Sovran Self Storage Inc., a self-storage real estate investment trust, reported operating results for the third quarter ended Sept. 30, 2009.
Net income available to common shareholders for the third quarter of 2009 was $7.5 million or $.32 per diluted share, compared to $9.5 million or $.44 per diluted share for the same quarter in 2008. 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.
At the end of the quarter, the company sold 4.025 million shares of common stock, realizing net proceeds of $113.8 million. On Oct. 5, it applied the proceeds to repay $100 million of Sovran’s 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). "The reinstatement of our investment-grade rating will reduce our borrowing costs by more than $3 million per year,” said David Rogers, chief financial officer.
Compared with the same quarter in 2008, total net operating income for the third quarter of 2009 declined 3.8 percent ($1.2 million) to $31.4 million. Overall average occupancy for the quarter was 82.3 percent, and average rent per square foot for the portfolio was $10.25. Occupancy at the company`s 382 storage facilities at Sept. 30 was 81.6 percent.
Sovran continues to make extensive use of move-in incentives. During the quarter, the company granted more than $4.5 million in "first month free" and other promotions. As a result, even though street rates were increased in most markets, revenue at the 356 stores owned or managed by the company decreased 3.6 percent over the same quarter in 2008.
Same-store operating expenses decreased by 5.3 percent 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 percent, 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 Sovran’s Maryland and Michigan facilities, while facilities in Florida, Georgia and parts of New England continued to show revenue declines.
Sovran 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 facilities that were in non-core markets: Southeast Massachusetts (2) and Fayetteville, N.C. (1).
As previously announced, Sovran has curtailed its program of expanding and enhancing existing sites, awaiting improvements in 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.
As of Sept.30, the company had $500 million of unsecured term note debt and $108 million of mortgage debt outstanding. Of the mortgage debt, $26 million matures in December. The company expects to repay this with cash on hand. The next significant maturities are in 2012.
Sovran 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 percent to 4 percent from that of 2008. Property operating costs are projected to decrease by 1 percent to 2 percent. Management reiterates its previous forecast of an expected decline in same-store NOI of 2 percent to 4 percent.
Sovran held a third-quarter earnings-release conference call on Nov. 5. The call has been archived for 90 days and is accessible at www.unclebobs.com/company/investment.
Sovran is a real estate investment trust that acquires and manages self-storage facilities. The company operates 383 facilities in 24 states under the name "Uncle Bob`s Self Storage.”
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