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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, 1998
Commission File Number: 0-24071
Sovran Acquisition Limited Partnership
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 16-1481551
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5166 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
- - ---------------------------- -----------------------------
Not Applicable Not Applicable
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 25, 1999, 13,242,172 Units of Limited
Partnership Interest were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Notice of Annual Meeting of Shareholders and Proxy Statement
for Annual Meeting of Shareholders of the Company to be held on
May 25, 1999 (Part III).
ITEM 1. BUSINESS
General
Sovran Acquisition Limited Partnership (the "Operating
Partnership") is the entity through which Sovran Self Storage,
Inc. (the "Company"), a self-administered and self-managed real
estate investment trust ("REIT"), conducts substantially all of
the Company's business and owns substantially all of the
Company's assets. The Operating Partnership is one of the
largest owners and operators of self-storage properties in the
Eastern United States and Texas. In 1995, the Company was formed
under Maryland law and the Operating Partnership was organized as
a Delaware limited partnership to continue and to expand the
self-storage operations of the Company's privately owned
predecessor organizations. The term "Company Predecessors" as
used herein refers to the Company's predecessor organizations
prior to the Company's initial public offering in June, 1995 (the
"Initial Offering") and the concurrent completion of the various
transactions that occurred simultaneously therewith (the
"Formation Transactions"). The term "Company" as used herein
means Sovran Self Storage, Inc. and its subsidiaries on a
consolidated basis (including the Operating Partnership) or,
where the context so requires, Sovran Self Storage, Inc. only,
and, as the context may require, the Company Predecessors. The
term "Operating Partnership" as used herein means Sovran
Acquisition Limited Partnership and, as the context may require,
the Company Predecessors.
The Company is currently a 93.45% economic owner of the
Operating Partnership and controls it through Sovran Holdings,
Inc. ("Holdings"), a wholly-owned subsidiary of the Company
incorporated in Delaware and the sole general partner of the
Operating Partnership. This structure is commonly referred to as
an umbrella partnership REIT or "UPREIT". The Board of Directors
of Holdings, the members of which are the same as the members of
the Board of Directors of the Company, manages the affairs of the
Operating Partnership by directing the affairs of Holdings. The
Company's limited partner and indirect general partner interests
in the Operating Partnership entitle it to share in cash
distributions from, and in the profits and losses of, the
Operating Partnership in proportion to its ownership interest
therein and entitle the Company to vote on all matters requiring
a vote of the limited partners.
The other limited partners of the Operating Partnership are
persons who contributed their direct or indirect interests in
certain self-storage properties to the Operating Partnership.
The Operating Partnership is obligated to redeem each unit of
limited partnership ("Unit") at the request of the holder thereof
for cash equal to the fair market value of a share of the
Company's common stock, par value $.01 per share ("Common
Shares"), 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. With each
such redemption or acquisition by the Company, the Company's
percentage ownership interest in the Operating Partnership will
increase. In addition, whenever the Company issues Common
Shares, the Company is obligated to contribute any net proceeds
therefrom to the Operating Partnership and the Operating
Partnership is obligated to issue an equivalent number of Units
to the Company.
The Operating Partnership may issue additional Units to
acquire additional self-storage properties in transactions that
in certain circumstances defer some or all of the sellers' tax
consequences. The Operating Partnership believes that many
potential sellers of self-storage properties have a low tax basis
in their properties and would be more willing to sell the
properties in transactions that defer Federal income taxes.
Offering Units instead of cash for properties may provide
potential sellers partial Federal income tax deferral.
As of March 25, 1999 the Operating Partnership owned and
operated 211 self-storage properties (individually, a "Property"
and collectively, the "Properties") consisting of approximately
11.8 million net rentable square feet, situated in 19 states,
primarily the Eastern United States and Texas. As of
December 31, 1998, the Properties had a weighted average
occupancy of 86.4% and a weighted average annual rent per
occupied square foot of $7.69. The Operating Partnership
believes that it is the 5th largest operator of self-storage
properties in the United States based on facilities owned.
The Operating Partnership seeks to increase cash flow and
enhance investor value through aggressive management of the
Properties and selective acquisitions of new self-storage
properties. Aggressive property management entails increasing
rents, increasing occupancy levels, strictly controlling costs,
maximizing collections, strategically expanding and improving the
Properties and, should economic conditions warrant, developing
new properties. The Operating Partnership believes that there
continues to be significant opportunities for growth through
acquisitions, and constantly seeks to acquire self-storage
properties located primarily in the Eastern United States that
are susceptible to realization of increased economies of scale
and enhanced performance through application of the Operating
Partnership's management expertise.
The Operating Partnership's principal executive offices are
located at 5166 Main Street, Williamsville, New York 14221, and
its telephone number is (716) 633-1850.
Industry Overview
The Operating Partnership believes that self storage
facilities offer inexpensive storage space to residential and
commercial users. In addition to fully enclosed and secure
storage space, some operators, including the Operating
Partnership, also offer outside storage for automobiles,
recreational vehicles and boats. The storage sites are usually
fenced and well lighted with gates that are either manually
operated or automated. All facilities have a full time
manager/leasing agent. Customers have access to their storage
area during business hours and in certain circumstances are
provided with 24 hour access. Individual storage units are
secured by the customer's lock, which may be purchased from the
Operating Partnership, and the customer has control of access to
the unit.
The Operating Partnership believes that the self-storage
industry is characterized by a trend toward consolidation,
continuing increase in demand, relatively slow growth in supply
and a targeted market of primarily residential customers.
According to published data, of the approximately 26,000
facilities in the United States, less than 18% 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 financing available to
small operators for acquisitions and expansions and the potential
for savings through economies of scale are factors which are
leading to a consolidation in the industry. The Operating
Partnership believes that as a result of this trend, significant
growth opportunities exist for operators with proven management
systems and sufficient capital resources.
The self-storage industry has also experienced relatively
slow growth in supply in recent years due to the scarcity of
financing available to small operators, restrictive zoning and
other regulations and the substantial start up costs associated
with the construction and lease-up of new facilities. Demand for
self-storage service has increased as indicated by an increase in
industry-wide average rents and in industry average occupancy.
It is expected to remain strong because it is slow to react to
changing conditions and because of various other factors,
including population growth, increased mobility, expansion of
condominium, townhouse and apartment living, and increasing
consumer awareness, particularly by commercial users. Commercial
customers tend to rent larger areas for longer terms, are more
reliable payers and are less sensitive to price increases. The
Operating Partnership estimates that commercial users account for
approximately 30-35% of its total occupancy, which is
substantially higher than the reported industry average of 23%.
Property Management
The Operating Partnership believes that it has developed
substantial expertise in managing self-storage facilities. Key
elements of the Operating Partnership's management system
include:
- - - Recruiting, training and retaining capable, aggressive on-
site Property Managers;
- - - Motivating Property Managers by providing incentive-based
compensation;
- - - Developing and maintaining an integrated marketing plan for
each Property;
- - - Minimizing maintenance costs;
- - - Linking all facilities to a central customized management
information system; and
- - - Utilization of a national marketing program that attracts
commercial tenants who have multi market self-storage
needs.
Each Property is generally managed by a full-time Property
Manager and one or more assistant managers. Each Property
Manager is responsible for most operational decisions with
respect to his or her Property, including rent charges and
maintenance, subject to certain monetary limits. Assistant
managers enable Property Managers to have sufficient time to
perform marketing functions. Each Property Manager reports to an
Area Manager who in turn reports to a Regional Vice President.
The Operating Partnership currently employs four Regional Vice
Presidents who primarily focus on marketing and overall
supervision of the Area Managers. The Area Managers are
responsible for overseeing site operations.
Property Managers attend a thorough orientation program and
undergo continuous training which emphasizes telephone skills,
closing techniques, identification of selected marketing
opportunities, networking with possible referral sources, and
familiarization with the Operating Partnership's customized
management information system. In addition to frequent contact
with Area Managers and other Operating Partnership personnel,
Property Managers receive periodic newsletters regarding a
variety of operational issues, and from time to time attend
"roundtable" seminars with other Property Managers.
The Operating Partnership annually develops a written
marketing plan for each of its Properties the content of which is
highly dependent upon local conditions. The focus of each
marketing plan is, in part, determined by occupancy rates. If
all storage units of a same size at a Property are at or near 90%
occupancy, then the plan will generally include increases in
rental rates. If a Property has excess capacity, then the
marketing plan will target selected markets such as local
military bases, colleges, apartment and condominium complexes,
industrial parks, medical centers, retail shopping malls and
office suites. The Operating Partnership primarily uses
telephone directories to advertise its services, including a map
and when possible, listing Properties in the same marketplace in
a single advertisement. The Operating Partnership also conducts
quarterly surveys of its competitors' practices, which include
"shopping" competing facilities.
The Operating Partnership's customized computer system
performs billing, collections and reservation functions for each
Property, and also tracks information used in developing
marketing plans based on occupancy levels, and tenant
demographics and histories. The system generates daily, weekly
and monthly financial reports for each Property that are
immediately transmitted to the Operating Partnership's principal
office each night. The system also requires a Property Manager
to input a descriptive explanation for all debit and credit
transactions, paid-to-date changes, and all other discretionary
activities, which allows the accounting staff at the Operating
Partnership's principal office to promptly review all such
transactions. Late charges are automatically imposed. More
sensitive activities such as rental rate changes and unit size or
number changes are completed only by Area Managers. The
Operating Partnership's customized management information system
permits it to add new facilities to its portfolio with minimal
additional overhead expense.
The Operating Partnership's Regional Vice Presidents, Area
Managers and Property Managers are compensated with a base salary
and may, in addition, earn incentive compensation. The Operating
Partnership annually establishes a target gross income and net
operating income for each Property. As incentive compensation,
Property Managers earn a percentage of all gross income in excess
of the target level; and Regional Vice Presidents earn a
percentage of the combined net operating incomes in excess of the
targeted levels for all facilities reporting to them. The Area
Managers may receive bonuses from the Regional Vice President
they work under. This incentive compensation program is not
subject to any caps or increment requirements. It is not unusual
for any manager to earn in excess of 10% of the base salary as
incentive compensation. The Operating Partnership believes that
the structure of these programs causes its managers to exercise
their operational autonomy in a manner to maximize income through
increased rental rates.
Environmental and Other Regulations
The Operating Partnership is subject to federal, state, and
local environmental regulations that apply generally to the
ownership of real property and the operation of self-storage
facilities. The Operating Partnership has 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 is not aware of any environmental
condition with respect to any of the Properties that could have a
material adverse effect on the Operating Partnership's financial
condition or results of operations.
The Properties are also generally subject to the same types
of local regulations governing other real property, including
zoning ordinances. The Operating Partnership believes that the
Properties are in substantial compliance with all such
regulations.
Insurance
Each of the Properties is covered by fire, flood and
property insurance, including comprehensive liability, all-risk
property insurance, provided by reputable companies and with
commercially reasonable terms. In addition, the Operating
Partnership maintains a policy insuring against environmental
liabilities resulting from tenant storage on terms customary for
the industry, and title insurance insuring fee title to the
Properties in an aggregate amount believed to be adequate.
Competition
The primary factors upon which competition in the self-
storage industry is based are location, rental rates, suitability
of a property's design to prospective tenants' needs, and the
manner in which the property is operated and marketed. The
Operating Partnership believes it competes successfully on these
bases. The extent of competition depends in significant part on
local market conditions. The Operating Partnership seeks to
locate its facilities so as not to cause its own Properties to
compete with one another for customers, but the number of self-
storage facilities in a particular area could have a material
adverse effect on the performance of any of the Properties.
Several of the Operating Partnership's competitors,
including Public Storage Management, Inc., Shurgard Incorporated,
U-Haul International, Storage Trust Realty and Storage USA, Inc.,
are larger and have substantially greater financial resources
than the Operating Partnership. These larger operators may,
among other possible advantages, be capable of greater leverage
and the payment of higher prices for acquisitions.
Investment Policy
While the Operating Partnership emphasizes equity real
estate investments, it may, in its discretion, invest in
mortgages and other real estate interests related to self-storage
properties consistent with the Company's qualification as a REIT.
The Operating Partnership may also retain a purchase money
mortgage for a portion of the sale price in connection with the
disposition of properties from time to time. Should investment
opportunities become available, the Operating Partnership may
look to acquire self-storage properties via a joint-venture
partnership or similar entity. The Operating Partnership may or
may not have a significant investment in such a venture, but
would use such an opportunity to expand its portfolio of branded
and managed properties.
Subject to the percentage of ownership limitations and gross
income tests necessary for the Company's REIT qualification, the
Operating Partnership also may invest in securities of entities
engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such
entities.
Disposition Policy
Management periodically reviews the assets comprising the
Operating Partnership's portfolio. The Operating Partnership has
no current intention to dispose of any of the Properties,
although it reserves the right to do so. Any disposition
decision will be based on a variety of factors, including, but
not limited to, the (i) potential to continue to increase cash
flow and value, (ii) sale price, (iii) strategic fit with the
rest of the Operating Partnership's portfolio, (iv) potential
for, or existence of, environmental or regulatory issues, (v)
alternative uses of capital, and (vi) maintaining the Company's
qualification as a REIT.
Borrowing Policy
The Board of Directors of the Company currently limits the
amount of debt that may be incurred by the Company to less than
50% of the sum of market value of the issued and outstanding
Common Stock plus the Company's debt (Market Capitalization).
The Company, however, may from time to time re-evaluate and
modify its borrowing policy in light of then current economic
conditions, relative costs of debt and equity capital, market
values of properties, growth and acquisition opportunities and
other factors.
The Operating Partnership obtained an increase in the amount
available under the Credit Facility to $150 million from $75
million in 1998. In connection with the increase, the interest
rate was reduced from LIBOR plus 1.9 % to LIBOR plus 1.25% and
the maturity date was extended from August 1998 to February 2001.
The Credit Line is to be used for development, acquisitions and
general corporate purposes. As a result of the new credit
facility, in 1998 the Operating Partnership recorded an
extraordinary loss on the extinguishment of debt of $357,000,
representing the unamortized financing costs of the revolving
credit facility.
On December 22, 1998, the Operating Partnership borrowed $75
million pursuant to a term note agreement. The note is for a
period of two years, maturing on December 22, 2000, and requires
interest at LIBOR plus 1.50%. The note is unsecured, and was
used to repay short-term borrowings.
To the extent that the Operating Partnership desires to
obtain additional capital to pay distributions, to provide
working capital, to pay existing indebtedness or to finance
acquisitions, expansions or development of new properties, the
Company may utilize public and private equity offerings, floating
or fixed rate debt financing, retention of cash flow (subject to
satisfying the Operating Partnership's distribution requirements
under the REIT rules) or a combination of these methods.
Additional debt financing may also be obtained through mortgages
on its Properties, which may be recourse, non-recourse, or cross-
collateralized and may contain cross-default provisions. The
Operating Partnership has not established any limit on the number
or amount of mortgages that may be placed on any single Property
or on its portfolio as a whole. For additional information
regarding borrowings, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Note 5 to the Operating Partnership's
Financial Statements appearing elsewhere herein.
Employees
The Operating Partnership currently employs a total of 579
employees, including 229 Property Managers, 13 Area Managers, 4
Regional Vice Presidents and 292 part time employees. At the
Operating Partnership's headquarters, in addition to the
Company's 3 senior executive officers, the Operating Partnership
employs 38 people engaged in various support activities such as
accounting and management information systems. None of the
Operating Partnership's employees is covered by a collective
bargaining agreement. The Operating Partnership considers its
employee relations to be excellent.
ITEM 2. PROPERTIES
Overview
At December 31, 1998, the Operating Partnership, owned 100%
fee simple interests in, and operated, a total of 205 Properties,
consisting of approximately 11.6 million net rentable square
feet, situated in nineteen states in the Eastern and Midwestern
United States and Texas. As of December 31, 1998, the Properties
had a weighted average occupancy of 86.4% and a weighted average
annual rent per square foot of $7.69. The Operating Partnership
believes that it is the 5th largest operator of self-storage
properties in the United States based on facilities owned.
The Operating Partnership's self-storage facilities offer
inexpensive, easily accessible, enclosed storage space to
residential and commercial users on a month-to-month basis. Most
of the Operating Partnership's Properties are fenced with
computerized gates and are well lighted. All but twenty-two of
the Properties are single-story, thereby providing customers with
the convenience of direct vehicle access to their storage units.
All Properties have a Property Manager on-site during business
hours. Customers have access to their storage areas during
business hours, and some commercial customers are provided 24-
hour access. Individual storage units are secured by a lock
furnished by the customer to provide the customer with control of
access to the unit.
Currently, 189 of the Properties conduct business under the
user-friendly trade name "Uncle BoB's Self-Storage" and the
remainder are operated under various names acquired with the
Properties. The Operating Partnership intends to convert all of
the Properties to the "Uncle BoB's" trade name.
The table below provides certain information regarding the properties:
Uncle
BoB's Occupancy
Year Trade at Mgr.
Location Built Sq. Ft. Name 12/31/98 Acres Units Bldgs. Floors Apt. Construction
__________________________________________________________________________________________________________________________________
Alabama
Birmingham I 1990 36,975 Y 76% 2.7 297 9 1 Y Masonry/Steel Roof
Birmingham II 1990 52,400 Y 89% 4.7 397 8 1 Y Masonry/Steel Roof
Montgomery I 1982 74,830 Y 76% 5.0 620 16 1 Y Masonry/Steel Roof
Birmingham III 1970 72,560 Y 70% 4.3 411 6 1 N Masonry/Steel Roof
Montgomery II 1984 42,245 Y 94% 2.7 287 10 1 N Masonry/Steel Roof
Montgomery III 1988 41,550 Y 85% 2.4 392 9 1 Y Steel Bldg./Steel Roof
Birmingham-Walt 1984 63,380 N 85% 3.3 390 6 1 Y Masonry Wall/Metal Roof
Connecticut
New Haven 1985 35,260 Y 96% 3.9 305 5 1 N Masonry Wall/Steel Roof
Hartford-Metro I 1988 49,000 Y 97% 10.0 337 10 1 N Steel Bldg./Steel Roof
Hartford-Metro II 1992 37,825 Y 98% 6.0 309 7 1 N Steel Bldg./Steel Roof
Florida
Lakeland l 1985 48,055 Y 72% 3.5 443 11 1 Y Masonry Wall/Steel Roof
Tallahassee I 1973 147,059 Y 80% 18.7 723 21 1 Y Masonry Wall/Tar & Gravel Roof
Tallahassee II 1975 43,740 Y 96% 4.0 241 7 1 Y Masonry Wall/Tar & Gravel Roof
Port St. Lucie 1985 54,400 Y 85% 4.0 604 12 1 N Steel Bldg./Steel Roof
Deltona 1984 63,992 Y 87% 5.0 453 5 1 Y Masonry Wall/Shingle Roof
Jacksonville I 1985 39,912 Y 99% 2.7 296 14 1 Y Masonry Wall/Tar & Gravel Roof
Orlando I 1988 50,445 Y 90% 2.8 595 3 2 Y Steel Bldg./Steel Roof
Ft. Lauderdale 1985 98,440 Y 94% 7.6 636 7 1 Y Steel Bldg./Steel Roof
West Palm l 1985 45,465 Y 83% 3.2 412 6 1 N Steel Bldg./Steel Roof
Melbourne I 1986 61,034 Y 99% 8.3 656 11 1 Y Masonry Wall/Shingled Roof
Pensacola I 1983 108,333 Y 86% 7.5 966 13 1 Y Steel Bldg./Steel Roof
Pensacola II 1986 57,370 Y 93% 3.4 509 9 1 Y Steel Bldg./Steel Roof
Melbourne II 1986 55,755 Y 88% 3.4 630 11 1 N Steel Bldg./Steel Roof
Jacksonville II 1987 53,225 Y 92% 4.4 489 11 1 Y Masonry/Steel Roof
Pensacola III 1986 63,250 Y 92% 6.1 500 12 1 N Steel Bldg./Steel Roof
Pensacola IV 1990 39,825 Y 83% 2.7 281 9 1 Y Masonry/Steel Roof
Pensacola V 1990 38,850 Y 76% 2.6 324 4 1 Y Masonry/Steel Roof
Tampa I 1989 60,202 Y 93% 3.3 878 6 1 N Masonry/Steel Roof
Tampa II 1985 55,911 Y 85% 2.9 783 10 1 N Masonry/Steel Roof
Tampa III 1988 45,507 Y 89% 2.2 669 14 1 N Masonry/Steel Roof
Orlando II 1986 134,834 Y 76% 8.5 1,360 20 1 Y Masonry Wall/Steel Roof
Ft. Myers I 1988 28,024 Y 84% 1.1 272 6 2 Y Steel Bldg./Steel Roof
Ft. Myers II 1991/94 23,053 Y 94% 1.9 303 2 1 Y Masonry/Steel Roof
Tampa IV 1985 47,410 Y 95% 4.0 557 10 1 Y Masonry/Steel Roof
West Palm II 1986 33,005 Y 93% 2.3 394 9 1 Y Masonry/Steel Roof
Ft. Myers III 1986 36,040 Y 91% 2.4 261 9 1 Y Masonry/Steel Roof
Lakeland II 1988 42,310 Y 93% 4.0 579 9 1 N Masonry Wall/Steel Roof
Ft. Myers IV 1987 59,686 Y 97% 4.5 277 4 1 Y Masonry/Steel Roof
Jacksonville III 1987 102,500 Y 75% 5.9 783 13 1 Y Masonry Wall/Shingle Roof
Jacksonville IV 1985 43,925 Y 81% 2.7 514 7 1 Y Steel Bldg./Steel Roof
Jacksonville V 1987/92 53,855 Y 96% 2.9 511 13 2 Y Steel Bldg./Masonry Wall/Steel
Roof
Orlando III 1975 52,704 Y 80% 3.2 504 8 2 N Masonry Wall/Steel Roof
Orlando lV 1984 38,580 Y 95% 2.8 337 6 1 Y Steel Bldg/Steel Roof
Delray I-Mini 1969 50,455 Y 94% 3.5 489 3 1 Y Masonry Wall/Concrete Roof
Delray II-Safeway 1980 70,050 Y 88% 4.3 727 17 1 Y Masonry Wall/Concrete Roof
Tampa-E. Hillborough 1985 84,690 N 96% 5.3 737 16 1 Y Masonry Wall/Metal Roof
Titusville 1986/90 54,720 Y 99% 6.0 416 9 1 Y Metal Wall/Shingle Roof
Ft.Myers-Mall 1991/94 18,501 Y 72% 1.3 252 4 1 Y Masonry/Steel Roof
Indian Harbor-Beach 1985 64,990 Y 90% 4.0 729 15 1 N Masonry Wall/Metal Roof
Hollywood-Sheridan 1988 129,178 N 89% 7.0 1,168 21 1 Y Masonry Wall/Concrete Roof
Pompano Beach-Atlantic 1985 74,644 N 83% 4.0 976 17 1 N Masonry Wall/Concrete Roof
Pompano Beach-Sample 1988 63,548 N 88% 3.6 837 14 1 N Masonry Wall/Metal Roof
Boca Raton-18th St 1991 90,395 N 83% 6.2 1,094 8 1 N Masonry Wall/Metal Roof
Vero Beach 1997 34,450 Y 97% 1.9 309 2 1 N Masonry Wall/Metal Roof
Hollywood-N.21st 1987 58,612 N 90% 3.1 742 11 1 Y Masonry Wall/Metal Roof
Georgia
Savannah 1981 59,530 Y 89% 5.4 500 11 1 Y Masonry Wall/Steel Roof
Atlanta-Metro I 1988 69,585 Y 81% 3.9 532 5 1 Y Steel Bldg./Steel Roof
Atlanta-Metro II 1988 45,300 Y 79% 3.9 375 6 1 Y Steel Bldg./Steel Roof
Atlanta-Metro III 1988 57,625 Y 82% 5.3 478 9 1 Y Steel Bldg./Steel Roof
Atlanta-Metro IV 1989 42,105 Y 95% 3.5 299 7 1 Y Steel Bldg./Steel Roof
Atlanta-Metro V 1988 44,945 Y 91% 4.2 318 3 1 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VI 1986 50,900 Y 77% 3.6 455 7 1 Y Steel Bldg./Steel Roof
Atlanta-Metro VII 1981 38,950 Y 85% 2.5 326 9 2 Y Masonry Wall/Tar & Gravel Roof
Atlanta-Metro VIII 1975 47,321 Y 83% 3.3 459 6 2 Y Masonry Wall/Tar & Gravel Roof
Augusta I 1988 52,360 Y 81% 4.0 409 13 1 Y Steel Bldg./Steel Roof
Macon I 1989 40,700 Y 86% 3.2 353 14 1 Y Steel Bldg./Steel Roof
Augusta II 1987 46,280 Y 86% 3.5 372 4 1 Y Masonry Wall/Steel Roof
Atlanta-Metro IX 1988 56,346 Y 81% 4.6 412 6 1 Y Steel Bldg./Steel Roof
Atlanta-Metro X 1988 47,505 Y 91% 6.8 399 9 1 N Steel Bldg./Steel Roof
Macon II 1989/94 58,915 Y 92% 14.0 540 11 1 Y Steel Bldg./Steel Roof
Savannah II 1988 49,365 Y 90% 2.6 463 8 1 Y Masonry Wall/Steel Roof
Atlanta-Alpharetta 1994 81,405 Y 79% 5.8 573 8 1&2 Y Steel Bldg./Steel Roof
Atlanta-Marietta 1996 59,450 Y 93% 6.0 451 8 1&2 Y Steel Bldg./Steel Roof
Atlanta-Doraville 1995 68,465 Y 93% 4.9 636 8 1&2 Y St&Masonry Bldg/Steel Roof
Ft. Oglethorpe 1989 45,185 Y 84% 3.3 447 6 1 Y Masonry Wall/Metal Roof
Louisiana
Baton Rouge-1 1982 72,370 Y 88% 2.5 414 12 1 Y Masonry Wall/Metal Roof
Baton Rouge-2 1985 45,185 Y 86% 2.8 444 9 1 N Masonry Wall/Steel Roof
Maryland
Salisbury 1979 33,700 Y 81% 3.0 416 10 1 N Masonry Wall/Tar & Gravel Roof
Baltimore I 1984 21,233 Y 80% 1.9 347 2 3 N Masonry Wall/Shingled Roof
Baltimore II 1988 55,694 Y 97% 2.2 498 2 4 Y Masonry Wall/Tar & Gravel Roof
Baltimore III 1990 51,838 Y 91% 3.1 674 8 1 Y Steel Bldg./Steel Roof
Massachusetts
New Bedford 1982 42,068 Y 98% 3.4 374 7 1 Y Steel Bldg./Steel Roof
Springfield 1986 42,127 Y 88% 4.7 321 5 1 N Masonry Wall/Shingle Roof
Northbridge 1988 50,350 N 93% 3.5 358 10 1 N Metal Wall/Metal Roof
Salem 1979 53,405 N 88% 2.0 499 2 2 Y Steel Wall/Metal Roof
Boston-Metro I 1980 37,825 Y 97% 2.0 402 3 2 N Masonry Wall/Tar & Gravel Roof
Boston-Metro II 1986 38,175 Y 98% 3.6 428 8 2 N Masonry Wall/Tar & Gravel Roof
Michigan
Grand Rapids 1976 57,900 Y 89% 5.4 526 9 1 Y Masonry Wall/Steel Roof
Grand Rapids II 1983 32,300 Y 89% 8.0 296 6 1 N Masonry & Steel Walls
Kalamazoo 1978 60,218 Y 82% 11.6 674 14 1 Y Steel Bldg/Steel & Shingle Roof
Lansing 1987 44,945 Y 88% 3.8 411 9 1 Y Steel Bldg/Steel Roof
Holland 1978 96,208 Y 86% 13.6 722 18 1 Y Masonry Wall/Steel Roof
Waterford-Highland 1978 137,320 N 83% 16.6 1,719 16 1 Y Masonry Wall/Metal Roof
Mississippi
Jackson I 1990 42,010 Y 91% 2.0 344 6 1 Y Masonry/Steel Roof
Jackson II 1990 38,815 Y 96% 2.1 310 9 1 Y Masonry/Steel Roof
Jackson III-I55 1995 62,048 N 98% 1.3 426 2 1 N Metal Wall/Metal Roof
Jackson-N.West 1984 57,275 N 90% 5.2 473 13 1 Y Masonry Wall/Metal Roof
New Hampshire
Salem-Policy 1980 62,825 N 99% 8.7 547 9 1 Y Masonry Wall/Metal Roof
New York
Middletown 1988 26,000 Y 97% 2.8 283 4 1 N Steel Bldg./Steel Roof
Buffalo I 1981 76,320 Y 85% 5.1 545 10 1 Y Steel Bldg./Steel Roof
Rochester I 1981 41,834 Y 69% 2.9 407 5 1 Y Steel Bldg./Steel Roof
Rochester II 1980 29,820 Y 93% 3.5 249 9 1 N Masonry Wall/Shingle Roof
Buffalo II 1984 54,545 Y 86% 6.2 435 12 1 Y Steel Bldg./Steel Roof
Syracuse l 1987 73,320 Y 84% 7.5 767 16 1 N Steel Bldg./Steel Roof
Syracuse II 1983 54,590 Y 88% 3.6 422 10 1 Y Steel Bldg./Shingled Roof
Rochester III 1990 67,865 Y 93% 2.7 462 1 1 N Masonry Wall/Shingle Roof
Harriman 1989/95 66,210 N 88% 6.1 643 10 1 Y Metal Wall/Metal Roof
North Carolina
Charlotte 1986 37,815 Y 81% 2.9 333 6 1 Y Steel Bldg./Steel Roof
Fayetteville 1980 91,950 Y 66% 6.2 1,060 12 1 Y Steel Bldg./Steel Roof
Greensboro 1986 45,230 Y 76% 3.4 422 5 1 Y Steel Bldg./Mas. Wall/Steel Roof
Raleigh I 1985 58,490 Y 86% 5.0 544 8 2 Y Steel Bldg./Steel Roof
Raleigh II 1985 33,215 Y 75% 2.5 328 8 1 Y Steel Bldg./Steel Roof
Charlotte II 1995 48,950 Y 54% 5.6 486 7 1 Y MasonryWall/Steel Roof
Charlotte III 1995 31,320 Y 84% 2.9 333 6 1 Y MasonryWall/Steel Roof
Greensboro1 1995 32,198 Y 86% 1.0 313 7 1 N Metal Wall/Metal Roof
Greensboro2 1997 9,625 Y 89% 2.5 91 2 1 N Metal Wall/Metal Roof
Greensboro-High Point 1993 58,585 Y 68% 2.5 537 9 1 N Steel wall/Metal Roof
Durham-Hillborough 1988/91 67,231 Y 78% 5.0 619 5 1 Y Metal Wall/Metal Roof
Durham-Cornwallis 1990/96 78,980 N 78% 4.7 668 9 1 Y Masonry Wall/Metal Roof
Jacksonville-Center 1995 50,635 N 78% 5.0 484 11 1 Y Metal Wall/Metal Roof
Jacksonville-Gum Branch 1989 63,300 N 78% 5.0 505 14 1 T Metal Wall/Metal Roof
Jacksonville-N. Marine 1985 43,220 N 78% 8.4 476 6 1 Y Masonry Wall/Shingle Roof
Ohio
Youngstown 1980 54,510 Y 86% 5.8 371 5 1 Y Steel Bldg./Steel Roof
Cleveland- I 1980 48,840 Y 86% 6.4 347 9 1 Y Steel Bldg./Steel Roof
Cleveland II 1987 60,890 Y 93% 4.8 453 4 1 Y Steel Bldg./Steel Roof
Cincinnati 1988 48,615 Y 96% 2.8 496 7 1 Y Masonry Wall/Steel Roof
Dayton 1988 62,602 Y 87% 3.6 615 8 1 Y Masonry Wall/Steel Roof
Youngstown II 1988 55,700 Y 82% 3.9 499 7 1 N Masonry Wall/Steel Roof
Akron 1990 38,320 Y 93% 3.4 296 12 1 Y Masonry Wall/Steel Roof
Cleveland III 1986 68,100 Y 87% 3.4 599 12 1 Y Masonry Wall/Steel Roof
Cleveland IV 1978 66,520 Y 89% 3.5 622 5 1 Y Masonry Wall/Steel Roof
Cleveland V 1979 75,132 Y 89% 3.1 664 9 1&2 Y Masonry Wall/Rolled Roof
Cleveland VI 1979 47,165 Y 95% 2.6 377 8 1 Y Masonry Wall/Concrete Roof
Cleveland VII 1977 70,140 Y 94% 4.3 610 13 1 Y Masonry Wall/Steel Roof
Cleveland VIII 1970 48,025 Y 83% 5.7 477 6 1 Y Masonry Wall/Steel Roof
Cleveland IX 1982 54,690 Y 83% 4.4 296 5 1 Y Masonry Wall/Steel Roof
Cleveland X 1989 47,400 Y 80% 5.8 382 6 1 N Metal Wall/Metal Roof
Warren-Elm 1986 60,230 N 90% 7.3 498 8 1 Y Masonry Wall/Metal Roof
Warren-Youngstown 1986 59,031 N 86% 5.0 545 11 1 N Masonry Wall/Metal Roof
Batavia 1988 62,340 N 82% 5.5 548 9 1 N Metal Wall/Steel Roof
Pennsylvania
Allentown 1983 30,600 Y 98% 6.3 277 7 1 Y Masonry Wall/Shingle Roof
Sharon 1975 38,270 Y 95% 3.0 313 5 1 Y Steel Bldg./Steel Roof
Harrisburg I 1983 48,850 Y 97% 4.1 452 9 1 Y Masonry Wall/Steel Roof
Harrisburg II 1985 58,865 Y 88% 9.2 296 10 1 Y Masonry Wall/Steel Roof
Pittsburgh 1990 57,825 Y 93% 3.4 510 6 1 Y Steel Bldg./Steel Roof
Pittsburgh II 1983 100,860 Y 85% 4.8 706 4 2 Y Masonry Wall/Shingled Roof
Harrisburg 111 1984 63,770 Y 92% 4.1 615 9 1 Y Masonry Wall/Metal Roof
Rhode Island
East Greenwich 1984/88 72,945 Y 88% 4.9 675 9 1 Y Metal Wall/Metal Roof
Providence 1984 38,700 Y 96% 3.7 389 7 1 Y Masonry Wall/Tar & Gravel Roof
South Carolina
Charleston I 1985 49,719 Y 97% 3.3 408 11 1 Y Steel Bldg./Mas. Wall/Steel Roof
Columbia I 1985 47,650 Y 83% 3.3 394 7 1 Y Steel Bldg./Steel Roof
Columbia II 1987 58,830 Y 89% 6.0 464 8 1 N Steel Bldg./Steel Roof
Columbia III 1989 41,540 Y 77% 3.5 334 5 2 Y Steel Bldg./Steel Roof
Columbia IV 1986 57,680 Y 83% 5.6 446 7 1 Y Steel Bldg./Steel Roof
Spartanburg 1989 40,420 Y 76% 3.6 349 6 1 Y Steel Bldg./Steel Roof
Charleston II 1985 40,318 Y 99% 2.2 329 10 1 Y Masonry Wall/Steel Roof
Tennessee
Hixson 1985 42,250 N 83% 2.7 346 3 1 Y Masonry Wall/Metal Roof
Chattanooga-Lee Hwy 1987 37,260 Y 79% 3.3 390 6 1 Y Masonry Wall/Metal Roof
Chattanooga-Hwy 58 1985 35,565 N 80% 2.4 325 4 1 Y Masonry Wall/Metal Roof
Hendersonville 1986/97 94,065 N 76% 5.7 653 16 1 Y Masonry Wall/Metal Roof
Texas
Arlington I 1987 45,965 Y 87% 2.3 384 7 1 Y Masonry Wall/Steel Roof
Arlington II 1986 67,130 Y 76% 3.8 317 11 1 Y Masonry Wall/Steel Roof
Ft. Worth 1986 40,875 Y 98% 2.4 341 3 1 Y Masonry Wall/Asphalt Roof
San Antonio I 1986 49,920 Y 88% 3.9 486 12 1 Y Masonry Wall/Steel Roof
San Antonio II 1986 40,050 Y 95% 1.9 284 7 1 Y Masonry Wall/Steel Roof
San Antonio lll 1981 48,782 Y 91% 2.6 495 5 1 Y Masonry Wall/Steel Roof
Universal 1985 35,120 Y 96% 2.4 402 8 1 Y Masonry Wall/Steel Roof
San Antonio IV 1995 44,560 Y 98% 5.4 415 11 1 Y Steel Bldg/Steel Roof
Houston1 1993/95 70,060 Y 87% 6.4 564 5 1 Y Metal Wall/Steel Roof
Houston-2 1995 61,571 Y 98% 6.3 534 1 1 Y Metal Wall/Steel Roof
Houston 3 1995 35,600 Y 99% 1.8 316 1 1 Y Metal Wall/Steel Roof
Dallas-Skillman 1975 121,647 Y 78% 5.9 1,111 8 1&2 Y Masonry Wall/Steel Roof
Dallas-Cent. 1977 103,933 Y 88% 6.7 1,107 8 1&2 Y Masonry Wall/Steel Roof
Dallas-Samuell 1975 79,046 Y 93% 3.8 794 6 1&2 Y Masonry Wall/Steel Roof
Dallas-Hargrove 1975 71,914 Y 88% 3.1 747 5 1&2 Y Masonry Wall/Steel Roof
Houston-4 1984 75,470 Y 92% 4.1 671 9 1 Y Metal Wall/Metal Roof
Katy 1994 44,120 Y 90% 8.6 441 10 1 Y Metal Wall/Metal Roof
Humble 1986 63,854 Y 92% 2.3 614 6 1 Y Masonry Wall/Metal Roof
Houston-Old Katy 1996 52,800 Y 96% 3.0 491 19 1 Y Masonry Wall/Shingle Roof
Webster-Hwy 3 1997 54,850 N 82% 3.3 536 6 1 Y Masonry Wall/Metal Roof
Carrollton 1997 51,760 N 85% 3.2 499 5 1 Y Masonry Wall/Metal Roof
San Marcos 1994 61,135 N 86% 5.0 425 18 1 N Metal Wall/Metal Roof
Austin-McNeil 1994 72,490 N 76% 7.0 556 19 1 Y Metal Wall/Metal Roof
Austin-FM 1996 60,210 N 89% 4.9 404 9 1 Y Metal Wall/Metal Roof
Euless 1996 93,120 N 53% 7.5 499 9 1 Y Metal Wall/Metal Roof
N. Richland Hills 1996 76,545 N 73% 7.4 549 11 1 Y Metal Wall/Metal Roof
Katy-Franz 1993 67,285 Y 87% 7.2 535 10 1 Y Metal Wall/Metal Roof
Virginia
Newport News I 1988 50,100 Y 92% 3.2 451 7 1 Y Steel Bldg./Steel Roof
Alexandria 1984 76,334 Y 85% 3.2 1,129 4 2 Y Masonry Wall/Tar & Gravel Roof
Norfolk I 1984 50,950 Y 87% 2.7 338 7 1 Y Steel Bldg./Steel Roof
Norfolk II 1989 45,375 Y 92% 2.1 362 4 1 Y Masonry Wall/Steel Roof
Richmond 1987 52,070 Y 85% 2.7 526 5 1 Y Masonry Wall/Steel Roof
Newport News II 1988/93 63,675 Y 91% 4.7 400 8 1 Y Steel Bldg./Steel Roof
Lynchburg1 1982 47,321 Y 86% 5.3 430 10 1 Y Masonry Wall/Steel Roof
Lynchburg-2 1985 45,450 Y 64% 2.3 380 4 1 Y Masonry Wall/Steel Roof
Lynchburg 3 1987 24,000 Y 89% 1.5 183 3 1 N Masonry Wall/Metal Roof
Christiansburg 1985/90 37,823 Y 83% 3.2 331 6 1 Y Masonry Wall/Metal Roof
Chesapeake 1988/95 36,000 Y 80% 12.0 321 7 1 Y Metal Wall/Steel Roof
Danville 1988 49,672 Y 80% 3.2 408 8 1 N Steel Wall/Metal Roof
Chesapeake-Military 1996 58,435 Y 58% 3.0 592 3 1 N Masonry Wall/Metal Roof
Chesapeake-Volvo 1995 63,250 N 76% 4.0 535 4 1 N Masonry Wall/Metal Roof
Virginia Beach-Shell 1991 52,571 N 79% 2.5 586 5 1 N Masonry Wall/Metal Roof
Virginia Beach-Central 1993/95 96,702 N 64% 5.0 981 6 1 N Masonry Wall/Metal Roof
NorfolK-Naval Base 1975 125,640 N 60% 5.2 1,254 11 1 N Masonry Wall/Metal Roof
Lynchburg-Timberlake 1990/96 49,447 Y 81% 5.2 461 7 1 N Masonry Wall/Metal Roof
Total for all Properties 11,568,035 909 103,344 1,705
Weighted Average 86%
ITEM 3. LEGAL PROCEEDINGS
A former business associate (Plaintiff) of certain officers
and directors of the Company, including Robert J. Attea, Kenneth
F. Myszka, David L. Rogers and Charles E. Lannon, filed a lawsuit
against the Company on June 13, 1995 in the United States
District Court for the Northern District of Ohio. The Plaintiff
has since amended the complaint in the lawsuit alleging breach of
fiduciary duty, breach of contract, breach of general
partnership/joint venture arrangement, breach of duty of good
faith, fraud and deceit, and other causes of action including
declaratory judgement as to the Plaintiff's continuing interest
in the Company. The Plaintiff is seeking money damages in excess
of $15 million, as well as punitive damages and declaratory and
injunctive relief (including the imposition of a constructive
trust on assets of the Company in which the Plaintiff claims to
have a continuing interest) and an accounting. The amended
complaint also added Messrs. Attea, Myszka, Rogers and Lannon as
additional defendants. The parties are currently involved in
discovery. The Company intends to vigorously defend the lawsuit.
Messrs. Attea, Myszka, Rogers and Lannon have agreed to indemnify
the Company for costs and any loss arising from the lawsuit. The
Operating Partnership believes that the actual amount of the
Plaintiff's recovery in this matter if any, would be within the
ability of these individuals to provide indemnification. The
Operating Partnership does not believe that the lawsuit will have
a material, adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders,
through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Units.
As of March 25, 1999, there were 18 holders of record of Units.
The following table sets forth the quarterly distributions
per Unit paid by the Operating Partnership to holders of its
Units with respect to each such period.
Quarter Ended Distributions Per Unit
March 31, 1996 .505
June 30, 1996 .505
September 30, 1996 .520
December 31, 1996 .520
March 31, 1997 .520
June 30, 1997 .520
September 30, 1997 .540
December 31, 1997 .540
March 31, 1998 .540
June 30, 1998 .540
September 30, 1998 .560
December 31, 1998 .560
The partnership agreement of the Operating Partnership (the
"Partnership Agreement") provides that the Operating Partnership
will distribute all available cash (as defined in the Partnership
Agreement) on at least a quarterly basis, in amounts determined
by the general partner in its sole discretion, to the partners in
accordance with their respective percentage interest in the
Operating Partnership. Distributions are declared at the
discretion of the Board of Directors of Holdings, the general
partner of the Operating Partnership and a wholly-owned
subsidiary of the Company, and will depend on actual funds from
operations of the Operating Partnership, its financial condition,
capital requirements, the annual distribution requirements under
the REIT provisions of the Internal Revenue Code of 1986, as
amended, and such other factors as the Board of Directors may
deem relevant. The Board of Directors of Holdings may modify the
Operating Partnership's distribution policy from time to time,
subject to the terms of the Partnership Agreement.
The Operating Partnership's line of credit contains
customary representations, covenants and events of default,
including covenants which restrict the ability of the Operating
Partnership to make distributions in excess of stated amounts.
In general, during any four consecutive fiscal quarters the
Operating Partnership may only distribute up to 90% of the
Operating Partnership's funds from operations (as defined in the
related agreement). The line of credit contains exceptions to
these limitations to allow the Operating Partnership to make any
distributions necessary to allow the Company to maintain its
status as a REIT. The Operating Partnership does not anticipate
that this provision will adversely effect the ability of the
Operating Partnership to make distributions, as currently
anticipated.
ITEM 6. SELECTED FINANCIAL DATA
Operating Partnership Predecessor (a)
For Period For Period At or for
from from Year Ended
At or for Year Ended December 31, 6/26/95 to 1/1/95 to December 31,
(Dollars in thousands, 1998 1997 1996 12/31/95 6/25/95 1994
except per Unit data)
_____________________________________________________________________________
Operating Data:
Operating revenues $ 69,360 $49,354 $33,597 $12,942 $ 9,532 $18,530
Income before extraordinary
item 25,155 23,763 15,682 6,744 311 1,836
Net income 24,798 23,763 15,682 6,744 311 1,836
Net income per Unit before
Extraordinary item-basic 1.94 1.97 1.88 0.91 - -
Net income per Unit-
Basic 1.91 1.97 1.88 0.91 - -
Net income per Unit-
diluted 1.91 1.96 1.87 0.91 - -
Distributions declared
per Unit 2.20 2.12 2.05 1.04 - -
Balance Sheet Data:
Investment in storage
facilities at cost $502,502 $333,036 $220,711 $ 159,461 $114,008 $91,889
Total Assets 490,124 327,073 235,415 160,437 84,527 82,733
Total Debt 190,059 39,559 - 5,000 69,102 66,340
Total Liabilities 203,439 50,319 8,131 10,697 71,311 69,014
Limited partners' capital
interest 21,683 14,454 4,435 - - -
Partners' capital 265,002 262,300 222,849 149,740 13,216 13,719
Other Data:
Net cash provided by
operating activities $34,151 $31,159 $20,152 $7,188 $2,003 $5,428
Net cash used in
investing activities (153,367) (98,765) (58,760) (157,965) (3,340) (6,609)
Net cash provided by
financing activities 119,633 53,486 54,563 151,509 507 1,030
Funds from operations(b) 35,762 30,294 19,816 8,036 - -
(a) The Operating Partnership began operations on June 26, 1995, and had no historical results of operations before that
date. Results of operations prior to June 26, 1995 relate to Sovran Capital, Inc. and the Sovran Partnerships (Company
Predecessors).
(b) Funds from operations ("FFO") means income (loss) before extraordinary item(computed in accordance with GAAP) plus
(i)depreciation of real estate assets and amortization of intangible assets exclusive of deferred financing costs and
(ii)significant non-recurring events (unsuccessful debt offering costs in 1998). FFO is a supplemental performance
measure for REITs as defined by the National Association of Real Estate Investment Trusts, Inc. FFO is presented because
analysts consider FFO to be one measure of the performance of the Operating Partnership. FFO does not take into
consideration scheduled principal payments on debt, capital improvements and other obligations. Accordingly, FFO is not
a substitute for the Operating Partnership's cash flow or net income as a measure of the Operating Partnership liquidity
or operating performance or ability to pay distributions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of the financial
condition and results of operations should be read in conjunction
with the financial statements and notes thereto included
elsewhere in this report.
When used in this discussion and elsewhere in this document,
the words "intends," "believes," "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 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 Operating
Partnership 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 Operating Partnership's ability to evaluate,
finance and integrate acquired businesses into its existing
business and operations; the Operating Partnership's ability to
effectively compete in the industries in which it does business;
the Operating Partnership's cash flow may be insufficient to meet
required payments of principal and interest; and tax law changes
which may change the taxability of future income.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 compared to Year Ended December 31,
1997
In 1998, the Operating Partnership recorded rental revenues
of $68.2 million, an increase of $19.6 million or 40% when
compared to 1997 rental revenues of $48.6 million. Of this, $18.4
million resulted from the acquisition of fifty stores during 1998
and from having the 1997 acquisitions included for a full year of
operations. The additional $1.2 million increase resulted from
increased revenues at the 111 core properties considered in same
store sales. For this core group, revenues increased 3.8%,
primarily as the result of rental rate increases which were
slightly offset by an average occupancy decrease of 1% to 86.4%.
Interest and other income increased to $1.1 million in 1998 from
$.8 million in 1997.
Property operating and real estate tax expense increased
$5.8 million or 42% during the period. Of this, $5.5 million was
incurred by the facilities acquired in 1998 and from having the
1997 acquisitions included for a full year of operations, and
$0.3 million additional cost was incurred in the operation of the
111 core properties.
General and administrative expenses increased $2.1 million
in 1998. Of the increase, $.5 million related to the costs
associated with the unsuccessful public debt offering costs in
1998. The additional increase was primarily a result of
increased supervisory and accounting costs associated with the
operation of an increased number of properties, and the change in
the treatment of internal property acquisition costs as discussed
in Note 14 to the financial statements.
In 1998, interest expense increased to $9.6 million from
$2.2 million as a result of increased borrowings under the line
of credit and term note. The credit facility and term note were
utilized throughout 1998 to fund the purchase of the fifty
stores, as opposed to 1997 in which the Operating Partnership
issued additional Units to fund a portion of the acquired stores.
Depreciation and amortization expense increased to $10.3
million from $7.0 million, primarily as a result of the
additional depreciation taken on the $170 million of real estate
assets acquired in 1998 and a full year of depreciation on 1997
acquisitions.
Earnings before interest, depreciation and amortization, and
extraordinary loss increased 36.8% from $32.9 million in 1997 to
$45.1 million in 1998 as a result of the aforementioned items.
A $.36 million extraordinary loss was recorded in 1998 when
the Operating Partnership's former unsecured credit facility was
replaced with a new line of credit with more favorable terms.
Year Ended December 31, 1997 compared to Year Ended December 31,
1996
Rental revenues improved from $32.9 million for the year
ended December 31, 1996 to $48.6 million for the year ended
December 31, 1997, an increase of $15.7 million, or 48%. Of this,
$10.4 million resulted from the acquisition of forty-four
properties during 1997, $4.3 million resulted from having the
1996 acquisitions included for a full year of operations, and $1
million resulted from increased revenues at the eighty-two core
properties considered in same store sales. For this core group,
revenues increased 3.8%, primarily as the result of rental rate
increases, as average occupancy was unchanged from 1996's level
of 87.8%. Interest and other income increased slightly to $0.8
million in 1997.
Property operating and real estate tax expense increased
$4.5 million or 49% during the period. Of this, $3.1 million was
incurred by the facilities acquired in 1997, $1.3 million
resulted from the having the 1996 acquisitions included for a
full year of operations, and $0.1 million additional cost was
incurred in the operation of the eighty-two core properties.
General and administrative expenses increased $0.5 million,
primarily as a result of increased supervisory and accounting
costs associated with the operation of an increased number of
properties.
Interest expense of $2.2 million in 1997 resulted primarily
from borrowings on the Operating Partnership's line of credit
facility (a mortgage loan assumed in an acquisition transaction
required interest payments of $0.2 million). The Operating
Partnership had borrowings outstanding of $42 million before
paying off the balance with the proceeds of the Company's common
stock offering in April 1997. The credit facility was then
utilized throughout the balance of the year to fund further
acquisitions, so that by the end of the year, the amount
outstanding on the line was $36 million.
Depreciation and amortization expense increased to $7
million from $4.6 million, primarily as a result of the
additional depreciation taken on the $112 million of real estate
assets acquired in 1997 and a full year of depreciation on 1996
acquisitions.
Earnings before interest, depreciation and amortization
increased $10.7 million or 48%, in 1997 as a result of the
aforementioned items.
Pro Forma Year Ended December 31, 1998 compared to Pro Forma Year
Ended December 31, 1997
The following unaudited pro forma information shows the
results of operations as though the acquisitions of storage
facilities in 1998 and 1997, and the Company's common stock
offerings in 1997 had all occurred as of the beginning of 1997.
Year Ended December 31,
(Dollars in thousands) 1998 1997
_________________________________________________________________
Revenues:
Rental income $75,683 $72,557
Interest and other income 1,269 1,142
_________________________________________________________________
Total revenues 76,952 73,699
_________________________________________________________________
Expenses:
Property operations and
maintenance 15,576 15,019
Real estate taxes 6,333 5,972
General and administrative 4,900 3,900
Interest 12,976 12,976
Depreciation and amortization 11,509 11,509
_________________________________________________________________
Total expenses 51,294 49,376
_________________________________________________________________
Income before extraordinary item $ 25,658 $ 24,323
Extraordinary loss on extinguishment
of debt (357) -
_________________________________________________________________
Net income $ 25,301 $ 24,323
_________________________________________________________________
Rental revenue of $76.9 million in 1998 increased by 4.4%
over 1997's revenues of $73.7 million, primarily as a result of
rate increases at the stores.
Operating expenses and real estate taxes in 1998 were $21.9
million, as compared to $20.9 million in 1997, an increase of
4.4%. While cost efficiencies were enjoyed regarding insurance
and yellow-page advertising, these savings were offset by the
Operating Partnership's paying higher wages to attract
professional managers, and increased property taxes.
General and administrative costs were determined by the
Operating Partnership's historical costs incurred in the
management of 205 properties.
Interest expense in both years was determined by applying
the year-end rate and the applicable non-usage fee associated
with the Operating Partnership's $150 million credit facility and
$75 million term note.
Such unaudited pro forma information is based upon the
historical statements of operations of the Operating Partnership.
It should be read in conjunction with the financial statements of
the Operating Partnership and notes thereto. In management's
opinion, all adjustments necessary to reflect the effects of
these transactions have been made. This unaudited pro forma
statement does not purport to represent what the actual results
of operations of the Operating Partnership would have been
assuming such transactions had been completed as set forth above,
nor does it purport to represent the results of operations for
future periods.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources, Unsecured Line of Credit and Term Note
Prior to 1998, the Operating Partnership relied principally
on equity capital, using the proceeds of the offerings to repay
indebtedness, to purchase additional properties, and to acquire
limited partners' interests in the Sovran Partnerships.
The equity offerings have been supplemented with borrowings
on the Operating Partnership's line of credit which was replaced
on February 20, 1998, by a three-year, $150 million unsecured
line. The commitment fee on the new line was $750,000, and
interest is payable monthly at 125 basis points above LIBOR. The
use of the unsecured line of credit has allowed 99% of the
Operating Partnership's portfolio to be unsecured as of December
31, 1998. The available balance on the unsecured credit line at
December 31, 1998 was $38 million.
In 1998, the Operating Partnership secured investment grade
ratings from Standard and Poors (BBB-), Moodys (Baa3), and Duff
and Phelps (BBB-). This provided for reduced borrowing costs
(12.5 basis points) under the unsecured line of credit
instrument.
In 1998, the Operating Partnership attempted to enter the
public debt markets with the issuance of senior notes. The note
offerings were not executed as management determined market
conditions required payment of unfavorable interest rates. The
Operating Partnership opted instead to enter a $75 million two-
year unsecured term note with a syndicate of banks at an interest
rate of LIBOR plus 1.50%. The proceeds were used to repay a
short-term note and to pay down a portion of the unsecured line
of credit.
In addition to the equity and debt capital, the Operating
Partnership issued $11.4 million and $9.2 million of Operating
Partnership Units in 1998 and 1997, respectively, in exchange for
self-storage facilities.
In 1998, the Company repurchased $2 million of Common Stock
as part of a program authorized by the Board of Directors.
Acquisition of Properties
During 1998 the Operating Partnership used borrowings
pursuant to the line of credit and term note and the issuance of
Operating Partnership Units to acquire 50 properties comprising
3.2 million square feet from unaffiliated storage operators.
These properties are located in existing markets in Alabama,
Florida, Georgia, Massachusetts, Michigan, Mississippi, New York,
North Carolina, Ohio, Rhode Island, Texas, and Virginia. The
Operating Partnership also entered two new states, New Hampshire
and Tennessee during 1998. In 1997, forty-four facilities
totaling 2.5 million square feet were acquired. At December
31,1998, a total of 205 facilities and 11.6 million square feet
of net rentable storage space was owned and operated by the
Operating Partnership in 19 states.
Internal Property Acquisition Costs
As a result of a recent consensus reached by the Financial
Accounting Standards Board Emerging Issues Task Force, the
Operating Partnership no longer capitalizes internal costs
related to the acquisition of operating properties. The amount of
such costs capitalized in 1998 (through the effective date of the
pronouncement) and 1997 was $238,000 and $728,000, respectively.
Future Acquisition and Development Plans
The Operating Partnership's external growth strategy is to
increase the number of facilities it owns by acquiring suitable
facilities in markets in which it already has operations, or to
expand in new markets by acquiring several facilities at once in
those new markets.
At December 31, 1998, the Operating Partnership had
contracts totaling of $15.3 million to acquire additional
properties in Providence, RI and Lafayette, LA.
The Operating Partnership will continue to aggressively
pursue the acquisition of quality self-storage properties in
markets where it already operates, and in strategic new markets
where a substantial property base can be quickly established.
The Operating Partnership also intends to expand and enhance
certain of its existing facilities by building additional storage
buildings on presently vacant land and by installing climate
control and enhanced security systems at selected sites.
Distribution Requirements of the Company and Impact on the
Operating Partnership
As a REIT, the Company is not required to pay federal income
tax on income that it distributes to its shareholders, provided
that the amount distributed is equal to at least 95% of taxable
income. These distributions must be made in the year to which
they relate, or in the following year if declared before the
Company files its federal income tax return, and if it is paid
before the first regular dividend of the following year. The
first distribution of 1999 may be applied toward the Company's
1998 distribution requirement. The Company's source of funds for
such distributions are solely and directly from the Operating
Partnership.
As a REIT, the Company must derive at least 95% of its total
gross income from income related to real property, interest and
dividends. In 1998, the Company's percentage of revenue from such
sources exceeded 97%, thereby passing the 95% test, and no
special measures are expected to be required to enable the
Company to maintain its REIT designation.
INTEREST RATE RISK
The Operating Partnership entered into interest rate swap
agreements to manage its exposure to interest rate changes. The
swaps involve the exchange of fixed and variable interest rate
payments without exchanging the notional principal amount.
Payments or receipts on the agreements are recorded monthly as
adjustments to interest expense. At December 31, 1998, the
Operating Partnership had interest rate swaps with notional
amounts of $40 million through June 1999 and $55 million through
December 1999. Under these agreements the Operating Partnership
receives a floating interest rate based upon LIBOR and pays a
fixed interest rate of 5.78% on the $40 million amount and 5.12%
on the $55 million amount.
Based upon the Operating Partnership's indebtedness at
December 31, 1998, and taking the interest rate swap agreements
into account, a 1% increase in interest rates would result in an
increase to interest expense of approximately $1.3 million.
INFLATION
The Operating Partnership does not believe that inflation
has had or will have a direct effect on its operations.
Substantially all of the leases at the facilities allow for
monthly rent increases, which provide the Operating Partnership
with the opportunity to achieve increases in rental income as
each lease matures.
SEASONALITY
The Operating Partnership's revenues typically have been
higher in the third and fourth quarter, primarily because the
Operating Partnership increases its rental rates on most of its
storage units at the beginning of May and, to a lesser extent,
because self-storage facilities tend to experience greater
occupancy during the late spring, summer and early fall months
due to the greater incidence of residential moves during these
periods. However, the Operating Partnership believes that its
tenant mix, diverse geographic locations, rental structure and
expense structure provide adequate protection against undue
fluctuations in cash flows and net revenues during off-peak
seasons. Thus, the Operating Partnership does not expect
seasonality to affect materially distributions to unitholders.
IMPACT OF YEAR 2000
The Operating Partnership employs several different computer
systems for financial reporting, property management, asset
control and payroll. These systems are purchased by the
Operating Partnership from third parties and therefore there is
no internally generated programming code. The Operating
Partnership has been assessing and testing its systems to
determine if its hardware and software will function properly
with respect to dates in the Year 2000 and thereafter, and no
significant problems were noted. The Operating Partnership's
critical applications relating to financial reporting, property
management and asset control have been updated to Year 2000
compliant versions within the last year as part of the normal
maintenance agreements.
The Operating Partnership communicates electronically with
certain outside vendors in the banking and payroll processing
areas. The Operating Partnership has been advised by these
vendors that their systems are or will be Year 2000 compliant.
The Operating Partnership has identified and evaluated certain
other systems that may be impacted by the Year 2000, such as
gates, security systems and elevators. The Operating Partnership
expects the implementation of any required solutions to be
completed by December 31, 1999, and the cost to be less than
$50,000. The Operating Partnership is not aware of any other
vendors or suppliers for which the Year 2000 would materially
impact the Operating Partnership's business. The Operating
Partnership has no means of ensuring that outside companies will
be Year 2000 compliant, and there can be no assurance that the
Operating Partnership has identified all such companies.
The Operating Partnership will continue to address the Year
2000 throughout 1999 and has developed a contingency plan if the
implementations are not completed timely. Under a worst case
scenario, the Operating Partnership will have the ability to
revert to a manual system to operate its self-storage stores if
any issues with the Year 2000 are encountered. Despite the
approach being taken to prevent a Year 2000 problem, the
operating Partnership cannot be completely sure that issues will
not arise, or events will not occur that could have material
adverse affects on the Operating Partnership's results of
operations or financial condition.
Year 2000 costs and the date on which the Operating
Partnership believes that it will be Year 2000 compliant are
based upon management's best estimates that were derived
utilizing numerous assumptions of future events. There can be no
assurance that these estimates are achievable and actual results
could differ materially from estimates.
UNITHOLDER INFORMATION
CORPORATE HEADQUARTERS
5166 Main Street
Williamsville, New York 14221
716-633-1850
SOVRAN'S WEBSITE
http://www.sovranss.com
http://www.unclebobsselfstorage.com
FORM 10-K REPORT
A copy of the Operating Partnership's Annual Report on Form 10-K
for the year ended December 31, 1998, filed with the Securities
Exchange Commission, will be furnished to unitholders without
charge upon written request.
Please contact Christine M. Aguglia, 716-633-1850
INVESTOR RELATIONS
For more information or to receive Sovran's quarterly reports,
please contact Joan M. Light, 716-633-1850
INDEPENDENT AUDITORS
Ernst & Young LLP
1400 Key Tower
Buffalo, New York 14202
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required is included in Item 7 under the
heading Interest Rate Risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Balance Sheets - Sovran Acquisition Limited Partnership
December 31,
(Dollars in thousands) 1998 1997
____ ____
Assets
Investment in storage facilities:
Land $102,864 $ 71,391
Building and equipment 399,638 261,645
_______ _______
502,502 333,036
Less accumulated depreciation (21,339) (11,639)
_______ _______
Investments in storage facilities, net 481,163 321,397
Cash and cash equivalents 2,984 2,567
Accounts receivable 1,699 834
Prepaid expenses and other assets 4,278 2,275
_______ _______
Total Assets $490,124 $327,073
======== ========
Liabilities
Line of credit $112,000 $ 36,000
Term note 75,000 -
Accounts payable and accrued
liabilities 3,059 1,950
Deferred revenue 2,943 1,994
Accrued distributions 7,378 6,816
Mortgage payable 3,059 3,559
_______ _______
Total Liabilities 203,439 50,319
Limited partners' capital interest (863,037
and 443,609 units, respectively), at
redemption value (Note 1) 21,683 14,454
Partners' Capital
General partner (219,567 and
units issued and outstanding,
in 1998 and 1997) 5,284 5,257
Limited partner (12,093,439 and
12,001,554 units issued and
outstanding, respectively) 259,718 257,043
_______ _______
Total partners' capital 265,002 262,300
_______ _______
Total liabilities and
partners' capital $490,124 327,073
======== ========
(See notes to financial statements.)
Sovran Acquisition Limited Partnership
Statements of Operations
Operating Partnership
__________________________________________
Year Ended Year Ended Year Ended
Dollars in thousands, December 31, December 31, December 31,
except per unit data) 1998 1997 1996
__________________________________________
Revenues:
Rental income $68,231 $48,584 $32,946
Interest and other income 1,129 770 651
_______ _______ _______
Total revenues 69,360 49,354 33,597
Expenses:
Property operations and
maintenance 13,793 9,708 6,662
Real estate taxes 5,659 3,955 2,464
General and administrative 4,849 2,757 2,282
Interest 9,601 2,166 1,924
Depreciation and
amortization 10,303 7,005 4,583
_______ _______ _______
Total expenses 44,205 25,591 17,915
_______ _______ _______
Income before
extraordinary item 25,155 23,763 15,682
Extaordinary loss on
extinguishment of debt (357) - -
_______ _______ _______
Net income $24,798 $23,763 $15,682
======= ======= =======
Earnings per unit
before extraordinary
item-basic $ 1.94 $ 1.97 $ 1.88
Extraordinary loss $ (0.03) $ - $ -
Earnings per unit-basic $ 1.91 $ 1.97 $ 1.88
Earnings per unit-diluted $ 1.91 $ 1.96 $ 1.87
Distributions declared
per unit $ 2.20 $ 2.12 $ 2.05
(See notes to financial statements.)
Sovran Acquisition Limited Partnership (the Operating Partnership)
Statements of Partners' Capital
Sovran Sovran Self Total
Holdings, Inc. Storage Inc. Partners' Limited Partners'
(Dollars in thousands) General Partner Limited Partner Capital Capital Interest
_________________________________________________________________________________________________
Balance January 1, 1996 $1,496 $148,244 $149,740 $ -
Proceeds from issuance of
common stock 1,074 75,899 76,973 -
Issuance of redeemable units
for acquisition of storage
facilities - - - 3,659
Earned portion of restricted
stock - 12 12 -
Net income 162 15,497 15,659 23
Distributions (200) (18,555) (18,755) (27)
Adjustment to reflect limited
partners' redeemable capital
at balance sheet date (9) (771) (780) 780
________ _________ _________ ________
Balance December 31, 1996 $2,523 $220,326 $222,849 $4,435
Proceeds from issuance of
common stock 2,796 39,148 41,944 -
Issuance of redeemable units
for acquisition of storage
facilities - - - 9,240
Exercise of stock options - 328 328 -
Earned portion of restricted
stock - 13 13 -
Net income 366 22,753 23,119 644
Distributions (413) (24,708) (25,121) (697)
Adjustment to reflect limited
partners' redeemable capital
at balance sheet date (15) (817) (832) 832
________ _________ _________ ________
Balance December 31, 1997 $5,257 $257,043 $262,300 $14,454
Proceeds from issuance of
common stock 538 538 -
Issuance of redeemable units
for acquisition of storage
facilities - - - 11,367
Issuance of common stock
for acquisition of storage
facilities - 3,336 3,336 -
Exercise of stock options - 362 362 -
Earned portion of restricted
stock - 36 36 -
Purchase of treasury shares - (1,990) (1,990) -
Net income 443 23,097 23,540 1,258
Distributions (483) (26,585) (27,068) (1,448)
Adjustment to reflect limited
partners' redeemable capital
at balance sheet date 67 3,881 3,948 (3,948)
________ _________ _________ ________
Balance December 31, 1998 $5,284 $259,718 $265,002 $21,683
======== ========= ========= ========
(See notes to financial statements.)
Sovran Acquisition Limited Partnership
Statements of Cash Flows of the Operating Partnership
Year Ended December 31,
(dollars in thousands) 1998 1997 1996
_______ _______ _______
Operating Activities
Net income $24,798 $23,763 $15,682
Adjustments to reconcile net
income to net cash provided
by operating activities:
Extraordinary loss 357 - -
Depreciation and amortization 10,303 7,005 4,583
Restricted stock earned 36 13 12
Changes in assets and liabilities:
Accounts receivable (812) (162) (145)
Prepaid expenses and other assets (1,051) (283) (182)
Accounts payable and other liabilities 483 894 157
Deferred revenue 37 (71) 45
_______ _______ _______
Net cash provided by operating activities 34,151 31,159 20,152
Investing Activities
Additions to storage facilities (153,367) (98,970) (57,160)
Other assets - 205 (1,600)
_______ _______ _______
Net cash used in investing activities (153,367) (98,765) (58,760)
Financing Activities
Net proceeds from sale of common stock 900 42,273 76,973
Proceeds from (payments on) line of credit 76,000 36,000 (5,000)
Proceeds from term note 75,000 - -
Financing costs (1,824) - (386)
Distributions paid (27,953) (24,787) (17,024)
Purchase of treasury stock (1,990) - -
Mortgage principal payments (500) - -
________ _______ _______
Net cash provided by financing activities 119,633 53,486 54,563
________ _______ _______
Net increase (decrease) in cash 417 (14,120) 15,955
Cash at beginning of period 2,567 16,687 732
________ _______ _______
Cash at end of period $ 2,984 $ 2,567 $16,687
======== ======= =======
Supplemental cash flow information
Cash paid for interest $ 9,024 $ 2,238 $ 1,842
Storage facilities acquired through issuance
of Operating Partnership Units and Common Stock 14,703 9,240 3,659
Storage facilities acquired through
assumption of mortgage - 3,559 -
Fair value of net liabilities assumed on the
acquisition of storage facilities 1,458 4,144 434
Distributions declared but unpaid at December 31, 1998, 1997 and 1996 were $7,378, $6,816, and
$5,640, respectively.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
Sovran Acquisition Limited Partnership - December 31, 1998
1. ORGANIZATION
Sovran Acquisition Limited Partnership (the "Operating
Partnership") is the entity through which Sovran Self Storage,
Inc. (the "Company"), a self-administered and self-managed real
estate investment trust ("REIT"), conducts substantially all of
its business and owns substantially all of its assets. In 1995,
the Company was formed under Maryland law and the Operating
Partnership was organized as a Delaware limited partnership to
continue and to expand the self-storage operations of the
Company's privately owned predecessor organizations. On June 26,
1995, the Company commenced operations, through the Operating
Partnership, effective with the completion of its initial public
offering of 5,890,000 shares. Since its formation the Operating
Partnership has purchased a total of 131 (fifty in 1998, forty-
four in 1997, twenty-nine in 1996 and eight in 1995) self storage
properties from unaffiliated third parties, increasing the total
number of self-storage properties owned at December 31, 1998 to
205 properties, most of which are in the eastern United States
and Texas.
As of December 31, 1998, the Company was a 93.45% economic
owner of the Operating Partnership and controls it through Sovran
Holdings, Inc. ("Holdings"), a wholly owned subsidiary of the
Company incorporated in Delaware and the sole general partner of
the Operating Partnership (this structure is commonly referred to
as an umbrella partnership REIT or "UPREIT"). The board of
directors of Holdings, the members of which are also members of
the Board of Directors of the Company, manages the affairs of the
Operating Partnership by directing the affairs of Holdings. The
Company's limited partner and indirect general partner interests
in the Operating Partnership entitle it to share in cash
distributions from, and in the profits and losses of, the
Operating Partnership in proportion to its ownership interest
therein and entitle the Company to vote on all matters requiring
a vote of the limited partners.
The other limited partners of the Operating Partnership are
persons who contributed their direct or indirect interests in
certain self-storage properties to the Operating Partnership.
The Operating Partnership is obligated to redeem each unit of
limited partnership ("Unit") at the request of the holder thereof
for cash equal to the fair market value of a share of the
Company's common stock ("Common Shares") at the time of such
redemption, provided that the Company at its option may elect to
acquire any Unit presented for redemption for one Common Share or
cash. The Company presently anticipates that it will elect to
issue Common Shares to acquire Units presented for redemption,
rather than paying cash. With each such redemption the Company's
percentage ownership interest in the Operating Partnership will
increase. In addition, whenever the Company issues Common
Shares, the Company is obligated to contribute any net proceeds
therefrom to the Operating Partnership and the Operating
Partnership is obligated to issue an equivalent number of Units
to the Company. Such limited partners' redemption rights are
reflected in "limited partners' capital interest" in the
accompanying balance sheets at the cash redemption amount at the
balance sheet date. Capital activity with regard to such limited
partners' redemption rights is reflected in the accompanying
statements of partners' capital.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents: The Operating Partnership considers
all highly liquid debt instruments purchased with maturity of
three months or less to be cash equivalents.
Revenue Recognition: Rental income is recorded when earned.
Rental income received prior to the start of the rental period is
included in deferred revenue.
Interest and Other Income: Other income consists primarily of
interest income, sales of storage-related merchandise (locks and
packing supplies) and commissions from truck rentals.
Investment in Storage Facilities: Storage facilities are recorded
at cost. Depreciation is computed using the straight line method
over estimated useful lives of forty years for buildings and
improvements, and five to twenty years for furniture, fixtures
and equipment. Expenditures for significant renovations or
improvements which extend the useful life of assets are
capitalized. Repair and maintenance costs are expensed as
incurred.
Whenever events or changes in circumstances indicate that
the basis of the Operating Partnership's property may not be
recoverable, the Operating Partnership'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 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, 1998 and 1997, no assets had been
determined to be impaired under this policy, and, accordingly,
this policy had no impact on the Operating Partnership's
financial position or results of operations.
Prepaid Expenses and Other Assets: Included in prepaid expenses
and other assets are prepaid expenses and intangible assets. The
intangible assets at December 31, 1998, consist primarily of loan
acquisition costs of approximately $1,824, net of accumulated
amortization of approximately $244; organizational costs of
approximately $63, net of accumulated amortization of
approximately $42; and covenants not to compete of $785, net of
accumulated amortization of $555. Loan acquisition costs are
amortized over the terms of the related debt; organization costs
are amortized over five years; and the covenants are amortized
over the contract periods. Amortization expense was $541, $794
and $620 for the periods ended December 31, 1998, 1997 and 1996,
respectively.
Income Taxes: No provision has been made for income taxes in the
accompanying financial statements since the Operating Partnership
qualifies as a partnership for federal and state income tax
purposes and its partners are required to include their
respective shares of profits and losses in their income tax
returns.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. EARNINGS PER UNIT
The Operating Partnership reports earnings per unit data in
accordance with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." The following table sets forth the
computation of basic and diluted earnings per unit.
Year Ended Year Ended Year Ended
(Dollars in thousands, December 31, December 31, December 31,
except per unit data) 1998 1997 1996
___________________________________________________________________
Numerator:
Net Income $ 24,798 $ 23,763 $ 15,682
___________________________________________________________________
Denominator:
Denominator for basic
earnings per unit -
weighted average units 12,948 12,090 8,344
___________________________________________________________________
Effect of Dilutive Securities:
Options for Company stock 38 62 35
Denominator for diluted
earnings per unit -
adjusted weighted -
average units and
assumed conversion 12,986 12,152 8,379
__________________________________________________________________
Basic Earnings per Unit $ 1.91 $ 1.97 $ 1.88
Diluted Earnings
per Unit $ 1.91 $ 1.96 $ 1.87
__________________________________________________________________
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during
the years ended December 31, 1998 and December 31, 1997
(Dollars in Thousands) 1998 1997
________________________________________________________________
Cost:
Beginning balance $ 333,036 $ 220,711
Property acquisitions 157,080 106,926
Improvements and equipment additions 12,940 5,527
Dispositions (554) (128)
________________________________________________________________
Ending balance $ 502,502 $ 333,036
________________________________________________________________
Accumulated Depreciation:
Beginning balance $ 11,639 $ 5,457
Additions during the year 9,762 6,211
Dispositions (62) (29)
________________________________________________________________
Ending balance $ 21,339 $ 11,639
________________________________________________________________
5. UNSECURED LINE OF CREDIT AND TERM NOTE
In February 1998, the Operating Partnership entered into a
new $150 million unsecured credit facility which replaced in its
entirety the Operating Partnership's $75 million revolving credit
facility. The new facility matures February 2001 and provides for
funds at LIBOR plus 1.25%, a savings of 65 basis points over the
Operating Partnership's old facility. The average interest rate
at December 31, 1998 on the line of credit was approximately
6.6%. At December 31, 1998, there was $38 million available on
the line. As a result of the new credit facility, in 1998 the
Operating Partnership recorded an extraordinary loss on the
extinguishment of debt of $357,000 representing the unamortized
financing costs of the former revolving credit facility and
related costs.
In December 1998, the Operating Partnership entered into a
$75 million unsecured term note that matures on December 22, 2000
and bears interest at LIBOR plus 1.50% (approximately 6.8% at
December 31, 1998).
The Operating Partnership entered into interest rate swap
agreements to manage its exposure to interest rate changes. The
swaps involve the exchange of fixed and variable interest rate
payments without exchanging the notional principal amount.
Payments or receipts on the agreements are recorded monthly as
adjustments to interest expense. At December 31, 1998, the
Operating Partnership had interest rate swaps with notional
amounts of $40 million through June 1999 and $55 million through
December 1999. Under these agreements the Operating Partnership
receives a floating interest rate based upon LIBOR and pays a
fixed interest rate of 5.78% on the $40 million amount and 5.12%
on the $55 million amount. The net carrying amount of the
Operating Partnership's debt instruments approximates fair value.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information shows the
results of operations as though the acquisitions of storage
facilities in 1998 and 1997, and the common stock offerings of
the Company in 1997 had all occurred as of the beginning of 1997.
(Dollars in thousands, except Year ended December 31,
unit data) 1998 1997
_________________________________________________________________
Total revenues $ 76,952 $ 73,699
_________________________________________________________________
Total expenses (51,294) (49,376)
_________________________________________________________________
Income before extraordinary loss $ 25,658 $ 24,323
_________________________________________________________________
Net Income $ 25,301 $ 24,323
_________________________________________________________________
Earnings per unit before
extraordinary loss - basic $ 1.95 $ 1.85
_________________________________________________________________
Earnings per unit - basic $ 1.92 $ 1.85
_________________________________________________________________
Earnings per unit - diluted $ 1.92 $ 1.85
_________________________________________________________________
Units used in basic earnings
per unit calculation 13,175,793 13,175,793
_________________________________________________________________
Such unaudited pro forma information is based upon the
historical statements of operations of the Operating Partnership.
It should be read in conjunction with the financial statements of
the Operating Partnership and notes thereto. In management's
opinion, all adjustments necessary to reflect the effects of
these transactions have been made. This unaudited pro forma
statement does not purport to represent what the actual results
of operations of the Operating Partnership would have been
assuming such transactions had been completed as set forth above,
nor does it purport to represent the results of operations for
future periods.
7. STOCK OPTIONS
The Operating Partnership continues to account for Company
stock-based compensation using the measurement prescribed by APB
Opinion No. 25 which does not recognize compensation expense
because the exercise price of the stock options equals the market
price of the underlying stock on the date of grant. Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net
income and earnings per unit under the new method. The Operating
Partnership will issue a Unit to the Company for each common
share of the Company issued under the following plans.
The Company has established the 1995 Award and Option Plan
(the Plan) for the purpose of attracting and retaining the
Company's executive officers and other employees. The options
vest ratably over four and five years, and must be exercised
within ten years from the date of grant. The exercise price for
qualified incentive stock options must be at least equal to the
fair market value at the date of grant. As of December 31, 1998,
options for 350,100 shares were outstanding under the Plan. The
total options available under the Plan (including restricted
stock issuances is 400,000.
The Company also established the 1995 Outside Directors'
Stock Option Plan (the Non-employee Plan) for the purpose of
attracting and retaining the services of experienced and
knowledgeable outside directors. The Non-employee Plan provides
for the annual granting of options to purchase 2,500 shares of
common stock to each eligible director. Such options vest over a
one-year period for initial awards and immediately upon
subsequent grants. The total shares reserved under the Non-
employee Plan is 50,000. The exercise price for options granted
under the Non-employee Plan is equal to fair market value at date
of grant. As of December 31, 1998, options for 37,500 shares
were outstanding under the Non-employee Plan.
The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate
of 5.5% for 1998 and 6% for 1997, dividend yield of 8% for 1998
and 7% for 1997, volatility factor of the expected market price
of the Company's common stock of .19 for 1998 and .16 for 1997.
The Black-Scholes options valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Operating Partnership's pro forma
information for the year ended December 31, 1998 and 1997 follows
(in thousands, except for earnings per unit information).
1998 1997
_________________________________________________________________
Pro forma net income $ 24,640 $ 23,620
Pro forma earnings per share: Basic $ 1.90 $ 1.95
Diluted $ 1.90 $ 1.94
The pro forma effect on earnings for the year ended December 31,
1996 was immaterial.
The Company has also issued 17,400 shares of restricted
stock to employees which vest over a four and five year periods.
The fair value of the restricted stock on the date of grant
ranged from $25.88 to $29.19.
A summary of the Company's stock option activity and related information for the years ended
December 31 follows:
1998 1997 1996
________________________________________________________________________________
Weighted average Weighted average Weighted average
Options exercise price Options exercise price Options exercise price
____________________________________________________________________________________________________
Outstanding at
beginning of year: 295,250 $25.36 293,500 $23.97 268,000 $23.00
Granted 110,350 27.91 34,000 29.93 28,000 25.92
Exercised (15,750) 23.00 (14,250) 23.00 - -
Forfeited (2,250) 23.00 (18,000) 24.53 (2,500) 23.00
____________________________________________________________________________________________________
Outstanding at end
of year 387,600 $25.99 295,250 $ 25.36 293,500 $23.97
____________________________________________________________________________________________________
Exercisable at end
of year 208,500 $24.19 146,750 $ 25.12 82,000 $23.48
____________________________________________________________________________________________________
Exercise prices for options outstanding as of December 31, 1998 ranged from $23.00 to $30.06. The
weighted average remaining contractual life of those options is 6.7 years.
8. RETIREMENT PLAN
Employees of the Operating Partnership qualifying under
certain age and service requirements are eligible to be a
participant in a 401(K) Plan which was effective September 1,
1997. The Operating Partnership contributes to the Plan at the
rate of 50% of the first 4% of gross wages. Total expense to the
Operating Partnership was approximately $53,000 and $15,000 for
the year ended December 31, 1998 and 1997, respectively.
9. SHAREHOLDER RIGHTS PLAN
In November 1996, the Company adopted a Shareholder Rights
Plan and declared a dividend distribution of one Right for each
outstanding share of common stock. Under certain conditions,
each Right may be exercised to purchase one one-thousandth of a
share of Series A Junior Participating Preferred Stock at a
purchase price of $75, subject to adjustment. The Rights will be
exercisable only if a person or group has acquired 10% or more of
the outstanding shares of common stock, or following the
commencement of a tender or exchange offer for 10% or more of
such outstanding shares of common stock. If a person or group
acquires more than 10% of the then outstanding shares of common
stock, each Right will entitle its holder to receive, upon
exercise, common stock having a value equal to two times the
exercise price of the Right. In addition, if the Company is
acquired in a merger or other business combination transaction,
each Right will entitle its holder to purchase that number of the
acquiring Company's common shares having a market value of twice
the Right's exercise price. The Company will be entitled to
redeem the Rights at $.01 per Right at any time prior to the
earlier of the expiration of the Rights in November 2006 or the
time that a person has acquired a 10% position. The Rights do
not have voting or dividend rights, and until they become
exercisable, have no dilutive effect on the Operating
Partnership's earnings.
10. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for the
years ended December 31, 1998 and 1997(dollars in thousands, except per
unit data)
1998 Quarter Ended
_________________________________________
March 31 June 30 Sept. 30 Dec. 31
_________________________________________
Revenue $14,375 $16,442 $19,107 $19,436
Income before extraordinary loss $ 6,203 $ 6,271 $ 6,638 $ 6,036
Net Income $ 5,853 $ 6,271 $ 6,638 $ 6,036
Net Income Per Unit (Note 3):
Before extraordinary
Loss - Basic $ 0.49 $ 0.49 $ 0.50 $ 0.46
Basic $ 0.46 $ 0.49 $ 0.50 $ 0.46
Diluted $ 0.46 $ 0.49 $ 0.50 $ 0.46
1997 Quarter Ended
_________________________________________
March 31 June 30 Sept. 30 Dec. 31
_________________________________________
Revenue $10,732 $11,938 $13,320 $13,364
Net Income $ 4,935 $ 6,189 $ 6,559 $ 6,080
Net Income Per Unit (Note 3):
Basic $ 0.46 $ 0.50 $ 0.52 $ 0.49
Diluted $ 0.46 $ 0.50 $ 0.52 $ 0.48
11. COMMITMENTS AND CONTINGENCIES
The Operating Partnership's current practice is to conduct
environmental investigations in connection with property
acquisitions. At this time, the Operating Partnership is not
aware of any environmental contamination of any of its facilities
which individually or in the aggregate would be material to the
Operating Partnership's overall business, financial condition, or
results of operations.
As of December 31, 1998, the Operating Partnership had
entered into contracts for the purchase of six facilities. These
facilities were acquired in January and February, 1999 for a
total cost of $15,310,000.
12. LEGAL PROCEEDINGS
A former business associate (Plaintiff) of certain officers
and directors of the Company, including Robert J. Attea, Kenneth
F. Myszka, David L. Rogers and Charles E. Lannon, filed a lawsuit
against the Company on June 13, 1995 in the United States
District Court for the Northern District of Ohio. The Plaintiff
has since amended the complaint in the lawsuit alleging breach of
fiduciary duty, breach of contract, breach of general
partnership/joint venture arrangement, breach of duty of good
faith, fraud and deceit, and other causes of action including
declaratory judgement as to the Plaintiff's continuing interest
in the Company. The Plaintiff is seeking money damages in excess
of $15 million, as well as punitive damages and declaratory and
injunctive relief (including the imposition of a constructive
trust on assets of the Company in which the Plaintiff claims to
have a continuing interest) and an accounting. The amended
complaint also added Messrs. Attea, Myszka, Rogers and Lannon as
additional defendants. The parties are currently involved in
discovery. The Company intends to vigorously defend the lawsuit.
Messrs. Attea,Myszka, Rogers and Lannon have agreed to indemnify
the Company for costs and any loss arising from the lawsuit. The
Operating Partnership believes that the actual amount of the
Plaintiff's recovery in this matter if any, would be within the
ability of these individuals to provide indemnification. The
Operating Partnership does not believe that the lawsuit will have
a material, adverse effect upon the Operating Partnership.
13. INTERNAL PROPERTY ACQUISITION COSTS
On March 19, 1998 the Financial Accounting Standards Board
Emerging Issues Task Force reached a consensus as to the
accounting for internal acquisition costs incurred in connection
with real property. The Task Force consensus indicates that
internal costs related to the acquisition of operating properties
should be expensed as incurred. The Operating Partnership had
previously capitalized such costs and has complied with the
consensus prospectively. The amount of such costs capitalized in
1998 (through the date of the pronouncement) and 1997 were
$238,000 and $728,000, respectively.
Report of Independent Auditors
The Board of Directors and Partners
Sovran Acquisition Limited Partnership:
We have audited the accompanying balance sheets of Sovran
Acquisition Limited Partnership as of December 31, 1998 and 1997
and the related statements of operations, partners' capital and
cash flows for each of the three years in the period ended
December 31,1998. Our audit also included the financial
statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the
management of Sovran Acquisition Limited Partnership. Our
responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 financial position
of Sovran Acquisition Limited Partnership as of December 31, 1998
and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Buffalo, New York
January 29, 1999
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Through Holdings, a wholly-owned subsidiary of the Company
and the sole general partner of the Operating Partnership, the
Company controls the Operating Partnership. The Board of
Directors of Holdings, the members of which are the same as the
members of the Board of Directors of the Company, manages the
affairs of the Operating Partnership by directing the affairs of
the general partner of the Operating Partnership. The Operating
Partnership has no directors, or executive officers.
Consequently, this information incorporated by reference reflects
information with respect to the directors and executive officers
of the Company and Holdings.
The information required is incorporated by reference to
"Election of Directors", including "Executive Officers of the
Company" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for the Annual
Meeting of Shareholders of the Company to be held on May 25,
1999.
Item 11. Executive Compensation
Through Holdings, a wholly-owned subsidiary of the Company
and the sole general partner of the Operating Partnership, the
Company controls the Operating Partnership. The Board of
Directors of Holdings, the members of which are the same as the
members of the Board of Directors of the Company, manages the
affairs of the Operating Partnership by directing the affairs of
the general partner of the Operating Partnership. The Directors
and Officers of Holdings receive their compensation from the
Company and are not separately compensated by Holdings.
Consequently, the information incorporated by reference reflects
compensation paid to the Directors and executive officers of the
Company.
The information required is incorporated by reference to
"Executive Compensation" and "Compensation of Directors" in the
Company's Proxy Statement for Annual Meeting of Shareholders of
the Company to be held May 25, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Operating Partnership has no directors or officers. No
director or officer of the Company or Holdings beneficially owns
any Units.
The Company beneficially owns 12,313,006 Units which
constitute 93.45% of all outstanding Units. No other person
holds more than a 5% beneficial ownership in the Operating
Partnership.
The information required herein for the Company is
incorporated by reference to "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement for
Annual Meeting of Shareholders of the Company to be held on
May 25, 1999.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Operating Partnership has
issued Units in private placements in reliance on the exemption
from registration under Section 4(2) of the Securities Act of
1933, as amended, in the amounts and for the consideration set
forth below:
- On January 20, 1996, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Operating
Partnership issued 1980 Units to the Company and 20
general partnership units to Holdings.
- On July 25, 1996, Thomas Hinkel and Hinkel Investment
Limited Partnership transferred their interest in a
self-storage facility to the Operating Partnership in
exchange for 6,327.8 and 12,459.37 Units, respectively.
- On October 1, 1996, the Company transferred $65,959,000
to the Operating Partnership in exchange for 2,710,000
Units and Holdings transferred $974,000 to the
Operating Partnership in exchange for 40,000 general
partnership units.
- On October 8, 1996, the Company transferred $9,940,000
to the Operating Partnership in exchange for 408,375
Units and Holdings transferred $100,000 to the
Operating Partnership in exchange for 4,125 general
partnership units.
- On December 18, 1996, Harold Samloff and Laurence
Glaser transferred their interest in a self-storage
facility to the Operating Partnership in exchange for
60,571.425 Units for each of them.
- On February 26, 1997, the Company transferred $34,500
to the Operating Partnership in exchange for 1,500
Units in connection with the Sovran Self Storage, Inc.
1995 Award and Option Plan.
- On March 31, 1977, Montague-Betts Company and D.W.B.
Associates transferred their interests in certain self-
storage properties to the Operating Partnership in
exchange for 214,974.46 and 28,953.02 Units,
respectively.
- On April 22, 1997, the Company transferred $39,148,000
to the Operating Partnership in exchange for 1,400,000
Units and Holdings transferred $2,796,000 to the
Operating Partnership in exchange for 100,000 general
partnership units.
- On May 21, 1997, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $51,750 to the Operating Partnership in
exchange for 2,250 units.
- On June 22, 1997, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $34,500 to the Operating Partnership in
exchange for 1,500 Units.
- On June 23, 1997, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $69,000 to the Operating Partnership in
exchange for 3,000 Units.
- On June 24, 1997, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $69,000 to the Operating Partnership in
exchange for 3,000 Units.
- On June 26, 1997, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $69,000 to the Operating Partnership in
exchange for 3,000 Units.
- On November 12, 1997, in connection with the Sovran
Self Storage, Inc. 1995 Award and Option Plan, the
Operating Partnership issued 200 Units to the Company.
- On December 2, 1997 Frank Bingman, Joseph & Beverly
Snyder, Morgan Whiteley and Marlene Whiteley
transferred their interest in a self-storage facility
to the Operating Partnership in exchange for
19,917.0124, 19,917.0124, 9,958.5062 and 9,958.5062
Units, respectively.
- On February 4, 1998, the Company transferred its
interest in a self-storage facility to the Operating
Partnership in exchange for 109,841.25 Units.
- On May 12, 1998, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Operating
Partnership issued 15,450 Units to the Company.
- On June 3, 1998, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $51,750 to the Operating Partnership in
exchange for 2,250 Units.
- On June 12, 1998 Storage 17, Inc. transferred their
interest in a self-storage facility to the Operating
Partnership in exchange for 10,000 Units.
- On July 1, 1998 Charles F. Waldner and AWP Limited
Partnership transferred their interest in certain self-
storage facilities to the Operating Partnership in
exchange for 323,454.67 and 85,973.76 Units,
respectively.
- On November 4, 1998, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $155,250 to the Operating Partnership in
exchange for 6,750 Units.
- On November 10, 1998, in connection with the Sovran
Self Storage, Inc. 1995 Award and Option Plan, the
Company transferred $92,000 to the Operating
Partnership in exchange for 4,000 Units.
- On November 23, 1998, in connection with the Sovran
Self Storage, Inc. Dividend Reinvestment and Stock
Purchase Plan, the Company transferred $3,300 to the
Operating Partnership in exchange for 133 Units.
- On December 4, 1998, in connection with the Sovran Self
Storage, Inc. 1995 Award and Option Plan, the Company
transferred $42,550 to the Operating Partnership in
exchange for 1,850 Units.
- On December 11, 1998, in connection with the Sovran
Self Storage, Inc. 1995 Award and Option Plan, the
Company transferred $20,700 to the Operating
Partnership in exchange for 900 Units.
- On December 22, 1998, in connection with the Sovran
Self Storage, Inc. Dividend Reinvestment and Stock
Purchase Plan, the Company transferred $647,030 to the
Operating Partnership in exchange for 26,410 Units.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference
to "Certain Transactions" in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on May 25, 1999.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Documents filed as part of this Annual Report on Form
10-K:
1. Financial Statements filed as part of this Annual Report on
Form 10-K.
(i) Balance Sheets for Years Ended December 31, 1998 and
1997.
(ii) Statements of Operations for Years Ended December 31,
1998, 1997, and 1996.
(iii) Statements of Partners' Capital of the for Years Ended
December 31, 1998, 1997, and 1996.
(iv) Statements of Cash Flows for Years Ended December 31,
1998, 1997, and 1996.
(v) Selected Financial Data.
2. The following financial statement schedule as of the period
ended December 31, 1998 is included in this Annual Report on
From 10-K.
Schedule III Real Estate and Accumulated Depreciation.
All other financial schedules are omitted because they are
inapplicable, not required, or the information is included
elsewhere in the financial statements or the notes thereto.
Exhibits
Exhibit No. Description
3.1 Agreement of Limited Partnership of
the Operating Partnership, as
amended
3.2* Amended and Restated Articles of
Incorporation of the Company
3.3* By-laws of the Company
3.4 Articles Supplementary of the
Articles of Incorporation of the
Company classifying and designating
the Company's Series A Junior
Participating Preferred Stock
(Incorporated by reference to
Exhibit 3.1 to the Company's Form
8A filed December 3, 1996)
10.1 Revolving Credit Agreement between
the Company, the Operating
Partnership, Fleet National Bank
and other lenders named therein
10.2* Form of Non-competition Agreement
between the Company and Charles E.
Lannon
10.3* Form of Non-competition Agreement
between the Company and Robert J.
Attea
10.4* Form of Non-competition Agreement
between the Company and Kenneth F.
Myszka
10.5* Form of Non-competition Agreement
between the Company and David L.
Rogers
10.6* Sovran Self Storage, Inc. 1995
Award and Option Plan
10.7* 1995 Sovran Self Storage, Inc.
Directors' Option Plan
10.8* Sovran Self Storage Incentive
Compensation Plan for Executive
Officer
10.9* Restricted Stock Agreement between
the Company and David L. Rogers
10.10* Form of Supplemental
Representations, Warranties and
Indemnification Agreement among the
Company and Robert J. Attea,
Charles E. Lannon, Kenneth F.
Myszka and David L. Rogers
10.11* Form of Pledge Agreement among the
Company and Robert J. Attea,
Charles E. Lannon, Kenneth F.
Myszka and David L. Rogers
10.12* Form of Indemnification Agreement
between the Company and certain
Officers and Directors of the
Company
10.13* Form of Subscription Agreement
(including Registration Rights
Statement) among the Company and
subscribers for 422,171 Common
Shares
10.14* Form of Registration Rights and
Lock-Up Agreement among the Company
and Robert J. Attea, Charles E.
Lannon, Kenneth F. Myszka and
David L. Rogers
10.15* Form of Facilities Services
Agreement between the Company and
Williamsville Properties, Inc.
10.16** Term Loan Agreement
23 Consent of Independent Auditors
27 Financial Data Schedule
_________________
* Incorporated by reference to the exhibits as filed with the
Company's Registration Statement on Form S-11 (File No. 33-91422)
filed June 19, 1995.
** Incorporated by reference to Exhibit 10.16 filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-13820)
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Sovran Holdings Inc., as general
partner of registrant, certifies that it has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SOVRAN ACQUISITION LIMITED PARTNERSHIP
By: Sovran Holdings, Inc.
Its: General Partner
March 31, 1999 By: /S/ David L. Rogers
_________________________________
David L. Rogers,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of Sovran Holdings Inc., as general partner of
registrant, and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert J. Attea Chairman of the March 31, 1999
__________________________ Board of Directors,
Robert J. Attea Chief Executive
Officer and Director
(Principal Executive
Officer)
/s/ Kenneth F. Myszka President, Chief March 31, 1999
__________________________ Operating Officer
Kenneth F. Myszka and Director
/s/David L. Rogers Chief Financial March 31, 1999
__________________________ Officer (Principal
David L. Rogers Financial and
Accounting Officer)
/s/John Burns Director March 31, 1999
__________________________
John Burns
/s/Michael A. Elia Director March 31, 1999
__________________________
Michael A. Elia
/s/Anthony P. Gammie Director March 31, 1999
__________________________
Anthony P. Gammie
/s/Charles E. Lannon Director March 31, 1999
__________________________
Charles E. Lannon
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-3, No. 333-51169) of Sovran Self Storage, Inc.
and Sovran Acquisition Limited Partnership and in the related
Prospectus of our report dated January 29, 1999, with respect to
the financial statements and schedules included in this Annual
Report (Form 10-K) of Sovran Acquisition Limited Partnership.
/s/ Ernst & Young LLP
Buffalo, New York
March 26, 1999