.93 80.5% 81.4% 427 423 0.95% 153 153 0.00% 274 270 1.48% Rhode Island 4 168 12.37 79.6% 79.5% 456 430 6.05% 226 190 18.95% 230 240 -4.17% South 8 443 9.82 80.6% 78.3% 914 870 5.06% 352 406 -13.30% 562 464 21.12% Carolina Tennessee 4 291 8.46 89.7% 81.5% 570 515 10.68% 246 250 -1.60% 324 265 22.26% Texas 81 5,887 10.18 80.6% 82.2% 12,322 12,251 0.58% 4,269 4,535 -5.87% 8,053 7,716 4.37% Virginia 17 1,003 10.62 80.6% 77.5% 2,212 2,189 1.05% 689 712 -3.23% 1,523 1,477 3.11% Portfolio 344 22,203 $ 10.33 81.0% 81.0% $ 48,329 $ 47,114 2.58% $ 16,840 $ 17,173 -1.94% $ 31,489 $ 29,941 5.17% Total Dollars in thousands except for average quarterly rent per occupied square foot. Square feet in thousands. 344 wholly owned same stores.
Source: Sovran Self Storage, Inc.
Released February 23, 2011