-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jcxcpjf1qJWQ/icRDpdbVHtdO03TR46Qx0L+z2FElAQ0eBMtMj9uHIZvhzfyDbML CigrT1YpvS3ABzZ7ZZ0n8A== 0000904802-98-000068.txt : 19980630 0000904802-98-000068.hdr.sgml : 19980630 ACCESSION NUMBER: 0000904802-98-000068 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980629 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOVRAN ACQUISITION LTD PARTNERSHIP CENTRAL INDEX KEY: 0001060224 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC WAREHOUSING & STORAGE [4220] IRS NUMBER: 161481551 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-24071 FILM NUMBER: 98656256 BUSINESS ADDRESS: STREET 1: 5166 MAIN ST CITY: WILLIAMSVILLE STATE: NY ZIP: 14221 BUSINESS PHONE: 7166331850 MAIL ADDRESS: STREET 1: 5166 MAIN ST CITY: WILLIAMSVILLE STATE: NY ZIP: 14221 10-12G/A 1 As filed with the Securities and Exchange Commission on June 29, 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________ FORM 10/A-1 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 _________________________ 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, New York 14221 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 633-1850 _________________________ Securities to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on which to be so Registered Each Class is to be Registered Not Applicable Not Applicable Securities to be registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) TABLE OF CONTENTS Page No. ITEM 1. BUSINESS ITEM 2. FINANCIAL INFORMATION ITEM 3. PROPERTIES ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS ITEM 6. EXECUTIVE COMPENSATION ITEM 7. CERTAIN TRANSACTIONS ITEM 8. LEGAL PROCEEDINGS ITEM 9. MARKET PRICE AND DISTRIBUTIONS AND RELATED SECURITY HOLDER MATTERS ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS 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. As of June 15, 1998, the Company was a 96.5% 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 June 15, 1998 the Operating Partnership owned and operated 186 self-storage properties (individually, a "Property" and collectively, the "Properties") consisting of approximately 10.2 million net rentable square feet, situated in 19 states, primarily the Eastern United States and Texas. As of March 31, 1998, the Properties had a weighted average occupancy of 84.1% and a weighted average annual rent per occupied square foot of $7.62. The Operating Partnership believes that it is one of the largest operators of self-storage properties in the United States based on square footage. 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. The Operating Partnership also maintains a regional office in Atlanta, Georgia. Industry Overview 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. Most facilities have a full time manager who resides in an apartment located on the property. 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, but 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, only 12% 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 significantly 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 approximately 20%. 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; and - Linking all facilities to a central customized management information system. Each Property is generally managed by a full-time Property Manager and one or more assistant managers. The Property Manager typically resides on-site in an apartment furnished by the Operating Partnership. 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 regarding 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 25% 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 material 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. Also, while the Operating Partnership does not have any current intention of acquiring any interests other than direct ownership in self-storage facilities, 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. Employees The Operating Partnership currently employs a total of 506 employees, including 185 Property Managers, 8 Area Managers, 4 Regional Vice Presidents and 269 part time employees. At the Operating Partnership's headquarters, in addition to the Company's 3 senior executive officers, the Operating Partnership employs 37 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. FINANCIAL INFORMATION Selected Financial and Operating Information SELECTED FINANCIAL DATA The following table sets forth selected financial and other data on a historical basis for the Operating Partnership and on a combined historical basis for the Partnership's Predecessor. The following information should be read in conjunction with all of the financial statements and notes thereto incorporated by reference herein. The selected financial data for the three months ended March 31, 1998 has been derived from the unaudited financial statements of the Operating Partnership. The selected financial data of the Operating Partnership for the years ended December 31, 1997, and 1996 and for the period from June 26, 1995 to December 31, 1995 have been derived from the financial statements audited by Ernst & Young LLP, independent auditors, whose report with respect thereto is included elsewhere herein. The combined selected financial data for the period ended June 25, 1995 and the years ended December 31, 1994 and 1993 has been derived from audited combined financial statements of the Company Predecessors not included in such report.
SELECTED FINANCIAL DATA Operating Partnership Predecessor At or forAt or for At or for At or for For Period For Period At or for three monthsthree months Year Year from from Year Ended Ended Ended Ended Ended 6/26/95 to 1/1/95 to December 31, (Dollars in thousands, 3/31/98 3/31/97 12/31/97 12/31/96 12/31/95 6/25/95 1994 1993 except Unit data) Operating Data: Operating revenues $ 14,375 $ 10,732 $ 49,354 $ 33,597 $ 12,942 $ 9,532 $18,530 $13,660 Income (loss) before extraordinary item 6,203 4,935 23,763 15,682 6,744 311 1,836 (825) Earnings (losses) 5,853 4,935 23,763 15,682 6,744 311 1,836 (825) Net income per Unit- basic .46 .46 1.97 1.88 0.91 - - - Net income per Unit- diluted .46 .46 1.96 1.87 0.91 - - - Distributions declared per Unit .54 .52 2.12 2.05 1.04 - - - Weighted average units: Basic 12,773,076 10,839,168 12,090,141 8,344,065 7,429,872 - - - Diluted 12,785,861 10,870,390 12,152,166 8,379,350 7,439,415 - - - Balance Sheet Data: Storage facilities before accumulated depreciation $390,349 $280,112 $333,036 $220,711 $159,461 $114,008 $91,889 $83,727 Total Assets 384,467 279,170 327,073 235,415 160,437 84,527 82,733 78,918 Total Debt 91,059 35,559 39,559 - 5,000 69,102 66,340 61,550 Total Liabilities 105,419 45,243 50,319 8,131 10,697 71,311 69,014 64,096 Limited partners' capital interest 13,170 11,564 14,454 4,435 - - - - Partners' capital 265,878 222,363 262,300 222,849 149,740 13,216 13,719 14,822 Other Data: Net cash provided by operating activities $ 10,476 $ 7,865 $31,159 $20,152 $7,188 $2,003 $5,428 $1,470 Net cash used in investing activities (54,717) (48,547) (98,765) (59,146) (157,965) (3,340) (6,609) (15,217) Net cash provided by financing activities 44,661 26,391 53,486 54,949 151,509 507 1,030 14,283 Funds from operations(b) 8,242 6,364 30,294 19,816 9,904 - - - Number of facilities 173 138 155 111 82 74 60 54 Weighted average occupancy 84.1% 85.2% 85.1% 86.0% 86.1% 86.6% 88.7% 86.7% (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)(computed in accordance with generally accepted accounting principles) plus depreciation of real estate assets and amortization of intangible assets exclusive of deferred financing costs. 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.
SELECTED PRO FORMA FINANCIAL DATA The following table sets forth selected unaudited pro forma operating and other data for the Operating Partnership as if (i) the acquisition of 44 Properties in 1997 and 30 Properties in 1998 had occurred as of the beginning of 1997, and (ii) the proceeds of the Company's April 1997 common stock offering were received at the beginning of 1997. The table also includes pro forma balance sheet data which was prepared as if the 12 Properties acquired since March 31, 1998 had all been acquired at March 31, 1998. The following information should be read in conjunction with all of the financial statements and notes thereto included herein. The pro forma financial information is not necessarily indicative of what the actual financial position and results of operations of the Operating Partnership would have been as of the dates or for the periods indicated, nor does it purport to represent the Operating Partnership's future financial position and results of operations. Pro Forma Pro Forma At or for At or for Three Months Year Ended (Dollars in thousands, ended 3/31/98 12/31/97 except Unit data) (unaudited) (unaudited) Operating Data: Operating revenues $ 16,775 $ 66,228 Income (loss) before extraordinary item 6,443 26,169 Earnings (losses) 6,093 26,169 Net income per Unit- basic .48 2.05 Net income per Unit- diluted .47 2.04 Distributions declared per Unit .54 2.12 Weighted average units: Basic 12,784,572 12,784,572 Diluted 12,837,357 12,846,597 Balance Sheet Data: Storage facilities before accumulated depreciation $ 432,395 Total Assets 426,537 Total Debt 132,347 Total Liabilities 147,216 Limited partners' capital interest 13,443 Partners' capital 265,878 Other Data: Net cash provided by operating activities $ 11,073 $36,231 Net cash used in investing activities (96,005) (188,969) Net cash provided by financing activities 85,352 138,618 Funds from operations(b) 8,839 35,366 Number of facilities 186 186 Weighted average occupancy 84.1% 85.1% Management Discussion and Analysis for Financial Conditions and Results of Operations The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the financial statements and notes incorporated by reference in this Prospectus. The following discussion is based on the financial statements of the Operating Partnership as of March 31, 1998, December 31, 1997, December 31, 1996, December 31, 1995, and for the period from June 26, 1995 (commencement of operations) to December 31, 1995; and the combined statements of the Company Predecessors for the period from January 1, 1995 to June 25, 1995. The combined financial statements of the Company Predecessors are presented for comparative purposes. This Form 10 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The foregoing provisions by their express terms do not apply to forward-looking statements made in connection with an initial public offering. The words "believe," "expect," "anticipate," "intend," "estimate," "assume" and other similar expressions which are predictions of or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the control of the Company (as defined herein) and may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward- looking statements. Factors that might cause such a difference include, but are not limited to, the following: occupancy rates and market rents may be adversely affected by local economic and market conditions which are beyond management's control; financing may not be available, or may not be available on favorable terms; the Company's cash flow may be insufficient to meet required payments of principal and interest; and existing indebtedness may mature in an unfavorable credit environment, preventing such indebtedness from being refinanced, or, if refinanced, causing such refinancing to occur on terms that are not as favorable as the terms of existing indebtedness. Results of Operations For the period January 1, 1998 through March 31, 1998 The Operating Partnership reported revenues of $14.4 million during the period and incurred $4 million in direct operating expenses, resulting in net operating income of $10.4 million. The net operating margin of 72% is one of the highest in the industry and reflects a corporate-wide effort to operate the business efficiently. General and administrative expenses of $0.9 million, interest expense of $1.2 million and depreciation and amortization expenses of $2.1 million resulted in income of $6.2 million before extraordinary item. An extraordinary loss of $0.35 million resulted from the write-off of the unamortized financing costs of the revolving credit facility that was replaced in February 1998. Net income amounted to $5.9 million. Three months ended March 31, 1998, compared to Three months ended March 31, 1997 The following discussion compares the activities of the Operating Partnership for the three months ended March 31, 1998 with the activities of the Operating Partnership for the three months ended March 31, 1997. Total revenues increased from $10.7 million for the three months ended March 31, 1997 to $14.4 for the three months ended March 31, 1998, an increase of $3.7 million or 34%. Of this, $3.4 million resulted from the acquisition of 62 properties during the period January 1, 1997 through March 31, 1998 and $0.3 million was realized as a result of increased rental rates at the 111 properties owned by the Operating Partnership at December 31, 1996. Interest income decreased slightly. Overall, same- store revenues grew 3.7% for the three month period ended March 31, 1998 as compared to the same period in 1997. Property operating and real estate tax expense increased $1 million or 33% during the period. $0.9 million was a result of absorbing additional expenses from operating the newly acquired Properties, and $0.1 million related to the operations of Properties operated more than one year. General and administrative expenses, which includes losses of $0.1 million realized as the result of replacement of equipment, increased $0.1 million principally as a result of the need for additional personnel and increased administrative costs associated with managing the 62 additional properties. Interest expense increased $0.7 million due to the $52 million drawn on the Operating Partnership's line of credit during the first three months of 1998. Earnings before minority interest, extraordinary item, interest expense, and depreciation and amortization increased from $7.0 million to $9.5 million, an increase of $2.5 million or 36%. 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 44 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 3.5%, 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 just 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 a Company 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 minority interest, interest expense, and depreciation and amortization increased $10.7 million or 48%, in 1997 as a result of the aforementioned items. Year Ended December 31, 1996 compared to Year Ended December 31, 1995 Rental revenues improved from $21.8 million for the year ended December 31, 1995 to $32.9 million for the year ended December 31, 1996, an increase of $11.1 million, or 51%. Of this, $5.1 million resulted from the acquisition of twenty-nine properties during 1996, $ 4.9 million resulted from having 1995 acquisitions included for a full year of operations, and $1.1 million resulted from increased occupancy levels and rental rates. Interest and other income remained unchanged at approximately $0.7 million. Property operating and real estate tax expense increased $3 million or 48% during the period. Of this, $1.5 million was incurred by the facilities acquired in 1996, $1.4 million resulted from having the 1995 acquisitions included for a full year of operations, and $0.1 million of additional cost was incurred in the operation of the sixty facilities owned by the Operating Partnership since January 1, 1995. General and administrative expenses decreased $0.3 million, primarily as a result of non-recurring legal, accounting and other professional fees associated with the winding up of partnership activities and the merger and formation transactions. Interest expenses of $1.9 million in 1996 resulted exclusively from borrowings on the Operating Partnership's line of credit facility. The Operating Partnership had borrowings outstanding of $59.3 million before paying off the balance with the proceeds of a Company common stock offering in October 1996. Interest expense in 1995 was $3.4 million, or $1.5 million higher than in 1996. This was primarily due to the fact that until the Initial Offering in June 1995, the Predecessors had incurred substantial mortgage debt as a means to finance its acquisitions, and paid approximately $3.3 million to carry that debt through June 1995. Upon completion of the Initial Offering, this mortgage debt was paid in full, and there was only a line of credit borrowing of $5 million outstanding at the end of 1995. Depreciation and amortization expense increased to $4.6 million from $3.3 million, primarily as a result of the additional depreciation taken on the $60 million or real estate assets acquired in 1996. Earnings before interest, and depreciation and amortization increased $8.4 million or 61% in 1996 as a result of the aforementioned items. Liquidity and Capital Resources Capital Resources and Establishment of Line of Credit The Company and the Operating Partnership have relied principally on equity capital since inception and have raised net proceeds of $269 million from the Initial Offering on June 25, 1995, and additional offerings of Company Common Stock in 1996 and 1997. The Operating Partnership used the proceeds of the offerings to repay indebtedness, to purchase additional properties, and to acquire limited partners' interest in the Sovran Partnerships. The equity offerings have been supplemented with borrowings on the $75 million 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. In addition to the equity and debt capital, the Operating Partnership issued $3.6 million and $9.2 million of Units in 1996 and 1997, respectively, in exchange for self storage facilities at the request of sellers. As a result of its limited use of debt and the replacement of the secured credit facility with the unsecured line of credit, the Operating Partnership believes it has achieved a level of market capitalization and critical mass to enable it to access the senior debt markets to fund 1998 growth. Acquisition of Properties Since the Initial Offering, the Operating Partnership used the balance of the proceeds from the underwriter's over-allotment option, the follow-on public offerings, issuance of Units and borrowings pursuant to the line of credit to acquire properties from unaffiliated storage operators in Virginia, Florida, Georgia, New York, Pennsylvania, Texas, Alabama, Maryland, Massachusetts, Michigan, Ohio and Louisiana. In 1995, following the Initial Offering, the Operating Partnership added 8 facilities and 550,000 square feet of storage space to its portfolio. In 1996, twenty-nine facilities comprising 1,490,000 square feet, and in 1997, forty-four facilities totaling 2.5 million square feet were acquired. Through June 15, 1998, an additional 30 Properties totaling 1.9 million square feet were acquired bringing the total Properties owned to 186 with 10.2 million square feet of net rentable storage space. 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 will no longer capitalize internal costs related to the acquisition of operating properties. The amount of such costs capitalized in 1997 and 1996 were $728,000 and $755,000, 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. Since the Initial Offering, the Operating Partnership has increased its presence in the Boston, Washington, Cleveland, Atlanta, Norfolk, Charlotte, Greensboro, Orlando, Jacksonville, Pensacola, Orlando and Ft. Lauderdale/Palm Beach markets. Properties acquired in these cities were added to improve the Operating Partnership's presence and enhance visibility of its operations. Economies of scale are enjoyed via this strategy, as yellow-page costs, maintenance expenses and relief payroll costs can be shared among numerous facilities. The Operating Partnership has also entered new markets with great impact. Sixteen Properties were acquired in Texas, giving the Operating Partnership a strong presence in San Antonio, Dallas and Houston. Six Properties were acquired in Tampa, five in Northern Michigan, four each in Ft. Myers and St. Petersburg, three each in Birmingham and Montgomery, and two each in Newport News, Pittsburgh, Baton Rouge, Syracuse and Jackson. 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 distribution of the following year. The first distribution of 1998 may be applied toward the Company's 1997 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, and from dividends, interest and gain from the sale or disposition of stock or securities. In 1997, 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. 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 Based on a preliminary assessment and limited testing, the Operating Partnership believes it has made all changes to its software so that its computer system will function properly with respect to dates in the year 2000 and thereafter. The Operating Partnership presently believes that with these modifications, the Year 2000 issue will not pose significant operational problems for its computer systems. The Operating Partnership has initiated formal communications with third parties to determine the extent to which the Operating Partnership's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Operating Partnership anticipates completing the Year 2000 project in 1998, which is prior to any expected impact on its operating system. The Operating Partnership's total Year 2000 project costs, which are expected to be immaterial, and the anticipated time frame, are based on presently available information. These estimates were derived utilizing numerous assumptions of future events, including the availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that the estimated time of completion will be achieved and actual results could differ materially from those anticipated. ITEM 3. PROPERTIES Overview At June 15, 1998, the Operating Partnership owned 100% fee simple interests in, and operated, a total of 186 Properties, consisting of approximately 10.2 million net rentable square feet, situated in nineteen states primarily in the Eastern United States and Texas. As of March 31, 1998, the Properties had a weighted average occupancy of 84.1% and a weighted average annual rent per square foot of $7.62. The Operating Partnership believes that it is one of the largest operators 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 and, in most cases, the Property Manager resides in an apartment at the facility. 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, 153 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 12/31/97 Acres Units Bldgs. Floors Apt. Construction _______________________________________________________________________________________________________________________________ Alabama Birmingham I 1990 37,075 Y 80% 2.7 297 9 1 Y Masonry/Steel Roof Birmingham II 1990 52,155 Y 92% 4.7 414 8 1 Y Masonry/Steel Roof Montgomery I 1982 75,000 Y 81% 5.0 625 16 1 Y Masonry/Steel Roof Birmingham III 1970 72,050 Y 80% 4.3 409 6 1 N Masonry/Steel Roof Montgomery II 1984 42,100 Y 93% 2.7 300 10 1 N Masonry/Steel Roof Montgomery III 1988 41,550 Y 92% 2.4 392 9 1 Y Steel Bldg./Steel Roof Birmingham-Walt 1984 62,776 N N/A 3.3 397 6 1 Y Masonry Wall/Metal Roof Connecticut New Haven 1985 36,000 Y 96% 3.9 340 5 1 N Masonry Wall/Steel Roof Hartford-Metro I 1988 47,650 Y 96% 10.0 339 10 1 N Steel Bldg./Steel Roof Hartford-Metro II 1992 40,275 Y 95% 6.0 313 7 1 N Steel Bldg./Steel Roof Florida Lakeland I 1985 45,725 Y 94% 3.5 444 11 1 Y Masonry Wall/Steel Roof Tallahassee I 1973 149,600 Y 82% 18.7 730 21 1 Y Masonry Wall/Tar & Gravel Roof Tallahassee II 1975 43,600 Y 98% 4.0 236 7 1 Y Masonry Wall/Tar & Gravel Roof Port St. Lucie 1985 60,000 Y 77% 4.0 599 12 1 N Steel Bldg./Steel Roof Deltona 1984 60,000 Y 84% 5.0 452 5 1 Y Masonry Wall/Shingle Roof Jacksonville I 1985 40,000 Y 93% 2.7 296 14 1 Y Masonry Wall/Tar & Gravel Roof Orlando I 1988 53,875 Y 90% 2.8 603 3 2 Y Steel Bldg./Steel Roof Ft. Lauderdale 1985 103,000 Y 91% 7.6 646 7 1 Y Steel Bldg./Steel Roof West Palm l 1985 49,000 Y 84% 3.2 412 6 1 N Steel Bldg./Steel Roof Melbourne I 1986 61,787 Y 95% 8.3 605 11 1 Y Masonry Wall/Shingled Roof Pensacola I 1983 105,127 Y 80% 7.5 976 13 1 Y Steel Bldg./Steel Roof Pensacola II 1986 57,355 Y 88% 3.4 509 9 1 Y Steel Bldg./Steel Roof Melbourne II 1986 55,755 Y 93% 3.4 657 11 1 N Steel Bldg./Steel Roof Jacksonville II 1987 53,225 Y 100% 4.4 465 11 1 Y Masonry/Steel Roof Pensacola III 1986 63,250 Y 81% 6.1 510 12 1 N Steel Bldg./Steel Roof Pensacola IV 1990 39,825 Y 91% 2.7 280 9 1 Y Masonry/Steel Roof Pensacola V 1990 38,850 Y 66% 2.6 324 4 1 Y Masonry/Steel Roof Tampa I 1989 60,202 Y 93% 3.3 889 6 1 N Masonry/Steel Roof Tampa II 1985 55,911 Y 86% 2.9 794 10 1 N Masonry/Steel Roof Tampa III 1988 45,507 Y 91% 2.2 689 14 1 N Masonry/Steel Roof Orlando II 1986 135,000 Y 74% 8.5 1,359 20 1 Y Masonry Wall/Steel Roof Ft. Myers I 1988 28,068 Y 78% 1.1 272 6 2 Y Steel Bldg./Steel Roof Ft. Myers II 1991/94 23,053 Y 81% 1.9 314 2 1 Y Masonry/Steel Roof Tampa IV 1985 60,675 Y 77% 4.0 633 10 1 Y Masonry/Steel Roof West Palm II 1986 33,120 Y 89% 2.3 395 9 1 Y Masonry/Steel Roof Ft. Myers III 1986 35,435 Y 84% 2.4 261 9 1 Y Masonry/Steel Roof Lakeland II 1988 41,860 Y 96% 4.0 446 9 1 N Masonry Wall/Steel Roof Ft. Myers IV 1987 60,000 Y 94% 4.5 289 4 1 Y Masonry/Steel Roof Jacksonville III 1987 102,500 Y 78% 5.9 786 13 1 Y Masonry Wall/Shingle Roof Jacksonville IV 1985 43,865 Y 83% 2.7 527 7 1 Y Steel Bldg./Steel Roof Jacksonville V 1987/92 55,400 Y 97% 2.9 514 13 2 Y Steel Bldg./Masonry Wall/Steel Roof Ft. Myers-Mall 1991/94 19,901 Y N/A 1.3 274 4 1 Y Masonry/Steel Roof Orlando III 1975 60,000 Y 89% 3.2 487 8 2 N Masonry Wall/Steel Roof Orlando IV 1984 37,372 Y 90% 2.8 341 6 1 Y Steel Bldg/Steel Roof Delray I-Mini 1969 50,395 Y 99% 3.5 495 3 1 Y Masonry Wall/Concrete Roof Delray II-Safeway 1980 71,218 Y 94% 4.3 774 17 1 Y Masonry Wall/Concrete Roof Tampa-E. Hillsborough 1985 84,740 N N/A 5.3 733 16 1 Y Masonry Wall/Metal Roof Titusville 1986/90 54,390 N N/A 6.0 417 9 1 Y Metal Wall/Shingle Roof Indian Harbor Beach 1985 66,588 Y N/A 4.0 729 15 1 N Masonry Wall/Metal Roof Vero Beach 1997 34,450 N N/A 1.9 316 4 1 N Masonry Wall/Metal Roof Georgia Savannah 1981 58,781 Y 82% 5.4 527 11 1 Y Masonry Wall/Steel Roof Atlanta-Metro I 1988 69,075 Y 81% 3.9 539 5 1 Y Steel Bldg./Steel Roof Atlanta-Metro II 1988 45,100 Y 82% 3.9 375 6 1 Y Steel Bldg./Steel Roof Atlanta-Metro III 1988 55,475 Y 84% 5.3 483 9 1 Y Steel Bldg./Steel Roof Atlanta-Metro IV 1989 41,724 Y 92% 3.5 304 7 1 Y Steel Bldg./Steel Roof Atlanta-Metro V 1988 38,082 Y 84% 4.2 372 3 1 Y Masonry Wall/Tar & Gravel Roof Atlanta-Metro VI 1986 51,375 Y 79% 3.6 458 7 1 Y Steel Bldg./Steel Roof Atlanta-Metro VII 1981 43,400 Y 77% 2.5 324 9 2 Y Masonry Wall/Tar & Gravel Roof Atlanta-Metro VIII 1975 41,400 Y 85% 3.3 452 6 2 Y Masonry Wall/Tar & Gravel Roof Augusta I 1988 52,300 Y 85% 4.0 407 13 1 Y Steel Bldg./Steel Roof Macon I 1989 40,700 Y 92% 3.2 356 14 1 Y Steel Bldg./Steel Roof Augusta II 1987 45,700 Y 87% 3.5 377 4 1 Y Masonry Wall/Steel Roof Atlanta-Metro IX 1988 56,725 Y 81% 4.6 409 6 1 Y Steel Bldg./Steel Roof Atlanta-Metro X 1988 45,425 Y 88% 6.8 391 9 1 N Steel Bldg./Steel Roof Macon II 1989/94 58,750 Y 88% 14.0 535 11 1 Y Steel Bldg./Steel Roof Savannah II 1988 50,975 Y 75% 2.6 484 8 1 Y Masonry Wall/Steel Roof Atlanta-Alpharetta 1994 80,265 Y 76% 5.8 555 8 1&2 Y Steel Bldg./Steel Roof Atlanta-Marietta 1996 59,450 Y 95% 6.0 451 8 1&2 Y Steel Bldg./Steel Roof Atlanta-Doraville 1995 67,275 N 90% 4.9 632 8 1&2 Y St&Masonry Bldg/Steel Roof Ft. Oglethorpe 1989 45,290 N N/A 3.3 448 6 1 Y Masonry Wall/Metal Roof Louisiana Baton Rouge-1 1982 72,100 N 97% 2.5 419 12 1 Y Masonry Wall/Metal Roof Baton Rouge-2 1985 44,735 N 98% 2.8 443 9 1 N Masonry Wall/Steel Roof Maryland Salisbury 1979 34,350 Y 70% 3.0 418 10 1 N Masonry Wall/Tar & Gravel Roof Baltimore I 1984 22,233 Y 85% 1.9 347 2 3 N Masonry Wall/Shingled Roof Baltimore II 1988 63,915 Y 93% 2.2 526 2 4 Y Masonry Wall/Tar & Gravel Roof Baltimore III 1990 53,171 Y 80% 3.1 686 8 1 Y Steel Bldg./Steel Roof Massachusetts New Bedford 1982 41,980 Y 90% 3.4 408 7 1 Y Steel Bldg./Steel Roof Springfield 1986 41,339 Y 80% 4.7 337 5 1 N Masonry Wall/Shingle Roof Boston-Metro I 1980 37,575 Y 92% 2.0 403 3 2 N Masonry Wall/Tar & Gravel Roof Boston-Metro II 1986 36,900 Y 97% 3.6 428 8 2 N Masonry Wall/Tar & Gravel Roof Northbridge 1988 39,175 N N/A 3.5 283 10 1 N Metal Wall/Metal Roof Salem 1979 53,400 N N/A 2.0 496 2 2 Y Steel Wall/Metal Roof Michigan Grand Rapids 1976 57,900 Y 85% 5.4 526 9 1 Y Masonry Wall/Steel Roof Grand Rapids II 1983 32,300 Y 83% 8.0 296 6 1 N Masonry & Steel Walls Kalamazoo 1978 58,214 Y 78% 11.6 607 14 1 Y Steel Bldg/Steel & Shingle Roof Lansing 1987 43,943 Y 87% 3.8 426 9 1 Y Steel Bldg/Steel Roof Holland 1978 95,088 Y 76% 13.6 676 18 1 Y Masonry Wall/Steel Roof Waterford-Highland 1978 140,850 N N/A 16.6 1739 16 1 Y Masonry Wall/Metal Roof Mississippi Jackson I 1990 41,900 Y 92% 2.0 344 6 1 Y Masonry/Steel Roof Jackson II 1990 38,775 Y 86% 2.1 308 9 1 Y Masonry/Steel Roof Jackson III 1995 62,052 N N/A 1.3 426 2 1 N Metal Wall/Metal Roof North Carolina Charlotte 1986 37,051 Y 86% 2.9 337 6 1 Y Steel Bldg./Steel Roof Fayetteville 1980 92,800 Y 66% 6.2 1,160 2 1 Y Steel Bldg./Steel Roof Greensboro 1986 42,900 Y 66% 3.4 415 5 1 Y Steel Bldg./Mas. Wall/Steel Roof Raleigh I 1985 57,750 Y 84% 5.0 569 8 2 Y Steel Bldg./Steel Roof Raleigh II 1985 33,150 Y 77% 2.5 329 8 1 Y Steel Bldg./Steel Roof Charlotte II 1995 48,750 Y 58% 5.6 494 7 1 Y Masonry Wall/Steel Roof Charlotte III 1995 31,200 Y 73% 2.9 346 6 1 Y Masonry Wall/Steel Roof Greensboro I 1995 32,198 Y 83% 1.0 312 7 1 N Metal Wall/Metal Roof Greensboro II 1997 9,755 Y 74% 2.5 92 2 1 N Metal Wall/Metal Roof Greensboro-High Point 1993 58,035 N N/A 2.5 538 9 1 N Steel Wall/Metal Roof Durham-Cornwallis 1990/96 79,260 N N/A 4.7 666 9 1 Y Masonry Wall/Metal Roof Durham-Hillsborough 1988/91 67,941 N N/A 5.0 624 5 1 Y Metal Wall/Metal Roof New Hampshire Salem-Policy 1980 62,075 N N/A 8.7 546 9 1 Y Masonry Wall/Gravel/MetalRoof New York Middletown 1988 30,000 Y 95% 2.8 281 4 1 N Steel Bldg./Steel Roof Buffalo I 1981 76,000 Y 93% 5.1 541 10 1 Y Steel Bldg./Steel Roof Rochester I 1981 43,000 Y 82% 2.9 407 5 1 Y Steel Bldg./Steel Roof Rochester II 1980 39,000 Y 88% 3.5 250 9 1 N Masonry Wall/Shingle Roof Buffalo II 1984 53,525 Y 96% 6.2 430 12 1 Y Steel Bldg./Steel Roof Syracuse l 1987 70,200 Y 83% 7.5 767 16 1 N Steel Bldg./Steel Roof Syracuse II 1983 54,590 Y 78% 3.6 422 10 1 Y Steel Bldg./Shingled Roof Rochester III 1990 51,826 Y 92% 2.7 421 1 1 N Masonry Wall/Shingle Roof Harriman 1989/95 66,230 N N/A 6.1 649 10 1 Y Metal Wall/Metal Roof Ohio Youngstown 1980 48,825 Y 94% 5.8 380 5 1 Y Steel Bldg./Steel Roof Cleveland- I 1980 48,250 Y 73% 6.4 359 9 1 Y Steel Bldg./Steel Roof Cleveland II 1987 60,500 Y 86% 4.8 453 4 1 Y Steel Bldg./Steel Roof Cincinnati 1988 48,830 Y 94% 2.8 496 7 1 Y Masonry Wall/Steel Roof Dayton 1988 61,875 Y 87% 3.6 615 8 1 Y Masonry Wall/Steel Roof Youngstown II 1988 55,525 Y 69% 3.9 497 7 1 N Masonry Wall/Steel Roof Akron 1990 37,720 Y 90% 3.4 296 12 1 Y Masonry Wall/Steel Roof Cleveland III 1986 68,110 Y 89% 3.4 570 12 1 Y Masonry Wall/Steel Roof Cleveland IV 1978 65,125 Y 97% 3.5 554 5 1 Y Masonry Wall/Steel Roof Cleveland V 1979 73,450 Y 89% 3.1 646 9 1&2 Y Masonry Wall/Rolled Roof Cleveland VI 1979 46,625 Y 91% 2.6 361 8 1 Y Masonry Wall/Concrete Roof Cleveland VII 1977 69,750 Y 92% 4.3 628 13 1 Y Masonry Wall/Steel Roof Cleveland VIII 1970 45,275 Y 80% 5.7 395 6 1 Y Masonry Wall/Steel Roof Cleveland IX 1982 53,748 Y 80% 4.4 291 5 1 Y Masonry Wall/Steel Roof Cleveland X 1989 47,050 Y 84% 5.8 380 6 1 N Metal Wall/Metal Roof Warren-Elm 1986 60,230 N N/A 7.3 498 8 1 Y Masonry Wall/Metal Roof Warren-Youngstown 1986 59,137 N N/A 5.0 550 11 1 N Masonry Wall/Metal Roof Pennsylvania Allentown 1983 30,000 Y 98% 6.3 277 7 1 Y Masonry Wall/Shingle Roof Sharon 1975 37,200 Y 91% 3.0 314 5 1 Y Steel Bldg./Steel Roof Harrisburg I 1983 48,746 Y 92% 4.1 475 9 1 Y Masonry Wall/Steel Roof Harrisburg II 1985 58,800 Y 89% 9.2 299 10 1 Y Masonry Wall/Steel Roof Pittsburgh 1990 57,375 Y 87% 3.4 551 6 1 Y Steel Bldg./Steel Roof Pittsburgh II 1983 75,875 Y 84% 4.8 732 4 2 Y Masonry Wall/Shingled Roof Harrisburg III 1984 63,740 N 95% 4.1 614 9 1 Y Masonry Wall/Metal Roof Rhode Island Providence 1984 37,825 Y 84% 3.7 397 7 1 Y Masonry Wall/Tar & Gravel Roof East Greenwich 1984/88 71,190 N N/A 4.9 670 9 1 Metal Wall/Metal Roof South Carolina Charleston I 1985 51,445 Y 87% 3.3 421 11 1 Y Steel Bldg./Mas. Wall/Steel Roof Columbia I 1985 47,650 Y 69% 3.3 410 7 1 Y Steel Bldg./Steel Roof Columbia II 1987 59,000 Y 81% 6.0 464 8 1 N Steel Bldg./Steel Roof Columbia III 1989 41,200 Y 77% 3.5 354 5 2 Y Steel Bldg./Steel Roof Columbia IV 1986 56,000 Y 83% 5.6 446 7 1 Y Steel Bldg./Steel Roof Spartanburg 1989 49,500 Y 83% 3.6 350 6 1 Y Steel Bldg./Steel Roof Charleston II 1985 41,038 Y 96% 2.2 335 10 1 Y Masonry Wall/Steel Roof Tennessee Hixon 1985 42,175 N N/A 2.7 345 3 1 Y Masonry Wall/Metal Roof Chattonooga-Lee Hwy 1987 37,250 N N/A 3.3 390 6 1 Y Masonry Wall/Metal Roof Chattanooga-Hwy 58 1985 35,405 N N/A 2.4 325 4 1 Y Masonry Wall/Metal Roof Hendersonville 1986/97 93,665 N N/A 5.7 652 16 1 Y Masonry or Metal Wall/Metal Roof Texas Arlington I 1987 45,965 Y 92% 2.3 411 7 1 Y Masonry Wall/Steel Roof Arlington II 1986 67,100 Y 75% 3.8 330 11 1 Y Masonry Wall/Steel Roof Ft. Worth 1986 40,825 Y 86% 2.4 356 3 1 Y Masonry Wall/Asphalt Roof San Antonio I 1986 48,280 Y 84% 3.9 486 12 1 Y Masonry Wall/Steel Roof San Antonio II 1986 40,550 Y 81% 1.9 287 7 1 Y Masonry Wall/Steel Roof San Antonio III 1981 48,782 Y 84% 2.6 495 5 1 Y Masonry Wall/Steel Roof Universal 1985 35,100 Y 87% 2.4 427 8 1 Y Masonry Wall/Steel Roof San Antonio IV 1995 44,600 Y 67% 5.4 372 11 1 Y Steel Bldg/Steel Roof Houston I 1993/95 69,650 Y 70% 6.4 543 5 1 Y Metal Wall/Steel Roof Houston II 1995 61,861 Y 86% 6.3 541 1 1 Y Metal Wall/Steel Roof Houston III 1995 35,600 Y 69% 1.8 332 1 1 Y Metal Wall/Steel Roof Dallas-Skillman 1975 121,707 Y 85% 5.9 1,111 8 1&2 Y Masonry Wall/Steel Roof Dallas-Cent. 1977 104,303 Y 84% 6.7 1,125 8 1&2 Y Masonry Wall/Steel Roof Dallas-Samuell 1975 79,056 Y 93% 3.8 796 6 1&2 Y Masonry Wall/Steel Roof Dallas-Hargrove 1975 71,938 Y 88% 3.1 747 5 1&2 Y Masonry Wall/Steel Roof Houston IV 1984 75,500 Y 85% 4.1 670 9 1 Y Metal Wall/Metal Roof Katy 1994 44,175 N N/A 8.6 439 10 1 Y Metal Wall/Metal Roof Humble 1986 61,864 N N/A 2.3 599 6 1 Y Masonry Wall/Metal Roof Virginia Newport News I 1988 52,944 Y 93% 3.2 451 7 1 Y Steel Bldg./Steel Roof Alexandria 1984 77,310 Y 78% 3.2 1,105 4 2 Y Masonry Wall/Tar & Gravel Roof Norfolk I 1984 49,950 Y 89% 2.7 357 7 1 Y Steel Bldg./Steel Roof Norfolk II 1989 45,375 Y 91% 2.1 363 4 1 Y Masonry Wall/Steel Roof Richmond 1987 52,035 Y 84% 2.7 524 5 1 Y Masonry Wall/Steel Roof Newport News II 1988/93 63,125 Y 95% 4.7 384 8 1 Y Steel Bldg./Steel Roof Lynchburg I 1982 47,200 Y 85% 5.3 429 10 1 Y Masonry Wall/Steel Roof Lynchburg II 1985 41,250 Y 66% 2.3 380 4 1 Y Masonry Wall/Steel Roof Lynchburg III 1987 22,000 Y 81% 1.5 182 3 1 N Masonry Wall/Metal Roof Christiansburg 1985/90 36,673 Y 84% 3.2 327 6 1 Y Masonry Wall/Metal Roof Chesapeake 1988/95 35,901 Y 81% 12.0 271 7 1 Y Metal Wall/Steel Roof Danville 1988 49,776 Y 81% 3.2 408 8 1 N Steel Wall/Metal Roof Chesapeake-Military 1996 59,355 N N/A 3.0 600 3 1 N Masonry Wall/Metal Roof Chesapeake-Volvo 1995 63,918 N N/A 4.0 544 4 1 N Masonry Wall/Metal Roof Virginia Beach-Shell 1991 52,571 N N/A 2.5 587 5 1 N Masonry Wall/Metal Roof Virginia Beach-Central 1993/95 97,522 N N/A 5.0 990 6 1 N Masonry Wall/Metal Roof Norfolk-Naval Base 1975 126,691 N N/A 5.2 1,259 11 1 N Masonry Wall/Metal Roof Lynchburg-Timberlake 1990/96 48,773 N N/A 5.2 450 7 1 N Masonry Wall/Metal Roof Total for all Properties 10,246,982 807.4 1,477 91,789
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Through Holdings, a wholly-owned subsidiary of the Company and the sole general partner of the Operating Partnership, the Company manages the business of the Operating Partnership. 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 12,330,963 Units which constitute 96.45% of all outstanding Units. No other person holds more than a 5% beneficial ownership in the Operating Partnership. ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS 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 Item 5 reflects information with respect to the directors and executive officers of the Company and Holdings. Robert J. Attea (Age 56): Chairman of the Board and Chief Executive Officer of the Company and Holdings. Director of the Company and Holdings since the completion of the Initial Offering on June 25, 1995. From 1988 to 1995 Mr. Attea served as President and Chief Executive Officer of the Company and was re-appointed Chief Executive Officer of the Company and Holdings in March, 1997. From 1985 to 1988, he served as Director of Acquisitions and Vice President of Property Management. Kenneth F. Myszka (Age 49): President and Chief Operating Officer of the Company and Holdings. Director of the Company and Holdings since the completion of the Initial Offering on June 25, 1995. From completion of the Initial Offering to the present, Mr. Myszka has served as President and was the Chief Executive Officer of the Company and Holdings until March 1997 at which time he became the Chief Operating Officer. From 1982 to 1995, Mr. Myszka served as Senior Vice President of the Company's predecessor. Charles E. Lannon (Age 50): Director of the Company and Holdings since the completion of the Initial Offering on June 25, 1995. Mr. Lannon was the predecessor company's Senior Vice President--Marketing from 1982 to 1995. Mr. Lannon left the employ of the Company to become the Chief Executive Officer of an unrelated business owned by Mr. Lannon and other Company founders. John E. Burns (Age 51): Director of the Company since the completion of the Initial Offering on June 25, 1995. Director of Holdings since April 1, 1998. Since 1980, John Burns has been President and founder of Sterling Ltd. Co., an Ohio based tax and financial counseling firm of which he also currently serves as Chairman. Mr. Burns also serves as Chairman and founder of Sterling Asset Management, Co., managing client assets in excess of $130 million and President of SLC Capital, Inc., a general partner of several investment partnerships. In addition, Mr. Burns serves as Chairman of Fitworks Holding, LLC and is Chairman of the Champion Boxed Beef Co. Michael A. Elia (Age 46): Director of the Company since the completion of the Initial Offering on June 25, 1995. Director of Holdings since April 1, 1998. Since 1984 Michael Elia has been President, Chief Executive Officer and a director of Sevenson Environmental Services, Inc., an environmental remediation contractor. He is also President and a director of Sevenson International Services, Inc. and a director of Sevenson Industrial Services, Inc., affiliates of Sevenson Environmental Services, Inc. Anthony P. Gammie (Age 63): Director of the Company since the completion of the Initial Offering on June 25, 1995. Director of Holdings since April 1, 1998. From 1985 through 1996, Mr. Gammie was Chairman of the Board of Bowater Incorporated. During the past 5 years he has served as a director of Alumax, Inc., The Bank of New York and The American Forest & Paper Association. He is currently a director of Lipper/Leumi High Income Bond Fund, Inc. located in Curacao, Netherlands Antilles. David L. Rogers (Age 42): From June 25, 1995 to the present, David L. Rogers has served as the Company's and Holding's Chief Financial Officer and Secretary. From 1988 to 1995, Mr. Rogers served as the Company's Vice President of Finance. From 1984 to 1988, Mr. Rogers served as Controller and Due Diligence Officer. ITEM 6. 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 provided in this Item 6 reflects compensation paid to the Directors and executive officers of the Company. Compensation of Directors The Company pays its Directors who are not also officers of the Company an annual fee of $12,500 in cash. Outside Directors are also paid a meeting fee of $1,000 for each special meeting attended. In addition, the Company will reimburse all Directors for expenses incurred in attending meetings. Pursuant to the Directors' Option Plan, each Director who is not an officer or employee of the Company is granted, effective as of the Director's initial election or appointment, a ten year option to acquire 2,500 Common Shares at the fair market value on the date of grant, and will, as of the close of each annual shareholders' meeting thereafter, be granted a ten-year option to acquire an additional 2,500 Common Shares at the fair market value of the Common Stock on the date of grant. The initial options for 2,500 Common Shares were exercisable one year from the date of grant, June 22, 1996; the Directors' options awarded thereafter vest immediately. The exercise price is payable in cash. Executive Officers The following table sets forth the compensation awarded to each of the Executive Officers of the Company during each of the fiscal years ended December 31, 1997, 1996 and 1995. SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Awards Securities Restricted Underlying Fiscal Base Stock Option/SARS Name and Principal Position Year Salary($) Bonus($) Award(s) (#) Robert J. Attea 1997 $131,250 $ 0 $0 0 Chairman of the Board and 1996 110,000 40,000 0 0 Chief Executive Officer 1995 98,425 12,500 0 45,000 Kenneth F. Myszka 1997 131,250 0 0 0 President and 1996 110,000 40,000 0 0 Chief Operating Officer 1995 98,425 12,500 0 45,000 David L. Rogers 1997 131,250 0 0 0 Chief Financial Officer 1996 110,000 40,000 0 0 and Secretary 1995 98,425 12,500 83,486 45,000 FISCAL YEAR END OPTION VALUES Number of Unexercised Value of Options at Options at Year End (#) Year-End($)(1) Name Exercisable Unexercisable Exercisable Unexercisable Robert J. Attea 22,500 22,500 $212,344 $212,344 Kenneth F. Myszka 22,500 22,500 $212,344 $212,344 David L. Rogers 22,500 22,500 $212,344 $212,344 ______________ (1) Based upon the closing price of the Company's Stock on the New York Stock Exchange on December 31, 1997 at $32.4375 per share and the grant price of $23.00 per share. Employment Agreements Concurrently with the Initial Offering, the Company entered into employment agreements with Messrs. Attea, Myszka and Rogers that require each of them to devote their full business time to the Company. Each employment agreement has a three year term with an automatic extension each year for an additional year. The employment agreements provide for certain severance payments in the event of the executive's death or disability, his termination without cause or his resignation with good reason. Each employment agreement prohibits the executive, during employment and during the two year period following termination of employment, from engaging in the self storage business. ITEM 7. CERTAIN TRANSACTIONS The Company has a Facilities Services Agreement with several businesses owned by the executive officers and Mr. Lannon, whereby such businesses pay for the use of certain common facilities in the Company's offices based upon an arm's-length charge. Charges under the Facilities Services Agreement are periodically reviewed by the Audit Committee of the Company's Board of Directors. The law firm of Phillips, Lytle, Hitchcock, Blaine & Huber LLP has represented and is currently representing the Company and the Operating Partnership. Robert J. Attea is the brother of a partner of Phillips, Lytle, Hitchcock, Blaine & Huber LLP. ITEM 8. LEGAL PROCEEDINGS Robert J. Amsdell, a former business associate of certain officers and directors of the Company, including Robert J. Attea, Charles E. Lannon, Kenneth F. Myszka and David L. Rogers, filed a lawsuit against the Company on June 13, 1995 in the United States District Court for the Northern District of Ohio in connection with the formation of the Company as a REIT and related transactions, as well as the Initial Offering. On April 29, 1996, Mr. Amsdell filed a first amended complaint and on September 24, 1997, a second amended complaint was filed. The complaint alleges, among other things, breach of fiduciary duty, breach of contract, breach of general partnership/joint venture arrangement, fraud and deceit, breach of duty of good faith and other causes of action including a declaratory judgment as to Mr. Amsdell's continuing interest in the Company. Mr. Amsdell 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 Mr. Amsdell claims to have a continuing interest) and an accounting. The first amended complaint also added Messrs. Attea, Lannon, Myszka and Rogers as additional defendants. The parties are currently involved in discovery. The Company intends to vigorously defend the lawsuit. Messers. Attea, Lannon, Myszka and Rogers have agreed to indemnify the Company for any loss arising from the lawsuit. The Operating Partnership believes that the actual amount of Mr. Amsdell'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. ITEM 9. MARKET PRICE AND DISTRIBUTIONS AND RELATED SECURITY HOLDER MATTERS There is no established public trading market for the Units. As of June 15, 1998, there were 14 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 June 30, 1995 $.025 September 30, 1995 .505 December 31, 1995 .505 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 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 10. 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 June 26 and July 25, 1995, the Company transferred $148,244,000 to the Operating Partnership in exchange for 7,466,749.29 Units and Holdings transferred $1,496,000 to the Operating Partnership in exchange for 75,421.71 general partnership units. - 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 June 12, 1998, Lawrence Moss and William Caldwell transferred their interest in a self-storage facility to the Operating Partnership in exchange for 10,000 units. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED General The following description is only a summary of certain provisions of the Partnership Agreement and is subject to, and qualified in its entirety by, the Partnership Agreement, a copy of which has been filed with the Securities and Exchange Commission. Voting Rights Under the Partnership Agreement, the Operating Partnership's limited partners (the "Limited Partners") do not have voting rights relating to the operation and management of the Operating Partnership except in connection with certain amendments to the Partnership Agreement, dissolution of the Operating Partnership and the sale or exchange of all or substantially all of the Operating Partnership's assets, including mergers or other combinations. Vote Required to Dissolve the Operating Partnership Under Delaware law and the terms of the Partnership Agreement, the Operating Partnership may be dissolved upon the consent of the general partner of the Operating Partnership (the "General Partner") and the vote of Limited Partners (including the Company) holding at least 75% of the percentage interests of the Limited Partners. Vote Required to Sell Assets or Merge Under the Partnership Agreement, except in certain circumstances, the Operating Partnership may not sell, exchange, transfer or otherwise dispose of all or substantially all of its assets, including by way of merger or consolidation or other combination of the Operating Partnership, without the consent of the Limited Partners (including the Company) holding 75% or more of the percentage interests of the Limited Partners. Currently, the Company holds 94.7% of the percentage interests of the Limited Partners. Meetings of the Partners Meetings of the partners may be called by the General Partner and must be called by the General Partner upon receipt of a written request by Limited Partners holding 20% or more of the partnership interests. The notice must state the nature of the business to be transacted, and must be given to all partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Partners can act without a meeting with the written consent of holders of 75% or more of the percentage interests of the partners. Transferability of Interests Holdings may not transfer any of its general partner interest or withdraw as the general partner of the Operating Partnership or transfer any of its general partnership units, and the Company may not transfer any of its Units, except in certain specifically identified types of transactions, including under certain circumstances in the event of a merger, consolidation or sale of all or substantially all of the assets of the Company or the General Partner. The Limited Partners (other than the Company) generally may transfer their interests in the Operating Partnership, in whole or in part, without the consent of the General Partner. No Limited Partner has the right to substitute a transferee as a Limited Partner in its place without the consent of the General Partner, which consent may be withheld in the sole discretion of the General Partner. If the General Partner does not consent to the admission of a permitted transferee, the transferee shall be considered an assignee of an economic interest in the Operating Partnership but will not be a holder of Units for any other purpose; as such the assignee will not be permitted to vote on any affairs or issues on which a Limited Partner may vote. Issuance of Additional Units The Operating Partnership is authorized to issue Units and other partnership interests to its partners or to other persons for such consideration and on such terms and conditions as the General Partner, in its sole discretion, may deem appropriate. In addition, the Company may cause the Operating Partnership to issue to the Company additional Units, or other partnership interests in different series or classes which may be senior to the Units, in conjunction with an offering of securities of the Company having substantially similar rights and in which the proceeds thereof are contributed to the Operating Partnership. No Limited Partner has any preemptive, preferential or similar rights with respect to additional capital contributions to the Operating Partnership or the issuance or sale of any interests therein. Redemption Rights Pursuant to the Partnership Agreement, the Limited Partners (other than the Company) have redemption rights which, subject to certain limitations, enable them to cause the Operating Partnership to redeem each Unit for cash equal to the market value of a Common Share or, at the Company's election, the Company may purchase each Unit offered for redemption for cash or one Common Share (the "Redemption Rights"). Management Liability and Indemnification The Partnership Agreement generally provides that the General Partner will incur no liability to the Operating Partnership or any Limited Partner for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. In addition, the General Partner is not responsible for any misconduct or negligence on the part of its agents provided the General Partner appointed such agents in good faith. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors, and any action it take or omits to take in reliance upon the opinion of such persons, as to matters which the General Partner reasonably believes to be within their professional or expert competence, shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. The Partnership Agreement also provides for indemnification of the General Partner, the directors and officers of the General Partner, and such other persons as the General Partner may from time to time designate, against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney's fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership in which such person may be involved. Amendment Amendments to the Partnership Agreement may be proposed by the General Partner or by Limited Partners holding twenty percent (20%) or more of the partnership interests and generally require approval of Limited Partners (including the Company) holding a majority of the outstanding Limited Partner interests. Certain amendments that would, among other things, convert a Limited Partner's interest to a General Partner interest, modify the limited liability of a Limited Partner in a manner adverse to such Limited Partner, alter rights of a Limited Partner to receive distributions or allocations, alter or modify the Redemption Rights in a manner adverse to a Limited Partner, or cause the termination of the Operating Partnership prior to the expiration of the term of the Partnership Agreement, require the consent of each Limited Partner adversely affected by such amendment. Management Fees and Expenses Holdings may not be compensated for its services as General Partner. However, Holdings and/or the Company may be reimbursed for all expenses that they incur relating to the ownership and operation of, or for the benefit of, the Operating Partnership. Distributions and Allocations 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. Upon liquidation of the Operating Partnership, after payment of, or adequate provision for, debts and obligations of the Operating Partnership, including any partner loans, any remaining assets of the Operating Partnership will be distributed to all partners with positive capital accounts in accordance with their respective positive capital account balances. Profit and loss of the Operating Partnership for each fiscal year of the Operating Partnership generally will be allocated among the partners in accordance with their respective interest in the Operating Partnership. Taxable income and loss will be allocated in the same manner, subject to compliance with the provisions of Code sections 704(b) and 704(c) and Treasury Regulations promulgated thereunder. Term The Operating Partnership will continue until December 31, 2094, or until sooner dissolved upon (i) withdrawal of the General Partner (unless the Limited Partners elect to continue the Operating Partnership), (ii) through December 31, 2053, an election to dissolve the Operating Partnership made by the General Partner with the consent of the Limited Partners (including the Company) holding 75% or more of the limited partner interests in the Operating Partnership, (iii) on or after January 1, 2054, an election to dissolve the Operating Partnership made by the General Partner in its sole and absolute discretion, (iv) entry of a decree of judicial dissolution, (v) the sale of all or substantially all of the assets of the Operating Partnership, or (vi) a final and non-appealable judgment ruling the General Partner bankrupt or insolvent (unless the Limited Partners elect to continue the Operating Partnership prior to the entry of such order or judgment). Tax Matters Pursuant to the Partnership Agreement, the General Partner will be the tax matters partner of the Operating Partnership and, as such, will have authority to handle tax audits and to make tax elections under the Code on behalf of the Operating Partnership. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Partnership Agreement generally provides that the General Partner will incur no liability to the Operating Partnership or any Limited Partner for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. In addition, the General Partner is not responsible for any misconduct or negligence on the part of its agents provided the General Partner appointed such agents in good faith. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors, and any action it take or omits to take in reliance upon the opinion of such persons, as to matters which the General Partner reasonably believes to be within their professional or expert competence, shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. The Partnership Agreement also provides for indemnification of the General Partner, the directors and officers of the General Partner, and such other persons as the General Partner may from time to time designate, against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney's fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership in which such person may be involved. The Operating Partnership is managed by Holdings, which serves as general partner of the Operating Partnership. Holdings is a wholly-owned subsidiary of the Company. The Company is a Maryland corporation. Under Maryland law, a corporation formed in Maryland is permitted to limit, by provision in its Articles of Incorporation, the liability of directors and officers so that no director or officer of the Company shall be liable to the Company or to any shareholder for money damages except to the extent that (i) the director or officer actually received an improper benefit in money, property, or services, for the amount of the benefit or profit in money, property, or services actually received, or (ii) a judgment or other final adjudication adverse to the director or officer is entered in a proceeding based on a finding in a proceeding that the director's or officer's action was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The Company's Articles of Incorporation have incorporated the provisions of such law limited the liability of directors and officers. Holding's Certificate of Incorporation contains similar provisions that are consistent with Delaware law. The Company's Bylaws require it to indemnify, to the full extent of Maryland law, any present or former director or officer (and such person's spouse and children) (an "Indemnitee") who is or was a party or threatened to be made a party to any proceeding by reason of his or her service in that capacity, against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the proceeding, provided that the Company shall have received a written affirmation by the Indemnitee that he or she has met the standard of conduct necessary for indemnification by the Company as authorized by the Bylaws. The Company shall not be required to indemnify an Indemnitee if (a) it is established that (i) the Indemnitee's act or omission was committed in bad faith or was the result of active or deliberate dishonesty, (ii) the Indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of a criminal proceeding, the Indemnitee had reasonable cause to believe that the Indemnitee's act or omission was unlawful, (b) the proceeding was initiated by the Indemnitee, (c) the Indemnitee received payment for such expenses pursuant to insurance or otherwise or (d) the proceeding arises under Section 16 of the Securities Exchange Act of 1934, as amended. Pursuant to the Bylaws, the Indemnitee is required to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that the standard of conduct was not met. The Company's Bylaws also permit the Company to provide such other and further indemnification or payment or reimbursement of expenses as may be permitted by the MGCL or to which the Indemnitee may be entitled. Holdings' bylaws contain similar provisions that are consistent with Delaware law. Each of the Company's officers and directors (the "Indemnitees") has entered into an indemnification agreement with the Company (the "Indemnitor"). The indemnification agreements require, among other things, that the Indemnitor indemnify the Indemnitees to the fullest extent permitted by law and advance to the Indemnitees all related expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. Under these agreements, the Indemnitors also must indemnify and advance all expenses incurred by the Indemnitees seeking to enforce their rights under the indemnification agreements, and cover such Indemnitees under the Company's director's and officers' liability insurance. Although the form of indemnification agreement offers substantially the same scope of coverage afforded by provisions in the Company's Articles of Incorporation and Bylaws, it provides greater assurance to directors and officers that indemnification will be available because, as a contract, it cannot be modified unilaterally in the future by the Board of Directors or by the Company's shareholders to eliminate the rights it provides. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Financial Statements Table of Contents" on page F-1 of this Form 10. See also the Company's Current Report on Form 8-K filed October 24, 1997, Amended Current Report on Form 8-K/A dated April 17, 1998, and Current Report on Form 8-K dated June 10, 1998 with respect to the historical summaries of combined gross revenue and direct operating expenses of certain acquired and acquisition Properties. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements and Financial Statement Schedules See "Financial Statements Table of Contents" on page F-1 of this Form 10. (b) 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. 27.1* Financial Data Schedule _________________ * Previously filed. ** 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. Financial Statements Table of Contents Sovran Acquisition Limited Partnership Page I Pro Forma Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . .F-2 Unaudited Pro Forma Balance Sheet as of March 31, 1998. . . . . . . . .F-3 Unaudited Pro Forma Statement of Operations for the three months ended March 31, 1998 . . . . . . . . . . . . . . . . . .F-4 Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 1997. . . . . . . . . . . . . . . . . . . . .F-5 Notes to Unaudited Pro Forma Financial Statements . . . . . . . . . . .F-6 II Historical Balance Sheet at March 31, 1998 (unaudited) . . . . . . . . . . . . . .F-8 Statements of Operations of the Operating Partnership for the three months ended March 31, 1998 and 1997 (unaudited). . . . . .F-9 Statements of Cash Flows of the Operating Partnership for the three months ended March 31, 1998 and 1997 (unaudited). . . . . F-10 Notes to Financial Statements March 31, 1998 (unaudited). . . . . . . F-11 Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . F-14 Balance Sheets at December 31, 1997 and 1996. . . . . . . . . . . . . F-15 Statements of Operations of the Operating Partnership for the Years ended December 31, 1997 and 1996 and the period from June 26, 1995 to December 31, 1995 and the Company Predecessors for the period January 1, 1995 to June 25, 1995 . . F-16 Combined Statement of Owners' Equity for the Company Predecessors for the Period January 1, 1995 to June 25, 1995 . . F-17 Statement of Partners' Capital of the Operating Partnership for the Years ended December 31, 1997 and 1996 and the period ended December 31, 1995. . . . . . . . . . . . . . . . . . . . . F-18 Statements of Cash Flows of the Operating Partnership for the Years ended December 31, 1997 and 1996 and the period from June 26, 1995 to December 31, 1995 and the Company Predecessors for the period January 1, 1995 to June 25, 1995 . . F-19 Notes to Financial Statements December 31, 1997 . . . . . . . . . . . F-20 III Historical Financial Statement Schedule Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . .F-30 Schedule of Combined Real Estate and Accumulated Depreciation . . . . .F-31 Sovran Acquisition Limited Partnership Pro Forma Financial Information The following unaudited Pro Forma Balance Sheet as of March 31, 1998 and unaudited Pro Forma Statements of Operations for the three months ended March 31, 1998 and the year ended December 31, 1997, have been prepared to reflect the Operating Partnership's acquisition or expected acquisition of self storage facilities and the adjustments described in the accompanying notes. The pro forma financial information is based on (i.) the historical financial statements of Sovran Acquisition Limited Partnership included in elsewhere in this Form-10 for the three months ended March 31, 1998 and the year ended December 31, 1997, (ii) the historical summaries of combined gross revenue and direct operating expenses included in the Company's 8-K Report filed October 24, 1997, (iii) the historical summaries of combined gross revenue and direct operating expenses included in the Company's 8-K/A Report dated April 17, 1998, and (iv) the historical summaries of combined gross revenue and direct operating expenses included in the Company's 8-K Report dated June 10, 1998 , and should be read in conjunction with those financial statements and notes thereto. The Pro Forma Combined Balance Sheet was prepared as if the 12 facilities that were purchased or are expected to be purchased after March 31, 1998, were acquired at that date. The Pro Forma Combined Statements of Operations were prepared as if the 44 self storage facilities acquired in 1997 and the 30 facilities acquired or expected to be acquired in 1998 were purchased at the beginning of 1997. The combined pro forma financial information is not necessarily indicative of the financial position or results of operations which actually would have occurred if such transactions had been consummated on the dates described, nor does it purport to represent the Company's future financial position or results of operations. Sovran Acquisition Limited Partnership Pro Forma Balance Sheet March 31, 1998 (in thousands) (unaudited) Facilities Sovran Acquired Pro Forma Acquisition Since Sovran Limited March 31, Acquisition Partnership 1998 Limited (Note 1) (Note 2) Partnership Assets Investment in storage facilities, net $ 376,792 $42,046 $418,838 Cash and cash equivalents 2,987 - 2,987 Accounts receivable 1,204 5 1,209 Prepaid expenses and other assets 3,484 19 3,503 Total Assets $ 384,467 $42,070 $426,537 ===================================== Liabilities Line of credit $ 88,000 $41,288 $129,288 Accounts payable and accrued liabilities 4,955 173 5,128 Deferred revenue 2,506 336 2,842 Accrued distributions 6,899 - 6,899 Mortgage payable 3,059 - 3,059 Total liabilities 105,419 41,797 147,216 Limited partners' capital interest 13,170 273 13,443 Partners' Capital General partner 5,244 - 5,244 Limited partner 260,634 - 260,634 Total partners' capital 265,878 - 265,878 Total liabilities and partners' capital $ 384,467 $ 42,070 $426,537 =====================================
Sovran Acquisition Limited Partnership Pro Forma Statement of Operations Three Months ended March 31, 1998 (in thousands, except unit information) (unaudited) Preacquisi- tion Pro Forma For Facilities Facilities Sovran Acquired in Acquired Pro Forma Acquisition Period ended Since 1998 Sovran Limited March 31, March 31, Facilities Acquisition Partnership 1998 1998 Pro Forma Limited (Note 1) (Note 3) (Note 5) Adjustments Partnership Revenues Rental Income $ 14,175 $ 950 $ 1,401 $ - $ 16,526 Interest and other income 200 28 21 - 249 Total revenue 14,375 978 1,422 - 16,775 Expenses Property operations and maintenance 2,818 223 286 - 3,327 Real estate taxes 1,188 76 87 - 1,351 General and administrative 854 43 - 8 (a) 905 Interest 1,215 435 - 645 (b) 2,295 Depreciation and amortization 2,097 146 - 211 (c) 2,454 Income before extraordinary item 6,203 55 1,049 (864) 6,443 Extraordinary Item - extinguishment of debt 350 - - - 350 Net Income $ 5,853 $ 55 $ 1,049 $ (864) $ 6,093 =================================================================== Earnings per unit before extraordinary item-basic $ 0.49 $ 0.50 Extraordinary item (0.03) (0.02) Earnings per unit - basic $ 0.46 $ 0.48 Earnings per unit - diluted $ 0.46 $ 0.47 Distributions declared per unit $ 0.54 $ 0.54 Units used in basic per unit calculation 12,733,076 12,784,572(d)
Sovran Acquisition Limited Partnership Pro Forma Statement of Operations Year Ended December 31, 1997 (in thousands, except unit information) (unaudited) 1997 Sovran Facilities Facilities Pro Forma Acquisition Preacquisi- Acquired 1998 Sovran Limited tion Pro in 1998 Facilities Acquisition Partnership Forma (Notes 3 Pro Forma Limited (Note 1) (Note 4) and 5) Adjustments Partnership Revenues Rental Income $ 48,584 $ 4,680 $11,922 $ - $ 65,186 Interest and other income 770 51 221 - 1,042 Total revenue 49,354 4,731 12,143 - 66,228 Expenses Property operations and maintenance 9,708 1,020 2,490 - 13,218 Real estate taxes 3,955 397 844 - 5,196 General and administrative 2,757 43 - 163 (a) 2,963 Interest 2,166 1,001 - 5,844 (b) 9,011 Depreciation and amortization 7,005 737 - 1,929 (c) 9,671 Net Income $ 23,763 $1,533 $8,809 $(7,936) $26,169 =================================================================== Earnings per unit - basic $ 1.97 $ 2.05 Earnings per unit - diluted $ 1.96 $ 2.04 Distributions declared per unit $ 2.12 $ 2.12 Units used in basic per unit calculation 12,090,141 12,784,572(d)
Sovran Acquisition Limited Partnership Notes to Pro Forma Financial Statements (unaudited) 1. Sovran Acquisition Limited Partnership The balance sheet and statements of operations as of March 31, 1998 and for the three months then ended and for the year ended December 31, 1997, include the accounts of Sovran Acquisition Limited Partnership included elsewhere in this Form-10. 2. Pro Forma Adjustments - Balance Sheet These adjustments reflect the 12 acquisitions that occurred subsequent to March 31, 1998 and were not included in the Sovran Acquisition Limited Partnership March 31, 1998 balance sheet. The facilities were purchased from unaffiliated parties for an aggregate purchase price of approximately $42 million. The acquisitions were funded by cash generated from operations, borrowings under the line of credit, and the issuance of Operating Partnership Units. 3. Facilities Acquired in Period Ended March 31, 1998 The statements of operations reflect the results of operations for the 18 facilities for the period not owned by the Operating Partnership during the three months ended March 31, 1998. 4. Facilities Acquired in 1997 - Statement of Operations The statements of operations for the 44 facilities acquired in 1997 reflects the results of operations for the 44 facilities up to the date acquired in 1997 and additional general and administrative, depreciation, and interest expense which would have resulted if the facilities were owned since January 1, 1997. 5. Facilities Acquired Since March 31, 1998 - Statement of Operations The statements of operations for the 12 facilities acquired since March 31, 1998 reflect the gross revenue and direct operating expenses for these facilities for the three months ended March 31, 1998. 6. 1998 Facilities Pro Forma Adjustments - Statement of Operations (a) To reflect an estimated increase in general and administrative expenses based on results subsequent to acquisition. (b) To reflect interest expense on the line of credit utilized to fund the purchase of the facilities in 1998. (c) To record additional depreciation expense related to the facilities purchased based on a 39 year life. (d) Pro forma earnings per share calculated as if the operating partnership units outstanding after the purchase of the facilities had been outstanding for the entire period presented. Sovran Acquisition Limited Partnership Balance Sheet (in thousands) (unaudited) March 31, 1998 Assets Investment in storage facilities, net $ 376,792 Cash and cash equivalents 2,987 Accounts receivable 1,204 Prepaid expenses and other assets 3,484 Total Assets $ 384,467 =========== Liabilities Line of credit $ 88,000 Accounts payable and accrued liabilities 4,955 Deferred revenue 2,506 Accrued distributions 6,899 Mortgage payable 3,059 Total liabilities 105,419 Limited partners' capital interest 13,170 Partners' Capital General partner 5,244 Limited partner 260,634 Total partners' capital 265,878 Total liabilities and partners' capital $ 384,467 =========== See notes to financial statements. Sovran Acquisition Limited Partnership Statements of Operations (in thousands, except unit information) (unaudited) Three months ended March 31, 1998 1997 Revenues Rental income $ 14,175 $ 10,578 Interest and other income 200 154 Total Revenue 14,375 10,732 Expenses Property operations and maintenance 2,818 2,154 Real estate taxes 1,188 857 General and administrative 854 744 Interest 1,215 512 Depreciation and amortization 2,097 1,530 Total Expenses 8,172 5,797 Income before extraordinary item 6,203 4,935 Extraordinary item-extinguishment of debt 350 - Net income $ 5,853 $ 4,935 ========================= Earnings per unit before extraordinary item-basic $ 0.49 $ 0.46 Extraordinary item 0.03 - Earnings per unit-basic $ 0.46 $ 0.46 ========================= Earnings per unit-diluted $ 0.46 $ 0.46 ========================= Distributions declared per unit $ 0.54 $ 0.52 ========================= Units used in basic per unit calculation 12,733,000 10,839,000 See notes to financial statements Sovran Acquisition Limited Partnership Statements of Cash Flows (in thousands) (unaudited) January 1, 1998 January 1, 1997 to to March 31, 1998 March 31, 1997 Operating Activities Net income $5,853 $ 4,935 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item 350 - Depreciation and amortization 2,097 1,530 Restricted stock earned 4 4 Changes in assets and liabilities: Accounts receivable (343) (287) Prepaid expenses and other assets (836) 131 Accounts payable and other liabilities 3,130 1,065 Deferred revenue 221 487 Net cash provided by operating activities 10,476 7,865 Investing Activities Additions to storage facilities (53,866) (48,537) Additions to other assets (851) (10) Net cash used in investing activities (54,717) (48,547) Financing Activities Net proceeds from sale of common stock - 32 Proceeds from line of credit draw down 52,000 32,000 Distributions paid (6,839) (5,641) Mortgage principal payments (500) - Net cash proviced by financing activities 44,661 26,391 Net increase (decrease) in cash 420 (14,291) Cash at beginning of period 2,567 16,687 Cash at end of period $2,987 $ 2,396 =========================== See notes to financial statements. Supplemental cash flow information Cash paid for interest $ 717 $ 512 Storage facilities acquired through the issuance of common stock 3,336 7,313 Fair value of net liabilities assumed on the acquisition of storage facilities 366 3,559 Distributions declared but unpaid 6,899 5,568 Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying unaudited financial statements of Sovran Acquisition Limited Partnership (the "Operating Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month periods ended March 31, 1998 and March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 2. 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 (a "REIT"), conducts substantially all of its business and owns substantially all of its assets. 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 (the Offering). Contemporaneously with the closing of the Offering, the Operating Partnership acquired, in a transaction accounted for as a purchase, sixty-two self-storage facilities (the Original Properties) which had been owned and managed by Sovran Capital, Inc. and the Sovran Partnerships (Predecessors to the Company). Purchase accounting was applied to the acquisition of the Original Properties to the extent cash was paid to purchase 100% of the limited-partnership interests in the Sovran Partnerships, prepay outstanding mortgages at the time of acquisition and for related transaction costs. Additionally, the Operating Partnership acquired on that date twelve self-storage properties from unaffiliated third parties. The Operating Partnership has since purchased a total of ninety-nine (eighteen 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 March 31, 1998 to 173 properties, most of which are in the eastern United States and Texas. As of March 31, 1998, the Company was a 96.5% 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. 3. Investment in Storage Facilities The following summarizes activity in storage facilities during the period ended March 31, 1998. (Dollars in Thousands) _________________________________________________________________ Cost: Beginning balance $ 333,036 Property acquisitions 52,450 Improvements and equipment additions 4,953 Dispositions (90) _________________________________________________________________ Ending balance $ 390,349 _________________________________________________________________ Accumulated Depreciation: Beginning balance $ 11,639 Additions during the period 1,934 Dispositions (16) ________________________________________________________________ Ending balance $ 13,557 ________________________________________________________________ 4. Line of Credit On February 20, 1998, the Operating Partnership entered into a new $150 million unsecured credit facility which replaces in its entirety the Company'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 Company's old facility. As a result of the new credit facility, in 1998 the Company recorded an extraordinary loss on the extinguishment of debt of $ 350,000 representing the unamortized financing costs of the former revolving credit facility. 5. Commitments and Contingencies The Company's current practice is to conduct environmental investigations in connection with property acquisitions. At this time, the Company is not aware of any environmental contamination of any of its facilities which individually or in the aggregate would be material to the Company's overall business, financial condition, or results of operations. As of March 31, 1998, the Company had entered into contracts for the purchase of 8 self-storage facilities which were purchased in April 1998 for a total cost of $28.8 million. 6. 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 cost and any loss arising from the lawsuit. The Company 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 Company does not believe that the lawsuit will have a material, adverse effect upon the Company. 7. Recent Accounting Pronouncements 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 Company has previously capitalized such costs and will comply with the consensus prospectively. The effect of expensing internal acquisition costs for the period March 19 through March 31, 1998, was immaterial. The amount of internal acquisition cost capitalized in this first quarter of 1997 and 1998 was $222,000 and $254,000 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, 1997 and 1996 and the related statements of operations, partners' capital and cash flows for the years ended December 31, 1997 and 1996 and the period from June 26, 1995 to December 31, 1995. We have also audited the combined statements of operations, owners' equity and cash flows of Sovran Capital, Inc. and Sovran Partnerships for the period from January 1, 1995 to June 25, 1995. These financial statements are the responsibility of the management of Sovran Acquisition Limited Partnership. Our responsibility is to express an opinion on these financial statements 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, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996 and the period from June 26, 1995 through December 31, 1995, and the combined results of operations and cash flows of Sovran Capital, Inc. and Sovran Partnerships from January 1, 1995 to June 25, 1995 in conformity with generally accepted accounting principles. Ernst & Young LLP Buffalo, New York April 16, 1998 Balance Sheets - Sovran Acquisition Limited Partnership December 31, (Dollars in thousands) 1997 1996 Assets Investment in storage facilities: Land $ 71,391 $ 49,591 Building and equipment 261,645 171,120 333,036 220,711 Less accumulated depreciation (11,639) (5,457) Investments in storage facilities, net 321,397 215,254 Cash and cash equivalents 2,567 16,687 Accounts receivable 834 482 Prepaid expenses and other assets 2,275 2,992 Total Assets $327,073 $235,415 ======================= Liabilities Line of credit $ 36,000 $ - Accounts payable and accrued liabilities 1,950 1,124 Deferred revenue 1,994 1,367 Accrued distributions 6,816 5,640 Mortgage payable 3,559 - Total Liabilities 50,319 8,131 Limited partners' capital interest (443,609 and 139,930 units, respectively), at redemption value (Note 1) 14,454 4,435 Partners' Capital General partner (219,567 and 119,567 units issued and outstanding, respectively) 5,257 2,523 Limited partner (12,001,554 and 10,587,104 units issued and outstanding, respectively) 257,043 220,326 Total partners' capital 262,300 222,849 Total liabilities and partners' capital $327,073 $235,415 ======================= (See notes to financial statements.)
Sovran Acquisition Limited Partnership (the Operating Partnership) and Sovran Capital, Inc. and Sovran Partnerships (Company Predecessors) Statements of Operations of the Operating Partnership and Combined Statements of Operations of Company Predecessors Operating Partnership Predecessors Year Ended Year Ended For Period For Period Dollars in thousands, December 31, December 31, 6/26/95 to 1/1/95 to except per unit data) 1997 1996 12/31/95 6/25/95 _____________________________________________ ____________ Revenues: Rental income $48,584 $ 32,946 $ 12,557 $ 9,260 Interest and other income 770 651 385 272 _________ _________ _________ ________ Total revenues 49,354 33,597 12,942 9,532 Expenses: Property operations and maintenance 9,708 6,662 2,533 2,061 Real estate taxes 3,955 2,464 861 708 General and administrative 2,757 2,282 974 1,574 Interest 2,166 1,924 131 3,268 Depreciation and amortization 7,005 4,583 1,699 1,610 _________ _________ _________ ________ Total expenses 25,591 17,915 6,198 9,221 _________ _________ _________ ________ Net income $23,763 $ 15,682 $ 6,744 $ 311 ========================================================= Earnings per unit-basic $ 1.97 $ 1.88 $ 0.91 $ - Earnings per unit-diluted $ 1.96 $ 1.87 $ 0.91 $ - Distributions declared per unit $ 2.12 $ 2.05 $ 1.04 $ - (See notes to financial statements.)
Sovran Capital, Inc. and Sovran Partnerships (the Company Predecessors) Combined Statement of Owners' Equity Common Additional Accumulated Distribution Stock Common Paid-in Owners' Treasury in Excess of Total (Dollars in thousands) Shares Stock Capital Equity Stock Net Income Equity Balance January 1, 1995 400 $ - $ - $13,794 $ (75) $ - $ 13,719 Cash distributions - - - (1,779) - - (1,779) Cash contributions - - - 965 - - 965 Net income - - - 311 - - 311 Balance June 25, 1995 400 $ - $ - $13,291 $ (75) $ - $ 13,216
Sovran Acquisition Limited Partnership (the Operating Partnership) Statements of Partners' Capital Sovran Sovran Self Total Holdings, Inc. Storage Inc. Partners' Limited Partners' General Partner Limited Partner Capital Capital Interest Balance June 26, 1995 $ - $ - $ - $ - Proceeds from Initial Public Offering 1,243 123,089 124,332 - Proceeds from private placement 101 10,031 10,132 - Proceeds from exercise of over-allotment 160 15,882 16,042 - Issuance of units to principal shareholders in exchange for their interest in Sovran Capital, Inc. 3 293 296 - Net income 67 6,677 6,744 - Distributions (78) (7,728) (7,806) - ________ _________ _________ _________ Balance December 31, 1995 $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 ======== ========= ========= ========= (See notes to financial statements.)
Sovran Acquisition Limited Partnership (the Operating Partnership) and Sovran Capital, Inc. and Sovran Partnerships (Company Predecessors) Statements of Cash Flows of the Operating Partnership and Combined Statements of Cash Flows of the Predecessors Operating Partnership Predecessors Year Ended Year Ended For Period For Period December 31, December 31, 6/26/95 to 1/1/95 to (Dollars in thousands) 1997 1996 12/31/95 6/25/95 Operating Activities Net income $ 23,763 $ 15,682 $ 6,744 $ 311 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 7,005 4,583 1,699 1,610 Restricted stock earned 13 12 - - Changes in assets and liabilities Accounts receivable (162) (145) (40) (46) Prepaid expenses and other (283) (182) 37 (849) Accounts payable and other liabilities 894 157 (1,225) 891 Deferred revenue (71) 45 (27) 86 _______________________________________ _______ Net cash provided by operating activities 31,159 20,152 7,188 2,003 Investing Activities Additions to storage facilities (98,970) (57,160) (156,780) (3,478) Other assets 205 (1,986) (1,185) - Restricted cash - - - 138 _______________________________________ _______ Net cash used in investing activities (98,765) (59,146) (157,965) (3,340) Financing Activities Net proceeds from sale of common stock 42,273 76,973 150,506 - Proceeds from (payments on) line of credit 36,000 (5,000) 5,000 - Distributions paid (24,787) (17,024) (3,997) (1,779) Proceeds from issuance of mortgages - - - 2,821 Mortgage principal payments - - - (1,500) Capital contributions - - - 965 _______________________________________ ________ Net cash provided by financing activities 53,486 54,949 151,509 507 _______________________________________ ________ Net (decrease) increase in cash (14,120) 15,955 732 (830) Cash beginning of period 16,687 732 - 1,045 _______________________________________ ________ Cash end of period $ 2,567 $ 16,687 $ 732 $ 215 ======================================= Supplemental cash flow information Cash paid for interest $ 2,238 $ 1,842 $ 234 $3,268
Sovran Acquisition Limited Partnership (the Operating Partnership) and Sovran Capital, Inc. and Sovran Partnerships (Company Predecessors) Statements of Cash Flows of the Operating Partnership and Combined Statements of Cash Flows of the Predecessors Supplemental cash-flow information for the years ended December 31, 1997, and 1996. (Dollars in thousands) 1997 1996 Storage facilities acquired through the issuance of partnership units $ 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 4,144 434 Distributions declared but unpaid at December 31, 1997, 1996 and 1995 were $6,816, $5,640 and $3,809, respectively. Supplemental cash-flow information for the period June 26, 1995 to December 31, 1995 (Dollars in thousands) Cash paid for partnership interest $42,865 Cash paid for acquisition properties 45,121 Cash paid to retire partnership mortgages 67,602 Prepayment penalties and closing costs 860 Cash paid for building improvements 332 Cash paid for storage facilities per statement of cash flows $156,780 Fair value of net liabilities assumed of the partnerships and Sovran Capital, Inc. 2,681 Investment in storage facilities per financial statements $159,461 (See notes to financial statements.) NOTES TO FINANCIAL STATEMENTS Sovran Acquisition Limited Partnership - December 31, 1997 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. 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. 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 (the "Initial Offering"). Contemporaneously with the closing of the Initial Offering, the Operating Partnership acquired, in a transaction accounted for as a purchase, sixty-two self-storage facilities (the "Original Properties") which had been owned and managed by Sovran Capital, Inc. and the Sovran Partnerships ("Company Predecessors"). Purchase accounting was applied to the acquisition of the Original Properties to the extent cash was paid to purchase 100% of the limited-partnership interests in the Sovran Partnerships, prepay outstanding mortgages at the time of acquisition and for related transaction costs. Additionally, the Operating Partnership acquired on that date twelve self-storage properties from unaffiliated third parties. The Operating Partnership has since purchased a total of eighty-one (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, 1997 to 155 properties, most of which are in the eastern United States and Texas. As of December 31, 1997, the Company was a 96.5% 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 Basis of Presentation: The Company and the Operating Partnership were formed on April 19, 1995, and commenced operations effective with the completion of the Offering on June 25, 1995. Accordingly, the Operating Partnership results of operations are presented from June 26, 1995, the date following the completion of the Offering and the establishment of REIT status, through December 31, 1997. The combined statements of operations for the period ended June 25, 1995 reflect the assets, liabilities and results of operations of the Sovran Capital, Inc. and the Sovran Partnerships (Company Predecessors). Such financial statement has been presented on a combined basis, because the entities were the subject of the business combination described in Note 1. All intercompany transactions and balances have been eliminated. 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 whether 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 flows 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, 1997 and 1996, no assets had been determined to be impaired under this policy, and, accordingly, this policy has 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, 1997, consist primarily of loan acquisition costs of approximately $1,155, net of accumulated amortization of approximately $771; organizational costs of approximately $63, net of accumulated amortization of approximately $29; and covenants not to compete of $785, net of accumulated amortization of $350. 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 $794 and $620 for the periods ended December 31, 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 In 1997, the Operating Partnership adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." All prior period per unit data has been restated to conform with the provisions of this statement. The following table sets forth the computation of basic and diluted earnings per unit. Year Ended Year Ended For Period (Dollars in thousands, December 31, December 31, 6/26/95 except per unit data) 1997 1996 to 12/31/95 Numerator: Net Income $ 23,763 $ 15,682 $ 6,744 Denominator: Denominator for basic earnings per unit - weighted average units 12,090 8,344 7,430 Effect of Dilutive Securities: Options for Company stock 62 35 10 Denominator for diluted earnings per unit - adjusted weighted - average units and assumed conversion 12,152 8,379 7,440 Basic Earnings per Unit $ 1.97 $ 1.88 $ .91 Diluted Earnings per Unit $ 1.96 $ 1.87 $ .91 4. INVESTMENT IN STORAGE FACILITIES The following summarizes activity in storage facilities during the years ended December 31, 1997 and December 31, 1996 (Dollars in Thousands) 1997 1996 Cost: Beginning balance $ 220,711 $ 159,461 Property acquisitions 106,926 58,626 Improvements and equipment additions 5,527 2,640 Dispositions (128) (16) Ending balance $ 333,036 $ 220,711 Accumulated Depreciation: Beginning balance $ 5,457 $ 1,497 Additions during the year 6,211 3,964 Dispositions (29) (4) Ending balance $ 11,639 $ 5,457 5. LINE OF CREDIT At December 31, 1997, the Operating Partnership maintained a $75 million revolving-credit facility of which $36 million was outstanding and secured by specific storage facilities. At December 31, 1997, the Operating Partnership had identified and pledged properties sufficient to provide $75 million of such borrowings. Interest on outstanding balances is payable monthly at 190 basis points above LIBOR. The commitment fee was $225,000 and there is a facility fee attached to the line at the following rates: i) .25% if the unused commitment (UC) is less than $30 million, or ii) .375% if UC is greater than $30 million. At December 31, 1997, the Operating Partnership was at the .375% rate. On February 20, 1998, the Operating Partnership entered into a new $150 million unsecured credit facility which replaces in its entirety the $75 million revolving credit facility. The new facility matures February 2001 and provides for funds at LIBOR plus 1.375%, a savings of 52.5 basis points over the old facility. As a result of the new credit facility, in 1998 the Operating partnership will record an extraordinary loss on the extinguishment of debt of $350,000, representing the unamortized financing costs of the revolving credit facility. 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 1997 and 1996, and the common stock offerings of the Company in 1997 and 1996 had all occurred as of the beginning of 1996. Year ended December 31, (Dollars in thousands, except unit data) 1997 1996 Total revenues $ 54,085 $ 51,455 Total expenses (28,789) (27,175) Net Income $ 25,296 $ 24,280 Earnings per unit - basic $ 2.00 $ 1.92 Units used in basic earnings per unit calculation 12,666,730 12,666,730 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 the predecessors 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. SFAS 123 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 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, 1997, options for 306,000 shares had been granted under the Plan. The total options available under the plan 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, 1997, options for 30,000 shares had been granted under the Non-employee Plan. The Company has also issued 2,200 shares of restricted stock to employees which vest over a four-year period. The fair value of the restricted stock on the date of grant ranged from $25.38 to $29.19. The fair value for these options was $2.30, which was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997: risk-free interest rate of 6%; dividend yield of 7%, volatility factor of the expected market price of the Company's common stock of .16. 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, 1997 follows (in thousands, except for earnings per unit information). Pro forma net income $ 23,620 Pro forma earnings per unit: Basic $ 1.95 Diluted $ 1.94 The pro forma effect on earnings for the years ended December 31, 1996 and 1995 was immaterial.
A summary of the Company's stock option activity and related information for the years ended December 31 follows: 1997 1996 1995 Weighted Weighted Weighted Average average average exercise exercise exercise Options price Options price Options price __________________________________________________________________________________________ Outstanding at beginning of year 293,500 $23.97 268,000 $23.00 - $ - Granted 34,000 29.93 28,000 25.92 274,000 23.00 Exercised (14,250) 23.00 - - - - Forfeited (18,000) 24.53 (2,500) 23.00 (6,000) 23.00 __________________________________________________________________________________________ Outstanding at end of year 295,250 $25.36 293,500 $23.97 268,000 $ 23.00 __________________________________________________________________________________________ Exercisable at end of year 146,750 $25.12 82,000 $23.48 - - Exercise prices for options outstanding as of December 31, 1997 ranged from $23.00 to $30.63. The weighted average remaining contractual life of those options is 8.07 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 $15,000 for the year ended December 31, 1997. 9. THE COMPANY'S 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 fiscal quarters since the consummation of the offering on June 26, 1995 (dollars in thousands, except per unit data) 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 1996 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Revenues $ 6,944 $ 7,960 $ 9,034 $ 9,659 Net Income $ 3,152 $ 3,610 $ 3,651 $ 5,269 Net Income Per Unit (Note 3): Basic $ 0.42 $ 0.48 $ 0.48 $ 0.50 Diluted $ 0.42 $ 0.48 $ 0.48 $ 0.49 1995 Quarter Ended June 30* Sept. 30 Dec. 31 Revenues $ 352 $ 6,343 $ 6,247 Net Income $ 164 $ 3,213 $ 3,367 Net Income Per Unit(Note 3): Basic and Diluted $ 0.02 $ 0.44 $ 0.45 (*) Includes results for the period June 26, 1995 (Formation) to June 30, 1995. 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, 1997, the Operating Partnership had entered into contracts for the purchase of ten facilities. These facilities were acquired in January and February, 1998 for a total cost of $34,145,000. 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 cost 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 has previously capitalized such costs and will comply with the consensus prospectively. The amount of such costs capitalized in 1997 and 1996 were $728,000 and $755,000, respectively. Report of Independent Auditors The Board of Directors and Partners Sovran Acquisition Limited Partnership: We have audited the financial statements of Sovran Acquisition Limited Partnership as of December 31, 1997 and 1996, and for the years ended December 31, 1997 and 1996 and the period from June 26, 1995 to December 31, 1995 and have issued our report thereon dated April 16, 1998 included elsewhere in this General Form of Registration of Securities. Our audits also included the financial statements schedule listed in Item 15(b) of this Registration Statement. This schedule is the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, 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 April 16, 1998
Sovran Acquisition Limited Partnership Schedule III Combined Real Estate and Accumulated Depreciation (in thousands) December 31, 1997 Cost Initial Cost Capitalized to Operating Subsequent to Gross Amount at Which Partnership Acquisition Carried at Close of Period Building, Building, Building Equipment Equipment Equipment and and Land and Accumulated Description ST Land Improvements Improvements Land Improvements Total Depreciation Acquired _________________________________________________________________________________________________________________________________ Charleston I SC 416 1,516 12 416 1,528 1,944 102 6/26/95 Lakeland I FL 397 1,424 33 397 1,457 1,854 96 6/26/95 Charlotte NC 308 1,102 42 308 1,144 1,452 71 6/26/95 Tallahassee I FL 770 2,734 222 770 2,956 3,726 180 6/26/95 Youngstown OH 239 1,110 69 239 1,179 1,418 73 6/26/95 Cleveland-Metro I OH 179 836 144 179 980 1,159 57 6/26/95 Cleveland-Metro II OH 701 1,659 8 701 1,667 2,368 107 6/26/95 Tallahassee II FL 204 734 31 204 765 969 48 6/26/95 Pt. St. Lucie FL 395 1,501 97 395 1,598 1,993 114 6/26/95 Deltona FL 483 1,752 157 483 1,909 2,392 119 6/26/95 Middletown NY 224 808 38 224 846 1,070 55 6/26/95 Buffalo I NY 423 1,531 435 497 1,892 2,389 104 6/26/95 Rochester I NY 395 1,404 17 395 1,421 1,816 89 6/26/95 Salisbury MD 164 760 63 164 823 987 52 6/26/95 New Bedford MA 367 1,325 31 367 1,356 1,723 86 6/26/95 Fayetteville NC 853 3,057 59 853 3,116 3,969 197 6/26/95 Allentown PA 199 921 65 203 982 1,185 63 6/26/95 Jacksonville I FL 152 728 64 152 792 944 53 6/26/95 Columbia I SC 268 1,248 5 268 1,253 1,521 83 6/26/95 Rochester II NY 230 847 87 234 930 1,164 60 6/26/95 Savannah I GA 463 1,684 58 463 1,742 2,205 112 6/26/95 Greensboro NC 444 1,613 30 444 1,643 2,087 107 6/26/95 Raleigh I NC 649 2,329 75 649 2,404 3,053 152 6/26/95 New Haven CT 387 1,402 14 387 1,416 1,803 92 6/26/95 Atlanta-Metro I GA 844 2,021 58 844 2,079 2,923 133 6/26/95 Atlanta-Metro II GA 302 1,103 9 303 1,111 1,414 74 6/26/95 Buffalo II NY 315 745 110 315 855 1,170 50 6/26/95 Raleigh II NC 321 1,150 15 321 1,165 1,486 74 6/26/95 Columbia II SC 361 1,331 42 374 1,360 1,734 91 6/26/95 Columbia III SC 189 719 26 189 745 934 52 6/26/95 Columbia IV SC 488 1,188 12 488 1,200 1,688 79 6/26/95 Atlanta-Metro III GA 430 1,579 18 430 1,597 2,027 106 6/26/95 Orlando I FL 513 1,930 75 513 2,005 2,518 137 6/26/95 Spartanburg SC 331 1,209 25 331 1,234 1,565 82 6/26/95 Sharon PA 194 912 37 194 949 1,143 64 6/26/95 Ft. Lauderdale FL 1,503 3,619 105 1,503 3,724 5,227 248 6/26/95 West Palm I FL 398 1,035 40 398 1,075 1,473 80 6/26/95 Atlanta-Metro IV GA 423 1,015 10 423 1,025 1,448 68 6/26/95 Atlanta-Metro V GA 483 1,166 35 483 1,201 1,684 77 6/26/95 Atlanta-Metro VI GA 308 1,116 31 308 1,147 1,455 76 6/26/95 Atlanta-Metro VII GA 170 786 49 170 835 1,005 54 6/26/95 Atlanta-Metro VIII GA 413 999 22 413 1,021 1,434 68 6/26/95 Baltimore I MD 154 555 38 154 593 747 40 6/26/95 Baltimore II MD 479 1,742 85 479 1,827 2,306 119 6/26/95 Augusta I GA 357 1,296 77 357 1,373 1,730 87 6/26/95 Macon I GA 231 1,081 7 231 1,088 1,319 72 6/26/95 Melbourne I FL 883 2,104 33 883 2,137 3,020 144 6/26/95 Newport News VA 316 1,471 13 316 1,484 1,800 98 6/26/95 Pensacola I FL 632 2,962 96 632 3,058 3,690 199 6/26/95 Augusta II GA 315 1,139 71 315 1,210 1,525 73 6/26/95 Hartford-Metro I CT 715 1,695 25 715 1,720 2,435 113 6/26/95 Atlanta-Metro IX GA 304 1,118 49 304 1,167 1,471 77 6/26/95 Alexandria VA 1,375 3,220 46 1,375 3,266 4,641 205 6/26/95 Pensacola II FL 244 901 6 244 907 1,151 63 6/26/95 Melbourne II FL 834 2,066 26 834 2,092 2,926 148 6/26/95 Hartford-Metro II CT 234 861 7 234 868 1,102 59 6/26/95 Atlanta-Metro X GA 256 1,244 4 256 1,248 1,504 85 6/26/95 Norfolk I VA 313 1,462 27 313 1,489 1,802 97 6/26/95 Norfolk II VA 278 1,004 12 278 1,016 1,294 67 6/26/95 Birmingham I AL 307 1,415 33 307 1,448 1,755 92 6/26/95 Birmingham II AL 730 1,725 38 730 1,763 2,493 114 6/26/95 Montgomery I AL 863 2,041 78 863 2,119 2,982 137 6/26/95 Jacksonville II FL 326 1,515 49 326 1,564 1,890 103 6/26/95 Pensacola III FL 369 1,358 42 369 1,400 1,769 90 6/26/95 Pensacola IV FL 244 1,128 32 244 1,160 1,404 75 6/26/95 Pensacola V FL 226 1,046 32 226 1,078 1,304 70 6/26/95 Tampa I FL 1,088 2,597 42 1,088 2,639 3,727 175 6/26/95 Tampa II FL 526 1,958 58 526 2,016 2,542 140 6/26/95 Tampa III FL 672 2,439 32 672 2,471 3,143 164 6/26/95 Jackson I MS 343 1,580 26 343 1,606 1,949 102 6/26/95 Jackson II MS 209 964 22 209 986 1,195 64 6/26/95 Richmond VA 443 1,602 51 443 1,653 2,096 101 8/25/95 Orlando II FL 1,161 2,755 64 1,162 2,818 3,980 162 9/29/95 Birmingham III AL 424 1,506 47 424 1,553 1,977 76 1/16/96 Macon II GA 431 1,567 19 431 1,586 2,017 87 12/1/95 Harrisburg I PA 360 1,641 62 360 1,703 2,063 87 12/29/95 Harrisburg II PA 627 2,224 25 627 2,249 2,876 115 12/29/95 Syracuse I NY 470 1,712 40 472 1,750 2,222 93 12/27/95 Ft. Myers FL 205 912 26 206 937 1,143 70 12/28/95 Ft. Myers II FL 412 1,703 36 413 1,738 2,151 113 12/28/95 Newport News II VA 442 1,592 27 442 1,619 2,061 84 1/5/96 Montgomery II AL 353 1,299 48 353 1,347 1,700 72 1/23/96 Charleston II SC 237 858 63 237 921 1,158 45 3/1/96 Tampa IV FL 766 1,800 50 766 1,850 2,616 83 3/28/96 Arlington I TX 442 1,767 21 442 1,788 2,230 80 3/29/96 Arlington II TX 408 1,662 27 408 1,689 2,097 77 3/29/96 Ft. Worth TX 328 1,324 35 328 1,359 1,687 61 3/29/96 San Antonio I TX 436 1,759 27 436 1,786 2,222 80 3/29/96 San Antonio II TX 289 1,161 24 289 1,185 1,474 53 3/29/96 Syracuse II NY 481 1,559 300 496 1,844 2,340 70 6/5/96 Montgomery III AL 279 1,014 21 279 1,035 1,314 44 5/21/96 West Palm II FL 345 1,262 47 345 1,309 1,654 57 5/29/96 Ft. Myers III FL 229 884 37 229 921 1,150 40 5/29/96 Pittsburgh PA 545 1,940 18 545 1,958 2,503 76 6/19/96 Lakeland II FL 359 1,287 57 359 1,344 1,703 52 6/26/96 Springfield MA 251 917 174 300 1,042 1,342 41 6/28/96 Ft. Myers IV FL 344 1,254 83 344 1,337 1,681 54 6/28/96 Cincinnati OH 557 1,988 17 557 2,005 2,562 73 7/23/96 Dayton OH 667 2,379 15 667 2,394 3,061 87 7/23/96 Baltimore III MD 777 2,770 36 777 2,806 3,583 102 7/26/96 Jacksonville III FL 568 2,028 229 568 2,257 2,825 76 8/23/96 Jacksonville IV FL 436 1,635 32 436 1,667 2,103 64 8/26/96 Pittsburgh II PA 627 2,257 79 632 2,331 2,963 79 8/28/96 Jacksonville V FL 535 2,033 19 538 2,049 2,587 78 8/30/96 Charlotte II NC 487 1,754 16 487 1,770 2,257 58 9/16/96 Charlotte III NC 315 1,131 12 315 1,143 1,458 38 9/16/96 Orlando III FL 314 1,113 88 314 1,201 1,515 35 10/30/96 Rochester III NY 704 2,496 18 708 2,510 3,218 63 12/20/96 Youngstown II OH 600 2,142 25 600 2,167 2,767 55 1/10/97 Akron OH 413 1,478 12 413 1,490 1,903 38 1/10/97 Cleveland III OH 751 2,676 204 751 2,880 3,631 70 1/10/97 Cleveland IV OH 725 2,586 179 725 2,765 3,490 68 1/10/97 Cleveland V OH 637 2,918 324 637 3,242 3,879 78 1/10/97 Cleveland VI OH 495 1,781 227 495 2,008 2,503 48 1/10/97 Cleveland VII OH 761 2,714 171 761 2,885 3,646 71 1/10/97 Cleveland VIII OH 418 1,921 193 418 2,114 2,532 51 1/10/97 Cleveland IX OH 606 2,164 43 606 2,207 2,813 56 1/10/97 Grand Rapids I MI 455 1,631 14 455 1,645 2,100 38 1/17/97 Grand Rapids II MI 219 790 34 219 824 1,043 19 1/17/97 Kalamazoo MI 516 1,845 65 516 1,910 2,426 44 1/17/97 Lansing MI 327 1,332 5 327 1,337 1,664 31 1/17/97 Holland MI 451 1,830 99 451 1,929 2,380 45 1/17/97 San Antonio III TX 474 1,686 87 474 1,773 2,247 40 1/30/97 Universal TX 346 1,236 38 346 1,274 1,620 29 1/30/97 San Antonio IV TX 432 1,560 30 432 1,590 2,022 38 1/30/97 Houston-Eastex TX 634 2,565 4 634 2,569 3,203 50 3/26/97 Houston-Nederland TX 566 2,279 4 566 2,283 2,849 44 3/26/97 Houston-College TX 293 1,357 4 293 1,361 1,654 27 3/26/97 Lynchburg-Lakeside VA 335 1,342 30 335 1,372 1,707 26 3/31/97 Lynchburg - Timberlake VA 328 1,315 10 328 1,325 1,653 25 3/31/97 Lynchburg-Amherst VA 155 710 16 155 726 881 14 3/31/97 Christiansburg VA 245 1,120 9 245 1,129 1,374 21 3/31/97 Chesapeake VA 260 1,043 33 260 1,076 1,336 20 3/31/97 Danville VA 326 1,488 14 326 1,502 1,828 28 3/31/97 Orlando-W 25th St FL 289 1,160 33 289 1,193 1,482 23 3/31/97 Delray I-Mini FL 491 1,756 53 491 1,809 2,300 35 4/11/97 Savannah II GA 296 1,196 84 296 1,280 1,576 22 5/8/97 Delray II-Safeway FL 921 3,282 70 921 3,352 4,273 49 5/21/97 Cleveland X-Avon OH 301 1,214 72 301 1,286 1,587 19 6/4/97 Dallas-Skillman TX 960 3,847 37 960 3,884 4,844 49 6/30/97 Dallas-Centennial TX 965 3,864 35 965 3,899 4,864 49 6/30/97 Dallas-Samuell TX 570 2,285 34 570 2,319 2,889 29 6/30/97 Dallas-Hargrove TX 370 1,486 2 370 1,488 1,858 19 6/30/97 Houston-Antoine TX 515 2,074 5 515 2,079 2,594 27 6/30/97 Atlanta-Alpharetta GA 1,033 3,753 22 1,033 3,775 4,808 41 7/24/97 Atlanta-Marietta GA 769 2,788 8 769 2,796 3,565 31 7/24/97 Atlanta-Doraville GA 735 3,429 17 735 3,446 4,181 30 8/21/97 GreensboroHilltop NC 268 1,097 5 268 1,102 1,370 7 9/25/97 GreensboroStgCch NC 89 376 3 89 379 468 3 9/25/97 Baton Rouge- Airline LA 396 1,831 4 396 1,835 2,231 12 10/9/97 Baton Rouge- Airline2 LA 282 1,303 1 282 1,304 1,586 3 11/21/97 Harrisburg- Peiffers PA 635 2,550 5 635 2,555 3,190 5 12/3/97 Corporate Office NY 0 68 282 0 350 350 12 01/1/95 Boston-Metro I MA 363 1,679 76 363 1,755 2,118 113 6/26/95 Boston-Metro II MA 680 1,616 28 680 1,644 2,324 108 6/26/95 E. Providence RI 345 1,268 90 345 1,358 1,703 88 6/26/95 0 ____________________ _____ ____________________________________________ ______ 71,214 253,311 8,511 71,391 261,645 333,036 11,639 ======================================================================================
December 31, 1997 December 31, 1996 December 31, 1995 Balance at beginning of period $220,711 $159,461 $ - Additions during period: Acquisitions through foreclosure $ - $ - $ - Other acquisitions 106,926 58,626 158,698 Improvements, etc. 5,527 2,640 763 Other (describe) - 112,453 - 61,266 - 159,461 Deductions during period: Cost of real estate sold - - - - Other (describe) (128) (128) (16) (16) - - ____ ____ ___ ___ _ _ Balance at close of period $333,036 $220,711 $159,461 ==================================================
SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Buffalo, State of New York on this 15th day of June, 1998. SOVRAN ACQUISITION LIMITED PARTNERSHIP By: Sovran Holdings, Inc. Its: General Partner By: /S/ David L. Rogers David L. Rogers, Chief Financial Officer EXHIBIT INDEX 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. 27.1* Financial Data Schedule _________________ * Previously filed as an exhibit to this Registration Statement. ** 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. -----END PRIVACY-ENHANCED MESSAGE-----