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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003


Commission file number: 1-13820


SOVRAN SELF STORAGE, INC.
(Exact name of Registrant as specified in its charter)

6467 Main Street
Buffalo, NY 14221
(Address of principal executive offices) (Zip code)

(716) 633-1850
(Registrant's telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ____

As of November 10, 2003 there were outstanding 13,839,279 shares of the registrant's Common Stock, $.01 par value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The accompanying unaudited financial statements of Sovran Self Storage, Inc. (the "Company") 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 nine-month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003.

The Company, a self-administered and self-managed real estate investment trust (a "REIT"), was formed on April 19, 1995 to own and operate self-storage facilities throughout the United States. On June 26, 1995, the Company commenced operations effective with the completion of its initial public offering of 5,890,000 shares. At September 30, 2003, the Company owned and/or managed 265 self-storage properties under the "Uncle Bob's Self Storage" registered trade name in 21 states.

All of the Company's assets are owned by, and all its operations are conducted through, Sovran Acquisition Limited Partnership (the "Operating Partnership"). Sovran Holdings, Inc., a wholly-owned subsidiary of the Company (the "Subsidiary"), is the sole general partner and the Company is a limited partner of the Operating Partnership. The Company controls the operations of the Operating Partnership as a result of holding a 96.17% ownership interest therein as of September 30, 2003. The remaining ownership interests in the Operating Partnership (the "Units") are held by certain former owners of assets acquired by the Operating Partnership subsequent to its formation.

The consolidated financial statements of the Company include the accounts of the Company, the Operating Partnership, and Locke Sovran II, LLC, a majority controlled joint venture. All intercompany transactions and balances have been eliminated. Investments in joint ventures which are not majority owned or controlled are reported using the equity method.

In accordance with the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation," the Company has elected to continue applying the provisions of Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, the Company does not recognize compensation expense for stock options when the stock option price at the grant date is equal to or greater than the fair market value of the stock on that date. The following illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 (in thousands, except for earnings per share information):

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The following summarizes activity in storage facilities during the nine-month period ended September 30, 2003.

The Company had a $150 million revolving line of credit at LIBOR plus 1.375% and a $75 million term loan due November 2003 at LIBOR plus 1.75%. The facility was scheduled to mature November 2003; the facility was paid off on September 4, 2003 with the proceeds of the new debt agreements described below.

On September 4, 2003, the Company entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. The new agreement provides for a $75 million (expandable to $100 million) revolving line of credit maturing September 2006 bearing interest at a variable rate equal to LIBOR plus 1.375%, a $100 million term note maturing September 2008 bearing interest at a variable rate equal to LIBOR plus 1.50%, a $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26% and a $20

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million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.5%. At September 30, 2003, there was $66 million available on the revolving line of credit excluding the amount available on the expansion feature.

The Company recorded an expense of $713,000 during the three months ended September 30, 2003, representing the unamortized financing costs relating to the credit facilities that were replaced by the new credit arrangements.

The Company has entered into three interest rate swap agreements, one in March 2001 for $50 million and two in September 2001 for $50 million and $30 million, to effectively convert a total of $130 million of variable-rate debt to fixed-rate debt. One of the $50 million interest rate swap agreements matures in November 2005, the other matures in October 2006, and the $30 million swap agreement matures in September 2008.

Based on current interest rates, the Company estimates that payments under the interest rate swaps will be approximately $4.6 million in 2003. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements at September 30, 2003 was a $9.4 million liability.

In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year note bears interest at 7.19%.

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 that individually or in the aggregate would be material to the Company's overall business, financial condition, or results of operations.

Total comprehensive income consisting of net income and the change in the fair value of interest rate swap agreements was $21.9 million and $9.6 million for the nine months ended September 30, 2003 and 2002, respectively.

Investment in joint ventures includes an ownership interest in Locke Sovran I, LLC, which operates 11 self storage facilities throughout the United States, and an ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company's headquarters and other tenants.

In December 2000, the Company contributed seven self-storage properties to Locke Sovran I, LLC with a fair market value of $19.8 million, in exchange for a $15 million one year note receivable bearing interest at LIBOR plus 1.75% that was repaid in 2001, and a 45% interest in Locke Sovran I, LLC.

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The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC at September 30, 2003. The majority of the $1.6 million investment relates to interest bearing loans made by the Company to the joint venture.

A summary of the unconsolidated joint ventures' operating statements as for the nine-months ended September 30, 2003 is as follows:

The Company does not guarantee the debt of Locke Sovran I, LLC; it does guarantee a $900,000 demand note payable of Iskalo Office Holdings, LLC.

The Company reports earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." In computing earnings per share, the Company deducts preferred stock dividends from net income to arrive at net income available to common shareholders. The following table sets forth the computation of basic and diluted earnings per common share:

Potential common shares from the Series C Convertible Preferred Stock and related warrants were excluded from the diluted earnings per share calculation because their inclusion would have had an antidilutive effect on earnings per share.

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The following discussion and analysis of the consolidated financial condition and results of operations of the Company should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.

The Company operates as a Real Estate Investment Trust ("REIT") and owns and/or manages a portfolio of 265 self-storage facilities, providing storage space for business and personal use to customers in 21 states. The Company's investment objective is to increase cash flow and enhance shareholder value by aggressively managing its portfolio, to expand and enhance the facilities in that portfolio and to selectively acquire new properties in geographic areas that will either complement or efficiently grow the portfolio.

When used in this discussion and elsewhere in this document, 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 Exchange Act of 1933 and in Section 21F of the Securities 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 would 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 and others; th e Company's ability to effectively compete in the industry in which it does business; 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 successfully implement its truck leasing program and Dri-Guard product roll-out; the Company's reliance on its call center; the Company's cash flow may be insufficient to meet required payments of principal and interest; and tax law changes that may change the taxability of future income.

The Company had a $150 million revolving line of credit at LIBOR plus 1.375% and a $75 million term loan due November 2003 at LIBOR plus 1.75%. The facility was scheduled to mature November 2003; the facility was paid off on September 4, 2003 with the proceeds of the new debt agreements described below.

On September 4, 2003, the Company entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. The Company's new unsecured line of credit provides availability up to $75 million (expandable to $100 million), of which $9 million was drawn on September 30, 2003. The revolving line of credit facility matures in September 2006 and bears interest at a variable rate equal to LIBOR plus 1.375%. The Company also entered into a $100 million term note through September 2008 at a variable rate equal to LIBOR plus 1.50%,

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In addition to the line of credit and term note mentioned above, the Company also issued a $80 million unsecured term note bearing interest at a fixed rate of 6.26% and a $20 million unsecured term note bearing interest at a variable rate equal to LIBOR plus 1.50%. The term notes mature September 2013.

The line of credit facility and term notes currently have investment grade ratings from Standard and Poor's (BBB-), Moody's (Baa3), and Fitch (BBB-).

In February 2002, the consolidated joint venture (Locke Sovran II, LLC) entered into a mortgage note of $48 million. The note is secured by the 27 properties owned by the joint venture with a cost of $79 million. The 10-year note bears interest at a fixed rate of 7.19%.

During 2002 and 2003, the Company entered into lease agreements, which qualify as capital leases, for trucks to be used at its storage facilities.

In July 1999, the Company issued 1,200,000 shares of 9.85% Series B Cumulative Redeemable Preferred Stock. The Series B Preferred Stock is currently rated by Standard and Poor's (BB+), Moody's (Ba2) and Fitch (BB+).

On July 3, 2002, the Company entered into an agreement providing for the issuance of 2,800,000 shares of 8.375% Series C Convertible Cumulative Preferred Stock and warrants to purchase 379,166 shares of common stock at $32.60 per share in a privately negotiated transaction. The Company immediately issued 1,600,000 shares of the Series C Preferred and issued the remaining 1,200,000 shares on November 27, 2002. The offering price was $25.00 per share and the net proceeds of $67.9 million were used to reduce indebtedness that was incurred in the June 2002 acquisition of seven self-storage properties and to repay a portion of the line of credit.

From January 1, 2003 through September 30, 2003, the Company acquired 145,816 shares of its common stock via the Share Repurchase Program authorized by the Board of Directors. From the inception of the Share Repurchase Program through September 30, 2003, the Company has reacquired a total of 1,171,886 shares pursuant to this program. From time to time, subject to market price and certain loan covenants, the Company may reacquire additional shares.

The Company believes that its internally generated cash flows and borrowing capacity under the credit facility will be sufficient to fund ongoing operations, capital improvements, dividends, and share repurchases for the year 2003. Future growth is expected to be funded through with the availability under the revolving line of credit, issuance of secured or unsecured term notes, issuance of common or preferred stock, sale of properties, private placement solicitation of joint venture equity and other sources of capital.

The Company was formed as an Umbrella Partnership Real Estate Trust ("UPREIT") and, as such, has the ability to issue Operating Partnership ("OP") Units in exchange for properties sold by independent owners. By utilizing such OP Units as currency in facility acquisitions, the Company may partially defer the seller's income-tax liability and obtain more favorable pricing or terms. As of September 30, 2003, 544,865 Units are outstanding that were issued in exchange for property at the request of the sellers.

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The Company's external growth strategy is to increase the number of facilities it owns by acquiring suitable facilities in markets in which it already has an operating presence or to expand into new markets by acquiring several facilities at once in those new markets. During the nine months ended September 30, 2003, the Company purchased one property in Dallas, Texas for $5.2 million.

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 90% of its taxable income. These distributions must be made in the year to which they relate or in the following year if declared before the Company files its federal income tax return and if it is paid before the first regular dividend of the following year.

As a REIT, the Company must derive at least 95% of its total gross income from income related to real property, interest and dividends. In the nine months ended September 30, 2003, 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.

FOR THE PERIOD JANUARY 1, 2003 THROUGH SEPTEMBER 30, 2003, COMPARED TO THE PERIOD JANUARY 1, 2002 THROUGH SEPTEMBER 30, 2002

The Company recorded rental revenues of $82.1 million for the nine months ended September 30, 2003, an increase of $7.9 million or 10.7% when compared to 2002 rental revenues of $74.2 million. Of this increase, $3.7 million resulted from a 5.0% increase in revenues at the 241 core properties considered in same store sales. The remaining $4.2 million increase in rental revenues resulted from the acquisition of 23 stores during 2002 and the one store purchased in 2003. Other income increased $0.4 million due to additional revenue generated by truck rentals.

Property operating and real estate tax expense increased $4.5 million or 18.5% in 2003 compared to 2002. Of this, $1.2 million was related to the facilities acquired in 2002 and 2003. The remaining $3.3 million increase was due to increased insurance, personnel, truck expenses, and increased property taxes at the 241 core properties considered same stores.

General and administrative expenses increased $0.9 million or 14.3%. The increase primarily resulted from increased cost in the Company's call center and the increased costs associated with operating the properties acquired in 2002 and 2003.

Depreciation and amortization expense increased to $14.2 million from $12.7 million, primarily as a result of additional depreciation taken on real estate assets acquired in 2002 and 2003.

Income from operations increased from $32.4 million in 2002 to $33.8 million in 2003 as a result of the aforementioned items.

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Interest expense decreased from $11.4 million to $10.8 million as a result of the paying down of short term debt with proceeds from the issuance of Series C Preferred Stock offset by higher interest costs relating to the refinanced debt.

The Company recorded an expense of $713,000 during the three months ended September 30, 2003, representing the unamortized financing costs of the credit facilities that were refinanced.

The increase in preferred stock dividends and the reduction in net income available to common shareholders was a result of the issuance of the 8.375% Series C Convertible Cumulative Preferred Stock in July and November of 2002.

THREE MONTHS ENDED SEPTEMBER 30, 2003, COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

The Company recorded rental revenues of $28.4 million for the quarter ended September 30, 2003, an increase of $2.7 million or 10.5% when compared to 2002 rental revenues of $25.7 million. Of this increase, $1.9 million resulted from a 7.4% increase in rental revenues at the 253 core properties considered in same store sales for the quarter. The remaining $0.8 million increase in rental revenues resulted from the acquisition of 11 stores during 2002 and the one store purchased in 2003. Other income increased $0.2 million due to additional revenue generated by truck rentals.

Property operating and real estate tax expense increased $1.6 million or 18.1% in 2003 compared to 2002. Of this, $0.2 million was related to the facilities acquired in 2002 and 2003. The remaining $1.4 million increase was due to increased insurance, personnel, and truck expenses at the 253 core properties considered same stores.

General and administrative expenses increased $0.2 million or 10.1%. The increase primarily resulted from increased cost in the Company's call center and the increased costs associated with operating the properties acquired in 2002 and 2003.

Depreciation and amortization expense increased to $4.8 million from $4.4 million, primarily as a result of additional depreciation taken on real estate assets acquired in 2002 and 2003.

Income from operations increased from $11.1 million in 2002 to $11.7 million in 2003 as a result of the aforementioned items.

Interest expense decreased $0.1 million to $3.7 million as a result of the paying down of short term debt with proceeds from the 2002 issuance of Series C Preferred Stock offset by higher interest costs relating to the refinanced debt in 2003.

The Company recorded an expense of $713,000 during the three months ended September 30, 2003, representing the unamortized financing costs of the credit arrangements that were replaced by the new credit arrangements entered into by the Company in September 2003.

The increase in preferred stock dividends and the reduction in net income available to common shareholders resulted from the issuance of the 8.375% Series C Convertible Cumulative Preferred Stock in July and November of 2002.

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The Company believes that Funds from Operations ("FFO") provides relevant and meaningful information about its operating performance that is necessary, along with net earnings and cash flows, for an understanding of its operating results.  Funds from operations is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis.  We believe that, to further understand our performance, FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.

Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions. The following table sets forth the calculation of FFO:

The Company does not believe that inflation has had or will have a direct adverse effect on its operations. Substantially all of the leases at the facilities allow for monthly rent increases, which provides the Company with the opportunity to achieve increases in rental income as each lease matures.

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The Company's revenues typically have been higher in the third and fourth quarters, primarily because the Company 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 Company believes that its tenant mix, diverse geographical locations, rental structure and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, the Company does not expect seasonality to materially affect distributions to shareholders.

The Company manages its exposure to interest rate changes by entering into interest rate swap and cap agreements. At September 30, 2003, the Company has three outstanding interest rate swap agreements. The first, entered in March 2001, effectively fixes the LIBOR base rate at 5.36% through November 2005 on $50 million notional amount. The second, entered in September 2001, effectively fixes the LIBOR base rate at 4.485% through October 2006 on another $50 million notional amount. The third, also entered in September 2001, effectively fixes the LIBOR base rate at 4.805% through September 2008 on $30 million notional amount. The Company has an unsecured revolving line of credit in place through September 2006 and unsecured term notes through September 2008 and September 2013 enabling the Company to borrow funds at variable interest rates equal to LIBOR plus 1.375% and 1.50%. Accordingly, as a result of the above described interest rate swap agreements, the Company has fixed its interest rate thro ugh November 2005 on $9 million at 6.735%, on another $40 million at 6.86% through November 2005, on another $50 million at 5.985% through September 2006, and on $30 million at 6.305% through September 2008.

The information required is incorporated by reference to the information appearing under the caption " Quantitative and Qualitative Disclosures About Market Risk " in Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations" above.

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As of September 30, 2003, an evaluation was performed under the supervision and with participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2003.

No disclosure required.

No disclosure required.

No disclosure required.

No disclosure required.

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No disclosure required.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Exhibit 10.23

AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT

among

SOVRAN SELF STORAGE, INC. AND
SOVRAN ACQUISITION LIMITED PARTNERSHIP

and

FLEET NATIONAL BANK


and

OTHER LENDERS WHICH ARE OR MAY BECOME
PARTIES TO THIS CREDIT AGREEMENT

and

FLEET NATIONAL BANK,
AS ADMINISTRATIVE AGENT

with
FLEET SECURITIES, INC.,
AS SOLE LEAD ARRANGER AND BOOKRUNNER

MANUFACTURERS AND TRADERS TRUST COMPANY,
as syndication agent

and

SUNTRUST BANK,

and

PNC BANK, NATIONAL ASSOCIATION
as Co-documentation agentS


Dated as of September 4, 2003

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