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