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FORM 10-Q

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

(Mark One)

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

 

For the quarterly period ended March 31, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number 0-11455

 

 

SHURGARD STORAGE CENTERS, INC.

(Exact name of registrant as specified in its charter)

 

 

WASHINGTON   91-1603837

(State or other jurisdiction of

incorporation or organization)

  

(IRS Employer

Identification No.)

1155 VALLEY STREET, SUITE 400, SEATTLE, WASHINGTON   98109
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code 206-624-8100

 

 

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  ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Shares outstanding at July 1, 2004

 

Class A Common Stock, $.001 par value, 45,961,271 shares outstanding

 

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Explanatory Note

 

This Form 10-Q includes restatements of previously reported historical financial data and related descriptions for the quarter ended March 31, 2003. We reassessed certain accounting policies and concluded certain items had been accounted for incorrectly in the past and restated for them accordingly. In addition, we identified certain other errors impacting prior quarterly periods and corrected for them in our restatements. The restated financial statements were included in our 2003 Annual Report on Form 10-K filed on May 17, 2004. See Note C to our Condensed Consolidated Financial Statements for further discussion of this matter. Also as of January 1, 2004, pursuant to the adoption of new accounting standards, we started consolidating our European operations which had a significant effect on the presentation of our Consolidated financial position, operating results and cash-flows as of and for the period ended March 31, 2004 compared to the prior periods (see Note B to our Condensed Consolidated Financial Statements).

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Shurgard Storage Centers, Inc.

Form 10-Q

For the Three Months ended March 31, 2004

Table of content

 

Part I. Financial Information (Unaudited)    Page
Item 1.    Financial Statements     
     Condensed Consolidated Balance Sheets    3
     Condensed Consolidated Statements of Net Income    4
     Condensed Consolidated Statements of Cash Flows    6
     Notes to Condensed Consolidated Financial Statements    8
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    30
Item 3.    Quantitative and Qualitative Disclosures about Market Risk    53
Item 4.    Controls and Procedures    53
Part II. Other Information     
Item 1.    Legal Proceedings    54
Item 2.    Sale of Unregistered Securities    54
Item 5.    Other Information    55
Item 6.    Exhibits and Reports on Form 8-K    55
Signature    57

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Shurgard Storage Centers, Inc.

Part I, Item 1: Condensed Consolidated Balance Sheets

(Amounts in thousands except share data)

(unaudited)

 

    

March 31,

2004

    

December 31,

2003

  

ASSETS:

                 

Storage centers:

                 

Land

    $ 603,928     $ 376,832  

Buildings and equipment, net

      1,850,342       1,203,799  

Construction in progress

      73,751       38,867  
    
 

Total storage centers

      2,528,021       1,619,498  
    
 

Investment in Shurgard Europe

      —         319,267  

Cash and cash equivalents

      36,437       11,670  

Restricted cash

      1,530       1,585  

Notes receivable affiliate

      —         56,543  

Goodwill

      24,206       24,206  

Other assets

      79,978       34,322  
    
 

Total assets

    $ 2,670,172     $ 2,067,091  
    
 

LIABILITIES AND SHAREHOLDERS’ EQUITY:

                 

Accounts payable and other liabilities

    $ 115,520     $ 76,862  

Lines of credit

      654,656       263,220  

Notes payable

      774,626       711,026  

Participation rights liability, net of discount of $3,053 and $4,053, respectively

      41,223       40,623  
    
 

Total liabilities

      1,586,025       1,091,731  
    
 

Minority interest

      159,824       20,940  

Commitments and contingencies (Notes G, I, S and V)

                 

Shareholders’ equity:

                 

Series C Cumulative Redeemable Preferred Stock; $0.001 par value: 2,000,000 shares authorized; 2,000,000 shares issued and outstanding; liquidation preference of $50,000,000

      48,115       48,115  

Series D Cumulative Redeemable Preferred Stock; $0.001 par value: 3,450,000 shares authorized; 3,450,000 shares issued and outstanding; liquidation preference of $86,250,000

      83,068       83,068  

Class A Common Stock, $0.001 par value; 120,000,000 authorized; 45,888,975 and 45,747,751 shares issued and outstanding, respectively

      46       46  

Additional paid-in capital

      1,105,670       1,100,949  

Accumulated net income less distributions

      (314,476 )     (287,516 )

Accumulated other comprehensive income

      1,900       9,758  
    
 

Total shareholders’ equity

      924,323       954,420  
    
 

Total liabilities and shareholders’ equity

    $ 2,670,172     $ 2,067,091  
    
 

 

See notes to unaudited Condensed Consolidated Financial Statements

 

3

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Shurgard Storage Centers, Inc.

Part I, Item 1: Condensed Consolidated Statements of Net Income

(unaudited)

(Amounts in thousands except per share data)

 

    

For the three months

ended March 31,

  
     2004
     2003
  
           (as restated)  

Revenue

                 

Storage center operations

    $ 98,640     $ 68,651  

Other

      800       1,291  
    
 

Total revenue

      99,440       69,942  
    
 

Expenses

                 

Operating

      41,626       22,686  

Depreciation and amortization

      20,254       13,687  

Real estate taxes

      9,125       6,987  

General, administrative and other

      9,220       2,606  
    
 

Total expenses

      80,225       45,966  
    
 

Income from storage center operations

      19,215       23,976  
    
 

Other Income (Expense)

                 

Equity in earnings (losses) of other real estate investments, net

      2       (628 )

Interest:

                 

Interest on loans

      (18,809 )     (10,699 )

Amortization of participation rights discount

      (1,000 )     (279 )

Unrealized loss on derivatives

      (777 )     (1,033 )

Interest income and other (expense), net

      (1,436 )     1,775  
    
 

Other expense, net

      (22,020 )     (10,864 )
    
 

Minority interest

      5,585       (226 )
    
 

Income from continuing operations before income taxes and cumulative effect of change in accounting principle

      2,780       12,886  

Income tax expense

      (23 )     —    
    
 

Income from continuing operations

      2,757       12,886  

Discontinued operations

                 

Income from discontinued operations

      330       368  
    
 

Income before cumulative effect of change in accounting principle

      3,087       13,254  

Cumulative effect of change in accounting principle

                 

Cumulative effect of change in accounting principle

      (2,339 )     —    
    
 

Net income

      748       13,254  

Net Income Allocation

                 

Preferred stock dividends

      (2,974 )     (2,974 )
    
 

Net (loss) income available to common shareholders

    $ (2,226 )   $ 10,280  
    
 

 

See notes to unaudited Condensed Consolidated Financial Statements

 

4

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For the three months

ended March 31,

     2004
     2003
           (as restated)

Net (Loss) Income per Common Share - Basic:

               

(Loss) income from continuing operations available to common shareholders

    $ (0.01 )   $ 0.28

Discontinued operations

      0.01       0.01

Cumulative effect of change in accounting principle

      (0.05 )     —  
    
 

Net (Loss) income per share

    $ (0.05 )   $ 0.29
    
 

Net (Loss) Income per Common Share - Diluted:

               

(Loss) income from continuing operations available to common shareholders

    $ (0.01 )   $ 0.27

Discontinued operations

      0.01       0.01

Cumulative effect of change in accounting principle

      (0.05 )     —  
    
 

Net (Loss) income per share

    $ (0.05 )   $ 0.28
    
 

Distributions per common share

    $ 0.54     $ 0.53
    
 

 

See notes to unaudited Condensed Consolidated Financial Statements

 

5

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Shurgard Storage Centers, Inc.

Part I, Item 1: Condensed Consolidated Statements of Cash Flows

(unaudited)

(Amounts in thousands)

 

    

For the three months

ended March 31,

  
     2004
     2003
  
           (as restated)  

Operating activities:

                 

Net income

    $ 748     $ 13,254  

Adjustment to reconcile net income to net cash provided by operating activities:

                 

Gain on sale of asset

      (30 )     —    

Cumulative effect of change in accounting principle

      2,339       —    

Non-cash interest cost

      1,024       —    

Depreciation and amortization

      20,254       13,687  

Amortization of participation rights discount

      1,000       279  

Unrealized loss on derivatives

      777       1,033  

Equity in losses (earnings) of other real estate investments, net

      (2 )     628  

Stock-based compensation expense

      995       203  

Depreciation associated with discontinued operations

      72       73  

Foreign currency exchange loss

      1,950       —    

Minority interest

      (5,585 )     226  

Changes in operating accounts, net of effect of acquisitions

                 

Other assets

      12,634       (4,144 )

Accounts payable and other liabilities

      (15,666 )     555  

Restricted cash

      55       (54 )
    
 

Net cash provided by operating activities

      20,565       25,740  
    
 

Investing activities:

                 

Construction, acquisition and improvements to storage centers

      (42,924 )     (24,228 )

Proceeds from sale of assets

      1,498       —    

Purchase of intangible assets

      (260 )     —    

Increase in bond receivable from European affiliate

      —         (81 )

(Increase) decrease in notes receivable

      (2,491 )     (76 )

Increase in cash due to consolidation of Shurgard Europe

      32,877       —    

Purchase of additional interest in affiliated partnership

      (2,457 )     —    
    
 

Net cash used in investing activities

      (13,757 )     (24,385 )
    
 

 

See notes to unaudited Condensed Consolidated Financial Statements

 

6

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For the three months

ended March 31,

  
     2004
     2003
  
           (as restated)  

Financing activities:

                 

Proceeds from notes payable

      424