Sovran Self Storage Reports Third Quarter Results; Credit Rating Upgrade

• Press Release
• Source: Sovran Self Storage, Inc.
• On 4:31 pm EST, Wednesday November 4, 2009

BUFFALO, N.Y.--(BUSINESS WIRE)--Sovran Self Storage, Inc. (NYSE:SSS - News), a self-storage real estate investment trust (REIT), reported operating results for the quarter ended September 30, 2009.

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Net income available to common shareholders for the third quarter of 2009 was $7.5 million or $.32 per diluted share. Net income available to common shareholders for the same period in 2008 was $9.5 million or $.44 per diluted share. Funds from operations for the quarter were $.68 per fully diluted common share. Higher interest expense and increased customer move-in incentives were the primary factors leading to lower earnings for 2009’s third quarter.

Subsequent to the end of the quarter, the Company sold 4.025 million shares of common stock, realizing net proceeds of $113.8 million from the issuance. On October 5, 2009, the Company applied the proceeds of the offering to repay $100 million of its bank term notes maturing in 2012, and terminated interest rate swap agreements associated with the repaid debt obligation.

Primarily as a result of these actions, Fitch Ratings reinstated the Company’s credit rating to BBB- (matching the rating issued by Standard and Poors). David Rogers, the Company’s Chief Financial Officer said, “The reinstatement of our investment grade rating will reduce our borrowing costs by over $3 million per year, and the capacity and flexibility gained by the stock offering affords plenty of room to take advantage of the opportunities we expect to see in the next 12 – 18 months.”

OPERATIONS:

Total Company net operating income for the third quarter declined 3.8% ($1.2 million) compared with the same quarter in 2008 to $31.4 million. Overall average occupancy for the quarter was 82.3% and average rent per square foot for the portfolio was $10.25. Occupancy at the Company’s 382 storage facilities at September 30 was 81.6%.

The Company continues to make extensive use of move-in incentives; during the quarter over $4.5 million in “first month free” and other incentives were granted, almost $1.6 million more than those of last summer. As a result, even though street rates were increased in most markets, revenues at the 356 stores owned and/or managed for the entire quarter in both years decreased 3.6% over the third quarter 2008.

Kenneth F. Myszka, the Company’s President and Chief Operating Officer, commented, “In a very challenging economic environment, we see positive signs at our Uncle Bob’s stores. Our same store move-ins have exceeded those of last year for seven of the last nine months. Our call center and internet inquiries have remained high, so we know demand is there. Once we absorb the impact of the up-front leasing incentive, our revenue management systems have enabled us to optimize rental rates, to the extent that when a customer does move out, we have an opportunity in many instances to achieve a step up in the price charged for the vacated unit.”

The Company’s same store operating expenses decreased by 5.3% from last year’s third quarter as a result of significant savings in all operating expense categories except property taxes, which increased by 7.2%, and increased marketing and internet advertising costs.

General and administrative expenses grew $300,000 over the same period in 2008, primarily due to increased expenses associated with operating the Joint Venture.

During the quarter, solid revenue growth was shown at the Company’s Maryland and Michigan stores, while stores in Florida, Georgia, and parts of New England continued to show revenue declines.

PROPERTIES:

The Company did not acquire any properties during the quarter for its own portfolio or for that of the Joint Venture. The Company did, however, sell three of its solely owned stores that were located in non-core markets, thereby improving operating efficiencies. The stores were located in southeastern Massachusetts (2) and Fayetteville, NC (1) and sold for a total of $10.9 million.

On October 2, 2009, the Company opened its second store in Richmond, VA. The newly built 79,000 square foot self storage facility features both traditional and climate controlled storage as well as the Company’s signature Dri-guard storage spaces. It also includes individual door alarms, a large retail area for moving and storage supplies, and conference room for customer use.

As previously announced, the Company has curtailed its program of expanding and enhancing its existing stores, awaiting improvements in both the capital markets and the general economy. Five projects that were started in 2008 have been completed thus far this year at a cost of $6.8 million. Most improvements have been postponed to 2010, except for about $8 million yet to be applied to projects this year.

CAPITAL TRANSACTIONS:

At September 30, 2009, the Company had $500 million of unsecured term note debt and $108 million of mortgage debt outstanding. $26 million of the mortgage debt matures in December of 2009; the Company expects to repay this with cash on hand. The next significant maturities are in 2012.

As noted above, the Company completed a 4.025 million share stock sale on October 5, 2009, the proceeds of which were used to repay $100 million of bank term debt and to extinguish the related interest rate swap contracts. Illustrated below is the impact that the offering and the resulting upgrade to the Company’s credit rating had on certain key metrics:

YEAR 2009 EARNINGS GUIDANCE:

The Company is experiencing soft consumer demand in many of its markets and expects conditions to remain competitive. It anticipates the continuation of leasing incentives as well as increased advertising and aggressive marketing to improve occupancy and, accordingly, estimates a decline in same store revenue of 2 to 4% from that of 2008. Property operating costs are projected to decrease by 1 to 2%. Management reiterates its previous forecast of an expected decline in same store NOI of 2 to 4%.

The Company has curtailed its expansion and enhancement program and, until market conditions significantly improve, will defer most of its planned 2009 expenditures of $50 million. It has an estimated total of $8 million of commitments outstanding on construction projects remaining to be completed in 2009 or early 2010.

At present, the Company does not expect to actively pursue the purchase of additional facilities while the capital and real estate markets remain unstable. It is negotiating the sale of several of its non-core stores (as noted, three were sold during the quarter), and may sell several more in the fourth quarter of 2009 and/or early 2010.

General and administrative expenses are expected to increase by 5 to 7% in 2009.

At September 30, 2009, all of the Company’s debt is either fixed rate or covered by rate swap contracts that essentially fix the rate. Subsequent borrowings that may occur will be pursuant to the Company’s Line of Credit agreement at a floating rate of LIBOR plus 1.375%.

At September 30, 2009, the Company had 23,475,580 shares of common stock outstanding and 419,952 Operating Partnership Units outstanding.

On October 5, 2009, the Company sold 4.025 million shares and applied the proceeds to repayment of $100 million of bank term notes and to unwind interest rate swap contracts associated with the notes. As a result of these transactions, the Company will incur one-time charges of $8.4 million to cancel the swap contract, and $.64 million to expense unamortized financing costs associated with the note repayment.

On October 16, 2009, Fitch Ratings issued an upgrade to the Company’s credit rating, which will reduce the interest rate the Company pays on two of its long term notes.

As a result of the above assumptions, management expects funds from operations for the fourth quarter of 2009 to be approximately $.26 to $.28 per share, and between $2.33 and $2.35 for the full year 2009.

FORWARD LOOKING STATEMENTS:

When used within this news release, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward looking statements. Such factors include, but are not limited to, the effect of competition from new self storage facilities, which could cause rents and occupancy rates to decline; the Company’s ability to evaluate, finance and integrate acquired businesses into the Company’s existing business and operations; the Company’s ability to form joint ventures and sell existing properties to those joint ventures; the Company’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company’s outstanding floating rate debt; the Company’s ability to comply with debt covenants; the regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s ability to effectively compete in the industries in which it does business; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes which may change the taxability of future income.

CONFERENCE CALL:

Sovran Self Storage will hold its Third Quarter Earnings Release Conference Call at 9:00 a.m. Eastern Time on Thursday, November 5, 2009. Anyone wishing to listen to the call may access the webcast via the event page at http://www.unclebobs.com/company/investment/. The call will be archived for a period of 90 days after initial airing.

Sovran Self Storage, Inc. is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities. The Company operates 383 self-storage facilities in 24 states under the name “Uncle Bob’s Self Storage”^®. For more information, please contact David Rogers, CFO or Diane Piegza, VP Corporate Communications at (716) 633-1850 or visit the Company’s Web site at www.unclebobs.com.

For more information:
Sovran Self Storage, Inc.
David Rogers, 716-633-1850
CFO
or
Diane Piegza, 716-633-1850
VP Corporate Communications
www.unclebobs.com