LIFE STORAGE, INC. - Annual Report: 2008 (Form 10-K)

FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008
Commission File Number: 1-13820

SOVRAN SELF STORAGE, INC.

(Exact name of Registrant as specified in its charter)


Maryland		16-1194043

(State of incorporation or organization)		(I.R.S. Employer Identification No.)

6467 Main Street
Williamsville, NY 14221

(Address of principal executive offices) (Zip code)

(716) 633-1850

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Securities		Exchanges on which Registered
Common Stock, $.01 Par Value		New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of June 30, 2008, 21,890,727 shares of Common Stock, $.01 par value per share, were outstanding, and the aggregate market value of the Common Stock held by non-affiliates was approximately $882,013,334 (based on the closing price of the Common Stock on the New York Stock Exchange on June 30, 2008).

As of February 15, 2009, 22,040,654 shares of Common Stock, $.01 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders of the Registrant to be held on May 21, 2009 (Part III).

TABLE OF CONTENTS


Part I			3
Item 1. Business			3
Item 1A. Risk Factors			7
Item 1B. Unresolved Staff Comments			12
Item 2. Properties			13
Item 3. Legal Proceedings			14
Item 4. Submission of Matters to a Vote of Security Holders			14

Part II			14
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
Item 6. Selected Financial Data			17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			30
Item 8. Financial Statements and Supplementary Data			31
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			50
Item 9a. Controls and Procedures			50

Part III			52
Item 10. Directors, Executive Officers and Corporate Governance			52
Item 11. Executive Compensation			52
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			52
Item 13. Certain Relationships and Related Transactions, and Director Independence			52
Item 14. Principal Accountant Fees and Services			52

Part IV			52
Item 15. Exhibits, Financial Statement Schedules			52

SIGNATURES			55
EX-10.3
EX-10.4
EX-10.5
EX-10.13
EX-12.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

Part I

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 21E 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 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 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 that may change the taxability of future income.

Item 1. Business

Sovran Self Storage, Inc. together with its direct and indirect subsidiaries and the consolidated joint ventures, to the extent appropriate in the applicable context, (the “Company,” “We,” “Our,” or “Sovran”) is a self-administered and self-managed real estate investment trust (“REIT”) that acquires, owns and manages self-storage properties. We refer to the self-storage properties in which we have an ownership interest and are managed by us as “Properties.” We began operations on June 26, 1995. We were formed to continue the business of our predecessor company, which had engaged in the self-storage business since 1985. At February 15, 2009, we held ownership interests in and managed 385 Properties consisting of approximately 25.0 million net rentable square feet, situated in 24 states. Among our 385 self-storage facilities are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and 25 properties that we manage for a joint venture of which we are a 20% owner. We believe we are the fifth largest operator of self-storage properties in the United States based on facilities owned and managed. Our Properties conduct business under the user-friendly name Uncle Bob’s Self-Storage ®.

We own an indirect interest in each of the Properties through a limited partnership (the “Partnership”). In total, we own a 98.1% economic interest in the Partnership and unaffiliated third parties own collectively a 1.9% limited partnership interest at December 31, 2008. We believe that this structure, commonly known as an umbrella partnership real estate investment trust (“UPREIT”), facilitates our ability to acquire properties by using units of the Partnership as currency. By utilizing interests in the Partnership as currency in facility acquisitions, we may partially defer the seller’s income tax liability which in turn may allow us to obtain more favorable pricing.

We were incorporated on April 19, 1995 under Maryland law. Our principal executive offices are located at 6467 Main Street, Williamsville, New York 14221, our telephone number is (716) 633-1850 and our web site is www.sovranss.com.

We seek to enhance shareholder value through internal growth and acquisition of additional storage properties. Internal growth is achieved through aggressive property management: increasing rents, increasing occupancy levels, controlling costs, maximizing collections and strategically expanding and improving the Properties. Should economic conditions warrant, we may develop new properties. We believe that there continue to be opportunities for growth through acquisitions, and constantly seek to acquire self-storage properties that are susceptible to realization of increased economies of scale and enhanced performance through application of our expertise.

Industry Overview

We believe that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed and secure storage space, many facilities also offer outside storage for automobiles, recreational vehicles and boats. Better facilities are usually fenced and well lighted with gates that are either manually operated or automated and have a full-time manager. Our customers rent space on a month-to-month basis

and have access to their storage area during business hours and in certain circumstances are provided with 24-hour access. Individual storage units are secured by the customer’s lock, and the customer has sole control of access to the unit.

According to the 2009 Self-Storage Almanac, of the approximately 47,500 facilities in the United States, less than 11% are managed by the ten largest operators. The remainder of the industry is characterized by numerous small, local operators. The shortage of skilled operators, the scarcity of capital available to small operators for acquisitions and expansions, and the potential for savings through economies of scale are factors that are leading to consolidation in the industry. We believe that, as a result of this trend, significant growth opportunities exist for operators with proven management systems and sufficient capital resources.

Property Management

We believe that we have developed substantial expertise in managing self-storage facilities. Key elements of our management system include the following:

Personnel:

Property managers attend a thorough orientation program and undergo continuous training that emphasizes closing techniques, identification of selected marketing opportunities, networking with possible referral sources, and familiarization with our customized management information system. In addition to frequent contact with Area Managers and other Company personnel, property managers receive periodic newsletters via our intranet regarding a variety of operational issues, and from time to time attend “roundtable” seminars with other property managers.

Marketing and Sales:

Responding to the increased customer demand for services, we have implemented several programs expected to increase profitability. These programs include:

	-		A Customer Care Center (call center) that services new and existing customers’ inquiries and facilitates the capture of sales leads that were previously lost;

	-		Internet marketing, which provides customers information about all of our stores via numerous portals and e-mail;

	-		A rate management system, that matches product availability with market demand for each type of storage unit at each store, and determines appropriate pricing. The Company credits this program in achieving higher yields and controlling discounting;

	-		Dri-guard, that provides humidity-controlled spaces. We became the first self-storage operator to utilize this humidity protection technology. These environmental control systems are a premium storage feature intended to protect metal, electronics, furniture, fabrics and paper from moisture; and

	-		Uncle Bob’s trucks, that provide customers with convenient, affordable access to vehicles to help move-in their goods, and which also serve as moving billboards to help advertise our storage facilities.

Ancillary Income:

Our stores are essentially retail operations and we have in excess of 160,000 customers. As a convenience to those customers, we sell items such as locks, boxes, tarps, etc. to make their storage experience easier. We also make available renters insurance through a third party carrier, on which we earn a commission. Income from incidental truck rentals, billboards and cell towers is also earned by our Company.

Information Systems:

Our customized computer system performs billing, collections and reservation functions for each Property. It also tracks information used in developing marketing plans based on occupancy levels and tenant demographics and histories. The system generates daily, weekly and monthly financial reports for each Property that are transmitted to our principal office each night. The system also requires a property manager to input a descriptive explanation for all debit and credit transactions, paid-to-date changes, and all other discretionary activities, which allows the accounting staff at our principal office to promptly review all such transactions. Late charges are automatically imposed. More sensitive activities, such as rental rate changes and unit size or number changes, are completed only by Area Managers. Our customized management information system permits us to add new

facilities to our portfolio with minimal additional overhead expense.

Property Maintenance:

All of our Properties are subject to regular and routine maintenance procedures, which are designed to maintain the structure and appearance of our buildings and grounds. A staff headquartered in our principal office is responsible for the upkeep of the Properties, and all maintenance service is contracted through local providers, such as lawn service, snowplowing, pest control, gate maintenance, HVAC repairs, paving, painting, roofing, etc. A codified set of specifications has been designed and is applied to all work performed on our Uncle Bob’s stores. As with many other aspects of our Company, our size has allowed us to enjoy relatively low maintenance costs because we have the benefit of economies of scale in purchasing, travel and overhead absorption.

Environmental and Other Regulations

We are subject to federal, state, and local environmental regulations that apply generally to the ownership of real property. We have not received notice from any governmental authority or private party of any material environmental noncompliance, claim, or liability in connection with any of the Properties, and are not aware of any environmental condition with respect to any of the Properties that could have a material adverse effect on our financial condition or results of operations.

The Properties are also generally subject to the same types of local regulations governing other real property, including zoning ordinances. We believe that the Properties are in substantial compliance with all such regulations.

Insurance

Each of the Properties is covered by fire and property insurance (including comprehensive liability), and all-risk property insurance policies, which are provided by reputable companies and on commercially reasonable terms. In addition, we maintain a policy insuring against environmental liabilities resulting from tenant storage on terms customary for the industry, and title insurance insuring fee title to the Company-owned Properties in an amount that we believe to be adequate.

Federal Income Tax

We operate, and intend to continue to operate, in such a manner as to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), but no assurance can be given that we will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — REIT Qualification and Distribution Requirements.”

Competition

The primary factors upon which competition in the self-storage industry is based are location, rental rates, suitability of the property’s design to prospective customers’ needs, and the manner in which the property is operated and marketed. We believe we compete successfully on these bases. The extent of competition depends significantly on local market conditions. We seek to locate facilities so as not to cause our Properties to compete with one another for customers, but the number of self-storage facilities in a particular area could have a material adverse effect on the performance of any of the Properties.

Several of our competitors, including Public Storage, U-Haul, and Extra Space Storage, are larger and have substantially greater financial resources than we do. These larger operators may, among other possible advantages, be capable of greater leverage and the payment of higher prices for acquisitions.

Investment Policy

While we emphasize equity real estate investments, we may, at our discretion, invest in mortgage and other real estate interests related to self-storage properties in a manner consistent with our qualification as a REIT. We may also retain a purchase money mortgage for a portion of the sale price in connection with the disposition of Properties from time to time. Should investment opportunities become available, we may look to acquire self-storage properties via a joint-venture partnership or similar entity. We may or may not elect to have a significant investment in such a venture, but would use such an opportunity to expand our portfolio of branded and managed properties.

Subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification, we also may invest in securities of entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such entities.

Disposition Policy

We periodically review our Properties. Any disposition decision will be based on a variety of factors, including, but not limited to, the (i) potential to continue to increase cash flow and value, (ii) sale price, (iii) strategic fit with the rest of our portfolio, (iv) potential for, or existence of, environmental or regulatory issues, (v) alternative uses of capital, and (vi) maintaining qualification as a REIT.

During 2008 we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. No storage facilities were sold in 2007 or 2006.

Distribution Policy

We intend to pay regular quarterly distributions to our shareholders. However, future distributions by us will be at the discretion of the Board of Directors and will depend on the actual cash available for distribution, our financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. In order to maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income (which does not include capital gains). Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet this requirement.

Borrowing Policy

Our Board of Directors currently limits the amount of debt that may be incurred by us to less than 50% of the sum of the market value of our issued and outstanding Common and Preferred Stock plus our debt. We, however, may from time to time re-evaluate and modify our borrowing policy in light of then current economic conditions, relative costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors.

On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, we entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay the Company’s previous line of credit that was to mature in September 2008, the Company’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. The new agreements also provide for a $125 million (expandable to $150 million) revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. At December 31, 2008, there was $111 million available on the unsecured line of credit.

We also maintain an $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.

To the extent that we desire to obtain additional capital to pay distributions, to provide working capital, to pay existing indebtedness or to finance acquisitions, expansions or development of new properties, we may utilize amounts available under the expanded line of credit, common or preferred stock offerings, floating or fixed rate debt financing, retention of cash flow (subject to satisfying our distribution requirements under the REIT rules) or a combination of these methods. Additional debt financing may also be obtained through mortgages on our Properties, which may be recourse, non-recourse, or cross-collateralized and may contain cross-default provisions. We have not established any limit on the number or amount of mortgages that may be placed on any single Property or on our portfolio as a whole, although certain of our existing term loans contain limits on overall mortgage indebtedness. For additional information regarding borrowings, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and Note 7 to the Consolidated Financial Statements filed herewith.

Employees

We currently employ a total of 1,069 employees, including 385 property managers, 23 area managers, and 531 assistant managers and part-time employees. At our headquarters, in addition to our three senior executive officers, we employ 127 people engaged in various support activities, including accounting, customer care, and management information systems. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be excellent.

Available Information

We file with the U.S. Securities and Exchange Commission quarterly and annual reports on Forms 10-Q and 10-K, respectively, current reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. We file this information with the SEC electronically, and the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our web site at http://www.sovranss.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, our codes of ethics and Charters of our Governance, Audit Committee, and Compensation Committee are available free of charge on our website at http://www.sovranss.com.

Also, copies of our annual report and Charters of our Governance, Audit Committee, and Compensation Committee will be made available, free of charge, upon written request to Sovran Self Storage, Inc., Attn: Investor Relations, 6467 Main Street, Williamsville, NY 14221.

Item 1A. Risk Factors

You should carefully consider the risks described below, together with all of the other information included in or incorporated by reference into our Form 10-K, as part of your evaluation of the Company. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our securities could decline, and you may lose all or part of your investment.

Our Acquisitions May Not Perform as Anticipated

We have completed many acquisitions of self-storage facilities since our initial public offering of common stock in June 1995. Our strategy is to continue to grow by acquiring additional self-storage facilities. Acquisitions entail risks that investments will fail to perform in accordance with our expectations and that our judgments with respect to the prices paid for acquired self-storage facilities and the costs of any improvements required to bring an acquired property up to standards established for the market position intended for that property will prove inaccurate. Acquisitions also involve general investment risks associated with any new real estate investment.

We May Incur Problems with Our Real Estate Financing

Unsecured Credit Facility. We have a line of credit with a syndicate of financial institutions. This unsecured credit facility is recourse to us and the required payments are not reduced if the economic performance of any of the properties declines. The unsecured credit facility limits our ability to make distributions to our shareholders, except in limited circumstances. If there is an event of default, our lenders may seek to exercise their rights under the unsecured credit facility, which could have a material adverse effect on us and our ability to make expected distributions to shareholders and distributions required by the real estate investment trust provisions of the Internal Revenue Code of 1986.

Rising Interest Rates. Indebtedness that we incur under the unsecured credit facility and bank term note bears interest at a variable rate. Accordingly, increases in interest rates could increase our interest expense, which would reduce our cash available for distribution and our ability to pay expected distributions to our shareholders. We manage our exposure to rising interest rates using interest rate swaps and other available mechanisms. If the amount of our indebtedness bearing interest at a variable rate increases, our unsecured credit facility may require us to use those arrangements.

Refinancing May Not Be Available. It may be necessary for us to refinance our unsecured credit facility through additional debt financing or equity offerings. If we were unable to refinance this indebtedness on acceptable terms, we might be forced to dispose of some of our self-storage facilities upon disadvantageous terms, which might result in losses to us and might adversely affect the cash available for distribution. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancings, our interest expense would increase, which would adversely affect our cash available for distribution and our ability to pay expected distributions to shareholders.

Recent turmoil in the credit markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us. The United States credit markets have recently experienced significant dislocations and liquidity disruptions which have caused the spreads on available debt financings to widen considerably. These circumstances have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive. A prolonged downturn in the credit markets could cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. Continued uncertainty in the credit markets may negatively impact our ability to make acquisitions.

Our Debt Levels May Increase

Our Board of Directors currently has a policy of limiting the amount of our debt at the time of incurrence to less than 50% of the sum of the market value of our issued and outstanding common stock and preferred stock plus the amount of our debt at the time that debt is incurred. However, our organizational documents do not contain any limitation on the amount of indebtedness we might incur. Accordingly, our Board of Directors could alter or eliminate the current policy limitation on borrowing without a vote of our shareholders. We could become highly leveraged if this policy were changed. However, our ability to incur debt is limited by covenants in our bank credit arrangements.

We Are Subject to the Risks Posed by Fluctuating Demand and Significant Competition in the Self-Storage Industry

Our self-storage facilities are subject to all operating risks common to the self-storage industry. These risks include but are not limited to the following:

	•		Decreases in demand for rental spaces in a particular locale;

	•		Changes in supply of similar or competing self-storage facilities in an area;

	•		Changes in market rental rates; and

	•		Inability to collect rents from customers.

Our current strategy is to acquire interests only in self-storage facilities. Consequently, we are subject to risks inherent in investments in a single industry. Our self-storage facilities compete with other self-storage facilities in their geographic markets. As a result of competition, the self-storage facilities could experience a decrease in occupancy levels and rental rates, which would decrease our cash available for distribution. We compete in operations and for acquisition opportunities with companies that have substantial financial resources. Competition may reduce the number of suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell. The self-storage industry has at times experienced overbuilding in response to perceived increases in demand. A recurrence of overbuilding might cause us to experience a decrease in occupancy levels, limit our ability to increase rents and compel us to offer discounted rents.

Our Real Estate Investments Are Illiquid and Are Subject to Uninsurable Risks and Government Regulation

General Risks. Our investments are subject to varying degrees of risk generally related to the ownership of real property. The underlying value of our real estate investments and our income and ability to make distributions to our shareholders are dependent upon our ability to operate the self-storage facilities in a manner sufficient to maintain or increase cash available for distribution. Income from our self-storage facilities may be adversely affected by the following factors:

	•		Changes in national economic conditions;

	•		Changes in general or local economic conditions and neighborhood characteristics;

	•		Competition from other self-storage facilities;

	•		Changes in interest rates and in the availability, cost and terms of financing;

	•		The impact of present or future environmental legislation and compliance with environmental laws;

	•		The ongoing need for capital improvements, particularly in older facilities;

	•		Changes in real estate tax rates and other operating expenses;

	•		Adverse changes in governmental rules and fiscal policies;

	•		Uninsured losses resulting from casualties associated with civil unrest, acts of God, including natural disasters, and acts of war;

	•		Adverse changes in zoning laws; and

	•		Other factors that are beyond our control.

Illiquidity of Real Estate May Limit its Value. Real estate investments are relatively illiquid. Our ability to vary our portfolio of self-storage facilities in response to changes in economic and other conditions is limited. In addition, provisions of the Code may limit our ability to profit on the sale of self-storage facilities held for fewer than four years. We may be unable to dispose of a facility when we find disposition advantageous or necessary and the sale price of any disposition may not equal or exceed the amount of our investment.

Uninsured and Underinsured Losses Could Reduce the Value of our Self Storage Facilities. Some losses, generally of a catastrophic nature, that we potentially face with respect to our self-storage facilities may be uninsurable or not insurable at an acceptable cost. Our management uses its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to acquiring appropriate insurance on our investments at a reasonable cost and on suitable terms. These decisions may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other

factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds received by us might not be adequate to restore our economic position with respect to a particular property.

Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in that property. Those laws often impose liability even if the owner or operator did not cause or know of the presence of hazardous or toxic substances and even if the storage of those substances was in violation of a tenant’s lease. In addition, the presence of hazardous or toxic substances, or the failure of the owner to address their presence on the property, may adversely affect the owner’s ability to borrow using that real property as collateral. In connection with the ownership of the self-storage facilities, we may be potentially liable for any of those costs.

Americans with Disabilities Act. The Americans with Disabilities Act of 1990, or ADA, generally requires that buildings be made accessible to persons with disabilities. A determination that we are not in compliance with the ADA could result in imposition of fines or an award of damages to private litigants. If we were required to make modifications to comply with the ADA, our results of operations and ability to make expected distributions to our shareholders could be adversely affected.

There Are Limitations on the Ability to Change Control of Sovran

Limitation on Ownership and Transfer of Shares. To maintain our qualification as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code. To limit the possibility that we will fail to qualify as a REIT under this test, our Amended and Restated Articles of Incorporation include ownership limits and transfer restrictions on shares of our stock. Our Articles of Incorporation limit ownership of our issued and outstanding stock by any single shareholder to 9.8% of the aggregate value of our outstanding stock, except that the ownership by some of our shareholders is limited to 15%.

These ownership limits may:

	•		Have the effect of precluding an acquisition of control of Sovran by a third party without consent of our Board of Directors even if the change in control would be in the interest of shareholders; and

	•		Limit the opportunity for shareholders to receive a premium for shares of our common stock they hold that might otherwise exist if an investor were attempting to assemble a block of common stock in excess of 9.8% or 15%, as the case may be, of the outstanding shares of our stock or to otherwise effect a change in control of Sovran.

Our Board of Directors may waive the ownership limits if it is satisfied that ownership by those shareholders in excess of those limits will not jeopardize our status as a REIT under the Code or in the event it determines that it is no longer in our best interests to be a REIT. Waivers have been granted to the former holders of our Series C preferred stock, FMR Corporation and Cohen & Steers, Inc. A transfer of our common stock and/or preferred stock to a person who, as a result of the transfer, violates the ownership limits may not be effective under some circumstances.

Other Limitations. Other limitations could have the effect of discouraging a takeover or other transaction in which holders of some, or a majority, of our outstanding common stock might receive a premium for their shares of our common stock that exceeds the then prevailing market price or that those holders might believe to be otherwise in their best interest. The issuance of additional shares of preferred stock could have the effect of delaying or preventing a change in control of Sovran even if a change in control were in the shareholders’ interest. In addition, the Maryland General Corporation Law, or MGCL, imposes restrictions and requires that specified procedures with respect to the acquisition of stated levels of share ownership and business combinations, including combinations with interested shareholders. These provisions of the MGCL could have the effect of delaying or preventing a change in control of Sovran even if a change in control were in the shareholders’ interest. Waivers and exemptions have been granted to the initial purchasers of our former Series C preferred stock in connection with

these provisions of the MGCL. In addition, under the Partnership’s agreement of limited partnership, in general, we may not merge, consolidate or engage in any combination with another person or sell all or substantially all of our assets unless that transaction includes the merger or sale of all or substantially all of the assets of the Partnership, which requires the approval of the holders of 75% of the limited partnership interests thereof. If we were to own less than 75% of the limited partnership interests in the Partnership, this provision of the limited partnership agreement could have the effect of delaying or preventing us from engaging in some change of control transactions.

Our Failure to Qualify as a REIT Would Have Adverse Consequences

We intend to operate in a manner that will permit us to qualify as a REIT under the Code. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Continued qualification as a REIT depends upon our continuing ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our shareholders.

In addition, a REIT is limited with respect to the services it can provide for its tenants. We have provided certain conveniences for our tenants, including property insurance underwritten by a third party insurance company that pays us commissions. We believe the insurance provided by the insurance company would not constitute a prohibited service to our tenants. No assurances can be given, however, that the IRS will not challenge our position. If the IRS successfully challenged our position, our qualification as a REIT could be adversely affected.

If we were to fail to qualify as a REIT in any taxable year, we would not be allowed a deduction for distributions to shareholders in computing our taxable income and would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, we also would be ineligible for qualification as a REIT for the four taxable years following the year during which our qualification was lost. As a result, distributions to the shareholders would be reduced for each of the years involved. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.

Market Interest Rates May Influence the Price of Our Common Stock

One of the factors that may influence the price of our common stock in public trading markets or in private transactions is the annual yield on our common stock as compared to yields on other financial instruments. An increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect the price of our common stock.

Regional Concentration of Our Business May Subject Us to Economic Downturns in the States of Texas and Florida.

As of December 31, 2008, 147 of our 385 self-storage facilities are located in the states of Texas and Florida. For the year ended December 31, 2008, these facilities accounted for approximately 40.9% of store revenues. This concentration of business in Texas and Florida exposes us to potential losses resulting from a downturn in the economies of those states. If economic conditions in those states continue to deteriorate, we will experience a reduction in existing and new business, which may have an adverse effect on our business, financial condition and results of operations.

Changes in Taxation of Corporate Dividends May Adversely Affect the Value of Our Common Stock

The maximum marginal rate of tax payable by domestic noncorporate taxpayers on dividends received from a regular “C” corporation under current law is 15% through 2010, as opposed to higher ordinary income rates. The reduced tax rate, however, does not apply to distributions paid to domestic noncorporate taxpayers by a REIT on its stock, except for certain limited amounts. Although the earnings of a REIT that are distributed to its stockholders generally remain subject to less federal income taxation than earnings of a non-REIT “C” corporation that are distributed to its stockholders net of corporate-level income tax, legislation that extends the application of the 15% rate to dividends paid after 2010 by “C” corporations could cause domestic noncorporate investors to view

the stock of regular “C” corporations as more attractive relative to the stock of a REIT, because the dividends from regular “C” corporations would continue to be taxed at a lower rate while distributions from REITs (other than distributions designated as capital gain dividends) are generally taxed at the same rate as the individual’s other ordinary income.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

At December 31, 2008, we held ownership interests in and managed a total of 385 Properties situated in twenty-four states. Among the 385 self-storage facilities are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and 25 properties that we manage for a joint venture of which we are a 20% owner.

Our self-storage facilities offer inexpensive, easily accessible, enclosed storage space to residential and commercial users on a month-to-month basis. Most of our Properties are fenced with computerized gates and are well lighted. A majority of the Properties are single-story, thereby providing customers with the convenience of direct vehicle access to their storage spaces. Our stores range in size from 21,000 to 187,000 net rentable square feet, with an average of approximately 65,000 net rentable square feet. The Properties generally are constructed of masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. All Properties have a property manager on-site during business hours. Customers have access to their storage areas during business hours, and some commercial customers are provided 24-hour access. Individual storage spaces are secured by a lock furnished by the customer to provide the customer with control of access to the space.

All of the Properties conduct business under the user-friendly name Uncle Bob’s Self-Storage ®.

The following table provides certain information regarding the Properties in which we have an ownership interest and manage as of December 31, 2008:


	Number of
	Stores at						Percentage
	December 31,		Square		Number of		of Store
	2008		Feet		Spaces		Revenue
Alabama		22		1,602,986		11,885		5.1	%
Arizona		9		506,034		4,474		2.4	%
Connecticut		5		304,859		2,866		2.1	%
Colorado		4		276,827		2,376		0.5	%
Florida		57		3,652,019		33,327		15.6	%
Georgia		27		1,717,646		13,937		6.3	%
Kentucky		2		145,708		1,322		0.3	%
Louisiana		14		867,593		7,744		3.7	%
Maine		2		114,145		1,004		0.5	%
Maryland		4		173,181		2,040		0.9	%
Massachusetts		14		790,282		7,178		3.8	%
Michigan		6		348,843		3,010		1.2	%
Mississippi		12		925,621		7,079		3.5	%
Missouri		7		436,069		3,786		2.1	%
New Hampshire		4		260,503		2,330		1.0	%
New York		28		1,598,164		14,501		8.6	%
North Carolina		15		796,123		6,959		3.2	%
Ohio		23		1,576,639		12,900		4.4	%
Pennsylvania		6		365,520		2,919		1.4	%
Rhode Island		4		167,901		1,567		0.9	%
South Carolina		8		445,528		3,770		1.8	%
Tennessee		4		295,122		2,430		1.0	%
Texas		90		6,571,320		53,847		25.3	%
Virginia		18		1,065,013		9,896		4.4	%

Total		385		25,003,646		213,147		100.0	%

At December 31, 2008, the Properties had an average occupancy of 80.5% and an annualized rent per occupied square foot of $10.54.

Item 3. Legal Proceedings

In the normal course of business, we are subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, we do not believe that any matters currently pending against the Company will have a material adverse impact on our financial condition, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.

Part II


Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Common Stock is traded on the New York Stock Exchange under the symbol “SSS.” Set forth below are the high and low sales prices for our Common Stock for each full quarterly period within the two most recent fiscal years.


Quarter 2007	High		Low
1st	$	63.93	$	54.98
2nd		56.56		47.18
3rd		50.25		40.40
4th		50.43		39.75


Quarter 2008	High		Low
1st	$	44.62	$	33.56
2nd		46.50		41.37
3rd		46.15		35.77
4th		44.16		19.18

As of February 15, 2009, there were approximately 1,316 holders of record of our Common Stock.

We have paid quarterly dividends to our shareholders since our inception. Reflected in the table below are the dividends paid in the last two years.

For federal income tax purposes, distributions to shareholders are treated as ordinary income, capital gain, return of capital or a combination thereof. Distributions to shareholders for 2008 represent 76.5% ordinary income, 1.5% section 1250 capital gain, and 22% return of capital.

History of Dividends Declared on Common Stock


1st Quarter, 2007		$0.620 per share
2nd Quarter, 2007		$0.620 per share
3rd Quarter, 2007		$0.630 per share
4th Quarter, 2007		$0.630 per share

1st Quarter, 2008		$0.630 per share
2nd Quarter, 2008		$0.630 per share
3rd Quarter, 2008		$0.640 per share
4th Quarter, 2008		$0.640 per share

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information as of December 31, 2008, with respect to equity compensation plans under which shares of the Company’s Common Stock may be issued.

Number of

securities to be

issued upon

Weighted average

Number of

exercise of

exercise price of

securities

outstanding

remaining available

options, warrants

for future issuance

Plan Category

and rights (#)

and rights ($)

(#)

Equity compensation plans approved by shareholders:

2005 Award and Option Plan

274,163

45.72

1,096,464

1995 Award and Option Plan

50,525

26.74

1995 Outside Directors’ Stock Option Plan

36,000

45.74

Deferred Compensation Plan for Directors (1)

33,512

N/A

35,347

Equity compensation plans not approved by shareholders:

N/A


(1)		Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their Directors’ fees that are otherwise payable in cash. Directors’ fees that are deferred under the Plan will be credited to each Directors’ account under the Plan in the form of Units. The number of Units credited is determined by dividing the amount of Directors’ fees deferred by the closing price of the Company’s Common Stock on the New York Stock Exchange on the day immediately preceding the day upon which Directors’ fees otherwise would be paid by the Company. A Director is credited with additional Units for dividends on the shares of Common Stock represented by Units in such Directors’ Account. A Director may elect to receive the shares in a lump sum on a date specified by the Director or in quarterly or annual installments over a specified period and commencing on a specified date.

CORPORATE PERFORMANCE GRAPH

The following chart and line-graph presentation compares (i) the Company’s shareholder return on an indexed basis since December 31, 2003 with (ii) the S&P Stock Index and (iii) the National Association of Real Estate Investment Trusts Equity Index.

CUMULATIVE TOTAL SHAREHOLDER RETURN
SOVRAN SELF STORAGE, INC.
DECEMBER 31, 2003 - DECEMBER 31, 2008


	Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,
	2003		2004		2005		2006		2007		2008
S&P		100.00		110.87		116.32		134.69		142.09		89.52
NAREIT		100.00		131.58		147.59		199.33		168.05		104.65
SSS		100.00		119.93		141.39		180.83		132.79		126.89

The foregoing item assumes $100.00 invested on December 31, 2003, with dividends reinvested.

Item 6. Selected Financial Data

The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K:


(dollars in thousands, except per	At or For Year Ended December 31,
share data)	2008			2007			2006			2005			2004
Operating Data
Operating revenues	$	203,003		$	192,857		$	165,369		$	137,373		$	122,381
Income from continuing operations		36,605			38,780			36,163			34,318			30,232
Income from discontinued operations (1)		794			434			447			472			1,772
Net income		37,399			39,214			36,610			34,790			32,004
Income from continuing operations per common share — diluted		1.68			1.79			1.87			1.81			1.41
Net income per common share — basic		1.72			1.81			1.90			1.86			1.54
Net income per common share — diluted		1.72			1.81			1.89			1.84			1.53
Dividends declared per common share		2.54			2.50			2.47			2.44			2.42

Balance Sheet Data
Investment in storage facilities at cost	$	1,389,201		$	1,322,708		$	1,136,052		$	886,191		$	804,106
Total assets		1,212,626			1,164,588			1,053,159			784,319			719,514
Total debt		623,261			566,517			462,027			339,144			289,075
Total liabilities		692,479			610,757			495,301			364,980			315,049
Series C preferred stock		—			—			26,613			26,613			53,227

Other Data
Net cash provided by operating activities	$	77,132		$	85,175		$	64,656		$	60,724		$	54,803
Net cash used in investing activities		(82,711	)		(190,267	)		(176,567	)		(79,156	)		(71,034	)
Net cash provided by (used in) financing activities		6,055			61,372			154,730			20,238			(765	)


(1)		In 2008 we sold one store and in 2004 we sold five stores whose operations and gain are classified as discontinued operations for all previous years presented.


Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Disclosure Regarding Forward-Looking Statements

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 21E of the Securities Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements 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; our ability to evaluate, finance and integrate acquired businesses into our existing business and operations; our ability to effectively compete in the industry in which we do business; our 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 our outstanding floating rate debt; our reliance on our call center; our cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes that may change the taxability of future income.

Business and Overview

We believe we are the fifth largest operator of self-storage properties in the United States based on facilities owned and managed. All of our stores are operated under the user-friendly name “Uncle Bob’s Self-Storage” ®.

Operating Strategy

Our operating strategy is designed to generate growth and enhance value by:

Increasing operating performance and cash flow through aggressive management of our stores:

Revenues continue to improve as a result of drivers implemented by us, including:

	-		Our Customer Care Center, which answers sales inquiries and makes reservations for all of our properties on a centralized basis,

	-		The Uncle Bob’s truck move-in program, under which, at present, 259 of our stores offer a free Uncle Bob’s truck to assist our customers in moving into their spaces, and

	-		An increase in internet marketing and sales.

	-		In addition to increasing revenue, we have worked to improve services and amenities at our stores. While this has caused operating expenses to increase over the past five years, it has resulted in a superior storage experience for our customers. Our managers are better qualified and receive a significantly higher level of training than they did five years ago, customer access and security are greatly enhanced as a result of advances in technology, and property appearance and functionality have been improved.

	-		Our customized property management systems enable us to improve our ability to track trends, set optimal pricing levels, enjoy considerable economies of scale in vendor and supply pricing, and control collections and accounts receivable.

Acquiring additional stores:

	-		In conjunction with the joint venture agreement entered in late May 2008, potential acquisition opportunities over the first nine months of the agreement will be offered to the joint venture. The Company’s acquisitions over this period will therefore be limited to facilities that do not fit the joint venture’s investment objectives, but do meet ours.

	-		Our objective is to acquire new stores one or two at a time in markets we currently operate in. By so doing, we can add to our existing base, which should improve market penetration in those areas, and contribute to the benefits achieved from economies of scale.

	-		We may also enter new markets if we can do so by acquiring a group of stores in those markets. We feel that our marketing efforts and control systems would enhance even those portfolios that have been managed efficiently by independent operators, and that attractive returns can be generated by such acquisitions.

Expanding our management business:

We see our management business as a source of future acquisitions. We may develop additional joint ventures in which we are minority owners and managers of the self-storage facilities acquired by these joint ventures. The joint venture agreements will give us first right of refusal to purchase the managed properties in the event they are offered for sale.

Expanding and enhancing our existing stores:

Over the past four years, we have undertaken an announced program of expanding and enhancing our properties. Primarily, we have worked to add premium storage (i.e., air-conditioned and/or humidity controlled) space to our portfolio. In 2007, we expended approximately $25 million to add some 444,000 square feet of such space to our properties; in 2008, we spent approximately $26 million to add 403,000 square feet and to convert 95,000 square feet to premium storage. The program entailed construction of new buildings, acquisition of parcels of land contiguous to stores deemed suitable for expansion, and demolition of certain structures to make room for more optimally configured spaces. In 2009, we expect to curtail our expansion program with new expenditures of approximately $15 million on projects that began in 2008.

Supply and Demand

We believe the supply and demand model in the self-storage industry is micro market specific in that a majority of our business comes from within a five mile radius of our stores. The current turmoil in the credit markets has resulted in a decrease in new supply on a national basis. With the decrease of debt and equity capital brought about by the credit market tightening in the past year, we have seen capitalization rates on acquisitions (expected annual return on investment) increase to approximately 7.5% and expect continued increases in 2009. From 2003 to 2007 the historically low interest rates available to developers resulted in increased supply on a national basis. We experienced some of this excess supply in certain markets in Texas and Florida from 2003 to 2007, but because of the demand model, we did not see a widespread effect on our stores in those years. In 2008, the Florida market was negatively effected by the current economic downturn and we expect many markets will be effected in 2009 as consumers continue to pull back spending.

Operating Trends

In 2008 and 2007, our industry experienced some softness in demand. This was due to the economic slowdown that began in late 2007, and in part to regional issues, such as the reduction of hurricane driven demand in Florida and the Gulf Coast states, and to an overall slowdown in the housing sector. We believe the housing slowdown has impacted our industry in two ways: 1.) a reduction in lease-up activity resulting from fewer residential real estate transactions (both buyers and sellers of residences use our product in times of transition) and 2.) a contraction of housing construction activity which has reduced the number of people working in the

construction trades (trades people are a measurable part of our usual tenant base.)

While we enjoyed same store revenue growth of approximately 3% to 5% in each of the prior five years, we were only able to achieve 0.5% same store revenue growth in 2008, primarily because of the aforementioned issues. We expect conditions in most of our markets to remain challenging and are forecasting -1% to -2% revenue growth on a same store basis in 2009.

Expenses related to operating a self-storage facility have increased substantially over the last five years as a result of expanded hours, increased health care costs, property insurance costs, and the costs of amenities (such as Uncle Bob’s trucks). While we do not foresee further expansion of our cost base, we do expect the trend of increasing expenses to continue at a pace commensurate with CPI growth. Because almost all of our costs are fixed, should revenue growth fall significantly, operating margins will be reduced.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in our financial statements and the accompanying notes. On an on-going basis, we evaluate our estimates and judgments, including those related to carrying values of storage facilities, bad debts, and contingencies and litigation. We base these estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Carrying value of storage facilities: We believe our judgment regarding the impairment of the carrying value of our storage facilities is a critical accounting policy. Our policy is to assess any impairment of value whenever events or circumstances indicate that the carrying value of a storage facility may not be recoverable. Such events or circumstances would include negative operating cash flow or significant declining revenue per storage facility. Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the storage facility, on a property by property basis. If the sum of the undiscounted cash flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset. If cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable, impairment charges may be required at that time and could materially affect our operating results and financial position. At December 31, 2008 and 2007, no assets had been determined to be impaired under this policy.

Estimated useful lives of long-lived assets: We believe that the estimated lives used for our depreciable, long-lived assets is a critical accounting policy. Changes in estimated useful lives of these assets could have a material adverse impact on our financial condition or results of operations.

Qualification as a REIT: We operate, and intend to continue to operate, as a REIT under the Internal Revenue Code of 1986 (the Code), but no assurance can be given that we will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. If we fail to qualify as a REIT, any requirement to pay federal income taxes could have a material adverse impact on our financial conditions and results of operations.

YEAR ENDED DECEMBER 31, 2008 COMPARED TO
YEAR ENDED DECEMBER 31, 2007

We recorded rental revenues of $195.2 million for the year ended December 31, 2008, an increase of $8.6 million or 4.6% when compared to 2007 rental revenues of $186.6 million. Of the increase in rental revenue, $1.2 million resulted from a 0.7% increase in rental revenues at the 326 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2007). The increase in same store rental revenues was achieved primarily through rate increases on select units averaging 1.9%, offset by a decrease in square foot occupancy of 150 basis points, which we believe resulted from general economic conditions,

in particular the housing sector. The remaining $7.4 million increase in rental revenues resulted from the acquisition of three stores during 2008 and from having the 31 stores acquired in 2007 included for a full year of operations. Other income, which includes merchandise sales, insurance commissions, truck rentals, management fees and acquisition fees, increased in 2008 primarily as a result of $1.1 million of management and acquisition fees generated from our unconsolidated joint venture, Sovran HHF Storage Holdings LLC.

Property operating and real estate tax expense increased $5.1 million, or 7.3%, in 2008 compared to 2007. Of this increase, $2.7 million were expenses incurred by the facilities acquired in 2008 and from having expenses from the 2007 acquisitions included for a full year of operations. $2.4 million of the increase was due to increased payroll, property taxes, utilities, and maintenance expenses at the 326 core properties considered same stores. We expect same-store operating costs to increase only moderately in 2009 with increases primarily attributable to utilities and property taxes.

General and administrative expenses increased $2.0 million or 13.4% from 2007 to 2008. The increase primarily resulted from the costs associated with operating the properties acquired in 2008 and 2007, and from managing the 25 properties acquired by our joint venture in 2008.

Depreciation and amortization expense increased to $34.4 million in 2008 from $33.9 million in 2007, primarily as a result of additional depreciation taken on real estate assets acquired in 2008, and a full year of depreciation on 2007 acquisitions, offset by a decrease in amortization of in-place customers leases relating to these acquisitions.

Interest expense increased from $33.9 million in 2007 to $38.1 million in 2008 as a result of additional borrowings under our line of credit and term notes to purchase three stores in 2008, as well as an increase in interest rates as a result of our debt refinancing in June 2008.

As described in Note 5 to the financial statements, in 2008, the Company sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The 2007 operations of this facility are reported as discontinued operations.

The decrease in preferred stock dividends from 2007 to 2008 was a result of the conversion of all remaining 1,200,000 shares of our Series C Preferred Stock into 920,244 shares of common stock in July 2007.

YEAR ENDED DECEMBER 31, 2007 COMPARED TO
YEAR ENDED DECEMBER 31, 2006

We recorded rental revenues of $186.6 million for the year ended December 31, 2007, an increase of $26.6 million or 16.6% when compared to 2006 rental revenues of $160.0 million. Of the increase in rental revenue, $4.8 million resulted from a 3.2% increase in rental revenues at the 284 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2006). The increase in same store rental revenues was achieved primarily through rate increases on select units averaging 4.4%, offset by a decrease in square foot occupancy of 175 basis points, which we believe resulted from general economic conditions, in particular the housing sector, and the return to normalcy in Florida after the hurricanes. As of April 1, 2006, the consolidated income statement includes the results of a previously unconsolidated joint venture (Locke Sovran I, LLC) that has been consolidated as a result of an additional investment in that entity by us. The rental income related to Locke Sovran I that was included in our results for the year ended December 31, 2007 was $1.7 million higher than that included in 2006 as a result of the consolidation in April 2006. The remaining $20.1 million increase in rental revenues resulted from the acquisition of 31 stores during 2007 and from having the 42 stores acquired in 2006 included for a full year of operations. Other income increased $0.9 million due to increased merchandise and insurance sales and the additional incidental revenue generated by truck rentals.

Property operating and real estate tax expense increased $10.7 million, or 18.1%, in 2007 compared to 2006. Of this increase, $8.2 million were expenses incurred by the facilities acquired in 2007 and from having expenses from the 2006 acquisitions included for a full year of operations. $1.9 million of the increase was due to increased property insurance, utilities, maintenance expenses, and increased property taxes at the 284 core properties

considered same stores. The property operating and real estate tax expense related to Locke Sovran I that was included in our results for the year ended December 31, 2007, was $0.6 million higher than that included in 2006 as a result of the consolidation in April 2006.

General and administrative expenses increased $1.1 million or 8.1% from 2006 to 2007. The increase primarily resulted from the costs associated with operating the properties acquired in 2007 and 2006.

Depreciation and amortization expense increased to $33.9 million in 2007 from $25.2 million in 2006, primarily as a result of additional depreciation taken on real estate assets acquired in 2007, a full year of depreciation on 2006 acquisitions, and the amortization of in-place customers leases relating to these acquisitions.

Interest expense increased from $29.5 million in 2006 to $33.9 million in 2007 as a result of higher interest rates, additional borrowings under our line of credit and term notes to purchase 31 stores in 2007, and the consolidation of Locke Sovran I, LLC as of April 1, 2006.

The casualty gain recorded in 2007 relates to insurance proceeds received in excess of the carrying value of a building damaged by a fire at one of our facilities.

The decrease in preferred stock dividends from 2006 to 2007 was a result of the conversion of all remaining 1,200,000 shares of our Series C Preferred Stock into 920,244 shares of common stock in July 2007.

FUNDS FROM OPERATIONS

We believe that Funds from Operations (“FFO”) provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation.

FFO 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.

Reconciliation of Net Income to Funds From Operations


	For Year Ended December 31,
(dollars in thousands)	2008			2007			2006			2005			2004
Net income	$	37,399		$	39,214		$	36,610		$	34,790		$	32,004
Minority interest in income		2,284			2,631			2,434			1,529			1,542
Depreciation of real estate and amortization of intangible assets exclusive of deferred financing fees		34,421			33,851			25,121			21,040			19,002
Depreciation of real estate included in discontinued operations		46			185			184			182			263
Depreciation and amortization from unconsolidated joint ventures		333			59			168			484			473
Casualty gain		—			(114	)		—			—			—
Gain on sale of real estate		(716	)		—			—			—			(1,137	)
Preferred stock dividends		—			(1,256	)		(2,512	)		(4,123	)		(7,168	)
Redemption amount in excess of carrying value of Series B Preferred Stock		—			—			—			—			(1,415	)
Funds from operations allocable to minority interest in Operating Partnership		(1,366	)		(1,425	)		(1,450	)		(1,519	)		(1,333	)
Funds from operations allocable to minority interest in Locke Sovran I and Locke Sovran II		(1,564	)		(1,848	)		(1,785	)		(1,499	)		(1,475	)

Funds from operations available to common shareholders	$	70,837		$	71,297		$	58,770		$	50,884		$	40,756

LIQUIDITY AND CAPITAL RESOURCES

Our ability to retain cash flow is limited because we operate as a REIT. In order to maintain our REIT status, a substantial portion of our operating cash flow must be used to pay dividends to our shareholders. We believe that our internally generated net cash provided by operating activities and our availability on our line of credit will continue to be sufficient to fund ongoing operations, capital improvements, dividends and debt service requirements through June 2011, at which time our revolving line of credit matures.

Cash flows from operating activities were $77.1 million, $85.2 million and $64.7 million for the years ended December 31, 2008, 2007, and 2006, respectively. The decrease in operating cash flows from 2007 to 2008 was primarily due to a decrease in net income and accounts payable remaining consistent from year to year. The increase in operating cash from 2006 to 2007 was primarily attributable to increased net income, increased non-cash charges for depreciation and amortization, an increase in accounts payable related to property taxes, and a decrease in prepaid insurance.

Cash used in investing activities was $82.7 million, $190.3 million, and $176.6 million for the years ended December 31, 2008, 2007, and 2006 respectively. The decrease in cash used from 2007 to 2008 was attributable to reduced acquisition activity in 2008 as many of the properties acquired were acquired through a joint venture of which we are a 20% owner. The increase from 2006 to 2007 was due to increased acquisition activity, an increase in improvements to existing facilities, and additional investment in our consolidated joint ventures.

Cash provided by financing activities was $6.0 million in 2008 compared to $61.4 million in 2007 and $154.7 million in 2006, respectively. Our reduced acquisition activity in 2008 was the driver behind the decrease in cash provided from financing activities from 2007 to 2008. The decrease in cash provided from financing activities from 2006 to 2007 was a result of the proceeds received from our common stock offering in December of 2006 noted below.

On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received

funds under those arrangements. As part of the agreements, we entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay the Company’s previous line of credit that was to mature in September 2008, the Company’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. The new agreements also provide for a $125 million (expandable to $150 million) revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. The revolving line of credit maturity can be extended at our option until June 2012. At December 31, 2008, there was $111 million available on the unsecured line of credit.

We also maintain a $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.

In April 2006, the Company entered into a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%. The proceeds from this term note were used to pay down the outstanding balance on the Company’s line of credit, to repay a $25 million term note entered in January 2006 and a $15 million term note entered in April 2006, and to make an additional investment into Locke Sovran I, LLC and Locke Sovran II, LLC (consolidated joint ventures). In December 2006, we issued 2.3 million shares of our common stock and realized net proceeds of $122.4 million. A portion of the proceeds were used to repay the entire outstanding balance on our line of credit that had been drawn on to finance acquisitions subsequent to April 2006. The remaining proceeds from the 2006 common stock offering were used along with 2007 borrowings under our line of credit to fund 2007 acquisitions.

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

Our line of credit and term notes require us to meet certain financial covenants, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. As of December 31, 2008, we were in compliance with all covenants.

In addition to the unsecured financing mentioned above, our consolidated financial statements also include $109.3 million of mortgages payable as detailed below:

* 7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an aggregate net book value of $43.8 million, principal and interest paid monthly. The outstanding balance at December 31, 2008 on this mortgage was $29.0 million.

* 7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an aggregate net book value of $81.2 million, principal and interest paid monthly. The outstanding balance at December 31, 2008 on this mortgage was $42.6 million.

* 7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value of $5.8 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%. The outstanding balance at December 31, 2008 on this mortgage was $3.5 million.

* 6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value of $2.0 million, principal and interest paid monthly. The outstanding balance at December 31, 2008 on this mortgage was $1.0 million.

* 6.35% mortgage note due March 2014, secured by 1 self-storage facility with an aggregate net book value of $3.8 million, principal and interest paid monthly. The outstanding balance at December 31, 2008 on this mortgage was $1.1 million.

* 5.55% mortgage notes due November 2009, secured by 8 self-storage facilities with an aggregate net book value of $34.9 million, interest only paid monthly. Estimated market rate at time of acquisition 6.44%. The outstanding balance at December 31, 2008 on this mortgage was $25.9 million.

* 7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value of $14.3 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%. The outstanding balance at December 31, 2008 on this mortgage was $6.1 million.

The 7.80% and 7.19% mortgages were incurred in 2001 and 2002 respectively as part of the financing of the consolidated joint ventures. The Company assumed the 7.25%, 6.76%, 6.35%, 5.55% and 7.50% mortgage notes in connection with the acquisitions of storage facilities in 2005 and 2006.

On July 7, 2007, we issued 920,244 shares of our common stock to the holder of our 8.375% Series C Preferred Stock upon the holder’s election to convert the remaining 1,200,000 shares of Series C Preferred Stock into common stock. As a result of the 2007 conversion, $26.6 million recorded in shareholders’ equity as 8.375% Series C Convertible Cumulative Preferred Stock was reclassified to additional paid-in capital in July 2007.

During 2008, we issued approximately 285,000 shares via our Dividend Reinvestment and Stock Purchase Plan and Employee Stock Option Plan. We received $10.7 million from the sale of such shares. We expect to issue shares when our share price and capital needs warrant such issuance.

During 2008 and 2007, we did not acquire any shares of our common stock via the Share Repurchase Program authorized by the Board of Directors. From the inception of the Share Repurchase Program through December 31, 2008, we have reacquired a total of 1,171,886 shares pursuant to this program. From time to time, subject to market price and certain loan covenants, we may reacquire additional shares.

Future acquisitions, our expansion and enhancement program, and share repurchases are expected to be funded with draws on our line of credit, sale of properties and private placement solicitation of joint venture equity. Current capital market conditions may prevent us from accessing other traditional sources of capital including the issuance of common and preferred stock and the issuance of unsecured term notes. Should these capital market conditions persist, we may have to curtail acquisitions, our expansion and enhancement program, and share repurchases as we approach June 2011, when our line of credit matures.

CONTRACTUAL OBLIGATIONS

The following table summarizes our future contractual obligations:

Contractual

Payments due by period

obligations

Total

2009

2010-2011

2012-2013

2014 and thereafter

Line of credit

$14.0 million

—

$14.0 million

—

Term notes

$500.0 million

—

$350.0 million

$150.0 million

Mortgages payable

$109.3 million

$28.0 million

$40.3 million

$40.0 million

$1.0 million

Interest payments

$136.2 million

$28.8 million

$53.3 million

$32.6 million

$21.5 million

Land lease

$1.1 million

$0.1 million

$0.8 million

Building leases

$3.9 million

$0.6 million

$0.3 million

$0.1 million

$2.9 million

Total

$764.5 million

$57.5 million

$108.0 million

$422.8 million

$176.2 million

Interest payments includes actual interest on fixed rate debt and estimated interest for floating-rate debt based on December 31, 2008 rates.

ACQUISITION OF PROPERTIES

During 2008, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the bank term note, and proceeds from our Dividend Reinvestment and Stock Purchase Plan to acquire three Properties in Mississippi and Ohio comprising 0.2 million square feet from unaffiliated storage operators. During 2007, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the bank term note, proceeds from our Dividend Reinvestment and Stock Purchase Plan, and proceeds from the December 2006 common stock offering to acquire 31 Properties in Alabama, Florida, Mississippi, New York, and Texas comprising 2.3 million square feet from unaffiliated storage operators. During 2006, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the $150 million 10 year term note, and proceeds from our Dividend Reinvestment and Stock Purchase Plan to acquire 42 Properties in Alabama, Georgia, Florida, Louisiana, Missouri,

New Hampshire, New York, Tennessee, and Texas comprising 2.6 million square feet from unaffiliated storage operators.

FUTURE ACQUISITION AND DEVELOPMENT PLANS

Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations, or to expand in new markets by acquiring several facilities at once in those new markets. In conjunction with the joint venture agreement entered in May 2008 (see Note 13 to the financial statements), potential acquisition opportunities over the first nine months of the agreement will be offered to the joint venture. The Company’s acquisitions over this period will therefore be limited to facilities that do not fit the joint venture’s investment objectives, but do meet ours. In 2008, the Company’s joint venture (Sovran HHF Storage Holdings LLC) acquired 25 properties for approximately $171.5 million. The Company’s equity contribution to the joint venture for these purchases was approximately $18.6 million, which was financed through draws on our line of credit.

In 2008 we continued our program of expanding and enhancing our existing properties. During 2008 we spent approximately $25.6 million on such revenue enhancing improvements. In 2009 we expect to curtail our expansion of current properties with total new expenditures less than $15 million on projects started in 2008. Funding of the expansions are expected to be provided primarily from borrowings under our line of credit and issuance of common shares through our Dividend Reinvestment and Stock Purchase Plan.

DISPOSITION OF PROPERTIES

During 2008, we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. In 2004, as part of an asset management program, we sold five non-strategic storage facilities located in Pennsylvania, Tennessee, Ohio, and South Carolina to unaffiliated parties for $11.7 million resulting in a net gain of $1.1 million. No sales took place in 2005 through 2007.

We may seek to sell additional Properties to joint venture programs or third parties in 2009.

OFF-BALANCE SHEET ARRANGEMENTS

As manager of Sovran HHF, the Company earns a management and call center fee of 7% of gross revenues which totaled $0.5 million for 2008. The Company also received an acquisition fee of 0.5% of purchase price for securing purchases for the joint venture. During 2008, the Company recorded $0.6 million in acquisition fees. The Company’s share of Sovran HHF’s income for 2008 was $0.1 million. At December 31, 2008, Sovran HHF owed the Company $0.3 million for payments made by the Company on behalf of the joint venture for normal operating expenses of the joint venture.

The Company also has a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company’s headquarters and other tenants. The Company’s investment includes a capital contribution of $49. The carrying value of the Company’s investment is a liability of $0.5 million at December 31, 2008 and $0.4 million at December 31, 2007, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. For the years ended December 31, 2008, 2007 and 2006, the Company’s share of Iskalo Office Holdings, LLC’s (loss) income was ($6,000), $80,000, and $80,000, respectively. The Company paid rent to Iskalo Office Holdings, LLC of $600,000, $561,000 and $583,000 in 2008, 2007, and 2006, respectively. Future minimum lease payments under the lease are $0.6 million per year through 2010.

In April 2006, the Company made an additional investment of $2.8 million in a former off-balance sheet arrangement known as Locke Sovran I, LLC that increased the Company’s ownership to over 70%. As a result of

this transaction the Company has consolidated the results of operations of Locke Sovran I, LLC in its financial statements since April 1, 2006, the date that it acquired its controlling interest. In June 2008, the Company made an additional investment of $6.1 million in Locke Sovran I, LLC that increased the Company’s ownership from approximately 70% to 100%. Locke Sovran I, LLC, owns 11 self-storage facilities throughout the United States.

A summary of the unconsolidated joint venture’s financial statements as of and for the year ended December 31, 2008 is as follows:


	Sovran HHF
	Storage		Iskalo Office
(dollars in thousands)	Holdings LLC		Holdings, LLC
Balance Sheet Data:
Investment in storage facilities, net	$	170,176	$	—
Investment in office building		—		5,507
Other assets		3,912		568

Total Assets	$	174,088	$	6,075


Due to the Company	$	336	$	—
Mortgages payable		79,937		7,169
Other liabilities		1,942		168

Total Liabilities		82,215		7,337

Unaffiliated partners’ equity (deficiency)		73,499		(718	)
Company equity (deficiency)		18,374		(544	)

Total Liabilities and Partners’ Equity (deficiency)	$	174,088	$	6,075


Income Statement Data:
Total revenues	$	6,652	$	1,127
Total expenses		6,301		1,139

Net income (loss)	$	351	$	(12	)

We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of properties by Sovran HHF. We do not guarantee the debt of Sovran HHF or Iskalo Office Holdings, LLC. A summary of our cash flows arising from the off-balance sheet arrangements with Sovran HHF and Iskalo Office Holdings, LLC for the three years ended December 31, 2008, and with Locke Sovran I, LLC for the three months ended March 31, 2006 (the date prior to which it began to be included in our consolidated results of operations) are as follows:


	Year ended December 31,
(dollars in thousands)	2008			2007		2006
Statement of Operations
Other income (management fees and acquisition fee income)	$	1,135		$	—	$	85
General and administrative expenses (corporate office rent)		600			561		583
Equity in income of joint ventures		104			119		172
Distributions from unconsolidated joint ventures		345			98		123

Investing activities
Investment in joint ventures		(20,287	)		—		—
(Advances to) reimbursement of advances to joint ventures		(336	)		—		17

REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS

As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that the amount distributed is equal to at least 90% of our taxable income. These distributions must be made in the year to which they relate, or in the following year if declared before we file our federal income tax return, and if it is paid before the first regular dividend of the following year. The first distribution of 2008 may be applied toward our 2007 distribution requirement.

As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends. In 2008, our percentage of revenue from such sources was approximately 98%, thereby passing the 95% test, and no special measures are expected to be required to enable us to maintain our REIT designation. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.

INTEREST RATE RISK

We have entered into interest rate swap agreements in order to mitigate the effects of fluctuations in interest rates on our variable rate debt. At December 31, 2008, we have seven outstanding interest rate swap agreements as summarized below:

Fixed

Floating Rate

Notional Amount

Effective Date

Expiration Date

Rate Paid

Received

$50 Million

11/14/05

9/1/09

4.3900

1 month LIBOR

$20 Million

9/4/05

9/4/13

4.4350

6 month LIBOR

$50 Million

10/10/06

9/1/09

4.4800

1 month LIBOR

$50 Million

7/1/08

6/25/12

4.2825

1 month LIBOR

$100 Million

7/1/08

6/22/12

4.2965

1 month LIBOR

$75 Million

9/1/09

6/22/12

4.7100

1 month LIBOR

$25 Million

9/1/09

6/22/12

4.2875

1 month LIBOR

Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we negotiate with the lenders; however, the LIBOR base rates have been contractually fixed on $270 million of our debt through the interest rate swap termination dates.

Through June 2012, $500 million of our $514 million of unsecured debt is on a fixed rate basis after taking into account the interest rate swaps noted above. Based on our outstanding unsecured debt of $514 million at December 31, 2008, a 100 basis point increase in interest rates would increase our interest expense $0.1 million annually.

The table below summarizes our debt obligations and interest rate derivatives at December 31, 2008. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange.


	Expected Maturity Date Including Discount														Fair
(dollars in thousands)	2009		2010		2011		2012		2013		Thereafter		Total		Value
Line of credit — variable rate LIBOR + 1.375		—		—	$	14,000		—		—		—	$	14,000	$	14,000
Notes Payable:
Term note — variable rate LIBOR+1.625%		—		—		—	$	250,000		—		—	$	250,000	$	250,000
Term note — variable rate LIBOR+1.50%		—		—		—		—	$	20,000		—	$	20,000	$	20,000
Term note — fixed rate 6.26%		—		—		—		—	$	80,000		—	$	80,000	$	78,865
Term note — fixed rate 6.38%		—		—		—		—		—	$	150,000	$	150,000	$	147,899
Mortgage note — fixed rate 7.80%	$	587	$	630	$	27,816		—		—		—	$	29,033	$	30,031
Mortgage note — fixed rate 7.19%	$	1,128	$	1,211	$	1,301	$	38,963		—		—	$	42,603	$	44,205
Mortgage note — fixed rate 7.25%	$	141	$	149	$	3,220		—		—		—	$	3,510	$	3,478
Mortgage note — fixed rate 6.76%	$	23	$	25	$	27	$	29	$	896		—	$	1,000	$	1,018
Mortgage note — fixed rate 6.35%	$	26	$	28	$	30	$	31	$	34	$	949	$	1,098	$	1,100
Mortgage notes — fixed rate 5.55%	$	25,930		—		—		—		—		—	$	25,930	$	26,422
Mortgage notes — fixed rate 7.50%	$	208	$	222	$	5,657		—		—		—	$	6,087	$	6,188
Interest rate derivatives — liability		—		—		—		—		—		—		—	$	25,490

INFLATION

We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at the facilities are on a month-to-month basis which provides us with the opportunity to increase rental rates as each lease matures.

SEASONALITY

Our revenues typically have been higher in the third and fourth quarters, primarily because we increase rental rates on most of our storage units at the beginning of May and 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, we believe that our customer mix, diverse geographic locations, rental structure and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect seasonality to affect materially distributions to shareholders.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, FASB Statement 157, “Fair Value Measurements” (“SFAS 157”) was issued. SFAS 157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities. SFAS 157, which does not require any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements. The effective date for the Company is January 1, 2008 for all financial instruments — see Note 10 to our Consolidated Financial Statements. However, the FASB has delayed the effective date of Statement 157 for all nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. The Company is evaluating the impact of adopting SFAS 157 on its consolidated financial statements for nonfinancial assets and nonfinancial liabilities.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities to voluntarily choose, at specified election dates, to measure many financial assets and liabilities at fair value. The effective date for the Company is January 1, 2008. The adoption of SFAS 159 did not impact the Company’s consolidated financial statements.

In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS No. 160), which amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. This statement also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of income. This Statement applies prospectively to all entities that prepare consolidated financial statements and applies prospectively for fiscal years, and interim periods within those fiscal years, beginning January 1, 2009 for the Company. The Company is evaluating the impact of SFAS 160 on its consolidated financial statements.

In December 2007, the FASB Statement 141R, “Business Combinations” (“SFAS 141R”) was issued. SFAS 141R replaces SFAS 141. SFAS 141R requires the acquirer of a business to recognize and measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at fair value. SFAS 141R also requires transactions costs related to the business combination to be expensed as incurred. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The effective date for the Company will be January 1, 2009. We have not yet determined the impact of SFAS 141R related to future acquisitions, if any, on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161 is effective for the Company as of January 1, 2009. The Company is currently assessing the impact of SFAS No. 161 on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required is incorporated by reference to the information appearing under the caption “Interest Rate Risk” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Sovran Self Storage, Inc.

We have audited the accompanying consolidated balance sheets of Sovran Self Storage, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sovran Self Storage, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sovran Self Storage, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Buffalo, New York
February 25, 2009

SOVRAN SELF STORAGE, INC.
CONSOLIDATED BALANCE SHEETS


	December 31,
(dollars in thousands, except share data)	2008			2007
Assets
Investment in storage facilities:
Land	$	240,525		$	236,349
Building, equipment, and construction in progress		1,148,676			1,086,359

		1,389,201			1,322,708
Less: accumulated depreciation		(216,644	)		(183,679	)

Investment in storage facilities, net		1,172,557			1,139,029
Cash and cash equivalents		4,486			4,010
Accounts receivable		2,971			2,794
Receivable from related parties		14			27
Receivable from unconsolidated joint venture		336			—
Investment in unconsolidated joint venture		20,111			—
Prepaid expenses		4,691			4,771
Other assets		7,460			7,574
Net assets of discontinued operations		—			6,383

Total Assets	$	1,212,626		$	1,164,588


Liabilities
Line of credit	$	14,000		$	100,000
Term notes		500,000			356,000
Accounts payable and accrued liabilities		23,979			23,752
Deferred revenue		5,659			5,602
Fair value of interest rate swap agreements		25,490			1,230
Accrued dividends		14,090			13,656
Mortgages payable		109,261			110,517

Total Liabilities		692,479			610,757

Minority interest — Operating Partnership		9,265			9,659
Minority interest — consolidated joint venture		13,082			16,783

Shareholders’ Equity
Common stock $.01 par value, 100,000,000 shares authorized, 22,016,348 shares outstanding (21,676,586 at December 31, 2007)		232			228
Additional paid-in capital		666,633			654,141
Dividends in excess of net income		(116,728	)		(98,437	)
Accumulated other comprehensive income		(25,162	)		(1,368	)
Treasury stock at cost, 1,171,886 shares		(27,175	)		(27,175	)

Total Shareholders’ Equity		497,800			527,389

Total Liabilities and Shareholders’ Equity	$	1,212,626		$	1,164,588

See notes to financial statements.

SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
(dollars in thousands, except per share data)	2008			2007			2006
Revenues
Rental income	$	195,220		$	186,581		$	160,011
Other operating income		7,783			6,276			5,358

Total operating revenues		203,003			192,857			165,369

Expenses
Property operations and maintenance		55,739			52,317			43,833
Real estate taxes		19,004			17,370			15,166
General and administrative		17,279			15,234			14,095
Depreciation and amortization		34,421			33,851			25,163

Total operating expenses		126,443			118,772			98,257


Income from operations		76,560			74,085			67,112

Other income (expenses)
Interest expense		(38,097	)		(33,861	)		(29,494	)
Interest income		322			954			807
Casualty gain		—			114			—
Minority interest — Operating Partnership		(721	)		(783	)		(905	)
Minority interest — consolidated joint ventures		(1,563	)		(1,848	)		(1,529	)
Equity in income of joint ventures		104			119			172


Income from continuing operations		36,605			38,780			36,163
Income from discontinued operations (including gain on disposal of $716 in 2008)		794			434			447

Net income		37,399			39,214			36,610
Preferred stock dividends		—			(1,256	)		(2,512	)

Net income available to common shareholders	$	37,399		$	37,958		$	34,098


Earnings per common share — basic
Continuing operations	$	1.68		$	1.79		$	1.87
Discontinued operations		0.04			0.02			0.03

Earning per share — basic	$	1.72		$	1.81		$	1.90


Earnings per common share — diluted
Continuing operations	$	1.68		$	1.79		$	1.86
Discontinued operations		0.04			0.02			0.03

Earning per share — diluted	$	1.72		$	1.81		$	1.89


Dividends declared per common share	$	2.54		$	2.50		$	2.47

See notes to financial statements.

SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


	8.375% Series
	C Preferred			8.375% Series C			Common
	Stock			Preferred			Stock		Common
(dollars in thousands, except share data)	Shares			Stock			Shares		Stock
Balance January 1, 2006		1,200,000		$	26,613			17,563,046	$	187
Net proceeds from the issuance of common stock		—			—			2,300,000		23
Net proceeds from issuance of stock through Dividend Reinvestment and Stock Purchase Plan		—			—			501,089		5
Exercise of stock options		—			—			37,675		—
Reclass of unearned non-vested stock to additional paid in capital		—			—			—		—
Issuance of non-vested stock		—			—			41,719		1
Earned portion of non-vested stock		—			—			—		—
Stock option expense		—			—			—		—
Deferred compensation outside directors		—			—			—		—
Carrying value less than redemption value on redeemed partnership units		—			—			—		—
Net income		—			—			—		—
Change in fair value of derivatives		—			—			—		—
Total comprehensive income		—			—			—		—
Dividends		—			—			—		—

Balance December 31, 2006		1,200,000			26,613			20,443,529		216
Net proceeds from issuance of stock through Dividend Reinvestment and Stock Purchase Plan		—			—			252,816		3
Exercise of stock options		—			—			13,100		—
Issuance of non-vested stock		—			—			43,989		—
Earned portion of non-vested stock		—			—			—		—
Stock option expense		—			—			—		—
Deferred compensation outside directors		—			—			—		—
Conversion of Series C Preferred Stock to common stock and exercise of related stock warrants		(1,200,000	)		(26,613	)		920,244		9
Conversion of operating partnership units to common stock		—			—			2,908		—
Carrying value less than redemption value on redeemed partnership units		—			—			—		—
Net income		—			—			—		—
Change in fair value of derivatives		—			—			—		—
Total comprehensive income		—			—			—		—
Dividends		—			—			—		—

Balance December 31, 2007		—			—			21,676,586		228
Net proceeds from issuance of stock through Dividend Reinvestment and Stock Purchase Plan		—			—			285,308		3
Exercise of stock options		—			—			2,600		—
Issuance of non-vested stock		—			—			45,713		1
Earned portion of non-vested stock		—			—			—		—
Stock option expense		—			—			—		—
Deferred compensation outside directors		—			—			6,141		—
Carrying value less than redemption value on redeemed partnership units		—			—			—		—
Net income		—			—			—		—
Change in fair value of derivatives		—			—			—		—
Total comprehensive income		—			—			—		—
Dividends		—			—			—		—

Balance December 31, 2008		—		$	—			22,016,348	$	232

See notes to financial statements

SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


Additional						Dividends in			Accumulated
Paid-in			Non-vested			Excess of			Other Comprehensive			Treasury			Total
Capital			Stock			Net Income			Income (loss)			Stock			Equity
$	466,839		$	(1,838	)	$	(71,995	)	$	1,454		$	(27,175	)	$	394,085
	122,388			—			—			—			—			122,411
	24,862			—			—			—			—			24,867
	1,142			—			—			—			—			1,142
	(1,838	)		1,838			—			—			—			—
	(1	)		—			—			—			—			—
	876			—			—			—			—			876
	119			—			—			—			—			119
	181			—			—			—			—			181
	(1,830	)		—			—			—			—			(1,830	)
	—			—			36,610			—			—			36,610
	—			—			—			674			—			674

	—			—			—			—			—			37,284
	—			—			(48,224	)		—			—			(48,224	)

	612,738			—			(83,609	)		2,128			(27,175	)		530,911
	12,756			—			—			—			—			12,759
	425			—			—			—			—			425
	—			—			—			—			—			—
	1,224			—			—			—			—			1,224
	183			—			—			—			—			183
	161			—			—			—			—			161
	26,604			—			—			—			—			—
	167			—			—			—			—			167
	(117	)		—			—			—			—			(117	)
	—			—			39,214			—			—			39,214
	—			—			—			(3,496	)		—			(3,496	)

	—			—			—			—			—			35,718
	—			—			(54,042	)		—			—			(54,042	)

	654,141			—			(98,437	)		(1,368	)		(27,175	)		527,389
	10,654			—			—			—			—			10,657
	72			—			—			—			—			72
	—			—			—			—			—			1
	1,444			—			—			—			—			1,444
	279			—			—			—			—			279
	112			—			—			—			—			112
	(69	)		—			—			—			—			(69	)
	—			—			37,399			—			—			37,399
	—			—			—			(23,794	)		—			(23,794	)

	—			—			—			—			—			13,605
	—			—			(55,690	)		—			—			(55,690	)

$	666,633		$	—		$	(116,728	)	$	(25,162	)	$	(27,175	)	$	497,800

SOVRAN SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
(dollars in thousands)	2008			2007			2006
Operating Activities
Net income	$	37,399		$	39,214		$	36,610
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		35,659			34,999			26,340
Gain on sale		(716	)		—			—
Casualty gain		—			(114	)		—
Equity in income of joint ventures		(104	)		(119	)		(172	)
Distributions from unconsolidated joint venture		345			98			123
Minority interest		2,284			2,631			2,434
Non-vested stock earned		1,444			1,224			876
Stock option expense		279			183			119
Changes in assets and liabilities:
Accounts receivable		(171	)		(599	)		(407	)
Prepaid expenses		118			822			(2,029	)
Accounts payable and other liabilities		619			7,082			1,011
Deferred revenue		(24	)		(246	)		(249	)

Net cash provided by operating activities		77,132			85,175			64,656

Investing Activities
Acquisition of storage facilities		(18,547	)		(138,059	)		(130,251	)
Improvements, equipment additions, and construction in progress		(45,709	)		(52,441	)		(37,021	)
Net proceeds from the sale of storage facility		7,002			—			—
Casualty insurance proceeds received		—			1,692			—
Investment in unconsolidated joint venture		(20,287	)		—			—
Additional investment in consolidated joint ventures net of cash acquired		(6,106	)		—			(8,181	)
(Advances to) reimbursement of advances to joint ventures		(336	)		—			17
Reimbursement of (payment of) property deposits		1,259			(1,469	)		(1,169	)
Receipts from related parties		13			10			38

Net cash used in investing activities		(82,711	)		(190,267	)		(176,567	)

Financing Activities
Net proceeds from sale of common stock		10,842			13,345			148,601
Proceeds from line of credit		14,000			112,000			94,000
Repayment of line of credit and term note		(206,000	)		(12,000	)		(184,000	)
Proceeds from term notes		250,000			6,000			150,000
Financing costs		(3,085	)		(316	)		(632	)
Dividends paid — common stock		(55,256	)		(51,805	)		(43,837	)
Dividends paid — preferred stock		—			(1,256	)		(2,513	)
Minority interest distributions		(2,633	)		(2,912	)		(2,815	)
Redemption of operating partnership units		(114	)		(174	)		(2,788	)
Mortgage principal and capital lease payments		(1,699	)		(1,510	)		(1,286	)

Net cash provided by financing activities		6,055			61,372			154,730

Net increase (decrease) in cash		476			(43,720	)		42,819
Cash at beginning of period		4,010			47,730			4,911

Cash at end of period	$	4,486		$	4,010		$	47,730


Supplemental cash flow information
Cash paid for interest, net of interest capitalized	$	37,970		$	32,313		$	26,647

Fair value of net liabilities assumed on the acquisition of storage facilities		107			1,580			65,650

Dividends declared but unpaid at December 31, 2008, 2007 and 2006 were $14,090, $13,656, and $12,675, respectively.

See notes to financial statements.

SOVRAN SELF STORAGE, INC. — DECEMBER 31, 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Sovran Self Storage, Inc. (the “Company,” “We,” “Our,” or “Sovran”), 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. At December 31, 2008, we had an ownership interest in and managed 385 self-storage properties in 24 states under the name Uncle Bob’s Self Storage ®. Among our 385 self-storage properties are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and 25 properties that we manage for an unconsolidated joint venture of which we are a 20% owner. Over 40% of the Company’s revenue is derived from stores in the states of Texas and Florida.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: 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 of the Operating Partnership; the Company is a limited partner of the Operating Partnership, and through its ownership of the Subsidiary and its limited partnership interest controls the operations of the Operating Partnership, holding a 98.1% ownership interest therein as of December 31, 2008. 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.

We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the entity. Our consolidated financial statements include the accounts of the Company, the Operating Partnership, Locke Sovran I, LLC, and Locke Sovran II, LLC, which is a majority owned joint venture. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but for which we have significant influence over are reported using the equity method.

In April 2006, the Company made additional investments of $8,475,000 in Locke Sovran I, LLC and Locke Sovran II, LLC that increased the Company’s ownership from approximately 45% to over 70% in each of these joint ventures. As a result of this transaction, from the date that its controlling interest was acquired, the Company has consolidated the accounts of Locke Sovran I, LLC in its financial statements. The accounts of Locke Sovran II, LLC were already being included in the Company’s financial statements as it has been a majority controlled joint venture since 2001. In June 2008, the Company made an additional investment of $6.1 million in Locke Sovran I, LLC that increased the Company’s ownership from approximately 70% to 100%.

Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The cash balance includes $3.8 million and $3.2 million, respectively, held in escrow for encumbered properties at December 31, 2008 and 2007.

Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of occupancy. Rental income received prior to the start of the rental period is included in deferred revenue. Equity in earnings of real estate joint ventures that we have significant influence over is recognized based on our ownership interest in the earnings of these entities.

Cost of operations, general and administrative expense, interest expense and advertising costs are expensed as incurred. For the years ended December 31, 2008, 2007, and 2006, advertising costs were $1.4 million, $1.4 million, and $1.0 million, respectively. The Company accrues property taxes based on estimates and historical trends. If these estimates are incorrect, the timing and amount of expense recognition would be affected.

Other Income: Consists primarily of sales of storage-related merchandise (locks and packing supplies), insurance commissions, incidental truck rentals, and management fees from unconsolidated joint ventures.

Investment in Storage Facilities: Storage facilities are recorded at cost. The purchase price of acquired facilities is allocated to land, building, equipment, and in-place customer leases based on the fair value of each component. Depreciation is computed using the straight-line method over estimated useful lives of forty years for buildings and improvements, and five to twenty years for furniture, fixtures and equipment. Expenditures for significant renovations or improvements that extend the useful life of assets are capitalized. Interest and other costs incurred during the construction period of major expansions are capitalized. Capitalized interest during the years ended December 31, 2008 and 2007 was $0.4 million. No interest was capitalized during 2006. Repair and maintenance costs are expensed as incurred.

Whenever events or changes in circumstances indicate that the basis of the Company’s property may not be recoverable, the Company’s policy is to assess any impairment of value. Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the property, on a property by property basis. If the sum of the undiscounted cash flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. At December 31, 2008 and 2007, no assets had been determined to be impaired under this policy and, accordingly, this policy had no impact on the Company’s financial position or results of operations.

Other Assets: Included in other assets are net loan acquisition costs, a note receivable, property deposits, and the value placed on in-place customer leases at the time of acquisition. The loan acquisition costs were $6.8 million and $6.2 million at December 31, 2008, and 2007, respectively. Accumulated amortization on the loan acquisition costs was approximately $2.5 million and $3.8 million at December 31, 2008, and 2007, respectively. Loan acquisition costs are amortized over the terms of the related debt. The note receivable of $2.8 million represents a note from certain investors of Locke Sovran II, LLC. The note bears interest at LIBOR plus 2.4% and matures upon the dissolution of Locke Sovran II, LLC. Property deposits were $0.1 million and $1.5 million at December 31, 2008 and 2007, respectively.

The Company allocates a portion of the purchase price of acquisitions to in-place customer leases. The value of in-place customer leases is based on the Company’s experience with customer turnover. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). At December 31, 2008, the gross carrying amount of in-place customer leases was $5.4 million and the accumulated amortization was $5.2 million

Amortization expense, including amortization of in-place customer leases, was $1.3 million, $4.8 million and $1.0 million for the periods ended December 31, 2008, 2007 and 2006, respectively.

Accounts Payable and Accrued Liabilities: Accounts payable and accrued liabilities consists primarily of trade payables, accrued interest, and property tax accruals. The Company accrues property tax expense based on estimates and historical trends. Actual expense could differ from these estimates.

Minority Interest: The minority interest reflects the outside ownership interest of the limited partners of the Operating Partnership and the joint venture partner’s interest in Locke Sovran II, LLC. Amounts allocated to these interests are reflected as an expense in the income statement and increase the minority interest in the balance sheet. Distributions to these partners reduce this balance. At December 31, 2008, Operating Partnership minority interest ownership was 419,952 Units, or 1.9% (at December 31, 2007 422,727 Units, or 1.9%). The redemption value of the Units at December 31, 2008 and 2007 was $15.1 million and $17.0 million, respectively. The Operating Partnership is obligated to redeem each Unit at the request of the holder thereof for cash equal to the fair market value of a share of the Company’s common stock, at the time of such redemption, provided that the Company at its option may elect to acquire any such Unit presented for redemption for one common share or cash.

Income Taxes: The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be subject to corporate income taxes to the extent it distributes at least 90% of its taxable income to its shareholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes in the accompanying financial statements. On an aggregate basis, the Company’s reported amounts of net assets exceeds the tax basis by approximately $74 million and $72 million at December 31, 2008 and 2007, respectively.

Comprehensive Income: Comprehensive income consists of net income and the change in value of derivatives used for hedging purposes and is reported in the consolidated statements of shareholders’ equity. Comprehensive income was $13.6 million, $35.7 million and $37.3 million for the years ended December 31, 2008, 2007, and 2006, respectively.

Derivative Financial Instruments: The Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by reference to quoted market prices. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company’s use of derivative instruments is limited to cash flow hedges, as defined in SFAS No. 133, of certain interest rate risks.

Recent Accounting Pronouncements: In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities to voluntarily choose, at specified election dates, to measure many financial assets and liabilities at fair value. The effective date for the Company is January 1, 2008. The adoption of SFAS 159 did not impact the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”), which amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. This statement also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of income. The effective date for the Company will be January 1, 2009. The Company has not yet determined the impact of SFAS 160 on our consolidated financial statements

In December 2007, the FASB Statement 141R, “Business Combinations” (“SFAS 141R”) was issued. SFAS 141R replaces SFAS 141. SFAS 141R requires the acquirer of a business to recognize and measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at fair value. SFAS 141R also requires transaction costs related to the business combination to be expensed as incurred. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The effective date for the Company will be January 1, 2009. The Company has not yet determined the impact of SFAS 141R related to future acquisitions, if any, on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. The effective date for the Company will be January 1, 2009. The Company is currently assessing the impact of SFAS No. 161 on our consolidated financial statements.

Stock-Based Compensation: Effective January 1, 2006, the Company adopted Statement 123(R) and uses the modified-prospective method. Under the modified-prospective method, the Company recognizes compensation cost in the financial statements issued subsequent to January 1, 2006 for all share based payments granted, modified, or settled after the date of adoption as well as for any awards that were granted prior to the adoption date for which the requisite service period has not been completed as of the adoption date.

The Company recorded compensation expense (included in general and administrative expense) of $279,000, $183,000 and $119,000 related to stock options under Statement 123(R) and $1.4 million, $1.2 million and $876,000 related to amortization of non-vested stock grants for the years ended December 31, 2008, 2007 and 2006, respectively. The Company uses the Black-Scholes Merton option pricing model to estimate the fair value of stock options granted subsequent to the adoption of FAS 123(R). The application of this pricing model involves assumptions that are judgmental and sensitive in the determination of compensation expense. The weighted average

for key assumptions used in determining the fair value of options granted during 2008 follows:


	Weighted Average			Range
Expected life (years)		6.53			4.50 - 7.00
Risk free interest rate		3.78	%		2.65 - 3.94	%
Expected volatility		22.61	%		22.40% - 24.30	%
Expected dividend yield		6.1	%		6.00% - 7.00	%
Fair value	$	4.79		$	3.21 - $5.10

To determine expected volatility, the Company uses historical volatility based on daily closing prices of its Common Stock over periods that correlate with the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the expected life of the options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts. The expected life of stock options is based on the midpoint between the vesting date and the end of the contractual term.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

3. EARNINGS PER SHARE

The Company reports earnings per share data in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” In computing earnings per share, the Company excludes 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.


(Amounts in thousands,	Year Ended December 31,
except per share data)	2008		2007		2006
Numerator:
Net income from continuing operations available to common shareholders	$	36,605	$	37,524	$	33,651

Denominator:
Denominator for basic earnings per share - weighted average shares		21,762		20,955		17,951
Effect of Dilutive Securities:
Stock options and warrants and non-vested stock		21		49		70


Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversion		21,783		21,004		18,021

Basic Earnings per Common Share from continuing operations	$	1.68	$	1.79	$	1.87
Basic Earnings per Common Share	$	1.72	$	1.81	$	1.90

Diluted Earnings per Common Share from continuing operations	$	1.68	$	1.79	$	1.86
Diluted Earnings per Common Share	$	1.72	$	1.81	$	1.89

4. INVESTMENT IN STORAGE FACILITIES

The following summarizes activity in storage facilities during the years ended December 31, 2008 and December 31, 2007.


(Dollars in thousands)	2008			2007
Cost:
Beginning balance	$	1,322,708		$	1,136,052
Acquisition of storage facilities		18,454			136,653
Additional investment in consolidated joint ventures		2,473			—
Improvements and equipment additions		44,998			45,806
Increase in construction in progress		761			6,621
Dispositions		(193	)		(2,424	)

Ending balance	$	1,389,201		$	1,322,708

Accumulated Depreciation:
Beginning balance	$	183,679		$	154,449
Additions during the year		33,100			30,011
Dispositions		(135	)		(781	)

Ending balance	$	216,644		$	183,679

The Company allocates purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The value of land and buildings are determined at replacement cost. Intangible assets, which represent the value of existing customer leases, are recorded at their estimated fair values. During 2008, the Company acquired three storage facilities for $18.9 million. Substantially all of the purchase price of these facilities was allocated to land ($3.7 million), building ($14.7 million), equipment ($0.1 million) and in-place customer leases ($0.4 million) and the operating results of the acquired facilities have been included in the Company’s operations since the respective acquisition dates. During 2007, the Company acquired 31 storage facilities for $141.3 million. Substantially all of the purchase price of these facilities was allocated to land ($27.7 million), building ($110.0 million), equipment ($1.5 million) and in-place customer leases ($2.1 million) and the operating results of the acquired facilities have been included in the Company’s operations since the respective acquisition dates.

5. DISCONTINUED OPERATIONS

In April 2008, the Company sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The operations of this facility and the gain on sale are reported as discontinued operations. The amounts in the 2007 and 2006 financial statements related to the operations and the net assets of this property have been reclassified and are presented as discontinued operations and net assets from discontinued operations, respectively. Cash flows of discontinued operations have not been segregated from the cash flows of continuing operations on the accompanying consolidated statement of cash flows for the years ended December 31, 2008, 2007 and 2006. The following is a summary of the amounts reported as discontinued operations:


	Year Ended December 31,
(dollars in thousands)	2008			2007			2006
Total revenue	$	233		$	912		$	927
Property operations and maintenance expense		(76	)		(196	)		(202	)
Real estate tax expense		(33	)		(97	)		(94	)
Depreciation and amortization expense		(46	)		(185	)		(184	)
Net realized gain on sale of property		716			—			—

Total income from discontinued operations	$	794		$	434		$	447

6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following unaudited pro forma Condensed Statement of Operations is presented as if (i) the 31 storage facilities purchased during 2007, (ii) the 42 storage facilities purchased during 2006, (iii) the additional investment in Locke Sovran I, LLC and Locke Sovran II, LLC in April 2006, and (iv) the related indebtedness incurred and assumed on these transactions had all occurred at January 1, 2006. Such unaudited pro forma information is based upon the historical statements of operations of the Company. It should be read in conjunction with the financial statements of the Company. In management’s opinion, all adjustments necessary to reflect the effects of these transactions have been made. This unaudited pro forma information does not purport to represent what the actual results of operations of the Company would have been assuming such transactions had been completed as set forth above nor does it purport to represent the results of operations for future periods.


	Year Ended December 31,
(dollars in thousands, except share data)	2007		2006
Pro forma total operating revenues	$	199,569	$	191,505

Pro forma net income	$	41,749	$	33,985

Pro forma earnings per common share — diluted	$	1.92	$	1.54

7. UNSECURED LINE OF CREDIT AND TERM NOTES

On June 25, 2008, the Company entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, the Company entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay the Company’s previous line of credit that was to mature in September 2008, the Company’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. The new agreements also provide for a $125 million (expandable to $150 million) revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. The interest rate at December 31, 2008 on the Company’s available line of credit was approximately 1.8% (5.5% at December 31, 2007). At December 31, 2008, there was $111 million available on the unsecured line of credit.

The Company also maintains an $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38%.

8. MORTGAGES PAYABLE AND OTHER DEBT DISCLOSURES

Mortgages payable at December 31, 2008 and December 31, 2007 consist of the following:


	December 31,		December 31,
(dollars in thousands)	2008		2007
7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an aggregate net book value of $43.8 million, principal and interest paid monthly	$	29,033	$	29,084
7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an aggregate net book value of $81.2 million, principal and interest paid monthly		42,603		43,645
7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value of $5.8 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%		3,510		3,643
6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value of $2.0 million, principal and interest paid monthly		1,000		1,022


	December 31,		December 31,
(dollars in thousands)	2008		2007
6.35% mortgage note due March 2014, secured by 1 self-storage facility with an aggregate net book value of $3.8 million, principal and interest paid monthly		1,098		1,122
5.55% mortgage notes due November 2009, secured by 8 self-storage facilities with an aggregate net book value of $34.9 million, interest only paid monthly. Estimated market rate at time of acquisition 6.44%		25,930		25,719
7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value of $14.3 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%		6,087		6,282

Total mortgages payable	$	109,261	$	110,517

The Company assumed the 7.25%, 6.76%, 6.35%, 5.55% and 7.50% mortgage notes in connection with the acquisitions of storage facilities in 2005 and 2006. The 7.25%, 5.55%, and 7.50% mortgages were recorded at their estimated fair value based upon the estimated market rates at the time of the acquisitions ranging from 5.40% to 6.44%. The carrying value of these three mortgages approximates the actual principal balance of the mortgages payable. An immaterial premium exists at December 31, 2008, which will be amortized over the remaining term of the mortgages based on the effective interest method.

The table below summarizes the Company’s debt obligations and interest rate derivatives at December 31, 2008. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate term note and mortgage note were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.


	Expected Maturity Date Including Discount														Fair
(dollars in thousands)	2009		2010		2011		2012		2013		Thereafter		Total		Value
Line of credit — variable rate LIBOR + 1.375 (1.84% at December 31, 2008)		—		—	$	14,000		—		—		—	$	14,000	$	14,000
Notes Payable:
Term note — variable rate LIBOR+1.625% (2.09% at December 31, 2008)		—		—		—	$	250,000		—		—	$	250,000	$	250,000
Term note — variable rate LIBOR+1.50% (4.62% at December 31, 2008)		—		—		—		—	$	20,000		—	$	20,000	$	20,000
Term note — fixed rate 6.26%		—		—		—		—	$	80,000		—	$	80,000	$	78,865
Term note — fixed rate 6.38%		—		—		—		—		—	$	150,000	$	150,000	$	147,899

Mortgage note — fixed rate 7.80%	$	587	$	630	$	27,816		—		—		—	$	29,033	$	30,031
Mortgage note — fixed rate 7.19%	$	1,128	$	1,211	$	1,301	$	38,963		—		—	$	42,603	$	44,205
Mortgage note — fixed rate 7.25%	$	141	$	149	$	3,220		—		—		—	$	3,510	$	3,478
Mortgage note — fixed rate 6.76%	$	23	$	25	$	27	$	29	$	896		—	$	1,000	$	1,018
Mortgage note — fixed rate 6.35%	$	26	$	28	$	30	$	31	$	34	$	949	$	1,098	$	1,100
Mortgage notes — fixed rate 5.55%	$	25,930		—		—		—		—		—	$	25,930	$	26,422
Mortgage notes — fixed rate 7.50%	$	208	$	222	$	5,657		—		—		—	$	6,087	$	6,188

Interest rate derivatives — liability		—		—		—		—		—		—		—	$	25,490

9. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. The notional amounts are not exchanged. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its fair value. The Company enters interest rate swaps with a number of major financial institutions to minimize counterparty credit risk.

The interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as Accumulated Other Comprehensive Income (“AOCI”). These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was immaterial in 2008, 2007, and 2006.

The Company has entered into seven interest rate swap agreements as detailed below to effectively convert a total of $270 million of variable-rate debt to fixed-rate debt.

Fixed

Floating Rate

Notional Amount

Effective Date

Expiration Date

Rate Paid

Received

$50 Million

11/14/05

9/1/09

4.3900

1 month LIBOR

$20 Million

9/4/05

9/4/13

4.4350

6 month LIBOR

$50 Million

10/10/06

9/1/09

4.4800

1 month LIBOR

$50 Million

7/1/08

6/25/12

4.2825

1 month LIBOR

$100 Million

7/1/08

6/22/12

4.2965

1 month LIBOR

$75 Million

9/1/09

6/22/12

4.7100

1 month LIBOR

$25 Million

9/1/09

6/22/12

4.2875

1 month LIBOR

The interest rate swap agreements are the only derivative instruments, as defined by SFAS No. 133, held by the Company. During 2008, 2007, and 2006, the net reclassification from AOCI to interest expense was $2.6 million, ($1.1) million and ($0.5) million, respectively, based on payments (receipts) made or received under the swap agreements. Based on current interest rates, the Company estimates that payments under the interest rate swaps will be approximately $10.6 million in 2009. Receipts made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements, including accrued interest, was a liability of $25.5 million and $1.2 million at December 31, 2008, and 2007 respectively.

10. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. This statement applies under other accounting pronouncements that require or permit fair value measurements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model.

Relative to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1, 157-2, and 157-3. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, “Accounting for Leases,” (SFAS 13) and its related interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and

nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP 157-3 addresses considerations in determining the fair value of a financial asset when the market for that asset is not active.

We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial liabilities for which we have not applied the provisions of SFAS 157 include those measured at fair value in a business combination.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2008 (in thousands):


	Asset
	(Liability)			Level 1		Level 2			Level 3
Interest rate swaps		(25,490	)		—		(25,490	)		—

Interest rate swaps are over the counter securities with no quoted readily available Level 1 inputs, and therefore are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using the income approach.

11. STOCK OPTIONS AND NON-VESTED STOCK

The Company established the 2005 Award and Option Plan (the “Plan”) which replaced the expired 1995 Award and Option Plan for the purpose of attracting and retaining the Company’s executive officers and other key employees. 1,500,000 shares were authorized for issuance under the Plan. The options vest ratably over four and eight years, and must be exercised within ten years from the date of grant. The exercise price for qualified incentive stock options must be at least equal to the fair market value of the common shares at the date of grant. As of December 31, 2008, options for 324,688 shares were outstanding under the Plans and options for 1,096,464 shares of common stock were available for future issuance.

The Company also established the 1995 Outside Directors’ Stock Option Plan (the Non-employee Plan) for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors. The Non-employee Plan provides for the initial granting of options to purchase 3,500 shares of common stock and for the annual granting of options to purchase 2,000 shares of common stock to each eligible director. Such options vest over a one-year period for initial awards and immediately upon subsequent grants. In addition, effective in 2004 each outside director receives non-vested shares annually equal to 80% of the annual fees paid to them. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends. During 2008, 1,820 non-vested shares were issued to outside directors. Such non-vested shares vest over a one-year period. The total shares reserved under the Non-employee Plan is 150,000. The exercise price for options granted under the Non-employee Plan is equal to the fair market value at the date of grant. As of December 31, 2008, options for 36,000 common shares and non-vested shares of 9,160 were outstanding under the Non-employee Plan and options for no shares of common stock were available for future issuance.

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:


	2008					2007					2006
				Weighted					Weighted					Weighted
				average					average					average
				exercise					exercise					exercise
	Options			price		Options			price		Options			price
Outstanding at beginning of year:		168,125		$	42.54		113,225		$	35.77		142,900		$	32.68

Granted		201,163			43.12		74,000			52.49		14,000			51.78
Exercised		(2,600	)		27.78		(13,100	)		32.44		(37,675	)		30.33
Forfeited		(6,000	)		36.86		(6,000	)		59.62		(6,000	)		33.05


Outstanding at end of year		360,688		$	43.06		168,125		$	42.54		113,225		$	35.77

Exercisable at end of year		118,025		$	38.84		82,625		$	34.45		74,225		$	31.14

A summary of the Company’s stock options outstanding at December 31, 2008 follows:


	Outstanding				Exercisable
			Weighted				Weighted
			average				average
			exercise				exercise
Exercise Price Range	Options		price		Options		price
$20.375 – 29.99		31,475	$	21.58		31,475	$	21.58
$30.00 – 39.99		33,050	$	35.35		19,550	$	34.11
$40.00 – 57.79		296,163	$	46.21		67,000	$	48.33

Total		360,688	$	43.06		118,025	$	38.84


Intrinsic value of outstanding stock options at December 31, 2008	$	506,184
Intrinsic value of exercisable stock options at December 31, 2008	$	506,184
Intrinsic value of stock options exercised in 2008	$	37,691

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock at December 31, 2008, or the price on the date of exercise for those exercised during the year. As of December 31, 2008, there was approximately $1.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock award plans. That cost is expected to be recognized over a weighted-average period of approximately 5.2 years. The weighted average remaining contractual life of all options is 8.0 years, and for exercisable options is 5.7 years.

Non-vested Stock

The Company has also issued 289,587 shares of non-vested stock to employees which vest over two to nine year periods. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends. For the year ended December 31, 2008, the fair market value of the non-vested stock on the date of grant ranged from $20.38 to $59.81. During 2008, 43,893 shares of non-vested stock were issued to employees with an aggregate fair value of $1.8 million. The Company charges additional paid-in capital for the market value of shares as they are issued. The unearned portion is then amortized and charged to expense over the vesting period. The Company uses the average of the high and low price of its common stock on the date the award is granted as the fair value for non-vested stock awards.

A summary of the status of unvested shares of stock issued to employees and directors as of and during the years ended December 31 follows:


	2008					2007					2006
				Weighted					Weighted					Weighted
	Non-			average		Non-			average		Non-			average
	vested			grant date		vested			grant date		vested			grant date
	Shares			fair value		Shares			fair value		Shares			fair value
Unvested at beginning of year:		115,896		$	45.54		96,453		$	40.21		71,411		$	30.39
Granted		45,713			41.50		43,989			53.79		41,719			53.86
Vested		(30,802	)		42.71		(24,546	)		39.39		(16,677	)		32.29
Forfeited		—			—		—			—		—			—


Unvested at end of year		130,807		$	44.79		115,896		$	45.54		96,453		$	40.21

Compensation expense of $1.4 million, $1.2 million and $0.9 million was recognized for the vested portion of non-vested stock grants in 2008, 2007 and 2006, respectively. The fair value of non-vested stock that vested during 2008, 2007 and 2006 was $1.3 million, $1.0 million and $0.5 million, respectively. The total unrecognized compensation cost related to non-vested stock was $4.8 million at December 31, 2008, and the remaining weighted-average period over which this expense will be recognized was 6 years.

12. RETIREMENT PLAN

Employees of the Company qualifying under certain age and service requirements are eligible to be a participant in a 401(k) Plan. The Company contributes to the Plan at the rate of 50% of the first 4% of gross wages that the employee contributes. Total expense to the Company was approximately $284,000, $256,000, and $166,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

13. INVESTMENT IN JOINT VENTURES

The Company has a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a joint venture that was formed in May 2008 to acquire self-storage properties that will be managed by the Company. The carrying value of the Company’s investment at December 31, 2008 was $20.1 million. Twenty five properties were acquired by Sovran HHF as of December 31, 2008 for approximately $171.5 million. The Company contributed $18.6 million to the joint venture as its share of capital required to fund the acquisitions. As of December 31, 2008, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs. This difference is not amortized, it is included in the carrying value of the investment, which is assessed for impairment on a periodic basis.

As manager of Sovran HHF, the Company earns a management and call center fee of 7% of gross revenues which totaled $0.5 million for 2008. The Company also received an acquisition fee of 0.5% of purchase price for securing purchases for the joint venture. During 2008, the Company recorded $0.7 million in acquisition fees. The Company’s share of Sovran HHF’s income for 2008 was $0.1 million. At December 31, 2008, Sovran HHF owed the Company $0.3 million for payments made by the Company on behalf of the joint venture.

Company paid rent to Iskalo Office Holdings, LLC of $600,000, $561,000 and $583,000 in 2008, 2007, and 2006, respectively. Future minimum lease payments under the lease are $0.6 million per year through 2010.

A summary of the unconsolidated joint ventures’ financial statements as of and for the year ended December 31, 2008 is as follows:


	Sovran HHF
	Storage		Iskalo Office
(dollars in thousands)	Holdings LLC		Holdings, LLC
Balance Sheet Data:
Investment in storage facilities, net	$	170,176	$	—
Investment in office building		—		5,507
Other assets		3,912		568

Total Assets	$	174,088	$	6,075


Due to the Company	$	336	$	—
Mortgages payable		79,937		7,169
Other liabilities		1,942		168

Total Liabilities		82,215		7,337

Unaffiliated partners’ equity (deficiency)		73,499		(718	)
Company equity (deficiency)		18,374		(544	)

Total Liabilities and Partners’ Equity (deficiency)	$	174,088	$	6,075


Income Statement Data:
Total revenues	$	6,652	$	1,127
Total expenses		6,301		1,139

Net income (loss)	$	351	$	(12	)

The Company does not guarantee the debt of Sovran HHF or Iskalo Office Holdings, LLC.

14. PREFERRED STOCK

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 (“Series C Preferred”) 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 resulting in net proceeds for the Series C Preferred and related common stock warrants of $67.9 million after expenses. In 2004, the Company issued 306,748 shares of its common stock in connection with the conversion of 400,000 shares of Series C Preferred Stock into common stock. During 2005, the Company issued 920,244 shares of its common stock in connection with a written notice from one of the holders of the Series C Preferred Stock requesting the conversion of 1,200,000 shares of Series C Preferred Stock into common stock. On July 7, 2007, we issued 920,244 shares of our common stock to the holder of our Series C Preferred Stock upon the holder’s election to convert the remaining 1,200,000 shares of Series C Preferred Stock into common stock. As a result of the conversion, $26.6 million recorded in shareholders’ equity as 8.375% Series C Convertible Cumulative Preferred Stock was reclassified to additional paid-in capital in 2007.

15. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of quarterly results of operations for the years ended December 31, 2008 and 2007 (dollars in thousands, except per share data).


	2008 Quarter Ended
	March 31		June 30		Sept. 30		Dec. 31
Operating revenue	$	49,619	$	50,120	$	52,497	$	50,767
Income from continuing operations (a)	$	8,871	$	9,829	$	9,528	$	8,377
Income from discontinued operations (a)	$	82	$	712	$	—	$	—
Net Income	$	8,953	$	10,541	$	9,528	$	8,377
Net income available to common shareholders	$	8,953	$	10,541	$	9,528	$	8,377
Net Income Per Common Share
Basic	$	0.41	$	0.49	$	0.44	$	0.38
Diluted	$	0.41	$	0.48	$	0.44	$	0.38


	2007 Quarter Ended
	March 31		June 30		Sept. 30		Dec. 31
Operating revenue (a)	$	44,371	$	47,872	$	50,765	$	49,849
Income from continuing operations (a)	$	9,437	$	7,950	$	10,757	$	10,636
Income from discontinued operations (a)	$	100	$	114	$	118	$	102
Net Income	$	9,537	$	8,064	$	10,875	$	10,738
Net income available to common shareholders	$	8,909	$	7,436	$	10,875	$	10,738
Net Income Per Common Share
Basic	$	0.44	$	0.36	$	0.51	$	0.50
Diluted	$	0.44	$	0.36	$	0.51	$	0.50


(a)		Data as presented in this table differ from the amounts as presented in the Company’s quarterly reports due to the impact of discontinued operations accounting with respect to the one property sold in 2008 as described in Note 5.

16. COMMITMENTS AND CONTINGENCIES

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.


Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.


Item 9A.		Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at December 31, 2008. There have not been changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter ended December 31, 2008.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2008. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008 based upon criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (''COSO’’). Based on our assessment, management determined that our internal control over financial reporting was effective as of December 31, 2008 based on the criteria in Internal Control-Integrated Framework issued by COSO.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 9A herein.


/S/ Robert J. Attea		/S/ David L. Rogers
Chief Executive Officer		Chief Financial Officer

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Sovran Self Storage, Inc.

We have audited Sovran Self Storage, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sovran Self Storage, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sovran Self Storage, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sovran Self Storage, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 of Sovran Self Storage, Inc. and our report dated February 25, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Buffalo, New York
February 25, 2009

Part III


Item 10.		Directors, Executive Officers and Corporate Governance

The information contained in the Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 21, 2009, with respect to directors, executive officers, audit committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance, is incorporated herein by reference in response to this item.

The Company has adopted a code of ethics that applies to all of its directors, officers, and employees. The Company has made the Code of Ethics available on its website at http://www.sovranss.com.


Item 11.		Executive Compensation

The information required is incorporated by reference to “Executive Compensation” and “Director Compensation” in the Company’s Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 21, 2009.


Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required herein is incorporated by reference to “Stock Ownership By Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners” in the Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 21, 2009.


Item 13.		Certain Relationships and Related Transactions, and Director Independence

The information required herein is incorporated by reference to “Certain Transactions” and “Election of Directors—Director Independence” in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 21, 2009.


Item 14.		Principal Accountant Fees and Services

The information required herein is incorporated by reference to “Appointment of Independent Auditor” in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 21, 2009.

Part IV


Item 15.		Exhibits, Financial Statement Schedules

(a)

Documents filed as part of this Annual Report on Form 10-K:

The following consolidated financial statements of Sovran Self Storage, Inc. are included in Item 8.

	(i)		Consolidated Balance Sheets as of December 31, 2008 and 2007.

	(ii)		Consolidated Statements of Operations for Years Ended December 31, 2008, 2007, and 2006.

	(iii)		Consolidated Statements of Shareholders’ Equity for Years Ended December 31, 2008, 2007, and 2006.

	(iv)		Consolidated Statements of Cash Flows for Years Ended December 31, 2008, 2007, and 2006.

	(v)		Notes to Consolidated Financial Statements.

2.		The following financial statement Schedule as of the period ended December 31, 2008 is included in this Annual Report on Form 10-K.

		Schedule III Real Estate and Accumulated Depreciation.

All other Consolidated financial schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in the consolidated financial statements or the notes thereto.

Exhibits

The exhibits required to be filed as part of this Annual Report on Form 10-K have been included as follows:

3.1		Amended and Restated Articles of Incorporation of the Registrant. (incorporated by reference to Exhibit 3.1 (a) to the Registrant’s Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995).

3.2		Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant classifying and designating the series A Junior Participating Cumulative Preferred Stock. (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-A filed December 3, 1996.)

3.3		Articles Supplementary to the Amended and Restated Articles of Incorporation of the Registrant classifying and designating the 8.375% Series C Convertible Cumulative Preferred Stock. (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed July 12, 2002).

3.4		Bylaws, as amended, of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed April 7, 2004).

4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995).

10.1+		Sovran Self Storage, Inc. 2005 Award and Option Plan, as amended (incorporated by reference to the Registrant’s Proxy Statement filed April 11, 2005).

10.2+		Sovran Self Storage, Inc. 1995 Outside Directors’ Stock Option Plan, as amended (incorporated by reference to the Registrant’s Proxy Statement filed April 8, 2004).

10.3*+		Employment Agreement between the Registrant and Robert J. Attea.

10.4*+		Employment Agreement between the Registrant and Kenneth F. Myszka.

10.5*+		Employment Agreement between the Registrant and David L. Rogers.

10.6+		Form of restricted stock grant pursuant to Sovran Self Storage, Inc. 2005 Award and Option Plan (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).

10.7+		Form of stock option grant pursuant to Sovran Self Storage, Inc. 2005 Award and Option Plan (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).

10.8+		Form of restricted stock grant pursuant to Sovran Self Storage, Inc. 1995 Award and Option Plan (incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).

10.9+		Form of stock option grant pursuant to Sovran Self Storage, Inc. 1995 Award and Option Plan (incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q/A filed November 24, 2006).

10.10+		Deferred Compensation Plan for Directors (incorporated by reference to Schedule 14A Proxy Statement filed April 10, 2008).

10.11		Amended Indemnification Agreements with members of the Board of Directors and Executive Officers (incorporated by reference to Exhibit 10.35 and 10.36 to Registrant’s Current Report on Form 8-K filed July 20, 2006).

10.12		Agreement of Limited Partnership of Sovran Acquisition Limited Partnership (incorporated by reference to Exhibit 3.1 on Form 10 filed April 22, 1998).

10.13*		Amendments to the Agreement of Limited Partnership of Sovran Acquisition Limited Partnership dated July 30, 1999 and July 3, 2002.

10.14		Promissory Note between Locke Sovran II, LLC and PNC Bank, National Association (incorporated by reference to Exhibit 10.22 to Registrant’s Form 10-K filed March 27, 2003).

10.15		Third Amended and Restated Revolving Credit and Term Loan Agreement among Registrant, the Partnership, Manufacturers and Traders Trust Company and other lenders named therein (incorporated by reference to Exhibit 10.1 filed in the Company’s Current Report on Form 8-K, filed June 27, 2008).

10.16		Cornerstone Acquisition Agreement and Amendments to Certain Loan Agreements (incorporated by reference to Exhibits 10.30, 10.31, 10.32, 10.33 and 10.34 of Registrant’s Current Report on Form 8-K filed June 26, 2006).

10.17		$150 million, 6.38% Senior Guaranteed Notes, Series C due April 26, 2016, and Amendments to Second Amendment Restated Revolving Credit and Term Loan Agreement dated December 16, 2004 and Amendment to Note Purchase Agreement dated September 4, 2003 (incorporated by reference to Exhibits 10.27, 10.28, and 10.29 of the Registrant’s Current Report on Form 8-K filed May 1, 2006).

10.18		Promissory Note between Locke Sovran I, LLC and GMAC Commercial Mortgage Corporation (incorporated by reference to Exhibit 10.21 as filed in the Company’s Annual Report on Form 10-K, filed March 1, 2007).

12.1*		Statement Re: Computation of Earnings to Fixed Charges.

21.1*		Subsidiaries of the Company (incorporated by reference to Exhibit 21 as filed in the Company’s Annual Report on Form 10-K, filed March 1, 2007).

23.1*		Consent of Independent Registered Public Accounting Firm.

24.1*		Powers of Attorney (included on signature pages).

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

32.1*		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

₊		Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


February 27, 2009	SOVRAN SELF STORAGE, INC.
	By:	/s/ David L. Rogers
		David L. Rogers,
		Chief Financial Officer, Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Robert J. Attea Robert J. Attea	Chairman of the Board of Directors Chief Executive Officer and Director (Principal Executive Officer)	February 27, 2009

/s/ Kenneth F. Myszka Kenneth F. Myszka	President, Chief Operating Officer and Director	February 27, 2009

/s/ David L. Rogers David L. Rogers	Chief Financial Officer (Principal Financial and Accounting Officer)	February 27, 2009

/s/ John Burns John Burns	Director	February 27, 2009

/s/ Michael A. Elia Michael A. Elia	Director	February 27, 2009

/s/ Anthony P. Gammie Anthony P. Gammie	Director	February 27, 2009

/s/ Charles E. Lannon Charles E. Lannon	Director	February 27, 2009

Sovran Self Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2008


							Cost Capitalized														Life on
							Subsequent to				Gross Amount at Which										which
			Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
					Building,		Building,				Building,										in latest
					Equipment		Equipment				Equipment										income
		Encum			and		and				and				Accum.		Date of		Date		statement
Description	ST	brance	Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Boston-Metro I	MA		$	363	$	1,679	$	528	$	363		2,207	$	2,570	$	706		1980		6/26/1995		5 to 40 years
Boston-Metro II	MA			680		1,616		361		680		1,977		2,657		699		1986		6/26/1995		5 to 40 years
E. Providence	RI			345		1,268		650		345		1,918		2,263		573		1984		6/26/1995		5 to 40 years
Charleston l	SC			416		1,516		2,029		416		3,545		3,961		768		1985		6/26/1995		5 to 40 years
Lakeland I	FL			397		1,424		1,436		397		2,860		3,257		626		1985		6/26/1995		5 to 40 years
Charlotte	NC			308		1,102		1,076		747		1,739		2,486		563		1986		6/26/1995		5 to 40 years
Tallahassee I	FL			770		2,734		1,869		770		4,603		5,373		1,476		1973		6/26/1995		5 to 40 years
Youngstown	OH			239		1,110		1,298		239		2,408		2,647		628		1980		6/26/1995		5 to 40 years
Cleveland-Metro II	OH			701		1,659		768		701		2,427		3,128		764		1987		6/26/1995		5 to 40 years
Tallahassee II	FL			204		734		903		198		1,643		1,841		508		1975		6/26/1995		5 to 40 years
Pt. St. Lucie	FL			395		1,501		854		779		1,971		2,750		758		1985		6/26/1995		5 to 40 years
Deltona	FL			483		1,752		2,037		483		3,789		4,272		922		1984		6/26/1995		5 to 40 years
Middletown	NY			224		808		796		224		1,604		1,828		526		1988		6/26/1995		5 to 40 years
Buffalo I	NY			423		1,531		1,651		497		3,108		3,605		1,015		1981		6/26/1995		5 to 40 years
Rochester I	NY			395		1,404		485		395		1,889		2,284		613		1981		6/26/1995		5 to 40 years
Salisbury	MD			164		760		451		164		1,211		1,375		408		1979		6/26/1995		5 to 40 years
New Bedford	MA			367		1,325		447		367		1,772		2,139		635		1982		6/26/1995		5 to 40 years
Fayetteville	NC			853		3,057		749		853		3,806		4,659		1,194		1980		6/26/1995		5 to 40 years
Jacksonville I	FL			152		728		961		687		1,154		1,841		416		1985		6/26/1995		5 to 40 years
Columbia I	SC			268		1,248		447		268		1,695		1,963		613		1985		6/26/1995		5 to 40 years
Rochester II	NY			230		847		442		234		1,285		1,519		421		1980		6/26/1995		5 to 40 years
Savannah l	GA			463		1,684		3,791		816		5,122		5,938		1,072		1981		6/26/1995		5 to 40 years
Greensboro	NC			444		1,613		514		444		2,127		2,571		770		1986		6/26/1995		5 to 40 years
Raleigh I	NC			649		2,329		844		649		3,173		3,822		1,029		1985		6/26/1995		5 to 40 years
New Haven	CT			387		1,402		912		387		2,314		2,701		657		1985		6/26/1995		5 to 40 years
Atlanta-Metro I	GA			844		2,021		659		844		2,680		3,524		904		1988		6/26/1995		5 to 40 years
Atlanta-Metro II	GA			302		1,103		349		303		1,451		1,754		541		1988		6/26/1995		5 to 40 years
Buffalo II	NY			315		745		1,638		517		2,181		2,698		530		1984		6/26/1995		5 to 40 years
Raleigh II	NC			321		1,150		654		321		1,804		2,125		548		1985		6/26/1995		5 to 40 years
Columbia II	SC			361		1,331		594		374		1,912		2,286		655		1987		6/26/1995		5 to 40 years
Columbia III	SC			189		719		1,079		189		1,798		1,987		506		1989		6/26/1995		5 to 40 years
Columbia IV	SC			488		1,188		508		488		1,696		2,184		590		1986		6/26/1995		5 to 40 years
Atlanta-Metro III	GA			430		1,579		1,884		602		3,291		3,893		753		1988		6/26/1995		5 to 40 years
Orlando I	FL			513		1,930		446		513		2,376		2,889		864		1988		6/26/1995		5 to 40 years


							Cost Capitalized														Life on
							Subsequent to				Gross Amount at Which										which
			Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
					Building,		Building,				Building,										in latest
					Equipment		Equipment				Equipment										income
		Encum			and		and				and				Accum.		Date of		Date		statement
Description	ST	brance	Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Sharon	PA			194		912		440		194		1,352		1,546		450		1975		6/26/1995		5 to 40 years
Ft. Lauderdale	FL			1,503		3,619		770		1,503		4,389		5,892		1,229		1985		6/26/1995		5 to 40 years
West Palm l	FL			398		1,035		265		398		1,300		1,698		515		1985		6/26/1995		5 to 40 years
Atlanta-Metro IV	GA			423		1,015		364		424		1,378		1,802		515		1989		6/26/1995		5 to 40 years
Atlanta-Metro V	GA			483		1,166		926		483		2,092		2,575		556		1988		6/26/1995		5 to 40 years
Atlanta-Metro VI	GA			308		1,116		497		308		1,613		1,921		620		1986		6/26/1995		5 to 40 years
Atlanta-Metro VII	GA			170		786		529		174		1,311		1,485		463		1981		6/26/1995		5 to 40 years
Atlanta-Metro VIII	GA			413		999		615		413		1,614		2,027		612		1975		6/26/1995		5 to 40 years
Baltimore I	MD			154		555		1,362		306		1,765		2,071		413		1984		6/26/1995		5 to 40 years
Baltimore II	MD			479		1,742		2,783		479		4,525		5,004		870		1988		6/26/1995		5 to 40 years
Augusta I	GA			357		1,296		824		357		2,120		2,477		667		1988		6/26/1995		5 to 40 years
Macon I	GA			231		1,081		467		231		1,548		1,779		524		1989		6/26/1995		5 to 40 years
Melbourne I	FL			883		2,104		1,570		883		3,674		4,557		1,151		1986		6/26/1995		5 to 40 years
Newport News	VA			316		1,471		736		316		2,207		2,523		756		1988		6/26/1995		5 to 40 years
Pensacola I	FL			632		2,962		1,091		651		4,034		4,685		1,422		1983		6/26/1995		5 to 40 years
Augusta II	GA			315		1,139		768		315		1,907		2,222		590		1987		6/26/1995		5 to 40 years
Hartford-Metro I	CT			715		1,695		1,038		715		2,733		3,448		798		1988		6/26/1995		5 to 40 years
Atlanta-Metro IX	GA			304		1,118		2,443		619		3,246		3,865		732		1988		6/26/1995		5 to 40 years
Alexandria	VA			1,375		3,220		1,975		1,376		5,194		6,570		1,445		1984		6/26/1995		5 to 40 years
Pensacola II	FL			244		901		464		244		1,365		1,609		535		1986		6/26/1995		5 to 40 years
Melbourne II	FL			834		2,066		1,124		1,591		2,433		4,024		924		1986		6/26/1995		5 to 40 years
Hartford-Metro II	CT			234		861		1,881		612		2,364		2,976		568		1992		6/26/1995		5 to 40 years
Atlanta-Metro X	GA			256		1,244		1,753		256		2,997		3,253		755		1988		6/26/1995		5 to 40 years
Norfolk I	VA			313		1,462		795		313		2,257		2,570		755		1984		6/26/1995		5 to 40 years
Norfolk II	VA			278		1,004		347		278		1,351		1,629		497		1989		6/26/1995		5 to 40 years
Birmingham I	AL			307		1,415		1,550		384		2,888		3,272		701		1990		6/26/1995		5 to 40 years
Birmingham II	AL			730		1,725		560		730		2,285		3,015		820		1990		6/26/1995		5 to 40 years
Montgomery l	AL			863		2,041		624		863		2,665		3,528		931		1982		6/26/1995		5 to 40 years
Jacksonville II	FL			326		1,515		415		326		1,930		2,256		679		1987		6/26/1995		5 to 40 years
Pensacola III	FL			369		1,358		2,724		369		4,082		4,451		908		1986		6/26/1995		5 to 40 years
Pensacola IV	FL			244		1,128		714		719		1,367		2,086		504		1990		6/26/1995		5 to 40 years
Pensacola V	FL			226		1,046		531		226		1,577		1,803		564		1990		6/26/1995		5 to 40 years
Tampa I	FL			1,088		2,597		951		1,088		3,548		4,636		1,249		1989		6/26/1995		5 to 40 years
Tampa II	FL			526		1,958		742		526		2,700		3,226		952		1985		6/26/1995		5 to 40 years
Tampa III	FL			672		2,439		577		672		3,016		3,688		1,034		1988		6/26/1995		5 to 40 years
Jackson I	MS			343		1,580		2,204		796		3,331		4,127		725		1990		6/26/1995		5 to 40 years
Jackson II	MS			209		964		590		209		1,554		1,763		581		1990		6/26/1995		5 to 40 years
Richmond	VA			443		1,602		720		443		2,322		2,765		777		1987		8/25/1995		5 to 40 years
Orlando II	FL			1,161		2,755		964		1,162		3,718		4,880		1,272		1986		9/29/1995		5 to 40 years


									Cost Capitalized														Life on
									Subsequent to				Gross Amount at Which										which
					Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
							Building,		Building,				Building,										in latest
							Equipment		Equipment				Equipment										income
		Encum					and		and				and				Accum.		Date of		Date		statement
Description	ST	brance			Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Birmingham III	AL					424		1,506		671		424		2,177		2,601		833		1970		1/16/1996		5 to 40 years
Macon II	GA					431		1,567		723		431		2,290		2,721		720		1989/94		12/1/1995		5 to 40 years
Harrisburg I	PA					360		1,641		596		360		2,237		2,597		745		1983		12/29/1995		5 to 40 years
Harrisburg II	PA		(1	)		627		2,224		947		692		3,106		3,798		932		1985		12/29/1995		5 to 40 years
Syracuse I	NY					470		1,712		1,291		472		3,001		3,473		829		1987		12/27/1995		5 to 40 years
Ft. Myers	FL					205		912		305		206		1,216		1,422		530		1988		12/28/1995		5 to 40 years
Ft. Myers II	FL					412		1,703		440		413		2,142		2,555		889		1991/94		12/28/1995		5 to 40 years
Newport News II	VA					442		1,592		1,161		442		2,753		3,195		649		1988/93		1/5/1996		5 to 40 years
Montgomery II	AL					353		1,299		269		353		1,568		1,921		588		1984		1/23/1996		5 to 40 years
Charleston II	SC					237		858		624		232		1,487		1,719		482		1985		3/1/1996		5 to 40 years
Tampa IV	FL					766		1,800		645		766		2,445		3,211		772		1985		3/28/1996		5 to 40 years
Arlington I	TX					442		1,767		282		442		2,049		2,491		675		1987		3/29/1996		5 to 40 years
Arlington II	TX					408		1,662		1,031		408		2,693		3,101		800		1986		3/29/1996		5 to 40 years
Ft. Worth	TX					328		1,324		327		328		1,651		1,979		549		1986		3/29/1996		5 to 40 years
San Antonio I	TX					436		1,759		1,115		436		2,874		3,310		852		1986		3/29/1996		5 to 40 years
San Antonio II	TX					289		1,161		536		289		1,697		1,986		535		1986		3/29/1996		5 to 40 years
Syracuse II	NY					481		1,559		2,364		671		3,733		4,404		904		1983		6/5/1996		5 to 40 years
Montgomery III	AL					279		1,014		989		433		1,849		2,282		526		1988		5/21/1996		5 to 40 years
West Palm II	FL					345		1,262		325		345		1,587		1,932		535		1986		5/29/1996		5 to 40 years
Ft. Myers III	FL					229		884		299		229		1,183		1,412		379		1986		5/29/1996		5 to 40 years
Pittsburgh	PA					545		1,940		1,326		545		3,266		3,811		795		1990		6/19/1996		5 to 40 years
Lakeland II	FL					359		1,287		1,048		359		2,335		2,694		747		1988		6/26/1996		5 to 40 years
Springfield	MA					251		917		2,263		297		3,134		3,431		787		1986		6/28/1996		5 to 40 years
Ft. Myers IV	FL					344		1,254		267		310		1,555		1,865		522		1987		6/28/1996		5 to 40 years
Cincinnati	OH		(2	)		557		1,988		757		688		2,614		3,302		216		1988		7/23/1996		5 to 40 years
Dayton	OH		(2	)		667		2,379		433		683		2,796		3,479		246		1988		7/23/1996		5 to 40 years
Baltimore III	MD					777		2,770		432		777		3,202		3,979		985		1990		7/26/1996		5 to 40 years
Jacksonville III	FL					568		2,028		929		568		2,957		3,525		963		1987		8/23/1996		5 to 40 years
Jacksonville IV	FL					436		1,635		509		436		2,144		2,580		725		1985		8/26/1996		5 to 40 years
Pittsburgh II	PA					627		2,257		1,395		631		3,648		4,279		1,116		1983		8/28/1996		5 to 40 years
Jacksonville V	FL					535		2,033		300		538		2,330		2,868		842		1987/92		8/30/1996		5 to 40 years
Charlotte II	NC					487		1,754		409		487		2,163		2,650		613		1995		9/16/1996		5 to 40 years
Charlotte III	NC					315		1,131		337		315		1,468		1,783		441		1995		9/16/1996		5 to 40 years
Orlando III	FL					314		1,113		919		314		2,032		2,346		633		1975		10/30/1996		5 to 40 years
Rochester III	NY					704		2,496		1,208		707		3,701		4,408		927		1990		12/20/1996		5 to 40 years
Youngstown ll	OH					600		2,142		2,040		693		4,089		4,782		819		1988		1/10/1997		5 to 40 years
Cleveland lll	OH					751		2,676		1,772		751		4,448		5,199		1,166		1986		1/10/1997		5 to 40 years
Cleveland lV	OH					725		2,586		1,350		725		3,936		4,661		1,089		1978		1/10/1997		5 to 40 years
Cleveland V	OH		(1	)		637		2,918		1,602		701		4,456		5,157		1,412		1979		1/10/1997		5 to 40 years


									Cost Capitalized														Life on
									Subsequent to				Gross Amount at Which										which
					Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
							Building,		Building,				Building,										in latest
							Equipment		Equipment				Equipment										income
		Encum					and		and				and				Accum.		Date of		Date		statement
Description	ST	brance			Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Cleveland Vl	OH					495		1,781		875		495		2,656		3,151		773		1979		1/10/1997		5 to 40 years
Cleveland Vll	OH					761		2,714		1,272		761		3,986		4,747		1,152		1977		1/10/1997		5 to 40 years
Cleveland Vlll	OH					418		1,921		1,573		418		3,494		3,912		1,002		1970		1/10/1997		5 to 40 years
Cleveland lX	OH					606		2,164		1,347		606		3,511		4,117		819		1982		1/10/1997		5 to 40 years
Grand Rapids l	MI		(2	)		455		1,631		948		624		2,410		3,034		211		1976		1/17/1997		5 to 40 years
Grand Rapids ll	MI					219		790		833		219		1,623		1,842		480		1983		1/17/1997		5 to 40 years
Kalamazoo	MI		(2	)		516		1,845		1,726		694		3,393		4,087		259		1978		1/17/1997		5 to 40 years
Lansing	MI		(2	)		327		1,332		1,527		542		2,644		3,186		210		1987		1/17/1997		5 to 40 years
Holland	MI					451		1,830		1,888		451		3,718		4,169		1,022		1978		1/17/1997		5 to 40 years
San Antonio lll	TX		(1	)		474		1,686		417		504		2,073		2,577		585		1981		1/30/1997		5 to 40 years
Universal	TX					346		1,236		297		346		1,533		1,879		472		1985		1/30/1997		5 to 40 years
San Antonio lV	TX					432		1,560		1,650		432		3,210		3,642		825		1995		1/30/1997		5 to 40 years
Houston-Eastex	TX					634		2,565		1,255		634		3,820		4,454		1,027		1993/95		3/26/1997		5 to 40 years
Houston-Nederland	TX					566		2,279		343		566		2,622		3,188		762		1995		3/26/1997		5 to 40 years
Houston-College	TX					293		1,357		563		293		1,920		2,213		518		1995		3/26/1997		5 to 40 years
Lynchburg-Lakeside	VA					335		1,342		1,271		335		2,613		2,948		657		1982		3/31/1997		5 to 40 years
Lynchburg-Timberlake	VA					328		1,315		962		328		2,277		2,605		648		1985		3/31/1997		5 to 40 years
Lynchburg-Amherst	VA					155		710		323		152		1,036		1,188		335		1987		3/31/1997		5 to 40 years
Christiansburg	VA					245		1,120		581		245		1,701		1,946		427		1985/90		3/31/1997		5 to 40 years
Chesapeake	VA					260		1,043		1,180		260		2,223		2,483		550		1988/95		3/31/1997		5 to 40 years
Danville	VA					326		1,488		223		326		1,711		2,037		502		1988		3/31/1997		5 to 40 years
Orlando-W 25th St	FL					289		1,160		737		616		1,570		2,186		458		1984		3/31/1997		5 to 40 years
Delray l-Mini	FL					491		1,756		630		491		2,386		2,877		762		1969		4/11/1997		5 to 40 years
Savannah ll	GA					296		1,196		347		296		1,543		1,839		471		1988		5/8/1997		5 to 40 years
Delray ll-Safeway	FL					921		3,282		466		921		3,748		4,669		1,155		1980		5/21/1997		5 to 40 years
Cleveland X-Avon	OH					301		1,214		2,079		304		3,290		3,594		640		1989		6/4/1997		5 to 40 years
Dallas-Skillman	TX					960		3,847		1,127		960		4,974		5,934		1,512		1975		6/30/1997		5 to 40 years
Dallas-Centennial	TX					965		3,864		1,241		943		5,127		6,070		1,498		1977		6/30/1997		5 to 40 years
Dallas-Samuell	TX		(1	)		570		2,285		786		611		3,030		3,641		912		1975		6/30/1997		5 to 40 years
Dallas-Hargrove	TX					370		1,486		515		370		2,001		2,371		649		1975		6/30/1997		5 to 40 years
Houston-Antoine	TX					515		2,074		562		515		2,636		3,151		797		1984		6/30/1997		5 to 40 years
Atlanta-Alpharetta	GA					1,033		3,753		429		1,033		4,182		5,215		1,307		1994		7/24/1997		5 to 40 years
Atlanta-Marietta	GA		(1	)		769		2,788		458		825		3,190		4,015		938		1996		7/24/1997		5 to 40 years
Atlanta-Doraville	GA					735		3,429		306		735		3,735		4,470		1,116		1995		8/21/1997		5 to 40 years
GreensboroHilltop	NC					268		1,097		377		268		1,474		1,742		405		1995		9/25/1997		5 to 40 years
GreensboroStgCch	NC					89		376		1,528		89		1,904		1,993		399		1997		9/25/1997		5 to 40 years
Baton Rouge-Airline	LA		(1	)		396		1,831		908		421		2,714		3,135		710		1982		10/9/1997		5 to 40 years
Baton Rouge-Airline2	LA					282		1,303		311		282		1,614		1,896		496		1985		11/21/1997		5 to 40 years
Harrisburg-Peiffers	PA					635		2,550		533		637		3,081		3,718		833		1984		12/3/1997		5 to 40 years


									Cost Capitalized														Life on
									Subsequent to				Gross Amount at Which										which
					Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
							Building,		Building,				Building,										in latest
							Equipment		Equipment				Equipment										income
		Encum					and		and				and				Accum.		Date of		Date		statement
Description	ST	brance			Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Chesapeake-Military	VA					542		2,210		322		542		2,532		3,074		717		1996		2/5/1998		5 to 40 years
Chesapeake-Volvo	VA					620		2,532		880		620		3,412		4,032		916		1995		2/5/1998		5 to 40 years
Virginia Beach-Shell	VA					540		2,211		229		540		2,440		2,980		723		1991		2/5/1998		5 to 40 years
Virginia Beach-Central	VA					864		3,994		730		864		4,724		5,588		1,331		1993/95		2/5/1998		5 to 40 years
Norfolk-Naval Base	VA					1,243		5,019		729		1,243		5,748		6,991		1,604		1975		2/5/1998		5 to 40 years
Tampa-E.Hillsborough	FL					709		3,235		740		709		3,975		4,684		1,215		1985		2/4/1998		5 to 40 years
Northbridge	MA		(2	)		441		1,788		960		694		2,495		3,189		191		1988		2/9/1998		5 to 40 years
Harriman	NY					843		3,394		469		843		3,863		4,706		1,111		1989/95		2/4/1998		5 to 40 years
Greensboro-High Point	NC					397		1,834		551		397		2,385		2,782		654		1993		2/10/1998		5 to 40 years
Lynchburg-Timberlake	VA					488		1,746		487		488		2,233		2,721		606		1990/96		2/18/1998		5 to 40 years
Titusville	FL		(2	)		492		1,990		934		688		2,728		3,416		203		1986/90		2/25/1998		5 to 40 years
Salem	MA					733		2,941		1,014		733		3,955		4,688		1,120		1979		3/3/1998		5 to 40 years
Chattanooga-Lee Hwy	TN					384		1,371		534		384		1,905		2,289		549		1987		3/27/1998		5 to 40 years
Chattanooga-Hwy 58	TN					296		1,198		2,077		414		3,157		3,571		569		1985		3/27/1998		5 to 40 years
Ft. Oglethorpe	GA					349		1,250		583		349		1,833		2,182		517		1989		3/27/1998		5 to 40 years
Birmingham-Walt	AL					544		1,942		807		544		2,749		3,293		835		1984		3/27/1998		5 to 40 years
East Greenwich	RI					702		2,821		1,069		702		3,890		4,592		1,023		1984/88		3/26/1998		5 to 40 years
Durham-Hillsborough	NC					775		3,103		672		775		3,775		4,550		1,028		1988/91		4/9/1998		5 to 40 years
Durham-Cornwallis	NC					940		3,763		712		940		4,475		5,415		1,203		1990/96		4/9/1998		5 to 40 years
Salem-Policy	NH					742		2,977		464		742		3,441		4,183		891		1980		4/7/1998		5 to 40 years
Warren-Elm	OH		(1	)		522		1,864		1,175		569		2,992		3,561		717		1986		4/22/1998		5 to 40 years
Warren-Youngstown	OH					512		1,829		1,817		675		3,483		4,158		667		1986		4/22/1998		5 to 40 years
Indian Harbor Beach	FL					662		2,654		-619		662		2,035		2,697		612		1985		6/2/1998		5 to 40 years
Jackson 3 - I55	MS					744		3,021		128		744		3,149		3,893		879		1995		5/13/1998		5 to 40 years
Katy-N.Fry	TX					419		1,524		3,268		419		4,792		5,211		572		1994		5/20/1998		5 to 40 years
Hollywood-Sheridan	FL					1,208		4,854		352		1,208		5,206		6,414		1,411		1988		7/1/1998		5 to 40 years
Pompano Beach-Atlantic	FL					944		3,803		315		944		4,118		5,062		1,139		1985		7/1/1998		5 to 40 years
Pompano Beach-Sample	FL					903		3,643		329		903		3,972		4,875		1,051		1988		7/1/1998		5 to 40 years
Boca Raton-18th St	FL					1,503		6,059		705		1,503		6,764		8,267		1,850		1991		7/1/1998		5 to 40 years
Vero Beach	FL					489		1,813		110		489		1,923		2,412		573		1997		6/12/1998		5 to 40 years
Humble	TX					447		1,790		2,199		740		3,696		4,436		721		1986		6/16/1998		5 to 40 years
Houston-Old Katy	TX		(1	)		659		2,680		372		698		3,013		3,711		734		1996		6/19/1998		5 to 40 years
Webster	TX					635		2,302		129		635		2,431		3,066		660		1997		6/19/1998		5 to 40 years
Carrollton	TX					548		1,988		283		548		2,271		2,819		606		1997		6/19/1998		5 to 40 years
Hollywood-N.21st	FL					840		3,373		350		840		3,723		4,563		1,034		1987		8/3/1998		5 to 40 years
San Marcos	TX					324		1,493		629		324		2,122		2,446		585		1994		6/30/1998		5 to 40 years
Austin-McNeil	TX					492		1,995		317		510		2,294		2,804		665		1994		6/30/1998		5 to 40 years
Austin-FM	TX					484		1,951		442		481		2,396		2,877		646		1996		6/30/1998		5 to 40 years
Jacksonville-Center	NC					327		1,329		672		327		2,001		2,328		442		1995		8/6/1998		5 to 40 years


									Cost Capitalized														Life on
									Subsequent to				Gross Amount at Which										which
					Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
							Building,		Building,				Building,										in latest
							Equipment		Equipment				Equipment										income
		Encum					and		and				and				Accum.		Date of		Date		statement
Description	ST	brance			Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Jacksonville-Gum Branch	NC					508		1,815		1,272		508		3,087		3,595		663		1989		8/17/1998		5 to 40 years
Jacksonville-N.Marine	NC					216		782		601		216		1,383		1,599		411		1985		9/24/1998		5 to 40 years
Euless	TX					550		1,998		654		550		2,652		3,202		635		1996		9/29/1998		5 to 40 years
N. Richland Hills	TX					670		2,407		1,362		670		3,769		4,439		801		1996		10/9/1998		5 to 40 years
Batavia	OH					390		1,570		867		390		2,437		2,827		553		1988		11/19/1998		5 to 40 years
Jackson-N.West	MS					460		1,642		462		460		2,104		2,564		642		1984		12/1/1998		5 to 40 years
Katy-Franz	TX					507		2,058		1,595		507		3,653		4,160		634		1993		12/15/1998		5 to 40 years
W.Warwick	RI					447		1,776		793		447		2,569		3,016		632		1986/94		2/2/1999		5 to 40 years
Lafayette-Pinhook 1	LA					556		1,951		926		556		2,877		3,433		877		1980		2/17/1999		5 to 40 years
Lafayette-Pinhook2	LA					708		2,860		267		708		3,127		3,835		807		1992/94		2/17/1999		5 to 40 years
Lafayette-Ambassador	LA					314		1,095		627		314		1,722		2,036		572		1975		2/17/1999		5 to 40 years
Lafayette-Evangeline	LA					188		652		1,414		188		2,066		2,254		558		1977		2/17/1999		5 to 40 years
Lafayette-Guilbeau	LA					963		3,896		767		963		4,663		5,626		1,099		1994		2/17/1999		5 to 40 years
Gilbert-Elliot Rd	AZ					651		2,600		1,097		772		3,576		4,348		767		1995		5/18/1999		5 to 40 years
Glendale-59th Ave	AZ					565		2,596		539		565		3,135		3,700		755		1997		5/18/1999		5 to 40 years
Mesa-Baseline	AZ					330		1,309		719		733		1,625		2,358		397		1986		5/18/1999		5 to 40 years
Mesa-E.Broadway	AZ					339		1,346		583		339		1,929		2,268		433		1986		5/18/1999		5 to 40 years
Mesa-W.Broadway	AZ					291		1,026		583		291		1,609		1,900		359		1976		5/18/1999		5 to 40 years
Mesa-Greenfield	AZ					354		1,405		334		354		1,739		2,093		445		1986		5/18/1999		5 to 40 years
Phoenix-Camelback	AZ					453		1,610		783		453		2,393		2,846		570		1984		5/18/1999		5 to 40 years
Phoenix-Bell	AZ					872		3,476		828		872		4,304		5,176		1,069		1984		5/18/1999		5 to 40 years
Phoenix-35th Ave	AZ					849		3,401		657		849		4,058		4,907		972		1996		5/21/1999		5 to 40 years
Westbrook	ME					410		1,626		1,753		410		3,379		3,789		623		1988		8/2/1999		5 to 40 years
Cocoa	FL					667		2,373		746		667		3,119		3,786		750		1982		9/29/1999		5 to 40 years
Cedar Hill	TX					335		1,521		346		335		1,867		2,202		478		1985		11/9/1999		5 to 40 years
Monroe	NY					276		1,312		1,153		276		2,465		2,741		439		1998		2/2/2000		5 to 40 years
N.Andover	MA					633		2,573		753		633		3,326		3,959		649		1989		2/15/2000		5 to 40 years
Seabrook	TX					633		2,617		315		633		2,932		3,565		683		1996		3/1/2000		5 to 40 years
Plantation	FL					384		1,422		367		384		1,789		2,173		411		1994		5/2/2000		5 to 40 years
Birmingham-Bessemer	AL					254		1,059		1,151		254		2,210		2,464		350		1998		11/15/2000		5 to 40 years
Brewster	NY		(2	)		1,716		6,920		903		1,981		7,558		9,539		577		1991/97		12/27/2000		5 to 40 years
Austin-Lamar	TX		(2	)		837		2,977		486		966		3,334		4,300		285		1996/99		2/22/2001		5 to 40 years
Houston-E.Main	TX		(2	)		733		3,392		568		841		3,852		4,693		308		1993/97		3/2/2001		5 to 40 years
Ft.Myers-Abrams	FL		(2	)		787		3,249		365		902		3,499		4,401		306		1997		3/13/2001		5 to 40 years
Dracut	MA		(1	)		1,035		3,737		590		1,104		4,258		5,362		762		1986		12/1/2001		5 to 40 years
Methuen	MA		(1	)		1,024		3,649		560		1,091		4,142		5,233		736		1984		12/1/2001		5 to 40 years
Columbia 5	SC		(1	)		883		3,139		1,204		942		4,284		5,226		703		1985		12/1/2001		5 to 40 years
Myrtle Beach	SC		(1	)		552		1,970		841		589		2,774		3,363		503		1984		12/1/2001		5 to 40 years
Kingsland	GA		(1	)		470		1,902		2,875		666		4,581		5,247		521		1989		12/1/2001		5 to 40 years


									Cost Capitalized														Life on
									Subsequent to				Gross Amount at Which										which
					Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
							Building,		Building,				Building,										in latest
							Equipment		Equipment				Equipment										income
		Encum					and		and				and				Accum.		Date of		Date		statement
Description	ST	brance			Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Saco	ME		(1	)		534		1,914		278		570		2,156		2,726		388		1988		12/3/2001		5 to 40 years
Plymouth	MA					1,004		4,584		2,261		1,004		6,845		7,849		868		1996		12/19/2001		5 to 40 years
Sandwich	MA		(1	)		670		3,060		400		714		3,416		4,130		625		1984		12/19/2001		5 to 40 years
Syracuse	NY		(1	)		294		1,203		372		327		1,542		1,869		312		1987		2/5/2002		5 to 40 years
Houston-Westward	TX		(1	)		853		3,434		851		912		4,226		5,138		772		1976		2/13/2002		5 to 40 years
Houston-Boone	TX		(1	)		250		1,020		484		268		1,486		1,754		273		1983		2/13/2002		5 to 40 years
Houston-Cook	TX		(1	)		285		1,160		315		306		1,454		1,760		275		1986		2/13/2002		5 to 40 years
Houston-Harwin	TX		(1	)		449		1,816		593		480		2,378		2,858		433		1981		2/13/2002		5 to 40 years
Houston-Hempstead	TX		(1	)		545		2,200		935		583		3,097		3,680		523		1974/78		2/13/2002		5 to 40 years
Houston-Kuykendahl	TX		(1	)		517		2,090		1,179		553		3,233		3,786		509		1979/83		2/13/2002		5 to 40 years
Houston-Hwy 249	TX		(1	)		299		1,216		1,053		320		2,248		2,568		357		1983		2/13/2002		5 to 40 years
Mesquite-Hwy 80	TX		(1	)		463		1,873		620		496		2,460		2,956		414		1985		2/13/2002		5 to 40 years
Mesquite-Franklin	TX		(1	)		734		2,956		678		784		3,584		4,368		594		1984		2/13/2002		5 to 40 years
Dallas-Plantation	TX		(1	)		394		1,595		283		421		1,851		2,272		335		1985		2/13/2002		5 to 40 years
San Antonio-Hunt	TX		(1	)		381		1,545		666		411		2,181		2,592		355		1980		2/13/2002		5 to 40 years
Humble-5250 FM	TX					919		3,696		341		919		4,037		4,956		658		1998/02		6/19/2002		5 to 40 years
Pasadena	TX					612		2,468		231		612		2,699		3,311		439		1999		6/19/2002		5 to 40 years
League City-E.Main	TX					689		3,159		267		689		3,426		4,115		563		1994/97		6/19/2002		5 to 40 years
Montgomery	TX					817		3,286		2,040		1,119		5,024		6,143		602		1998		6/19/2002		5 to 40 years
Texas City	TX					817		3,286		123		817		3,409		4,226		576		1999		6/19/2002		5 to 40 years
Houston-Hwy 6	TX					407		1,650		178		407		1,828		2,235		305		1997		6/19/2002		5 to 40 years
Lumberton	TX					817		3,287		178		817		3,465		4,282		578		1996		6/19/2002		5 to 40 years
The Hamptons l	NY					2,207		8,866		615		2,207		9,481		11,688		1,450		1989/95		12/16/2002		5 to 40 years
The Hamptons 2	NY					1,131		4,564		479		1,131		5,043		6,174		758		1998		12/16/2002		5 to 40 years
The Hamptons 3	NY					635		2,918		322		635		3,240		3,875		480		1997		12/16/2002		5 to 40 years
The Hamptons 4	NY					1,251		5,744		340		1,252		6,083		7,335		919		1994/98		12/16/2002		5 to 40 years
Duncanville	TX					1,039		4,201		41		1,039		4,242		5,281		584		1995/99		8/26/2003		5 to 40 years
Dallas-Harry Hines	TX					827		3,776		297		827		4,073		4,900		531		1998/01		10/1/2003		5 to 40 years
Stamford	CT					2,713		11,013		298		2,713		11,311		14,024		1,408		1998		3/17/2004		5 to 40 years
Houston-Tomball	TX					773		3,170		1,771		773		4,941		5,714		512		2000		5/19/2004		5 to 40 years
Houston-Conroe	TX					1,195		4,877		106		1,195		4,983		6,178		598		2001		5/19/2004		5 to 40 years
Houston-Spring	TX					1,103		4,550		249		1,103		4,799		5,902		585		2001		5/19/2004		5 to 40 years
Houston-Bissonnet	TX					1,061		4,427		2,646		1,061		7,073		8,134		631		2003		5/19/2004		5 to 40 years
Houston-Alvin	TX					388		1,640		849		388		2,489		2,877		227		2003		5/19/2004		5 to 40 years
Clearwater	FL					1,720		6,986		74		1,720		7,060		8,780		837		2001		6/3/2004		5 to 40 years
Houston-Missouri City	TX					1,167		4,744		456		1,566		4,801		6,367		563		1998		6/23/2004		5 to 40 years
Chattanooga-Hixson	TN					1,365		5,569		761		1,365		6,330		7,695		757		1998/02		8/4/2004		5 to 40 years
Austin-Round Rock	TX					2,047		5,857		665		2,051		6,518		8,569		727		2000		8/5/2004		5 to 40 years
East Falmouth	MA					1,479		5,978		153		1,479		6,131		7,610		602		1998		2/23/2005		5 to 40 years


								Cost Capitalized														Life on
								Subsequent to				Gross Amount at Which										which
				Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
						Building,		Building,				Building,										in latest
						Equipment		Equipment				Equipment										income
		Encum				and		and				and				Accum.		Date of		Date		statement
Description	ST	brance		Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Cicero	NY				527		2,121		499		527		2,620		3,147		270		1988/02		3/16/2005		5 to 40 years
Bay Shore	NY				1,131		4,609		57		1,131		4,666		5,797		469		2003		3/15/2005		5 to 40 years
Springfield-Congress	MA				612		2,501		93		612		2,594		3,206		260		1965/75		4/12/2005		5 to 40 years
Stamford-Hope	CT				1,612		6,585		192		1,612		6,777		8,389		666		2002		4/14/2005		5 to 40 years
Houston-Jones	TX		3,510		1,214		4,949		77		1,215		5,025		6,240		470		1997/99		6/6/2005		5 to 40 years
Montgomery-Richard	AL				1,906		7,726		106		1,906		7,832		9,738		737		1997		6/1/2005		5 to 40 years
Oxford	MA				470		1,902		1,577		470		3,479		3,949		191		2002		6/23/2005		5 to 40 years
Austin-290E	TX				537		2,183		160		537		2,343		2,880		218		2003		7/12/2005		5 to 40 years
SanAntonio-Marbach	TX				556		2,265		202		556		2,467		3,023		220		2003		7/12/2005		5 to 40 years
Austin-South 1st	TX				754		3,065		149		754		3,214		3,968		293		2003		7/12/2005		5 to 40 years
Pinehurst	TX				484		1,977		1,357		484		3,334		3,818		211		2002/04		7/12/2005		5 to 40 years
Marietta-Austell	GA				811		3,397		428		811		3,825		4,636		343		2003		9/15/2005		5 to 40 years
Baton Rouge-Florida	LA				719		2,927		1,935		719		4,862		5,581		280		1984/94		11/15/2005		5 to 40 years
Cypress	TX				721		2,994		1,087		721		4,081		4,802		305		2003		1/13/2006		5 to 40 years
Texas City	TX				867		3,499		94		867		3,593		4,460		280		2003		1/10/2006		5 to 40 years
San Marcos-Hwy 35S	TX				628		2,532		449		982		2,627		3,609		205		2001		1/10/2006		5 to 40 years
Baytown	TX				596		2,411		78		596		2,489		3,085		199		2002		1/10/2006		5 to 40 years
Webster	NY				937		3,779		111		937		3,890		4,827		290		2002/06		2/1/2006		5 to 40 years
Houston-Jones Rd 2	TX				707		2,933		2,018		707		4,951		5,658		315		2000		3/9/2006		5 to 40 years
Cameron-Scott	LA		1,000		411		1,621		131		411		1,752		2,163		147		1997		4/13/2006		5 to 40 years
Lafayette-Westgate	LA				463		1,831		73		463		1,904		2,367		140		2001/04		4/13/2006		5 to 40 years
Broussard	LA				601		2,406		1,231		601		3,637		4,238		216		2002		4/13/2006		5 to 40 years
Congress-Lafayette	LA		1,098		542		1,319		2,084		542		3,403		3,945		134		1997/99		4/13/2006		5 to 40 years
Manchester	NH				832		3,268		57		832		3,325		4,157		231		2000		4/26/2006		5 to 40 years
Nashua	NH				617		2,422		373		617		2,795		3,412		175		1989		6/29/2006		5 to 40 years
Largo 2	FL		2,478		1,270		5,037		157		1,270		5,194		6,464		343		1998		6/22/2006		5 to 40 years
Pinellas Park	FL				929		3,676		104		929		3,780		4,709		245		2000		6/22/2006		5 to 40 years
Tarpon Springs	FL		2,301		696		2,739		96		696		2,835		3,531		184		1999		6/22/2006		5 to 40 years
New Orleans	LA		4,196		1,220		4,805		75		1,220		4,880		6,100		320		2000		6/22/2006		5 to 40 years
St Louis-Meramec	MO		4,841		1,113		4,359		176		1,113		4,535		5,648		293		1999		6/22/2006		5 to 40 years
St Louis-Charles Rock	MO				766		3,040		79		766		3,119		3,885		200		1999		6/22/2006		5 to 40 years
St Louis-Shackelford	MO		2,433		828		3,290		124		828		3,414		4,242		222		1999		6/22/2006		5 to 40 years
St Louis-W.Washington	MO		3,873		734		2,867		533		734		3,400		4,134		223		1980/01		6/22/2006		5 to 40 years
St Louis-Howdershell	MO				899		3,596		174		899		3,770		4,669		248		2000		6/22/2006		5 to 40 years
St Louis-Lemay Ferry	MO				890		3,552		167		890		3,719		4,609		239		1999		6/22/2006		5 to 40 years
St Louis-Manchester	MO		3,658		697		2,711		92		697		2,803		3,500		183		2000		6/22/2006		5 to 40 years
Arlington-Little Rd	TX		2,020		1,256		4,946		145		1,256		5,091		6,347		329		1998/03		6/22/2006		5 to 40 years
Dallas-Goldmark	TX				605		2,434		47		605		2,481		3,086		162		2004		6/22/2006		5 to 40 years
Dallas-Manana	TX				607		2,428		107		607		2,535		3,142		165		2004		6/22/2006		5 to 40 years


								Cost Capitalized														Life on
								Subsequent to				Gross Amount at Which										which
				Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
						Building,		Building,				Building,										in latest
						Equipment		Equipment				Equipment										income
		Encum				and		and				and				Accum.		Date of		Date		statement
Description	ST	brance		Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Dallas-Manderville	TX				1,073		4,276		54		1,073		4,330		5,403		284		2003		6/22/2006		5 to 40 years
Ft. Worth-Granbury	TX		1,813		549		2,180		84		549		2,264		2,813		149		1998		6/22/2006		5 to 40 years
Ft. Worth-Grapevine	TX		2,150		644		2,542		49		644		2,591		3,235		169		1999		6/22/2006		5 to 40 years
San Antonio-Blanco	TX				963		3,836		50		963		3,886		4,849		255		2004		6/22/2006		5 to 40 years
San Antonio-Broadway	TX				773		3,060		99		773		3,159		3,932		208		2000		6/22/2006		5 to 40 years
San Antonio-Huebner	TX		2,254		1,175		4,624		98		1,175		4,722		5,897		300		1998		6/22/2006		5 to 40 years
Chattanooga-Lee Hwy II	TN				619		2,471		52		619		2,523		3,142		161		2002		8/7/2006		5 to 40 years
Lafayette-Evangeline	LA				699		2,784		1,862		699		4,646		5,345		186		1995/99		8/1/2006		5 to 40 years
Montgomery-E.S.Blvd	AL				1,158		4,639		234		1,158		4,873		6,031		296		1996/97		9/28/2006		5 to 40 years
Auburn-Pepperell Pkwy	AL				590		2,361		122		590		2,483		3,073		146		1998		9/28/2006		5 to 40 years
Auburn-Gatewood Dr	AL				694		2,758		67		694		2,825		3,519		163		2002/03		9/28/2006		5 to 40 years
Columbus-Williams Rd	GA				736		2,905		118		736		3,023		3,759		180		2002/04/06		9/28/2006		5 to 40 years
Columbus-Miller Rd	GA				975		3,854		85		975		3,939		4,914		229		1995		9/28/2006		5 to 40 years
Columbus-Armour Rd	GA				0		3,680		64		0		3,744		3,744		224		2004/05		9/28/2006		5 to 40 years
Columbus-Amber Dr	GA				439		1,745		58		439		1,803		2,242		106		1998		9/28/2006		5 to 40 years
Concord	NH				813		3,213		1,912		813		5,125		5,938		203		2000		10/31/2006		5 to 40 years
Buffalo-Lagner	NY				532		2,119		210		532		2,329		2,861		102		1993/07		3/30/2007		5 to 40 years
Buffalo-Transit	NY				437		1,794		67		437		1,861		2,298		89		1998		3/30/2007		5 to 40 years
Buffalo-Lake	NY				638		2,531		241		638		2,772		3,410		136		1997		3/30/2007		5 to 40 years
Buffalo-Union	NY				348		1,344		89		348		1,433		1,781		67		1998		3/30/2007		5 to 40 years
Buffalo-Niagara Falls	NY				323		1,331		48		323		1,379		1,702		66		1998		3/30/2007		5 to 40 years
Buffalo-Youngs	NY				315		2,185		84		316		2,268		2,584		84		1999/00		3/30/2007		5 to 40 years
Buffalo-Sheridan	NY				961		3,827		85		961		3,912		4,873		177		1999		3/30/2007		5 to 40 years
Buffalo-Transit	NY				375		1,498		217		375		1,715		2,090		86		1990/95		3/30/2007		5 to 40 years
Rochester-Phillips	NY				1,003		4,002		58		1,003		4,060		5,063		183		1999		3/30/2007		5 to 40 years
Greenville	MS				1,100		4,386		96		1,100		4,482		5,582		239		1994		1/11/2007		5 to 40 years
Port Arthur	TX				929		3,647		119		930		3,765		4,695		178		2002/04		3/8/2007		5 to 40 years
Beaumont	TX				1,537		6,018		195		1,537		6,213		7,750		294		2003/06		3/8/2007		5 to 40 years
Huntsville	AL				1,607		6,338		110		1,607		6,448		8,055		262		1989/06		6/1/2007		5 to 40 years
Huntsville	AL				1,016		4,013		101		1,017		4,113		5,130		168		1993/07		6/1/2007		5 to 40 years
Gulfport	MS				1,423		5,624		18		1,423		5,642		7,065		228		1998/05		6/1/2007		5 to 40 years
Huntsville	AL				1,206		4,775		49		1,206		4,824		6,030		196		1998/06		6/1/2007		5 to 40 years
Mobile	AL				1,216		4,819		106		1,216		4,925		6,141		200		2000/07		6/1/2007		5 to 40 years
Gulfport	MS				1,345		5,325		22		1,345		5,347		6,692		217		2002/04		6/1/2007		5 to 40 years
Huntsville	AL				1,164		4,624		47		1,164		4,671		5,835		190		2002/06		6/1/2007		5 to 40 years
Foley	AL				1,346		5,474		71		1,347		5,544		6,891		230		2003/06		6/1/2007		5 to 40 years
Pensacola	FL				1,029		4,180		86		1,029		4,266		5,295		182		2003/06		6/1/2007		5 to 40 years
Auburn	AL				686		2,732		74		686		2,806		3,492		117		2003		6/1/2007		5 to 40 years
Gulfport	MS				1,811		7,152		23		1,811		7,175		8,986		289		2004/06		6/1/2007		5 to 40 years


							Cost Capitalized														Life on
							Subsequent to				Gross Amount at Which										which
			Initial Cost to Company				Acquisition		Carried at Close of Period												depreciation
					Building,		Building,				Building,										in latest
					Equipment		Equipment				Equipment										income
		Encum			and		and				and				Accum.		Date of		Date		statement
Description	ST	brance	Land		Improvements		Improvements		Land		Improvements		Total		Deprec.		Construction		Acquired		is computed
Pensacola	FL			732		3,015		28		732		3,043		3,775		132		2006		6/1/2007		5 to 40 years
Montgomery	AL			1,075		4,333		23		1,076		4,355		5,431		180		2006		6/1/2007		5 to 40 years
Montgomery	AL			885		3,586		13		885		3,599		4,484		150		2006		6/1/2007		5 to 40 years
San Antonio	TX			676		2,685		124		676		2,809		3,485		116		2003/06		5/21/2007		5 to 40 years
Beaumont	TX			742		3,024		51		742		3,075		3,817		96		2002/05		11/14/2007		5 to 40 years
Hattiesburg	MS			444		1,799		55		444		1,854		2,298		49		1998		12/19/2007		5 to 40 years
Biloxi	MS			384		1,548		39		384		1,587		1,971		42		2000		12/19/2007		5 to 40 years
Foley	AL			437		1,757		33		437		1,790		2,227		46		2000		12/19/2007		5 to 40 years
Ridgeland	MS			1,479		5,965		51		1,479		6,016		7,495		141		1997/00		1/17/2008		5 to 40 years
Jackson-5111	MS			1,337		5,377		48		1,337		5,425		6,762		127		2003		1/17/2008		5 to 40 years
Cincinnati-Robertson	OH			852		3,409		35		852		3,444		4,296		0		2003/04		12/31/2008		5 to 40 years
Construction in progress				0		0		13,967		0		13,967		13,967		0		2006
Corporate Office	NY			0		68		11,075		1,616		9,527		11,143		7,105		2000		5/1/2000		5 to 40 years

			$	228,114	$	884,104	$	276,983	$	240,525	$	1,148,676	$	1,389,201	$	216,644

(1) These properties are encumbered through one mortgage loan with an outstanding balance of $42.6 million at December 31, 2008.

(2) These properties are encumbered through one mortgage loan with an outstanding balance of $29.0 million at December 31, 2008.


	December 31, 2008						December 31, 2007						December 31, 2006
Cost:
Balance at beginning of period				$	1,322,708					$	1,136,052					$	886,191
Additions during period:
Acquisitions through foreclosure	$	—					$	—					$	—
Other acquisitions		18,454						136,653						212,957
Improvements, etc.		48,232						52,427						37,003


					66,686						189,080						249,960
Deductions during period:
Cost of real estate sold		(193	)		(193	)		(2,424	)		(2,424	)		(99	)		(99	)

Balance at close of period				$	1,389,201					$	1,322,708					$	1,136,052


Accumulated Depreciation:
Balance at beginning of period				$	183,679					$	154,449					$	129,340
Additions during period:
Depreciation expense	$	33,100					$	30,011					$	25,163


					33,100						30,011						25,163
Deductions during period:
Accumulated depreciation of real estate sold		(135	)		(135	)		(781	)		(781	)		(54	)		(54	)

Balance at close of period				$	216,644					$	183,679					$	154,449