Sovran Self Storage Reports Third Quarter Results; Same Store Revenues Increase 7.3%; Raises Guidance
Sovran Self Storage, Inc. (NYSE:SSS), a
self storage real estate investment trust (REIT), reported operating results for the quarter ended September 30, 2013.
Net income available to common shareholders for the third quarter of 2013 was $19.7 million or $0.62 per fully diluted common share. For the same period in 2012, net income available to common shareholders was $18.8 million, or $0.63 per fully diluted common share.
Funds from operations (FFO) for the quarter were $0.98 per fully diluted common share compared to $0.85 for the same period last year. The Company incurred acquisition costs of $0.8 million in the third quarter of 2013; in the third quarter of 2012, it incurred acquisition costs of $1.1 million in connection with property acquisitions. Absent these acquisition charges, FFO per share was $1.01 and $0.88 for the third quarter of 2013 and 2012, respectively.
Continuing occupancy growth and higher net rental rates contributed to the increase in FFO for the third quarter of 2013.
David Rogers, the Company’s CEO, commented, “The strong start to our leasing season continued through the summer and we enjoyed another remarkable quarter. Our marketing, sales, and revenue management platforms have delivered exceptional top line growth and, with expenses in check, we’re achieving our best ever operating results.”
Revenues for the 362 stores wholly owned by the Company for the entire quarter of each year increased 7.3% from those of the third quarter of 2012, the result of a 250 basis point increase in average occupancy to 90.9%, increased rental rates and strong growth in insurance commissions.
Same store operating expenses increased 3.0% for the third quarter of 2013 compared to the prior year period, mainly as a result of increased insurance costs and property taxes.
Consequently, same store net operating income increased 9.3% this period over the third quarter of 2012.
Total revenues increased 14.9% over last year’s third quarter, while operating costs increased 13.9%, resulting in an NOI (3) increase of 15.4%. Overall occupancy averaged 89.9% for the period and rental rates improved 3.9% to an average of $11.21 per sq. ft.
General and administrative expenses grew by approximately $0.8 million over the same period in 2012, primarily due to increased salaries and internet advertising associated with the net 23 stores added to the Company’s platform since July 1 of last year.
During the third quarter of 2013, the Company experienced positive same store revenue growth in every state in which it operates. The stores with the strongest revenue impact include those in Texas, Florida, New York and North Carolina.
During the quarter, the Company acquired three properties for a total of $27.9 million. The facilities are all located in markets where the Company already has a presence; two in Long Island, New York, and one in Colorado Springs, Colorado.
As previously announced and subsequent to the end of the quarter, the Company entered into lease agreements to rebrand and operate four self storage facilities formerly known as “Westy Self Storage” as Uncle Bob’s Self Storage. The facilities are located in Connecticut and Long Island, NY – both markets where the Company already has a presence. The 15 year leases were negotiated in an off–market transaction and provide the Company with an option to purchase the four stores for an aggregate of $120 million during a fixed period of time between February, 2015 and September, 2016. The Company is required to make annual lease payments of $6 million, with a provision for annual increases of 4% per year.
The Company currently has two properties under contract for a total of $14.8 million. One of the facilities is located in Toms River, NJ and the other in Palm Beach, FL; both are markets in which the Company already has an established presence. Providing the properties pass due diligence, the Company expects to acquire these facilities during the fourth quarter of 2013.
Also subsequent to the end of the quarter, the Company sold one property located in Dayton, OH for total net proceeds of $3.2 million, recognizing a gain of $300,000 on the transaction.
COMMON STOCK DIVIDEND:
Subsequent to quarter end, the Company announced a quarterly dividend of $0.53 per share or $2.12 annualized.
Illustrated below are key financial ratios at September 30, 2013:
Debt to Enterprise Value (at $75.68/share)
Debt to Book Cost of Storage Facilities
Debt to EBITDA Ratio
Debt Service Coverage
At September 30, 2013, the Company had approximately $9.7 million of cash on hand, and $126 million available on its line of credit (without considering the additional $75 million available under the expansion feature).
The Company issued 444,910 shares of its common stock via its previously announced ATM program during the quarter at an average price of $72.11 per share, resulting in net proceeds of $31.6 million after issuance costs. The Company used the proceeds to fund the purchase of the aforementioned properties. Also in July, the Company issued 23,712 shares at an average price of $69.38 through its Dividend Reinvestment Plan.
As previously announced, the Company refinanced its bank term loan and line of credit totaling $500 million. As part of the refinancing, the Company secured a $100 million term note with a delayed draw feature that was used to fund the $100 million term notes that matured September, 2013. The Company expects full year interest expense savings of approximately $4.1 million commencing in 2014 as a result of the refinancing.
YEAR 2013 EARNINGS GUIDANCE:
Management is encouraged by strong customer traffic and increasing rental rates in most markets. The following assumptions covering operations have been utilized in formulating updated guidance for the fourth quarter and full year 2013:
Total Operating Expenses3.5 – 4.5% 3.0 – 4.0% Net Operating Income8.0 – 9.0% 9.0 – 10.0%
The Company intends to spend up to $25 million on its expansion and enhancement program. It has also budgeted $15 million to provide for recurring capitalized expenditures including roofing, paving, and office renovations.
Prospective purchases of properties made for the remainder of 2013 are not expected to significantly impact guidance inasmuch as the Company expects to invest in both low occupancy turn-around opportunities as well as stabilized properties. Accordingly, neither the net operating income nor the acquisition costs relating to any acquisitions that may be made in the last quarter of 2013 are included in guidance.
General and administrative expenses are expected to increase to approximately $36 million due to the need for additional personnel required for recent acquisitions, income taxes on its taxable REIT subsidiaries, and the Company’s plans to continue expanding its internet marketing presence and revenue management program.
At September 30, 2013, all but $49 million of the Company’s debt is either fixed rate or covered by rate swap contracts that essentially fix the rate. Subsequent borrowings that may occur will be pursuant to the Company’s Line of Credit agreement at a floating rate of LIBOR plus 1.5%.
At September 30, 2013, the Company had 32.0 million shares of common stock outstanding and 0.2 million Operating Partnership Units outstanding.
As a result of the above assumptions, management expects funds from operations for the full year 2013 to be approximately $3.77 to $3.79 per share, and between $0.98 and $1.00 per share for the fourth quarter of 2013.
About Sovran Self Storage, Inc
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 475 self storage facilities in 25 states under the name “Uncle Bob’s Self Storage”®. For more information, visit www.unclebobs.com, like us on Facebook, or follow us on Twitter.